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Confident in the Future: EOS Developers Attempt 10% Buyback Ahead of Major Announcement

EOS developer Block.one is attempting a 10% buyback of its stock.

Earlier this week, it was revealed that EOS developer Block.one is attempting a 10% buyback of its stock, reportedly the second one in less than a year.

It seems that some of the company’s investors are up for a big payday: The earliest backers could expect a hefty 6,567% return on their initial investments, while Michael Novogratz has already managed to secure a much more modest, though still profitable, 123% return.

But why would Block.one buy its shares back in the first place? It appears that the startup’s executives are confident about the future of their network — and a marketed announcement scheduled for June 1 could be one of the reasons.

What is Block.one?

Block.one is a private company known for developing and publishing the EOS.io protocol. It is registered in the Cayman Islands, lead by CEO Daniel Larimer and chief technology officer Brendan Blumer.

EOS.io, in turn, is a blockchain-powered smart contracts protocol for the development, hosting and execution of decentralized applications (DApps). In other words, it’s a decentralized alternative to cloud hosting services.

EOS.io is supported by its native cryptocurrency, EOS, currently the fifth-largest by total market cap. The tokens can be staked for using network resources: As per the project’s white paper, DApp developers can build their product on the top of the EOS.io protocol and make use of the servers, bandwidth and computational power of EOS itself, as those resources are distributed equally among EOS cryptocurrency holders.

The platform was launched in June 2018 as open-source software, with its first testnets and original white paper emerging earlier in 2017.

Notably, Block.one holds the absolute record in terms of funds raised during an initial coin offering (ICO): It has managed to gather around $4.1 billion — or about 7.12 million ether (ETH) — worth of investments for EOS.io after fundraising for nearly a year. The second-biggest campaign of the sort, the messenger Telegram, has raised less than half the amount — i.e., $1.7 billion.

What is the purpose of the new buyback?

Having raised a record-breaking amount of money last year, the EOS.io publisher is now performing a 10% buyback of its shares.

A Block.one spokesperson has confirmed to Cointelegraph that the stock repurchase is “closing,” and hence at the final stage. The company’s representative also said they are unable to reveal the participants.

“Buybacks are a normal activity for many companies,” the spokesperson told Cointelegraph. “Block.one is confident of its growth prospects and industry opportunities. We are pleased with the support from investors, and that they have been able to benefit from, and participate in, the success of our company.”

Notably, this isn’t the first buyback for Block.one. As per Bloomberg, this stock repurchase offer comes “less than a year” after the initial buyback, in which Block.one reportedly aimed to acquire 15% of its outstanding shares at $1,200 each, but gathered a total of 13.8% in the end, which equaled around $300 million.

The new buyback, in turn, values the company at around $2.3 billion, up from about a $40 million valuation in 2017. The repurchase price being offered is reportedly even higher this time, at $1,500 per share — up 6,567% from the original price of $22.50.

Later backers — including PayPal co-founder Peter Thiel, crypto mining hardware billionaire Jihan Wu of Bitmain, as well as hedge fund managers Louis Bacon and Alan Howard, who all bought into Block.one in July 2018 — could also be in for a massive payoff, if they agree to sell.

According to Bloomberg, Bacon and Howard have declined to specify whether they are going to sell their shares, while Thiel is not responding to messages. Cointelegraph has reached out to Bitmain to clarify whether Wu is planning to participate in the buyback but has not heard back as of press time.

Nevertheless, there is at least one confirmed investor who has agreed to participate in the stock repurchase. Novogratz’s crypto merchant bank, Galaxy Digital, accepted the offer and sold shares in Block.one for $71.2 million — securing a 123% return on the initial investment.

In an accompanying press release, Novogratz stressed that “substantial outperformance” from Block.one had contributed to the decision and that his bank will continue to work with the startup. “We continue to work closely with Block.one as a key partner across a number of our business lines, including the Galaxy EOS VC Fund, which invests in companies building on the EOS.IO protocol, and remain excited about the EOS.IO protocol,” the Galaxy Digital CEO said.

Later, Novogratz took to Twitter to reiterate that Galaxy Digital is still a shareholder in Block.one as well as a “large holder of $EOS tokens.” To explain why his crypto merchant bank sold the shares, he stated the following: “Took profit to rebalance our portfolio.” The investment bank had a net loss of $272.7 million in 2018 — evidently due to the bear market — and the recent deal might be an attempt to mitigate those losses.

According to a Blockforce Capital analyst Charlie Smith, the most likely scenario is that Block.one believes it is worth more than the price it is buying back at. In an email to Cointelegraph, Smith wrote:

“By buying back shares from investors, Block.one can clear some names off the cap table and establish more centralized decision making. Even if the investors that sold shares had no say in the direction of Block.one, by clearing them off the cap table, Block.one can focus more on its own interests.”

What is Block.one planning to do with all that money?

Block.one’s total assets, including cash and investments, amounted to $3 billion at the end of February, according to Bloomberg, who reportedly obtained that number from a March 2019 email to the company’s shareholders.

$2.2 billion of this was held as what the company called in its email “liquid fiat assets,” with most of it invested in U.S. government bonds. The letter also reportedly revealed that the company’s crypto portfolio had halved to around $500 million during the crypto winter. However, in a more recent email sent out in May, the company ostensibly said those losses were “more than fully recovered,” given that bitcoin has been on a rally over the previous months.

The new buyback as well as the “few outward signs of progress since the sale of EOS tokens,” as Bloomberg puts it, raise the question: What is Block.one’s plan, and why does the startup need all that money?

“Basically, Block.one raised a massive fortune with the EOS ICO, and most of it just sat there,” Mark D’Aria, founder and CEO of Bitpro Cryptocurrency Consulting, told Cointelegraph. “They used some to fund development of the ecosystem but as the Bloomberg report points out, there was never any need for billions of dollars to create something like EOS.”

Blumer, CTO of Block.one, strongly disagrees with the idea that his company has not largely advanced since the ICO phase, citing an earlier Bloomberg article penned by Alastair Marsh to prove his point. “I guess taking 48% of active Dapp users in market share in its first year is what Alastair interprets as showing ‘Little signs of progress,’” he wrote in the official EOS Telegram group chat, adding:

“Last year’s buyback was to make room for new investors without unnecessarily inflating our balance sheet. This round included highly strategic shareholders such as Peter Thiel, Alan Howard, and Louis Bacon, and was a very positive thing for the company. This year’s buyback positions us for the same, and we also expect it will be another milestone for us.”

According to Blumer, this information, “along with a lot of other material,” was presented to Bloomberg’s Marsh, but “facts were chosen and arranged deceitfully and with poor journalism standards.”

When asked by a Telegram group member to specify why Block.one needs to make room instead of doing equity dilution, Blumer replied:

“Block.one was a VC funded startup and after so much growth it’s prudent to allow liquidity to earlier investors to make room for larger more strategic ones.”

According to Larimer, who also joined the Telegram chat to address investors’ questions regarding the stock repurchase, Block.one couldn’t have chosen to buy EOS tokens instead, because the company cannot own more than 10% of the total supply, which it has already maxed out. “We […] want eos to remain decentralized,” the CEO added. “We keep our non-EOS treasury in a blended portfolio of Crypto and Fiat.”

Is centralization a problem for EOS?

Notably, decentralization might be one of EOS’ weakest spots. In November 2018, its governance model was exposed, as evidence suggesting that some confirmed transactions were reversed surfaced on social media, which puzzled some pundits as well as ordinary crypto enthusiasts.

Around the same time, blockchain-testing company Whiteblock published the results of “the first independent benchmark testing of the EOS software.” The investigation came to several conclusions about EOS, the most bold of which was that “EOS is not a blockchain, rather a distributed homogeneous database management system, a clear distinction in that their transactions are not cryptographically validated.”

Further, in October 2018, allegations arose accusing the platform’s major Block Producers (BPs) — entities that essentially get to “mine” the EOS blockchain after being elected — of “mutual voting” and “collusion,” suggesting that the entire model of governance might be corrupt.

However, full decentralization is not necessarily paramount to the project’s success at this point, D’Aria of Bitpro acknowledged to Cointelegpraph:

“Yes, EOS is unequivocally more centralized than Bitcoin or Ethereum. Decentralization has a tremendous cost in terms of performance and efficiency, and EOS gets around those limitations by simply being less decentralized. It’s not fully centralized, it’s just further down the spectrum than ETH. So then the question becomes, ‘is EOS decentralized enough’? For a lot of use cases, I do believe it is.”

In D’Aria’s view, EOS has a high chance of effectively competing with Ethereum as the main platform for DApps, which seems to be Block.one’s current primary aim. D’Aria opined, “If you asked me whether ETH or EOS would ultimately be more successful 10 years from now, I’d have a really hard time answering that question because they’re both legitimate competitors for that space.”

EOS’ future is looking bright — at least in the eyes of its creators

Notably, Block.one’s leaders appear to be confident about the future of their product. “We sold a product, a place on a snapshot list that could be used by the community to create the highest performance and most used blockchain,” Larimer wrote in the Telegram group chat. “We sold the community tools that enabled them to create $6b in value.”

“If we had not sold our funds on an ongoing basis we would have inflated Ethereum to the moon and then crashed it when exiting,” Blumer also wrote in the chat. “One day btc will probably run on eosio chains.”

Also, Block.one has scheduled an event for June 1, which will take place in Washington, D.C. While the company has not revealed what product might be presented there, the most common prediction is that it could be a social media platform.

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DATA Ultimatum: CoinMarketCap Requests More Information From Exchanges to Make Market More Transparent

More on CoinMarketCap’s plan to fight fake volume reporting.

Recently, CoinMarketCap (CMC), arguably the industry’s best-known cryptocurrency market data service, announced an initiative to provide “greater transparency, accountability, and disclosure from projects in the crypto space.” The move followed recent reports on fake volume data and wash trading among cryptocurrency exchanges that were published last month.

Now, all exchanges are required to provide mandatory application programming interface (API) data to CMC by June 2019. Those who fail to do so risk getting delisted from the platform. So, can this brand new scheme cleanse the market from untrustworthy data?

Fake volume is one of crypto market’s chief problems: two reports

Recently, a number of researches highlighted the problem of fake volume among crypto exchanges, suggesting that the majority of platforms claim to handle unrealistic amounts of transactions. As explained by Changpeng Zhao, the CEO of Binance, some exchanges alter their volume to get ranked higher on popular trackers like CMC, and hence get exposure and attract new clients.

The Tie: 90% of the volume is fake, 75% of crypto exchanges look suspicious

While the problem of fake volume isn’t particularly new to the crypto market, at least two recent reports have stirred up a new wave of discussion. First, on March 18, trading analytics platform the Tie reported that almost 90% of cryptocurrency exchanges’ reported trade volumes may be fake, and that as much as three-quarters of those platforms have suspicious volumes.

To conduct the research, the Tie took the reported trading volume for the last 30 days of the top 100 exchanges. They subsequently divided that data by the exchange’s website visits over 30 days estimated by SimilarWeb to determine the volume per visit.

As a result, Binance reported $750 traded per visit, Bittrex reported $138 traded per visit, Coinbase Pro $341, Bitfinex $862 and Poloniex $63.

Thus, to calculate the expected volume, the researchers used a weighted average of the trading volumes per website visit across Binance, Coinbase Pro, Poloniex, Gemini and Kraken — resulting in $591 — and multiplied this number by the web views. The Tie explained that it picked these exchanges “because of large usage among institutions, reputation within the market, and because their web viewership appeared consistent with their reported trading volumes.”

“In total we estimated that 87% of exchanges reported trading volume was potentially suspicious and that 75% of exchanges had some form of suspicious activity occurring on them,” the organization tweeted at the time, adding that it affects the larger picture:

Notably, on March 21, two exchanges featured in the research as having questionable figures — LBank and Bit-Z — dethroned Binance in terms of the adjusted trade volume on CMC. According to research presented by the Tie, LBank’s estimated reported volume per website visit amounts to $65,850.

However, the Tie admitted that its research had certain limitations: Specifically, the website views didn’t take into account API, mobile application trades and desktop client trades.

Because of that, the data could, in theory, just mean that either a much more significant than average portion of LBank users use the API, desktop or mobile clients, or that an LBank user trades over $65,000 per session on average. The Tie notes:

“There were limitations to this report including some of the aforementioned, but the point of the exercise was to show those exchanges that appear most suspicious and to start a greater conversation around wash trading, transaction mining, and liquidity.”

Bitwise: 95% of bitcoin trading volume on unregulated exchanges appears to be fake

On March 20, another substantial report on fake volume surfaced. Issued by cryptocurrency index fund provider Bitwise Asset Management, it argued that 95% of bitcoin trading volume on unregulated exchanges appears to be fake or noneconomic in nature.

Notably, Bitwise sourced its data from CMC, which it claims includes a large amount of this suspect data, “thereby giving a fundamentally mistaken impression” of the actual size of the bitcoin market.

Bitwise ultimately wrote that the real market for BTC is “significantly smaller, more orderly, and more regulated than commonly understood” — amounting in reality to $273 million instead of the $6 billion reported on CMC.

To prove its point, Bitwise first analyzed Coinbase Pro as an example of a regulated exchange to outline trustworthy trading patterns, including an “unequal and streaky” mix of red (sell orders) and green (buy orders) trades, whose distribution fluctuates considerably at any given time.

Further, Bitwise studied spread as a parameter, noting:

“It’s [the spread is] $0.01. At the time this screenshot was taken, bitcoin was trading at $3,419. That means bitcoin was trading at a 0.0003% spread, making it amongst the tightest quoted spread of any financial instrument in the world.”

Coinbase Pro reported around $27 million in daily traded volume of BTC at the time of Bitwise’s analysis — as compared with $480 million reported by Coinbene. The latter was used by the index fund provider to demonstrate the patterns typical of what it characterizes as “suspicious exchanges.”

Suspect signs included an unlikely perfect alternating pattern of green and red trades, as well as a lack of trades with round numbers or small values. On Coinbene, buy and sell orders also appear in timestamped pairs, with one compensating the other. Moreover, the spread on Coinbene at the time of Bitwise’s analysis was $34.74: “that compares to $0.01 on Coinbase Pro. It is surprising that an exchange claiming 18x more volume than Coinbase Pro would have a spread that is 3400x larger.”

Additionally, as per the Bitwise paper, suspect exchanges showed consistent volume throughout the day, while on regulated exchanges, volume corresponded to waking and sleeping hours.

CMC’s response: the DATA alliance

On March 25, Carylyne Chan, global head of marketing at CMC, told Bloomberg that concerns over fake volume “are valid,” which is why more information will be added to the website to help users make better decisions.

“For instance, if an exchange with low traffic has $300M volume and just 5 BTC in its wallet, users will be able to draw their own conclusions without the need for us to make arbitrary judgment calls on what is ’good’ or ’bad.’ We want to state that our philosophy is to provide as much information as possible to our users, so that they can form their own conclusions and interpretations — and not introduce our own bias into that mix.”

On May 1, CMC announced that it will require all crypto exchanges to provide mandatory API data, which includes their live trading data and live order book data, as part of a new transparency initiative titled “the Data Accountability & Transparency Alliance” (DATA).

The alliance was originally announced in CMC’s sixth anniversary blog post. The company explained that it has to deal with regular requests to delist crypto exchanges based on unverifiable information — such as screenshots of chat logs and emails — which is why CMC chose to empower its users to make more informed decisions and “provide a means for projects to differentiate themselves through enhanced disclosures” instead of applying harsh censorship:

“We are paying close attention to the growing discourse surrounding ‘fake volumes’ of exchanges. This is not a trivial problem to solve, as seemingly innocuous decisions can carry unintended consequences. To add to the complexity, we need to be mindful of the numerous use cases for our data – what some deem to be ‘fake data’ is information in and of itself that can yield interesting analyses, and it is important not to throw the baby out with the bathwater.”

Indeed, CMC seems to aim for a softer approach after removing a number of South Korean exchanges from its platform “due to the extreme divergence in prices from the rest of the world and limited arbitrage opportunity” back in January 2018, when it caused a major drop in the market.

Stressing that the new condition will be compulsory, the tracker stressed that any exchange that does not provide the data will be not be included in the price and adjusted volume calculations on the site. The changes will come into effect on June 14, 2019, CoinMarketCap noted.

Specifically, the required data includes exchange hot/cold wallet addresses (“indicative numbers to enable users to determine solvency of selected exchange”), live market-pair trading status (“more granular trading data at the market-pair level for further analysis”), live wallet status (“summary status of all possible deposits and withdrawals across currencies”), and historical trade data (“all time-stamped historical trades for tracking, and in some cases, compliance”).

“Our stance is that we do not censor any information, but rather will present all the information to users so that they can make their own judgments and decisions on the data presented,” Chan told Cointelegraph. “This philosophy of providing all the information rather than making our own judgment calls or censorship/curation is the same for data submitted by DATA members.” The global head of marketing at CMC added:

“As with all API endpoints submitted to us from exchanges (of which we now have 257 on CoinMarketCap) we work closely to ensure that the endpoints are up and running effectively. This constitutes the reported volume information that is presented on the site. The adjusted volume metric excludes those exchanges with fee rebates or transaction mining, and with the new mandatory data requirements, those that do not provide their live trade and orderbook data.”

When asked whether players have enough time to gather and submit the required information, Chan replied that the data “should not be technically hard for exchanges to provide,” and that the 45-day notice should ensure that there is enough time for everyone to join. According to her, no exchange has explicitly declined to join DATA so far:

“We carefully evaluated the requirements so as to make sure they are reasonable and not unnecessarily onerous for the majority of exchanges to provide. In fact, about 150 exchanges already submit this data, and we are simply waiting for the other exchanges to come up to speed on these data points.”

Exchanges’ comments

At this point, DATA is comprised of 12 exchanges: Binance, Bittrex, OKEx, Huobi, Liquid, UpBit, IDEX, OceanEX, Gate.io, KuCoin, HitBTC and Bitfinex.

Michael Gan, CEO of KuCoin, told Cointelegraph that CMC approached them about one month ago:

“After they introduced the whole idea, we soon decided to join DATA, as one of the early members. We are still communicating with CMC in terms of all the data submission and it will be done before the deadline.”

Starry Liu, head of marketing at OceanEX, told Cointelegraph that they were the only Initial Launch Partner of DATA that exists for less than one year. According to Liu, OceanEX approached CMC earlier this year to discuss “the idea of setting up an alliance to improve transparency across the whole industry,” and soon joined the initiative:  

“We found out this is also CMC’s goal. They actively asked about our feedback and acted really fast during the preparation of DATA.”

Liu specified to Cointelegraph that OceanEX integrated its data to the DATA project in less than one month. The information is collected, but not monitored by CMC, she confirmed:

“We prepare and stream raw data from OceanEx to them and CMC is taking a role more of collecting and disclosing data to the public, instead of monitoring. We may have different roles in this program, but we share the same vision and the ultimate goal, that is to benefit the community and the users.”

The KuCoin CEO, however, told Cointelegraph that CMC “mentioned that they will have a team to check all the data submitted, ensuring its accuracy as the DATA project expected.”

A representative of Exmo, the United Kingdom-based exchange that has applied to join DATA but has not been added to the official roster yet, told Cointelegraph that, while the new alliance is “a considerable step to the formation of the sustainable market,” the industry needs more solutions for the deep-rooted problems such as fake volume. Maria Stankevich, head of business development and communications at the exchange, wrote in an email:

“The fact that the data from the trading platforms will be collected in real time will expand the possibilities for studying the market and analyzing it and improve the understanding of the characteristics of various exchanges — that’s for sure. But this does not mean that the data provided by the websites will be completely objective.

“The same thing applies to the additional information about the exchanges, that is supposed to be submitted by the projects and exchanges by themselves. We don’t doubt the fact that it will be really useful for users — as it will be gathered in one place. But in general, we see it as an extension of the functionality of the CMC itself, an increase in its competitiveness in comparison with the other similar data aggregators.”

Cointelegraph has reached out to more exchanges currently listed in the top-50 by adjusted volume on CMC that are not part of DATA at this point — including Kraken and Coinbase Pro — but has yet to hear back from them.

Matthew Hougan, the author of the aforementioned Bitwise report, told Cointelegraph that he “admires CoinMarketCap for staring down the barrel of systemic fake volume in the crypto market.”

“We’ve seen a number of really robust responses to the problem of fake data, including from OpenMarketCap, Messari and Nomics, and I love that there is a diversity of smart people looking at this problem and driving towards solutions,” Hougan said. However, the researcher also suggested that the data gathered by CMC might still be unsubstantiated in the end:

“Ultimately, given the limited nature of regulations, the globally distributed nature of crypto trading, and the perverse incentives to exaggerate volume, the best approach is going to be ‘trust but verify.’ But CoinMarketCap has taken a good first step and is putting some teeth into its reporting requirements, and I’ll be interested to see what develops from their efforts.”

Meanwhile, CMC plants to extend its initiative even further in the future. “Collecting the data is just the first step,” the tracker wrote. “With a larger dataset, more analyses can be run, and enable the introduction of new, meaningful metrics.”

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Stellar’s Blockchain Briefly Goes Offline, Confirming the Project Lacks Decentralization

The Stellar network went offline for over an hour, raising concerns about decentralization.

Recently, blockchain-powered network Stellar stopped confirming transactions for more than one hour, effectively going offline.

Although no money was reportedly lost as a result, Stellar’s major issue has now been highlighted publicly: The project is not decentralized, at least not to the extent expected at this point. Notably, the offline scenario was predicted by researchers earlier last month.

Brief introduction to Stellar and its network

Stellar is a platform for money remittance. It was launched in 2014 by Jed McCaleb, founder of Mt. Gox and co-founder of Ripple, and former lawyer Joyce Kim. Stellar’s native asset is the lumen (XLM), currently the ninth-largest cryptocurrency by market cap.

The Stellar network, in turn, is designed as a decentralized peer-to-peer network of validator nodes. Stellar Core software is used by the nodes to confirm transactions.

To reach global consensus with other nodes, Stellar Core runs the Stellar Consensus Protocol (SCP). As per the SCP’s white paper, it has “modest computing and financial requirements” compared to more popular decentralized schemes of proof-of-work (PoW) and proof-of-stake (PoS).

In other words, instead of using an entire network to validate a transaction like bitcoin does, Stellar relies on the so-called quorum slices — sets of nodes that each validator node chooses to agree with. This system allegedly allows Stellar to unburden the network and host as many as 1,000 operations per second, compared to a much more modest rate showcased by bitcoin (up to seven transactions per second) and Ethereum (up to 15 transactions per second).

Together, all quorum slices that make up the validator nodes form a global network, where voting is used to ensure consensus on which transactions are recorded to the ledger. According to Stellar, this process “occurs approximately every 2-5 seconds.”

So why did the Stellar network go offline?

The Stellar Development Foundation (SDF) — a nonprofit organization committed to the development and adoption of Stellar — believes that the network collapsed because “new nodes took on too much consensus responsibility too soon.” Alternatively, as Nicolas Barry, chief technology officer of Stellar, put it, “it was caused by being too decentralized too fast.”

More specifically, the outage seems to be directly related to earlier claims that Stellar’s network is too centralized. Last month, three researchers from the Korea Advanced Institute of Science and Technology (KAIST) published a paper titled “Is Stellar As Secure As You Think?” concluding that the analysis of the Stellar network proves that it “is significantly centralized.”

Specifically, the researchers stressed that the entire Stellar network rested upon a limited amount of nodes, primarily the ones controlled by SDF itself:

“We show that all of the nodes in Stellar cannot run Stellar consensus protocol if only two nodes fail,” the research claims. “To make matters worse, these two nodes are run and controlled by a single organization, the Stellar foundation.”

Later that month, David Mazières, the chief scientist at SDF and a professor of computer science at Stanford University, penned a response. In it, he confirmed that the configuration of Stellar’s federated Byzantine agreement (FBA), which is a consensus model based on quorum slices, is highly centralized, and said that Stellar developers were “in the process of improving” it. Mazières continued:

“We […] are glad the authors drew attention to this fact. Things have already improved considerably from the configuration analyzed in the paper — for instance the Stellar Development Foundation (SDF) can no longer halt the network, and no two nodes can affect liveness.”

Nevertheless, on May 15, at 1:14 p.m. PST, the Stellar network went offline for 67 minutes — according to SDF, while some other reports mentioned “approximately two hours” — after it failed to reach consensus. In a post-mortem analysis, SDF explained that the network froze because too many new nodes were being added in a bid to make it more decentralized:

“We’ve seen claims that Stellar is ‘over-centralized’ and that somehow a failure with SDF’s nodes dragged down the whole network. Ironically, the opposite is true. Stellar has added many new nodes recently. In retrospect, some new nodes took on too much consensus responsibility too soon.”

Specifically, a node of Keybase — a blockchain startup that SDF has invested in — was taken offline for maintenance. At that time, other nodes were reportedly “shaky or down,” which is allegedly why Stellar came to a halt.

Furthermore, SDF claimed that stopping the network is in fact a preferable scenario for Stellar over operating in a faulty state, since the network accommodates financial institutions who supposedly chose it since they “prefer downtime over inconsistent data.” That is why the Stellar protocol didn’t fail, but actually worked as intended, the nonprofit organization argued.

“As a fundamental design choice, Stellar prefers consistency and partition resilience over liveness,” the statement reads. “This is different from other blockchains, in which ‘the chain must go on’ even at the price of soft forks.”

Additionally, SDF has highlighted that no funds were lost as a result of the incident, and the network is currently “healthy.”

KAIST warns that the fundamental problem has not been solved

According to Yongdae Kim, one of the KAIST researchers who authored the April research on the Stellar network, the collapse happened after some changes were made to its structure.

Specifically, Kim told Cointelegraph that, at the time the paper was submitted, if two out of three SDF validator nodes went offline, the Stellar network would collapse.

After researchers reported on the vulnerability, SDF allegedly tried to decentralize the network by removing SDF validators from quorum sets. As a result, Stellar became robust against two node failure, but was still vulnerable to three node failure, according to Kim.

However, right before the halt on May 15, the network has somehow become unstable in the face of a two node failure once more, Kim said, stressing that none of those node pairs belonged to SDF, given that they had been removed at the time. Eventually, a pair of those nodes went offline, which apparently brought the whole network down.

To deal with the aftermath of network failure and bring it back online, SDF included all three of its validators into quorum sets, according to Kim, and hence have returned “back to step 1,” in which if two out of three SDF validator nodes go down, the Stellar network will collapse.

“After we reported it [the cascade failure problem] to them, they manually adjusted validator sets

for a long time,” Kim explained to Cointelegraph. Nevertheless, he said the fact that network failure did occur at some point later on “shows that the design makes it difficult to maintain robust network structure against cascade failure.”

Outlining the fundamental reasons for why the network is vulnerable to a cascade failure problem, Kim described how node hosts have to manually choose their quorum sets, which is difficult, given the complexity of the network’s design. Moreover, the KAIST researcher stressed that not all nodes are equally robust. “SDF are more robust, but they could be a good target,” he told Cointelegraph.

Community reaction

The community’s general reaction was that Stellar is largely centralized, despite SDF actively pushing the opposite opinion. Emin Gün Sirer, co-director of IC3, tweeted:

In response, Kyle McCollom, product manager at SDF, argued that several nodes were unavailable, while Keybase’s node going down for maintenance pushed the network past the threshold:

Similarly, a user post on Stellar’s subreddit originally implied that the network couldn’t reach consensus because SDF nodes went down, which was denied by McCalleb in the comment section: Stellar’s co-founder wrote that “the SDF nodes and in fact the majority of validators in the network were still up,” but “couldn’t close ledgers safely because they weren’t hearing from enough nodes in their quorums.”

When asked whether the Stellar network could be called a decentralized one after the incident, Hartej Sawhney, a blockchain expert and co-founder of Hosho, replied negatively, but clarified that no project is decentralized today, as the concept has yet to be properly implemented. “Seems like the issue is less to do with centralization, but more to do with consensus responsibility of new nodes,” he told Cointelegraph.

“At this point we of time, Stellar is definitely a centralized network, especially in terms of the liveness aspects, as it was demonstrated in a research done at KAIST,” Eyal Shani, a blockchain researcher at Aykesubir, agreed. “However, this should be no surprise since even the great Bitcoin network can be considered as centralized by many.”

Market reaction

XLM’s price has been experiencing a flat base over the past few days, while the market continues to recover from a major correction that happened earlier this week.

Moreover, on May 16, soon after the network failure was reported, XLM experienced a solid 15% growth, suggesting that the news didn’t affect the asset’s value.

How will Stellar fix this?

SDF has outlined a number of ways to make the network more decentralized and stable at the same time, as part of consequence management.

First, the nonprofit aims to introduce better onboarding for new validators by providing users with published standards and explorers to help them create “good” quorum sets — presumably meaning that SDF will advise hosts on which nodes should be included in their quorum slices to avoid similar incidents.

SDF also hopes to achieve better operational standards. “We will increase operator coordination so that maintenance schedules are publicly communicated,” the organization wrote in the blog post. “We will also help operators keep their nodes and their quorum choices up-to-date.”

Moreover, SDF aims to improve better monitoring and alerting to warn node hosts about which crucial nodes are missing from the network, as well as to arrange bot-created announcements in the public validators channel anytime a node goes offline. Improved communication will also ensure that the network can be brought back online much quicker, the nonprofit suggests.

Kim thinks that none of the SDF’s proposals tackle the cascade failure problem directly, which potentially could lead to further incidents. “Overall, these are good set of mitigations. However, it does not fundamentally solve the problem of Stellar,” he told Cointelegraph. “Without a design change, it would be difficult to improve liveness of Stellar.”

Considering that SDF seems to prioritize consistency and partition resilience over network liveness, Stellar moving from the safety of trusted SDF nodes to a more decentralized scenarios could result in new system collapses, Shani of Aykesubir said. “Until they onboard enough serious validators who promise to behave (i.e be up and run the protocol) we could be seeing more halts in the near future,” he told Cointelegraph.

Nevertheless, SDF remains optimistic, referring to the recent outage as a stress test, “one that Stellar passed in terms of user safety but failed in terms of uptime.”

Time will tell if the nonprofit manages to reinforce its network to prevent further closedowns, but for now, Stellar could be joining the ranks of other major crypto projects that are criticized for a lack of decentralization.

Cointelegraph has reached out to Stellar for further comment and will update this article once more information is obtained.

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Craig Wright Continues to Chase His Critics as Major Crypto Platforms Boycott His Cryptocurrency, BSV

BSV has been on the periphery of crypto news this week.

Bitcoin SV (BSV) — the altcoin that emerged during the bitcoin cash (BCH) hard fork last November and which took the moniker “Satoshi’s vision” — has been on the periphery of crypto news this week. BSV is famously backed by Craig Wright, an Australian entrepreneur, chief scientist at his startup called nChain and self-proclaimed Satoshi Nakamoto.

After Binance, one of the world’s largest cryptocurrencies, decided to delist BSV amid Wright’s campaign to deanonymize one of his critics, other major platforms — including ShapeShift and Kraken — followed suit.

As a result, the price of BSV tanked. Meanwhile, Wright and his team have purportedly served some of their critics with court documents, demanding public apologies.

#WeAreAllHodlonaut: How Wright has enraged the crypto community

The delisting marathon was preceded by Craig Wright’s run-in with an anonymous Twitter personality nicknamed Hodlonaut, who also organized the Lightning Torch campaign. According to crypto news outlet Coingeek (founded by billionaire Calvin Ayre, who has been vocal about his support for BSV), Hodlonaut targeted the Australian businessman with offensive tweets, calling him “a very sad and pathetic scammer. Clearly mentally ill,” and allegedly participating in the creation of the #CraigWrightIsAFraud hashtag.

While Craig Wright has repeatedly claimed that he is Satoshi Nakamoto, much of the cryptocurrency community seems skeptical about those statements, widely referring to Wright as “faketoshi.” Back in December 2015, Wired and Gizmodo reported that the Australian computer scientist might be the creator of bitcoin (BTC), but a substantial part of the evidence presented in the reports — both of which cited an anonymous source who had contacted them voluntarily — was soon proved false. Wired subsequently assumed that Wright “was likely pulling an elaborate hoax or con” to present himself as Satoshi to the public.

On April 11, Coingeek went as far as to set a $5,000 bounty in BSV for information regarding the true identity of Hodlnaut, while also demanding that the Twitter user should publicly apologize to Wright both on the social media platform and during an open court hearing. The article contained informal language, alleged pictures of Hodlonaut, his or her approximate location, and explicitly called for deanonymization:

“Wright is demanding that the individual behind the @Hodlonaut account tweet an apology to him, make a statement in open court apologizing to Wright and acknowledge the falsity of the allegations made against Wright. Instead, Hodlonaut seems to have hidden under his mother’s skirt and is nowhere to be found.”

Hodlonaut has since deleted his or her Twitter account. In response, the cryptocurrency community on Twitter began trending a #WeAreAllHodlonaut hashtag to show support. Moreover, an eponymous website was created to crowdfund BTC in order to help Hodlonaut fund his or her legal battle with Wright. According to the information posted on the website, the pseudonymous Twitter user had received a letter from Wright’s legal team before erasing his or her online presence. In it, Wright’s lawyers were allegedly threatening to sue Hodlonaut for defamation in a United Kingdom court (as per Wright’s LinkedIn profile, the Australian entrepreneur currently resides in London. According to earlier reports, he lived in Sydney, and local police had raided his house).

As of press time, more than $28,700 has been raised via weareallhodlonaut.com, which is more than 140% of the initial goal of $20,000. The website states that Hodlonaut personally controls the funds from this campaign and that any excess contributions will be sent to Bitcoin Venezuela, the same charity-focused organization that received donations from the Lightning Torch campaign.

Cointelegraph has reached out to Preston Byrne, an attorney at Byrne & Storm and who claims be to handling Hodlonaut’s case pro bono, but he declined to comment.

Notably, earlier in March of this year, not long before erasing his presence on Twitter himself, Wright tweeted that he will be “taking action aggressively to remove any site that is in error or makes false claims,” referring to people calling him a fraud, among other things.  

“You do not have a right to lies under ‘free speech’ nor harassment, nor libel and slander,” he wrote. “If an error is reported in a malicious context concerning me, expect to be living in a barrel when we finish with you.”

Peter McCormack, the host of the podcast “What Bitcoin Did,” is another person who has reportedly been approached by Wright’s legal team. According to McCormack’s tweets, after he tagged Calvin Ayre’s account to declare that Wright is a fraud and provided his personal address in Bedford, U.K. for legal correspondence, he allegedly received a letter from SCA Ontier LLP, a London-based law firm. In it, like in the case of Hodlonaut, he was asked to publicly apologize to Wright both on Twitter and in court.

Moreover, Wright’s attorney reportedly stated that his client “has not fraudulently claimed to be Satoshi Nakamoto” since his client allegedly is Satoshi Nakamoto. The statement further claims that Wright wrote bitcoin’s original white paper, sent the first bitcoin transaction and played an integral role in the network’s development.

McCormack then shared what he calls his “formal response,” where he declined to apologize to Wright and asked him to provide evidence that would confirm that he is Satoshi Nakamoto. On April 18, McCormack was allegedly served with a service claim for 100,000 British pounds (around $130,000).

Seamus Andrew, managing partner at SCA ONTIER LLP, has verified to Cointelegraph that his firm represents Craig Wright and that they are in the process of taking legal action, but did not specify whether or not they were suing McCormack or Hodlonaut.

“I confirm that we act for Craig Wright, and that we are in the process of bringing legal proceedings against certain individuals and entities who have defamed our client,” Andrew said via email.

Cointelegraph has requested for a comment from McCormack to clarify the details of his case, however, as of press time, he has not replied.

Binance, ShapeShit, Kraken and other platforms have delisted BSV

The situation escalated on April 11, when Changpeng Zhao, founder and CEO of Binace — currently the world’s fourth-largest crypto exchange by adjusted daily trade volume — warned that he would delist BSV (which trades under the ticker BCHSV on the platform) if the creator of the altcoin — i.e., Craig Wright — does not correct his behavior. The tweet seemed like a reaction to Wright’s action against Hodlnaut:

“Craig Wright is not Satoshi. Anymore of this sh!t, we delist!”

The community reacted to Zhao’s warning by asking various exchanges to delist BSV and by kick-starting a #DelistBSV hashtag.

On April 15, Binance officially announced that it will delist BSV. Specifically, the exchange stated that, as of April 22, it will delist the altcoin and cease trading all of its trading pairs. In the accompanying statement, Binance explained that it regularly reviews assets listed on its platform “to ensure that it [the asset] continues to meet the high level of standard we expect.” The firm went on to explain that it only delists a coin after a second in-depth review, noting, “We believe this best protects all of our users.”

Thus, the exchange listed the responsiveness to its due diligence requests, the level and quality of the coin’s development, as well as “evidence of unethical / fraudulent conduct” among the factors that it takes into account before delisting a cryptocurrency.

Later, on April 15, anonymous exchange ShapeShift and crypto data supplier and cryptocurrency wallet Blockchain.com also announced they were dropping BSV. On Twitter, ShapeShift CEO Erik Voorhees confirmed that the company came to a decision to stop listing the altcoin for reasons similar to those of Binance:

“We stand with @binance and CZ’s sentiments. We’ve decided to delist Bitcoin SV #BSV from @ShapeShift_io within 48 hrs.”

Other crypto platforms took a slightly different approach, letting their users decide whether to delist or keep BSV via Twitter polls. For instance, instant crypto exchange service ChangeNow wrote:

“As a service strongly disagree with Craig Stephen Wright’s policies and business decisions – everything, really.

However, we believe that the @BitcoinSVNode community should not suffer because of some decisions one man made.

So, do you think we should #DelistBSV? $BSV #BSV”

Similarly, major United States crypto exchange Kraken has decided to delist BSV following the results of a Twitter poll. In the official press release, the platform said that BSV had “engaged in behavior completely antithetical to everything we at Kraken and the wider crypto community stands for.”

BSV price had tanked as much as 20% following the series of delisting announcements, according to data obtained from CoinMarketCap, but currently shows signs of a slight recovery. As of press time, it is trading around $60, gaining back around 5% during the past few days.

Notably, the delisting announcements drew a negative response from some community members. “I have no love for bsv but I also take no joy in seeing a biased, bot infested platform like twitter being used to shut coins down with the impression they are democratic votes on a unbiased platform,” a Redditor wrote on the r/btc subreddit.

“Delisting bitcoin SV from some of the popular exchanges certainly was harmful to the project,” Matthew Greenspan, eToro senior market analyst, told Cointelegraph over Skype after a warning that it was difficult for him to comment on the case since he knew Hodlonaut and participated in the Lightning Torch experiment.  

“I would say it was a slap to bitcoin SV and its founders. […] Some of their opinions and threats have been extremely unpopular in the crypto community,” he said. “Now it will be harder for people to buy and sell it [BSV], and it will be harder for it to gain real liquidity in the market.” Greenspan also added that the results of the polls held by Kraken and other crypto platforms are “self-evident.”

Wright’s company, nChain, which designed bitcoin SV and is responsible for its technical development, has denounced the #DelistBSV campaign. “The sudden delisting of Bitcoin SV by some exchange is absolutely unjustifiable and sets a terrible precedent for the cryptocurrency industry,” Jimmy Nguyen, the chairman of nChain, told Cointelegraph.

According to Nguyen, the BSV network became much stronger after Binance, Kraken and other exchanges listed it on their platforms after November’s hard fork of the BCH network. Since then, more mining pools, wallets, applications and services have begun working with BSV, nChain’s chairman added, while the daily average block size of BSV was increased as well, showing technical development of the altcoin. “Therefore, there is even more reason to list BSV, not delist it,” Nguyen argued.

“The delisting decision is driven by personal dislike of Craig Wright and retaliation for steps Craig has taken to pursue personal legal rights against people he believes are defaming him,” Nguyen said. That, according to him, is a menacing sign for the community:

“A dangerous precedent has been set if an exchange uses its CEO’s personal dislike of a coin’s individual supporter as the reason to make delisting decisions. What if one day Vitalik Buterin took personal actions that offended an exchange CEO? Should that be the basis to delist Ethereum?” Nguyen asked. “Whether you agree with Craig Wright’s personal legal actions or not, Craig’s invoking of legal remedies are for a court of law to decide — not crypto exchanges.”

The nChain chairman also criticized the idea of using Twitter polls to decide whether to delist BSV, calling it “ridiculous.”  He went on, saying:

“It’s not hard to imagine the Twitter polls are just providing cover for a delisting decision already made. Twitter polls are not even limited to the exchanges’ customers, can be easily manipulated by bots and multiple anonymous accounts, and create the climate for mob rule. I expect regulators around the world to take a critical look at this Twitter poll charade.”

When asked whether he condones Wright’s behavior, Nguyen repiled:

“Like every person, Craig is entitled to invoke whatever legal rights are available to him, and let the legal system decide. He is defending himself after years of cyber bullying. Craig now simply wants a court of law, rather than the Twitter-sphere or exchange CEOs, to decide.”

Alternative measures: Some platforms kept BSV or even delisted BCH instead for political reasons

Some crypto platforms deliberately chose not to follow suit and left BSV on their platforms. Thus, on April 16, OKEx, a massive cryptocurrency exchange that is currently ranked the number one exchange on CoinMarketCap based on adjusted trading volume, announced that it decided not to delist Wright’s controversial cryptocurrency after conducting “a rigorous review on BSV in terms of technology development, liquidity, and compliance.” The exchange wrote:

“According to the OKEx Token Delisting and Hiding Guideline, BSV currently does not meet our delisting criteria. As such, OKEx has no intention to delist BSV for the time being.

“As a neutral platform, OKEx respects the efforts of all dedicated teams in advancing the technology of Bitcoin and has no inclination to certain technical directions.”

Japanese financial services giant SBI Holdings went even further and declared it will delist BCH  from its virtual currency exchange in June 2019. BSV, in turn, seems to remain listed on the SBI Virtual Currencies platform.

As per the original statement on the matter, SBI Holdings delisted BCH because of “a significant decrease in the market capitalization” and a “high possibility” of a 51% attack.

“If so [SBI Holdings delisting BCH while keeping BSV], it would be quite funny for them to delist Bitcoin Cash ABC [BCH] due to the possibility of a 51% attack and not to delist other coins,” market analyst Matthew Greenspan told Cointelegraph. “If you look at crypto51.app it shows you that a possibility of a 51% attack and Bitcoin Cash ABC is very low on that list, even lower than Ethereum… and Bitcoin SV is at the 5%.”

Notably, as Cointelegraph Japan reported, Yoshitaka Kitao, CEO and representative director of SBI Holdings, has a connection with the BSV founder, with Wright having revealed their close relationship in a tweet in January, demonstrating that he and Kitao spent time together and claiming that he treats Kitao as “a friend and man I respect a lot.”

Regardless of what happens next, the latest BSV drama has showcased the power that the community has over the market. Greenspan agrees with that statement. “Historically, we can see that community has an incredible influence over the technology and the paths that crypto takes,” he said. “Satoshi Nakamoto also predicted this as he spoke about hard forks and splits of the network. His sentiment was basically that the stronger fork or network will always survive whereas the lesser fork will be in deep trouble and we can see that clearly here.”

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Meet the 21-Year-Old Entrepreneur Trying to Sell His Failed ICO on Ebay

The bear market has not been easy on the crypto market.

The bear market has not been easy on the crypto market, especially when it comes to initial coin offerings (ICOs). The demand for small-value tokens issued by relatively unknown projects — some of which eventually might or might not turn out to be viable investments — has been dying out, and the days of “to the moon” meme seem to be well behind.

Now, people who jumped on the ICO bandwagon a bit too late are looking for a way out. Enter Ivan Komar, the 21-year-old owner of a startup called “Sponsy,” who is trying to sell his project on eBay for $60,000 after failing to gain the interest of the public in his tokens.

Сareer Profile / Ivan Komar

“There was one person who bought some tokens for $10, so it can’t be counted as an ICO”: Sponsy’s brief history of failure

Komar started his project at the end of 2017, as he told Cointelegraph over Skype. The idea was drawn from experience: Komar was organizing a hackathon for software developers in his hometown of Minsk, Belarus at the age of 19 and faced difficulties while trying to raise sponsorship funding for some of his earlier business ventures there. He said:

“It required me to approach each single sponsor directly and communicate with them one by one, which took much time and energy. Actually, a really small proportion of the sponsors that I approached were willing to sponsor our event. So I had an idea to create a platform which would make it as easy as possible to organize sponsorship deals.”

Thus, Komar decided to develop a platform that would facilitate sponsorship transactions and make them transparent.

“We worked hard on developing tech, and we also had an idea to run a token sale to raise some money funding to facilitate and accelerate some software development efforts. However, we did not manage to raise a single dollar. That’s why I don’t think that our product will be ever completed.”

Despite being advertised as a “blockchain project,” the platform’s core component is actually centralized. “It works with a typical centralized server,” Komar revealed during the conversation. “But we have some components which work on blockchain, and it would be easy for us to create some interpretability between the blockchain part and centralized part. It exists both in centralized and decentralized worlds.” The Sponsy founder also told Cointelegraph that they developed some smart contracts on the Ethereum (ETH) blockchain.

As Komar explained it previously to the Financial Times, his company missed the ICO boom of 2017, and no one became interested in its tokens later in 2018. The reason why they were so late, the young entrepreneur said, was his lawyer, who advised him to develop the actual product before launching an ICO — a decision Komar now seems to regret:

“We would not have tried to build a product first, we would have tried to run a token sale as soon as possible, to jump into this crypto craze bandwagon and raise as much money as possible before building any product. And that’s exactly what others were doing.”

While speaking to Cointelegraph, Komar described his lawyer as “a reputable guy” with many clients:

“I mean, at least none of his clients got into jail, so that’s a good lawyer.”

Despite the legal advise, Komar actually attempted to hold an ICO at the start of 2018. According to the token sale website that he actively promoted in Sponsy’s Telegram groups, SPONS tokens (basic ERC-20 tokens with no utility use) were being sold for $0.085 each during a private sale that started on Jan. 28 and ended on April 7. Since then, the tokens have been sold for $0.10 as part of the so-called presale, which is set to expire on May 1, 2019, according to the website.

Komar confirmed that he attempted to sell tokens, but didn’t agree that it could be classified as a token sale:

“There was one person who bought some tokens for $10, so it can’t be counted as an ICO.”

He added that he failed to sell more mostly because of advertising-related difficulties:

“We tried contacting a couple of media outlets to spread the word about our project, but nobody was interested to write about yet another ICO, because so many ICOs were failing. Those who agreed offered an insanely high price for press coverage.”

Andrew Hinkes, co-founder of Athena Blockchain and an adjunct professor at the NYU Stern School of Business and NYU School of Law, told Cointelegraph that a substantial amount of “2016-2018 vintage ICOs” were mostly offerings without compliance with securities laws and are therefore not viable in the United States, where sales of investment products are regulated by the state.

Non-existent sponsors and unattended events

There are other inconsistencies with Komar’s project. While there is indeed an iOS app available for downloading on the App Store, it appears to be quite undeveloped. Specifically, under the “sponsors” tab, there are just three companies, two of which are Adidas and Coca-Cola.

When asked whether Sponsy has signed any documents with the commercial giants, Komar replied negatively:

“No, we haven’t signed any legal partnerships with those companies. And the fact that you see those sponsors on the app is mainly because it was some sort of a test. Those Adidas and Bosch have nothing to do with real Adidas and Bosch.”

Further, Sponsy’s website claims that the startup has visited various blockchain conferences, but the titles of those events don’t match up with their logos. Specifically, Sponsy claims to have attended San Francisco Blockchain Week, which is listed under the logo for BlockShow, a separate event powered by Cointelegraph. However, the BlockShow attendees’ database shows no record of either Ivan Komar or Sponsy. Googling the title “Sponsy” along with other events listed on the startup’s website shows no relevant results.

During the interview with Cointelegraph Komar, claimed that Sponsy did a roadshow “across San Paulo, Singapore and Hong Kong.” The entrepreneur also complained that he was promised meetings with “top-notch investors” there, but those turned out to be “randomly selected people who had nothing to do with investment.”

Further, the project claims to have a “solid social presence,” with over 10,000 likes on Facebook and 8,000 subscribers on Twitter. However, the Twitter page has only been updated twice a month since the company announced its forthcoming token sale last December, and the posts have around 10 likes on average. Sponsy has similarly maintained accounts on other social media, with posts randomly commented on by bot-like users, most of which describe how profitable and successful the project seems to be. Komar claimed that those are “totally real people.”

“They come from a program called ‘bounty program.’ It’s very common among crypto startups. They are designed to spread the word about the project through those people who are commenting, liking, tweeting and stuff. But they [the participants] have no fantasy. I mean, they have poor English, mostly because they are based in Indonesia, Philippines and other poor Asian countries, and all they can do is write the same messages which do not make sense.”

Those people receive compensation for their efforts in the form of SPONS tokens, Komar clarified, adding:

“But they are not going to make any real cash out of it, because we are selling our project. We did not manage to sell enough tokens or get on any crypto exchange. So, we can sympathize to [sic] those guys.”

When asked whether he felt responsible for that, the Sponsy founder said:

“No, because either way they wouldn’t have made cash out of it. It could be like one-two-three dollars, not any substantial amount of money. Even for Indonesia.”

Finally, Sponsy is described as a blockchain project that could launch both ICO and a security token offering (STO). The author of the offer claims that the project was audited by a United Kingdom-based law firm. The Financial Times reported that Komar was actually referring to a Poland-based company called Memorandum Capital, which claims to have its head office in Manchester. However, 132 other companies are listed at that address, according to Companies House Data, the publication established. A Google Maps search reveals that the firm’s office is actually a residential house with satellite television.

Moreover, the eBay listing states that the solutions developed by Sponsy comply with European Union and U.S. regulations.

Komar told Cointelegraph that his startup had received all the documents required for holding a token sale from the same lawyer who advised him not to run an ICO before having developed any actual product. Launching an STO for his project, in turn, would require additional funding and documents, he said:

“We decided to abandon those plans. But we believe that some person out there might be interested in this. That’s why we wrote about the fact that the buyer could run an ICO or STO with our project.”

Andrew Hinkes informed Cointelegraph that, while a product or service can comply with a law that governs it without a piece of paper as evidence, there are complex regulatory issues surrounding fundraising, crypto and advertising:

“Of course, if a seller is making a false claim to induce a sale, there may be civil or criminal penalties associated with those claims. Potential investors should always conduct diligence on any investment opportunity prior to making an investment.”

“I still expect that we will be able to negotiate the price”: Will Komar actually sell his business on eBay?

Somewhat ironically, Komar has finally got what he wanted: the public’s attention. “I Googled about other crypto startups selling on eBay and I realized that there was no competition in this regard,” the entrepreneur said. “I thought that this could potentially attract the attention of journalists and the media worldwide. And that’s what seemingly happened.”

Since the Financial Times ran a story about Sponsy, 47 people have followed its eBay listing. More importantly, Komar has been approached by seven people, he told Cointelegraph. While no one has offered to pay the full price, someone is apparently willing to pay as much as $50,000 for the startup. “I still expect that we will be able to negotiate the price to get it as close to $60,000 as possible,” the 21-year-old said. When asked about how much he spent on the startup so far, he replied after a short pause:

“It was north of $50,000, I guess.”

Sponsy’s case seems to illustrate the critical condition of the ICO market. Indeed, just during Q3 2018 — from July to September 2018 — ICO funding overall fell by a whopping 48 percent, according to a study from ICO analysis firm ICORating.

Komar said that he doesn’t believe in ICOs anymore. The market has been corrupted by bad actors, he added, clarifying:

“[ICOs were spoiled] by people who were raising millions of dollars and disappeared. The only words they left on their website was ‘penis.’ Those kind of organizers spoiled the whole scene and no one believes in ICOs anymore. Actually, ICOs were mostly interesting to retail investors who were spending their money on buying tokens and losing that money, obviously. I think that the ICO mechanism is dead mostly because of scams and fraud.”

While selling a startup via eBay might appear rather peculiar, it can be legal. “Generally, a person can sell their property, including a business that they may own,” Hinkes told Cointelegraph. “While eBay maintains a list of restricted goods that cannot be sold on its platform, it appears that there are specific areas on eBay’s website designed for the sale of businesses; and Sponsy is listed on a page that appears to allow the sale of web pages and internet companies.”

However, Hinkes added, most sales of businesses are complicated transactions that can’t be performed without lawyers’ involvement:

“A sales transaction typically includes contracts that identify assets being sold including inventory, IP, existing commercial relationships, operations, customers, etc, will carve out certain assets not sold, and will include warranties, representations and disclaimers about the sale. For this reason, sales of businesses are typically conducted in consultation with lawyers. It is unlikely that the sale can be fully affected over eBay without other legal documents being executed by the buyer and seller.”

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The Lightning Torch: How the Community United to Teach Jack Dorsey About Feeless, Rapid Off-Chain Transactions

Over the last few weeks, the Lightning Network — Bitcoin’s off-chain scaling protocol — has made waves.

Over the last few weeks, Bitcoin’s (BTC) second-layer scaling protocol, called the Lightning Network (LN), has gained a lot of traction, steadily proving to become a viable solution to BTC’s infamous scalability problem and even potential competitor to American payments giant Visa.

Thanks to the community-driven Twitter experiment called “the Lightning Torch,” the LN has now been co-signed by Jack Dorsey, who says that integrating the protocol on Square’s popular Cash App is a question of “when, not if.” On top of raising awareness, the social media campaign has also shown what the LN technology is ready to offer in real conditions — but also revealed some of its shortcomings.

A brief history of the Lightning Network, an ambitious campaign to tackle Bitcoin’s scalability

The history of the protocol could be traced back to January 2016, when Joseph Poon and Thaddeus Dryja published a white paper dubbed “The Bitcoin Lightning Network: Scalable Off-Chain Instant Payments.” In it, they underpinned Bitcoin’s Achilles Heel — the scalability issue — and compared the cryptocurrency’s capacity to Visa to illustrate their point:

“The payment network Visa achieved 47,000 peak transactions per second (tps) on its network during the 2013 holidays, and currently averages hundreds of millions per day. Currently, Bitcoin supports less than 7 transactions per second with a 1 megabyte block limit.”

Achieving Visa-like volume on the Bitcoin network seemed barely possible, given that handling that kind of bandwidth and storage would require a great amount of computing power. However, Poon and Dryja argued, there is a way to make Bitcoin a feasible alternative to existing payment systems while keeping its signature decentralization and security — and that would be off-chain scaling.

Enter LN, a network of off-chain payment channels, which require almost no fees and allow for fast, seamless transactions that are made on a layer above the actual blockchain.

“With an off chain payment channel you can deposit, for instance, $100 once, and pay network fee for it, and then pay to your favorite shop as many times as you wish, without paying any transaction fees to the network, to the sum of $100,” explains Eyal Shani, a blockchain researcher at consulting group Aykesubir. He added:

“Instead of paying a transaction and sending it to the entire network, you send an encrypted and signed ‘promise’ that you owe that other party, say, $10 out of the $100. Finally, if the paid party needs the money for another purpose, they close the channel by sending the promise to the entire network. Theoretically, you can do millions of transactions for the price of twice the network fee.”

That way, users can conduct numerous transactions outside of the blockchain and then, when they’re done, record them as a single one, hence saving a lot of processing for the ledger. To describe how the channels work in greater detail, Shani makes an analogy with buckets of water, emphasizing one of its main shortcoming along the way:

“When you deposit money on it, you’re filling the bucket and then when you spend it, it slowly loses that water. The bucket can also be full, as you can’t have too much water in it. Because of this, for example, once you open a LN channel, you cannot receive money right away — your bucket is full, and first you have to spend some. However, based on the fact that you want to transfer (usually) money from A to D, via the channels of B and C along the way
it is a real problem to keep everyone’s channel with enough liquidity (i.e, balance) to make the transfer.”

Although the LN has been designed specifically for Bitcoin’s blockchain, Shani adds, the concept can be performed on other blockchains — for instance, there is the Raiden network created for Ethereum (ETH).

Moreover, as Cointelegraph reported in a more in-depth analysis of the LN, the network is also testing the so-called cross-chain atomic swaps, which are basically transfers of tokens between different blockchains. If properly implemented, this feature could allow to quickly — and with little to no fees — swap any given cryptocurrency to a different one, and hence challenge the use of cryptocurrency exchanges.

The Lightning Torch — from a local flash mob to a powerful movement co-signed by the CEO of Twitter

The Lightning Torch, also known as LN Trust Chain, is a community-driven experiment aimed at raising awareness about the protocol and testing its robustness.

It was launched on Jan. 19, when Twitter user and Bitcoin enthusiast Hodlonaut announced he or she was willing to pass on 100,000 Satoshis (the smallest unit of a Bitcoin) via the LN to the first person who seems reliable. That volunteer would have to add another 10,000 Satoshis and send the whole amount to another person willing to participate, and so on.

The process somewhat resembles the Olympic torch relay, hence the name “the Lightning Torch.” Eventually, the hashtag #LNTrustChain began circulating to ease communication among community members involved in the experiment, giving the movement an additional boost on social media.

“The experiment got traction pretty fast among my little twitter bubble. First 100 passes took less than a week.” Hodlonaut tells Cointelegraph over Twitter DMs. “I think busiest day may actually have been the first day, January 19, with more than 20 passes. The pace of passing has decreased with time, mainly because people are trying to make passes to specific people instead of just sending to one of the invoices sent to them on twitter.”

As of press time, the torch has been carried by more than 240 people in 52 different countries. The list of participants includes, among others, a 88-year-old grandmother of a crypto enthusiast, Twitter CEO Jack Dorsey, financial derivatives giant Fidelity Investments, LinkedIn co-founder and former PayPal Chief Operating Officer Reid Hoffman and Monero (XMR) Core developer Riccardo Spagni, who passed the torch while inflight.

“I was excited about LN, and wanted to have some fun/experiment with it.” Hodlonaut recalls. “I was curious to see how far something like that could go. Didn’t expect it to last very long or get much attention… So the @jack thing was pretty mindblowing”

Initially, Hodlonaut says, his or her goal was to simply spread awareness about the LN and its potential use. He or she has been interested in the protocol since the testnet days, but it was in September 2018 when Hodlonaut finally set up their own node using RaspiBlitz’s instructions. Hodlonaut continued:

“Why I got interested is because the instant nature is so fascinating. To be able to send fractions of bitcoin instantly like this was mind blowing in the same way my first transactions on-chain after discovering Bitcoin in 2013.”

Even though the LN community has appeared overall trustful and cooperative, there have been a few bumps in the road. Early on, when the torch had amassed around 250,000 Satoshis, it was hijacked by an umbrageous user.

“I thought it was the end, but on his own initiative the guy who sent to the thief, resent to a new person out of his own pocket to keep the torch alive,” the movement’s founder says.

Then, around 2.5 million Satoshis, the torch fell into the hands of a reluctant person who declared he wasn’t going to pass it on.

“He was hostile to the experiment, calling it a stupid circlejerk. But once again, the guy who sent it to him, resent to a new person out of his own pocket,” Hodlonaut says, summarizing at some point:

“Turns out, this community is pretty awesome.”

Foreseeable future: donations to Bitcoin Venezuela, negotiations with major United States retailer who has dropped Visa

Now that the movement is rapidly growing, a more concrete milestone has been set up. “The goal is to get to the Lightning Network tx cap at 4.29 Msats,” Hodlonaut says. “The torch is then donated to @btcven [Bitcoin Venezuela] along with the funds from this fundraiser.”

Bitcoin Venezuela was chosen because of the local economic hardship, Hodlonaut explains. Indeed, Venezuela’s economy has reportedly fallen by 47 percent since the end of 2013, as the bolivar, the local sovereign currency, have been drastically inflating under the politics of Nicolas Maduro, the country’s president. As a result, the local people have largely turned to Bitcoin, which, due to its decentralized nature, appeared as a means to bypass the unstable fiat currency — last month, BTC trading volumes in Venezuela reached a new all-time high.

“They [Bitcoin Venezuela] have a long track record of spreading bitcoin adoption, feeding people and trying to put infrastructure like mesh networks in place,” the movement’s founder says.

Meanwhile, despite still being in its infant stage, the LN is picking up the pace. Although it is still unclear whether the protocol will ever be able to dethrone Visa, there are promising signs. Earlier this month, major U.S. retailer Kroger announced that its Smith’s Food & Drug stores will not accept Visa cards starting April 3, citing the high fees that company imposes on large retailers. “Visa has been misusing its position and charging retailers excessive fees for a long time,” Kroger’s Chief Financial Officer Mike Schlotman said.

In response, Anthony Pompliano, founder of Morgan Creek Capital — an institutional investment house with $1.5 billion in assets under management — suggested that Kroger should deploy the Lightning Network in its stores. According to one of his tweets, the negotiations have already started.

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Pet Stablecoins: Why Some Banks Issue Their Own Digital Tokens, While Others Don’t

A number of banks revealed plans to issue their own tokens, following JPMorgan Chase’s move.

This week, a number of banks shed light on their respective crypto-related projects, following the recent expansion of JPMorgan Chase into the field.

IBM was the big mover. A joint announcement by IBM and Stellar (XMR) said that as many as six global banks might issue their own stablecoins on IBM’s blockchain-powered payments network, dubbed “Blockchain World Wire” (BWW).

The question now is whether this marks a turning point for cryptocurrency’s use, or if it merely continues the experiments that have marked the early stages of digital money. While quite a few financial institutions seem ready to go blockchain and create tokens in a bid to streamline cross-border payments, some still choose to set the technology aside.

Citigroup, the corporation behind one of the world’s top-20 banks by asset value, revealed earlier this week that it was abandoning its “Citicoin” project to focus on more conventional remittance methods like SWIFT. The bank’s reasoning seemed focused on preserving the current forms of inter-bank transfers as a proven and universal method.

Can those bank-issued coins be called “cryptocurrencies”?

When JPMorgan Chase announced that it built its own digital token based on a private Ethereum (ETH) blockchain last month, the crypto community seemed largely skeptical.

Nathaniel Popper, author of the book “Digital Gold, a History of Bitcoin,” tweeted back then:

“The JPM Coin makes it possible to move dollars between JPMorgan bank accounts instantly. That raises the question: Why was it not already possible to move dollars between two JPMorgan bank accounts instantly?”

Given that the JPM Coin is only available for private use within the inner circle of the banks’ clients, one should be hesitant to even call it a cryptocurrency, according to at least one expert.

Hartej Sawhney, a blockchain expert and co-founder of Hosho, a startup protecting investments and providing multiple smart contract services, told Cointelegraph in an email:

“Recently, banks and media have had a field day misusing the word cryptocurrency. There is no such thing as a ‘cryptocurrency’ without open consensus or permissionless participation. Announcing a new ‘coin’ was simply a marketing play for J.P. Morgan. Bitcoin for example, is open source, permissionless, strictly limited in quantity, and has no account fees.”

Not only is the JPM Coin permissioned and available only to institutional customers who have been cleared via JPMorgan Chase’s Know Your Customer (KYC) precautions, Sawhney added, it is also pegged 1:1 to fiat currencies held by the bank. That is fundamentally different from what cryptocurrencies constitute, he argued:

“Anyone can use a cryptocurrency, and anyone can participate in its consensus system without seeking permission from anyone else.”

Regulated institutions will act

Michael Dowling, CEO and founder of FairX, a financial services company involved with banking and digital assets, and former chief technology officer at IBM’s blockchain arm, also distinguishes bank-issued coins from conventional, “pure-play” cryptocurrencies akin to Bitcoin (BTC), XRP and XMR. Bank-backed tokens are “cryptocurrency implementations of fiat currency,” which are commonly referred to as “stablecoins.” He told Cointelegraph:

“A lot of people are obsessed with this ‘token’ thing, but at the end of the day a bank is a really fancy ledgering company with amazing security; the key to bank’s successful use of blockchain tech, in a practical way, is to shift some of the authentication of a user from the centralized bank to the user’s own device, proven by a cryptographic ledger. That’s really what this bank-issued coin is really all about — it’s still the same USD ledger, its authentication for who is allowed to change the ledger has shifted from username/password at the bank to pub-pri key cryptography in a distributed fashion.”

Downey then summarized his statement: “I do NOT believe regulated institutions will announce their own pure-play cryptocurrencies, but I am absolutely certain they will announce their own deposits on ledger.”

Interestingly, while JPMorgan Chase’s move was largely reported as a first for a United States bank (and any major lender), New York-based Signature Bank rolled out a similar feature earlier in December 2018. Dubbed the Signet Platform, the private blockchain allows the banks’ clients to move their money “in 30 seconds,” just like the JPM Coin — and it is also pegged to the U.S. dollar. It comes as no surprise that Signature’s coin was largely overlooked, given how the bank compares to JPMorgan Chase size-wise: The former has just $45 billion in assets, while the latter wields more than $2 trillion.

When announcing the feature, Signature Bank co-founder and CEO Joseph J. DePaolo seemed particularly bullish on the use of private blockchains for financial institutions. He told Forbes:

“We have to do this, otherwise we’re not going to exist. […] If you’re not involved in blockchain, in five years, you won’t be around as a bank.”

DePaolo’s viewpoint seems to echo the findings of Citigroup’s “Bank of the Future” report, which suggests that fintech companies that are actively disrupting the banking market with new technologies are driving out its longstanding participants — or at least compelling them to give up a large portion of their margins, a traditionally important source of income for banks. Specifically, the paper estimates that by 2025, major North American banks could lose 34 percent of profit from mainstream areas such as payments, investments and personal lending.

What is a bank-issued coin’s purpose?

Primarily, banks tend to pick up blockchain for instantaneous cross-border payments. The technology shows a lot of potential within that field. Blockchain reportedly allows performing international remittance “in near real-time,” according to the IBM website, while normally they take three to five working days to complete within the existing infrastructure. Moreover, transaction costs can be saved as third-party intermediaries get removed from the process (according to research from McKinsey, the average cost for a bank to execute a cross-border payment through correspondent banking costs $25 to $35).

The two largest blockchain projects aiming to streamline cross-border remittance for global banks are hosted by Ripple and IBM Blockchain. Ripple has at least two blockchain-powered payment tools for those purposes, called xRapid and xCurrent (the main difference between them is that xRapid uses XRP, the company’s native token, while the latter works with fiat currencies). IBM, in turn, oversees its Blockchain World Wire (BWW) payment network operating on the Stellar (XMR) blockchain, which completed its beta in September 2018.

At this point, both Ripple and IBM Blockchain seem to be a force to be reckoned with: RippleNet reportedly has more than 200 clients, while BWW, which has been around for considerably less time, is currently used by 54 banks, as Jesse Lund, global vice president of IBM Blockchain, told Cointelegraph. Both of them are networks that are open to a wider amount of financial institutions, while some banks — like the aforementioned JPMorgan Chase — want to deploy their own private ledgers.

Notably, unlike Ripple, IBM’s BWW supports different digital assets within its blockchain, including bank-issued coins: Just recently, Cheddar reported that six international banks — such as Brazil’s Banco Bradesco, South Korea’s Bank Busan and the Philippines’ Rizal Commercial Banking Corporation — have signed letters of intent to issue their own stablecoins backed by their national fiat currencies on IBM’s network. “These are expected to add Euro, Indonesian Rupiah, Philippine Peso, Korean Won and Brazilian Real stable coins to the network,” Lund told Cointelegraph in an email, adding:

“Ultimately, we hope to see a global financial network that represents a real-time facility for moving money from anywhere to anywhere — where foreign exchange is just an inherent part of the process that happens automatically through the use of an expanding digital asset ecosystem.

“World Wire can use fiat currency, lumens or stable coins. This is a completely new kind of payments infrastructure than traditionally used, and it differs from SWIFT and other approaches.”

Downey also highlighted this feature as a major advantage for the network:

“While IBM’s service does use a pure-play crypto as a settlement asset as an option, I believe the legitimate institutions will use fiat-stablecoins issued by banks as settlement assets instead. That stabs Ripple in the heart — why use XRP if I can use….an acknowledged and accepted currency?”

Cointelegraph has reached out to Ripple to get a further comment for this article, but they failed to prepare a statement before press time.

Ripple’s CEO, Brad Garlinghouse, has criticized the concept of bank-issued digital coins (which he calls “bank coins”) and specifically the JPM Coin in the past, citing its centralized structure, among other things. He has also argued that the JPM Coin lacks the interoperability that would make it a significant innovation:

“This guy from Morgan Stanley was interviewing me last week, and I asked him, so is Morgan Stanley going to use the JPM Coin? Probably not. Will Citi use it? […] Will PNC? And the answer is no. So we’re going to have all these different coins, and we’re back to where we are: there’s a lack of interoperability.”

Downey agrees with that statement. “It [the JPM Coin] MUST be interoperable between banking institutions for it to work properly,” he told Cointelegraph. “Otherwise, we’re just swapping bank currencies.”

Bank-issued stablecoins vs. public stablecoins

Stablecoins — with their ability to overcome crypto’s infamous volatility — have become widespread during the bear market, especially among more compliance-oriented players.

Projects like USD Coin (USDC), launched by payments company Circle in conjunction with Coinbase, the Winklevoss twins-backed Gemini dollar, Paxos and Facebook’s secretive project are among the most notable examples.

Recently, Jeremy Allaire, co-founder and CEO of Circle, has argued that, as the sector continues to see new market participants, stablecoins using an open-standards approach will prevail, while also welcoming Facebook’s still-to-be-confirmed plans:

“That’s [Facebook’s reported plans are] very, very positive in our view overall. The approach that we’ve taken is to create a consortium model. When we think about a standard for how fiat money works on the internet, it’s really critical that it’s an open standard that many companies can implement, that has an self-governance mechanism around it that can evolve both a technical standard as well as a membership framework.”

Essentially, Allair argued that creating “an HTTP for money on the internet” that could support global participation from multiple actors is “ultimately going to be much more successful than a single company issuing a cryptocurrency themselves.”  

However, Downey told Cointelegraph that stablecoins that are not issued by banking institutions might have a significant disadvantage over the public ones run by startups:

“Only banks can ‘take deposits,’ which have a specific meaning with specific legal protections around the assets held on deposit in case of bankruptcy.  Some, such as Gemini, have set up ‘trusts’ to park the cash, but it requires costly monthly attestations that come, frankly, for free as a bank. In addition, the Gemenis, the Circles, etc. all seem to be releasing their coins for the purpose of de-risking within their platforms. Very short term thinking, and no one is going to do real business (with real volumes with real value) using that setup. That’s what banks are for.”

Notably, Ron Karpovich, global head of e-commerce solutions at JPMorgan Chase, has recently raised a similar point in an interview with CNBC’s Squawk Box.

In response to a question as to how the top U.S. bank is ready to compete with new actors that can employ blockchain and cryptocurrencies to offer the same services as the industry’s veterans, but with cheaper fees, Karpovich said:

“Ultimately behind the scenes, they [crypto innovators] are going to have to use a bank to move funds. There’s more partnership instead of competition in that space. […] When it comes to margins and capabilities — payments is never something that grows in margin, nobody wants to pay for a payment. That’s one of the hardest parts of this process: you have limited resources in the capability to sell, so you need highly efficient and large players.”

“Citicoin”: The four-year project cut short in favor of more traditional remittance methods

Citigroup, unlike other mainstream institutions that couldn’t resist mentioning the word “blockchain” in their press releases at the time when it was popular to do so, has kept its cryptocurrency operation underground. It first surfaced back in July 2015, when International Business Times interviewed Ken Moore, head of Citi Innovation Labs. Moore told the publication that they were studying distributed ledger technology (DLT) for “the last few years.” Moreover, he added, the lab had constructed three separate blockchains and a cryptocurrency for test purposes:

“They [the three blockchains] are all within the labs just now so there is no real money passing through these systems yet, they are at a pre-production level to be clear. […] We also have an equivalent to bitcoin up and running, again within the labs, so we can mine what we call a ‘Citicoin’, for want of a better term. It’s in the labs, but it’s to make sure we are at the leading edge of this technology and that we can exploit the opportunities within it.”

Moore also specified that “most of our efforts have been focused on payments; trade probably being a second runner.”

Now, when JPMorgan Chase has just rolled out its own cryptocurrency to speed up its in-house transactions, Citigroup announced it was putting its crypto project on hold. Specifically, Gulru Atak, global head of innovation for treasury and trade solutions, said in one report that they were reviewing methods for cross-border payments, but with a shorter-term effect. Citigroup is not abandoning blockchain, she said. But, for now, it is looked at as merely an adjunct to SWIFT.

Indeed, SWIFT is a 46-year-old interbank messaging service and a co-operative owned by about 11,000 member banks in more than 200 countries. Its network handles as much as $5 trillion worth of transactions per day worldwide, as per U.S. Department of Treasury data, which allegedly includes more than half of all high-value, cross-border payments, making SWIFT a top player when it comes to sending money from country A to country B.

“Citi’s experience was just like JPM’s, with one big difference,” Downey told Cointelegraph:

“Both were prototypes, and both focused on internal transfers. JPM has been investing in blockchain tech for years now, and I think they needed to start justifying those investments, and that’s why they announced — with much fanfare — a prototype that works….only within JPM.  Citi’s approach is to focus on faster payments through SWIFT. I don’t believe it was a ‘this solution can’t work,’ it was more of a ‘we choose to focus on different solutions while other players focus on cash on chain’.”

SWIFT is aware of blockchain and its advances within the cross-border payments industry. At some point, the banking juggernaut even ran a proof-of-concept (PoC) of blockchain to see if it could pick up the technology for itself, but was left somewhat disappointed with the results. In March 2018, the co-operative declared that blockchain was not ready for mainstream use as “further progress is needed before it will be ready to support production-grade applications in large-scale, mission-critical global infrastructures,” although the tests went “extremely well.”

That seems to be the main consensus for traditional banking players that have chosen to stay away from blockchain: The technology has a lot of potential but is not mature enough to be picked up for industrial-scale use. The list of such lenders includes the Bank of Canada (BoC), the Spanish bank BBVA and the Bank of England, among others.

Sawhney told Cointelegraph that, whatever the outcome of the competition among blockchain-powered platforms and SWIFT is, the nearly 50-year-old conventional system is now being forced to update. Indeed, apart from testing blockchain, in February 2017, the banking network launched its Global Payments Innovation (GPI) service. While GPI promised “faster, same day use of funds,” it is technically a messaging system, and despite supporting real-time, end-to-end tracking, it is not blockchain-based.

“The battle is on for near-instant transactions, complete transparency and thorough transaction tracking, low clearing costs, and compatibility with any currency or asset type,” Sawhney said. “It has just begun, we are still a long way from getting a firm answer on which solution will dominate the future of the global payments industry.”

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Ledger Client Address Issue and Fake Deposits: Community Spots Two Vulnerabilities Related to Monero

At least two seperate bugs related to Monero have been detected.

This week, at least two seperate bugs related to Monero (XMR) were reported by crypto community members. The first one allegedly lead to a Ledger hardware wallet user losing around 1,680 XMR (nearly $80,000, as of press time) of his funds after making a transaction. The other vulnerability allowed hackers to make fake XMR deposits to cryptocurrency exchanges.

Anonymity above all: What is Monero and how it works

Monero is a cryptocurrency with an additional focus on anonymity. It was launched in April 2014, when Bitcointalk.org user thankful_for_today forked the codebase of Bytecoin into the name BitMonero. To create the new coin, he relied on the ideas that were first outlined in a 2013 white paper dubbed “Cryptonote” written by anonymous personality Nicolas van Saberhagen. Ironically, BitMonero was soon forked itself by open-source developers and named “Monero” (which means “coin” in Esperanto). It has remained to be an open-source project ever since.

Indeed, Monero has considerably more privacy features compared to conventional cryptocurrencies like Bitcoin (BTC): On top of being a decentralized coin, Monero is designed to be fully anonymous and virtually untraceable. Specifically, it is based on the CryptoNight proof-of-work (PoW) hash algorithm, which allows it to use “ring signatures” (which mix the spender’s address with a group of others, making it more difficult to trace transactions), “stealth addresses” (which are generated for each transaction and make it impossible to discover the actual destination of a transaction by anyone else other than the sender and the receiver), and “ring confidential transactions” (which hide the transferred amount).

In 2016, XMR experienced more growth in market capitalization and transaction volume than any other cryptocurrency, undergoing almost a 2,800 percent increase, as per CoinMarketCap.

Monero Charts

Notably, a lot of that gain could have come from the underground economy. Being an altcoin that is tailor-made for fully private transactions, Monero eventually became accepted as a form of currency on darknet markets like Alphabay and Oasis, according to Wired. Specifically, after being integrated on those trading platforms in the summer of 2016, Monero’s value “immediately increased around sixfold.”

“That uptick among people who really need to be private is interesting,” Riccardo “Fluffypony” Spagni, one of the Monero core developers, told Wired in January 2017.

“If it’s good enough for a drug dealer, it’s good enough for everyone else.”

Currently, XMR is the 13th-biggest cryptocurrency by market cap, with equivalent of over $800 million, according to CoinMarketCap data.

Monero’s alleged privacy remains to be a controversial topic, as some suggest that the coin is not, in fact, fully anonymous. In an interview with Bloomberg, United States Drug Enforcement Administration (DEA) Special Agent Lilita Infante noted that, although privacy-focused currencies are less liquid and more anonymous than BTC, the DEA “still has ways of tracking” altcoins such as Monero and Zcash. Infante concluded:

“The blockchain actually gives us a lot of tools to be able to identify people. I actually want them to keep using them [cryptocurrencies].”

Moreover, as previously reported by Cointelegraph, Monero has been endorsed as “The Official Currency of the Alt Right” by white supremacists like Christopher Cantwell for its focus on anonymity.

The privacy-focused nature of Monero has also driven compliance-oriented crypto exchanges to turn the coin down. For instance, in June 2018, Japan-based Coincheck delisted XMR and three other anonymity-focused altcoins to follow Counter-Terrorist Financing (CTF) and Anti-Money Laundering (AML) procedures issued by the local financial regulator.

Bug #1: change address bug with Ledger

Status: pending

On March 3, user MoneroDontCheeseMe started a Reddit thread, claiming that he or she believes to “have just lost ~1680 Monero [around $80,000] due to a bug” while using the Monero app with his or her Ledger hardware wallet.

According to the post, the user transferred about 0.000001 XMR from his or her wallet to a view-only wallet, sent another 10, 200 and then 141.9 XMR. Allegedly, before sending the last transaction, MoneroDontCheeseMe had about 1,690 XMR in the wallet and 141.95 XMR in an unlocked balance, which is why he or she decided to send 141.9 XMR. However, after the transaction had been sent, the user’s wallet is reportedly showing a balance of 0 XMR.

Furthermore, according to the Reddit user, the amounts sent and the transactions recorded on the blockchain “don’t line up.” MoneroDontCheeseMe wrote that the 200 XMR transaction actually deducted 1691.001 XMR from the Ledger Wallet, and also that the amounts reported for the 10 XMR transaction are incongruous. Monero core developer nicknamed binaryfate told Cointelegraph over email:

“My understanding is that the Ledger may have sent the ‘change’ amount to an erroneous one-time destination that the user did not control. For more details you should ask the Ledger team directly, they are working on it and already identified and fixed the bug as far as I know, so it should be pushed shortly.”

Initially, in the comments to the post, Nicolas Bacca, chief technical officer at Ledger, said that their app has been extensively tested, suggesting that could be a synchronization issue.

However, several hours later, Ledger developers published a warning on the Monero subreddit, advising users not to use the Nano S Monero app because “it seems there is a bug with the change address.”

“The change seems to not be correctly send. Do not use Ledger Nano S with client 0.14 until more information is provided.”

The official Monero Twitter account has since retweeted Ledger’s tweet containing a link to the warning.

Thus, according to Monero’s binaryfate, the Ledger team has prepared a patch to fix the issue, and is expected to release it in the near future. Cointelegraph reached out to MoneroDontCheeseMe to ask him or her whether this issue is being fixed by Monero or Ledger developers, but he or she appeared hesitant to answer straight away and requested more time.

Cointelegraph has also contacted Ledger developers for further comment, but they have not prepared any statement as of press time.

Bug #2: wallet bug enabling hackers to make fake deposits to crypto exchanges

Status: fixed

On March 3, the official account of the Ryo (RYO) cryptocurrency published a Medium post, highlighting a bug in the XMR wallet software that could allow for sending fake deposits to crypto exchanges.

According to the post, an email reportedly sent to the Monero Announce mailing list warned platforms using the coin that the Monero Vulnerability Response team received a disclosure concerning a vulnerability. The bug was reportedly related to coinbase transactions (the first transaction in a block, created by miners).

“This essentially means that the attacker can make it appear as if he deposited any sum of his choosing to an exchange,” the post read. The mentioned email also contained the patch preventing the vulnerability from being exploitable.

As binaryfate explained to Cointelegraph, first, somebody made a responsible disclosure following the Monero Vulnerability Response Process. Then, an email was sent to the Monero Announce mailing list “warning in advance that both a patch and details of the bug would be released together on the 6th of March.” After that, the Monero developer added that Ryo published details “right away”:

“Due to this article, the details had been made public and delaying would have caused unnecessary risk. Hence a patch was publicly merged on github, and a new version of Monero tagged right away.”

Indeed, a few hours later, the official Monero account tweeted that the fix for the vulnerability had been written and was awaiting review. As per the GitHub page dedicated to the patch, it appears that the code has been already merged with the main branch, which means that the fix is ready and only needs the new release to be published.

Ryo is a code fork of Monero, as per its website. According to the Medium entry, its team fixed the same vulnerability seven months ago. The post also notes that they avoided making a responsible disclosure to the Monero team earlier because of Monero’s “long history of toxic behaviour towards security researchers.”

Furthermore, the post also claims that when discussing the exploit in the Ryo public channel, the author of the post accidentally disclosed another vulnerability, concluding that “Monero might want to get that one patched too.” When asked whether they knew anything about such a bug, the Monero representative answered by saying “you would have to ask the author of the article.” Ryo has not returned Cointelegraph’s request for comment as of press time.

Previous Monero bugs and cryptojacking problems

Monero, being an open-source project, tends to collaborate with its community members to tackle security breaches. Thus, in September 2018, Monero developers successfully eliminated at least two bugs that were reported on its subreddit page.

First, there was a burning bug, which Monero promptly fixed and notified “as many exchanges, services and merchants as possible,” to apply the new patch. Secondly, the XMR community reported that the Mega Chrome extension was compromised, leading to its quick removal from the Chrome webstore.

Further, Monero’s privacy features have made it popular among cryptojackers. Thus, last year, more than 526,000 computers were reportedly infected with a cryptocurrency botnet malware called Smominru, which allowed hackers to mine more than $2 million worth of XMR.

In February 2019, tech corporation Microsoft removed eight Windows 10 applications from its official app store after cybersecurity firm Symantec identified the presence of hidden XMR coin mining code. The firm’s analysis identified the strain of mining malware enclosed in the apps as being the web browser-based Coinhive XMR mining code. Later that month, Coinhive announced it will stop all its operations on March 8, saying that the project is not “economically viable anymore.”

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#DeleteCoinbase: Exchange Users Respond to Acquisition of a Firm Run by Former Spyware Developers

Coinbase had acquired Neutrino, a startup run by ex-Hacking Team members.

Last week, Coinbase announced that it had acquired Neutrino, a blockchain intelligence startup, which at first seemed like a regular purchase for the ever-growing United States cryptocurrency exchange.

However, soon the crypto community learned that Neurino’s key staff are directly affiliated with Hacking Team, a controversial information technology outfit that sells offensive surveillance capabilities to governments, law enforcement agencies and corporations across the world.

A hashtag #DeleteCoinbase has been launched as a result, prompting users to cut ties with the platform. However, some clients have since reported that they are struggling to delete their accounts.

Neutrino’s key staff have been involved with Hacking Team, the Italy-based controversial outfit

On Feb. 19, Coinbase reported acquiring the Italy-based firm Neutrino to improve safety and boost its Anti Money-Laundering (AML) and Know Your Customer (KYC) measures. The accompanying statement read:

“By analyzing data on public blockchains, Neutrino will help us prevent theft of funds from peoples’ accounts, investigate ransomware attacks, and identify bad actors. It will also help us bring more cryptocurrencies and features to more people while helping ensure compliance with local laws and regulations.”

Neutrino was founded in 2016 by Giancarlo Russo, Marco Valleri (also known as “NaGa”) and Alberto Ornaghi (also known as “ALoR”). All of them are directly related to Hacking Team.

First, in 2001, ALoR and NaGa created Ettercap, a “comprehensive suite for man-in-the-middle attacks.” The program has since been widely used for intercepting traffic, capturing passwords and eavesdropping, becoming “the Swiss army knife” for remote hacking.

Eventually, ALoR and NaGA were allegedly contacted by the Milan police department, who asked the developers to create a Windows driver that would enable them to monitor Skype calls. To put such cooperation on a larger scale, in 2003, ALoR and NaGa founded Hacking Team, a commercial hacking software company. As of now, the company’s technology is “used daily to fight crime in six continents,” as per its website.

According to Russo’s LinkedIn profile, he joined the company in 2009 as its chief financial officer, later becoming its chief operating officer.

In 2015, Hacking Team was hacked, and 500 GB of client files, contracts, financial documents and internal emails were leaked online. At the time, the company was reportedly selling its spyware to countries including Ethiopia, Morocco, the United Arab Emirates and the U.S. — with the Drug Enforcement Administration and Federal Bureau of Investigation among its customers — according to a Motherboard investigation. Following the security breach, Hacking Team purportedly lost some of its key clients.

Notably, Hacking Team’s software has reportedly been used by authoritarian governments to spy on journalists and activists. For instance, according to Motherboard, the firm has been involved in hacking UAE human rights activist Ahmed Mansoor, who was then detained and sentenced to 10 years in prison.

In May 2016, Russo, Valleri (NaGa) and Ornaghi (ALoR) founded Neutrino. The company took a somewhat similar course, albeit on the field of cryptocurrencies. Thus, its key product, XFlow nSpect, has been designed “specifically for Law Enforcement agencies,” representing a “comprehensive solution for monitoring, analyzing and tracking cryptocurrency flows across multiple blockchains,” the website states.

In 2017, Neutrino tracked funds associated with the ransomware hackers known as WannaCry and concluded that they converted their Bitcoin (BTC) into Monero (XMR), a privacy-oriented cryptocurrency, via Switzerland-based crypto exchange ShapeShift.

Community and Coinbase reaction

Soon after Coinbase announced its acquisition, crypto community members started to point out that Neutrino was founded by Hacking Team’s former employees. For instance, Amber Baldet, co-founder and CEO of the startup Clovyr and former lead at JPMorgan Chase‘s Blockchain Center of Excellence (BCOE), tweeted:

“When I said it would be great to have more infosec people involved in the ‘crypto’ space, I didn’t mean the largest US exchange should acquire an analysis tools company run by a former Hacking Team member, but here we are.”

Around Feb. 20, crypto community members kicked off the hashtag #DeleteCoinbase, which has amassed hundreds of tweets as of press time.

Interestingly, Coinbase has commented on the issue, admitting that they knew about Neutrino’s roots. By Feb. 26, the exchange’s spokesperson told Motherboard that his firm “does not condone nor will it defend the actions of Hacking Team,” adding:

“We are aware that Neutrino’s co-founders previously worked at Hacking Team, which we reviewed as part of our security, technical, and hiring diligence.”

The Coinbase representative further explained that Neutrino’s technology basically seemed too good to be ignored:

“Increasingly, third-party blockchain analysis companies are requesting customer data from cryptocurrency companies that they serve. It was important for Coinbase to bring this function in-house to fully control and protect our customers’ data and Neutrino’s technology was the best we encountered in the space to achieve this goal.”

Further problems: Users struggling to delete their accounts

While the number of people who have actually deleted their Coinbase accounts during the #DeleteCoinbase campaign is unknown at the moment, some users have reported having technical problems with deactivation.

Many of those complaints revolve around the fact that in order to close a Coinbase account, a user is required to have a zero balance. Therefore, those users who have “dust” — tiny amounts of cryptocurrencies left from previous transactions — in their accounts are allegedly unable to send it to an external wallet, because the amount is too small to send. As a Coinbase spokesperson explained to Motherboard, those limits have been introduced to “ensure the fees incurred when sending money over the blockchain are covered.”

That issue has prompted Coinbase users to start yet another hashtag, #DeleteCoinbaseTrustChain. Essentially, it helps the exchange’s clients to coordinate and exchange dust in order to close their accounts. The hashtag was initiated by independent developer Udi Wertheimer and resembles a play on #LnTrustChain, a hashtag used by crypto enthusiasts who send small portions of their funds via the Lightning Network trustchain. Wertheimer said:

“I hope that this message makes Coinbase understand that a press release won’t fix this. They need to disassociate themselves from Hacking Team if they have any hope of earning people’s trust again. I don’t know if this can happen, so the alternative is that people at least know about it and get to decide for themselves.”

Moreover, some users claim that they can’t close their accounts even if their balance is free of dust. For instance, Singapore-based Twitter user Saifuddin Jalil argues that his Coinbase account has had no funds “for a more than a year,” but he still can’t close it down. He has allegedly contacted Coinbase support and asked them to delete his private information, to which the exchange replied that they won’t be able to complete his request within 30 days of receipt due to its “complexity.” Similar difficulties were reported by other users.

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EOS Community Is Challenged After Node Announces Financial Rewards for Votes

EOS’ governance model has attracted another round of criticism.

This week, the EOS blockchain protocol angered decentralization proponents yet another time. Specifically, Starteos, one of EOS’ officially sanctioned Block Producers (BPs), appeared to publically offer its token holders financial rewards in return for their votes.

Starteos’ vote-buying tendencies seem to fall in line with previous scandals centring around EOS: This year, the blockchain protocol reversed previously confirmed transactions and started an internal investigation after Huobi, its other BP, was accused of running a corruption scheme, among other things.  

Brief introduction to EOS and its key features

EOS.io is a blockchain-powered smart contracts protocol for the development, hosting and execution of decentralized applications (DApps). It was launched in June 2018 as open-source software, while the first testnets and the original white paper emerged earlier in 2017. The platform was developed by block.one, a startup registered in the Cayman Islands and lead by Daniel Larimer and Brendan Blumer.

EOS has raised the most funds during its Initial Coin Offering (ICO): The startup managed to gather around $4.1 billion worth of investments, after fundraising for nearly a year. That number remains unmatched to date.

The protocol is supported by the native cryptocurrency, EOS — currently the sixth largest crypto by total market cap. Those tokens can be staked for using network resources either for personal use or leased out for developer-use — basically, EOS.io attempts to represent a decentralized alternative to cloud hosting services.

EOS employs a consensus model called delegated proof-of-stake (DPoS). Essentially, that means that its investors are rewarded with voting power and decide who gets to mine the EOS blockchain.

Hence, the EOS ecosystem rests upon at least two major entities: the EOS Core Arbitration Forum (ECAF) — effectively its ‘judicial branch’ — and BPs, who produce blocks on the EOS blockchain — just like miners do within the Bitcoin (BTC) blockchain.

BPs earn EOS tokens produced by inflation — according to some estimations, top EOS BPs obtain around 1,000 tokens per day. They are elected through the constant voting process, and their number is capped at 21 — consequently, the top is fluid by design, and BP candidates who earn enough votes can replace the BPs in power at any minute.

Starteos: Major BP’s explicit vote buying

Starteos is a startup based in Chengdu, China. According to its website, the company “entered blockchain industry [sic]” in 2013.  This year, Starteos has reportedly issued at least two products: the self-titled digital wallet and ‘Memory Box,’ a “one-tap access” cold-storage wallet. Currently, Starteos is the fourth-largest BP, as per eosnetworkmonitor data, meaning that it gets a large portion of the BP revenue.

On Nov. 27, Starteos published a Medium post titled “We Gonna Share BP Proceeds With You — This Is the Way We Warm You Up in This ‘Winter’!” In it, the startup team claimed that “after delegating Starteos.io as proxy, you could get continuous and stable EOS revenue.”

“The ‘winter’ of cryptocurrencies has come. How much faith do you left to have [sic]?” the post reads, continuing:

“Now, Starteos is still gonna stay with YOU, our most important and best friends! And we [are] gonna share the proceeds with you and make [it] through the difficulties together.”

Further, the Chinese startup outlines an instruction on how to claim the benefits: After selecting Starteos as a proxy, users can pick “stable income,” “mining” revenue mode or the “random revenue” mode, where they play “Lucky Fruit Slots Machine” with game tokens to get “EOS revenue.”

Explicit vote buying seems to contradict decentralized and democratic blockchain policies advocated by the EOS administration and the project’s original white paper. Its co-founder and  chief technology officer, Daniel Larimer, wrote soon after EOS mainnet went live:

“EOS is fundamentally different from other governments and blockchain communities in that its community wishes to operate at the highest possible ethical standard of voluntary consent and non-violence.”

More specifically, Starteos’ winter promotional campaign seems to violate Article IV of the current EOS constitution titled “No Vote Buying,” which states the following:

“No Member shall offer nor accept anything of value in exchange for a vote of any type, nor shall any Member unduly influence the vote of another.”

Community reaction: Calls for unvoting, constitutional reform

Expectedly, the crypto community, which traditionally values decentralization, was not happy about an EOS BP openly buying votes.

On Nov. 8, weeks before Starteos published a Medium post explicitly describing how users can claim some of the revenue, EOS investor Maple Leaf Capital pointed out that Starteos was launching a slot machine DApp, where users allegedly could set Starteos as a voting proxy to obtain in-game tokens. According to the original article describing the DApp, the rewards to the gamers would come directly from games.eos’s BP reward, which, in turn, is owned by Starteos.

“It may not be bad-intentioned, but it looks awfully close to transferring block-producing reward value to its voters, with a thin veil of gamification & probability attached to it. This could set a bad precedence and deserves some debate.”

Later, on Nov. 29, the investor announced it would discontinue voting for Starteos, arguing that “swapping block reward for votes in gaming form is detrimental to the long-term economic value for the EOS.”

Steemit user theawakenment stresses that games.eos is holding a paid position, being ranked at the 66th position (game.eos has since moved up to the 50th place). He wrote an open letter after failing to receive a response from the Starteos administration:

“If other BPs copy what Starteos is doing and launch a second or third BP themselves, we will soon end up with the large BPs being owned and run by the same handful of owners.”

After the letter was published, a Starteos representative reportedly did message him:

“[They] admitted to creating the games.eos account and admitted to ‘collaborating’ with games.eos, but they told me they had different owners, which does not match up with what they have stated on their website.”

Australia-based crypto persona Crypto Tim, who covers mostly EOS-related news, published a video titled “EOS BP Starteos Are Vote Buying,” which gathered some commentary from the community on Reddit and YouTube. On Twitter, he called for Starteos “to be removed as a Block Producer.”

Some of the BPs have expressed their views on vote buying as well, albeit without directly mentioning Starteos. On Nov. 27, EOS New York, which is currently the eighth largest BP, wrote that “the EOS constitution is simply not good enough and we deserve a clear document that outlines our basic system of governance,” and then shared their proposal. After being asked in the comment section whether the document features any restrictions on vote buying, EOS New York stated, “There are not. We have it now and we have BPs violating it. No point.”

Moreover, Starteos has reportedly been unvoted by at least one BP, Bulgaria-based EOS Titan. Nevertheless, Starteos continues to hold the third/fourth positions in the BP ranking, which suggests that it is still largely supported by other BPs. The list of Starteos supporters can be monitored via a resource powered by EOS Titan — according to their data, Starteos’ largest ally is Huobi, which has been previously accused of running a mutual voting rig.

Source: EOS Titan

Price drop

The EOS vote-buying scandal has correlated with the token’s massive price drop. While it followed an overall bearish market trend, the losses EOS/USD experienced were more significant comparing to other top coins. EOS is trading at $2.36 as of press time, down around 25 percent over the past seven days.

Source: coin360.io

Previous signs of centralization in the EOS protocol

EOS’ model of governance has attracted controversy before: Just a few weeks ago, in November, a screenshot showing an ECAF moderator reversing transactions — which had already been confirmed — was posted on Reddit and gathered hundreds of comments.

According to Reddit user u/auti9003, a dispute allegedly involving a phished EOS account was referred to one of the platform’s “arbitrators” Ben Gates, who decided to reverse transactions that happened without the owner’s permission. This, the user noted, involved undoing transactions which had already received network confirmations.

That move outraged decentralization maximalists, as Reddit responses mostly claimed that EOS had failed to prove its use case versus other, more traditional centralized structures.

“Why would anyone use this over a bank account and traditional legal system?” the most popular comment read, adding:

“These guys raised [$4 billion] to recreate the legal system using a token that is neither censorship-resistant, nor immutable.”

Moreover, in early October, allegations arose accusing the platform’s major BPs — including Chinese crypto exchange Huobi — of “mutual voting” and “collusion.”

Essentially, an alleged leaked Huobi spreadsheet suggested that main EOS nodes were involved in mutual voting along with payoffs to remain in power of the EOS blockchain and keep their profits. Interestingly, Starteos was also listed in the document.

Soon after, Block.one — the developer of EOS — published a statement, saying it was “aware of some unverified claims regarding irregular block producer voting, and the subsequent denials of those claims.” Nevertheless, there was no further update on the matter, while Huobi remains EOS’ top BP as of press time.

Further, in June, another scandal occurred when EOS BPs overrode an ECAF decision and froze seven accounts associated with phishing scams after the arbitration body failed to promptly come up with a response. The ECAF later retroactively ordered the accounts frozen, but the BP conference call-based decision caused some to question EOS’ decentralized system, and to label the move as “power abuse.”

Less than a week after, another ECAF order to stop processing transactions involving 27 more addresses surfaced. Interestingly, it lacked any explanation for blocking the addresses, promising to do so on a later date.

That attracted another round of harsh criticism from the crypto crowd, and, after an apparent fake ECAF order began to circulate on social media several days later, some BPs — notably EOS New York — announced that they would suspend execution of any such orders, as they couldn’t tell if they were legitimate. Yet again, the ECAF and BPs struggled to coordinate their action, and that many decisions on EOS blockchain were handled by centralized entities.

On Nov. 1, more criticism of EOS’ governance model arrived, as blockchain testing company Whiteblock published results of “the first independent benchmark testing of the EOS software.” Essentially, the investigation came to several conclusions about EOS, the most bold of which was that “EOS is not a blockchain,” but “rather a distributed, homogeneous database management system” because its transactions were reportedly “not cryptographically validated.”

Additionally, the research results showed inaccuracies in performance claims. In July, EOS CTO Daniel Larimer tweeted that EOS was performing 2,351 transactions per second (TPS) — Ethereum, for comparison, can process around 15. The Whiteblock report, however, showed that with “real-world conditions” of round-trip latency and 0.01 percent packet loss, EOS performance was below 50 TPS, “putting the system in close proximity to the performance that exists in Ethereum.” The investigation concluded that “the foundation of the EOS system is built on a flawed model that is not truly decentralized.”

Similarly, a report published by Hong Kong-based peer-to-peer cryptocurrency exchange BitMex in late November suggested that EOS resembled a “distributed database system” rather than a blockchain-powered network. The document is no longer available for unknown reasons, but has been covered by various media outlets before going offline.

Still, EOS’ Daniel Larimer has previously confirmed that his company does not aim to be decentralized. In an interview with YouTube blog “Colin Talks Crypto,” which aired on Oct. 3, Larimer clarified his vision:

“Decentralization isn’t what we’re after. What we’re after is anti-censorship and robustness against being shut down.”

Cointelegraph has reached out to various Block.one representatives as well as Starteos for further comment, but none of them have replied to date.