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The Grand Promise of a Gazillion Transactions Per Second

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Satoshi&Co Daily Crypto Newsletter

September 4 · Issue #19 · View online
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Nic Carter’s prodigious post on the evolution of Bitcoin’s narratives over time perfectly captures how the mainstream perception of Bitcoin has evolved. It has moved away from being perceived purely as something to transact with on the dark web, one of the dominant narratives that is still in vogue in some quarters, unfortunately; However, a critical mass of thoughtful folks (with and without skin in the game’) are now coming around to the view that Bitcoin might ultimately be definitely a non-sovereign censorship-resistant form of money, sort of a gold 2.0. There is an increasingly growing belief that Bitcoin does a better job as a non-sovereign store of value than a low-cost medium of exchange ( although Bitcoin Cashers continue to make the argument that the latter is indeed Satoshi Nakamoto’s original vision).
We believe that Nakamoto’s idea was not to create another low-cost instant-transfer Paypal like service for easy transfer of value, rather it was to solve the problem of a fundamental lack of trust among a group of participants who are strangers to each other, to achieve what is known as ‘trustless, distributed, consensus’. Bitcoin was therefore an elegant solution to a long-standing theoretical challenge in computer science as the Byzantine General’s problem. Bitcoin Cashers increasing block sizes (8MB to 32MB, recently) to accommodate more transactions in a block are effectively not conforming to Satoshi’s original vision of trust minimization (Increasing block sizes will result in full nodes dropping off as it becomes expensive to run a full node. As nodes drop off, the network becomes more centralized). 

Source: Visions of Bitcoin by Hasufly and Nic Carter
Source: Visions of Bitcoin by Hasufly and Nic Carter
Owing to Bitcoin’s abjectly low transaction throughput, a number cryptocurrency projects have sprung up in the past few years promising thousands and millions of transactions per second. These projects include several Ethereum competitors such as EOS, ADA and NEO. The jury is still out on whether any of these self-proclaimed Ethereum alternatives have truly managed to crack the transaction scaling problem. Firstly, the reported numbers are the ones that were achieved on testnet, which is usually a bunch of Amazon servers. When the project launches on mainnet and runs on a distributed system of computers, the throughput numbers drop significantly. Secondly, the number of participating full nodes in these projects is usually orders of magnitude less than that of Bitcoin or Ethereum. As for quantitatively measurable metrics, there isn’t (yet) a universally agreed upon metric for measuring the level of decentralization, unlike scalability. Many cryptocurrencies are seemingly taking advantage of this ambiguity by promising very high transaction throughputs with little regard to the degree of decentralization that can be achieved.  As we covered in an earlier post, there is critical trilemma between decentralization, scalability and consensus at the heart of current blockchain development efforts.
Having said that, like with most seemingly intractable problems in technology, we believe that the scalability is eventually going to be solved for. It is a problem. Till it is not. For this reason, we are closely watching Dfinity, that just raised another round of capital from some leading investors

“History does not repeat itself, but it often rhymes” - Mark Twain
Chart: Dotcom bubble’s life cycle vs BTC. Source: Satoshi & Co Research.
Chart: Dotcom bubble’s life cycle vs BTC. Source: Satoshi & Co Research.
Meanwhile in the Crypto Wonderland....
“Blockchain, but not Crypto”
The Chinese government seems to be pulling out all the stops to curb, and potentially zap, all crypto-related activity within its borders. The latest in the series of moves aimed at curtailing the use of cryptocurrencies was announced by Tencent that said that it would prohibit crypto transactions through its popular “WeChat Pay” application. However, Chinese government investments in the underlying technology is a not-insignificant $3.57 billion since 2016, especially given the State’s growing hostility towards cryptocurrencies.  

“Bitcoin Cash processes a record 2.1 million transactions”
Bitcoin Cash network handled over 2 million transactions on September 1 as part of their recently launched stress test. According to various sources, the number of transactions in a block reached over 25000, up from the usual average of 90 to 150 transactions per block. This compares to Bitcoin’s 1000 to 1500 transactions per block. The average transaction fees stayed almost flat at around $0.002 during the stress test.

“Cryptocurrency market cap to reach $3.5 trillion by 2028”
According to Satis Group, a cryptocurrency research firm, the total market cap of cryptocurrencies is expected to rise from $500 billion next year to $3.5 trillion in 2028. The company believes that most of the value will stem from store of value use cases, with currency and privacy networks expected to the biggest gainers. Additionally, Satis expects application-specific utility platforms such as ETH, EOS, NEO to hold very little value.

“Japan turning the screw on new crypto exchange applicants”
Japanese financial regulator is tightening up the regulations for new exchange applicants, according to a local report. After recognizing cryptocurrencies like bitcoin to be a legal form payment, the cryptocurrency exchanges are mandated to obtain a license from the regulator for operating an exchange. Now, the regulator increased the questionnaire in exchange applications by almost four-fold to scrutinize the exchanges further and perform checks on the applicants’ anti-money laundering policies and management systems.

“There’s a writing on the wall for ethereum” - Jeremy Lubin
Technical advisor to Stellar and Bitcoin Core contributor Jeremy Lubin feels that Ethereum’s collapse in inevitable.

Crypto Twitter Pick
Jimmy Song (송재준)
New term: zombiecoin

A crippled undead coin that continues to exist despite there being no devs, no community, no liquidity, rising up briefly during bubbles.
Saving your crypto keys with synthetic DNA? There is a solution for that. Carverr basically takes your crypto keys, transcribes them into the digital language of the DNA, and encrypts and stores them in cold lab vaults! We can’t yet decide if this is gimmicky or super-cool or both, but the founder says quite a few folks ( crypto-rich, we presume), have paid up the thousand dollars in fiat (ironically) required to sign up for the service

What we are reading/listening to
Fat Monies: Anti-contrarianism in Cryptocurrency Investing featuring Murad Mahmudov and Arjun Balaji.

Check out our ETF-style Index token called 108 Token, which provides you exposure to the top 15 cryptocurrencies. Phase 1 ends in less than 48 hours. Also, you can indicate interest for Phase 2, deploying soon, here.
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