2018 May 07 - Volume.2 Issue.18

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2018 May 07 - Volume.2 Issue.18

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Circulating Supply Increase Prop Up Select Crypto Rankings

A little over 17Mn Bitcoins are now circulating - 80% of the total projected supply. And while the major has now entered a relatively flat line supply curve year-on-year, some cryptocurrencies are releasing tokens in the bucket load, propping up their market capitalization and helping them move up the rankings within the Top 100 coins. 

28 of the Top 100 coins have fallen from grace from the start of the year up to today. And 17 of the new entrants are cryptocurrencies that were not even trading at the beginning of 2018.

But while seemingly gaining traction on the back of a price increase, market capitlization has come in due part to an increase of circulation for a good 20% of the coins in the Top 100.

Aion, which aims to build an interoprable blockchain network saw its position jump 16 places upwards despite seeing a 25% decrease in the coins price. A whopping 117% increase in circulating supply has helped the coin not only maintain, but jump just shy of the Top 50 coins. And with another 71% waiting to be released, it wouldn't be hard to creep into the Top 20 either on that factor alone (see table).

Loopring and RChain also pulled off the little trick with doubling their supply. Unlike Aion, however, the two coins did indeed increase in price, which combined with inflation, moved them from the bottom of the 150 coins to just short of the Top 50.


Most notably, and the biggest winner only bested by TRON in percentage price increase within the Top 10 is EOS whose market capitlization more than tripled at its peak at the end of April. While the token was one of the best performers so far this year in the Top 10 coins with its price more than doubling, the token pipped Litecoin out of 5th place on the back of an also 46% increase in recorded circulating supply. Another 165Mn coins are also set to be released, before a 5% annual inflation kicks in, but at current prices, this would not be enough to move it ahead of Bitcoin Cash. It would, however, bring it $3Bn closer.


VeChain, a supply chain blockchain solution found the backing of PwC Hong Kong who is said to have purchased a minority stake in the firm. The token surged last week on the back of the news pushing the coin into the Top 15. And the 90% increase in supply from the start of the year hasn't hurt its rankings either.


Despite the massive increase in circulating supply, markets seem to have shrugged off the basic economic principle as prices rose for 75% of the coins from the start of the year. And 6 of 10 coins that had the largest increase in circulated supply, also increased in price. In fact, of the tokens that increased supply over 10%, only 20% of the coins dropped in the rankings.

The slow and gradual release of coins could build towards a positive feedback look - as it moves up the rankings, it moves up in price as traders find some positive affirmation to purchase the coin. Supply metrics seem to have taken a back seat.

Top Coins By Increased Circulated Supply

Remaining Supply Release 

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Top 100 Rankings Positions Gained / Lost (Exit of Top 100)

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Source: Diar Calculations, CoinMarketCap, OnChainFX

Assessment Period: 2018-Jan-01 up to 2018-May-05

Radix, Hedera Hashgraph Eye Main Chain Scaling Solutions

Radix and Hedera Hashgraph, both of whom are building blockchain networks in an effort to address the scaling woes the industry has so far seen, spoke to Diar on the progress of their platforms. Radix demonstrated in a live test that it can sustain more than 20,000 transactions per second. And Digital Currency Group backed Hedera Hashgraph have also partially tested theirs. Both networks have taken different technology and governance approaches are slated to go live in 4Q18.

Bitcoin’s vision for fast peer-to-peer transactions with low processing fees has not come without its fair share of problems with its popularity growth in 2017. At price and transactional volume peak in December 2017, fees reached more than $30. Since then businesses with mass volume have optimized their transaction management by implementing batching and Segwit support, lowering the median fees to less than $1 again.

And Ethereum also struggled similarly with the popularity of CryptoKitties, the first well received blockchain game, that boomed at the end of last year. As the game consumed around 15% of the whole network traffic, median transaction fees increased to upwards of $3 – 20x current fees. While the bottlenecks haven’t been resolved, development teams are looking to address the issue with Bitcoin’s Lightning Network and Ethereum’s Raiden Network – both off-chain solutions.

The opportunity to create a scalable Blockchain network from the ground up addressing scaling directly on the main ledger hasn’t been missed however. Diar spoke to the CEOs of two upcoming public networks that are being built specifically to address scalability of traditional blockchains - Radix and Digital Currency Group backed Hedera Hashgraph.

Piers Ridyard, CEO of London-based Radix tells Diar that there will always be a bottleneck on the Blockchain and while “it’s of course possible to scale by sidechains or state channels or other solutions, there will always be a bottleneck on the main chain” – options that the two majors have had to resort to. The comment comes from the company’s own experience who have been in Research & Development for the better part of 6 years.

Radix initially started with looking at how to scale Bitcoin in 2012 but then it “really quickly realized that the blockchain architecture itself wouldn’t work.” Radix since then has set its sight on building a protocol with an ambitious mission that would “give anyone anywhere free access to digital economy”, easy application deployment through APIs, and would also be interoperable with current technological and economic infrastructure, such as Point-of-Sale.

Radix also looked into using a Directed Acyclic Graph (DAG), an alternative architecture used by IOTA and Hashgraph, but found that “it doesn’t shard in a way that it’s possible to always guarantee that a double spend will be spotted unless there is centralized control.” The company, instead of meshing together an existing architecture with an existing consensus mechanism, started researching and building new architecture with the goal of supporting mass use of the network simultaneously.

The Radix team found that the only possible way to achieve this was if the architecture sharded by default and the consensus mechanism worked across the shards by default as well. The platform, which would separate a large database into smaller manageable parts, has now been live tested, and was able to achieve more than 20,000 transactions per second (tps) in comparison to Ethereum’s 25tps (see table).

“Even if you were to store as much data as Google, it would give you about 2MB of data per one shard so we still wouldn’t be at the level where any of those shards is too big for even very low powered devices to use. The true decentralized network is when any device, even with very little resources will be able to serve as a full node on the network” Mr Ridyard says.

Apart from scalability, Radix has two other objectives in order to build a global decentralized protocol - developer friendliness and user friendliness. Mr Ridyard says that writing secure smart contracts with no extensive experience doesn’t exist at the moment, which is why problems have been seen in Parity and with the DAO. With the massive overlap in the code of smart contracts “a lot of developers are writing the same code from the scratch, which makes it very difficult to build something secure”. Radix opted to have built-in base level functions in the protocol itself that can be called directly via the APIs, which will “lift a massive burden off developers in building on top of the network”.


In order to make the network friendly for average non-technical users, Radix is in talks with manufacturers that build plastic cards with a secure element, which is capable of generating signatures for transactions without revealing the private key. Mr Ridyard says that “it is exactly the same to how any hardware wallet works. What we have done is instead of requiring people to buy an expensive hardware wallet, we made the signature scheme, that is already well established for doing cryptographically secure signatures, compatible with the Radix ledger. The starting point is to make the ledger compatible with the hardware that already exists, which will help a lot with mainstream implementation.”


Radix is indeed aiming to give developers tools to build decentralized applications and to deploy tokens. The network is scheduled to go live in Q4 of 2018 along with the utility token issuance whose purpose will be to “reward people for building and deploying on the network rather than buying in and speculating.” A difficult set goal, in today’s environment at least, is to keep the volatility of the token low - a fact that the company recognizes. “We don’t think that we can create a token that will have a predictable value into the future until the entire protocol has real utility to the society.”

Hashgraph, developed by Dallas-based Swirlds, was initially only deployed in private, permissioned-based networks. In March, Swirlds announced that Hedera Hashgraph is spinning off to create a public network, in which Swirlds will only play a role of the licensor of the technology.

Radix Formula For Adoption

Global Scalability
• Demonstrated the global scaling ability

Developer Friendly
• Built-in smart contract functions called directly via the APIs

User Friendly
Ledger that's compatible with existing hardware
Secure cards that mimic hardware wallet grade security
• Decentralized exchange (DEX) built in the Radix protocol

Hedera Hashgraph Model

Performance - Successfully demonstrate the scaling ability

Security - As long as fewer than a third of coins are held by bad actors then you can’t attack the network.

Stability - By having patents on Hashgraph, the platform is guaranteed to not fork into a competing platform and provide transparency by release the source code for public review

Governance - Council with equal voting rights consisted of the world's biggest companies

CULedger, the global consortium of credit unions, announced that it will use Hedera for cross-border payments. Mr Harmon tells Diar that the reason why CULedger chose Hashgraph is because the performance is “orders of magnitude better than all the other networks.” He added that “compared to other permissioned networks, Hashgraph is not susceptible to denial of service attacks. Hyperledger and Corda have a leader and you can do run a DDoS attack against the leader and bring down the entire network.”


Diar spoke to Mance Harmon, CEO and co-founder of both Swirlds and Hedera Hashgraph and confirmed that it was always the intention to build a public ledger “but bootstrapping a proof of stake (PoS) system required that we have a Council of global bluechip organizations involved in the public ledger”. Mr Harmon says that Hashgraph wanted to build some reason for the governing members to want to participate, which meant that it needed to start with enterprise use cases on the private side of the market.


 The Council would give voting rights to 39 organizations “that would not likely collude with one another”. Hedera is eying the largest globally distributed corporations across 18 industries. The company has commitments for more than half the governing body, but does not have the full 39 as of yet, which it aims to announce in full by this fall. Apart from Swirlds who is a permanent member, the remaining 38 organizations can only serve a three-year term with a limit of two consecutive terms. As long as not fewer than a third of the tokens are held by bad actors, the network can’t be attacked, which is why the Council will hold two thirds of the tokens until such time that the value of the token is high enough and broadly distributed enough that it is not possible for bad actors to get a third of the tokens.

Mr Harmon says that the “Council creates the most decentralized governance model of any other public network on the market today. In all the other public networks, the decisions are made by either the core developers, miners or a foundation with only a few members.” All the decisions will require the 39 members of the Council to agree. "There are no master nodes. All nodes are the same. There are no Coordinators, Leaders, Masternodes. The nodes are all on par with each other" Mr Harmon confirms.

Mr Ridyard does err on the side of caution on the breadth of the decentralization of Hashgraph however. “Swirlds and other 38 entities will absolutely control the network and to me that doesn’t seem like something that should be a starting point in building a platform that we want everyone in the world to use. To me, it sounds like you are putting an incredible amount of power into the hands of very few people. As for the technology, “Hashraph ultimately has a really strong centralization control and there is a really good reason for it. Sharding a DAG without centralization control means that there could be really easy double spends.”

Hedera tests that it can reach anywhere from 50,000tps and up to almost 500,000 tps. One problem, however, is that the transaction speed estimates do not include time to process transactions. Mr Harmon tells Diar that “Hashgraph as an algorithm has fantastic performance in posting transactions in order but the bottleneck comes in with the signature verification.”

Hedera did work with one of the global graphics processing unit (GPU) manufacturers and wrote a library that does signature verification on the GPU, which ends up eliminating the bottleneck. Another aspect of processing a transaction is how long it takes to update the balances in the list of accounts. Mr Harmon says “our experiments internally suggest that it’s really minor in terms of CPU and storage requirements compared to everything else. We really don’t think that that’s going to be a bottleneck. We are expecting to achieve hundreds of thousands of transactions per second.”

Mr Harmon says that there probably won’t be a general retail Initial Coin offering (ICO). “We are domiciled in the United States, which of course puts a lot of constraints on us. What we are doing is demonstrating over a period of time that the tokens are actually being used to create the economy”. Hedera plans to go live in Q4 2018 and release a third of the tokens in the first five years. When the remaining two thirds of the tokens are continuously released “because there is no longer a threat, the funds will flow into treasury and we could end up having billions of dollars in treasury that can’t be touched.” When the need arises, there is a natural buyer of the cryptocurrency to help regulate the volatility and supply.

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LocalBitcoins Volume Plummets as Patrons Shift to Exchanges

LocalBitcoins, one of the very first platforms that made Bitcoin trading more feasible during the cryptocurrency's hay day, has seen its trading volume plummet as US-based exchanges Coinbase, Kraken and Gemini soar. But its not all bad news for the website - liquidity is USD value has stayed steady, and also increased too.

LocalBitcoins, a website that has been the entrance point to many people purchasing bitcoin has seen Bitcoin availability dwindle to a fraction of what the platform had a year ago. However, the price increase of the cryptocurrency has kept the USD volume fairly steady and in fact, 3x more in 1Q18 versus a year before.


An article published by Recode placed Coinbase's valuation in excess of $8Bn versus last summer when venture capitalists estimated the popular exchanges value at only $1.6Bn. And maybe rightly so - the exchange has seen an average of 156% increase in its average traded Bitcoin volume alone quarter on quarter. And versus a year ago, Coinbase made an eyeballing 2472% increase in its average traded volume in US Dollar terms.

In fact, even with the market downturn in 1Q18 where prices plummeted from the highs of December 2017, on average coinbase actually had a 2% increase in US Dollar value -  a little of $6.5Bn in traded volume.


In terms of percentage growth, Kraken has done even better than Coinbase. The exchange that also has many other cryptocurrencies besides the majors, saw a 2971% increase 1Q18 vs 1Q17. Still, though, at face value, Kraken is only processing 40% of that of Coinbase.

US-based exchanges have made great earnings in 2017, and 2018 doesn't seem to be abating at any rate.

LocalBitcoins Average Volume Falls in BTC, But USD Steady..

...While Exchanges Traded Volume "Moons" (Avg. BTC/USD)

Source: Diar Calculations, Bitcoinity

Goldman Sachs to Open Trading Desk as Barclays Turns Sour

The New York Times last week confirmed that Goldman Sachs would be opening a Bitcoin Trading Desk as the popularity of the cryptocurrency continues to grab headlines. While the Wall Street behemoth hasn't confirmed the date, the understanding is that the Bank would allow clients to trade Bitcoin Futures on the Chicago Mercantile Exchange (CME) and their cross-town Rivals the Chicago Board Options Exchange (CBOE).

When Bitcoin futures launched last year, the big clearing brokers remained hesitant to deal with the cryptocurrency - and many still are (Diar, 18 December 2017). The news out of Goldman Sachs also comes on the back of a recent development with the Bank hiring its first "Digital Assets" trader, Justin Schmidt, a former hedge fund trader gone it alone to trade cryptocurrencies.

It remains to be seen how other banks will look at the opportunity. Last week rumours spread that Barclays would also be looking to open a trading desk, but has quickly poured cold water on the prospect, even though they are the only major who has extended banking facilities to cryptocurrency exchange Coinbase.

Top 10 US Futures Clearing Brokers (By Customer Assets ($Bn)

Source: FT, CFTC

Basket Fund Options Increase as Tokens Gain Momentum

With over 200 Cryptocurrency focused Hedge Funds having started this since last year, it was only a matter of time before Index Funds became a standard offering in the decentralized space. While the investment vehicle that adds different coins to a basket of funds has been relatively limited to accredited investors, such as Grayscale's Digital Large Cap, the Coinbase Index Fund, and Bitwise Hold 10, a new option has come into the scene dubbed Ethereum10.

Ethereum10, that is now available to trade on Radar Relay, a decentralized exchange does bring something a little different to the table however. While all index funds to date are top heavy with Bitcoin and Ethereum, the E10 offers a weighted basked by market capitalisation of ERC20 token that plan to stay on the Ethereum blockchain.

In terms of performance, Grayscale's Digital Large Cap has performed 16% better over the past three months than the Coinbase Index Fund, however, it too remains below its launching price. The differences between the three main funds are negligible. But they are losing in comparison to ERC20 tokens that are booming.

Two Sides of the Same Coin? Month-on-Month % Change

Source: Company Websites

Telegram Calls Off Public Initial Coin Offering
After raising $1.7Bn from private investors, Telegram which has 200Mn users on its platform has called off plans to raise any further capital from the public through an Initial Coin Offering (ICO). Secondary markets have already popped up for the token, TON, even though there are no dates on when the coin might be listed on exchanges. Or how the company plans to execute a very ambitious whitepaper.
Grayscale Gets Green Light For Ethereum Classic Trust
Digital Currency Group's investment arm Grayscale announced last week that the Financial Industry Regulatory Authority (FINRA) has approved the Over-The-Counter trading of their investment trust for Ethereum Classic that currently has over $80Mn in AuM. This is Grayscale's second product on tradable markets after its launch of the Bitcoin Investment Trust.
South Korea Looks to Over-Turn ICO Ban, Slightly
South Korea, where most cryptocurrency trading occurs, is possibly looking at establishing an Initial Coin Offering framework after its outright ban last year. Legislatures are said to be working on a closed off model whereby the ICOs would be monitored by the Korean Financial Services Commission and possibly restricted to select research companies and public entities.
Majors Enter US Securities & Exchange Commission Spotlight
Much ado has been discussed recently on whether or not Ethereum should, or would be classified by the SEC as a security. And Ripple is now also being sued in a class action lawsuit for the same reason. But, even then, the SEC Commissioner Hester Peirce has kept everyone at bay by stating, at least her position, that tokens can morph out of such a label.

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