The effects of the web by a number of companies have seduced a large number of users as these companies keep their data to prevent them from searching for alternatives. Likewise, these huge platforms have attracted applications to build their highest ecosystems before either severing access or actively opposing their interests when the applications became so successful. As a result, these walled gardens have effectively hindered innovation and monopolized large sections of the web. After the emergence of blockchain technology and decentralized cryptocurrencies, the need for applications to support decentralization has emerged. Several blockchain-based companies, applications and platforms have appeared in decentralization. In this research report, we will explain the approach adopted by the NEAR decentralization platform in designing and implementing the basic technology for its system. Near is a basic platform for cloud computing and decentralized storage managed by the community, designed to enable the open web for the future. On this web, everything can be created from new currencies to new applications to new industries, opening the door to an entirely new future.
The richness of the web is increasing day by day with the combined efforts of millions of people who have benefited from “innovation without permission” as content and applications are created without asking anyone. this lack of freedom of data has led to an environment hostile to the interests of its participants. And as we explained in the summary previously, web hosting companies have hindered innovation and greatly monopolized the web. In the future, we can fix this by using new technologies to re-enable the permissionless innovation of the past in a way, which creates a more open web where users are free and applications are supportive rather than adversarial to their interests. Decentralization emerged after the global financial crisis in 2008, which created fundamental problems of confidence in the heavily indebted banking system. Then the decentralized financial sector based on Blockchain technology has emerged since 2009. Decentralized Blockchain technology has made it easy for decentralized digital currencies like Bitcoin to exchange billions of dollars in peer-to-peer transfers for a fraction of the price of a traditional banking system. This technology allows participants in the over $ 50 billion virtual goods economy to track, own and trade in these commodities without permission. It allows real-world goods to cross into the digital domain, with verified ownership and tracking just like that of the digital. By default, the Internet where freedom of data enables innovation will lead to the development of a new form of software development. On this web, developers can quickly create applications from open state components and boost their efforts by using new business models that are enabled from within the program itself rather than relying on parasitic relationships with their users. This not only accelerates the creation of applications that have a more honest and cooperative relationship with its users, but also allows the emergence of completely new business built on them. To enable these new applications and the open web, it needs the appropriate infrastructure. The new web platform cannot be controlled by a single entity and its use is not limited due to insufficient scalability. It should be decentralized in design like the web itself and supported by a community of distributors widely so that the value they store cannot be monitored, modified or removed without permission from the users who store this value on their behalf. A new decentralization technology (Blockchain), which has facilitated decentralized digital currencies like Bitcoin, has made billions of dollars in peer-to-peer transfers at a fraction of the price of the traditional banking system. This technology allows participants in the $ 50 billion + virtual goods economy to track, own and trade in these goods without permission. It allows real-world goods to cross into the digital domain, with verified ownership and tracking just like that of the digital. Although the cost of storing data or performing a calculation on the Ethereum blockchain is thousands and millions of times higher than the cost of performing the same functionality on Amazon Web Services. A developer can always create a “central” app or even a central currency for a fraction of the cost of doing the same on a decentralized platform because a decentralized platform, by definition, will have many iterations in its operations and storage. Bitcoin can be thought of as the first, very basic, version of this global community-run cloud, though it is primarily used only to store and move the Bitcoin digital currency. Ethereum is the second and slightly more sophisticated version, which expanded the basic principles of Bitcoin to create a more general computing and storage platform, though it is a raw technology, which hasn’t achieved meaningful mainstream adoption.
1.1 WHY IS IT IMPORTANT TO PAY THE EXTRA COST TO SUPPORT DECENTRALIZATION?
Because some elements of value, for example bits representing digital currency ownership, personal identity, or asset notes, are very sensitive. While in the central system, the following players can change the value of any credits they come into direct contact with:
The developer who controls the release or update of the application’s code
The platform where the data is stored
The servers which run the application’s code
Even if none of these players intend to operate with bad faith, the actions of governments, police forces and hackers can easily turn their hands against their users and censor, modify or steal the balances they are supposed to protect. A typical user will trust a typical centralized application, despite its potential vulnerabilities, with everyday data and computation. Typically, only banks and governments are trusted sufficiently to maintain custody of the most sensitive information — balances of wealth and identity. But these entities are also subject to the very human forces of hubris, corruption and theft. Especially after the 2008 global financial crisis, which demonstrated the fundamental problems of confidence in a highly indebted banking system. And governments around the world apply significant capital controls to citizens during times of crisis. After these examples, it has become a truism that hackers now own most or all of your sensitive data. These decentralized applications operate on a more complex infrastructure than today’s web but they have access to an instantaneous and global pool of currency, value and information that today’s web, where data is stored in the silos of individual corporations, cannot provide.
1.2 THE CHALLENGES OF CREATING A DECENTRALIZED CLOUD
A community-run system like this has very different challenges from centralized “cloud” infrastructure, which is running by a single entity or group of known entities. For example:
It must be both inclusive to anyone and secure from manipulation or capture.
Participants must be fairly compensated for their work while avoiding creating incentives for negligent or malicious behavior.
It must be both game theoretically secure so good actors find the right equilibrium and resistant to manipulation so bad actors are actively prevented from negatively affecting the system.
NEAR is a global community-run computing and storage cloud which is organized to be permissionless and which is economically incentivized to create a strong and decentralized data layer for the new web. Essentially, it is a platform for running applications which have access to a shared — and secure — pool of money, identity and data which is owned by their users. More technically, it combines the features of partition-resistant networking, serverless compute and distributed storage into a new kind of platform. NEAR is a community-managed, decentralized cloud storage and computing platform, designed to enable the open web in the future. It uses the same core technology for Bitcoin and Blockchain. On this web, everything can be created from new currencies to new applications to new industries, opening the door to an entirely new future. NEAR is a decentralized community-run cloud computing and storage platform, which is designed to enable the open web of the future. On this web, everything from new currencies to new applications to new industries can be created, opening the door to a brand new future. NEAR is a scalable computing and storage platform with the potential to change how systems are designed, how applications are built and how the web itself works. It is a complex technology allow developers and entrepreneurs to easily and sustainably build applications which reap the benefits of decentralization and participate in the Open Web while minimizing the associated costs for end users. NEAR creates the only community-managed cloud that is strong enough to power the future of the open web, as NEAR is designed from the ground up to deliver intuitive experiences to end users, expand capacity across millions of devices, and provide developers with new and sustainable business models for their applications. The NEAR Platform uses a token — also called “NEAR”. This token allows the users of these cloud resources, regardless of where they are in the world, to fairly compensate the providers of the services and to ensure that these participants operate in good faith.
2.1 WHY NEAR?
Through focus, we find that Platforms based on blockchain technologies like Bitcoin and Ethereum have made great progress and enriched the world with thousands of innovative applications spanning from games to decentralized financing. However, these original networks and none of the networks that followed were not able to bridge the gap towards mainstream adoption of the applications created above them and do not provide this type of standard that fully supports the web. This is a result of two key factors:
System design is relevant because the technical architecture of other platforms creates substantial problems with both usability and scalability which have made adoption nearly impossible by any but the most technical innovators. End-users experience 97–99% dropoff rates when using applications and developers find the process of creating and maintaining their applications endlessly frustrating. Fixing these problems requires substantial and complex changes to current protocol architectures, something which existing organizations haven’t proven capable of implementing. Instead, they create multi-year backlogs of specification design and implementation, which result in their technology falling further and further behind. NEAR’s platform and organization are architected specifically to solve the above-mentioned problems. The technical design is fanatically focused on creating the world’s most usable and scalable decentralized platform so global-scale applications can achieve real adoption. The organization and governance structure are designed to rapidly ship and continuously evolve the protocol so it will never become obsolete.
2.1.1 Features, which address these problems:
1. USABILITY FIRST The most important problem that needs to be addressed is how to allow developers to create useful applications that users can use easily and that will capture the sustainable value of these developers. 2. End-User Usability Developers will only build applications, which their end users can actually use. NEAR’s “progressive security” model allows developers to create experiences for their users which more closely resemble familiar web experiences by delaying onboarding, removing the need for user to learn “blockchain” concepts and limiting the number of permission-asking interactions the user must have to use the application. 1. Simple Onboarding: NEAR allows developers to take actions on behalf of their users, which allows them to onboard users without requiring these users to provide a wallet or interact with tokens immediately upon reaching an application. Because accounts keep track of application-specific keys, user accounts can also be used for the kind of “Single Sign On” (SSO) functionality that users are familiar with from the traditional web (eg “Login with Facebook/Google/Github/etc”). 2. Easy Subscriptions: Contract-based accounts allow for easy creation of subscriptions and custom permissioning for particular applications. 3. Familiar Usage Styles: The NEAR economic model allows developers to pay for usage on behalf of their users in order to hide the costs of infrastructure in a way that is in line with familiar web usage paradigms. 4. Predictable Pricing: NEAR prices transactions on the platform in simple terms, which allow end-users to experience predictable pricing and less cognitive load when using the platform.
2.1.2 Design principles and development NEAR’s platform
1. Usability: Applications deployed to the platform should be seamless to use for end users and seamless to create for developers. Wherever possible, the underlying technology itself should fade to the background or be hidden completely from end users. Wherever possible, developers should use familiar languages and patterns during the development process. Basic applications should be intuitive and simple to create while applications that are more robust should still be secure. 2. Scalability: The platform should scale with no upper limit as long as there is economic justification for doing so in order to support enterprise-grade, globally used applications. 3. Sustainable Decentralization: The platform should encourage significant decentralization in both the short term and the long term in order to properly secure the value it hosts. The platform — and community — should be widely and permissionlessly inclusive and actively encourage decentralization and participation. To maintain sustainability, both technological and community governance mechanisms should allow for practical iteration while avoiding capture by any single parties in the end. 4. Simplicity: The design of each of the system’s components should be as simple as possible in order to achieve their primary purpose. Optimize for simplicity, pragmatism and ease of understanding above theoretical perfection.
2.2 HOW NEAR WORKS?
NEAR’s platform provides a community-operated cloud infrastructure for deploying and running decentralized applications. It combines the features of a decentralized database with others of a serverless compute platform. The token, which allows this platform to run also, enables applications built on top of it to interact with each other in new ways. Together, these features allow developers to create censorship resistant back-ends for applications that deal with high stakes data like money, identity, assets, and open-state components, which interact seamlessly with each other. These application back-ends and components are called “smart contracts,” though we will often refer to these all as simply “applications” here. The infrastructure, which makes up this cloud, is created from a potentially infinite number of “nodes” run by individuals around the world who offer portions of their CPU and hard drive space — whether on their laptops or more professionally deployed servers. Developers write smart contracts and deploy them to this cloud as if they were deploying to a single server, which is a process that feels very similar to how applications are deployed to existing centralized clouds. Once the developer has deployed an application, called a “smart contract”, and marked it unchangeable (“immutable”), the application will now run for as long as at least a handful of members of the NEAR community continue to exist. When end users interact with that deployed application, they will generally do so through a familiar web or mobile interface just like any one of a million apps today. In the central cloud hosted by some companies today like: Amazon or Google, developers pay for their apps every month based on the amount of usage needed, for example based on the number of requests created by users visiting their webpages. The NEAR platform similarly requires that either users or developers provide compensation for their usage to the community operators of this infrastructure. Like today’s cloud infrastructure, NEAR prices usage based on easy to understand metrics that aren’t heavily influenced by factors like system congestion. Such factors make it very complicated for developers on alternative blockchain-based systems today. In the centralized cloud, the controlling corporation makes decisions unilaterally. NEAR community-run cloud is decentralized so updates must ultimately be accepted by a sufficient quorum of the network participants. Updates about its future are generated from the community and subject to an inclusive governance process, which balances efficiency and security. In order to ensure that the operators of nodes — who are anonymous and potentially even malicious — run the code with good behavior, they participate in a staking process called “Proof of Stake”. In this process, they willingly put a portion of value at risk as a sort of deposit, which they will forfeit if it is proven that they have operated improperly.
2.2.1 Elements of the NEAR’s Platform
The NEAR platform is made up of many separate elements. Some of these are native to the platform itself while others are used in conjunction with or on top of it. 1. THE NEAR TOKEN NEAR token is the fundamental native asset of the NEAR ecosystem and its functionality is enabled for all accounts. Each token is a unique digital asset similar to Ether, which can be used to: a) Pay the system for processing transactions and storing data. b) Run a validating node as part of the network by participating in the staking process. c) Help determine how network resources are allocated and where its future technical direction will go by participating in governance processes. The NEAR token enables the economic coordination of all participants who operate the network plus it enables new behaviors among the applications which are built on top of that network. 2. OTHER DIGITAL ASSETS The platform is designed to easily store unique digital assets, which may include, but aren’t limited to:
Other Tokens: Tokens bridged from other chains (“wrapped”) or created atop the NEAR Platform can be easily stored and moved using the underlying platform. This allows many kinds of tokens to be used atop the platform to pay for goods and services. “Stablecoins,” specific kinds of token which are designed to match the price of another asset (like the US Dollar), are particularly useful for transacting on the network in this way.
Unique Digital Assets: Similar to tokens, digital assets (sometimes called “Non Fungible Tokens” (NFTs) ranging from in-game collectibles to representations of real-world asset ownership can be stored and moved using the platform.
3. THE NEAR PLATFORM The core platform, which is made up of the cloud of community-operated nodes, is the most basic piece of infrastructure provided. Developers can permissionlessly deploy smart contracts to this cloud and users can permissionlessly use the applications they power. Applications, which could range from consumer-facing games to digital currencies, can store their state (data) securely on the platform. This is conceptually similar to the Ethereum platform. Operations that require an account, network use, or storage at the top of the platform require payment to the platform in the form of transaction fees that the platform then distributes to its community from the authentication contract. These operations could include creating new accounts, publishing new contracts, implementing code by contract and storing or modifying data by contract. As long as the rules of the protocol are followed, any independent developer can write software, which interfaces with it (for example, by submitting transactions, creating accounts or even running a new node client) without asking for anyone’s permission first. 4. THE NEAR DEVELOPMENT SUITE Set of tools and reference implementations created to facilitate its use by those developers and end users who prefer them. These tools include:
NEAR SDKs: NEAR platform supports (Rust and AssemblyScript) languages to write smart contracts. To provide a great experience for developers, NEAR has a full SDK, which includes standard data structures, examples and testing tools for these two languages.
Gitpod for NEAR: NEAR uses existing technology Gitpod to create zero time onboarding experience for developers. Gitpod provides an online “Integrated Development Environment” (IDE), which NEAR customized to allow developers to easily write, test and deploy smart contracts from a web browser.
NEAR Wallet: A wallet is a basic place for developers and end users to store the assets they need to use the network. NEAR Wallet is a reference implementation that is intended to work seamlessly with the progressive security model that lets application developers design more effective user experiences. It will eventually include built-in functionality to easily enable participation by holders in staking and governance processes on the network.
NEAR Explorer: To aid with both debugging of contracts and the understanding of network performance, Explorer presents information from the blockchain in an easily digestible web-based format.
NEAR Command Line Tools: The NEAR team provides a set of straightforward command line tools to allow developers to easily create, test and deploy applications from their local environments.
All of these tools are being created in an open-source manner so they can be modified or deployed by anyone.
Primarily economic forces drive the ecosystem, which makes up the NEAR platform. This economy creates the incentives, which allow participants permissionlessly organize to drive the platform’s key functions while creating strong disincentives for undesirable, irresponsible or malicious behavior. In order for the platform to be effective, these incentives need to exist both in the short term and in the long term. The NEAR platform is a market among participants interested in two aspects:
On the supply side, certification contract operators and other core infrastructure must be motivated to provide these services that make up the community cloud.
On the demand side, platform developers and end-users who pay for their use need to be able to do so in a simple, clear and consistent way that helps them.
Further, economic forces can also be applied to support the ecosystem as a whole. They can be used at a micro level to create new business models by directly compensating the developers who create its most useful applications. They can also be used at a macro level by coordinating the efforts of a broader set of ecosystem participants who participate in everything from education to governance.
3.1 NEAR ECONOMY DESIGN PRINCIPLES
NEAR’s overall system design principles are used to inform its economic design according to the following interpretations: 1. Usability: End users and developers should have predictable and consistent pricing for their usage of the network. Users should never lose data forever. 2. Scalability: The platform should scale at economically justified thresholds. 3. Simplicity: The design of each of the system’s components should be as simple as possible in order to achieve their primary purpose. 4. Sustainable Decentralization: The barrier for participation in the platform as a validating node should be set as low as possible in order to bring a wide range of participants. Over time, their participation should not drive wealth and control into the hands of a small number. Individual transactions made far in the future must be at least as secure as those made today in order to safeguard the value they modify.
3.2 ECONOMIC OVERVIEW
The NEAR economy is optimized to provide developers and end users with the easiest possible experience while still providing proper incentives for network security and ecosystem development. Summary of the key ideas that drive the system:
Thresholded Proof of Stake: Validating node operators provide scarce and valuable compute resources to the network. In order to ensure that the computations they run are correct, they are required to “stake” NEAR tokens, which guarantee their results. If these results are found to be inaccurate, the staker loses their tokens. This is a fundamental mechanism for securing the network. The threshold for participating in the system is set algorithmically at the lowest level possible to allow for the broadest possible participation of validating nodes in a given “epoch” period (½ of a day).
Epoch Rewards: Node operators are paid for their service a fixed percentage of total supply as a “security” fee of roughly 4.5% annualized. This rate targets sufficient participation levels among stakers in order to secure the network while balancing with other usage of NEAR token in the ecosystem.
Protocol treasury: In addition to validators, protocol treasury received a 0.5% of total supply annually to continuously re-invest into ecosystem development.
Transaction Costs: Usage of the network consumes two separate kinds of resources — instantaneous and long term. Instantaneous costs are generated by every transaction because each transaction requires the usage of both the network itself and some of its computation resources. These are priced together as a mostly-predictable cost per transaction, which is paid in NEAR tokens.
Storage Costs: Storage is a long term cost because storing data represents an ongoing burden to the nodes of the network. Storage costs are covered by maintaining minimum balance of NEAR tokens on the account or contract. This provides indirect mechanism of payment via inflation to validators for maintaining contract and account state on their nodes.
Inflation: Inflation is determined as combination of payouts to validators and protocol treasury minus the collected transaction fees and few other NEAR burning mechanics (like name auction). Overall the maximum inflation is 5%, which can go down over time as network gets more usage and more transactions fees are burned. It’s possible that inflation becomes negative (total supply decreases) if there is enough fees burned.
Scaling Thresholds: In a network, which scales its capacity relative to the amount of usage it receives, the thresholds, which drive the network to bring on additional capacity are economic in nature.
Security Thresholds: Some thresholds, which provide for good behavior among participants are set using economic incentives. For example, “Fishermen” (described separately).
Summary: Everyone knows that when you give your assets to someone else, they always keep them safe. If this is true for individuals, it is certainly true for businesses. Custodians always tell the truth and manage funds properly. They won't have any interest in taking the assets as an exchange operator would. Auditors tell the truth and can't be misled. That's because organizations that are regulated are incapable of lying and don't make mistakes. First, some background. Here is a summary of how custodians make us more secure: Previously, we might give Alice our crypto assets to hold. There were risks:
Alice might take the assets and disappear.
Alice might spend the assets and pretend that she still has them (fractional model).
Alice might store the assets insecurely and they'll get stolen.
Alice might give the assets to someone else by mistake or by force.
Alice might lose access to the assets.
But "no worries", Alice has a custodian named Bob. Bob is dressed in a nice suit. He knows some politicians. And he drives a Porsche. "So you have nothing to worry about!". And look at all the benefits we get:
Alice can't take the assets and disappear (unless she asks Bob or never gives them to Bob).
Alice can't spend the assets and pretend that she still has them. (Unless she didn't give them to Bob or asks him for them.)
Alice can't store the assets insecurely so they get stolen. (After all - she doesn't have any control over the withdrawal process from any of Bob's systems, right?)
Alice can't give the assets to someone else by mistake or by force. (Bob will stop her, right Bob?)
Alice can't lose access to the funds. (She'll always be present, sane, and remember all secrets, right?)
See - all problems are solved! All we have to worry about now is:
Bob might take the assets and disappear.
Bob might spend the assets and pretend that he still has them (fractional model).
Bob might store the assets insecurely and they'll get stolen.
Bob might give the assets to someone else by mistake or by force.
Bob might lose access to the assets.
It's pretty simple. Before we had to trust Alice. Now we only have to trust Alice, Bob, and all the ways in which they communicate. Just think of how much more secure we are! "On top of that", Bob assures us, "we're using a special wallet structure". Bob shows Alice a diagram. "We've broken the balance up and store it in lots of smaller wallets. That way", he assures her, "a thief can't take it all at once". And he points to a historic case where a large sum was taken "because it was stored in a single wallet... how stupid". "Very early on, we used to have all the crypto in one wallet", he said, "and then one Christmas a hacker came and took it all. We call him the Grinch. Now we individually wrap each crypto and stick it under a binary search tree. The Grinch has never been back since." "As well", Bob continues, "even if someone were to get in, we've got insurance. It covers all thefts and even coercion, collusion, and misplaced keys - only subject to the policy terms and conditions." And with that, he pulls out a phone-book sized contract and slams it on the desk with a thud. "Yep", he continues, "we're paying top dollar for one of the best policies in the country!" "Can I read it?' Alice asks. "Sure," Bob says, "just as soon as our legal team is done with it. They're almost through the first chapter." He pauses, then continues. "And can you believe that sales guy Mike? He has the same year Porsche as me. I mean, what are the odds?" "Do you use multi-sig?", Alice asks. "Absolutely!" Bob replies. "All our engineers are fully trained in multi-sig. Whenever we want to set up a new wallet, we generate 2 separate keys in an air-gapped process and store them in this proprietary system here. Look, it even requires the biometric signature from one of our team members to initiate any withdrawal." He demonstrates by pressing his thumb into the display. "We use a third-party cloud validation API to match the thumbprint and authorize each withdrawal. The keys are also backed up daily to an off-site third-party." "Wow that's really impressive," Alice says, "but what if we need access for a withdrawal outside of office hours?" "Well that's no issue", Bob says, "just send us an email, call, or text message and we always have someone on staff to help out. Just another part of our strong commitment to all our customers!" "What about Proof of Reserve?", Alice asks. "Of course", Bob replies, "though rather than publish any blockchain addresses or signed transaction, for privacy we just do a SHA256 refactoring of the inverse hash modulus for each UTXO nonce and combine the smart contract coefficient consensus in our hyperledger lightning node. But it's really simple to use." He pushes a button and a large green checkmark appears on a screen. "See - the algorithm ran through and reserves are proven." "Wow", Alice says, "you really know your stuff! And that is easy to use! What about fiat balances?" "Yeah, we have an auditor too", Bob replies, "Been using him for a long time so we have quite a strong relationship going! We have special books we give him every year and he's very efficient! Checks the fiat, crypto, and everything all at once!" "We used to have a nice offline multi-sig setup we've been using without issue for the past 5 years, but I think we'll move all our funds over to your facility," Alice says. "Awesome", Bob replies, "Thanks so much! This is perfect timing too - my Porsche got a dent on it this morning. We have the paperwork right over here." "Great!", Alice replies. And with that, Alice gets out her pen and Bob gets the contract. "Don't worry", he says, "you can take your crypto-assets back anytime you like - just subject to our cancellation policy. Our annual management fees are also super low and we don't adjust them often". How many holes have to exist for your funds to get stolen? Just one. Why are we taking a powerful offline multi-sig setup, widely used globally in hundreds of different/lacking regulatory environments with 0 breaches to date, and circumventing it by a demonstrably weak third party layer? And paying a great expense to do so? If you go through the list of breaches in the past 2 years to highly credible organizations, you go through the list of major corporate frauds (only the ones we know about), you go through the list of all the times platforms have lost funds, you go through the list of times and ways that people have lost their crypto from identity theft, hot wallet exploits, extortion, etc... and then you go through this custodian with a fine-tooth comb and truly believe they have value to add far beyond what you could, sticking your funds in a wallet (or set of wallets) they control exclusively is the absolute worst possible way to take advantage of that security. The best way to add security for crypto-assets is to make a stronger multi-sig. With one custodian, what you are doing is giving them your cryptocurrency and hoping they're honest, competent, and flawlessly secure. It's no different than storing it on a really secure exchange. Maybe the insurance will cover you. Didn't work for Bitpay in 2015. Didn't work for Yapizon in 2017. Insurance has never paid a claim in the entire history of cryptocurrency. But maybe you'll get lucky. Maybe your exact scenario will buck the trend and be what they're willing to cover. After the large deductible and hopefully without a long and expensive court battle. And you want to advertise this increase in risk, the lapse of judgement, an accident waiting to happen, as though it's some kind of benefit to customers ("Free institutional-grade storage for your digital assets.")? And then some people are writing to the OSC that custodians should be mandatory for all funds on every exchange platform? That this somehow will make Canadians as a whole more secure or better protected compared with standard air-gapped multi-sig? On what planet? Most of the problems in Canada stemmed from one thing - a lack of transparency. If Canadians had known what a joke Quadriga was - it wouldn't have grown to lose $400m from hard-working Canadians from coast to coast to coast. And Gerald Cotten would be in jail, not wherever he is now (at best, rotting peacefully). EZ-BTC and mister Dave Smilie would have been a tiny little scam to his friends, not a multi-million dollar fraud. Einstein would have got their act together or been shut down BEFORE losing millions and millions more in people's funds generously donated to criminals. MapleChange wouldn't have even been a thing. And maybe we'd know a little more about CoinTradeNewNote - like how much was lost in there. Almost all of the major losses with cryptocurrency exchanges involve deception with unbacked funds. So it's great to see transparency reports from BitBuy and ShakePay where someone independently verified the backing. The only thing we don't have is:
ANY CERTAINTY BALANCES WEREN'T EXCLUDED. Quadriga's largest account was $70m. 80% of funds are in 20% of accounts (Pareto principle). All it takes is excluding a few really large accounts - and nobody's the wiser. A fractional platform can easily pass any audit this way.
ANY VISIBILITY WHATSOEVER INTO THE CUSTODIANS. BitBuy put out their report before moving all the funds to their custodian and ShakePay apparently can't even tell us who the custodian is. That's pretty important considering that basically all of the funds are now stored there.
ANY IDEA ABOUT THE OTHER EXCHANGES. In order for this to be effective, it has to be the norm. It needs to be "unusual" not to know. If obscurity is the norm, then it's super easy for people like Gerald Cotten and Dave Smilie to blend right in.
It's not complicated to validate cryptocurrency assets. They need to exist, they need to be spendable, and they need to cover the total balances. There are plenty of credible people and firms across the country that have the capacity to reasonably perform this validation. Having more frequent checks by different, independent, parties who publish transparent reports is far more valuable than an annual check by a single "more credible/official" party who does the exact same basic checks and may or may not publish anything. Here's an example set of requirements that could be mandated:
First report within 1 month of launching, another within 3 months, and further reports at minimum every 6 months thereafter.
No auditor can be repeated within a 12 month period.
All reports must be public, identifying the auditor and the full methodology used.
All auditors must be independent of the firm being audited with no conflict of interest.
Reports must include the percentage of each asset backed, and how it's backed.
The auditor publishes a hash list, which lists a hash of each customer's information and balances that were included. Hash is one-way encryption so privacy is fully preserved. Every customer can use this to have 100% confidence they were included.
If we want more extensive requirements on audits, these should scale upward based on the total assets at risk on the platform, and whether the platform has loaned their assets out.
There are ways to structure audits such that neither crypto assets nor customer information are ever put at risk, and both can still be properly validated and publicly verifiable. There are also ways to structure audits such that they are completely reasonable for small platforms and don't inhibit innovation in any way. By making the process as reasonable as possible, we can completely eliminate any reason/excuse that an honest platform would have for not being audited. That is arguable far more important than any incremental improvement we might get from mandating "the best of the best" accountants. Right now we have nothing mandated and tons of Canadians using offshore exchanges with no oversight whatsoever. Transparency does not prove crypto assets are safe. CoinTradeNewNote, Flexcoin ($600k), and Canadian Bitcoins ($100k) are examples where crypto-assets were breached from platforms in Canada. All of them were online wallets and used no multi-sig as far as any records show. This is consistent with what we see globally - air-gapped multi-sig wallets have an impeccable record, while other schemes tend to suffer breach after breach. We don't actually know how much CoinTrader lost because there was no visibility. Rather than publishing details of what happened, the co-founder of CoinTrader silently moved on to found another platform - the "most trusted way to buy and sell crypto" - a site that has no information whatsoever (that I could find) on the storage practices and a FAQ advising that “[t]rading cryptocurrency is completely safe” and that having your own wallet is “entirely up to you! You can certainly keep cryptocurrency, or fiat, or both, on the app.” Doesn't sound like much was learned here, which is really sad to see. It's not that complicated or unreasonable to set up a proper hardware wallet. Multi-sig can be learned in a single course. Something the equivalent complexity of a driver's license test could prevent all the cold storage exploits we've seen to date - even globally. Platform operators have a key advantage in detecting and preventing fraud - they know their customers far better than any custodian ever would. The best job that custodians can do is to find high integrity individuals and train them to form even better wallet signatories. Rather than mandating that all platforms expose themselves to arbitrary third party risks, regulations should center around ensuring that all signatories are background-checked, properly trained, and using proper procedures. We also need to make sure that signatories are empowered with rights and responsibilities to reject and report fraud. They need to know that they can safely challenge and delay a transaction - even if it turns out they made a mistake. We need to have an environment where mistakes are brought to the surface and dealt with. Not one where firms and people feel the need to hide what happened. In addition to a knowledge-based test, an auditor can privately interview each signatory to make sure they're not in coercive situations, and we should make sure they can freely and anonymously report any issues without threat of retaliation. A proper multi-sig has each signature held by a separate person and is governed by policies and mutual decisions instead of a hierarchy. It includes at least one redundant signature. For best results, 3of4, 3of5, 3of6, 4of5, 4of6, 4of7, 5of6, or 5of7. History has demonstrated over and over again the risk of hot wallets even to highly credible organizations. Nonetheless, many platforms have hot wallets for convenience. While such losses are generally compensated by platforms without issue (for example Poloniex, Bitstamp, Bitfinex, Gatecoin, Coincheck, Bithumb, Zaif, CoinBene, Binance, Bitrue, Bitpoint, Upbit, VinDAX, and now KuCoin), the public tends to focus more on cases that didn't end well. Regardless of what systems are employed, there is always some level of risk. For that reason, most members of the public would prefer to see third party insurance. Rather than trying to convince third party profit-seekers to provide comprehensive insurance and then relying on an expensive and slow legal system to enforce against whatever legal loopholes they manage to find each and every time something goes wrong, insurance could be run through multiple exchange operators and regulators, with the shared interest of having a reputable industry, keeping costs down, and taking care of Canadians. For example, a 4 of 7 multi-sig insurance fund held between 5 independent exchange operators and 2 regulatory bodies. All Canadian exchanges could pay premiums at a set rate based on their needed coverage, with a higher price paid for hot wallet coverage (anything not an air-gapped multi-sig cold wallet). Such a model would be much cheaper to manage, offer better coverage, and be much more reliable to payout when needed. The kind of coverage you could have under this model is unheard of. You could even create something like the CDIC to protect Canadians who get their trading accounts hacked if they can sufficiently prove the loss is legitimate. In cases of fraud, gross negligence, or insolvency, the fund can be used to pay affected users directly (utilizing the last transparent balance report in the worst case), something which private insurance would never touch. While it's recommended to have official policies for coverage, a model where members vote would fully cover edge cases. (Could be similar to the Supreme Court where justices vote based on case law.) Such a model could fully protect all Canadians across all platforms. You can have a fiat coverage governed by legal agreements, and crypto-asset coverage governed by both multi-sig and legal agreements. It could be practical, affordable, and inclusive. Now, we are at a crossroads. We can happily give up our freedom, our innovation, and our money. We can pay hefty expenses to auditors, lawyers, and regulators year after year (and make no mistake - this cost will grow to many millions or even billions as the industry grows - and it will be borne by all Canadians on every platform because platforms are not going to eat up these costs at a loss). We can make it nearly impossible for any new platform to enter the marketplace, forcing Canadians to use the same stagnant platforms year after year. We can centralize and consolidate the entire industry into 2 or 3 big players and have everyone else fail (possibly to heavy losses of users of those platforms). And when a flawed security model doesn't work and gets breached, we can make it even more complicated with even more people in suits making big money doing the job that blockchain was supposed to do in the first place. We can build a system which is so intertwined and dependent on big government, traditional finance, and central bankers that it's future depends entirely on that of the fiat system, of fractional banking, and of government bail-outs. If we choose this path, as history has shown us over and over again, we can not go back, save for revolution. Our children and grandchildren will still be paying the consequences of what we decided today. Or, we can find solutions that work. We can maintain an open and innovative environment while making the adjustments we need to make to fully protect Canadian investors and cryptocurrency users, giving easy and affordable access to cryptocurrency for all Canadians on the platform of their choice, and creating an environment in which entrepreneurs and problem solvers can bring those solutions forward easily. None of the above precludes innovation in any way, or adds any unreasonable cost - and these three policies would demonstrably eliminate or resolve all 109 historic cases as studied here - that's every single case researched so far going back to 2011. It includes every loss that was studied so far not just in Canada but globally as well. Unfortunately, finding answers is the least challenging part. Far more challenging is to get platform operators and regulators to agree on anything. My last post got no response whatsoever, and while the OSC has told me they're happy for industry feedback, I believe my opinion alone is fairly meaningless. This takes the whole community working together to solve. So please let me know your thoughts. Please take the time to upvote and share this with people. Please - let's get this solved and not leave it up to other people to do. Facts/background/sources (skip if you like):
The inspiration for the paragraph about splitting wallets was an actual quote from a Canadian company providing custodial services in response to the OSC consultation paper: "We believe that it will be in the in best interests of investors to prohibit pooled crypto assets or ‘floats’. Most Platforms pool assets, citing reasons of practicality and expense. The recent hack of the world’s largest Platform – Binance – demonstrates the vulnerability of participants’ assets when such concessions are made. In this instance, the Platform’s entire hot wallet of Bitcoins, worth over $40 million, was stolen, facilitated in part by the pooling of client crypto assets." "the maintenance of participants (and Platform) crypto assets across multiple wallets distributes the related risk and responsibility of security - reducing the amount of insurance coverage required and making insurance coverage more readily obtainable". For the record, their reply also said nothing whatsoever about multi-sig or offline storage.
In addition to the fact that the $40m hack represented only one "hot wallet" of Binance, and they actually had the vast majority of assets in other wallets (including mostly cold wallets), multiple real cases have clearly demonstrated that risk is still present with multiple wallets. Bitfinex, VinDAX, Bithumb, Altsbit, BitPoint, Cryptopia, and just recently KuCoin all had multiple wallets breached all at the same time, and may represent a significantly larger impact on customers than the Binance breach which was fully covered by Binance. To represent that simply having multiple separate wallets under the same security scheme is a comprehensive way to reduce risk is just not true.
Private insurance has historically never covered a single loss in the cryptocurrency space (at least, not one that I was able to find), and there are notable cases where massive losses were not covered by insurance. Bitpay in 2015 and Yapizon in 2017 both had insurance policies that didn't pay out during the breach, even after a lengthly court process. The same insurance that ShakePay is presently using (and announced to much fanfare) was describe by their CEO himself as covering “physical theft of the media where the private keys are held,” which is something that has never historically happened. As was said with regard to the same policy in 2018 - “I don’t find it surprising that Lloyd’s is in this space,” said Johnson, adding that to his mind the challenge for everybody is figuring out how to structure these policies so that they are actually protective. “You can create an insurance policy that protects no one – you know there are so many caveats to the policy that it’s not super protective.”
The most profitable policy for a private insurance company is one with the most expensive premiums that they never have to pay a claim on. They have no inherent incentive to take care of people who lost funds. It's "cheaper" to take the reputational hit and fight the claim in court. The more money at stake, the more the insurance provider is incentivized to avoid payout. They're not going to insure the assets unless they have reasonable certainty to make a profit by doing so, and they're not going to pay out a massive sum unless it's legally forced. Private insurance is always structured to be maximally profitable to the insurance provider.
The circumvention of multi-sig was a key factor in the massive Bitfinex hack of over $60m of bitcoin, which today still sits being slowly used and is worth over $3b. While Bitfinex used a qualified custodian Bitgo, which was and still is active and one of the industry leaders of custodians, and they set up 2 of 3 multi-sig wallets, the entire system was routed through Bitfinex, such that Bitfinex customers could initiate the withdrawals in a "hot" fashion. This feature was also a hit with the hacker. The multi-sig was fully circumvented.
Bitpay in 2015 was another example of a breach that stole 5,000 bitcoins. This happened not through the exploit of any system in Bitpay, but because the CEO of a company they worked with got their computer hacked and the hackers were able to request multiple bitcoin purchases, which Bitpay honoured because they came from the customer's computer legitimately. Impersonation is a very common tactic used by fraudsters, and methods get more extreme all the time.
A notable case in Canada was the Canadian Bitcoins exploit. Funds were stored on a server in a Rogers Data Center, and the attendee was successfully convinced to reboot the server "in safe mode" with a simple phone call, thus bypassing the extensive security and enabling the theft.
The very nature of custodians circumvents multi-sig. This is because custodians are not just having to secure the assets against some sort of physical breach but against any form of social engineering, modification of orders, fraudulent withdrawal attempts, etc... If the security practices of signatories in a multi-sig arrangement are such that the breach risk of one signatory is 1 in 100, the requirement of 3 independent signatures makes the risk of theft 1 in 1,000,000. Since hackers tend to exploit the weakest link, a comparable custodian has to make the entry and exit points of their platform 10,000 times more secure than one of those signatories to provide equivalent protection. And if the signatories beef up their security by only 10x, the risk is now 1 in 1,000,000,000. The custodian has to be 1,000,000 times more secure. The larger and more complex a system is, the more potential vulnerabilities exist in it, and the fewer people can understand how the system works when performing upgrades. Even if a system is completely secure today, one has to also consider how that system might evolve over time or work with different members.
By contrast, offline multi-signature solutions have an extremely solid record, and in the entire history of cryptocurrency exchange incidents which I've studied (listed here), there has only been one incident (796 exchange in 2015) involving an offline multi-signature wallet. It happened because the customer's bitcoin address was modified by hackers, and the amount that was stolen ($230k) was immediately covered by the exchange operators. Basically, the platform operators were tricked into sending a legitimate withdrawal request to the wrong address because hackers exploited their platform to change that address. Such an issue would not be prevented in any way by the use of a custodian, as that custodian has no oversight whatsoever to the exchange platform. It's practical for all exchange operators to test large withdrawal transactions as a general policy, regardless of what model is used, and general best practice is to diagnose and fix such an exploit as soon as it occurs.
False promises on the backing of funds played a huge role in the downfall of Quadriga, and it's been exposed over and over again (MyCoin, PlusToken, Bitsane, Bitmarket, EZBTC, IDAX). Even today, customers have extremely limited certainty on whether their funds in exchanges are actually being backed or how they're being backed. While this issue is not unique to cryptocurrency exchanges, the complexity of the technology and the lack of any regulation or standards makes problems more widespread, and there is no "central bank" to come to the rescue as in the 2008 financial crisis or during the great depression when "9,000 banks failed".
In addition to fraudulent operations, the industry is full of cases where operators have suffered breaches and not reported them. Most recently, Einstein was the largest case in Canada, where ongoing breaches and fraud were perpetrated against the platform for multiple years and nobody found out until the platform collapsed completely. While fraud and breaches suck to deal with, they suck even more when not dealt with. Lack of visibility played a role in the largest downfalls of Mt. Gox, Cryptsy, and Bitgrail. In some cases, platforms are alleged to have suffered a hack and keep operating without admitting it at all, such as CoinBene.
It surprises some to learn that a cryptographic solution has already existed since 2013, and gained widespread support in 2014 after Mt. Gox. Proof of Reserves is a full cryptographic proof that allows any customer using an exchange to have complete certainty that their crypto-assets are fully backed by the platform in real-time. This is accomplished by proving that assets exist on the blockchain, are spendable, and fully cover customer deposits. It does not prove safety of assets or backing of fiat assets.
If we didn't care about privacy at all, a platform could publish their wallet addresses, sign a partial transaction, and put the full list of customer information and balances out publicly. Customers can each check that they are on the list, that the balances are accurate, that the total adds up, and that it's backed and spendable on the blockchain. Platforms who exclude any customer take a risk because that customer can easily check and see they were excluded. So together with all customers checking, this forms a full proof of backing of all crypto assets.
However, obviously customers care about their private information being published. Therefore, a hash of the information can be provided instead. Hash is one-way encryption. The hash allows the customer to validate inclusion (by hashing their own known information), while anyone looking at the list of hashes cannot determine the private information of any other user. All other parts of the scheme remain fully intact. A model like this is in use on the exchange CoinFloor in the UK.
A Merkle tree can provide even greater privacy. Instead of a list of balances, the balances are arranged into a binary tree. A customer starts from their node, and works their way to the top of the tree. For example, they know they have 5 BTC, they plus 1 other customer hold 7 BTC, they plus 2-3 other customers hold 17 BTC, etc... until they reach the root where all the BTC are represented. Thus, there is no way to find the balances of other individual customers aside from one unidentified customer in this case.
Proposals such as this had the backing of leaders in the community including Nic Carter, Greg Maxwell, and Zak Wilcox. Substantial and significant effort started back in 2013, with massive popularity in 2014. But what became of that effort? Very little. Exchange operators continue to refuse to give visibility. Despite the fact this information can often be obtained through trivial blockchain analysis, no Canadian platform has ever provided any wallet addresses publicly. As described by the CEO of Newton "For us to implement some kind of realtime Proof of Reserves solution, which I'm not opposed to, it would have to ... Preserve our users' privacy, as well as our own. Some kind of zero-knowledge proof". Kraken describes here in more detail why they haven't implemented such a scheme. According to professor Eli Ben-Sasson, when he spoke with exchanges, none were interested in implementing Proof of Reserves.
And yet, Kraken's places their reasoning on a page called "Proof of Reserves". More recently, both BitBuy and ShakePay have released reports titled "Proof of Reserves and Security Audit". Both reports contain disclaimers against being audits. Both reports trust the customer list provided by the platform, leaving the open possibility that multiple large accounts could have been excluded from the process. Proof of Reserves is a blockchain validation where customers see the wallets on the blockchain. The report from Kraken is 5 years old, but they leave it described as though it was just done a few weeks ago. And look at what they expect customers to do for validation. When firms represent something being "Proof of Reserve" when it's not, this is like a farmer growing fruit with pesticides and selling it in a farmers market as organic produce - except that these are people's hard-earned life savings at risk here. Platforms are misrepresenting the level of visibility in place and deceiving the public by their misuse of this term. They haven't proven anything.
Fraud isn't a problem that is unique to cryptocurrency. Fraud happens all the time. Enron, WorldCom, Nortel, Bear Stearns, Wells Fargo, Moser Baer, Wirecard, Bre-X, and Nicola are just some of the cases where frauds became large enough to become a big deal (and there are so many countless others). These all happened on 100% reversible assets despite regulations being in place. In many of these cases, the problems happened due to the over-complexity of the financial instruments. For example, Enron had "complex financial statements [which] were confusing to shareholders and analysts", creating "off-balance-sheet vehicles, complex financing structures, and deals so bewildering that few people could understand them". In cryptocurrency, we are often combining complex financial products with complex technologies and verification processes. We are naïve if we think problems like this won't happen. It is awkward and uncomfortable for many people to admit that they don't know how something works. If we want "money of the people" to work, the solutions have to be simple enough that "the people" can understand them, not so confusing that financial professionals and technology experts struggle to use or understand them.
For those who question the extent to which an organization can fool their way into a security consultancy role, HB Gary should be a great example to look at. Prior to trying to out anonymous, HB Gary was being actively hired by multiple US government agencies and others in the private sector (with glowing testimonials). The published articles and hosted professional security conferences. One should also look at this list of data breaches from the past 2 years. Many of them are large corporations, government entities, and technology companies. These are the ones we know about. Undoubtedly, there are many more that we do not know about. If HB Gary hadn't been "outted" by anonymous, would we have known they were insecure? If the same breach had happened outside of the public spotlight, would it even have been reported? Or would HB Gary have just deleted the Twitter posts, brought their site back up, done a couple patches, and kept on operating as though nothing had happened?
In the case of Quadriga, the facts are clear. Despite past experience with platforms such as MapleChange in Canada and others around the world, no guidance or even the most basic of a framework was put in place by regulators. By not clarifying any sort of legal framework, regulators enabled a situation where a platform could be run by former criminal Mike Dhanini/Omar Patryn, and where funds could be held fully unchecked by one person. At the same time, the lack of regulation deterred legitimate entities from running competing platforms and Quadriga was granted a money services business license for multiple years of operation, which gave the firm the appearance of legitimacy. Regulators did little to protect Canadians despite Quadriga failing to file taxes from 2016 onward. The entire administrative team had resigned and this was public knowledge. Many people had suspicions of what was going on, including Ryan Mueller, who forwarded complaints to the authorities. These were ignored, giving Gerald Cotten the opportunity to escape without justice.
There are multiple issues with the SOC II model including the prohibitive cost (you have to find a third party accounting firm and the prices are not even listed publicly on any sites), the requirement of operating for a year (impossible for new platforms), and lack of any public visibility (SOC II are private reports that aren't shared outside the people in suits).
Securities frameworks are expensive. Sarbanes-Oxley is estimated to cost $5.1 million USD/yr for the average Fortune 500 company in the United States. Since "Fortune 500" represents the top 500 companies, that means well over $2.55 billion USD (~$3.4 billion CAD) is going to people in suits. Isn't the problem of trust and verification the exact problem that the blockchain is supposed to solve?
To use Quadriga as justification for why custodians or SOC II or other advanced schemes are needed for platforms is rather silly, when any framework or visibility at all, or even the most basic of storage policies, would have prevented the whole thing. It's just an embarrassment.
We are now seeing regulators take strong action. CoinSquare in Canada with multi-million dollar fines. BitMex from the US, criminal charges and arrests. OkEx, with full disregard of withdrawals and no communication. Who's next?
We have a unique window today where we can solve these problems, and not permanently destroy innovation with unreasonable expectations, but we need to act quickly. This is a unique historic time that will never come again.
The Simulation, The Multiverse, The Blockchain, and the Powers of Prediction acting on the Time-Space Continuum
The Simulation - The Multiverse A popular topic in philosophy and science as of late is the discussion regarding whether we live in a Simulation. This idea might seem modern, or like it was inspired by the Matrix trilogy, but in fact, this idea is as ancient as any. In Hinduism, the creation of the universe is attributed to Brahman - the idea that reality exists within the mind of the creator. This is altogether not terribly different than the story we are told in the Bible - that existence originates from the thoughts of a divine creator. The alpha, the beginning, and the omega, the end - these are points in time that didn't exist until their creation and measurement - more accurately, the measurement, by us, humans. How does this relate to The Simulation? We would have to ask, if this is a Simulation, then what is it a Simulation of? If we can look at the above stories, it is the question that seeks to know, "what would happen between the beginning and end of time?" And in this sense, what you are experiencing is one of the many possibilities that exist in between the beginning and end. You are simply, somewhere in the middle, between those two points, measuring the flow of time and change in reality. The Simulation Hypothesis is proposing that you are existing in a state of quantum infinite possibilities, and measuring the reality that currently appears as data in the form of vibration ( as light, sound, or materialistically), interpreted by your sensory organs, formatted into signals that can be interpreted by your nervous system which through your brain creates what we call, reality. Your recollection of the past reality is stored in your brain as memory - through a series of neural pathways that we cannot observe from the outside of the mind - but we have learned that this mechanism is subject to tampering. The human memory is a terrible way to store data - studies have shown that it is far from perfect. We constantly change how we remember the past so that we can live with ourselves in the present - we avoid taking responsibility for the part we play in the present entirely. We are seeking to justify our behavior in the past to avoid taking blame for the present realities we experience when they are negative. And yet, the memories that we contain about our perception of the past largely shapes how we act in the present, in an attempt to extrapolate the future in pursuit of a better one. Reality, itself, is subject to tampering. In an attempt to understand where we are in the planetary story, we pay attention to “world events” in anticipation that these events will affect us. We hear a story, and are told how it might affect us, and when we are affected, our minds create a cause and effect relationship between the two objects - the cause, and the experienced affect. Future similarities that fit the model to perceived correlations of the past result in modified behavior in the present to mitigate against the expected outcome. In this sense, we are computers made of meat, in a never ending cycle of storing data, observing data for patterns, in an attempt to extrapolate the outcomes of the future. We are walking prediction machines, looking into the past for trends, so we might learn how to craft a better future. Self awareness, and humility - result in our ability to observe how flawed these perceptions have been in the past, but this is in itself, a step in personal growth that many people are largely seemingly incapable of. We are innately aware of our ability to use these pattern recognition abilities to observe unpleasant past experiences in hopes of avoiding similar experiences in the future - and yet, we are also aware of how often our ability to predict the future goes awry - sometimes resulting in the unpleasant reality that we hoped to avoid. In this sense, we are always looking for better data, so that we can try to make better, more accurate, predictions about the future. And this action, of looking for a better authority figure to tell us what needs to happen next to avoid a future we all want, is dangerous in itself. This behavior of outsourcing our concern and contemplation to an authority figure is perhaps the most destructive habit humanity has ever shown itself to be capable of. And so, going back to our creation story, we are a microcosm of a celestial attempt to compute a simply question: What will/has/might happen between the beginning and end of time, as I perceive it? The brutal irony of the question, is that when a meat computer exists within a experiment to see what happens between the beginning and end of time, the meat computer within the calculation has a way of changing the outcome of the cosmic calculation of this question. An infinite amount of possibility exists as a result of a meat computer within a computation that is prone to making mistakes, unintentionally. But to err is human, and to be expected when the human doesn't have enough perspective or data at any one moment to make a completely educated guess about what's going to happen next, though the hardware is likely capable of optimizing for the future, if it had enough perspective. In spite of this, we can hopefully observe that the overarching trend is towards “good” - and in that sense, it is seemingly true, that as long as you try your best, you can forget the rest, things seem to trend in the right direction. But we must consider the possibility in every choice ever made, that another choice could have taken place that might echo through the reality of time. Cleaving the possible universe in two directions - some people refer to this as the multiverse - the multiple possible universes that could exist infinitely, in all directions. More simply put, it is all the possible configurations of matter and energy in the universe that could have ever been possible, when including such a fuzzy calculator as the meat computer that the human mind is. The Blockchain The first blockchain technology, Bitcoin, was created by a mysterious figure going under the pseudonym “Satoshi Nakamoto”. It was created to act as a replacement for the banking system that didn't require a third party like Visa, Mastercard, or Bank of America to facilitate. Simply put, it is a system that keeps track of the balances of of the quantity of bitcoin in every account on the network, and keep track of its changes. The intervals that change is permitted to occur on are called, “blocks” - hence the name, blockchain. When you start at the beginning, or alpha/genesis block, there is nothing, and as blocks are created, a more complex arrangement of the balances of bitcoin are created using algorithms to validate the changes from one block to another. More specifically, it is a digital universe that is storing the present configuration of 1’s and 0’s to represent the location of all the bitcoin in existence by way of “wallet” addresses. But, let us imagine for a moment that this system was not accounting for all of the possible locations of “internet money” in “wallets” but instead, was accounting for locations in time and space, and the characteristics of matter and energy at those points. Imagine, that instead this decentralized network of computers was coming to an agreement about reality, not in the sense of how much money each of the users had, but rather how many protons, neutrons, and electrons existed in every possible location in space, and with what amount of energy. Now, every time a block is added to the chain, we are observing the increase/decrease in the presence of energy and particles in each of those possible points in space. If we viewed the changes in these points in space across a progression, we would be observing the change of matter in the flow of time. In this example, the smallest unit of time, is considered to be one block - in physics, the term for the smallest possible unit of time is referred to as a Planck. Physics would tell you that a series of Plancks observed together is what creates a moment in your experience of reality. The change from one planck to another is similar to to the blockchain - your ability to perceive these changes accounts for the continual progression of time as you observe it, which is to be the reality you live in. In the world of blockchain technology, if the machines measuring the change in reality have a disagreement - this can sometimes result in what is called a “fork”. It is when the network of machines measuring, changing, and maintaining the records of the past decide to go their separate ways. Litecoin and bitcoin cash are forks of bitcoin. Ethereum and Ethereum Classic are forks of each other. In this sense, we are watching these blockchain technologies create multiverses every time a fork happens. This is also what is happening in your reality every moment, but you simply cannot access the other forks, because you are experiencing the present reality you measure and choose to participate in while hoping to experience a better future. Prediction What we might consider prediction of the future is in many ways also our creation of that future through action. To think that a desired future is going to come your way simply by wishing for it without participation in the creation of that future is what some might refer to as “magical thinking”. However, inaction is, in itself, a choice that will affect the future. Sometimes, sitting and waiting patiently for change to occur is the right choice. Sometimes, expecting change to occur through inaction is madness. Whether something is madness, or the right choice, largely depends on the outcome, not that actions taken to get there. We do not evaluate a decision based on intention or hope - we base it on results. Results are, after all, the litmus test we use to determine if a choice is a success or not. But hopefully you can see, that the very action of attempting to predict the future, or assuming that one is capable of doing so, inherently changes the future. Which leads to an interesting question - can we predict a desired future, and through the expectation of it to come, actually cause it to manifest it? In short, this is the power of belief and its ability to change the world. It is the Law of Attraction. If you believe that America is going to erupt in cannibalistic anarchy, you might buy a gun, some salt, and pepper. In the presence of these ingredients, it has become that much easier to comfortably eat your neighbor in that horrific future, and thus, created a higher probability of cannibalistic anarchy occuring that drove you to prepare for it. Unfortunately, sales of guns, salt, and pepper are at an all-time high. So in this sense, we should be very afraid. But, perhaps, if we decided collectively that this future is not one that we want to move towards anymore, and predicted a better future for ourselves based on an honest reflection of humanities propensity for cruelty, greed, and madness - that we might be able engineer a prediction mechanism that could use those all too common human traits to manifest a better future. Imagine you are looking out the gap in the blinds of your house - waiting for the race war, or Mad Max future to show itself on your front door. You are deciding whether or not to buy an AR-15 and load up on seasoning and ammunition. The old adage, “Better to have one and not need it” has been the prevailing theory on how to ensure survival in a world where if you don't have a firearm, then in all likelihood, your neighbor does. But what about if we created an alternative that would better suit your needs when the shit hits the fan? Imagine if you could go to a marketplace for prediction, where you could express your worry, certainty, and desire for security in dollars. This already exists in many forms. You can imagine these marketplaces like a sportsbook or bookie for the future. Instead of betting on who is going to win the superbowl, you are betting on the likelihood of an awful outcome that worries you. This is also functionally what an insurance contract is. But imagine if we created an insurance plan that is so competitive in protecting you against the cannibalistic anarchy you are fearing, that instead of buying an AR-15, ammo, and seasoning, you purchased a position in the marketplace where if there was a collapse of society, you would get 500x your investment in a global store of value, like gold, or cryptocurrency. Now, instead of having spent 1,000 USD on an AR-15 and only having a AR-15 to survive the apocalypse with - you have the equivalent of 5,000,000 USD in transferable wealth. You can certainly buy a spare AR-15 at that point. You can also buy any other supplies, like chickens, salt, and pepper - and maybe not need to eat your neighbor. Would we not say that by using such a prediction market, we created a better possible future, where the likelihood of cannibalistic anarchy wasnt increased by the purchase of a firearm? Did the alternative to purchase such a position within a prediction market in fact decrease the likelihood of the awful outcome we had come to fear? Almost certainly. In this sense, simply because we predicted with near certainty that there would be no apocalypse, that the likelihood of an apocalypse decreased. But where would the limits be? How can we know if we never try? Imagine if instead of betting against the apocalypse, there was a 250:1 payout against the likelihood that a base on the moon will be created or discovered this year. In one year, if there was no moon base discovered or created, then the money anyone lost by betting such an outcome would happen could be rolled over into the next year. If in the second year, there was still no moon base discovered or created, the funds could be rolled over an additional time. If no progress was being made on creating a moon base, then we could increase the payout over time to maybe 500:1. Until finally, Elon Musk sees that the costs of creating a moon base is recoverable by way of betting on himself, and builds one, recouping the cost of construction from the prediction market. In this sense, we can imagine a mechanism of prediction that is fueled by greed, fear, wealth, and ambition, that might be able to create or prevent a future that as a species we desire to create in a decentralized way - without ever needing to see our politicians create a compromise to give that future to us. Every moment of your life is an opportunity to create a fork that might lead somewhere better. Often, we simply aren't aware that we have other choices. Maybe its time that we become more aware, before some sort of artificial intelligence becomes aware and makes the choices for us. Conclusion Make no mistake about it - you live in a Simulation on some level. Your very perception of the events of your life is a Simulation that only exists within your own head. When your mind and another mind meet, a compromise of reality must take place if those minds are going to come to cooperate in the pursuit of a better future. On a grander scale, we might be living in a decentralized computational model of reality that only seemingly exists because we perceive the changes through the lenses of our eyes. But hopefully, we exist in a non-deterministic reality, where the past, present, and future are all infinitely configurable and possible. And if all things are possible, then the only thing we can hope to do in the present is increase the probability of our desired possible outcome. But, if we are going to continue to live in fear of each other, rather than cooperate, it seems there is little hope for humanity. We would have to put our faith in the idea that all of us are mirror images of each other, and all want a better future for our families - and hope that a better future has room for us all.
bat-brendaneich Admin 12:59 PM Thanks @bat-jennie. As people know we're deep into Mercury phase, with a few people working on Gemini (user-private ads, anonymous revenue share to user). We did the first batch of UGP grants last month and will do more in January. We're working on creator referral awards, to pay YouTubers and site owners who bring new users to the platform as measured by 30 days uptime in Brave. We had a successful pair of bizdev trips to NYC and London over last two months' time, getting close to announcing an ongoing partnership with a top-3 NYC media co. The tide is turning fast with publishers. Three years ago when I was thinking a lot about brave and studying problems in ad tech, I met with publishers and ad tech people in NYC. Some fear of ad blocking but mostly business as usual, even as programmatic plays launched in previous few years were hitting what now look like peaks (and trying to exit via M&A). Two years ago I met as Brave founder and pubs were mostly "you're an ad blocker, we hate you" but a few got the larger play. At that point I was thinking about Bravecoin and met with Stephan Tual and co. at Ethereum's London office; helpful but also clear it was too early to do "Bravecoin". Last year publishers started turning, because their revenue was going down y-o-y, partly from ad blocking but also from G and FB eating the best programmatic ads and owning the user. This year the worm has turned, so to speak -- no one discounts ad blocking and everyone is talking about GDPR + ePrivacy in Europe next year requiring consent for tracking, so with this as background I think we are well-positioned to move into Gemini phase of the BAT roadmap in 1H2018.
bat-jennie Admin 1:06 PM Wow, what an update! This is all very exciting news! I’m sure people are just dying to ask you their questions now! Let’s move onto those 🙂. Our first question comes from Modernity from Rocket Chat:
Why use a separate cryptocurrency (BAT) instead of just using ETH or a more established cryptocurrency?
bat-brendaneich Admin 1:08 PM Thanks, @modernity -- the answer is twofold: 1, to raise funds for the project (no shame in that); 2, to precreate the User Growth Pool before the sale to stake users with tokens, gratis. With ETH or other existing cryptocurrencies we would need a rich benefactor to endow the UGP and none were forthcoming. UGP+reserves wallet present notional value is $122M. I don't know of anyone who was willing to give us that much ETH. When I met with Ethereum folks in July 2015 and talked Bravecoin, I was inspired by "Social Credit" money theory. Give people tokens just for being citizens. That's the UGP.
bat-jennie Admin 1:10 PM @Robert.clark from Rocket Chat asks:
How do you envision the 'moat' of your startup being built? Is it about digging deep into the BAT reward system and creating truly better and more profitable ad experiences for the consumer as well as the advertiser, or more about the privacy focused / decentralized internet browsing experience?
bat-brendaneich Admin 1:13 PM Thanks @robert.clark -- we aim to standardize what we can and hope to work with Apple and Mozilla in W3C on anti-tracking specs in new year, so that's not the moat. The moat is attacking Google's main revenue source directly, while using as much chromium code as possible. That is a durable strategy as Google cannot diversify fast enough, and faces anti-competitive scrutiny in Europe that limits its ability to use MS-like tactics against us. If other browsers want to join in the platform, we will bring them on -- after we have built Gemini phase and specified endpoint as well as on-chain rules. In this light it is crucial we neutralize Chrome in every area where we do not differentiate by blocking by default. Note: blocking invisible trackers as well as all third party ads (and some 1st party that place with Google DFP), this gives 3-7x speedup on Android vs. Chrome, and Android Chrome has no extensions which means no adblockers. Google's "ad filter" is cosmetic and doesn't touch trackers or the ads its core business and public stock price depends upon (they'd be bad fiduciaries if they did hurt their revenue materially; I'd join the class action suit!). My view is G (and FB) are both "stuck"; they have limited ability to disrupt themselves, even ignoring usual big-company and innovator's dilemma problems. When thinking about moats and strategy, I find Mr. Spock's remark that "Military secrets are the most fleeting of all" helpful. Tech alone isn't a moat. Remember when Steve Jobs was rumored to be considering buying Dropbox? Then a bit later he said "that's just a feature" (meaning OS icloud integration)? The durable strategies go against deep conflicts of interest, in Google's case between Chrome users and G's ad business. Btw the latest on G's ad filter makes me think they'll get in legal and possibly antitrust trouble, the way they require verification. But we shall see!
bat-jennie Admin 1:18 PM @Irak from Rocket Chat asks:
Brave is an obvious buyout target for the major browsers and ad revenue companies. What do you believe would happen to BAT if a buyout occurs?
bat-jennie Admin 1:22 PM @Coke from Rocket Chat asks:
What are the Brave team's top three priorities at the moment?
bat-brendaneich Admin 1:24 PM @Coke, thanks. The BAT ones are 1/ more UGP grants, with sybil attack resistance; 2/ creator referral awards; 3/ publisher onboarding (the top-3 nyc media co. and others). For Brave we have 1/ bug fixes; 2/ performance and memory work; 3/ extension support on laptop/desktop.
bat-jennie Admin 1:26 PM @Steve-1 from Rocket Chat asks:
What’s the likelihood of BAT transitioning to its own independent blockchain at some point? Will BAT switch to an alternative Blockchain due to ETH scaling issues?
bat-brendaneich Admin 1:26 PM @steve-1 We have thought about this enough to view it as an option -- no token or coin of value should ever be marooned unless the human element goes wrong. For now we are confident in Ethereum scaling but we're keeping an eye (and will help if we can, as we grow).
bat-jennie Admin 1:27 PM @Decisive from Rocket Chat asks:
Is the UGP script locked in any way to prevent a mass sell off, or developepublisher payout via the smart contract, or is it to the discretion of the BAT team?
bat-brendaneich Admin 1:28 PM Hi @decisive: Currently locked in a wallet with keys held only by trusted/high-integrity founder-level people. We don't like fancy smart contracts; I'm skeptical of on-chain governance as right move for upgrading contracts; we're keeping it simple and vetting keyholders who are known and deeply invested in Brave. Only a few such people; I am one.
bat-jennie Admin 1:30 PM A user from Reddit asks:
How is the BAT browser extension planned or being developed? You have mentioned in the past that he heard Mozilla might be interested in integrating Brave into Firefox. Have there been any updates on that front?
bat-brendaneich Admin 1:31 PM First question may be about the idea of a BAT extension for other browsers, but that is premature. The big problem with UGP grants and Gemini-phase ad revenue shares to users is fraud. Just user-funded contributions has a fraud problem too: as with buy widgets, stolen CC identity => $20 charge to buy BAT => contribution at scale via sybils/mturk-users/bots-with-enough-work => settlement to colluding but verified (small blog) publisher. That's why I mentioned sybil-resistance above. So we can't just make a wish and try monitoring Basic Attention Metrics from an extension, and attributing BAT flows and creating user wallets, from extensions. There can be other problems, which I've noted elsewhere: lack of extension APIs to do all we do for the BAT platform to work (block ads/trackers, HTTPS Everywhere, Fingerprinting Protection, BAM and the ledger), extensions run in JS sandboxes with API limits. So to put first things first, we will build in Brave while keeping our code as separable from chromium (or the mobile webview on iOS) as possible. After we have those endpoing and on-chain specs I mentioned in pretty good shape, we can assess extension feasibility. On Mozilla, I can't speak for them. The friend who contacted after the BAT sale signaled interest but said it would take time, to which I said "same here" (per roadmap). I hope that answers the two reddit questions.
bat-jennie Admin 1:35 PM @badgamer5000 from Rocket Chat asks:
I've worked in the industry on both the publisher and advertiser side. Conceptually the model is fantastic. Cut out the costly middlemen, better rewards the publisher and the user. I'm struggling to see how online advertising moves into a permission-based model. Isn't there great risk of a sharp drop in available inventory for both publishers and advertisers? How do you see this transition period work? Maybe sites use a hybrid during this time? TLDR - How do you avoid short-term pain for publishers - who are already struggling massively - as they transition to BAT? Especially if Brave market share as a browser increases faster than people think.
bat-brendaneich Admin 1:35 PM @badgamer5000 I thought about that for over a year before founding Brave, so good q. Publishers already face ad blocking cohort of size. E.g. I've heard from CN that Wired and Pitchfork see 30% ad blocker cohort tempting to try to turn around, as Page Fair, Sourcepoint and others wanted to have a go at a couple years ago: 3/7 is ~43% lift if you can convert all those users, but you can't. Any on tech sites use a strong ad/tracking blocker such as uBO (which we admire and collab with where we can). They don't react well to hostile dialogs to "whitelist, subscribe, or get lost". Every site that tries that loses Alexa share, lol. So the pitch from us to pubishers is: you lost a large and valuable fraction of your readers -- we can win some back to a paying relationship, pure upside. Make it a positive sum game. On the ad side, we see such garbage, race to bottom, spray-and-pray deals that we don't worry about getting top brands and agencies doing trials next year; we are warming them up rn. The idea of user-private, low frequency (one a day), long-form/high-CPX video+landing page, personalized ads is strong. The local machine learning users get when they consent to the BAT ads can see everything: search queries, Amazon queries and consummations, click logs/tab constellations, absolute above the fold and Z-order visibility and viewability. All together we hope this can notice great opportunities for advertiser and user. E.g. you are shopping for a car, have not quite decided, have tabs open on BMW and Mercedes. You've even set a BMW dealer visit up for 1pm Saturday. Mercedes will pay ~$70 gross for a lead that will take a test drive at their home two hours ahead; 11am Sat we will give the user 70% = $49 in BAT. This is kind of a best-case and we haven't locked this deal down, so take it as a for-instance. But I'm not worried about getting ad trials, and moving to paying deals as we tune the local machine learning agent.
bat-jennie Admin 1:42 PM A user from Reddit asks:
We know that earning BAT isn’t supposed to constitute a full income, but how much money can a user realistically expect to earn per month watching ads?
bat-brendaneich Admin 1:45 PM I don't know. If you assumed every user could get a fixed piece of the ~$80B ad spend on digital in US this year, you might see $80B / 250M (people of age to act on ads) x .2 (programmatic share outside G/FB) x .15 = $9.60 per person year. But that is way low for our users, and take it as a lower bound. Brave's principles are: 1/ consent-based always (user, and publisher if they want to participate); 2/ no tracking data in clear off device to any servers; 3/ revenue share to inventory owner (ad slot owner; "inventory" on "supply side" means ad space) should be 70% (industry standard); 4/ as much or more rev share to user as to Brave, to align interests. So for user private ads, we will give 70% to user via BAT. If we do programmatic ad slots with pub as partner (recovering some of that revenue lost to ad blocking; positive sum game) we will give pub 70% and 15% to user, 15 to us. So suppose our users are more valuable than average (early adopters, web and tech and even crypto savvy); take that $320/person-year figure from above ($80B/250Mppl). 70% of 320 is $224. That is a notional upper bound. My BMW vs. Mercedes lead gen example suggests higher outliers but you don't by a new car every month, lol. Still, attention has not been fairly priced by deep/transparent markets. Let's find out how much users could make. I hope this helps.
bat-jennie Admin 1:49 PM @Tyler from Rocket Chat asks:
What was your reaction to the UGP being claimed so quickly?
bat-brendaneich Admin 1:49 PM Thanks, @tyler. I expected it to go fast and it suggests both high interest, and growth opportunity -- esp. as we add creator rewards for referring users who stick around 30 days.
bat-jennie Admin 1:50 PM A user from Reddit asks:
How does the BAT system differ from Patreon?
bat-brendaneich Admin 1:53 PM Great q, anonymous Reddit person! 1/ we are a user agent so work with any verified creator, whether they sign up with another site or not; 2/ we don't censor first parties (whether sites, accounts on YouTube, Twitch, etc.,) as a browser, beyond things like antiphishing/antimalware protection that all browsers use -- if you can verify you own the payable resource (domain name, account) by challenge/response and/or OAuth APIs, you get verified and your fans can support you. There are still censor risks in (2) at the moment, of course. DNS registrars, account systems, even Brave so we will move toward decentralized and anonymous operation over time -- that is the Apollo phase of the roadmap.
bat-jennie Admin 1:54 PM @Jscrypto89 from Rocket Chat asks:
Will there be function to donate/tip creator on the spot instead of waiting for the monthly payment?
bat-brendaneich Admin 1:55 PM @jscrypto89 That is timely, as our team thinks the ANONIZE2 protocol we use may support such spot contributions without loss of anonymity. The other challenge there is blockchain scaling, of course. With Bitcoin in the beta test, and with BAT on Ethereum now, the fees can add up. We're looking at this but the best anonymity and fee amortization is via the 30-days-of-uptime, private-on-device ledger reconciliation => settlement process.
bat-jennie Admin 1:56 PM @Frosty from Rocket Chat asks:
What is the most interesting thing you’ve encountered so far, and how has it affected your direction?
bat-brendaneich Admin 1:58 PM @frosty i have to say that learning about tokens (from GNT on, as ERC20 was standardized) and realizing I could do "Bravecoin" without having to set up a new blockchain, that was huge (obv. in terms of the token sale but also the UGP). Another interesting win was ANONIZE, created by CS profs who wanted to anonymize their class surveys. We were looking at randomized response and other techniques in 2015, but ZKP won. We look forward to the evolution of blockchains (zCash already has them; Ethereum hot topic) to absorb this area of research and put it into practice for everyone (ZKP = Zero Knowledge Proof).
bat-jennie Admin 2:00 PM @apertus from Rochet Chat asks:
When will BAT be implemented on mobile browsers specifically Android /iOS?
bat-brendaneich Admin 2:02 PM Thanks @apertus, and yes: Android ledgeBAT support is hot 1Q2018 initiative and we shall see about iOS. We have good relations with Apple and do not want to have a bad rejected-app day, so stay tuned.
bat-jennie Admin 2:02 PM @badger from Rocket Chat asks:
How does the BAT team plan to engage with and foster ease of use for non-technical user audiences?
bat-brendaneich Admin 2:04 PM @badger Great question, and we have been a bit short-staffed before 2nd half of this year to answer it well. All new browsers start from what E. von Hippel calls lead users, those who switch browsers fastest and even innovate on web stuff (as web devs, back end pros, power users, etc.). Even for a small-share browser appealing to lead users, we need to smooth out more UX and support more chromium extensions, and we will move fast to do so in 1H2018. For the non-tech users we aim to keep the defaults right and relieve them from having to learn about crypto. Rn funding the user wallet requires crypto -- but we want to make it easy to use a debit or credit card to do small monthly budget out of goodwill (people do $5-20/month). With UGP grants and then BAT ads, we really want the more average-at-scale/non-lead user, every user really, to have the option to let their wallet self-fund via UGP up front and then recurring BAT ad revenue and let it drain to their pinned and automatically-designated-by-BAM creators and sites. That's the steady state we think has simplest user model, no crypto in most users faces unless they want it, etc.
bat-jennie Admin 2:07 PM Thank you so much for all of the thoughtful answers, Brendan! To our dear viewers, we are just about to wrap up today’s AMA! But before we do… Brendan, we have one last question for you: Burnerman from Rocket Chat would like to know:
What color should my lambo be black like Batman or purple like a rapper? 😉 🚘
bat-brendaneich Admin 2:08 PM Black like Batman, of course 👍. Thanks @bat-jennie and everyone! :dancing-penguin:
4 Sub-$10 Million Market Cap Coins Worth Keeping An Eye On
1. Spectrecoin ($XSPEC) – $8.6 Million
What is Spectrecoin?
Utilizing a “range of proven cryptographic techniques” to achieve anonymous, untraceable, and un-linkable transactions, Spectrecoin is a secure Proof-of-Stake cryptocurrency enabling rapid P2P transactions and network privacy. Specifically, Spectrecoin is pulling out all the stops in order to protect user identity through their integration of:
Built-in Tor: Derived from the original software project moniker—The Onion Router—Spectrecoin is fully integrated with Tor, protecting real IP addresses at all times through the directing of traffic through a worldwide (and free) overlay network of more than 7,000 relays.
Anonymous coin creation: Deploying dual key stealth technology (a dual coin system), Spectre authorizes users to generate ‘anonymous coins’ known as SPECTRE for private and anonymous transactions as an alternative to their normal, everyday coin—XSPEC—for traditional transactions (most similar to Bitcoin).
Ring signatures: Through the execution and implementation of ring signatures, Spectrecoin user transaction history is wiped altogether, allowing users to exchange and transfer public coins, XSPEC, and SPECTRE.
At its core, Spectre’s dual coin system sanctions four fundamental types of privacy and anonymity transactions, XSPEC > XSPEC, XSPEC > SPECTRE, SPECTRE > SPECTRE, and SPECTRE > XSPEC, providing a plethora of transaction options for every type of user. And finally, if you’re looking for the TLDR (too long, didn’t read), Spectrecoin notes the best way to understand SPECTRE is to think of Bitcoin + Proof-of-Stake.v3 + anonymous transactions (similar to Monero) + Tor (for IP obfuscation).
Why You Should Keep an Eye On XSPEC
Unlike several other privacy coins which merely provide a Tor proxy—availing users to potential malicious exit nodes—Spectrecoin is fully integrated with Tor, a reliable and tested network providing one of the largest pools of IP addresses for confidentiality and untraceability. Coupled with staking, set at a 5% minimum per year, Spectrecoin offers a unique proposition (the only one in blockchain) for users looking to earn rewards while remaining anonymous by staking anonymous coins while generating more, fresh anonymous ones. Furthermore, for those looking for affirmation of Spectrecoin’s commitment to anonymity, not even the developers know each other’s real names—something that would have made walking away from a lacklustre ICO (which only raised 16 BTC at $600/700 per BTC) all too easy. Spectre has emphasized organic growth without an excessive and aggressive marketing push, opting instead for a working product and timely improvements to meet the ever-changing privacy arms race. And, with their funding gap set around £19,000, users can take solace in knowing the project isn’t an outright cash grab asking for millions to further tenuous goodwill—like far too many projects in the cryptosphere. At time of writing, XSPEC is listed on CoinMarketcap at US$0.41 or 5,970 Satoshis. Finally, if you’re wondering how Spectrecoin stacks up to other privacy coins, such as Monero, PIVX, and Zcash, check out this comparison chart.
2. FundRequest ($FND) – $1 Million
What is FundRequest?
In an age where open source software is an integral component for institutional, government, and nonprofit function and growth, there unfortunately remains a hindering factor—a cohesive, transparent, and styled request and transaction flow. Cue FundRequest, a decentralized marketplace for open source collaboration and catalyst for global open source sharing and circulation, empowering organizations, government, and other entities to:
Trustlessly transact via the blockchain and smart contracts to ensure all contracts created are self-resolving, tracked, and validated in a fair manner,
Incentivize organizations and developers to act in good faith through governance protocols and crypto economics,
Lower costsfor upkeep, while reducing friction for large-scale usage and adoption of open source technology,
Boost transparency for organizations looking to better understand average development and issue costs (ultimately resulting in a more efficient market), and
Integrate with third-party platforms (and vice versa), who are looking to benefit from already completed works.
Need to brush up on what exactly ‘open source’ means? The Open Source Initiative describes the concept of ‘open source’ as a tool which “enables a development method for software that harnesses the power of distributed peer review and transparency of process.” For example, a requesting organization (referred to as the funder) will allot set funds—stored in a smart contract (i.e., escrow)—in order to tackle an open source issue, which is then picked up and solved by a developer (the solver). In order to eliminate malicious behavior, FundRequest requires solvers to “have skin in the game,” by staking proportional valued funds, all released and claimed once the issue is solved. Simply put, FundRequest is the go-to facilitating and incentivization platform (similar to Airbnb and Uber) for funding, claiming, and rewarding open source commits and contributions, leading to an enriched and more collaborative open source ecosystem.
Why You Should Keep an Eye On FND
With an estimated US$60 billion-plus in savings per year for organizations and institutions, thanks to open-source software and technology adoption, FundRequest is set to act as the glue which connects all dispersed and integral parts and actors. Traditional software, prohibitive costs, and predatory vendor practices are proving not to be conducive towards maximal technological growth and development, as most people and organizations just simply can’t afford or maintain it. Plus, with a clear push by both private and public sectors to leverage community-based software for development and distribution over the last decade, it’s expanding at rapid pace. In 2018, it’s approximated over 50% of European and North American companies utilize open source software for “crucial applications,” along with over 50% of American government organizations. This is no small industry. GitHub alone boasts over 24 million users (more than 8 times their user base five years ago), and it’s estimated that in the EU and United States combined, there’s over 160 million persons working as freelancers and independent contractors in what’s known as the “gig economy.” And that’s just the tip of the iceberg, with over 60% of online gig economy workers accounted for in Asia. As of August 1st, FND’s price sits at right around US$0.03 or 472 Satoshis. Finally, for open source projects and ERC-20 token projects looking to increase development capacity, consider checking out FundRequest for potential partnerships. Already in their short tenure, FundRequest has partnered with:
Redefining convenience, simplicity, and compatibility, and short for the “Crypto One-Stop Solution’ exchange and platform, COSS is the native token and liquidity attraction tool of the Singapore-based exchange, boasting some of the most popular altcoins on the market while enabling users to receive weekly payouts in “dust” for all traded tokens. Specifically, COSS is looking to provide more than just a simple, fast, and secure cryptocurrency trading exchange—they’re building a borderless, digital economical system to bring cryptocurrencies to the masses via:
Digital wallet with integrated cash flow: allowing users to seamlessly transfer and store crypto funds between the exchange and wallet within a single application.
ICO platform: enabling projects to fund and their ICO on the COSS exchange to increase popularity, volume, and trading value.
Ultimately, COSS is looking to shake up the cryptocurrency exchange ecosystem through improved user experience, heightened product and feature functions, and a comprehensive foundation for employers, startups, companies, and traders to build towards a more accessible and mainstream cooperative blockchain community.
Why You Should Keep an Eye on COSS
With the rapid and gargantuan successes enjoyed by both Kucoin and Binance in 2018, crypto exchanges employing user-friendly token incentivization models are becoming a go-to for users looking to generate passive income while diversifying their crypto portfolio. However, unlike other cryptocurrency exchanges which have lowered their daily fee splits to nominal amounts, COSS has stayed true towards user rewards, keeping their daily percentage at 50%—paying out the respective dividends via a decentralized autonomous organization, ultimately guaranteeing an immutable percentage. In order to stay competitive in the present-day blockchain ecosystem, COSS’s whitepaper notes a minimum of 3-5 new features implemented per quarter. In the past several months, below are just several of their most notable achievements:
Partnership with Blockchain Terminal (BCT): Easing the transition for institutional investors to trade and transact on crypto exchanges.
NEO Listing: Trading pairs for NEO/BTC, NEO/ETH, NEO/USD, and NEO/COSS.
Preparation for COSS 2.0: The hiring of a team of over thirty developers in preparation of COSS 2.0, which is set to roll out dynamic withdrawal fees, sophisticated trading tools, dust conversion, public and private APIs, new wallet, institutional accounts, and more.
And, if you’re looking to know what COSS’s endgame here is, their goal is to shift completely towards a decentralized autonomous organization (DAO) in the future, where governance and decision making is outlined in code and run by a peer-to-peer network. Currently, COSS’s price is listed at US$0.06 or 935 Satoshis on Coinmarketcap. Finally, if you’re curious about COSS’s fee sharing, check out the COSS fee share calculator, which provides an accurate picture of your monthly exchange fee earnings relative to the amount of COSS owned. One Reddit user recently posted, and provided a screenshot, showing the COSS annual dividends to be at nearly 10% per year.
4. Lamden ($TAU) – $6.9 Million
What is Lamden?
Named after the Sherpa language word meaning “to guide,” Lamden is staying true to its name by easing the creation and deployment of dapps and custom blockchains. At its core, Lamden is providing a suite of developer tools mimicking “modern development processes in such tech stacks as Node.js or Python.” Simply put, Lamden is supplying the building blocks for experienced and amateur blockchain developers alike, enabling organizations and enterprise to skirt the energy and time costs of hiring and training expensive blockchain developers—ultimately speeding up efficiency and reducing overhead costs. Lamden is broken up into three fundamental sections, which all are in furtherance of project depth and the deployment of hyperfast blockchains for developers to not only experiment with, but test and deploy across other blockchain systems and platforms:
Saffron: a general tool sanctioning the deployment of private chains on an internal network, partitioning blockchains into individual use cases (e.g., an enterprise having their own web app), and bringing them together to interact when needed. Lamden CEO Stuart Farmer noted that from blockchain generation, to installment, all the way to deployment, an entire deployment cycle can be completed within a frame of just ten minutes!
Flora: a central repository for smart contract templates and packages, blockchain discovery tool, and private chain naming services, where developers are able to engage with one another, feed off one another’s innovations, and rapidly deploy and distribute smart contracts.
Clove: a payment network trustlessly facilitating communication between blockchain apps while handling payment channel swap processes, avoiding blockchain bloat and acting similarly to a telephone network.
Furthermore, Lamden supports the Ethereum network and Bitcoin-based blockchains at present, and boasts zero transaction fees and free chain-to-chain payments in exchange for chain allocation a specific amount of bandwidth for confirming payment channel transactions—meaning that its users are able to transact for free as a result of corporate entities bearing the network load and processing.
Why You Should Keep an Eye On TAU
Having released their ‘Cilantro’ testnet alpha in February 2018, Lamden has since hit the ground running, rolling out their first version of Clove soon after and tackling the necessary tune-ups and improvements in preparation of their mainnet launch in Q4 2018. Lamden’s mainnet is set to utilize a unique combination of Delegated Proof-of-Stake (DPoS) and the BFT Protocol, and will scale to process nearly 10,000 transactions per second. Moreover, in April 2018, Lamden announced the creation of LamDEX, their own decentralized cryptocurrency exchange and platform, where users will be able to stake their TAU—the native token of the Lamden platform—to act as a market maker, allowing for a cohesive back and forth across the TAU pair at prices faintly above and below market cost, ultimately generating rewards. With a rather daunting and tedious task ahead for anyone looking to utilize and incorporate existing smart contracts—which involves the manual searching for such on GitHub (a general repository website)—Lamden is truly adding value to blockchain and application development through their smart contract repository. Unlike GitHub, Lamden supports dependencies, versioning, and security, all essential elements for a quality package manager. Doing so adds not only convenience, but practicality to smart contract packages and implementation, and stands to save enterprise and organizations both exorbitant developer costs and time. If you’d like to learn more about Lamden’s developer tool suite, check out this complete overview from their blog. At the time of writing, Lamden’s price according to Coinmarketcap is US$0.04 or 699 Satoshis. To get a better picture of Lamden and their blockchain development tools ecosystem, check out this explanatory YouTube video from their channel. Final Thoughts Risk is inevitable when investing in crypto and blockchain projects. However, as long as you are cognizantly defining parameters for absorbing such risk, then diversifying your portfolio with smaller capped projects can be an effective way to realize value. Whether you’re looking for a user-friendly exchange to purchase crypto directly with fiat from (and earn dividends for loyalty) or wanting to execute anonymous and secure transactions with a P2P coin, the aforementioned projects are all bringing value to the crypto sphere through their overhaul of ineffective traditional mechanisms and institutions. Make sure to stay calm and collected during this bear market, associate yourself with quality projects that you think are bringing actual value to severely flawed industries, and remember, having a little gamble in you never hurts (as long as it’s properly accounted for). Source: https://www.investinblockchain.com/sub-10-million-coins/ B0x: Gustafio
!(http:/i65.tinypic.com/21o1w83.jpg) Source My prediction on the SEC's outcome Recently the SEC has cleared up a lot of confusion with Ethereum. A lot of crypto investors believe that Ethereum is a security because they crowdfunded. I have a bone to pick with that definition, but I'll discuss it later. I'll discuss what a security is and the different forms of securities. The top dogs The big coins currently are Bitcoin, Ethereum, Litecoin, and EOS. I know that Bitcoin Cash also exists but Roger Ver is an asshole and I don't feel like falling into that rabbit hole right now. Instead let's start with why Ethereum isn't a security. A security has two different forms; equities and debt. There are hybrids of the two, but these are the most common. According to Investopedia "It represents an ownership position in a publicly-traded corporation (via stock), a creditor relationship with a governmental body or a corporation (represented by owning that entity's bond), or rights to ownership as represented by an option". Ethereum has neither of those qualities. A stock, or share in a company, gives the investor a percent "share" of ownership of the company. Whenever you hear about a stock taker over it means that an investor has purchased enough shares of ownership to start making big decisions. Ethereum is specifically designed to NOT allow that to happen. In fact, all cryptocurrency are designed to prevent that exact event from happening. We call it 51% attack. Ethereum did crowdfund but it doesn't have expiring debt period. After a certain period, Ether doesn't burn and pay out a yield to the investor. Instead Ethereum works as a gas. Smart contracts require this gas in order to function. The more complicated the smart contract the more gas it requires to run. This leads me to believe that Ethereum will be classified as a commodity much like actual petroleum is. So, what about bitcoin and Litecoin? Well the issue is a currency is a monetary unit that comes from Central Banks. I know that wasn't always the case, but the FIAT system of banking is the benchmark that I will be using. Instead bitcoin is also similar to a commodity, but more like Gold. So where does Litecoin stand? More like Silver. Bitcoin = digital gold. Litecoin = digital silver. EOS is another interesting case because it doesn't burn every time it's used like Ethereum but has smart contract feature unlike Bitcoin and Silver. You use EOS coins to stake bandwidth in the network. Having EOS coins granted you access like a subscription and the delegates vote on how to control inflation usually through the process of burning. This is similar to a deed in real estate which is an intangible asset which grants the owner special privileges. So far we have covered Commodities and Intangible Assets but which one is a currency? Isn't that the reason we call it a crypto-currency? Surprisingly the only legitimate form of currency we have so far is Tether, but I have no doubt we will see Central Banks come out with their own tokenized FIAT. Initial Coin Offerings This is where we actually start to discuss securities. When a company decides to raise capital, they can either talk with private Venture Capitalists or go public. Going public gives investors shares of the company and requires a lot more overhead, but it's also a really big deal. I would argue it is viewed as a rite of passage in America. A lot of crypto companies are speculative and go public right away, and they can get away with it because there is no legal obligation for the company to respect ownership or debt unless it's written into the algorithm. I would like to write a little side anecdote and warn companies that plan on going public. Giving your company over to investors reduces the sovereignty and control you have. A lot of times shareholders will tie your hands behind your backs when it comes to having a shareholder first approach to profit. Sometimes being profitable isn't always what's best for the company's vision, but sometimes you and your executives legally can't do anything about it. I might write another article on this issue later... So back on track traditionally companies are regulated to follow specific rules like respecting shareholder legal right to vote, disclosing where their money is going via income statements, go through regular audits, are FDIC insured to protect investors from bankruptcy, and other legal regulations before they are allowed to be listed on on-shore major exchanges such as NASDAQ, DOW JONES, S&P 500, etc. Since crypto companies have not regulated I don't think we will see any crypto indexes, ETFs, or other derivative products meant to shield investors from market volatility. Simply this means that a majority of investors don't want to invest in crypto projects yet. Contrary to popular belief the reason crypto hasn't taken off this year isn't due to lack of scalability or mainstream adoption but rather big-time investors are simply waiting until they see the green light. I expect that companies that are currently being developed or have already gone live will be grandfathered in with a period where they will register. There will be a new job market opening up that combines tech auditing, legal, and account counseling. Requiring a token to comply with a regulation might end up having one of the nerds go through the code and verifying that there is a mechanism for such events such as dividend payouts, financial statements, voting systems, etc. This will ultimately reduce overhead for companies and allow a direct and more efficient connection between investors and executives. I could spend all day discussing each individual nuance, but I'll just leave it abstract for now. Utility Tokens So, when I was at Consensus 2018 I actually watched the lecture with one of the guys from Gibraltar (I don't remember his name). What I did remember from my notes made a lot of sense. Utility tokens that are used for services such as Golem and Streamr, where the product is a service on the network, should actually go under the FTC umbrella. The reason is they are consumer products and services and less financial instruments that would be regulated by the SEC. You could technically consider Proof of Ownership on the network such as EOS coin a product and fall under the FTC as well. This distinction will be interesting to see how the federal regulators handle it. Another key lecture I caught the curtails of was one of the chairmen of the Federal Reserve giving a statement on the Fed's current progress in making their decision. The key thing he made clear was they are thinking about using a SSRO approach. A SSRO, aka Single Source Regulation Office, is a regulatory body responsible for a narrow focus regulatory system. In this case I can imagine we would see a federal regulatory SSRO branch become designated for crypto. It was also made clear that the SSRO would NOT be a lobbying organization nor do they handle anti-monopoly laws which is music to my ears. My take on everything I watched the lecture over the discussion of Bit license in New York. It was pretty interesting not knowing what Bit license was previously. More or less some guy decided to work with regulators in New York to create a "moat" which was intended to protect consumers from bad actors, but it was built a little too deep. Right after building the moat with regulators he left and decided to sell the "bridges" next. You can see why this would be pretty shady. He just secured a job stifling crypto growth in a city that needs it the most. So, it's a safe bet that the next crypto wall street won't be in New York. In fact, it was hinted that it might be in Wyoming, but I don't know if that was just used as an example. Do I think we need all this regulation? Absolutely yes. Unbridled markets will only hurt crypto and every time we enter -60, 70, and 80% bear markets this becomes more and more clear. Adoption will come when the market becomes less volatile. Do I think the fed is being lazy? Absolutely not. It is important to take time and make sure you get it right. I don't think they'll get it perfect right away, but it's significantly harder to fix errors than to address them right away especially when it comes to global finance. TL;DR I make a prediction that Ethereum is a commodity like gas, Bitcoin is a commodity like Gold, Litecoin is a commodity like silver, EOS is a intangible asset and/or product, ICO's are securities unless they are utility in which they will be viewed as commercial products which the FTC will handle. A bunch of nerds in suits will write legal codes into documents, Roger Ver is still an asshole, and a lot of people on /Bitcoin will be pissed off because they are idiots. If you feel like this is just a copied article that I posted from a blog you are correct. I am a writer and I am passionate about crypto, but I respect the rules of Reddit and I will not be a shameless spammer that posts links. If you wish to support me or my blog I ask that you message me personally. Namaste!
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