Real Ventures Crypto Brief - December 16, 2017

Vitalik Buterin is a class act, plain and simple. As the market capitalization of cryptos crossed US $500 billion, Vitalik didn’t celebrate how rich he or others have gotten, but rather asked legitimate questions about whether or not cryptos are actually worth as much as people think they are. He points out issues with scalability, asking how many actual applications are running that do something useful for people today (his answer: none). This Twitter thread is a great way to get insight into the true, genuine passion and intelligence that Vitalik brings to the crypto community. 

Jay Clayton, Chairman of the SEC, released a formal letter concerning cryptos. This is a pretty big deal from a regulatory standpoint because it gives a good approximation for how the SEC is likely to approach enforcement of securities law in crypto, which will be watched closely by other regulatory bodies. He addresses two core constituencies, “main street” retail investors and market professionals, urging caution and advising conservatism respectively. On the whole, Clayton’s statement is surprisingly well-considered and generally positive: 

Asia, and South Korea in particular, has been a substantial driver of volume in crypto investment. In China regulators have clamped down aggressively given substantial and potentially de-stabilizing participation from many retail investors, but South Korea has maintained more of a light touch so far. As a result, both retail investors and large companies have become heavily involved in crypto trading. It will be interesting to see how long regulators will continue to let crypto trading grow before imposing more regulation and taxes. 

This statistic has been grabbing headlines as Bitcoin’s price continues to skyrocket. Many early believers in Bitcoin, both engineers and investors, have yet to divest their now-substantial positions in Bitcoin, so ownership remains concentrated. Some worry this leads to market manipulation by “whales” that disadvantages smaller traders; these concerns are likely well-founded. However, logarithmic distribution of assets is a universal phenomenon in finance not limited to cryptos alone. This time, instead of VC’s and founders capturing all early value, the opportunity is democratized:

This is one of the best stories I’ve seen in crypto so far. Going totally against the sometimes greedy “get rich quick” ethos that has crept into crypto over the years, an anonymous early Bitcoiner is giving away a substantial amount of their new-found wealth. This is a model of true leadership, and it is a genuinely inspiring example for the powerful and beautiful future that crypto can offer. 

UBS and other affiliated banks in the UK have announced a live pilot based on Ethereum, following their previous work on the Utility Settlement Coin. This news coincided with a sharp rise in the price of Ether, which would suggest that investors view this announcement as the first of many for how Ethereum will be used in production by large, well-respected financial players.

Yet another example of the great community of the Ethereum ecosystem. As a result of CryptoKitties’ unexpected and wild success, the Ethereum network became clogged with slow confirmation times and high fees. To resolve this, miners autonomously raised the “gas limit”, or transaction fee limit, so that transactions could be processed more efficiently. This didn’t require a top-down command or months of political maneuvering - a great illustration of the cooperative and adaptable side of this community. 

Ethereum developers continue to make steady progress on next-generation scaling technology for the blockchain. Sharding is a technique that has been around for a while that involves splitting up a database; in the context of Ethereum, one day there will be many “shards”, or pieces of the Ethereum blockchain, that are maintained independently from one another by different groups of nodes, but in a way that keeps them all securely linked together. 

State-channels are another potential blockchain scaling solution that are a bit further along than sharding. Lightening Network, Raiden, and Counterfactual are a few formal efforts working to bring this technology to production, and Funfair has posted their own research as well. Many competing ideas and implementation are a good thing, because these aren’t easy systems to design and a lot of testing is required before they will be ready for prime-time. However, the more work is done in this area, the more likely it is that we will see substantial progress on scalability in the near future. 

Preethi Kasireddy is an amazing engineer and evangelist for blockchain technology because of both the depth of her technical acuity and her ability to synthesize that understanding into analysis that understandable even for those who aren’t developers. In this post, she provides an extremely well-researched and comprehensive list of the main challenges that public blockchains need to overcome. I highly recommend a read!