Fidelity Cryptocurrency Platform Enters ‘Final Testing’ Stages

Fidelity Cryptocurrency Platform Enters ‘Final Testing’ Stages

Fidelity’s cryptocurrency trading and custody platform has purportedly entered the “final testing” stages.

American financial services giant Fidelity said that its cryptocurrency trading and custody platform is in the “final testing and process refinement periods” in a Medium blog post on Jan. 31.

Per the announcement, the firm is currently providing services to a small, select group of clients while it continues to build the platform’s infrastructure. The firm states:

“Our initial clients are an important part of our final testing and process refinement periods, which will eventually enable us to provide these services to a broader set of eligible institutions.”

Fidelity announced the development of a crypto platform with the the launch of a new company, Fidelity Digital Asset Services, in October 2018. Fidelity then stated that the new company will offer custody and trade execution services for digital assets, targeting institutional investors like “hedge funds, family offices and market intermediaries,” and will not for now be open to retail investors.

In today’s announcement, Fidelity notes that its development team has been working with auditors in order to ensure regulatory compliance and “adapt existing operational processes” to the new cryptocurrency-oriented platform.

Custody services are commonplace in the traditional finance sector, and offer investors a place to store assets like money, securities, and commodities like gold and diamonds so that they are not lost or stolen. Custody services differ from banks in that they are not allowed to use the stored assets for their own gain. Major firms like JPMorgan, BNY Mellon and Northern Trust offer custody services.

Earlier this week, unnamed sources told Bloomberg that the crypto custodial service could launch by March 2019.

Canadian Cryptocurrency Exchange QuadrigaCX Files for Creditor Protection in Nova Scotia

Canadian Cryptocurrency Exchange QuadrigaCX Files for Creditor Protection in Nova Scotia

Canadian cryptocurrency exchange QuadrigaCX has filed for creditor protection in the Nova Scotia Supreme Court.

Following months of financial and legal troubles, major Canadian cryptocurrency exchange QuadrigaCX has filed for creditor protection, according to an official announcement on Jan. 31.

Per a statement on the exchange’s website, the firm filed an application for creditor protection in the Nova Scotia Supreme Court today in compliance with the Companies' Creditors Arrangement Act (CCAA). According to PwC Canada “the CCAA presents an opportunity for the company to avoid bankruptcy and allows the creditors to receive some form of payment for amounts owing to them by the company.”

The announcement also states that on Feb. 5, the court will be asked to appoint ‘Big Four’ auditing firm Ernst & Young as an independent third party to monitor the proceedings.

The filing will purportedly give QuadirgaCX “the opportunity to address the significant financial issues that have affected our ability to serve our customers.” The firm states that attempts “to locate and secure our very significant cryptocurrency reserves held in cold wallets” have been unsuccessful. As such they have been unable satisfy customer balances or to secure services from a financial institution to accept bank drafts.

In October 2018, the exchange disputed a $19.6 million sum with the Canadian Imperial Bank of Commerce (CIBC). Per Canadian news daily the Globe and Mail, QuadrigaCX had been experiencing difficulties accessing $16.3 million of its funds since January, when the CIBC froze five accounts belonging to Jose Reyes, the exchange’s owner, and its payment processor, Costodian Inc.

CIBC subsequently requested that the Ontario Superior Court withhold the funds and determine whether they belong to Costodian, the exchange, or the users who deposited the funds. The court ruled in favor of the bank, stating that the owner of the funds was not clearly established. CIBC was then obliged to pass the funds over to the Accountant of the Superior Court in order to identify the owner.

Further complicating the exchange’s situation is the apparent death of its founder, Gerry Cotten. Following an announcement of Cotten’s passing, some users asked for proof of death, while one even posited the theory that the exchange could not access the assets in cold storage, as the keys were only known to Cotten.

Users of the platform have reportedly been unable to access or withdraw their funds for months. Some speculated whether the platform had gone insolvent earlier this week when QuadrigaCX appeared to be down for maintenance. One commenter posted on Reddit, “They will declare insolvency due to an inability to find a suitable bank to host an account and facilitate transfers.”

CoinList CEO: Quiet Year for Crypto in 2019 Will Lead to Innovation

CoinList CEO: Quiet Year for Crypto in 2019 Will Lead to Innovation

2019 will be a quiet year for cryptocurrencies according to the CEO of ICO listing platform CoinList.

Cryptocurrency markets in 2019 are “going to be quiet for a little bit” while firms focus on building the crypto space, the CEO of CoinList Andy Bromberg told Yahoo Finance on Jan. 31.

Following record highs at the end of 2017, cryptocurrency markets in 2018 were mostly bearish. Major coins took large losses and at the end of the year, Bitcoin (BTC) was down by 74 percent while both Ethereum (ETH) and Ripple (XRP) fell by 84 percent.

The first month of 2019 has also seen major losses among top cryptocurrencies. At press time. those same coins, BTC, ETH and XRP, are all down 9.5 percent, 22 percent, and 15.5 percent on their monthly charts, respectively. However, in Bromberg’s view, slower markets mean that companies and entrepreneurs will start developing the space with more useful services and products:

[In 2019] it feels like people are focused on building... I think the market is going to be quiet for a little bit, while people focus on actually creating things. It feels like a little bit of a Mesopotamia, ‘cradle of civilization’ moment, where everyone has the ingredients they need, needs to focus in and start to build out those empires, and create what the future is going to look like, and that’s what this year is going to be about.”

Bromberg noted that there was less hype surrounding the cryptocurrency space. Sinking prices and low volatility drove many speculators to leave cryptocurrency in the last quarter of 2018. Some in the space of also welcomed the bust of the initial coin offering (ICO) bubble, as many projects have failed to turn out successful products, or were outright scams.

To date, CoinList has listed five ICOs: Filecoin, Blockstack, Props, Origin and TrustToken, none of which have yet launched a token, according to Yahoo Finance. CoinList picks and vets each project itself, and only sells tokens to accredited investors (individuals with an annual income over $200,000 or net assets over $1 million, excluding their primary residence).

Bromberg’s statements echo those he made earlier this month, when he told the Wall Street Journal that  the next step for crypto was figuring out “how we can turn this technology into products for people to use.” Per Bromberg:

“Building consumer products is really hard. The developer tool kit isn’t there.”

SBI Reports Financial Results, Recognizes Ripple for Cross Border Payments

SBI Reports Financial Results, Recognizes Ripple for Cross Border Payments

SBI Holdings has published its nine-month financial report, recognizing Ripple’s potential in cross-border payments.

Japanese finance giant SBI Holdings has released its nine-month financial report today, Jan. 31. In the report for the period ending on Dec. 31, 2018, SBI notes Ripple’s potential for cross-border payments.

SBI outlines the implementation of technologies by Ripple (XRP) and blockchain consortium R3 as a major part of its strategy to enable a global standard for financial operations such as international payments and trade finance.

In the section titled “Business Area Separation of Ripple and R3,” SBI featured Ripple as an entity “specializing in international remittance,” while R3 is responsible for developing projects that “are not limited to the financial industry by using smart contract-based technology.”

SBI also emphasized that XRP is the first cryptocurrency that is supported by R3’s Corda Settler. The recently launched decentralized application allows payment obligations on the Corda blockchain to be settled via all global payment systems, both traditional and blockchain-based.

As a part of the strategy to enable a fintech shift, SBI also mentions its new blockchain initiative S coin platform, which it trialed for retail payments in September 2018. The report states that integration of R3’s Corda Settler onto the platform will streamline S coin and enable it to operate globally.

On Jan. 30, Cointelegraph reported on major global banking payments network SWIFT’s plans to launch a Proof-of-Concept (PoC) to allow R3 to link to GPI (Global Payments Innovation) payments from their platform.

Earlier in December, SBI Holdings-founded crypto exchange Vctrade started accepting deposits in major cryptocurrencies including Bitcoin (BTC), Ethereum (ETH), and Ripple (XRP).

Chainalysis: Darknet Market Activity Nearly Doubled Throughout 2018

Chainalysis: Darknet Market Activity Nearly Doubled Throughout 2018


Darknet markets are going as strong as ever, if Chainalysis data is to be believed.

In its latest Crypto Crime Report, published earlier this week, blockchain analytics firm Chainalysis reports that darknet market activity has nearly doubled throughout 2018. After a slump in late 2017 and early 2018 due to the closure of two major online marketplaces for illicit activity — AlphaBay and Hansa — volume has since almost completely recovered to early-2017’s all-time high levels, surpassing $600 million worth of bitcoin for the year.

“Law enforcement has been working hard to stop illicit activity on darknet markets, and there have been some notable successes like the closure of AlphaBay,” the report notes. “Overall, these markets continue to thrive, however, as participants simply move their business to other platforms and technologies.”


Darknet markets, the online market places for illicit goods and services that operate on hidden services and use bitcoin (and sometimes altcoins like litecoin and monero) for payments, have been around in their current form since 2011, when Ross Ulbricht founded Silk Road.

Although this pioneering darknet market was shut down by law enforcement in 2013, others have since taken its place. What’s more, the size and volume of these markets have only grown over the years. According to Chainalysis data, trading volume at identified darknet markets was over $700 million dollars worth in 2017 — where Silk Road never accounted for more than $200 million a year.


The Silk Road’s biggest and best-known successor, other than Silk Road 2.0, may have been AlphaBay, with Hansa following closely behind. In the summer of 2017, both AlphaBay and Hansa joined in Silk Road’s fate, however, and were closed down by law enforcement. Silk Road 2.0 had already been shut down in 2014.

Yet, once again, in the greater scheme of countering darknet markets, this only proved to be a stop-gap solution. In what Chainalysis describes as “playing whack-a-mole with darknet markets,” alternative and new platforms took the place of the old, and after an initial drop, overall trading volume rebounded as well. Throughout 2018, this totaled over $600 million, Chainalysis estimates, with more than $2 million a day toward the end of the year.

“Darknet market activity has been remarkably resilient over the last few years, despite continued efforts by law enforcement to shut down illicit activities,” Chainalysis writes in its report. “When one darknet market closes, others pop up to take its place.”

Chainalysis points to the Russian-language Hydra as one of the main successors of AlphaBay, which has doubled its activity since the latter was closed in 2017. Other major darknet markets that are active today include Dream Market and Wall Street Market.

Bitcoin and Darknet Markets

While bitcoin is still the currency of choice on most darknet markets, Chainalysis does believe that this type of activity has come to constitute a much smaller share of total bitcoin usage over time. While up to 7 percent of transacted bitcoin value in 2012 and 2013 — the peak of the Silk Road — was related to darknet markets, this is now well below 1 percent, Chainalysis estimates.

The blockchain data analytics firm also found that the bitcoin price has little effect on its use for these kinds of illicit activities.

“Darknet market activity is relatively price inelastic; that is, you don’t see a drop in this type of activity when cryptocurrency prices fall. In fact, in 2018, when Bitcoin volumes dropped by 78%, darknet market activity nearly doubled,” the report notes.

This inelasticity is in large part because users of these markets often merely use bitcoin as a vehicle to move value around — not for speculative purposes. Consumers buy bitcoin with fiat currency on one end of the trade, and dealers sell the bitcoin for fiat currency on the other. Indeed, Chainalysis found that more funds were flowing to darknet markets toward the end of the week (as buyers move to purchase goods), while dealers generally move their bitcoin out on Mondays to cash in their proceeds.

CA cash out.png

Finally, Chainalysis describes how, as law enforcement is getting better at shutting down darknet markets, a new and potentially even more resilient model for darknet market activity is emerging. Moving away from centralized platforms, the analytics firm reports that an increasing amount of trading is taking place on encrypted messaging apps.

“Top law enforcement officials tell us that criminals are migrating increasingly to encrypted messaging apps including Telegram and WhatsApp to execute illegal transactions. When conducted through these apps, transaction activity is decentralized and person-to-person; there’s little risk that law enforcement will shut down the entire network by closing a website,” the report reads.

You can download the Chainalysis report here.

This article originally appeared on Bitcoin Magazine.

Zebpay Continues European Expansion, Launches EU-Wide Trading Tournament

Zebpay Continues European Expansion, Launches EU-Wide Trading Tournament


Cryptocurrency exchange Zebpay is opening new offices in five European countries, increasing its presence on the continent to 26 countries.

Launched in 2011 in India, Zebpay grew into one of the country’s largest cryptocurrency exchanges before shuttering its operation in September 2018, due to the crypto ban in the country. Now, the exchange operates out of Singapore, and today’s expansion will make it available for users in Spain, Romania, Slovakia, Liechtenstein and Lithuania.

The exchange is also running a European trading competition which will debut today, February 1, 2019. The tournament will be used by the crypto platform to identify and reward expert traders in Europe. In part, the competition is a cheers to Zebpay’s expansion, but the self-proclaimed “new member of the European crypto community” said it’s also in a bid “to build a relationship with the crypto trading community and show why over 3 million consumers worldwide trust and enjoy using Zebpay."

Ajeet Khurana, CEO of Zebpay, spoke with Bitcoin Magazine about the expansion. He said, “As we continue to expand into new territories, we want to build strong relationships with crypto communities, enthusiasts and traders in existing ecosystems. Our platform is battle tested with millions of users (many of whom are new to the space) with incident free handling of billions worth of assets. We can’t wait to see how the new countries that we’ve expanded to interact with our platform.”

“As on today we serve most of the EU countries and have also started accepting customers from across the globe including South America and Asia,” he added.

The trading competition will be open to all European countries where Zebpay’s services are available, including the five countries that are now available today.

“The goal of this competition is to encourage healthy competition amongst traders and for new traders to get a taste of the Zebpay platform,” Khurana told Bitcoin Magazine.

The exchange will select 50 participants randomly to compete in a trading challenge. Each participant will get €1,000 to trade with on the platform for 30 days. There will be a public leaderboard, where traders can monitor their progress on the platform and a 24/7 support team will be available to help participants every step of the way.

At the end of the competition, the top 10 traders will keep the balance in their account. Those who don't make the cut will get a reward of €100 for participating in the tournament.

This article originally appeared on Bitcoin Magazine.

CEO of Telecoms Giant Swisscom’s Blockchain Unit Steps Down

CEO of Telecoms Giant Swisscom’s Blockchain Unit Steps Down

Daniel Haudenschild, CEO of the blockchain advisory unit at Swiss state-owned telecoms company Swisscom, has left the firm.

The CEO of the blockchain advisory unit of Swiss state-owned telecommunications company Swisscom has unexpectedly left the firm, according to a press release on Swisscom’s website, Jan. 30.

As major local news outlet Swissinfo reported the same day, news of Daniel Haudenschild’s reportedly sudden departure from Swisscom Blockchain came just a day before the executive accepted the position of president of the Crypto Valley Association. Speaking in comments to Swissinfo, Haudenschild said the two moves were unconnected.

The CEO declined to comment further on his decision to leave Swisscom, only mentioning that he would still remain a shareholder in Swisscom Blockchain. When asked about his future plans, Haudenschild declined to give details, telling Swissinfo:

“It is my fundamental belief that blockchain can fix things that are currently broken, such as financial inclusion and proof of provenance.”

Swisscom’s current CDO and head of digital business, Roger Wüthrich-Hasenböhler, is set to take over as acting CEO of the company’s blockchain unit, the press release reports.

According to Wüthrich-Hasenböhler, Haudenschild had played a key role in the establishment of Swisscom Blockchain in 2017, noting in the press release “he made blockchain-based solutions accessible to other companies.”

As Cointelegraph previously reported, Swisscom recently partnered with the Zurich University of Applied Sciences to create a certified e-signature for legally authenticating blockchain-based smart-contracts.

Haudenschild is not the only CEO in the blockchain industry to recently leave their post. Earlier this month, Cointelegraph reported that the CEO of blockchain media firm, Jarrod Dicker, had also stepped down from his position. Dicker left the firm to become vice president of commercial technology and development at the Washington Post, where he previously served as its vice president of innovation and commercial strategy.

CBOE Re-Applies With US SEC to List Bitcoin Exchange-Traded Fund

CBOE Re-Applies With US SEC to List Bitcoin Exchange-Traded Fund

CBOE has re-submitted an application with the United States Securities and Exchange Commission for a rule change to list a Bitcoin ETF.

The Chicago Board Options Exchange’s (CBOE), along with investment firm VanEck and financial services company SolidX, has re-applied with the United States Securities and Exchange Commission (SEC) for a rule change to list a Bitcoin (BTC) exchange-traded fund (ETF). VanEck digital asset strategy director Gabor Gurbacs announced the public filing on Jan. 31.

CBOE had initially withdrawn its request for a rule change to list a Bitcoin ETF on Jan. 23. A CBOE spokesperson told Cointelegraph that the decision to withdraw its request was the result of the U.S. government shutdown as the end of the review period approached. Some legal experts noted at the time that the SEC was operating on a limited basis due the shutdown, which was the result of a political impasse over a proposed wall on the U.S.–Mexico border.

ETFs are securities that track a basket of assets proportionately represented in the fund’s shares. They are seen by some as a potential step forward for the mass adoption of cryptocurrencies as a regulated and passive investment instrument.

New York Financial Regulators Grant BitLicense to Bitcoin ATM Operator

New York Financial Regulators Grant BitLicense to Bitcoin ATM Operator

The New York State Department of Financial Services has granted a BitLicense to a Bitcoin ATM operator, Cottonwood Vending LLC.

The New York State Department of Financial Services (NYDFS) has granted a virtual currency license, or BitLicense, to Cottonwood Vending LLC, according to an official tweet on Jan. 31.

Cottonwood Vending is a Bitcoin (BTC) ATM operator with terminals in New York City and the surrounding area. According to the tweet, the granting of such licenses “continues to advance responsible innovation in New York’s fintech industry.”

Bitcoin ATMs, or BTMs, are touchscreen kiosks that enable users to deposit cash and either buy Bitcoin, or to scan their mobile wallet, sell their crypto, and withdraw cash. Sales and purchases sync automatically to users’ mobile wallets.

In November 2018, NYDFS granted a Bitlicense to another BTM operator, Coinsource. NYDFS said in a press release that its decision followed a comprehensive and thorough review of Coinsource’s application and subjects the firm to significant regulatory conditions.

BitLicenses were introduced by NYDFS in July of 2014 by  Benjamin Lawsky, New York's first Superintendent of Financial Services. The acquisition of such a license is seen by many in the cryptocurrency and blockchain spheres as a necessary step to conducting business in the state.

Firms that receive such a license are subject to certain anti-money laundering (AML) standards and counter-terrorism financing standards. Other requirements include background checks on all employees, and records of transactions must be kept for 10 years.

Various companies in the crypto space have sought and received BitLicenses from NYDFS. In July 2018, global crypto payments processor BitPay was granted a BitLicense. At the time, BitPay CEO Stephen Pair said:

“New York state has one of the strictest policies around businesses involved in cryptocurrency and working through the approval processes to obtain a License was important to BitPay. We believe this hard work will pay off as New York presents significant business opportunities for BitPay.”

Seoul City Gov’t Launches ‘Blockchain Governance Team’ for State Services

Seoul City Gov’t Launches ‘Blockchain Governance Team’ for State Services

The government of Seoul, South Korea has launched its own blockchain governance team to explore use of the tech in administrative services.

The Seoul Metropolitan Government has launched the Seoul Blockchain Governance Team to explore the benefits of blockchain in administrative services, Yonhap News reports Jan. 31.

According to the report, the members of the team are researching the potential of blockchain applications in various government services, including online voting system.

Specifically, the working group intends to address systems of integrated management, digital document verification and automatic sub-contract payment.

The team consists of 100 employees between the ages of 21 and 77, including developers, association executives, project makers, corporate representatives as well as students, Yonhap reports.

Earlier today, Cointelegraph reported that South Korea will continue to ban initial coin offerings (ICOs) in the domestic market. The country’s financial regulator the Financial Services Commission claimed that ICOs were making use of foreign jurisdictions, but still raising funds from South Korean residents.

Recently, South Korean fintech firm BxB launched reportedly the first stablecoin pegged to the Korean won. The cryptocurrency, KRWb, is allegedly pegged to the national currency at a 1:1 ratio, with tokens available to any user worldwide via an ERC-20 compatible service.

Florida Appeals Court Reinstates Felony Charges for Unregistered Bitcoin Sale

Florida Appeals Court Reinstates Felony Charges for Unregistered Bitcoin Sale

An appellate court in the U.S. state of Florida has reinstated charges against a man who allegedly sold Bitcoin to an undercover police officer.

A United States appellate court in the state of Florida has reinstated charges against a man who sold Bitcoin (BTC) to an undercover police officer, local media Miami Herald reports on Jan. 30.

According to the report, the Third District Court of Appeal ruled that a judge who dismissed charges against the defendant, Michell Espinoza, was wrong. Espinoza is a website designer who was charged with allegedly transmitting and laundering $1,500 worth of BTC without a money transmitter license.

At the initial trial in a Miami-Dade circuit court, the defense argued that, since Bitcoin is not considered money under Florida law, no license is required. The judge subsequently ruled that Bitcoin is not money, and its sale unintentionally for illegal purposes does not constitute money laundering, further stating that BTC is just “poker chips that people are willing to buy from you.”

Still, the appellate court ruled that Espinoza indeed engaged in unlicensed money transmitting, as he neither registered with Florida’s Office of Financial Regulation nor complied with anti-money laundering regulation (AML). The court stated that his “bitcoins-for-cash business requires him to register as a payment instrument seller and money transmitter.”

The court also added that the defendant was not “merely selling his own personal bitcoins, he was marketing a business.” Felony charges against Espinoza have reportedly been reinstated, but no trial date has been set so far.

Charles Evans, a Barry University economics professor who served as a defense witness, reportedly disagrees with the decision. Still, he thinks the decision is part of a broader trend towards the regulation of cryptocurrencies, stating:

“The Wild West days are over. The regulators and prosecutors are trying to bring order to all the chaos — and this is part of the process.”

Last week, the state of Pennsylvania clarified that cryptocurrency exchanges are not subject to the Money Transmitter Act. A document from the Department of Banking and Securities states that crypto exchanges are not required to carry a license to offer their services to Pennsylvania residents.

Germany's 2nd Largest Stock Exchange Boerse Stuttgart Launches Crypto Trading App

Germany's 2nd Largest Stock Exchange Boerse Stuttgart Launches Crypto Trading App

Germany’s second largest stock exchange, Boerse Stuttgart Group, has launched an app that allows euro-crypto trading.

Germany’s second largest stock exchange, Boerse Stuttgart Group, has officially launched its crypto-trading app Bison, according to an official tweet today, Jan. 31.

According to the app’s webpage, the software was developed by FinTech Sowa Labs — a subsidiary of Boerse Stuttgart Digital Ventures. The developers’ reported aim in making the app is to ease access to cryptocurrencies for investors that are accustomed to using traditional markets.

Currently, the app enables free-of-charge trading in Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) and Ripple (XRP). Another subsidiary of the stock exchange, Blocknox, will act as custodian for users’ funds, using an escrow system, according to a press release published on Finextra today.

Boerse Stuttgart has also partnered with an external banking partner, SolarisBank, which will process euro payments and provide fiat custodial services, the press release notes.

During the initial period following its launch, Bison will be available only in Germany, and its services will work from 6:00 a.m. to 12:00 a.m. CET. However, the stock exchange giant clarified that it plans to eventually extend trading to 24 hours a day. Access for residents of other European countries will be added by late 2019, while support for more cryptocurrencies is also planned in future, according to the press release.

Bison was first announced by the stock exchange in May, 2018.

As Cointelegraph reported, stock market operators worldwide are interested in launching crypto-related services. For instance, the Stock Exchange of Thailand (SET) is planning to set up a regulated digital asset exchange. Hong Kong is also set to launch a digital assets exchange in Q1 2019, supported by the technology solutions provider for the London Stock Exchange Group.

The much-anticipated digital assets platform Bakkt, created by the operator of the New York Stock Exchange, recently completed a $182.5 million funding round. More recently, Bakkt announced key vacancies at the firm, mostly for senior developer positions.

Blockchain Capital Leads Funding Round for Crypto Compliance Startup TRM

Blockchain Capital Leads Funding Round for Crypto Compliance Startup TRM

U.S.-based venture firm Blockchain Capital leads a $1.7 million seed round for blockchain compliance startup TRM.

United States-based investment firm Blockchain Capital has led a seed funding round for  blockchain compliance startup TRM, a press release from the firm reveals Jan. 31.

TRM announced today that it had a closed a funding round totalling $1.7 million. Tapas Capital, Green D Ventures, The MBA Fund, and “strategic angel investors” also participated in the round. According to TRM, the company is going to spend the funds on scaling its engineering talent and expanding the capabilities of its platform.

Based in San Francisco, the firm has developed a so-called token relationship management platform to help crypto businesses streamline their Anti-Money Laundering compliance. The platform reportedly offers due diligence solutions, transaction monitoring and customer relationship management.

The firm is also developing tools that use machine learning to automatically trace suspicious activity, such as money laundering and market manipulation. As per the press release, more than 20,000 individuals have already verified their Ethereum (ETH) address on TRM’s platform.

In November, Blockchain Capital’s co-founder and managing partner Brad Stephens led the $12.75 million strategic funding round for the digital securities startup Securitize, which also received investments from Coinbase Ventures, Global Brain, NXTP and Xpring at Ripple.

Also today, crypto staking startup Staked announced it had sealed $4.5 million in a funding round led by Pantera Capital, with participation from Coinbase Ventures, Winklevoss Capital and others.

Bitcoin Hovers Under $3,450 as All Top Cryptos See Moderate Losses

Bitcoin Hovers Under $3,450 as All Top Cryptos See Moderate Losses

The top 20 cryptocurrencies are reporting moderate to heavy losses, with Bitcoin under $3,450 again.

Thursday, Jan. 31 — all of the top 20 cryptocurrencies are reporting moderate to heavy losses on the day by press time. Bitcoin (BTC) is hovering under $3,450 again, according to Coin360 data.

Market visualization from Coin360

Market visualization from Coin360

At press time, Bitcoin is down just 1 percent on the day, trading at around $3,449, according to CoinMarketCap. Looking at its weekly chart, the current price is lower than $3,593, the price at which Bitcoin started the week.

Bitcoin 7-day price chart. Source: CoinMarketCap

Bitcoin 7-day price chart. Source: CoinMarketCap

Ripple (XRP) has lost nearly 3.4 percent in the 24 hours to press time and is currently trading at around $0.308. On its weekly chart, the current price is lower than $0.316, the price at which XRP started the week. The current price is also lower than $0.333, the mid-week high reported earlier today.

Ripple 7-day price chart. Source: CoinMarketCap

Ripple 7-day price chart. Source: CoinMarketCap

Ethereum (ETH), the second-largest altcoin by market cap, has also seen its value decrease by over 2 percent over the last 24 hours. At press time, ETH is trading around $106, having started the 24-hour period about 3 dollars higher. On the weekly chart, Ethereum’s current value has dropped from $116, the price at which the coin started the week.

Ethereum 7-day price chart. Source: CoinMarketCap

Ethereum 7-day price chart. Source: CoinMarketCap

Among the top 20 cryptocurrencies, the coins experiencing the most notable losses are Nem (XEM) — which is down over 11 percent — and Tron (TRX) and Bitcoin SV (BSV), which have both shed about 5 percent in the past 24 hours.

The combined market capitalization of all cryptocurrencies — currently equivalent to $113.4 billion — is about 6 billion lower than $119.8 billion, the value it reported a week ago. On Jan. 29, total market cap hit an intra-month low of about $111 billion.

Total crypto market cap 7-day chart. Source: CoinMarketCap

Total crypto market cap 7-day chart. Source: CoinMarketCap

As Cointelegraph recently reported, the Nem Foundation announced it has completely reformed its non-profit NEM Foundation amid financial difficulties. The Foundation, which previously had a budget with a monthly burn rate of 9 million XEM (equivalent to about $392,000), now plans to drastically cut costs.

Also, news broke today that South Korea will continue to ban initial coin offerings (ICOs) in the country, upholding a 2017 ruling.

Despite a persisting bear market, crypto and block startups continue to see waves of funding from investors within and outside of the industry. Just today, staking startup Staked announced it had sealed $4.5 million from Pantera Capital, Coinbase Ventures, Winklevoss Capital, and others.

On Tuesday, Jan. 29, Cointelegraph reported that a member of R3’s global blockchain ecosystem reported reaching its goal of raising $10 million, mostly from credit unions.

Pantera Capital, Coinbase Back Crypto Startup Staked in $4.5 Million Round

Pantera Capital, Coinbase Back Crypto Startup Staked in $4.5 Million Round

Staked, a startup aiming to make staking on PoS blockchains easier for institutional investors, raised $4.5 million from Pantera Capital, Coinbase and others.

Major crypto investment firm Pantera Capital has lead a seed funding round for crypto staking startup, Staked, the company announced in a blog post Jan. 31.

The startup, which targets institutional investors of proof-of-stake cryptocurrencies, announced that it raised $4.5 million in the investment round.   

According to the post, in addition to Pantera Capital, major firms that participated in the round include Coinbase Ventures, Digital Currency Group, Winklevoss Capital, Global Brain, Fabric Ventures and Blocktree Capital.

Furthermore, the company also reported that Pantera Capital partner Paul Veradittakit is set to join Staked’s board of directors. Pantera Capital reportedly first contacted the company as a potential customer but ended up investing in it as well, the post notes. Veradittakit is quoted as saying:

“Pantera invests in many leading proof-of-stake projects, so we knew we needed a staking solution. [...] We liked Staked because of the experienced team, focus on institutions, and broader vision around helping investors earn yield on their cryptocurrency.”

Staking is a term describing the way users participate in the maintenance of a proof-of-stake blockchain. It involves depositing or staking an amount of cryptocurrency in order to receive a block reward.

According to the startup’s founder and CEO, Tim Ogilvie, the firm “help[s] institutional investors in digital currencies earn their network staking rewards[.]”

Staked currently supports staking for cryptocurrencies Tezos (XTZ), Dash (DASH), Decred (DCR), Livepeer (LPT), Factom (FCT) and Eos (EOS).

As Cointelegraph reported in October last year, Pantera Capital’s co-CIO Joey Krug predicted that cryptocurrency markets could increase ten times over from 2020.

In November 2018, Coinbase Ventures also participated in a funding round for security token startup Securitize, alongside Blockchain Capital.

Global Pharma Giant Merck Wins US Blockchain, AI Patent for Product Authenticity

Global Pharma Giant Merck Wins US Blockchain, AI Patent for Product Authenticity

Merck, the world’s oldest pharma firm, has won a USPTO blockchain patent that aims to increase supply chain security.

Merck, the world’s oldest operating pharmaceutical firm, has won a blockchain patent from the United States Patent and Trademark Office (USPTO), Cointelegraph auf Deutsch reported Jan. 30

The German multinational has developed a system that uses a combination of Artificial Intelligence (AI) and blockchain tech to establish the authenticity of unique physical objects. As Merck reports in a press release Jan. 30:

“The new technology uses machine learning to link physical objects to a blockchain through their own unique identifiers or ‘fingerprints‘.”

According the firm, the new patent describes a technology that can identify and record any unique feature of a physical object as its so-called “fingerprint,” including chemical signatures, DNA and image patterns.

The company claims that the technology described in the patent can increase the security of systems such as supply chains, aiming to eliminate counterfeit. The tech is reportedly being developed in Merck’s Innovation Center, the firm’s research and development arm.

Citing data from the World Health Organization, Merck noted that more than 50 percent of pharmaceutical products purchased on illegal websites are in fact fake.

Yesterday, Russia’s Ministry of Education and Science introduced a new blockchain-powered platform for tracking natural diamonds across the entire supply chain, from extraction and polishing to the final owner.

Last week, U.S.-based health insurance giant Aetna partnered with tech mogul IBM to build a blockchain network designed for the healthcare industry, specifically addressing insurance processes.

On Jan. 24, the United Kingdom’s national standards body, the British Standards Institution, teamed up with blockchain firm OriginTrail to increase supply chain transparency.

Under Fire: Kik Is Gearing Up for a Fight With the SEC

Under Fire: Kik Is Gearing Up for a Fight With the SEC

Messaging app Kik intends to take the fight to the SEC if regulatory action is taken against its 2017 token sale.

Canadian-based social media startup Kik is gearing up to challenge a proposed enforcement action from the United States Securities Exchange Commission (SEC) over a fundraising initiative in 2017.

The American securities regulator believes that Kik’s Token Distribution Event (TDE) two years ago violated securities laws. The company raised $97 million during its fundraising phase, a princely sum for a platform that has garnered millions of users since its inception.

Following the SEC’s recommendation of an enforcement action in November 2018, Kik was served with a “Wells Notice,” a letter to the company that needs to be responded to in 30 days.

Kik replied to the SEC in their “Wells Response” letter in December, arguing that the SEC’s regulation by enforcement approach has negatively affected the development of blockchain and cryptocurrency in the U.S. and has subsequently led to businesses in the sector either shutting down their projects or moving overseas.

Before we delve into the intricacies of this situation, it is worth understanding what it is that Kik does, how its native token was created and works, and why it believes the SEC’s potential ruling is wrong.

Kik Messenger — privacy-focused messaging

Kik Interactive has been in existence since 2009, following its creation by a group of students at the University of Waterloo. The group was looking to solve a barrier in communication between Blackberry, Android and iPhone users.

Since its initial release in 2010, the Kik Messaging application has garnered a reputation for its privacy features, including its user sign-up process that doesn’t require a telephone number.

The platform identifies itself as the only chat platform built for teenagers — which has also led to plenty of controversy around the use of the app by minors, and the platform’s use by perpetrators of child exploitation.

Nevertheless, the app is extremely popular, with an estimated 300 million users worldwide, according to data from 2016.

Kik’s anonymity and privacy features are extensive, and the company claims that it cannot locate user accounts based on their names, email addresses or birth dates. The exact username used to create an account is required to locate a particular account.

Furthermore, the company does not have access to user content and data like photographs, videos and text of conversations. Photos and videos are automatically deleted shortly after they are sent.

According to the Kik website, the platform has raised over $120 million from Foundation Capital, RRE Ventures, Spark Capital, SV Angel, WeChat creators Tencent, Union Square Ventures and Valiant Capital Partners.

However, its 2017 TDE, which is essentially an initial coin offering (ICO), has brought the company into the spotlight, facing potential action from the SEC.

The Kin TDE

Two years ago, in September 2017, Kik created its very own native cryptocurrency known as Kin using the Ethereum blockchain. Kin was launched as an ERC-20 token for the initial sale and distribution of tokens.

According to initial reports, Kik raised 168,732 ETH — worth around $47 million at the time — from over 10,000 different users. Institutional investors were able to partake in a presale event, which accounted for a further $50 million, taking the total amount raised to just under $100 million.

The token was intended to be used for in-app transactions, in exchange for goods and services.

Kin’s argument against the SEC

According to Kik CEO and founder Ted Livingstone, Kin meets the standards of a currency, which directly contradicts the findings of the SEC.

In a blog post on Medium on Jan. 27, Livingstone summed up his feelings and shared the company’s Wells Response:

“On page 11 of the 1934 Securities Exchange Act, the very act that created the SEC, it explicitly states that the definition of a security ‘shall not include currency.’ Today you can earn and spend Kin in over 30 apps live in the Google Play and iOS App Stores. Already, hundreds of thousands of people have exchanged Kin for goods and services. Kin is one cryptocurrency that truly is a currency.”

Kik’s response to the SEC is a comprehensive document outlining a plethora of reasons why it is opposing any regulatory action against its TDE and the Kin cryptocurrency.

In short, the company argues that Kin was designed, marketed and offered as a currency to be used as a medium of exchange. Considering this, Kik argues that the token falls outside of the definition of a security:

“Simply put, Kik did not offer or promote Kin as a passive investment opportunity. Doing so would have doomed the project, which could only succeed if Kin purchasers used Kin as a medium of exchange (rather than simply holding it as a passive investment). Accordingly, Kik marketed Kin, not as an investment opportunity, but rather as a way to participate in a fundamentally new way for consumers to access digital products and services, and for innovative developers, and their users, to be compensated for the value they provide.”

Given the focus on maintaining user privacy and trust, Kik recognized that it could not directly compete with larger social media platforms and messaging applications that monetize their business by selling advertising and user data based on an attention-based economy.

To this end, it created a virtual currency in 2014 called Kik Points within the Kik Messenger. The experiment was a success, and for two and a half years, users earned and spent Kik Points on content in the app.

Kik Points were awarded to users for filling out surveys and polls within the messaging app. This was monetized by Kik, which sold Kik Points to advertisers who then paid consumers for answering these polls and surveys.

According to the company, Kik Points generated an average of 300,000 transaction per day, and at its peak, Kik claims its monthly transaction volume was nearly three times that of Bitcoin.

The project eventually came to an end, but the success of the Kik Points system provided the basis for the concept of the Kin cryptocurrency.

The company maintains that since its inception, Kin was promoted as a currency for daily digital transactions, but ultimately as the basis for a new digital economy. Kik also claims that it intended to be a participant in the ecosystem, to ensure a decentralized environment.

The company capped its presale at $50 million to give individual users a fair chance to participate in the token sale. Individual users could only buy approximately $4,400 worth of Kin. Kik noted that more than 50 percent of buyers bought less than $1,000 of tokens, adding further argument against the sale of Kin as a security.

Kik also required buys to pass KYC/AML and Office of Foreign Assets Control (OFAC) regulations in its treatment of Kin as a currency.

KPMG audited the sale, and determined that the funds raised should be treated as revenue in line with sales of inventory. Kik also paid taxes on the sale’s proceeds in accordance with the Canada Revenue Agency’s view that the proceeds were income.

In light of all of this, the company is pleading to the SEC’s commissioners to not take action against it, considering the lengths Kik went to in order to ensure that its token sale met all regulatory requirements:

“If the Commission disagrees with Kik and the Foundation with respect to the central legal issue, it should nonetheless use its discretion and decline to bring an enforcement action. The Company took substantial measures to comply with the law. Further, any action will not only harm Kin purchasers, who the Commission purports to protect, but it will carry the ill effects of regulating through enforcement.”

Watershed case of the crypto community

The crypto community will now wait for the SEC to consider Kik’s Wells Response before deciding if it should carry out creating a recommendation to the SEC commissioners to authorize a case against the company.

The next step is for the SEC staff to take these two documents and decide if they want to make a recommendation to the four SEC commissioners to authorize a case against the company.

In his daily newsletter, crypto industry investor Anthony Pompliano expressed his belief that Kik’s response sends a strong message for the crypto community as a whole to stand its ground when it comes to harsh regulatory measures:

“No one knows what the outcome of Kik’s situation will be. Either way, this will be one of the most important legal cases to watch in crypto. The company is well-funded, well-connected, and you get the sense that they are fighting these potential charges as a way to say ‘enough is enough’ for the entire industry.”

Cointelegraph also reached out to Marc Boiron, a partner at the law firm FisherBroyles, who provided a legal perspective. The lawyer believes that Kik’s response won’t provide any argument that the SEC hasn’t already considered:

“The reality is that the facts underlying the sale of Kin (i.e., private discussion and communications with Kin purchases) will be the determining factor. If the SEC believes those communications involved conveying an expectation of profit, then the SEC will not buy the arguments Kik is making in its submission. Lastly, I think the SEC is beyond the point where it will be lenient with Kik, especially with this public ‘defiance’ of the SEC. Therefore, if the SEC thinks it has a good case, it will not take it easy on Kik just because it was better than other ICO issuers at the time.”

There is no clear indication of how the SEC will react, but Boiron believes a worse-case scenario will be severe for Kik. As Boiron notes, Kik would face severe penalties and would be liable to make a rescission offer to all investors.

It could be likely that the SEC will require Kik to register Kin as a security, which could affect the whole ecosystem of applications that make use of the token:

“The Kin token could no longer be freely transferred everywhere within the ecosystem if Kik is required to treat it as a security as a result of the restrictions that exist with securities. All of this would impact users who need to use the Kin tokens. To the extent the Kin tokens do not need to be used in the Kik ecosystem, then users who do not currently hold Kin tokens will not be significantly impacted.”

As Boiron elaborates further, in the eventuality that the SEC treats Kik with a favorable response and does not take any action, such a move could be a really positive one for the cryptocurrency and blockchain space:

“Undoubtedly, a positive outcome for Kik (i.e., one that involved a court ruling that Kin is not a security) would be tremendously helpful for crypto and blockchain companies. However, there are limitations that need to be recognized. Kik is now, and even at the time of its ICO, had a much more developed product and ecosystem than 99% of the companies that have sought to do ICOs. For example, Kik already had a points system that was pretty robust.

“For companies that are further along in their development, it could provide confidence that they have a defensible position if they want to sell tokens but it would not be wise for less developed companies to rely on the Kik outcome as a comparable situation for them when selling tokens.”

Age of Scale: How Can Blockchain Systems Become Powerful Enough for a Global Audience?

Age of Scale: How Can Blockchain Systems Become Powerful Enough for a Global Audience?

Blockchain technology is facing a serious scalability issue, and solving it might not be as easy as some think.

In the history of blockchain to be written in textbooks, 2018 will probably be known as the year of failing at scaling. An outcry for scalable blockchain systems in 2017 led to a number of companies making attempts at solving the problem of scaling and gradually realising that it’s not that simple.

As the year has concluded, ModernToken’s Blockchain Science department presents an overview of known approaches to improving scalability.

The great race to reliable scalability started with the outburst of startups and funding campaigns trying to bring distributed ledger technology (DLT) into business and to real-world applications. The first wave of projects triumphantly entering the market with a promise to solve specifically this issue have been, as predicted by experts, spectacularly missing their marks.

The most notorious examples of this are EOS — not fast, not a blockchain, not Byzantine fault-tolerant, according to a report by research firm Whiteblock — and IOTA, which has publicly acknowledged its own centralization and affirmed that it has never had a solid vision of a decentralized protocol.

A number of projects that weren’t hard pressed by their marketing to ship their products are still at work, and we’re expecting to see their progress — whether positive or negative — in the year to come. Meanwhile, it is worth to explore the problem itself and the ways it is being tackled by the industry.

Problem overview

In broad strokes, the challenge for DLT can be illustrated by the so-called scalability trilemma, coined by Vitalik Buterin: of the three fundamental properties of distributed networks — decentralization, scalability, and security — it is hard to have any two without compromising the third one, knowingly or not.

For distributed databases with shared state, there is also the CAP theorem, which regards availability (always getting a timely response to a query), consistency (always getting the most recent update or an error message) and partition tolerance (does the system lose liveliness if the network gets split). It is seemingly only possible to hold at most two of these properties.

To illustrate, if the network splits in half but remains operational, one has to choose between consistency and availability, as the unreachable part of the network may make updates to state that will not propagate to the reachable part. The theorem has varying effects on DLT architectures as well.

The trick is breaking up the state (the data that constitutes a ledger, i.e. the list of all current balances, the collection of current states of every smart contract, etc.) into parts while keeping the high security expectations and preserving the homogeneity of interactions. Namely, any entity (user account, smart contract) needs the ability to transact with any other entity, regardless of the relative places they end up after the state space is compartmentalized.

Lines of inquiry

With industry experience and theorycrafting accumulated so far, there are several possible approaches to attempt building scalable blockchain systems. Some of them are only vague sketches of ideas, while for others numerous projects and research teams are working on prototype architectures and proof-of-concept implementations.

Each approach has its own way of splitting the state, and each one entails its own set of constraints and bottlenecks.

To keep focus on the concepts, we refrain from mentioning particular companies and projects, so any resemblance to actual products — living or dead — or real events, is coincidental.

Sharding with proof-of-stake

Sharding attacks the problem head-on: instead of having every node replicate the entire state, let’s break it into segments (shards) and spread them between groups of nodes. If a transaction only needs to happen within the shard, processing it is very much like within classical blockchain: nodes within the shard have sufficient knowledge to fully validate it. Otherwise, there needs to be some sort of cross-shard communication. This brings three big questions:

  1. How to process cross-shard transactions, since most nodes only keep the state within their shard?
  2. For a node that only keeps state from its shard, how does it know with certainty that the state from other shards is consistent with protocol rules and is immutable (i.e. how do we prevent or process shard reorganizations, in relation to other shards)?
  3. How should the network deal with partitioning?

One of the important points when dealing with sharding is to get rid of proof-of-work (PoW). Since we are trying to build a homogenous network that consists of a huge number of parts, the computational resources will need to be spread thin, and performing a 51% attack on a particular shard will therefore be too easy.

Proof-of-stake, on the other hand, can possess several vital properties: random selection of stakers per round (so that coordinating an attack at one place is hard), stake slashing for byzantine behaviour (unlike with PoW, whereby failing at an attack has mostly opportunity costs) and stake locking (so that entering and exiting the staking game also has time costs).

Sharding with proof-of-authority

The sharding itself with this approach is most reminiscent of sharding in classic databases, since it more or less boils down to a trusted party — or a small fixed collegium of trusted parties —  to maintain the data.

For the DLT maximalists, this is a conceptual resignation, since such a network can never be permissionless, i.e. fully independent of any realistically corruptible or coercible party or group.

On the other hand, it may still interest big enterprises and financial institutions, offering a medium for joint operations with cross-validation, provided there are activities that make business sense in the mutually transparent environment. The upside is that the trust requirements between counterparties can be lowered, if not eliminated completely, as long as the rules of interaction can be coded.

Delegated proof-of-stake

This design only has a handful of master nodes that validate transactions, emit new blocks, and promise to hold the full current state. The network users do not stake currency on new blocks (like in proof-of-stake), but instead stake currency on their preferred validators, which gives them voting power.

The idea is that the competition for being in a master node list, associated with high income in block rewards and fees, will drive the master nodes to perform well and have the best possible hardware, far beyond that of a personal computer.

There are concerns about possible tendencies to centralization. One of them is that since users only receive ROI on their delegate stake if their delegate is in the master node list, it is counter-productive to stake an outsider: until they get in, any voter just pays the opportunity cost of not staking an insider instead.

As a result, insiders have greater power, as they only need to worry about potential massive loss of votes, but can probably get away with smaller Byzantine stuff.

There are also uncertainties about auditability: huge state held inside a small number of paid validators creates a situation whereby fully auditing from outside the master node list is a big expense — since the hardware has to be matched — but provides zero revenue.

Some practical implementations of this architecture known to date also have opacity of the state, whereby an external observer, even one willing to commit resources, can never know what’s going on inside the master nodes.

General purpose interoperability

What if there was an inter-blockchain protocol to deliver in a trustless way transactions and state from any blockchain to any other blockchain?

Had it existed, such solution would allow scaling insofar as the state can be broken into separate chains. It would also mean great flexibility: blockchains can specialize at their particular business or data specifics and still have the ability to interact with other specialized chains. For instance, a content distribution network that uses an already existing medium of exchange network for paid interactions.

Unfortunately, this is a highly complex task. The elephant in the room is that it should handle forks and chain reorgs so that the logic on arbitrary blockchains relying on external state does not break. For instance, it needs to ensure that it isn’t possible to double spend on Aristotle chain by paying for something with a Plato transaction and then performing a 51% attack on Plato, forking the chain and removing the paid transaction.

Among other approaches to scaling, general purpose interoperability is perhaps the one that relies most heavily on game theory and incentive design. Little, if anything, is known a priori of the systems that should be connected, and the consumer of the relayed transactions cannot be expected to validate them for themselves, otherwise there’s no sense in the relay.

Plasma: hierarchical blockchains with exits into base layer

This concept for DLT was first proposed in August 2017. It involves multiple layers of blockchains: the child layer blockchain is anchored to the parent layer blockchain via a special smart contract that allows withdrawal of assets even if the operator of the child layer goes Byzantine.

Each block from the child layer is anchored in the smart contract, together with a Merkle root of the tree tracking assets. The child layer clients need to monitor the anchor contract in the parent chain and make sure that the operator sends them every block they submit to the parent chain.

If something is wrong (i.e. the operator doesn’t send a user the block they just committed, or the block is malformed), every user can start a withdrawal, asking the anchor contract to return their assets in the parent chain, by supplying a proof of ownership. After a waiting period, when the process can be contested with a fraud proof, the withdrawal completes, and the asset is recovered in the parent chain.

While a great concept, Plasma presents a number of its own challenges and problems. FIrst of all, all of its known architectures rely on the user storing full history of their assets on the chain and actively contesting malicious withdrawal attempts within the expected time windows. The window is the balance between how long the assets are stuck in the contract and how regular of a presence is expected from the user.

Secondly, the scenarios for mass withdrawals, especially from multiple plasmachains into the same parent chain at the same time, are tough to reason about, and no good security model has been presented so far.

Lastly, so far there have been no proposed architectures that would enable arbitrary smart contracts to hold their own assets in the plasma chain. There are only user-held non-fungible asset units (Plasma Cash), fungible asset units in form of payment channels (Plasma Debit), and arbitrary UTXOs (Minimal Viable Plasma).

Having contracts with both state and held assets presents a tough theoretical problem, as every proposed scenario for who and how exactly could contest a smart contract state in case of someone’s Byzantine behaviour have been prone to attacks.

Direct acyclic graphs

Instead of building a chain of blocks, where each new block is added at one end, why not grow a tree that expands in multiple directions? This way there is no need for one place or group that has to validate adding a block to a particular place, which is a bottleneck.

The computational load of updates is distributed among the current leaves of the tree. It could also mean that storage is broken up between branches that don’t need to be monitored all at once, as long as they are regularly cryptographically linked in some way.

With DAGs, it is quite non-trivial to define finality in a non-abusable way. If one adds or sees a transaction to a leaf, they need to have a strong expectation that the branch will stay inside the consensus state, which probably means that more transactions need to extend (and thus confirm) it.

The problem, then, is ensuring a robust way for the clients to perform leaf selection that fairly randomly builds on non-Byzantine branches and ignores Byzantine ones. If to do that the client then has to monitor the entire DAG, there is no scaling, because of the state space. If the client relies on a third party, that party becomes a trust bottleneck.

The challenge is in figuring out a way to do the random leaf selection that can be proven to be fair and tamper-resistant under reasonable assumptions. And it is, of course, connected with breaking up the state storage.

What’s next?

Many of the projects that have been developed throughout the year will likely bring first tangible results in the next six months. While we do not expect a fully production-ready protocol with horizontal scaling and arbitrary state — even a largely centralized one — powerful proof of concepts and minimally viable solutions are likely to hit the market soon.

And while 2019 may still remain the year of the Earth Pig, 2020 in DLT will likely be the year of the Scaly Armadillo.

The article was written by Collis Aventinus, a Blockchain expert at Modern Token.