Friday, April 27, 2018

A Heads Up For EOS

I have not posted in a while. This will be a very short post and a heads up to all my readers for EOS.

Why EOS?

1. Dan Larrimer have proven that himself with Bitshares and Steemit that he knows how to build successful platforms. EOS is his third platform and judging from the success and stability of the first two we can have confidence that this will be his best yet.

2. EOS is still in the ICO stage and has about another 30 days to go. Already the price is rising daily. This indicates that whales are starting to take position in this asset. I expect EOS to reach the number 3 spot in market capitalisation before 1 June and to be the number 1 coin before the year is out.

3. One of the main feature of EOS is that Block One funds projects to develop on EOS that will in turn air drop their tokens to EOS holders.You will get so many air drop coins continuously after launch that this pressure will just keep driving the value of  EOS.

4. Anyone who wants to use the EOS platform must own EOS tokens for accessing bandwidth on the platform. This locks up a huge amount of EOS tokens giving scarcity value to the balance of EOS token traded. Owning EOS is like owning real estate in the virtual world.

5. In almost all blockchains, you need to move some token (transaction fees) to make transactions. EOS is different. It is Free To Use. You can see an example of this in Steemit. This is the one feature that will propel EOS to the number 1 coin in the near future. Facebook will never be what it is today, if you have to pay to make post or likes.

6. The most startling statement is that the developer ( Block One ) explicitly states that EOS has no value, not good for anything and no promise of exchanging it for Real EOS tokens. What a statement to make if your aim is to sell something! yet the news around EOS all aims towards it being a real product. So this I see this as an opportunity. It is the reason why the price is not higher. There are many people waiting for more certainty before they invest. The current price incorporates this risk, and with risk is opportunity.

The reality is that this is a legal position taken by Block One. Sort of a nudge nudge, wink wink, " EOS has no value, You know what I mean, huh? " The last thing that you want is for EOS to be deemed a security by some authoritarian jurisdiction like the US and China. The current ICO specifically excludes US and Chinese citizens from participating.


This I find is a good video

https://www.youtube.com/watch?v=mCYIQxb1OYc


Monday, February 12, 2018

CoinEx Token CET - Ground Floor Profit Opportunity

Bitcoin Cash came into existence on 1 August 2017. We may one day learn who the anonymous miner was who dedicated a significant amount of mining hashrate to make that event possible. However, Haipo Yang, the CEO of ViaBtc must have played a significant role in that event.

ViaBtc originally a miner, added an exchange to their business after BCH launch, but was soon caught up the the big China crackdown. ViaBtc closed their chinese operations in September 2017 and incorporated in the UK as CoinEx in December 2017.

CoinEx started operations in February 2018 and quickly differentiated themselves from all other exchanges by using Bitcoin Cash (BCH) as the base trading pair.

This post is to postulate a potential profit opportunity for investors in their newly issued token CET. 10 billion tokens are on issue. Should anyone invest in this token?

1) Founder - Haipo Yang
    This link shed some light into what makes this guy tick. Most of the other major Chinese exchanges moved their base to Hong Kong, Taiwan, South Korea or Japan. He chose the UK. This is quite a decision and to pivot BCH as the base trading pair is another audacious move.

    If you have followed him and ViaBtc and invested in Bitcoin Cash, you would have profited from that decision. CET is not an ICO token so investing in CET is not investing in CoinEx but it could be the next best thing. Based on what I have seen, Haipo Yang is successful at what he does, thinks outside the square, an put his plans into motion very quickly.

2) Exchange fees.
     CET will have a use case. It can be used to pay trading fees on their CoinEx platform. This immediately gives the token a value. Presumably its' value will increase as the exchange gains in prominence. As an example we can look at another similar token Binance Coin (BNB) This token is used on the Binance exchange, is valued at $9.13 and stands at No 28 in market capitalisation. CET is valued at $0.005. Note however that BNB has only 200 million tokens on issue while CET will have 10 billion.

3) Deflationary plus dividends.
    The equivalent in CET of 20% of CoinEx quarterly profit will be burnt each quarter. This means that they have a policy to distribute 20% of their profits to CET holders every quarter, treating CET holders like shareholders. We wont know how much their profit will be, but Bitfinex is rumoured to make as much a 1 million a day in revenue. Successful exchanges are very profitable.

4) Gas for a decentralised exchange.
     Plans are afoot to use CET as gas in a new decentralised exchange. Most exchanges are rushing to setup decentralised exchanges as exchanges are regularly being hacked. I believe that Bitfinex and Binance have these plans as well.

     An example of a working decentralised exchange is Bitshares. This exchange uses bitshares token as trading fees but is hamstrung because it needed Gateways costing more fees. How CoinEX plans to setup their decentralised exchange is not known but I think that they could very well be first out of the box with a working decentralised exchange.

5) Airdrops through Voting
     One interesting aspect about Coinex is the voting system. You vote for the two coins in each round with native CET tokens. These new listing often come with airdrop 1:1 with CET as only the top 2 coins get listed. EG if Hydro list in a week you get 1000 Hydro for your 1000 CET tokens. If Hydro is priced at $1 on listing then your $.01 ( 1 cent) CET is worth $1.00. Thats 100X in 1 week.
    This is unique to CoinEX and really shows the innovative nature of this company.

6) USDT credit default swap contract
     Essentially you are gambling on the default risk of USDT holders.

2. If you believe there’s a default risk (price drop), you can choose to buy USCB contracts. When a default happens leading to a drop of USDT/USD price e.g. to USDT/USD=0.4, a USCB contract will get 1-USDT/USD=0.6 BTC. 

3. If you don’t believe there’s a default risk (price increase) , you can choose to hold USCA contracts and sell USCB contracts. If no default happens, meaning USDT/USD=1, each USCA contract will bring you 1 BTC and the amount you get from selling USCB is the extra profit. 

7) Other benefits.
     There are other benefits but these are hard to value.

CET tokens just started trading on 11 February. On this basis there should be upward price movements when the coins are useable for trading fees and properly valued after the first quaterly burn.

1 billion CET tokens was distributed free to ViaBtc and CoinEx customers. There would be other "air drops" to selected groups as they are using this strategy to draw customers to their platform. It is not a "moon" coin but the potential for profit exist. This is only my opinion and not investment advise.

Use my Referral Link for CoinEx if you wish :
https://www.coinex.com/account/signup?refer_code=sd5fn

Monday, February 5, 2018

Tether In A Bitcoin Bear Market, And Can Tether Be A World Currency?

What is Tether.

Tether is a token issued on the Bitcoin and Ethereum blockchain. and promises to pay out 1 USD for every Tether issued. This led to the community;s concern as to whether the $2 billion in reserve exist. Tether.io did not, could not or would not provide proof of this. News of Tether.io parting company with their auditors made the situation worse.

Lets examine the facts

1)  The price of Tether remained stable throughout this controversy, meaning that even though there was a strong and targeted campaign against it, Tether holders remained steadfast. There was no sell off and the number of Tether issued actually increased. Action speaks louder than words. Therefore we have to conclude that Tether must have an important role in the Crypto economy.

2) One year ago the daily volume of Tether traded was about a million dollars. Today it is 3.5 billion dollars. This is a phenomenal increase. Something is happening.

3) There were claims that Tether was issued to prop up the price of BTC. This can't be true because the price of BTC is down in spite of the increasing number of Tether issued.

Like it or not, Tether is now a huge part of the Crypto economy. It is already second behind BTC in trading volume. ( Adjusted : BTC 6.5 Tether 3.5 billion ) I have no doubt that Tether will surpass BTC in trading volume soon, especially with BTC losing utility and usage daily.

A "Reserve Bank" For Crypto

Does Tether.io have 2.2 billion USD deposited and/or in assets as they claimed? It is dangerous for Tether to reveal their fiat holdings as these can be subjected to confiscation. More than likely if it exists they will mostly be in accounts not directly attributable to them.

They could be held in pledges and guarantees in fiat or assets. However this is done, all that is necessary is for their holders to believe that they can have their Tokens converted to USD on demand as promised. This really makes Tether.io for all intent and purposes "A Bank". It exist because we believe it is solvent. If not there would have been a huge "run on the bank".

This means that USDT can be just printed into existence by Tether.io at whim. We have no way of knowing if they have the full reserve backing for every Tether they issue. What this means is that Tether is now basically backed by the full faith and trust of the Crypto community. This is the reality. If this is not true Tether will not exist, as they have not or cannot prove that they have full reserves. They only have their promise to convert Tether tokens on demand.

It is possible that the number of Tethers issued follows demand, so that its' value always remain at approximately 1 USD. If the units of Tether issued was fixed then demand would have push the price upwards. There must be some mechanism that is keeping the price of Tether stable. Perhaps it is the belief that there is 1 USD backing every Tether issued.

Now comes an interesting thought. What if the whole world starts pricing everything is Tether. Initially we will view Tether the same as 1 USD, but over time Tether may be deemed to be  the stable unit of monetary value and the USD gets to be priced in Tether, together with every other world fiat currency. If this happens, Tether becomes a world currency! This is not so far fetched as how we view money is a generational thing. The younger generation have more faith in the Crypto economy because they are basically excluded from the legacy economy.

Is Tether a huge risk to the Crypto economy? Will Tether crash to zero?

The whole crypto market is crashing. The only Token increasing in market capitalisation is Tether. Based on this it is unlikely that Tether will crash ahead of other tokens. More than likely it is actually underpinning the whole crypto economy.

Can a government shut Tether.io down? The Chinese government is already clamping down on anything crypto. The currency most at risk is the USD. I really have no clue. If the US government could shut down Tether's accounts, I am sure that they would. All that is needed for crypto to survive is for one country to legalise it and Japan has.

We will have to watch this play out, but the bigger the market cap of Tether the harder it will be to shut it down. The value of a token is in the minds of the people using it, and Tether may actually get the full appreciation, support and protection of the whole crypto community.

Tether is not a threat to the crypto economy. It is a stable unit of measure for the crypto economy.  Even the legacy economy does not have this stable unit of measure. Hopefully a system of decentralised governance for Tether may evolve.

Tether in a bear market

Having seen so many boom and bust cycles in the Bitcoin space I have come to appreciate the value of a stable coin like Tether. A market indexed to BTC rises and crashes with the price of BTC. When the market is index to Tether, each coin will rise and fall on its' own merit.

Current demand for Tethers is fuelled by investors wanting a stable unit to hold value while the crypto market is falling. These investors have not cashed out. Perhaps they are looking to buy back in when they belief the market have bottomed out. Perhaps its' arbitrage value is significant. Maybe it will be a hedge against inflating fiat currencies. Time will tell.

Questions Questions and more Questions.

a) What happens when the market turns bullish again? Will supply and demand for Tethers still be kept in equilibrium?

b) Who is the counter party for Tether is a bear market?

c) Will unscrupulous parties print Tethers out of thin air to manipulate the market?

d) Can Tether become a world currency?

Update 10/2/2018

Another interesting observation on Tether is that its' trading volume is equal to its' market cap at the moment. Meaning that the trading volume is at least 1X the number of coins issued. All other coins trade at only a percentage to its' market cap eg Bitcoin at 0.05X. (1/20th) If this observation holds then Tether will have the highest trading volume if its' Market Cap reaches 8 Billion or with the issue of anoher 6 Billion coins.

Tether is an interesting development as it really can be the glue that connects the whole crypto market. It is an issued token so it is not subjected to mining. It is built on the Bitcoin blockchain as a second layer and is therefore secured by the Bitcoin blockchain. Compared to all the other wannabe stable coins, Tether has achieved the network effect.

It has a very interesting use case in that centralised exchanges uses it to offload most of their KYC AML requirements to Tether.io.

Its' function as in intermediary coin between those who believe that the market is rising and those that believe that the market is falling in any particular coin can only gain more usage and prominence.

Another feature is that it trades in a small price band of +/- 10%. This could be deliberate in the sense that more Tethers will be issued if the price trades above 1 USD and redeemed f it trades below. It now makes it possible for risk adverse traders to enter the market knowing that there is a floor bottom for the price of Tethers. This will bring more liquidity to the whole crypto market.

The Tether database is under reconstruction at the moment, perhaps due to the recent 30 million hack. Even with this negative news the price of Tether did not tank, and Tether continues to trade on the exchanges.

Pushing the virtues of Tether does not mean that I am pro Tether against all the other coins. In fact it means that I am pro Crypto. Tether being a stable coin allows all other coins to rise and fall on their own merits against it. This makes it somewhat like Shapeshift.

Can you see where this is leading? If Tether wallet becomes a spending wallet, it means that you can spend whatever coins you have in Tether on the fly. Merchants need only worry about one currency Tether, and for he moment it is equivalent to USD.

There is no mental gymnastics required to convert between Bitcoin or Ethereum or Litecoin or whatever coin when spending or receiving Crypto. The decision to use or hold any particular crypto or fiat comes before or after the Tether transaction by both parties if needed.

This reasoning taken to the extreme may mean that we could easily drop the USD equivalent. It could just become a stable Tether in its' own right. Can this happen/ I think yes. Will it happen? This is hard to predict.

Tether's advantage here is that it has achieve the most network effect as a stable coin. It is neutral. No one holds Tether expecting the coin to "go to the moon" so to speak. That aside, if Tether.io ever goes for an ICO, their tokens will be a very good buy.

There has been much controversy about the connection between Bitfinex and Tether. I do not know much about the politics in this relationship but I think that it has been positive for Bitfinex and probably all exchanges that uses Tether without dealing in fiat. I hear from a reliable source that Bitfinex is giving out a $1.01 dividend in its' 3rd quarter. That is 100% its' share value and comes after 2 previous dividend issue of  25 cents and 37.5 cents respectively. Without a doubt Tether provides liquidity to the Crypto market and more Tether can only mean a stronger Crypto industry.




Wednesday, January 31, 2018

Will Bitcoin Segwit Recover its' All Time High Or Go to Zero?

Bitcoin Segwit proponents have spent more that the last 2 years arguing that BTC is a store of value and should not be used for everyday transactions. They have even proposed that transactions can be conducted on Ethereum and Litecoin. Now they are actively touting Lightning as the killer innovation that will make Bitcoin great again.

I find this argument hard to swallow because experience tells me that it is difficult to win customers and nearly impossible to win them back, if they left because of poor customer service. It is no different for Bitcoin. BTC is a product and transactions on the blockchain is a service. Gaining converts was hard, very hard. Now look at how easy it is to lose them.


Using the Sent From Addresses as an approximation to number of users, we see that in less than a month ( 4 January to 1 February ), the number of users fell 60% from 536K to 218K. 

Where have these "customers" gone?

Since the all time high of 19.5K on 17 December, BTC price have dropped to 10K today. Some call it a correction but I will argue that the correction ended 7 January.  Since then the drop in price have tracked the decline in the number of users as shown in the graph above.



It looks like even the most ardent supporters of BTC are no longer buying into the promises of Core developers. BTC's price drop is more than just a correction and the bear market, because Ethereum's price is bucking this trend. 

Since 1 August a large number of BTC users have moved to Alt coins and many have gone all-in to Bitcoin Cash. It would now appear that, even those vehemently against Bitcoin Cash are leaving and moving to Ethereum. This can only mean that Ethereum will soon replace BTC as the top coin in terms of market share.

What about the flippening?

Bitcoin Cash is only 6 months old. The flippening will happen soon enough after BTC loses its' market dominance to Ethereum. Bitcoin Cash will have to convince the market that it is the real Bitcoin and that Bitcoin Segwit was the fork, before it can unseat Ethereum. This will happen because Ethereum was never designed to be a monetary token. For now it can be a "store of value".




Thursday, January 25, 2018

Lightning Destroys Bitcoin's Security Model.

Bitcoin stands on three pillars, the users, the miners and the developers. The weakest link here was the developers but fortunately Bitcoin has self correcting features which resulted in the forking off to a new development team (Bitcoin Cash).

Lightning destroys Bitcoin's security model.

One of the most fascinating attribute of bitcoin was that the system pays for its' own security. It may seem trivial now but ask yourself back then, how do you pay someone to secure your protocol with coins that are worth nothing? This was the chicken and egg problem. All prior solutions, including governments,  have all relied on trusted entities to perform that function.

Miner's reward = Block Reward + Transaction Fees  =  12.5  + E[xT]

The principle idea is that as the Block rewards decreases every four years the block reward will be replaced by transaction fees.

T is allowed to increase as fast as the technology for block space allow while keeping x as low as possible.

This requires larger block sizes. Even one that can accommodate billions of transactions (T) in say 10 years. We can be sure that technology will come to the rescue. For example, as we will move to 5G networks, developing countries will skip  1G, 2G, 3G and even 4G to move directly into 5G with the rest of us. This development will happen as sure as they skip landlines entirely to move into mobile networks.

Lightning network changes the security model to :

Miner's reward = Block Reward +  ( Transaction Fees - Lightning Fees ) =  12.5  + { E(xT) - E(yL) }

As the block rewards decreases the transaction fees must also increase. The idea here is to make on-chain transaction very expensive and move all smaller transactions to the Lightning network or side chains.

T is capped and x is allowed to increase as much as demand for settlement allows.
L is allowed to increase indefinitely and y is kept very small.

Transactions to get on and off the lightning channels are part of total T. If it is not obvious yet, as x increases it also gets more expensive to open and close a lightning channel. So how would one get on to lighting if it gets too expensive to open a channel. You will have to subscribe to a channel node directly. That is put your money into a "banking" node. These "banking" nodes will now be in a position to allow or deny services to you ie Be A bank!

At the moment we tend to assume that miner's cost are denominated in dollars or fiat. Therefore as the transaction cost grows to thousands of dollars it will keep pace with costs and miners will be happy. But will they? When we get to the situation where the unit of transaction is bitcoin and not dollars, then the block reward will tend to zero in BTC terms. The only real reward are the on chain transaction fees.

Miners are price takers. They get to determine their income by selecting from a smorgasbord of fees. "Banking" nodes become price setters. They put up that smorgasbord of fees. It will be in their interest to set Lightning fees as high as possible and Mining fees as low as possible.

Nodes were never meant to be compensated in the Bitcoin protocol. They are placed on the user side of Bitcoin's 3 legged equation. They pay for the cost of running a node because their business model requires it. It is their cost to use the system.

Lightning has not taken hold yet and we are far away from "banking" nodes. It could work if miners do not have a choice. But miners have a choice in Bitcoin Cash. Miners will not put up with a situation where they get elbowed out of the system, just as happened with the original core developers.

Bitcoin's security is one of its' greatest strength.

Bitcoin uses proof of work to secure the protocol. This is the most secure system we know. Nothing has ever worked before bitcoin. To emphasise this point, the fastest and most powerful chips are used to mine bitcoins even before they are deployed into mainstream computers. The technology to secure Bitcoin is bleeding edge and will remain so.

Any departure from this is a compromise and introduces some level of centralisation or trust. Proof of stake requires some form of centralisation, moderated in different iterations of the POS model. Without Bitcoin coming first, POS cannot take off on its' own. Bitcoin made it possible for value to flow into the POS tokens.

Trust but verify

It can be argued that not everyone can run a Bitcoin Cash node because of the cost and we have to trust a small number of these expensive nodes. However, any business or organisation that needs to verify their transactions real time will have to run a node. We could have hundreds of thousands of nodes across all sectors and industries. We don't have 100% trusted nodes but we have enough, just as we may not have 100% honest miners, but we have enough.

We cannot say the same for "banking" nodes because their profitability depends on their control of miners revenues, and thus the erosion of Bitcoin's security model. You will not be allowed to verify or audit their setups.