Posts Tagged ‘ethereum’

A new era for ICOs

Monday, July 17th, 2017

It’s safe to say that 2017 has been the year for Initial Coin Offerings (ICOs). For the uninitiated (excuse the pun), an ICO works similarly to an IPO, except that instead of shares, crypto-tokens are issued to the investors. That difference has brought about a whole wave of funding which was previously unattainable for small entities, with hundreds of millions in U.S. dollars being invested in ICOs over the past few months.

Suffice it to say that the largest ICOs this year (Tezos, Bancor, and Status) collected a cool half a billion U.S. dollars in funding between them. In other words, 500 million USD. Whichever way you put it, that’s a heck of a lot of money, and concerns have been put forward on whether any start-up needs that kind of money to build a blockchain product. Most of the ICOs are bought into for pure speculation, with the token price normally rocketing after listing on an exchange, and a dip in the price happening soon afterwards, sometimes even going below the ICO price. And speculative value is indeed the main driving factor behind the price, as most of these ICOs do not even have a beta product ready by the time of the ICO, let alone a viable public one ready for launch at the end of such ICO.

All that however may be set to change after the latest downtrend in the total market cap of cryptocurrencies, which fell by almost 50% from its previous all-time-high a few weeks ago. The next bullish wave might be in the offing (in my opinion a sizable one is due by the end of September), but investors who entered at the peak should be a bit more wary this time round. That, coupled with the fact that the Status ICO has shown us that blockchain technology is still in its infancy when we witnessed the Ethereum blockchain being brought to its knees with the overload of transactions, will make for an interesting new environment for any upcoming ICOs.

Let us also not forget that 2018 will be the year where most of this year’s ICOs will have to abide by their word and deliver a working product as promised in their roadmaps. Will they all do so? Of course not. We live in an analogue world no matter how much we try to digitalise it, and problems will arise which will shift the goalposts and postpone milestones, not to mention that some ICOs will most likely fail to deliver a product at all. It will be interesting to see what sort of legal recourse the investors will have should that happen.

Speaking of laws, the U.S. and China have already made it clear that they intend to regulate ICOs. The Securities and Exchange Commission (SEC) has already expressed its disapproval of ICOs in the past, and the People’s Bank of China (PBOC) wants to bring ICOs under its thumb. Indeed, ICOs as of late have been excluding U.S. citizens from participation due to the contrary position taken by the SEC, and it’s only a matter of time until other jurisdictions start enacting regulation on the matter.

All this makes for an exciting mix that will see ICOs taking a different path than to what was trodden on up until now. ICOs are here to stay, but there will be a lot more focus on the value attributed to the crypto-tokens being issued in exchange for the investors’ funds; such crypto-tokens would need to have an inherent use for the underlying platform being funded through the ICO. Any ICO which is simply racking up funds in exchange for tokens which are not inherently useful for the platform (in other words, any other cryptocurrency can be used for the platform being proposed) will have a harder time than before to attract investors. Moreover, at the very least investors will want a working product, even if still in its testing phase, to convince them to part with their hard-earned money. Lastly, the teams behind ICOs will be scrutinised in greater detail, and one can certainly trust the crypto-community in spotting and weeding out any bad actors in such teams.

To conclude, ICOs bring about an interesting mix of crowdfunding and venture capital, at times surpassing both in the funds collected while making participation even easier as long as you have the corresponding cryptocurrencies to invest. However, I am definitely eager to see whether I’ll have to eat my words should all ICOs deliver on what they’re promising, or whether it will be a case of bolting shut the barn door after one or more ICOs do a Houdini (Horseini?) with the investors’ funds. I believe that for each legitimate ICO there will be one other which is the mirror opposite, but after all that holds true for any other venture in other markets.

Disclaimer – this is my own personal opinion and does not reflect that of any other person, whether natural or legal. I act as an advisor to select ICOs in my own personal capacity. Please feel free to contact me on should you wish to discuss this article further – Jonathan Galea

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.