Binance is offering a new financial instrument on its digital exchange. They are offering a way to purchase fractions of a company’s shares using a tokenized stock trading service. This will provide stock traded equities in financial markets for investors. Binance will begin with Tesla stock on their exchange. The instrument is called a Binance Stock Token, and this allows users to buy a stock or a fraction of a share and earn dividends as well. The prices will be settled in Binance’s BUSD stablecoin token.
For users who have no access to financial markets, they now have an opportunity to own as little as 1/4 of share in an equity like Tesla (TSLA). There is no more need to purchase several stocks when you can have just a fraction and earn from it. This gives exposure to the non-traditional crypto investors who don’t have to wait for other platforms to offer the service.
S = Shares of A Stock p = Price of the Stock b = BUSD
b = S(p)
The user will purchase the stock in BUSD prices (b).
Binance claims that they are not creating synthetic assets to offer as stock. They have an asset that is backed by a depository portfolio of underlying securities, which is also managed by a German investment firm. In order to follow compliance, the service is not available to all jurisdictions and only where the exchange is allowed to offer such a service. Those interested will definitely be required to submit a KYC/AML document for legal purposes.
Two things that I can expect to see:
Increase in BUSD trading as a result of the tokens use for investing in stocks. BUSD prices will not surge because it is pegged 1:1 with the USD.
Open up the stock market to first time investors who have never had exposure to equities. This allows users who were either not allowed to trade because of lack of funds or not have access to stock investments to get their chance.
It is interesting to note if other DeFi products will follow that can interact with the Tesla stock. Binance also has its native Binance Smart Chain(BSC) which uses smart contracts that can lock tokenized stocks in a different protocol and earn from it. Some DeFi protocols may even accept tokenized stocks as collateral, depending on how valuable it is in the market.
This can also further boost Tesla stock prices as it has seen a phenomenal surge. Binance can gain more investors while helping bring Tesla stocks higher. While the trends look good for Tesla, investment always involves risk so users must do their due diligence and research always before investing.
Disclaimer: This is not financial advice. The information provided is for educational and reference purpose only, not for making investments. Do your own research always.
Payments giant and credit card company VISA, have announced they are providing support for cryptocurrency payments using the USDC stablecoin starting with partner Crypto.com. USDC is an ERC-20 token that runs on top of the Ethereum blockchain network. This makes use of a stablecoin to settle payments using VISA payment products through their partners. At the moment VISA will pilot the payment system with Crypto.com, a cryptocurrency platform and digital exchange, with plans to offer the service to other partners. VISA is going to make using cryptocurrency much more available for payments. This legitimizes cryptocurrency payments for goods and services, since VISA is a financially regulated entity.
This is a bridge between traditional finance with emerging fintechs involved with cryptocurrency and digital assets. VISA had tried to bridge cryptocurrency payments before, but plans fell through. Perhaps VISA is now ready to provide the service with more knowledge and understanding of cryptocurrency. This allows VISA to better understand the new space fintechs are operating from, which involves innovative products that implement digital currency and blockchain technology. Perhaps it is a sign that changes are coming to traditional financial systems. VISA has been warming up to cryptocurrency and other digital currency (non-crypto) as evident from their more recent postings.
Before VISA, payments processors like PayPal and Square have provided support for cryptocurrency. PayPal has paved the way for users to buy cryptocurrency like Bitcoin through their app. Square allows their customers to buy, hold and sell cryptocurrency through their platform, including the Cash app. Prior to that, there were not many mainstream apps other than those provided by digital exchanges like Coinbase that allow their users to purchase cryptocurrency. VISA is different in that it is providing a way for customers to make payments with the cryptocurrency they hold. This is a layer that has been missing and it could accelerate utility of cryptocurrency as a payment method. Using the blockchain may also provide faster settlements compared to the current system, but scaling remains to be seen on blockchain networks like that of Ethereum.
While the purpose of cryptocurrency is for open direct payments system (Peer to Peer), VISA is not exactly that type of platform. It still operates under the traditional financial system, which is highly centralized and permissioned. That means VISA is not exactly an open network, it requires a membership for its customers. That is why the product they offer is more of a bridge between the traditional fiat system and cryptocurrency. The decentralized aspect of a transaction still falls under the blockchain layer, but through a VISA payment gateway. In the case of USDC, the payment is from a user’s digital wallet on the Ethereum blockchain or even a custodial wallet that supports USDC. What VISA provides is a way to make that payment possible to retailers who will accept the transaction. VISA has so many partners in the retail space that they work with, this opens opportunities for cryptocurrency companies like Crypto.com to have access to more traditional financial markets.
VISA could also open another bridge, this time to the DeFI space of the blockchain. Most platforms in DeFi run over the Ethereum network, but other platforms like Binance, Polkadot and Cardano offer their own ecosystems that provide DeFi apps. If there is integration to support VISA, that can bring more users to the DeFi space who are using VISA credit cards or payment applications supported by the VISA network. At the moment, VISA and other credit card companies do allow customers to purchase cryptocurrency from digital exchanges. Opening up to support decentralized exchanges in the DeFi space are more challenging due to regulatory compliance. If this can be resolved, it opens up the space to allow interoperability of dissimilar payment networks to become possible.
This is overall good for the Ethereum network. VISA will not only need to have USDC, but also Ethereum’s native token ETH (ether). In order to process transactions using USDC, small denominations of ETH are used to pay for costs called “gas” which are part of the transaction fees paid to the network. This is for processing transactions that have to be verified and secured on the blockchain. It may also be likely that it will be VISA’s partners who hold the USDC and ETH, while VISA just helps bridge the retail merchants with the cryptocurrency payment as the settlement layer. The main issue with Ethereum has been scaling, but the development community is fast tracking efforts to scale the network.
With VISA’s announcement, other payment companies like Mastercard and American Express should take notice. This introduces a business model that brings cryptocurrency native platforms with the traditional retail space. The predominant form of payment in the VISA network is by credit and debit card. By integrating a cryptocurrency method into the network, it opens up new channels for making payments. The choice of using a stablecoin also makes plenty of sense given that cryptocurrency is very volatile. This changes the narrative that cryptocurrency is trying to replace traditional finance. Before that can happen, it must have greater utility. Perhaps VISA can help bring it to more mainstream adoption, to the point where we can buy toilet paper with cryptocurrency.
When it comes to transcoding video or audio, it was normally done through equipment in an office environment utilizing expensive hardware for commercial quality production. You need to have your own equipment besides the computer in order to transcode. The complexities of the process have been simplified in the age of cloud computing. There are providers who offer transcoding as a service on their platform over the cloud. While this provides convenience to editors and producers, it comes at a cost. Another issue is that if the provider’s service is down, the transcoding service will not be available. Users would surely want reliability and quality for the service they are paying for.
LivePeer is a project that builds on the cloud provisioning service for transcoding, but is also blockchain-based. It provides a decentralized network of nodes that provide their GPU to help transcode data on the network. Decentralization aims to guarantee up time. A user who needs to transcode can then send the job to the Livepeer network and pay the fees in Livepeer’s own ERC-20 token called LPT. The LPT token is also the reward given to “video miners” who help transcode and secure the network.
The LPT Token is:
ERC-20 token built on the Ethereum blockchain
Originally distributed via a “Merkle Mine”, an algorithm for decentralized distribution of token during the genesis state
Inflationary according to algorithmically programmed issuance over time
LPT is available from digital exchanges, including DEXes like Uniswap. Token holders have the following capabilities when using LPT:
Earn the right to perform or delegate work on the Livepeer network and vote on protocol proposals
Routes work through the network in proportion to the amount of staked and delegated token, serving as a coordination mechanism
Secures the network against a number of attacks via slashing that occurs due to protocol violation
Why transcode over the cloud?
When streaming video online, as is with OTT, various formats need conversion. The original format is the highest quality, often uncompressed and very large when it comes to file size. That is a problem when delivering the content to viewers. The format needs to be changed or transcoded to a smaller sized format that preserves most of the quality of the original. The formats can be made available in different quality and bit rates, depending on the service level. Since it can also be adaptive, the bit rate (adaptive bit rate) can change depending on the Internet connection of a viewer. The cloud can streamline the process efficiently, allowing producers and content creators full transcoding service.
Why use a blockchain?
It has nothing to do with speed. It is more about setting up a system that makes use of a decentralized network that is market driven and incentive based. There are users who want to transcode video/audio so there will be providers willing to transcode for a fee. The LPT token is used to pay for transactions and the records (not the content of the transcoding) are stored on the blockchain as verification of the process. This proves that a transcoding was performed to assure service fulfillment to a customer. The network will make sure that there is more than 1 transcoding service available. The blockchain is there to record the transaction and act as platform to enable trust between two parties that do not need to know each other.
For example you do not need to personally know who is transcoding your video. How can you trust them? That is where the blockchain comes in. It makes sure that the service fulfills its duty to process your job request. Conditions written in smart contract can make sure that the job is fulfilled or else there will be no payment made to the provider (i.e. Livepeer). The blockchain also prevents any form of cheating, so that once content has been transcoded, the system prevents a user from trying to get their payment back or canceling the payment. Once completed, a transaction is final when both parties are satisfied.
Synopsis
How Livepeer will change the broadcasting and production world is through a decentralized architecture that uses a blockchain. As streaming OTT content continue to gain a larger market, the demand will be there for transcoding service over the cloud. Average Internet speeds are also increasing, and with the implementation of high bandwidth networks like 5G and Gigabit Internet, more demand for high quality streaming will be there. This will push the demand for transcoding services as well, and there are many players available, but if they are too centralized they may not be able to provide guaranteed up time.
Users who need to stream video, online gaming, coding, entertainment, education content and other types of content can use Livepeer applications. Broadcasters can also use Livepeer to decrease infrastructure costs when it comes to delivering content. The use of a token to provide service records it on a blockchain. It makes it secure, protecting the transaction’s integrity. This allows users to know that they are using a safe and reliable network when it comes to transcoding requirements.
An issue with Ethereum is about to be addressed regarding its non-capped supply of ETH (Ether) with EIP 1559. The proposal aims to introduce a new protocol for addressing the transaction fees on the network targeted for release in July/August 2021. In the proposed change, during a transaction a small amount of Ether (ETH) is “burned” every time it is used to pay for gas fees. This token burn can somehow control the circulating supply of ETH as well, leading to a more deflationary money supply. The burned tokens are removed from circulation forever but new ones can still be created. Overall, this can add some controls on the amount of ETH being put out in circulation as form of inflation control.
Transaction fees are not consistent on the Ethereum network. They fluctuate every so often, but when there is high network demand the fees surge to sometimes ridiculous levels. For the seasoned trader it may not matter, but for retail and new traders it can be too much for smaller sized transactions. More experienced traders may deal with large transactions where the cost of gas does not matter as much. The prices are still high and there needs to be some improvement in which issues like scaling and layer 2 solutions aim to resolve.
TxFee = Total Gas Used * Gas Price Paid
As of March 7, 2021, the average cost of a transaction is $15.53. Just a few months earlier on January 17, 2021 the transaction fee was only $5.41. That goes to show a sudden increase of 187%, which could have been worth at least 2 transactions back in January or earlier in 2021. The demand for ETH in the DeFi space and hodling portfolios due to the good news coming out about ETH2.0 is helping to drive prices and at the same time increasing network activity. The congestion is expected, as the same thing happened back during the cryptokitties and ICO era. This puts plenty of strain on the network, but it has problems scaling since it can do at most 15 tps (transactions per second). The promise of ETH2.0 is a bring faster consensus with more efficiency through a staking protocol (i.e. Proof-of-Stake) to scale the network.
EIP 1559 is an improvement proposal to help make transaction fees more consistent and prevent it from getting to such high levels that many are not willing to pay. Currently with Proof-of-Work, the miners can determine the fees and increase it in order to prioritize a transaction. Nodes called miners set the price of gas used to process transactions, based on the supply and demand of computational resources available from the network. It is in units called Wei or Gwei, just smaller denominations of ETH. The proposal is to use what is called a BASEFEE, that is set based on the network’s level of transactions. What it aims to provide is a market rate rather than a reference based on prices that users are paying for. This structure eliminates the guess work often involved in calculating the transaction fees.
Some see this as adding deflationary measures because of the token burning feature. As tokens are created, they are also destroyed. That keeps the circulating supply in check and prevents any inflationary pressure, according to some analysts. This form of negative inflation could lead to less ETH in circulation, thus increasing market price. While this looks good to traders and core developers, some miners don’t exactly agree with the proposal. They don’t derive the same benefit as much since the token burn benefits token holders more than miners. The miners lose out on their profits that would have been the burned tokens.
The outcome may push for EIP 1559 despite the protests. Ethereum plans on moving away from mining and into staking, so it does make more sense to implement the protocol rather than continue with the current system. Mining will also become more difficult as specified in the protocol for ETH2.0 (e.g. difficulty bomb), that nodes would rather switch to staking since mining will be less profitable until it is totally no longer possible due to the increase in difficulty level. That leads to questions about whether the miners will hard fork Ethereum, but that may be a horrible idea. If no one supports the fork then the miners have a lot to lose, while the mainnet remains profitable with new nodes entering the network. EIP 1559 will surely be activated with > 50% consensus, but the miners can signal a no to the network and not activate it. What is important that still needs to be addressed are the high transaction fees, The hopeful resolution is that the miners and developers come to some agreement to determine transaction fees which really needs to be addressed to further the momentum of growth on the network.
A digital exchange in the Philippines called PDAX sold Bitcoin (BTC) for $6,000 or roughly worth PHP288,000 (in Philippine Pesos). This comes from a report from Bitcoin.com (link here) about an incident that occurred in the middle of February 2021, amidst Bitcoin reaching new all time highs. Some users on the PDAX exchange noticed that BTC was selling for $6,000. That was at a time the rest of the market was selling BTC at prices over $50,000, so this was almost like a steal. Perhaps that was the way PDAX saw it because they are now asking for their Bitcoin back. It appears that there was a system glitch that caused an error when listing BTC prices. The exchange had also experienced an outage due to a surge in volume of network activity.
It sounds crazy to think that you can reverse transactions with Bitcoin. You won’t be able to because the blockchain is immutable and not modifiable. You cannot undo a transaction once it has been committed on a blockchain. According to the report, the exchange is requesting the users to return their BTC or else they will face legal action. Some accounts were even locked to prevent them from further activity. How can you force the users to return something they bought legally, which by all means was compliant to the rules and regulations set forth?
In all of this, the one thing that has been proven is that the blockchain does work the way it was intended. If the blockchain could be manipulated, then PDAX would have reversed the transactions already and this would probably not be reported. Users will lose the BTC they bought at $6,000 but will get a refund from the exchange. Instead, the blockchain secured the transaction and proved that it was allowed by PDAX. The BTC the users purchased can also not be confiscated by any entity because BTC requires the private key of the owner. It can be forcibly taken, but that would still require a user to grant access to their BTC through a digital wallet.
The users merely used the exchange to make their purchase and go about their way. This is how a blockchain is supposed to work and to think otherwise goes against the basic principles of Bitcoin and cryptocurrency. How this case ends up is something to follow because we shall see how things unfold. Can an exchange require users to return digital assets due to unusual activity or are transactions on the blockchain final? I would like to think the latter but we shall see if further investigations reveal anomalies or will the ruling be in favor of the users.
When investing in cryptocurrency, the fundamentals seem very important. How then can a coin that was meant to be a meme remain so popular it has a market cap over a $1 Billion (as of this writing)? That is a lot of value for something that has no distinct utility or feature, yet has captured a large share of the market. It is certainly FOMO for noobs. Meme coins were meant to be just for fun, and that is the image many have of Dogecoin. Yet there are some things about Dogecoin that are actually fundamentally what cryptocurrency should be all about.
First and foremost, this is not financial advice. This is for reference and informational purposes only. Cryptocurrency is very volatile and there are risks to consider when investing. This is not a direct promotion of Dogecoin, the cryptocurrency or investing in a digital asset. Instead this is a look into why it is popular and how it fits in the current cryptocurrency landscape. With that said, what is all the fuss about Dogecoin?
What Is DOGE Coin?
A meme coin is a cryptocurrency that is not meant to be taken seriously. It does not serve any purpose other than for exchanging and trading. It can be used as a form of payment for tipping or just a way to exchange value over a blockchain. It doesn’t have the core principal of being a store of value like Bitcoin, or an application development platform like Ethereum. First released in December 6, 2013, Dogecoin was just meant to be a simple P2P (Peer-to-Peer) electronic payment software like Bitcoin. The cryptocurrency got its name from the popular Doge meme which features a Shiba Inu dog as the logo. DOGE is the listing name used for the digital asset.
DOGE, while not anything sophisticated, did not initially have any sort of application other than P2P. It is based on open source software from the cryptocurrency Luckycoin and Litecoin. DOGE uses the scrypt algorithm with a PoW(Proof-of-Work) consensus mechanism. There are 127 billion coins in total supply with a 1 minute block time. The block reward for miners is 10,000 DOGE per block produced. Unlike other cryptocurrency, Dogecoin’s founders (Billy Markus and Jackson Palmer) have not continued promoting or even associating with DOGE. They have pretty much been on the sidelines, but DOGE has flourished in part due to its community.
Pump And Dump
While Dogecoin seems like a fun and trendy cryptocurrency that is nice to have, it is also notorious for pump and dump schemes. This has been encouraged in large part by users from Reddit, social influencers and public personalities that include Elon Musk. All it takes is a tweet from a well known personality, and DOGE prices on the market surge. These pumps do not seem to follow any sort of fundamentals other than the encouragement of influencers.
DOGE became a TikTok trend in July 2020, promoted by fans of the popular social media app. It began going viral as users began to spread the word through the platform. This was a push to pump up the price of DOGE and it worked. DOGE volume spiked by 683% after TikTok user urged a buying spree pump. Another surge occurred when Elon Musk tweeted in support of the cryptocurrency. That led to the value of DOGE to surge from $0.003 to $0.005. What do you think happens with all the viral videos on TikTok and tweets from Musk? It creates attention, and people will either Google search Dogecoin to learn more or ask someone they know about it. This type of news is not something you would expect on mainstream media.
These pumps are usually followed by dumps, as can be observed from the latest that occurred in 2021. This was a result of the Gamestop Short Squeeze in which retail investors were temporarily shut off from buying stocks for Gamestop. This led to users urging a pump for DOGE because at least they can buy it freely without any restrictions. It was more about making a statement to the establishment by some, but more people probably did it in order to make gains. That was exactly what happened and then came the dump. During this time (January 28, 2021) DOGE surged by 1,100% to an ATH of $0.082 but would dump a few days later.
In these pumps, many were motivated to see the price surge. However, once it reaches the highs it is really hard to control people from taking profits. After all, DOGE does not really have the same value for HODLing as BTC. You can hold thousands of DOGE in your bag, which really does not seem to be worth much. When prices surge it becomes valuable for converting to fiat, like winning money from a casino. Unfortunately this does not end well for noobs who probably got into the pump craze with no idea what was about to happen. They probably expected that their investment was going to go up, but not realizing that when others cash in the prices go back down and they can lose their initial investment.
DOGE Is In Theory What Cryptocurrency Should Be
While many would berate and laugh DOGE off as just a meme coin used for fun, it actually does have fundamental features of a cryptocurrency. People will be surprised that Dogecoin is capable of many things that modern banking systems cannot do. Dogecoin takes the innovations from blockchain technology and applies it to a community driven environment. Despite not having a platform of its own, what matters is that it provides the basic needs for cryptocurrency which is the direct and decentralized P2P transfer of value. There are also no barriers to purchase it that require proof of documentation, like with other financial assets.
Transactions in DOGE are cryptographically secured, which is important in cryptocurrency. Dogecoin uses a blockchain to allow two people to exchange or trade without knowing each other personally and without requiring permission from a third party to conduct a transaction. Today before we can purchase an item with a credit card, it actually requires permission from the issuer of the card. They can stop a transaction any time they want since it is under their control. This can happen to certain individuals who credit institutions may want to limit or target for any reason.
Dogecoin is highly decentralized after all. It is not controlled by any one entity or organization. Its founders cannot even shut it down and it is open source and available to everyone. There are no constraints to access the source code which users can do with as they wish. No one is going to stop you from buying or selling DOGE, because there are is no censorship against a user. Instead you have a permissionless and trustless system like Bitcoin that is peer to peer at best. Many do not realize that you can also use DOGE to transfer money across borders, but of course when you convert it to fiat it is your responsibility to meet KYC requirements from digital exchanges.
Banks take days or longer to settle payments. With Dogecoin it can be done much faster and at a lower cost as well. There are no middle men or third party to pay when conducting a transaction between two users. If Bob wanted to tip Alice with DOGE, he can do so directly to Alice’s digital wallet with no one to prevent the transaction or require arbiters to facilitate it. The Dogecoin blockchain network provides a neutral service users need to transfer value. So during any pump and dump, the blockchain is still being used to record all transactions in a transparent and immutable manner.
TakeawaysAnd Closing Thoughts
Dogecoin is for the most part the simplest blockchain decentralized app for cryptocurrency. What started out as something just for fun, turns out to have a large following. What this did is foster a community of individuals that brings power to the people. We can see how much that is the case when influencers and public figures join in to participate in pushing the price of DOGE higher. Through social media and the Internet, information spreads faster and coordination becomes easier as the network provides the necessary infrastructure to allow that. Just be careful though when you participate, things can quickly change if you commit more than what you are willing to lose during pumps. It is not a good idea to invest life savings, pay checks or even mortgage a house just for DOGE. Think rationally and it should be fine.
DOGE as a digital asset is not actually worthless like so many penny stocks. It is cheap, but due to its popularity is gaining the attention of the mainstream. Many digital exchanges (e.g. Binanc) and wallets (e.g. Exodus) do support DOGE, which is why it can be purchased by many people. Developers of the Flare blockchain have announced their support for DOGE, which could introduce smart contracts to Dogecoin users. There is also interest in the gaming community to use DOGE, for online gambling, tips and purchasing game items (e.g. badges, powers, etc.). Ren has provided a path for DOGE into DeFi with their renDOGE token. This can bring more applications for DOGE when it comes to liquidity for cryptocurrency lending, payments and trading.
The interest in Dogecoin is going to help sustain the digital asset as something of value to users. This keeps the momentum of holding the coin for longer terms. What Dogecoin showed is that through a coordinated effort by a decentralized community, the market can drive the prices. That is what free market laissez-faire economics should be all about. People are free to enter and leave the market at their own will. When DOGE is surging there is no one group or individual who can stop people from buying it, like what Robinhood did with Gamestop (the reasons are due to how the current financial system works). DOGE is not to be treated as a sure bet financial instrument by any means though, it is a risk that must still be evaluated. With these new possibilities and opportunities coming to Dogecoin, who is to say it is worthless and only for pump and dumps.
Disclaimer: This is not financial advice. The content shared is for informational purposes only. Please do your own research always before investing in cryptocurrency.
You can take two good things and combine them together to get the best of both. In LA’s streets you can get what some would consider one of the city’s iconic sandwiches. It is the hotdog wrapped in bacon. It brings you the meaty flavor of a hotdog with the greasy goodness of bacon. Now think about the top digital asset Bitcoin (BTC). What would you wrap it with if you were to compare it to a hotdog wrapped in bacon? How about Ether (ETH), the Ethereum blockchain’s token. BTC is your hotdog, while ETH is your bacon. It actually exists and it is called Wrapped Bitcoin (WBTC).
Wrapping one cryptocurrency with another uses the hotdog wrapped in bacon example as a simpler way to illustrate an analogy. Wrapping in this sense means to create a protocol to represent one cryptocurrency on another cryptocurrency’s blockchain. BTC can be represented on the Ethereum blockchain by issuing an ERC-20 token called WBTC. This allows BTC integration with smart contracts that can be traded on the Ethereum network using the ERC-20 standard.
In Wrapped Bitcoin, BTC is locked into a smart contract and issued as WBTC. This allows BTC holders to access DeFi systems on the Ethereum blockchain. It is as good in value as BTC which is verified by a Proof-of-Reserve system. This ensures a 1:1 peg between the issued or minted WBTC tokens and BTC. The actual BTC is still on the Bitcoin blockchain since you cannot store it on the Ethereum blockchain. The BTC is taken under the custody of the WBTC token issuer, so it is not directly with the WBTC token holder. It is maintained by a group called the WBTC DAO, who are the custodians of the BTC. The group’s members include blockchain-based organizations like BitGo, Ren and Kyber.
What is the purpose of WBTC?
As mentioned earlier, it is primarily for giving BTC holders a way to gain access to the DeFi markets. A large portion of the DeFi space uses the Ethereum blockchain and BTC is not directly compatible with it. It is a bridge that allows BTC holders to use DeFi protocols to provide liquidity or participate in other services that yield returns. WBTC is a way to bring the value from BTC into the DeFi space without having to convert BTC to ETH. BTC (as of 2020) has the largest cryptocurrency market cap and this is crucial in helping bring liquidity to the DeFi space as well as expanding on the collateral types available.
This is a great way for BTC holders to take part in the DeFi markets. Many BTC holders have plenty of value stored, but are not able to use it if they are HODLing. DeFi provides ways for cryptocurrency to earn even while HODLing, using decentralized protocols like Uniswap, Curve and Yearn. Most DeFi protocols will only support ERC-20 or ETH since they execute from smart contracts on the Ethereum blockchain. WBTC is a protocol that allows BTC to be wrapped in an Ethereum ERC-20 token. Holders would not need to convert their BTC to ETH during this process.
Minting WBTC
To enter the DeFi space, Bitcoin holders would have to deposit their BTC into a smart contract of a WBTC issuer (e.g. BitGo, Coinsquare, etc.). This can be a digital exchange or DEX (Decentralized Exchange) that accepts BTC. Once the BTC has been deposited, WBTC tokens are minted that have a 1:1 value to the BTC that was deposited. Once the holder receives their WBTC, they can now use it for loan collateral, providing liquidity and swapping for other tokens. Digital exchanges will most likely require a KYC (Know Your Customer) in compliance with the law before the WBTC can be issued. On a DEX or over-the-counter it is not required (check with the exchange requirements always). The WBTC can be cashed out to either BTC or ETH.
Another way to get WBTC is through a DEX like Uniswap. Instead of depositing BTC into a smart contract, anyone who holds ETH can purchase WBTC. It requires connecting a digital wallet like Metamask to perform the transaction with ETH. The WBTC is already available in the market and it does not require BTC for purchase in this case. Since WBTC is an ERC-20 token, it can be purchased with ETH very easily.
Other Uses For WBTC
WBTC can be put to use in DeFi yield farming protocols. This allows WBTC holders to put their digital asset for lending and trading purposes. In return, the WBTC holders earn yields as a their return on investment. These yields are fees collected from the transactions. Rewards can be issued in the form of governance tokens, which allow the holders to participate in digital governance through voting. This provides holders a way of participating in decisions that govern these protocols.
Yield farming requires the holders to deposit their WBTC. In return, they are issued another token. Examples of these tokens include SNX (Synthetix token), REN (Ren Project token) and BAL (Balancer token). The tokens are specific to which protocol is used by the yield provider. To learn more about yield farming, there is an article on Coindesk that explains it a little bit further. (Link here)
The Best Of Both
Wrapped Bitcoin brings the best of two blockchains. It is a way to interoperate between two digital assets at the protocol layer. The value of Bitcoin and the decentralized applications on Ethereum. BTC is the digital asset while ETH is the protocol that utilizes it for liquidity, trades and financing. The Ethereum blockchain is serving as a transaction layer that can bring more capital into diverse markets. Bitcoin can provide the capital, as institutional investment grows in the digital asset. WBTC provides a way for investors to bring capital for yielding returns using the Ethereum blockchain.
Disclaimer: This is not financial advice, just reference. Do your own research always to verify information.
It seems there is a correlation to Coinbase having network issues every time there is a Bitcoin bull run. It just appears to be a certainty at this point:
“When Bitcoin goes up, Coinbase goes down”
During the Bitcoin rally in 2017, when Bitcoin price value approached an ATH of $20K, Coinbase also experienced connectivity issues and trading was halted. This was the time Bitcoin suddenly surged and then came crashing down as soon as traders hit the exchange. It seems that the Coinbase system was not designed to accommodate or scale to handle millions of new users. That should have been a lesson to resolve the problem over the years.
During a brief Bitcoin surge in November 2020, and also during an XRP rally, Coinbase suddenly goes down. It is frustrating traders who could have sold or bought more assets, but instead the system crashes. If it were a universal problem, it would also happen at the same time to other exchanges like Binance and Kraken. They all have to deal with issues on the network, but never at the level of Coinbase.
Coinbase CEO, Brian Armstrong, tweeted (in response to the problems):
“We’re working hard to add additional capacity (both in servers and customer support) to deal with increased traffic. Thank you for your patience during this time. And thank you to the team at Coinbase working hard to serve our customers! Bull runs can be exciting and stressful.”
From an IT and network engineering perspective, the problem has to do with scalability and contingency. While AWS has autoscaling capabilities, if the whole infrastructure is affected, it will have an effect on Coinbase. There are other cloud IaaS (Infrastructure-as-a-Service) providers like Microsoft Azure and Google Cloud, which allows operations to continue in the event that one provider is down. For contingency, a more distributed and decentralized system would have kept the system operational to handle enormous workloads. Perhaps Coinbase had planned for capacity, but not agility.
A more distributed system can prevent downtime, but doesn’t totally eliminate it. If a server malfunctions it will go down and there is nothing that can be done to prevent it. However, the contingency in place is to plan for fault-tolerance and redundancy. Other IT professionals have aired the same opinion, like Hashoshi on his “404 Logic Not Found” section.
Coinbase has been a pioneer in the cryptocurrency space. It would be sad to see their trading business affected by downtime and outages. They have enabled millions to get into cryptocurrency as an onboard to more decentralized financial instruments. There are more options available for traders to buy/sell crypto, including the Robinhood app and even PayPal. They still need exchanges like Coinbase to convert cryptocurrency. Hopefully they can work things out, or else traders will flock to other digital exchanges or DEXes for their business.
The Ethereum blockchain has undergone significant updates in preparation to a new version. The following software updates have been made since the project first started:
Frontier (July 2015) Homestead (March 2016) Metropolis (Byzantium in October 2017 and Constantinople in February 2019) Istanbul (December 2019)
The next iteration is Eth2 or Ethereum 2.0 which will introduce the Serenity update. It is set to begin in late 2020 and deploy in phases. (Learn more at Ethereum.org)
It will change the Ethereum protocol, moving away from the Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake (PoS). It will launch in multiple phases, as developers begin deploying the necessary changes to the Ethereum blockchain. The main purpose for this transition is to bring more efficiency and scalability to the network, to process more transactions and operate with more efficiency and stability. Scaling has long been a problem of blockchain-based networks, because they have to rely on decentralization which doesn’t process transactions as efficiently at the rate of commercial business applications. That is part of a tradeoff with scalability, since blockchains are more decentralized and secure.
Eth2 will still be decentralized, but improve their consensus mechanism from mining to staking. This will allow validators to contribute based on their proportion of ETH (ether) on the network rather than providing compute resources. There is no more need to solve random puzzles using hash power. Instead the staking method allows validators of blocks to commit a portion or all of their ETH to validate transactions. Their incentive will be based on the amount they staked. It is more energy efficient as well, not requiring expending large amounts of energy to produce one block. Eth2 randomly selects validators in a fair and decentralized manner.
At present, the Ethereum network can process between 15 to 30 tps (Transactions Per Second). With Eth2 it will increase the transaction velocity up to 100,000 tps. This would be possible (in theory) with the implementation of the Ethereum 2.0 upgrades. Even if in the real world it isn’t exactly 100,000 tps, a higher transaction velocity is still the best outcome. The underlying element to increase the number of transactions involves the use of shard chains (sharding will be explained later).
Among other changes to the network, the beacon chain and sharding will also be deployed as part of the EIP (Ethereum Improvement Proposals). Beacon chain is a feature that coordinates the PoS implementation on the Ethereum blockchain. Sharding aims to improve the storage of data on the network, to scale to higher capacity and faster access to data. Rather than to have all nodes on the network storing the blockchain state, shards are created to store system state in a distributed and decentralized manner for more efficient operations. If all nodes had to keep store of the world state of the blockchain, it certainly slows down the network since each node has to perform updates whenever there are changes. That can take plenty of time when you have many nodes.
The idea is to keep the network open to all who want to stake without barriers in order to maintain a decentralized network. Ethereum 2.0 will require 16,384 validators, which means a more decentralized and secure network. The more nodes there are, the more security to the network through coordinated participation of each node. This is because those who have staked their ETH face losing what they staked if they do not cooperate with other nodes or if they attempt to attack the network. It is a coordinated game theory example of contributing resources for the greater good. However, there are also consequences and not just incentives.
Despite all the efforts by developers, the project has been facing delays. This is not a major setback, but has been expected due to the complex nature of the system. It has been in development for years and it could still take longer to deploy and implement. It does keep the momentum for driving the value of ETH higher, along with the surge in the DeFi (Decentralized Finance) space which is based on Ethereum’s ERC20 token standard. As transaction volume increases and ETH gas costs decrease, the value of ETH would show a likely bullish trend. The market is so volatile though, nothing is certain. The transition to Ethereum 2.0 will be undergoing phases, so they won’t happen over night. It is best to keep an eye out on the developments, because any progress would surely be a good signal to the rest of the market.
Bitcoin uses the UTXO (Unspent Transaction Output) accounting model for processing transactions. In Bitcoin, a user’s balance is indicated by the unspent amount of BTC that is recorded on the blockchain. A user’s input to a transaction is the output from the last transaction. If the user has no previous transaction, then the input is the output from another user’s transaction. These are processed continuously and written to the blocks which are added to the main chain for immutability. Every transaction on the Bitcoin blockchain has an input and output to prove the transfer and ownership of a digital asset.
There is a misconception that digital wallets store the digital assets. That is actually not the case since the digital assets are always stored on the blockchain. They are just values that indicate the balance or quantity and the ownership by a private key. The digital wallet is really an application that provides users access to their digital assets on the blockchain via a private key. The wallet also contains the public address, which is used to identify the user to the blockchain. Once the wallet is opened, the users can see their digital assets from the blockchain. In Bitcoin, the BTC is always stored on the blockchain. The information is accessed by the user from their wallet with authorization from their private key. Without the private key, a user will not be able to access the information. The private key also creates a digital signature which authorizes a user to send their BTC to another user as a way to transfer the ownership of the digital asset.
When the digital asset is transferred, it is recorded as an output O from the sender. It is then the new input I to the user it was transferred to. It has to always be an input/output relationship for provability. The transactions can be referenced by cryptographic hashes that is called the TxHash (Transaction Hash). Users can view this information on a blockchain explorer like blockchain.com/explorer. The best way to understand this is that inputs reference outputs when making transactions on the Bitcoin blockchain.
Key concepts to understand:
Each input to a new transaction was the output from a previous transaction, which can be referenced by a TxHash.
Each output was the result of a transaction from a spent amount.
The input from an output is considered an unspent amount.
All unspent amounts are considered the balance of the digital asset the user owns.
The spent amounts become the unspent amounts of other users who received the digital asset.
Only unspent outputs can be used as inputs to a transaction in a Bitcoin network.
The sum of all unspent outputs is the total balance available to the user.
Let’s take an example.
Bob wants to pay Alice 5 BTC. Bob has a balance of 100 BTC, while Alice has 30 BTC. According to the protocol, the sender is Bob and the recipient is Alice. Both users have a Bitcoin public address, which is a hexadecimal string. The public address is like the e-mail address, it allows users to identify other users for sending digital assets. Bob will send the 5 BTC to Alice via her public address.
Here is how the process works:
Bob unlocks his unspent outputs using his digital wallet to send 5 BTC to Alice.
Bob’s UTXO of 100 BTC is his input to the transaction. Once Bob indicates from his wallet that he only wants to send 5 BTC to Alice, the 5 BTC is deducted from the 100 BTC. (100 – 5)
The 5 BTC are sent to Alice’s address and the remainder of 95 BTC are sent back to Bob.
Alice’s balance is increased by 5 BTC (30 + 5) for a total of 35 BTC.
This is a simplified overview of how the process works. In reality, the transaction must undergo confirmations in order to be validated to the blockchain. This is another mechanism that uses the PoW (Proof-of-Work) consensus algorithm.
Bob’s output (95 BTC) from the transaction will become his input to his next transaction. Multiple transactions can occur on the network at the same time. Suppose that Carol wanted to pay Bob 20 BTC at around the same time that Bob was sending 5 BTC to Alice. This is possible since transactions can run in parallel, though they are still processed in sequence. While Bob’s transaction with Alice has a UTXO of 95 BTC, Bob’s transaction with Carol is a UTXO of 20 BTC.
Bob’s total balance is the sum of all his UTXO,
∑ ( utxo1 + utxo2 + … + utxon ) = utxo’
where n is the last term of the UTXO. In our example Bob’s total balance would be:
Total Balance = 95 BTC + 20 BTC = 115 BTC
Using blockchain analytics, all of Bob’s transactions can be viewed based on the TXHash. This contains information like the block number, number of confirmations and total fees.
On another note, the sum of the UTXO between Bob and Alice must not change. Before the transaction Bob had 100 BTC and Alice had 30 BTC.
100 BTC + 30 BTC = 130 BTC
At the end of their transaction, not including other UTXO, the sum must still be 130 BTC.
95 BTC + 35 BTC = 130 BTC
If the amount remained the same for Bob after he sent 5 BTC to Alice, then this is an example of a “double spend”.
100 BTC + 35 BTC = 135 BTC
The amount of 135 BTC is not correct since 5 BTC was spent from Bob’s UTXO. It should remain balanced at 130 BTC.
UTXO allows the Bitcoin blockchain to keep track of a user’s balance. Every BTC spent becomes a UTXO for another user. It also helps to prevent “double-spending” of a digital asset through a system of confirmations to verify the UTXO exists. The confirmations are possible because the UTXO is read by nodes on the Bitcoin network for validation. When there is a consensus among the nodes on the network that the UTXO is valid and has not been spent on another transaction, it is recorded on the blockchain. Once it is recorded, the data cannot be modified, changed or deleted unless there is a majority consensus to do so. This means no single entity can reverse or commit a double spend of the same transaction (Note: The exception is if they have the majority control (e.g. hash power), which requires at least 51% of the network). The transfer of ownership of BTC is thus concluded in the transaction.
CoinGraph IQ 