After a recent network upgrade, nodes separated from the bitcoin SV blockchain, highlighting why hard forks prompt much infighting among devs.
Bitcoin bull Max Keiser says Bitcoin dominance is heading to 80%, and investors would be wise to leave altcoins.
Bitcoin maximalist and former Wall Street trader Max Keiser has recently claimed that Bitcoin (BTC) dominance is heading to 80% and that altcoins are dying, further urging the public to rotate out of other crypto assets and into BTC.
Keiser announced his latest views in a Twitter post on Aug. 6:
“#Bitcoin dominance 68.2% — heading to 80% — as alts die in favor of BTC. The 2014-2017 era of alts and hard forks is dead. Don’t be the last to rotate out of alts into BTC.”
According to data provided by Coin360’s summary table, BTC is sitting at a dominance of around 69.2% at press time, as its market cap is $210,422,145,970 out of a total $303,923,701,331.
In regards to Keiser claim that altcoins are dying, recent analysis from the San Francisco Open Exchange (SFOX) suggests that perhaps this is compatible with Ether (ETH) continuing to thrive. In the SFOX report, the author wrote that BTC has a much larger correlation with ETH than other altcoins, further arguing:
“This may support the idea that Ethereum is coming into its own as a blockchain that is publicly recognized as an asset on its own terms, much like Bitcoin. If this trend continues, it may become inappropriate to categorize Ethereum as an ‘altcoin’ on a par with other cryptoassets that are not Bitcoin.”
Another prediction from Max the maximalist
As previously reported by Cointelegraph, Keiser made a bullish BTC price prediction on Aug. 3. Keiser also addressed his audience on Twitter, claiming that he believes BTC will cross $15,000 this week. Keiser wrote:
“I’m sensing #Bitcoin will cross $15,000 this week. Confidence in central governments, central banks, and centralized, fiat money is at a multi-decade low.”
While perhaps not agreeing with Keiser’s claim that the public’s confidence centralized governments and financial institutions are at an all time low, Circle CEO Allaire similarly commented that geopolitical conflict boosts BTC growth:
“You can very clearly see some macro correlation there. I think the broader theme of, you know, Bitcoin specifically, crypto more broadly participating in these global macro forces is becoming more and more clear. Rising nationalism, rising amounts of currency conflict, trade wars, these all obviously are supportive of a non-sovereign, highly secure digital store of value.”
The Bitcoin SV network saw a three-chain split after a massive 210 MB block was mined after the hard fork on July 24.
As reported by BitMEX Research on Aug. 3, Bitcoin SV nodes divided into three groups on Saturday, making the network to split into three separate chains. According to the report, 65% of nodes were located on the current tip, while 17% were stuck on the 210 MB block and 19% had not even upgraded and were on the old pre-hard fork chain.
Bitcoin SV node chart. Source: Twitter
According to data from Coin Dance, the 210 MB block was mined on Aug. 3 by CoinGeek miner and involved 808,633 transactions.
Bitcoin SV, a hard fork of Bitcoin Cash (BCH), which is in turn a fork of the major cryptocurrency Bitcoin (BTC), successfully ran its own scheduled hard fork on July 24 as part of plans to increase its block size from the previously set limit of 128 MB up to 2 gigabytes.
Bitcoin SV nodes are getting expensive
Prior to the three-chain split, Ryan X. Charles, a BSV supporter and CEO of BSV-powered payment system MoneyButton, published a post on the Money Button blog about his issues running a BSV node. Specifically, Charles stated that Money Button went down for three hours because their Bitcoin SV node ran out of memory and crashed during a stress test. He wrote:
“Running a node is expensive. Our new instance will cost thousands of dollars per month to operate. As blocks continue to get larger and we have to upgrade the instance many times, this cost will balloon. Since we do not earn money from transaction fees like miners, it will be too expensive for us to run a node.”
According to tech news outlet TrustNodes, Coin Dance service is now on the new Bitcoin SV chain, while the older chain will likely be discarded. According to the report, this could mean that miners who got stuck on the old chain may have lost some money as those blocks could now be discarded. The report notes that, while the recent split appears to be the first of its kind, giga-sized blocks may generate splits with more than three forks.
Bitcoin SV has previously experienced problems due to what some consider to be an unwieldy blockchain size. In April, the coin’s blockchain underwent a series of block reorganizations — a situation in which two miners discover a block simultaneously in a blockchain, which causes a temporary forking in the network. In general, block reorganization happens when a network is too slow to reproduce blocks efficiently.
Bitcoin SV successfully performed a hard fork today, amid confusion over the scheduled fork time.
Bitcoin SV (BSV) successfully increased its block size limit today amid confusion regarding the scheduled fork time.
According to a BitMEX Research tweet on July 24, Bitcoin SV was expected to fork at 2 p.m. UTC today, but the website of the BSV-promoting Bitcoin Association claimed that the upgrade was scheduled for 1 p.m. GMT (1 p.m. UTC). The reason why the exchange’s research arm expected the fork to happen on 2 p.m. UTC is that the code of the network upgrade itself defined the fork time to be at that time.
Furthermore, BitMEX closely followed the fork implementation and publicly broadcast the status of two nodes, only one of them updated, on its website ForkMonitor. Sixteen blocks after 2 p.m. UTC, Bitcoin SV mined a block bigger than the previously set limit of 128 megabytes.
The block, at 145.7 megabytes, confirmed the successful fork as the node which has not been updated fell out of sync with the rest of the blockchain, causing a benign chain split. At press time, BSV is seemingly following overall downward market movement, losing over 3% over the last 24 hours according to Coin360 data.
As Cointelegraph reported in June, more than 98% of transactions on the Bitcoin SV blockchain in a 30-day period were used for writing data from a weather app.
Bitcoin has staged a significant recovery from the 2018 bear market price decline, but altcoins continue to slide even lower.
Bitcoin (BTC) has more than tripled in 2019, moving from under $4,000 at the start of the year and then topping out at a little under $14,000 in June. In the earlier part of 2019, altcoins seemed to be performing strongly, with many calling the trend “altseason.”
However, since Bitcoin began its 2019 charge starting with the “April Fool’s day rally,” most altcoins seem to be slipping when compared to the top-ranked cryptocurrency. There is now a growing debate about whether the altcoin market will experience the same massive price gains seen in Bitcoin during this current bullish cycle. Within this expanding debate, there are several viewpoints. Some say Bitcoin’s dominance will continue to increase while altcoins continually lose ground. Others posit that previous cycles have seen altcoin rallies coming after bullish fatigue sets in for Bitcoin.
Bitcoin dominance chart as percentage of total market capitalization
Whether altseason returns or not, the only point for consonance appears to be the idea that the current bull cycle could have profound ramifications for the still infant market. Several commentators say cryptos are becoming a more mature asset class, which could lead to wider adoption.
Bitcoin vs. altcoins: The altcoin bubble argument
In late 2017, the cryptocurrency market arguably captured attention in the financial sector and beyond. Bitcoin rose to almost eclipse the $20,000 price mark while altcoins also posted all-time highs. The following year, many cryptocurrencies saw these gains virtually wiped out as the market endured a prolonged bear decline. The average price dip across the board was more than 80%.
Many analytical autopsies of the 2017 bull run converge at the conclusion that the sharp price gains were likely fuelled by hype-driven mania for cryptos as a new asset class. Retail investors struck with a fear of missing out (FOMO) rushed to put money into any and all crypto tokens in the hopes of becoming early backers of the “next Bitcoin.”
This FOMO-driven hype occasioned by the initial coin offering (ICO) boom also generated sufficient tailwind for Bitcoin to reach its all-time price high in mid-December 2017. ICO tokens generated a lot of buzz for the altcoin market as well. While the 2018 bear market did not discriminate in its wipeout of the 2017 price gains, the 2019 recovery hasn’t been as widespread across the market. To get a clearer picture of the situation, consider the following comparison by Twitter user and cryptocurrency analyst StopAndDecrypt:
Bitcoin SV (BSV), the result of the 2018 Bitcoin Cash hash war, has plummeted by more than 40% since the chain split.
While BTC is almost triple its price since the 2017 hard fork, Ether (ETH) has made approximately zero percentage gains within that period.
Altcoins are also down by more than 80% since the peak of altseason.
There is also another means by which to observe Bitcoin’s increasing dominance over altcoin species. This method requires using the BTC price as the baseline for measuring altcoin price-performance within a specific time period, and the results appear even more dire for altcoins.
Take the ETH/BTC pair, for example, which is down to its lowest ratio. Take United States dollar valuations away and the altcoin performance becomes a tale of declining value.
Twitter user and Blockstream developer named Grubles, tweeting on Monday (July 16, 2019), delivered a damning indictment on altcoin value proposition, declaring:
“’Altseason’ was just a flash in the pan caused by Bitcoin miners delaying a protocol upgrade and massively profiting from altcoin mining. We’re now returning to 2013 where alts are effectively unused bad jokes like BBQCoin or PPCoin.”
Altseason and the concept of value in a maturing digital asset space
It is mid-2019 and there are hardly any updates from the ICO projects that raised millions of dollars back in 2017. The story for many of these startups can be distilled into the following points.
Riding on the “cryptomania” hype of 2017, promising a blockchain-based infrastructure that will solve a particular problem — both real and contrived.
Raising millions of dollars from a token sale that most probably was an illegal sale of unregulated securities.
Hiring employees to build the blockchain-based project that ultimately failed to materialize even after extensive marketing runs.
Getting clobbered by the 2018 bear market that rendered their tokens worthless.
Quietly exiting the scene, hoping that no one would notice.
In a private correspondence with Cointelegraph, John Meyer, a managing partner at Starship Capital, provided some commentary on the evolving value proposition narrative in the emerging altcoin landscape stating:
“Most altcoins provide little-to-no tangible value or real-world use. Expect these altcoins to evaporate in short order. However, there is tremendous user-driven momentum in cryptocurrencies that are providing real-world utility on blockchains with tangible value on key industries around the world.”
For crypto bulls like John McAfee, the altcoin market isn’t dead in the water and the current price slide only represents an opportunity for savvy investors to reap the rewards of another altcoin boom having earned returns from Bitcoin’s bullish advance.
McAfee’s bullish altcoin forecasts appear tilted toward privacy coins and medical coins. In multiple tweets published in 2019 alone, the cybersecurity expert and crypto loudmouth has predicted a coming resurgence in the price of these altcoin variants before the end of 2019.
As previously reported by Cointelegraph, global blockchain penetration in the health care sector is expected to reach $1.7 billion by 2026, based on findings released by Acumen Research and Consulting.
McAfee even clashed with veteran trader Peter Brandt earlier in July 2019 on the issue of altcoins regaining a foothold in the market. At the time, Brandt sounded a literal death knell for altcoins, but McAfee disagreed in a tweet, saying:
“@PeterLBrandt says altcoins are done. His knowledge is Stone Age. Bitcoin will forever be a store of value, but each transaction allows both parties to see inside their wallets ever after. If banks did this you would scream. Privacy coins don’t have this flaw. Just one example.”
Tom Lee of Fundstrat Global Advisors also shares similar sentiments with McAfee, stating on multiple occasions that altseason will make a reappearance once BTC reaches a new all-time high. Many of these positive predictions for altcoins appear rooted in historical precedents. However, there is a growing consensus within the industry that the market has evolved since the last bull run in 2017.
In an email to Cointelegraph, Igor Chugunov, CEO of Credits — a blockchain startup that focuses on decentralized apps (DApps) development — argued that altseason will return, commenting:
“The bubble didn’t burst, it is better to say that it is just starting to inflate. The formation of the fundamental components of the cryptocurrency ecosystem is underway, the ICO era and the time when cryptocurrency could be considered as a tool for quick earnings have passed. I can say with confidence that the altcoin season will begin together with the adoption of technology, it is the technology that will determine the future liquidity of the market of altcoins and the general vector of market development. The future season of altcoins won’t cover the whole list of altcoins, it will be related to the coins that present definite value for space.”
Is the fated “cryptocalypse” at hand?
Holding BTC over the last 365 days (as at press time) would mean a 62% gain. However, for the top-10 altcoins in mid-July 2019, the situation is the polar opposite. Of these top-10 altcoins from a year ago, only Litecoin (LTC) has a percentage decline below 50%. Iota suffered the most, dropping more than 80% during the period. Others such as XRP, ETH and BCH have fallen by 58%, 68% and 75% respectively.
Litecoin’s mild decline is due to its strong performance for most of the year thus far. As far as top-10 altcoin price gains go for 2019, LTC has repeatedly been at the top. During its period of positive price performance, some analysts pointed to the upcoming block reward halving event as the key driver.
There have been numerous comparisons drawn between the cryptocurrency scene and the dot-com era of the 1990s and early 2000s. Apart from the potentially paradigm-altering potential of cryptos, some analysts have also drawn another likely commonality between the two eras — the crash of the market.
Often times, there is the talk of a coming crypto apocalypse that would eliminate from existence many of the over 2,000 altcoin species around today. The aftermath would be similar to the period of the post-dot-com bubble, which saw the rise of the internet giants known across the globe in this present time. Brandt encapsulated this argument in a tweet published at the back end of June 2019, saying:
“Many altcoins benefited from the last bull run in $BTC. Cryptomaniancs expect alts to do so again — they may be very disappointed. 2000 .com bubble is analog. Following 2001-02 tech collapse, dotcoms with real value exploded. The ‘alt’ .coms went bankrupt.”
Whether judgment day is at hand for altcoins remains a matter of debate, but there are some projects already showing disturbing signs. A report by blockchain data analytics firm Coinmetrics, for example, showed that a weather app was responsible for about 96% of the total transactions on the Bitcoin SV blockchain.
During the 2018 bear market, commentators like Xapo President Ted Rogers expressed the belief that the price downturn could be the beginning of a mass extinction event for altcoins. For Rogers, as many as 90% of all altcoin variants stood the risk of becoming nonexistent.
Rogers isn’t alone in this belief, as Barry Silbert of Digital Currency Group and Bitwise Asset Management’s Matt Hougan have also espoused similar sentiments. As reported by Cointelegraph in mid-February 2019, Silbert predicted that most altcoins “will go to zero,” while declaring Bitcoin to the premier cryptocurrency. Also in February 2019, Cointelegraph reported Hougan saying that 95% of all cryptocurrencies will die.
The cryptocurrency exchange Binance has successfully hardforked its mainnet to version v.0.6.0: Galileo.
Major cryptocurrency exchange Binance has completed an upgrade to its mainnet. The latest iteration is called Galileo — v.0.6.0 — as announced by Binance on July 15.
According to the announcement, there are four major changes implemented in Galileo: the matching engine has been revised with “Taker” and “Maker” matching logic, trading pairs on Binances decentralized exchange, Binance DEX, can be delisted, Binance Chain token assets can now be time-locked and state sync options have been enhanced.
For Binance DEX, validators can now reportedly make a proposal to vote on delisting trading pairs for reasons such as low volume of use. This could, Binance suggests, improve overall liquidity.
Time-locking tokens is also a new feature that is reportedly sought by a number of projects looking to list their crypto assets. As fully explained in the initial BEP-9 proposal — and echoed in the Galileo announcement — businesses sometimes like to use time-locked tokens as a means of securing commitment from founders, or for collateral:
“Some business plans decide to lock certain amount tokens for pre-defined periods of time, and only vest in the future according to the schedules. For example, some projects may lock some allocation of the issued tokens as a commitment by the founding team; some business scenarios also need to lock some tokens as collateral for value.”
According to Binance’s full rundown of Galileo, the latest mainnet is a hardfork of its previous version. This means Galileo required at least two-thirds consensus from validators in order to successfully upgrade from the previous version.
As previously reported by Cointelegraph, Binance recently released its margin trading platform on July 11. Binance co-founder Yi He said that margin trading is “one of the most requested services from our community.” Crypto assets for margin trading options will reportedly include Bitcoin (BTC), Ether (ETH), XRP, Binance Coin (BNB), Tron (TRX), and Tether (USDT).
Tether’s influence is high despite numerous controversies, but it may pose a threat to the crypto asset market…
There is perhaps no other crypto asset more subject to scrutiny and accusations of impropriety than the Tether stablecoin. The startup behind the coin has been blamed for market manipulation while its business dealings and accounting practices have stirred up many concerns. Critics argue that Tether lacks transparency, possibly engages in criminal activity and does not have the financial backing that it claims.
These accusations are somewhat vindicated by the current case by the New York Attorney General (NYAG) against the business and its owner, iFinex, which is also the owner of the Bitfinex cryptocurrency exchange. Potentially adding fuel to this, which Cointelegraph has covered in detail, was the news that Bitfinex has recently repaid $100 million to Tether that the exchange took as a loan. Simultaneously, over the past 18 months, several alternative stablecoins have emerged — and seemingly with far stronger fundamentals. Despite this, Tether remains the dominant stablecoin. So, why does Tether continue to be successful in light of the threat it allegedly presents to the industry?
There is an abundance of stablecoins available on the market. Each one comes with its respective trade-offs and is competing based on several variables. The most important of these are liquidity, volatility, security, trust, transparency, legality, censorship-resistance and privacy. Tether lacks several of these, according to various sources and experts.
The main accusation leveled at Tether is that it does not have the United States dollars backing the outstanding number of Tether tokens (USDT) on the market. Detractors believe that the stablecoin is operating on a fractional reserve basis, whereby it only holds a fraction of the dollars that it should in order to back the currency 1:1 with USD. This accusation has been partly vindicated. Tether recently disclosed that, while it still has 100% of the reserves needed, it is not 1:1 collateralized with fiat currency — let alone 1:1 with USD. Problematically, the true extent of Tether’s collateralization can only be unveiled through a physical audit by a reputable third party.
Tether has had a dogged past with auditors, however. In January 2018, Friedman LLP abruptly ended its audit after initially being hired in response to community concerns. Tether subsequently responded, laying the blame with Friedman for its “excruciatingly detailed procedures.” The company expanded, saying that, due to this complexity, the audit could not be finished in a “reasonable time frame.” These rather opaque explanations did little to alleviate concerns.
Prior to this, Friedman had confirmed that Tether did have the required USD balances, although it did not disclose where these funds were held and explicitly stated that it could not guarantee that it was not being used for other purposes.
Reliance on the banking system
The repeated issues surrounding a satisfactory audit have been further compounded by Tether’s banking relationships. Tether is reliant on the traditional banking system to hold its reserve assets. On account of the 1:1 peg, Tether should be using full-reserve banking, where none of the collateral is lent out. Since the birth of fractional reserve banking, full-reserve banks are now quite rare. As such, Tether has a limited number of banks that can deliver the required services. Added to this problem is that most banks are wary of serving a business that is both in the crypto space and is subject to so much controversy.
The project has had a chequered history with banks. Its relationship with the Puerto Rican-based Noble Bank came to an end in October 2018, and it has since changed partners multiple times. Defenders of the company have claimed that, by disclosing its banking information, it would make the bank subject to intense scrutiny and investigation by regulators, and likely result in the termination of any relationship.
This is indeed a compelling argument, as Tether seems to be involved in a catch-22 situation. By failing to disclose its banking situation, it fuels concerns and conspiracies. Conversely, in being transparent, it runs the high risk of losing its banking support as well as undermining the security and stability of the cryptocurrency.
Tether’s reserves and banking relationships, while concerning enough, have been scrutinized far more on account of the business’s overall lack of transparency. It has long been speculated that both Tether and iFinex were one and the same. This was confirmed by the leak of the Paradise Papers in November 2017, which showed that the chief financial officer and the chief security officer of Bitfinex were also senior partners of Tether.
According to Bitfinex’s and Tether’s websites, Tether’s CEO, J.L. van der Velde, its CFO, Giancarlo Devasini and its General Counsel, Stuart Hoegner all currently hold the exact same positions at Bitfinex. While it appears clear that the same top management controls both businesses, it is less clear which company takes precedence in terms of decision-making. The NYAG’s case against iFinex, as well as the inferred profitability of each project, would imply that iFinex is at the top of the hierarchy, in which Tether and Bitfinex are most likely branches of iFinex. The fact that these disclosures were forced — rather than a voluntary decision — raises questions as to why iFinex’s leadership wanted to conceal this dynamic.
Until recently, all the suspicions and allegations surrounding Tether had little authority. That was until the New York Attorney General unveiled its case against the project, including accusations of commingling funds and abandoning the 1:1 USD to USDT peg.
The NYAG has stated that Bitfinex lost $850 million in funds and covertly attempted to plug the loss with funds from Tether. The judge presiding over the case claimed that Tether essentially undermined the entire validity of the stablecoin by the admission that it no longer maintains its 1:1 peg. The case has forced Tether to admit that the coin has only been backed by 74% of the reserves it should be. Furthermore, it has been revealed that this 74% includes assets other than USD and even includes a small amount of Bitcoin (BTC). By using Bitcoin in its reserves, Tether undermined of its collateralization, given that the coin is intended to be used as a hedge against the volatility of crypto assets.
It does, however, appear that iFinex is trying to amend these problems. Just this week, Bitfinex announced that it had prematurely repaid $100 million of an outstanding loan to Tether. Notwithstanding this recent announcement, the case by the NYAG has legitimized many of the claims critics have had over the past few years. There is no underestimating how important this case is, according to founder of Weiss Ratings Juan Villaverde, who told Cointelegraph:
“It has confirmed every suspicion we’ve had with USDT for some time now. Namely that the stablecoin isn’t backed 100% by USD and other fiat currencies. It also confirmed this money was being lent out to third parties for a profit, and even that part of the funds was used at times to buy crypto assets such as Bitcoin. All of these things already seemed obvious to us, but we had no hard evidence. Now, the NYAG has exposed all of these practices to the public at large.”
Waiting for a punch?
Tether is centralized in almost every part of its system. The company is subject to government action, as are its fiat reserves — so long as they are held in banks. Furthermore, while many assume that the Tether currency itself is decentralized, the company has shown that it can reverse transactions and force hard forks.
Of course, the above criticism is equally applicable to the majority of other stablecoins. However, it does not undermine the validity of the threat to USDT holders. Given the current legal problems the company is facing, compounded by the concerns of solvency and trustworthiness, Tether is a far larger target for law enforcement than its other centralized competitors.
Conversely, decentralized stablecoins — such as DAI and Reserve — are in a position to capitalize on this weakness and offer a much more robust option in the true censorship-resistant spirit of crypto assets. Nevin Freeman from Reserve, in an interview with Cointelegraph, highlighted the current problem:
“Right now, centralized stablecoins like USDT, USDC, TUSD, and so on are handling the need for stability in crypto. Decentralized stablecoins like Dai and Reserve aren’t really needed. But when the centralized coins start getting more restricted or all-out shut-down, decentralized stablecoins will be much more important. Libra is another instance of a centralized asset-backed coin. As long as governments allow it, it will be great. But if they decide to shut it off, they can do that.”
The response from governments to the announcement of the Facebook-promoted Libra stablecoin is a testament to this threat. Libra is not particularly different from Tether. The sheer size and power of Facebook right now appear to be the only factors making it a target. These recent responses highlight that it is only the relatively small size of Tether that is guarding it against a full-on conflict with regulators.
In contrast to Tether’s many deficiencies, there are a plethora of stablecoin competitors with multiple advantages.
Virtually all competing stablecoins can boast superior transparency to Tether. Projects such as USD Coin (USDC), True USD (TUSD) and Paxos Standard (PAX) have clear records of their management and contact details and in the case of USDC, for instance, are involved with major legacy institutions like Goldman Sachs. Communications are frequent, complaints are responded to and operations are conducted in a highly professional manner.
This transparency crucially extends to the collateralization and backing of the coins. Consider USDC, which conducts frequent audits with a reputable firm, Grant Thornton LLP. Some stablecoins like PAX go a step further and segregate clients’ funds, ensuring a higher level of transparency and security, as Chad Cascarilla, CEO of PAX, told Cointelegraph:
“PAX offers customers a simple guarantee: their dollars are always there and always safe. We’ve made it easy for people to create or redeem PAX almost instantaneously without any fees, maximums or minimums. And we’ve done it as a regulated Trust company. As a custodian and fiduciary, our customers’ assets are their assets alone, held segregated and bankruptcy remote, which is different from all other stablecoins.”
Given the proven fragility of centralized infrastructure in the crypto ecosystem, as the countless exchange hacks have shown, the centralized framework of Tether provides greater risk. This risk is compounded by its link to Bitfinex. As shown, the exchange is more than happy to compensate its losses with Tether’s reserves. Most of the other stablecoins share much of the same problem, and there are still just a few decentralized stablecoins. However, decentralized stablecoins arguably present the ideal solution for the market, assuming they can scale, as well as provide the requisite liquidity and a high level of user experience. The benefits of such projects are undeniable, as Villaverde of Weiss, told Cointelegraph: “DAI, in particular, offers no counterparty risk as it’s based on algorithms rather than a centralized custodian model.”
Resilience of Tether
Despite the countless issues with Tether and the apparent advantages that its competitors can boast, the business still dominates the stablecoin market. The most recent data from Stablecoins War, a stablecoin data aggregation site, shows that Tether accounts for 97.5% of all stablecoin volume and 81.1% of the entire stablecoin market cap. The only real competitors with any significant volume are TUSD, USDC, and PAX, with only TUSD accounting for over 1% of total volume. This raises the question: Why?
Aside from compounding interest, there is perhaps no more powerful force in economics than a network effect. A network effect refers to the growing value of anything that is used by an increasing number of people. All crypto assets are subject to this force, and stablecoins are no exception.
Once a critical mass of users starts using an asset, usage tends to increase in an exponential or nonlinear manner. This is exactly what happened to Tether. Launched in 2014, Tether’s usage did not begin to explode until 2017. The project benefited from the growing bull run and the total lack of competition, becoming the single benefactor of all traders who wanted price stability.
Virtually all of Tether’s competitors emerged in 2018, by which point Tether had already sunken its teeth into the market. It is likely that, at this point, it will take something of immense force to unseat Tether’s dominance, such as a seizure of funds by an aggressive government agency or a serious breach of Tether’s OmniLayer.
Overall, the growing network effect has resulted in improving liquidity and reduced volatility, in turn making it more desirable for traders. The effect then becomes self-perpetuating, whereby the results fuels the original effect. This is the principal reason why, despite its numerous failings, Tether continues to dominate the market.
The company is augmenting its existing momentum by utilizing other blockchains aside from Bitcoin. Until recently, almost all of Tether operated on top of the Bitcoin blockchain via the Omni Layer. Aware of the congestion a serious bull run could place on Bitcoin, as happened in December 2017, the project is introducing support for EOS, Tron and the Lightning Network.
By transitioning toward blockchain agnosticism, Tether can cement its superiority and prevent Bitcoin congestion from hindering its success. Such a response is likely due to the increased pressure its competitors are applying. While the project might not be prepared to offer the level of transparency some might like, it hopes that this increased interoperability will compensate.
Impact on liquidity and volatility
Tether’s lead and network effect have allowed it to gain immense liquidity. Larger traders and institutions depend on high liquidity to move in and out of positions without experiencing slippage. As such, Tether is still the most attractive stablecoin for larger players, who do not require regulatory compliance or who are not worried about Tether’s other issues. The first mover advantage has proven invaluable, as Villaverde told Cointelegraph:
“The reason this asset has been so successful is none other than the fact it was the first. It’s inferior to its competitors in every other way, yet it maintains a solid lead over all other stablecoins.”
East Asian demand
The usage figures are heavily skewed by demand from East Asia. Indeed, competitors such as USDC, TUSD, and PAX have gained significant traction in the U.S. and other Western markets, but this adoption has been dwarfed by Tether’s popularity in the East. Crypto and global macro trader Alex Krüger told Cointelegraph that “Tether continues to dominate the stablecoin market due to demand from Asia.”
Research from Diar, a crypto asset newsletter, recently showed that Chinese exchanges are responsible for 60% of USDT trade volumes. While these exchanges have accounted for $10 billion in USDT trading so far in 2019, U.S. exchanges have accounted for just $450 million of this. The remaining volume has come from Binance and Bitfinex, both of which cater to East Asian clients. Diar stressed that these figures are accurate and do not represent fake volumes.
This dynamic is peculiar, given that Tether is denominated in USD. Perhaps part of the reason is its lack of oversight and opaqueness that may be attractive to Asian investors and traders wishing to avoid surveillance and action from their respective governments. This is further compounded by the absence of a highly liquid or viable stablecoin denominated in Chinese yuan, Japanese yen or Korean won.
Chinese and Hong Kong crises
Tether has also likely benefited in recent months from the escalating Sino-American trade war. The escalation of tariffs by the Trump administration has coincided with and arguably contributed to a worsening economic picture in China. Major players in the industry such as the founder of Digital Currency Group, Barry Silbert, and chief market analyst at ChiefMarkets, Naeem Aslam, previously told Cointelegraph that the escalating trade war is contributing to the current crypto bull run.
Simultaneously, the Hong Kong protests and implications of the proposed Chinese extradition treaty may have Hong Kong nationals weary. Kyle Bass has pointed out that the banking system in Hong Kongis nearly at 900% leverage. He believes that the potential fallout of these protests could and already is resulting in significant capital outflows. This could in turn trigger a banking crisis in the region, resulting in further outflows. It is quite possible that Hong Kong nationals are, in part, driving Tether volumes, as the stablecoin presents a way to purchase crypto assets without going through Know Your Customer (KYC)-compliant, fiat-to-crypto exchanges or over-the-counter (OTC) desks.
Crypto assets present one of the easiest methods to both hedge risk and get capital out of vulnerable and less liquid assets, such as real estate. Also, there is currently a near-total absence of stablecoins pegged to East Asian currencies.
Systemic risk to the market
The problems concerning Tether are now better understood and formalized than ever before, due to the NYAG case. Considering this, Tether has continued to grow stronger and plays a pivotal role in the markets. This fact also highlights the risk the business may present to the entire crypto sphere. We spoke to experts to gauge the risk they perceived from Tether. Mati Greenspan, a senior market analyst at eToro, told Cointelegraph, “My feeling is that each exchange already has a contingency plan to cope with any Tether related issues that may arise.” Villaverde largely agreed with this position, telling Cointelegraph:
“We do not think USDT represents a systemic risk to the crypto-asset space in the long term. Let’s not forget that the rally we’ve seen in Bitcoin accelerated around late April, precisely when the market was concerned about the sustainability of USDT as an asset class. The same thing happened in October when Bitcoin shot up by more than 10% intraday on fears that things are not as they seem when it comes to the Tether stablecoin. The bottom line here is that the market has already spoken on this issue: It’s telling us that, even when in doubt about the sustainability of USDT, the markets are liquid enough to absorb that capital flight.”
It seems fair to assume, given the cost otherwise, that the major exchanges are actively working to mitigate much of the threat that a Tether collapse might cause. The resilience will likely also be partly dependent on the ability of rival stablecoins to compensate.
We may not know the readiness of USDC, TUSD, PAX and others until the situation is forced upon them. However, it appears relatively simple for investors to exchange their USD for these major stablecoins. Notwithstanding KYC and Anti-Money Laundering tests, there is nothing preventing investors from adopting these coins. In a crisis situation, if Tether theoretically collapses in a matter of days, it would be a question of whether these projects have the systems — technical and otherwise — to support the huge inflows of fiat currency that would happen. Cascarilla from Paxos assured Cointelegraph that PAX could take up this slack quite easily, sayingt:
“Since launching PAX in September 2018, we’ve built up liquidity and are able to create and redeem PAX easily. Currently, more than $1 billion in PAX is transacted weekly, and there is nothing limiting our ability to be 10x that size.”
It is of course equally possible that such an event may simply result in a surge in Bitcoin prices, as Villaverde believes, whereby USDT holders prefer to simply trade for BTC rather than a less liquid stablecoin. He told Cointelegraph, “The money moves to Bitcoin and stays in crypto, regardless of any short-term fluctuations that may be experienced.”
Broken but undefeated?
It seems that there is evidence to say that Tether is a business with several major deficiencies, particularly in regard to its transparency, trust, legality and centralization. Regardless, the market clearly sees the benefits it offers in terms of liquidity, price stability and usability as outweighing the notable risks.
The evidence clearly shows that it is Tether’s longer history and resulting network effects that enables its continued supremacy among stablecoins. This runaway network effect, recently bolstered by East Asian demand, has lent the project the high levels of liquidity and low volatility that traders and investors desire.
At this stage, it appears something monumental will be needed to dethrone Tether. Whether that capacity can be absorbed by its competitors remains to be seen. However, in the short term, it is equally likely that Bitcoin and other major crypto assets would benefit from such a crisis. Perhaps rather than presenting a systemic risk to the markets, a Tether collapse may present yet more bullish momentum for the markets.
OCamlPro and Starchain Capital are not acting in users’ best interest, Tezos Commons executive director Shaun Belcher says.
Members of the community around decentralized platform Tezos have raised concerns about an alleged upcoming hard fork of its blockchain. The issue appeared in a blog post by Tezos Commons executive director Shaun Belcher on June 17.
Discussing what he described as evidence of collusion between two third-party entities, Belcher warned that the hard fork, planned for September, was an attempt to split Tezos user sentiment.
The parties involved are the management team of OCamlPro, a French programming language, and blockchain fund Starchain Capital, which Belcher intimates as mysterious.
“It’s worth remembering that anyone can fork the Tezos software, which is open source,” Belcher wrote. He added:
“The issue is not that they intend to fork Tezos, but the alleged manner in which OCamlPro leadership conducted itself, in bad faith, and misrepresentation of historical behavior to be in the best interest of the community.”
The dispute centers around several areas, including claims made by OCamlPro in correspondence with Starchain.
Its founder, Fabrisse Le Lessant, for instance, claims he mentored Tezos’ co-founder, Arthur Breitman.
“They did not create OCaml, Fabrice was not the ‘teacher’ of Tezos co-founder Arthur Breitman, and the main Tezos engineers who were originally at OCamlPro are now working at Nomadic Labs, not OCamlPro,” Belcher highlights.
The real issue stems from the apparent links between Le Lessant and Starchain, which appeared as a United States registered company just weeks ago.
Uploading copies of related documents, Belcher reinforced existing suspicions on social media that the entire hard fork was a calculated move.
“If any of these assumptions formed from these revelations are incorrect, we strongly urge Fabrice and others from OCamlPro to address these concerns,” he concluded.
Hard forks have succeeded in sparking community division in the past. Notably, the bitcoin cash (BCH) fork of the bitcoin (BTC) blockchain delivered two opposing forces which initially panicked markets in 2017.
BCH then itself hard forked in November 2018, creating an opposing faction within the user base while also sending ripples through BTC markets.
John McAfee’s crypto trading platform was immediately hit with a cloaked HOIC DOS attack following its launch.
Cryptocurrency enthusiast John McAfee’s crypto trading platform was immediately targeted by hackers with a denial of service (DOS) attack following its launch, according to an official Twitter post from McAfee on June 12.
According to the post, the web servers for the “McAfeeMagic” trading platform, were hit with a cloaked High Orbit Ion Cannon (HOIC) DOS attack. Cybersecurity website Imperva describes an HOIC DOS attack as stressing a network by “flooding target systems with junk HTTP GET and POST requests.”
However, McAffee tweeted the same day that the website was operational again. According to the same post, the McAfeeMagic trading platform allows users to trade on 8 crypto exchanges, shadow trade professional crypto traders, and make fiat-to-crypto conversions with an over-the-counter (OTC) desk.
John McAffee also intends to roll out his own “McAfee Freedom Coin” token this fall. McAfee describes his design for the coin as a scheme to make it only intrinsically valuable, with no value derived from any other asset:
“… It is not based on any commodity nor is it connected to the value or behavior of any external item or entity. The value of the coin will always be zero in relation to any other currency yet it’s natural market value is free, completely, to grow.”
As previously reported by Cointelegraph, the Ethereum network experienced serious issues due to DOS attacks back in 2016. Malicious users overloaded the network with transactions, causing the Ethereum network to introduce a hard fork in its blockchain to continue operating.
Privacy-centric cryptocurrency Grin is finalizing its timeline for its first-ever network hard fork.
Privacy-centric cryptocurrency Grin is finalizing its timeline for its first-ever network hard fork, according to a proposed timeline uploaded by Grin core developer Quentin Le Sceller to Github dev community forum Gitter on June 5.
Grin is a privacy coin that implements scalability- and privacy-focused Mimblewimble protocol — named after a fictional tongue-tying curse from the popular Harry Potter novels.
Mimblewimble is in part a variant of the cryptographic protocol known as Confidential Transactions, which allows for transactions to be obfuscated yet verifiable so as to achieve both heightened privacy and the prevention of double spending.
According to Le Sceller’s document, the activation block number for the forthcoming hark fork is 262,080, which is estimated to be hit on July 17.
The hard fork — the network’s first since its launch in mid-January of this year — is one of four system-wide upgrades scheduled for the first two years of the coin’s circulation. Each hard fork is set for every 262,080 blocks — roughly six month intervals.
The proposed timeline also includes a hard fork on Grin’s testnet, dubbed Floonet, on June 15, set at block height 216,000.
As part of its ASIC-resistance roadmap, Grin uses a strategy of frequent tweaking to one of its two proof-of-work algorithms. The imminent hard fork represents the first such tweak that aims to ensure the network remains resistant to mining that uses specialized hardware over the long term.
As previously reported, ASIC refers to mining hardware that uses application-specific integrated circuit chips, which are tailored to efficiently mine cryptocurrency based on a specific hashing algorithm.
Aside from this, the hard fork will include an upgrade designed to increase the Grin wallet’s flexibility and usability — specifically an improvement to its so-dubbed “bulletproof rewind scheme,” which will enable new kinds of wallets including multisig and watch-only wallets, which allow users to detect their outputs, but not spend them.
As recently reported, China-based blockchain platform Neo has just implemented a new iteration of its consensus algorithm on its mainnet. The new algorithm includes a procedure for reintegrating failed nodes back into the network, and also adds a “commit phase” of consensus, which alleviates forking issues by including a step that forces node assignment to new blocks.