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Riding on the Lightning

Gus Levy - "Be greedy when others are fearful and fearful when others are greedy" According to an ano

Satoshi&Co Daily Crypto Newsletter

January 31 · Issue #3 · View online
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Gus Levy - “Be greedy when others are fearful and fearful when others are greedy”
According to an anonymous Redditor, the first physical payment was made using the Lightning Network last week. The second-layer scaling solution, first proposed in 2015, has been in development since then and is expected to be ready for mainstream adoption in the second half of 2018. The bitcoin blockchain has failed to keep up with the rising number of transactions effectively, resulting in progressively slower transactions and higher transaction fees. The average transaction fees skyrocketed from roughly 30c at the beginning of 2017 to as high as $55 in the last week of December. This enormous rise in transaction fees has effectively made bitcoin prohibitively expensive for micropayments and left business vendors looking for cheaper alternatives such as LTC (Litecoin) and Bitcoin Cash (BCH), cryptocurrencies where transaction fees are far lesser, at least at the moment.
Median Transaction Fees for Top Cryptocurrencies (most recent):
Bitcoin - $4.62
Ethereum - $0.484
Bitcoin Cash - $0.018
Litecoin - $0.039
Bitcoin’s woes pertaining to high confirmation times and expensive transactions paved the way for a number of altcoins, of which Litecoin (LTC), DASH, and Bitcoin Cash (BCH) are the notable ones. These blockchains, with their low transaction fees and speedy confirmation times, have become popular for micropayments. However, we feel that the scalability issues will inevitably haunt other blockchains as they become bigger and their user base increases. For example, avg transaction fees on the Ethereum blockchain spiked up substantially during periods of network congestion, like the outsized ICO activity window in Jul-17 and also during the Cryptokitties frenzy in late November last year.

While SegWit aims to improve the transaction throughput by lowering the transaction sizes, thereby increasing the number transactions in the 1MB blocks, Lightning Network is the silver bullet Bitcoin bulls have been waiting for; This can likely expedite bitcoin’s mainstream adoption. Lightning specifically focuses on near-zero fees and instant confirmation of micropayments that will be settled off-chain between users through the creation of a private channel. However, there is a cost involved in opening a channel on the bitcoin blockchain, for which there is an economically viable solution as well. To learn more about how the Lightning Network works, click here.
We feel that it is too early to assess the impact of the Lightning Network on the future of altcoins in the short run, given the nascent nature of the project. Over the long-term, we are confident that the lightning-powered bitcoin will remove the need for cheaper currency altcoins as the long-standing legacy and the strong network effects of the bitcoin blockchain will make it a preferred choice over the others. Ultimately, it is good to remember that the whole scaling issue is actually an issue because the number of daily bitcoin transactions has gone up from 200k in Jan 2017 to 490k by the end of 2017. Surely, that is an indication of value. Scaling is a nice problem to have, and a great problem to solve. Beating up bitcoin for scaling is a bit like lambasting the internet for not having Netflix in 1995. What we are witnessing is the gradual mainstreaming of a revolutionary technology that is moving from the fringes to the core of our daily reality.
Cryptocurrency of the Week
0x is an open protocol that is designed to offer a decentralized exchange as part of the Ethereum blockchain. It facilitates the P2P exchange of ERC20 tokens in a secure, trustless, feeless, and quick manner through the use of Ethereum smart contracts. Anyone can utilize 0x in the backend to operate a decentralized exchange. The goal is to allow any Ethereum tokens to be traded efficiently and allows for-profit applications to be built on top of the 0x platform.
Source: 0x Whitepaper
Source: 0x Whitepaper
The current problem is that centralized exchanges such as GDax, Bitfinex or Poloniex are vulnerable to hacks or security failures. Decentralized exchanges like Etherdelta and Oasis are slow, illiquid and bloat the Ethereum blockchain.
0x combines the strengths and avoids the weaknesses of these two types of exchanges by having off-chain order relay with the on-chain settlement. Until the actual exchange of tokens, all the actions are done off-chain.
ZRX has 2 main utility functions:
Governance – ZRX will allow holders to vote on changes to the 0x protocol. This is a critical feature since relayers will want to upgrade the protocol and use the same 0x contracts as other relayers in order to maximize liquidity. A governance mechanism decreases the chance of upgrade forks, allows an automatic upgrade of the contracts, ensuring consistency across users, and therefore permits efficient upgrades to the protocol.
Relayer fees – Relayers will host off-chain order-books and matching engines to match orders of makers and takers (the users wanting to trade ERC20 tokens). Makers and takers being matched using the service will pay a fee to the relayer using ZRX. Since the fee is paid in ZRX for every transaction, the more transactions are being done on the 0x protocol, the more valuable ZRX should be.
Source: 0x Whitepaper
Source: 0x Whitepaper
Crypto News of the Week
Facebook bans all crypto-currency ads - BBC News
South Korea says no plans to ban cryptocurrency exchanges, uncovers $600 million illegal trades | Reuters
Venezuela Announces Whitepaper and Pre-Sale of Its Oil-Backed Cryptocurrency Petro - Bitcoin News
Nassim Nicholas Taleb vs David Birch on The Bitcoin Standard - Bitcoin News
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