Max Bibeau, Preston Sledge
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Market Summary
Bitcoin experienced a slow decline this week, before spiking again on Wednesday, and crashing on Thursday. The currency has now dipped far below $10,000, and is approaching a potential dip below $9,500 for the first time in nearly 2 weeks. Other major cryptocurrencies followed a similar trend, including Ethereum, Ripple, and Bitcoin Cash, which are all at their lowest points in 2 weeks.
Top Stories
Swedish Central Bank to Test Launch e-Krona on R3’s Corda
After announcing their interest in pursuing a digital fiat currency back in 2017, the Swedish central bank has finally announced the pilot of the e-krona, a cashless, digital alternative to Sweden’s existing currency. The bank cited a “sharp decrease in cash usage over the past decade” as its primary reason for developing e-krona, arguing that it is the government's duty, not private organizations, to provide an updated solution for new payment methods.
Blockchain startup Enigma settles with SEC over its $45 million ICO
Enigma, a blockchain startup claiming “ to build a digital asset trade-testing platform and a marketplace for data,” raised over $45 million in its ICO conducted in the summer and fall of 2017. SEC regulators, however, claimed that “the ENG token should be classified as a security and went on to allege that Enigma conducted an unregistered offering of securities.” Enigma did not deny or dispute any of the SEC findings, and has been ordered to pay a fee of $500,000, in addition to offering a claims process for investors to reclaim their funds.
Shopify Joins Libra Association After Raft Of Departures
On Friday, Facebook’s Libra cryptocurrency project announced that Shopify, a prominent e-commerce platform, will be the 21st member of the Libra Association, a collective of companies working to establish the currency. Shopify’s decision to join the initiative comes in the wake of big names like e-bay, Visa, Mastercard, and others choosing to ditch the currency after it became clear that regulators would not make it easy for the digital currency to be implemented.
Peter Thiel-Backed Startup Begins Mining Bitcoin In US To Counter Chinese Dominance
Peter Thiel’s Bitcoin mining company “Layer1 Technologies” has begun mining Bitcoin in their massive West Texas facility. In the coming months, Layer1 has predicted that they will account for over 2% of Bitcoin’s hashrate, with goals of reaching 30% by 2021. The facility was built in West Texas due to the extremely low cost of electricity, which is one of the primary expenses of a mining company. In efforts to counteract the extremely hot climate, Layer1 has implemented high-tech cooling rigs to prevent the overheating of their mining containers.
Chart of the Week
This chart from The Block shows Bitcoin miners’ monthly income since 2017. It also shows the share of this income sourced from block subsidies vs. collected from transaction fees. The block subsidy refers to the new bitcoin that enters the system each block (every 10 minutes) to reward its miner. The subsidy amount is cut in half every 4 years. Transaction fees refer to optional fees paid by the senders of transactions within a block. While most of the miners’ income is sourced from block subsidies, transaction fees will become more important as this subsidy dwindles over time.
Tweet of the Week
When we’re all Bitcoin millionaires, let’s not forget where we came from.
Results may vary.
@blockfolio suggests Bitcoiners crowdsource the Forever 21 website domain to meme Bitcoin’s max supply of 21 million tokens.
What doesn’t kill Bitcoin makes it stronger.
@krugermacro describes flash loans, the newest hellspawn of decentralized finance, or DeFi. A “flash loan” lets users borrow money (ETH) without posting any collateral by promising to pay back the loan in the same transaction (usually by arbitraging between decentralized exchanges). Since decentralized exchanges are open-source, the network can verify the profitability of the transaction. So, the smart contract will only execute the loan if it knows that it will be paid back. Last week, some devious users took advantage of the liquidity offered by flash loans to manipulate the market to their benefit.
@fifikobayashi outlines the first “attack” on Feb 15th. The user borrowed 10,000 ETH (~$3.2M), using half as collateral to borrow WBTC (a token pegged to BTC) and half to short WBTC with 5x leverage. They dumped the borrowed WBTC on an exchange to lower the price and profit from the short. In doing so, they were able to pay back the loan and profit $360,000. In a single transaction.
@lawmaster outlines the second “attack” on Feb 17th. Here, the user borrowed 7,500 ETH (~$2M), using half to buy sUSD (a token pegged to $1 USD). Then, they used 900 ETH to pump the price of sUSD to $2. With the price of sUSD artificially pumped, the user was able to borrow an exorbitant amount of ETH using their sUSD as collateral. In doing so, they were able to pay back the original loan and profit $615,000. In a single transaction.
@bZxHQ is the company behind the protocol that facilitated these violent flash loans. As an emergency measure to compensate lenders, bZx used their admin key to seize the attacker’s collateral and then pause the protocol altogether. bZx’s decision caused users to question the “decentralized” in decentralized finance (DeFi).
@bradmillscan declares DeFi centralized by citing bZx’s administrative control and Ethereum’s DAO hack and resulting hard fork in 2016.
@ercwl refutes the claim that DeFi is just as centralized as traditional financial services. He reminds people that decentralization is a spectrum and calls out the DeFi naysayers (mostly Bitcoin maximalists) for virtue signalling their decentralized purity.
@decryptmedia exposed 133,000 Ethereum users using the Ethereum Name Service (ENS). ENS provides a way for users to attach human-readable usernames to Ethereum addresses (similar to the Internet’s Domain Name System or DNS). With ENS, Ethereum takes one step forward in usability, but two steps back in privacy.
@random_walker, a Princeton professor who wrote the textbook used in blockchain courses across the world (including ours), manages expectations about blockchain’s potential applications.
Gen Z said, “Sike! We’re all in stonks on Robinhood.”
@Truthcoin shares a paper co-authored by a researcher at Blockstream, a company specializing in Bitcoin development. Despite Blockstream’s products, the paper warns that Bitcoin’s second-layer scaling solution, the Lightning Network, is doomed for centralization over time.
Video of the Week
Check out this digital trends video that shows some cool imagery of the inside of a large-scale mining setup!
Texas Blockchain’s ‘State of the Market’ is a student-led editorial. None of the views expressed by the authors should be taken as the view of the University of Texas at Austin or the Texas Blockchain organization. Furthermore, none of the views expressed should be taken as financial advice in any circumstance.