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From Cardano to Ethereum, 2020 Could Be Deciding Year for Proof-of-Stake

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From Cardano to Ethereum, 2020 Could Be Deciding Year for Proof-of-Stake

2020 will be the year proof-of-stake (PoS) blockchains finally break out. Maybe. Two of the industry’s most hotly anticipated PoS networks are scheduled to (re)launch in Q1 – namely ethereum and Cardano.

The second-largest blockchain platform in the world by market capitalization, ethereum has been looking to shift to PoS since 2014. Co-founder Vitalik Buterin sees PoS as key to ethereum reaching maturity.

“Ethereum 1.0 is a couple of people’s scrappy attempt to build the world computer; Ethereum 2.0 [with PoS] will actually be the world computer,” he has said.

Conceptually, PoS has been around since 2012, but its applications thus far on blockchain platforms, such as EOS, Tezos, Cosmos, and others, haven’t been proven to outperform proof-of-work (PoW) platforms in usage or market value (bitcoin or ethereum, for instance).

With PoS, validators must own currency they are verifying: “forgers” always own the coins being minted. There is no mining, meaning no heinous use of electricity to solve maths problems. Supporters argue that PoS will be magnitudes more scalable, sustainable and secure than traditional PoW blockchain systems, but the jury is still out on its comparative strengths and whether governance can be made to work.

Cardano, rather than launching a new PoS system, is looking to upgrade its own pre-existing PoS platform as a public network.

The 12th largest cryptocurrency by market capitalization, Cardano is currently governed by a federated system of transaction validators made up of three organizations: the Cardano Foundation, IOHK and Emurgo, a structure that drew criticism for being over-concentrated. The public network will have 100 times more people running its software than bitcoin, ethereum or any other PoW system, said Charles Hoskinson, CEO IOHK, the company behind Cardano, in an interview.

“This marks the starting point for handing the [Cardano] protocol completely to the community,” Hoskinson said of next year’s network upgrade, dubbed “Shelley.”

Tim Ogilvie, founder, and CEO of multi-blockchain staking service Staked, argues that 2019 has already been a big year for PoS.

“You’ve had millions of dollars of proof-of-stake assets running without a hitch and not spending billions on electricity costs,” he stated. “Now, you’re going to see big projects like Cardano and ethereum taking these results even further. We’re definitely excited.”

Ogilvie added:

“There’s probably five or six what we call large-market-size proof-of-stake coins and Cardano is one of them. It’s why we got into this business. All these big, exciting projects are either moving to PoS like ethereum or launching with PoS like Cardano.”

Cardano as a test case

Cardano is a running test case of the viability of PoS systems for a global audience. Hoskinson, himself one of the initial co-founders of ethereum, said the past two years of “research and engineering” have all been leading to this point.

Rather than relying on external computational cost and energy to power the network, as with PoW, PoS systems rely on internal incentive mechanisms to encourage user participation.

Coordinating the right amount of network rewards versus penalties to keep a PoS blockchain running smoothly and securely has taken years of academic research to get right, Hoskinson says.

Speaking to Cardano’s long roadmap, Kathleen Breitman, co-creator of public PoS blockchain Tezos, said:

“I can tell you for a fact it’s extremely unromantic and extremely unpleasant to watch a proof-of-stake network evolve. … It’s an extraordinarily hard task to switch to a PoS network or to launch a PoS network. The reason why is because there’s so much more coordination cost, more than anything else. It’s not a trivial task.”

Soon after the Shelley upgrade, Cardano plans to add smart contract functionality enabling decentralized applications (a development phase it calls “Goguen”). Following that, it hopes to increase scalability (the “Basho” phase) enabling upwards of 10,000 transactions per second. Ethereum, in contrast, presently processes about 15 transactions per second. Full development of the Cardano platform from Shelley to Basho, and an additional phase dubbed “Voltaire,” which is dedicated to on-chain governance, is expected to be completed by the end of 2020.

The challenges

Cardano raised $63 million dollars in an ICO in early 2017. Then, in 2018, Hoskinson stated IOHK had earned “nine figures” in revenue acquiring new corporate and government partnerships for the Cardano blockchain. The most recent corporate partnership with sneaker manufacturer New Balance was announced last month during the annual Cardano Summit.

Hoskinson is constantly on the move, flights between locations and projects. Hoskinson says he travels between 200 and 250 days a year. As well as Goguen, Shelley, and Basho, his company, Input Out Hong Kong (IOHK) is also developing an enterprise blockchain solution (Atala). Hoskinson is more focused on the developing world than most crypto executives, piloting projects in Mongolia, Rwanda, Ethiopia and elsewhere.

Hoskinson has grown his team of two in 2015 to now 200 contractors and employees worldwide. Hoskinson is confident IOHK has amassed the technical know-how to bring the full Cardano project to full fruition.

Bob Summerwill, executive director of the Ethereum Classic Cooperative, called it a “world-class development team” with a strong focus on academic peer review. Though Buterin and Hoskinson spar over the particulars of their PoS projects, Summerwill stated personal rivalries distract from the fundamental similarities between Cardano and ethereum, which he described as “sibling projects with a lot of common genetics.”

As well as technical challenges, Hoskinson will have to stay in good stead with his project partners, something he has not always been good at.

Hoskinson was an original member of the ethereum founding team until June 2014 but was asked to leave the project. Hoskinson wanted a corporate structure for ethereum while Buterin favored a foundation.

Hoskinson also fell out with the Cardano Foundation, which was set up as part of the initial five-year contract to build the blockchain, signed with a group of Japanese businessmen in 2015. The independent nonprofit was set to manage community growth until 2018 saw a power struggle between Hoskinson the foundation, leading the nonprofit to adopt leadership from Hoskinson’s pool of business partners. 

If Hoskinson succeeds, he will need to keep everyone happy and probably for a significant amount of time. Pulling off such a complicated set of projects, making PoS work, and solving the governance challenges will probably take years. 2020 will be just the start.

As Hoskinson himself says:

“It’s still very early days.”

 

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Has Facebook’s Libra Made People Reconsider USD As Global Reserve Currency?

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Has Facebook’s Libra Made People Reconsider USD As Global Reserve Currency
Has Facebook’s Libra Made People Reconsider USD As Global Reserve Currency?

Major global economists credit Facebook’s Libra with pushing the world to start reconsidering the United States dollar as anchor currency.

At a Jan. 23 panel at the annual World Economic Forum (WEF) in Davos, officials and financial experts discussed one of the most important mechanisms in the global financing system — the U.S. dollar, which has become the world’s reserve currency.

Called “Challenging the Dominance of the Dollar,” the panel focused on factors that make the U.S. dollar the world’s dominant payment system and reserve currency, as well as the fact that countries over the globe are trying to reduce their dependency on the dollar. The panel featured a number of officials including Brazil’s Economy Minister Paulo Guedes and Gita Gopinath, chief economist at the International Monetary Fund (IMF). Hosted by Adam Tooze, director of the European Institute at Columbia University, the panel also included Portugal’s Finance Minister Mario Centeno and Zhu Ning, a professor of finance at Tsinghua University. 

Image result for us dollar

Gopinath, who is also a director at IMF’s research department, opened the panel with comments that named Facebook’s cryptocurrency initiative Libra as a major factor that made everyone in global finance reconsider the status of the dollar as anchor currency. Brazil’s Economy Minister supported the statement, adding that new technologies like blockchain are paving the way for future currency that will be digital:

“So then there is the new technology, the digital, the blockchain. […] The Libra episode is just evoking a future digital currency.”

Gopinath continued the U.S. dollar still remains attractive, pointing out that one of the most important features that make the U.S. dollar attractive is trust and stability:

“Why is it that the dollar has such dominance? It does because it is the currency that provides the best stability and safety. […] It makes complete sense to hold your value in dollars because if things go bad, it gains value.”

The fact that WEF economists now agree that Facebook’s Libra has pushed global authorities to start reconsidering their approach to the world’s reserve currency, is definitely reinforcing the status of emerging fintech technologies as well as blockchain. Meanwhile, some officials have already warned that projects like Libra can have a huge impact on the U.S. dollar. In August 2019, Mark Carney, the governor of the Bank of England, suggested that Libra-like digital currency could replace the U.S. dollar as the world’s reserve currency. 

Carney said that replacing the dollar with a digital currency would be a better option than allowing its reserve status to be replaced by another national currency such as China’s renminbi. Libra initially proposed to back its crypto project by several national currencies including the U.S. dollar, euro, Japanese yen, British pound and Singapore dollar, allegedly excluding the Chinese yuan from the group of reserve assets.

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Litecoin Is Not ‘Digital Silver’ According To Report

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Litecoin Is Not ‘Digital Silver’ According To Report
Litecoin Is Not ‘Digital Silver’ According To Report

The start of 2020 has seen considerable gains in the cryptocurrency market as a whole. Recently, Bitcoin (BTC) price reached a 2-month record high crossing above the $9,000 mark as well as other cryptocurrencies such as Litecoin (LTC) reaching $62.80 which is the highest price seen since mid-November 2018.

Cryptocurrencies’ volatile behavior is one of the main concerns raised by researchers and it complicates the argument that Bitcoin should be classified as a traditional investment asset and that it is a reliable store of value. Amid those discussions, Bitcoin has been closely compared to gold, while Litecoin has been associated with being “the silver to Bitcoin’s gold.” 

New data suggests that the actual correlation between Bitcoin and gold is not significant, as well as gold’s explanatory power of Bitcoin returns. Nevertheless, Bitcoin is still frequently compared to gold, particularly as a potential safe-haven asset. Since October 2019, silver prices have approached new record-highs. But does the latest data support the argument that Litecoin is the silver of cryptocurrencies? Could Bitcoin instead of Litecoin be closer to silver than to gold?

Our data — from May 2013 until December 2019 — shows that Bitcoin and Litecoin returns are very positively correlated (0.67) with 1 implying a strong positive correlation and 0 meaning that the assets are not correlated. A reading of -1 shows that the assets are completely inversely correlated. Meanwhile, the correlation between silver and Litecoin returns is close to zero (0.026), which is similar to Bitcoin’s correlation with silver (0.0025). We further analyzed the correlation between the lagged silver returns and the two assets. In other words, the correlation between yesterday’s silver returns and today’s Litecoin and Bitcoin returns were compared. However, the results are even more discouraging, since both show negative correlations with the lagged silver returns. Bitcoin’s correlation was -0.03 while Litecoin’s was -0.05.

Image result for litecoin

Analyzing the rolling correlations provides a wider view and each data point in the diagram above refers to the correlation of silver and Bitcoin returns (BTC/silver), and between silver and Litecoin returns (LTC/silver) over the last 30 days. One can see that the correlation between Bitcoin and silver, and Litecoin and silver, is very similar across time during both negative and positive periods.

Hence, both Bitcoin and Litecoin have a small correlation and similar relationship with silver. Thus, the Litecoin as “digital silver” narrative is challenged by these very low correlation values. Moreover, it’s no surprise that Bitcoin has surpassed both Litecoin and silver as the best investment option over the past ten years.

The data, however, suggests that silver returns may work as a predictor for future Litecoin returns. From the model employed, if silver’s return rose by 1% yesterday, we can expect that Litecoin returns may decrease by -0.232% today. This statistically significant result can lead investors to assume that silver returns may work as a predictor for future Litecoin returns in a negative way. Similar outcomes were not found in the case of Bitcoin, however. The ability to predict prices has been the holy grail of financial markets, hence the importance of this relationship between returns. Even though both crypto assets show a very low correlation with silver, the results for the lagged returns shed some light on the relationship between silver and future Litecoin returns. 

Looking forward, investors may want to look at silver returns to draw strategies when buying/selling Litecoin based on this past silver return’s analysis. However, any strategy has to consider the fast-changing crypto market environment and careful analysis over different time periods, which can cause different conclusions. Nevertheless, these findings can help us to conclude that Litecoin as the digital equivalent of silver is far-fetched due to the low correlations. However, we do highlight the value of investigating the digital silver narrative by establishing a new connection between returns, which is crucial for investors.

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Ethereum Scalable Harberger Tax Contracts Deployed to Raise Funds for Endangered Animals

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Ethereum Scalable Harberger Tax Contracts Deployed to Raise Funds for Endangered Animals

A platform called Wildcards has successfully deployed scalable Harberger tax contracts on the Ethereum blockchain for the first time in an effort to save endangered animals.

Specifically, users of the Wildcards platform can buy non-fungible animals tokens, but immediately must put the token up for sale so that someone else buys it and funds continue to be raised. In order to prevent a user from setting a ridiculous selling price, the user must pay a percentage of the selling price, which is called a Harberger tax.

Although users must sell their tokens, the platform records their stats, so they can show off how much they have donated to charity if they desire.

The Wildcards platform is not limited to raising funds for endangered animals either. Any charity can raise money with Wildcards. For example, koala non-fungible tokens might be traded in order to raise funds for the Australian wildfires.

Overall, this is an excellent example of how blockchain technology can be used to raise funds for charitable causes.

 

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