“Extinction Level Event”

Markets Continue To Bleed As Sell Pressure Grows

The reckoning is upon us.

Nearly every major cryptocurrency, except for Bitcoin, is down 80% or more from their all time high.

Ethereum, which heralded the recent wave of interest in cryptocurrency and the explosion of ICOs, has fallen hard with the revelation that many of those ICOs were scams and frauds.

Some are even calling this revelation of scam ICOs the Mt.Gox of ETH.

What people are forgetting is that Ethereum is not a business. If its value drops 90%, that means something very different than if Amazon or Apple’s stock were to fall 90%. Ethereum is a protocol.

Ethereum’s price means exactly what the market intrinsically wants or does not want.

If people are more accepting of risk, then risky assets go up in price. If people are more accepting of speculation, then they might be more open to investing in non-traditional investment vehicles, such as ICOs.

As such, Ethereum is not to blame anymore than the Internet is to blame for malicious activities.

It is extremely cheap to build and launch a DApp on the Ethereum network. It is not like the App Store where there are safeguards and manual checks and the arbitration of middlemen services. Anyone can use Ethereum because it is open to everyone.

That freedom is both extremely rewarding and exciting as well as extremely easy to take advantage of.

This freedom is inherent in this market as well. The crypto market is a hyper market that changes sentiment in minutes and is easily pushed around by market forces that are nearly impossible to predict.

We’ve known about scam ICOs for a long time. People have lost money due to exit scams and “hacks” and other malicious activities since ICOs got off the ground.

None of this is new, and yet the panic is all the same.

Meanwhile the Bitcoin shorts continue to pile on. We’re almost at the highest amount of BTC shorts we’ve ever seen.

Think back to when you first heard about people who were Bitcoin millionaires. Do you think they got there by always buying the top?

No, they put their interests before what everyone else was saying and bought into a “worthless” and “dying” asset.

People are calling today an “extinction-level event” that will wipe out 90% of the market.

And yet, where do you think we’ll be in 5 years? Do you think the price will be higher or lower than it is today?

How about 10 years? Or 15 years?

If today really is the beginning of the end, then maybe those who are jumping on the bearish bandwagon are right and you should get out while you’re 80% down.

Or maybe the technology hasn’t changed. Maybe this is a hypermarket predicated on speculation, manipulation, and fear of change.

Maybe you have an opportunity today won’t exist in five years.

Maybe cryptocurrency isn’t dead and people like to speak in hyperbole to exacerbate their ulterior motives.

Maybe guys like Vitalik Buterin, the founder of Ethereum, doesn’t care about the price of his protocol, not business, and he’s still figuring out ways to make Ethereum’s consensus faster and more efficient.

And he is.

The paper Vitalik published on his website “ A Guide to 99% Fault-Tolerant Consensus” proposes a new kind of consensus algorithm that requires just 1% of nodes to be “honest”.

“We’ve heard for a long time that it’s possible to achieve consensus with 50% fault tolerance in a synchronous network where messages broadcasted by any honest node are guaranteed to be received by all other honest nodes within some known time period (if an attacker has more than 50%, they can perform a “51% attack”, and there’s an analogue of this for an algorithm of this type)”.

“ But did you know that if you add even more assumptions (specifically, you require observers, i.e. users that are not actively participating in the consensus but care about its output, to also be actively watching the consensus, and not just downloading its output after the fact), you can increase fault tolerance all the way to 99%?”

Without going into too many specifics, Vitalik’s proposition is different than most consensus mechanisms that we use today. Blockchain algorithms typically focus on the validators, usually the miners, and what they’re doing.

Vitalik’s proposition is that if there was an independent observer, you could make sure messages are sent that are consistent with honest nodes on the network. These are known as chained signatures, and he goes on to talk about them:

“Notice that the algorithm uses the act of adding one’s own signature as a kind of “bump” on the timeout of a message, and it’s this ability that guarantees that if one honest node saw a message on time, they can ensure that everyone else sees the message on time as well, as the definition of “on time” increments by more than network latency with every added signature.”

It’s more or less a game of “telephone” where an honest node can be sure they sure the same message that other nodes did.

This is not a new schema, and he frequently cites a 1982 publication, but what’s interesting is this publication is 99% fault tolerant, a stark contrast to today’s blockchain mechanisms that can be compromised with a 51% attack.

So what’s the takeaway here if you don’t care about deep algorithms and theoretical use cases?

That price and the market itself isn’t going to prevent crypto and blockchain from evolving and innovators from making new discoveries.

Even if there’s a “reckoning” for 90% of cryptocurrencies, the 10% that survive are the ones we should be focusing on.

If you were not able to join us for the recent webinar “Ten Steps to Building Your Portfolio” webinar, the replay is available here.

We’ve started to produce episodes for The ReadySetCrypto Podcast; all of our episodes are posted on our blog (and on iTunes) and episode eight is now available. Episode Eight is an interview with Andrei Polgar, the author of the book “Age of Anomaly” which speaks to anticipating negative market events. Look for more episodes shortly as we comb the crypto space for valuable interviews, and create valuable content to keep you in the loop!

See you tomorrow!

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Defensive Actions for the next trading day: 

• None.