Archive for May, 2017

Bubble… Bobble… Bockle… Blockchain

Wednesday, May 24th, 2017

While I was writing this article, the total cryptocurrency market value just ticked over $85 billion. At the start of 2017, the figure was a relatively paltry $18 billion. Some quick maths will show that represents an increase of around 470% in the space of a few months, and naturally that has people running around screaming their head off about a bubble. But does this classify as a bubble?

The most (in)famous bubble is perhaps the tulip bubble which took place towards the end of the 1800s. Tulip flowers and seeds reached stratospheric prices before crashing down… hard. Time and time again, mankind has experienced several bubbles, with the end result being triumphant smart investors who pull out before the crash, and bagholders of the asset in question left with a trade gone terribly wrong.

Analogies can certainly be drawn to the current situation in crypto. A sharp increase in price, feverish enthusiasm and mentions on mainstream media can be indicators of a bubble. However, certain fundamentals are being forgotten; fundamentals which potentially skew the whole bubble argument altogether.

  1. Cryptos are nowhere near being mainstream yet. It is still quite difficult to profitably buy cryptocurrencies without at least an intermediate knowledge of IT and economics, and only a small percentage of businesses accept cryptos as a means of payment.
  2. Most crypto-projects are still in their alpha stages. And that includes Bitcoin, which hasn’t even yet solved its scalability issues. Most recent projects promise a product-delivery date towards the end of 2018/start of 2019, therefore right now prices are mostly based on speculation. If the promises become reality, then that’s a whole different stage altogether
  3. Most people still have no idea what Bitcoin represents. It’s all too easy to be drawn inside the crypto-world and assume that everyone else knows what you know. Try asking someone on the street about what he/she knows about Bitcoin. When you get satisfactory answers on a regular basis, that’s when you should start worrying about a bubble.
  4. Global connections. This can indeed potentially be one of the hugest bubbles ever in history, but I strongly believe we haven’t even started yet. The reason is that we live in a world ruled by social media, where news can get around in an instant and hence no one can truly predict, with full confidence, when and how the crypto-train will stop. It might shoot off like a rocket to die off within a few months, or it might last longer than other bubbles.
  5. Cryptocurrencies have an actual use. Unlike some other bubbles, cryptocurrencies actively set out to solve long-standing problems thanks to innovative and ever-growing uses of the blockchain technology. While most of the cryptos in circulation might have a short shelf-life, others are good candidates for mainstream adoption.

The closest parallel which can be drawn to one particular bubble at this stage is the dotcom bubble which took place at the end of the millennium. All the ingredients above were part of the dotcom concoction, save for the influence of social media – and that should definitely not be taken lightly.

If the total dotcom market cap reached circa $3 trillion in value before bursting… what sort of heights can we expect the crypto-bubble to attain? Time will tell, but one thing is certain – there will be price consolidations, even downward corrections, but the road is long and cryptocurrencies do not look as if they will be stopped any time soon.

The King is ill

Wednesday, May 17th, 2017

Next year will mark the 10th year of Bitcoin’s conception; hard to believe that a decade has gone by since one of the most potentially disruptive technologies has been introduced to wreak havoc on the world. However, wisdom does not always grow exponentially with age.

The truth of the matter is that Bitcoin is in trouble. We are now facing a backlog of around 250,000 transactions and it’s growing day by day. With a ten-minute average block time, that translates to an average wait of 24 hours to have your transaction go through; I myself had to wait 48 hours for the last 2 transactions. This is happening thanks to Bitcoin’s low block-size limit of 1 MB roughly containing 2000 transactions; with 2000 transactions being handled every ten minutes, it’s easy to see that there’s a dire need for improvement in this regard.

Slow transaction times along with increasing fees are irking people greatly, since Bitcoin had promised otherwise. However, another problem is present, and one which is not widely-known to the public since its effects are not as evident. An inherent issue had been discovered quite a while ago which basically allows persons with sufficient technical knowledge to change the transaction ID (TxID) without invalidating it, potentially leading to a similar problem which Bitcoin set out to solve in the first place – double-spending. However, rather than spending the same amount of crypto twice, transaction malleability means that the recipient of the transaction can change its txID before confirmation, which would have the effect of  showing zero Bitcoin being sent on that txID leading to potential fraud by, for example, the recipient, since the amount would still have been received yet the sender can be told that the transaction did not go through by showing them the falsified txID.

“Discovered quite a while ago” you say? How about years ago? A huge fissure has formed in Bitcoin’s armor and for a long while it has gone unsolved and underestimated. The latter happened due to the general public’s lack of technical knowledge in the matter; the former through childish arguing, kicking and screaming between the most influential people in the Bitcoin network. Bitcoin Core, which is normal Bitcoin for you, wants to implement Segwit, a signature-separation fix with the aim of taking care of transaction malleability as well as increasing the block size to see off that nasty backlog. What has stopped it from being adopted? Well, it turns out that the current flawed system benefits a few miners who discovered that ASICs can exploit an underlying vulnerability resulting in up to 30% better returns for them when mining. These same miners have been offering monetary incentives for other miners not to adopt Segwit, hence the stalemate. This other group is proposing a hard fork of Bitcoin where the block size will be increased significantly but the transaction malleability vulnerability is retained.

And so the very invention meant to overcome the Establishment, bring down the ancient, bloated banks and create a brand new world is in danger of falling at the hands of its own children. Cryptocurrencies such as Ethereum and Ripple are slowly creeping up onto their ailing father with unsheathed daggers; yesterday marked a historic turn of the tide where Bitcoin’s dominance over the total cryptocurrency market worth over $ 50 billion has fallen under 50%. Indeed, financial institutions are enamoured with Ripple and its fast settlement times, and are quite eager to dip into the blockchain through partnerships with Ripple Labs. Other industries are investing heavily in the smart contract system of Ethereum and multiple projects are launching off Ethereum’s blockchain.

Right now there is pretty little justifying Bitcoin’s inflated price except for the fact that you need Bitcoin to buy most of the existing altcoins today and therefore serves as a conduit to other coins. The truth is that Bitcoin’s blockchain can easily handle smart contract implementation and lightning-fast transactions, and the fundamental question remains on whether Bitcoin can heal from this malignant disease and receive its much-needed medicine. If it does, then it will pick up its sceptre again and flick away the threats. If it doesn’t within the next twelve months, then we’ll all witness a fight for the number one spot – and rest assured that there will be blood on the streets.

Join us at the Blockchain and Cryptocurrencies conference taking place next November at SiGMA, the largest dedicated iGaming exhibition and conference in Malta, where similar topics will be discussed in greater detail.