Premium Daily Crypto NewsletterFebruary 24, 2019
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Mav's Daily Commentary
Coin Spotlight: Nano
Nano quite simply an impressive blend of cryptography and mathematics put into practice as a functional digital currency. Nano distinguishes itself from other cryptocurrency competitors by utilising a Directed Acyclic Graph (DAG) algorithm and block lattice structure which boil down to be an extremely lightweight, fee-less, massively scalable and near-instant vehicle for transaction of value. It is one of the simplest implementations of a cryptocurrency in the space with none of the complexities of smart contracts, shards or child chains.
The original paper was published in December 2014 which makes Nano (then Raiblocks) one of the original DAG based cryptocurrencies. The total supply of 133,248,286 coins were distributed via a onetime use faucet with people solving Captchas and rewarded with a small amount XRB. This is a noteworthy contrast the plethora of ICO projects and substantially improves the chance of Nano being seen as a commodity/currency in the traditional sense, much like Ethereum and Bitcoin.
The Nano project aims to resolve a number of key issues identified with the Bitcoin network:
- Poor scalability of the base layer
- Slow transaction times
- Variable and expensive transaction fees
- Heavy data requirements to store the full ledger
- Significant power consumption through mining for maintaining the network
The nano architecture
Nano utilises three key innovations to solve these issues:
- DAG architecture – a concept in mathematics where vertices in the transaction flow utilise information of their predecessor to track the order of operations, in Nano’s case the latest account balance.
- Block Lattice where each address on the Nano network has its own blockchain which is an ordered sequence of Send and Receive transactions.
- Proof of Work performed on the account owners device upon sending or receiving a transaction coupled with Balance weighted voting representatives for conflict/double spend resolution.
There are effectively three transaction type on the Nano chain
- Opening Transaction – always the first transaction and is effectively a receiving transaction
- Receiving Transactions – are confirmed when the account owner accesses their wallet. Until a receipt is confirmed it remains as a pending transaction and will control the order of subsequent blocks on the account chain.
- Sending Transaction – intuitively the opposite of a receiving transaction.
When a Nano transaction occurs, the resulting balance is written into the preceding block. This means that for each and every transaction, only reference to the previous block is required to ensure the account has sufficient balance. This also enables ledger pruning which results in an extremely lightweight data footprint.
Figure 1 – Visualisation of the Nano block lattice Sourced from Hackernoon. Recommend checking this page out to get an idea how the Nano protocol works.
Nano’s architecture for consensus, security and conflict detection is also a relatively unique approach utilising a combination of PoW and DPoS:
- The local device re-caches a PoW hash for the next transaction allows transactions to be near-instant and acts as a barrier preventing spam attack rather than a mining mechanism.
- Each account nominates a representative node (defaults to the Developer team) who’s overall voting weight is the sum of all account balances who have nominated the representative.
- In the instance a conflicting block is detected (such as a double spend), the network will seek consensus from the representative nodes who observe and vote on the validity of the block with their voting weight.
- This system is effectively an innocent until proven guilty approach (Bitcoin is the opposite with every Tx validated by every full node). This substantially reduces the network overhead and allows for instant transactions and a high degree of scalability.
Challenges and Risks
- There have been concerns raised over the potential for centralisation (one account with > 51% of coins) and susceptibility to a Denial of Service (DDOS) spam attack given the minor PoW energy required to pre-hash transactions. The Red4Sec report also highlights this and proposes some solutions such as increasing the PoW requirements and switching from UDP to TCP protocol for Tx broadcasting. One such risk is the significant voting weight of exchanges with Binance which currently holds over 25% of the network votes.
- The incentive model for operating a Nano node is unclear as in a fee-less system, no transaction fees are present to incentivise node operations. The cost of running a Nano node is miniscule ($3/month) and it is claimed that the primary incentive is for people and merchants to run a node to replace Tx costs currently employed by the likes of banks, Visa and Mastercard. This would require adoption of Nano as a currency so in reality, the number of nodes will be a function of adoption and acceptance as a form of payment.
- The unfortunate BitGrail hack in early 2018 resulted in the theft of 17Million Nano coins, a whopping 12.7% of the total supply. This was a significant blow to the reputation of Nano even though investigation has concluded the Nano team and code were not at fault, instead the blame placed on BitGrail’s security and hot storage methodology. The biggest criticism against Nano comes from the time taken to fully disclose the magnitude of the theft.
- Nano draws many parallels to Bitcoin as a pure cryptocurrency. The most significant of which is the maximum supply limit of 133,248,286 coins. This makes Nano a pure deflationary currency where coins can only be lost leading to theoretical appreciation in value.
- The faucet distribution model and resulting decentralisation greatly reduces the risk of Nano being deemed an unregistered security and it is most likely to be treated as a commodity, currency or property, much the same as Bitcoin and Ethereum.
- There is no question that Nano resolves many issues of cryptocurrencies, namely
- Energy consumption (Nano Tx = 0.001kWh compared to Bitcoin 330kWh)
- Decentralisation of a large scale given the faucet distribution method, low cost of running a node and unlikely event of node centralisation due to economies of scale
- A recent security audit of the Nano protocol was completed by Red4Sec with the full report released in December 2018. The audit found no vulnerabilities in the Nano protocol and was claimed to be the most secure protocol Red4Sec has ever audited, quite impressive.
- The Nano development is lead by Colin LeMahieu who has proven to be a competent and talented software engineer. Nano has one of the most consistently active GitHubs with a continuous stream of updates and improvements. For those looking for an awesome visualization of the Nano software development, check out this video.
- Nano is actually a micro currency with 1 Nano comprising 1024 Raw units. With the massive scalability and zero transaction fees – Nano is an optimum contender for the machine economy of micro payments and direct competition to IOTA. The actual number of Nano units in the total supply is 133,248,290,000,000,000,000,000,000,000,000,000,000 nano! A great comparison between IOTA and Nano in this article.
Figure 2: Overview of the lightweight Nano code base sourced from this video
Nano is one of the most promising projects in the pure cryptocurrency space. It does one thing and it does it extremely well. It’s deflationary monetary policy is desirable and its ability to function as a rapid and frictionless tool for transaction of value is arguably second to none.
Nano provides a genuinely unique alternative to the ultimate competitor which is Bitcoin. I hope to see developments in the user adoption, marketing and accessibility space but overall, Nano has as strong a case for survival as any altcoin in my eyes.
Author is a pure pessimist, I give little weight to this argument – https://medium.com/@qertoip/it-seems-to-only-cost-3m-to-kill-nano-raiblocks-37d78a4e96ca
Mav’s new class on STOs is described in this video and is available at readysetcrypto.com/sto.
A new episode of the ReadySetCrypto Podcast has been published; all of our episodes are posted on our blog (and on iTunes) and Episode Twenty-One is now available. Episode Twenty-One is Doc’s interview with Lior Gantz of Wealth Research Group about the state of the markets and methods on how to protect your wealth. 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!
Doc's Daily Commentary
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Offense – Adding Trades
Offensive Actions for the next trading day:
- We’re still waiting for the Bear to play out, in the meantime there are some short-term swings setting up nearly every day on certain alt-coins.
- Per Doc’s 2/24 video he is establishing a small “fixed-risk” long position on Goldcoin, GLD/BTC. This will be a long-term investment meant as a hedge.
Defense – Managing Risk
Defensive Actions for the next trading day:
RSC Managed Crypto Fund
How to read this portfolio: Please read through the FAQ tab
- ETH/USD 2% added 8/10/2018 @ $363.14
- ETH/USD 2% added 9/9/2018 @ $200.50 (10% more to add)
- LTC/USD 2% added 8/10/2018 @ $62.56. (5% more to add)
- XMR/BTC 2% added 9/21/2018 @ .018BTC
- BTC/USD 2% added 11/7/2018 @ $6501
- XLM/BTC 2% added 11/19/2018 @.00004389BTC
- XEM/BTC 2% added 11/27/2018 @.00001901BTC
What is the RSC Managed Cryptocurrency Fund?: We have one goal: To beat the market. To do this, we aim to balance risk vs. reward. Additionally, we aim to enter positions advantageously and in small increments, not all at once. As such, the pie chart you see above is representative of our “expected” portfolio, but will likely not match our “actual” portfolio. Why don’t you just buy into every position at once?: We aim to not only beat the market, but do so in a way that allows us greater leverage than simply buying in all at once. To do this, we will DCA into our positions to lower the average buy-in, and allow us greater yield from our initial capital seed. This also allows you the flexibility to follow our documented moves or immediately buy in when you want. We expect this will help you follow along easier as our moves are more deliberate. By setting targets for allocation, you know exactly how we intend to diversify our portfolio. Why are you only targeting large caps? Where is ____ coin?: We are targeting large market capitalization coins regardless of our belief in their viability as this enables us to diversify our risk and improve our chances of staying positive. We can hedge our bets by creating a fund that incorporates all of the major assets yet distinguishes between them based on the allocation. For example, we allocated more to Ethereum over its competitors as we feel it has more built-in longevity given its status as the default ICO platform. Of course, that can change, and as such we will be periodically rebalancing this fund as we redetermine viability and yield. Can I invest in this fund / can you manage my funds?: Not at this time. We are looking for ways to legally tokenize a fund such as this, but at this time no avenue exists for US citizens. Will we be adding small caps / ICOs?: It is likely we will be starting a separate fund dedicated solely to small caps / ICOs. We feel that the market simply isn’t showing favorable risk / reward signs for us to be trading them right now, but that will likely change soon. Why was the previous portfolio discontinued?: We felt it wasn’t correctly connecting with our customers as we started it in late 2017 and even during the 2018 bear market we were still very profitable. The same could not be said for customers who joined us during the bear market and tried to replicate our portfolio. Simply put: we wanted a portfolio that was easier to follow along with and less risky for our customers while still aiming for profitability.
RSC Altcoin-Exclusive Crypto Fund
Technical Analysis Research
I believe that the recent price action to the upside is just counter-trend to the larger weekly bear flag; this is all part of a necessary process of bottoming.
My beta for the Digitex Futures platform will be live soon; expect to hear more as I know it.
Doc will be attending The TradersExpo in NYC March 10-12 – see you there!
In August we introduced a new “fund” project that we’ll be creating over the next few months, in piecemeal form. I will be slowly and methodically creating a “fund” with (currently) 23 assets that we will do “live” or at least very plainly indicate where we intend to enter portions of assets. As long as the market continues grinding down in a bear, we will use sentiment-based entries to hopefully secure a better entry. All that I saw were bear flags tonight; we are close to some good entries on coins showing positive divergence on the RSI. Going forward into the end of this year my plan is to do a LOT more swing trading; what would really help is a decent derivatives exchange. I am looking for big things from Digitex in this regard, which will be a commission-free futures platform however all trades must be made in DGTX as the base currency. Put yourself on the waitlist for this platform by clicking here. I have started to acquire DGTX tokens at Mercatox in anticipation of them turning up their platform, and this looks to be a good candidate for a pump prior to the production event. Here are the recent swings that we’re tracking in the portfolio below; :
- DGB/BTC – long @ .00000608 (7/23). My target exit is .000008BTC.
- WTC/BTC – Long @ .00155980BTC (4/23). My target exit is at .002BTC.
- ADA/BTC – Long @ .00003931BTC (5/1) My target exit is at .00005BTC.
- ONT/BTC – long @ .0008905 (5/20) My target is .0013BTC.
- ETP/BTC – long @ .000522BTC (9/21) My target is .00072BTC
- ZIL/BTC – long @ 641satoshis (1/16) My target is 750 sats.
Please keep in mind that if you want to follow these trades, I am using FIXED RISK POSITION SIZING. This means that I am using a fixed amount of risk capital that is based on my account size, like 2%. I am assuming that the trade will burn to the ground and that I will lose that entire capital position! Only in this manner can one effectively manage a position the way that you have to. If you’ve every checked your blockfolio nervously every 5 minutes when you’re underwater, this will prevent that. I will track these positions in this area and not in the main portfolio section. I will use a public portfolio tool to do so, which you can access by clicking below:
If you go to buy any of our courses at our online “store” you can receive $10 off the street price with your member’s “coupon code” of member18crypto..
We’ve started to do some swing trades on alts, tracked in the previous section. I am mostly focusing on the top 10-20 coins for now until we confirm that we’re back into an overall bull market.
I am doing the majority of my Technical Analysis work on TradingView, and I have a BitFinex app on both my iPad and Android smartphone. All of these charting platforms call a TradingView API. TradingView is the 800 lb. gorilla in the Crypto charting space until the “established” players want to make a go at Crypto, like Ninjatrader, Tradestation, eSignal, Sierra charts, etc. My sense is that TradingView has such a head start that it will be very difficult for the big boys to make a dent in this space for a while. Until that point, TradingView has almost a monopoly in this space. If you have a particular tool that you think is superior, please let me know. You can access the BitFinex and TradingView platforms for free, however there are some paid features that you might want to consider depending on your needs, such as expanded watchlists, different study sets, account alerts, etc.
Coinigy is a great tool for determining prices on each exchange, however I may not have access to the full suite of tools on TradingView charts. I am currently not using it as a front-end GUI for my exchanges, which it supports.I also use Blockfolio and/or Delta to give me a quick snapshot of my holdings, and find that it does an excellent job to aggregate all of my holdings into one easy-to-read snapshot of my cryptocurrencies, which are typically located in many different places.
I am also trialing the Profit Trailer and CryptoHopper trading apps which are working well in this choppy market.
Fundamental Currency Research
We’ll focus in-depth on a coin you should consider, and talk about the fundamentals of what makes it interesting. This is not a “ this is the next big crypto” article or “reasons why you should buy”. We’re simply laying it down with hype, speculation, and other nonsense.
Today’s RSC Coin Spotlight is the 0x Protocol (ZRX):
No doubt you’ve heard about ZRX in the past several weeks since its listing on Coinbase on October 11, 2018. But you may be asking yourself: What is ZRX? And What gives it value?
ZRX is the governance token of the 0x Protocol, a standard for trustlessly trading ERC20 and ERC721 tokens. 0x Protocol allows users to trade tokens right from their wallets in either OTC trades or through a decentralized exchange otherwise known as a relayer.
0x protocol uses an approach they refer to as off-chain order relay with on-chain settlement. In this approach, cryptographically signed orders are broadcast off of the blockchain through any arbitrary communication channel an interested counterparty may fill the order by submitting one or more of these signed orders into 0x protocol’s Exchange contract to execute and settle trades directly to the blockchain.
The project ICO’d in August 2017 for $24,000,000. On August 2, 2017, iFinex Inc. (BVI), the company that owns Bitfinex, announced it would launch Ethfinex, an Ethereum-based trading and discussion platform that would utilize the 0x Protocol. Several other prominent relayers rose in the 0x ecosystem such as DDEX, Radar Relay, and Paradex.
On May 23rd, Coinbase announced it had acquired Paradex, a decentralized exchange that uses 0x. At the time of the Paradex acquisition, Cointelegraph reported,
“Coinbase will integrate the Paradex relay platform into Coinbase Pro which, according their blog post, will let customers trade ‘hundreds of tokens directly from their wallets.’ This would markedly expand the types of cryptocurrencies to which customers will have access through Coinbase. The blog post states that the new service will be made available to customers outside the US before eventually being offered to American clients.”
This acquisition led many in the crypto community to speculate that Coinbase would list ZRX and sure enough it was listed on Coinbase on October 11, 2018. The ZRX community eagerly awaits Coinbase Pro “Trustless” which could see the listing of many ERC20 tokens. Coinbase’s recent announcement of USDC, an ERC20 backed by USD, may be used in trading pairs on Coinbase’s new trustless service.
0x protocol relayers have a lot of flexibility on how they collect and relay the orders they interact with. Relayers can choose whether to have open or closed liquidity pools. Relayers can be private or open.
They can even be dark relayers which allows big players to transact outside of the eyes of the public by obfuscating their orderbooks and provide just-in-time quotes for crypto assets to emulate the experience of using a dark liquidity pool.
But 0x goes far beyond decentralized exchanges. The liquidity pools that relayers create can be beneficial to any number of projects in the Ethereum ecosystem. 0x allows developers a flexible approach to offering their users liquidity for their tokens.
Any DApp looking to accept multiple tokens as payment methods could tap into 0x’s orderbooks for the liquidity to convert the payment into the token of their choice.
For example, Since 0x can handle ERC721 tokens, two players of the ERC721-based card game Gods Unchained can trade cards with one another. Gods Unchained is going to utilize 0x to create an in-app exchange where players can trustlessly trade ERC721 cards with one another. https://godsunchained.com/
Developers see the value in a protocol like 0x and several major projects in the Ethereum ecosystem are integrating the 0x protocol as a vital function of their code.
District0x (DNT) is one of these projects. According to their website, District0x is a network of decentralized markets and communities known as districts that solves a number of coordination issues and inefficiencies commonly found within distributed community marketplaces.
This is accomplished by providing tools that can better align incentives and decision making among the market participants themselves.
The end goal is to create a self sustaining ecosystem that can flourish without the need for a central authority. Districts exist on top of a modular framework of Ethereum smart contracts and frontend libraries referred to as d0xINFRA.
District0x embedded their 0xprotocol into their districts on the district0x Network, giving users the ability to pay and receive payment in the ERC20 or ERC721 token of their choice.
Simlar to the ZRX token, DNT is used to govern District0x. As their FAQ puts it:
“The district0x token holders themselves decide whether a district is good or bad for the network through the District Registry, an incentivized voting game that dictates access to the network. Whether a district is good or bad not only applies in terms of the quality of the marketplace, but also prevents against districts that are deemed immoral or threatening to the entire network by DNT holders. This will be entirely up to the DNT token holders to decide.”
Like many people you may be asking yourself: “Where is the value in governing these protocols? Where is my money?” These are valid questions that honestly no one has the answer to yet. Like many aspects of crypto, these investments are speculatory.
One concern many have raised in the ZRX community is: What stops someone from forking the 0xprotocol in the case of a dispute? While it is true that a relayer who wanted to could fork away from the rest of the 0xprotocol but they would also suffer the consequences of disconnecting from everyone else in that pool of liquidity.
Similar arguments have been made for open-source software in the past and it usually boils down to the same concept that gives these open-source projects value: network effect. It’s hard to copy and paste Ethereum because it is the Ethereum network that has value not strictly the technology.
0xprotocol can be viewed in a similar light. Yes, you could fork the protocol but the value in ZRX is the network of users and application built on top of the protocol itself. District0x and relayers are a prime example of this. Any project that tried to duplicate ZRX would need to attract all of the protocol network’s users as well.
As the cryptocurrency space keeps evolving, we’re going to see users and developers take the path of least resistance. Why make my own operating system when I can use one someone else wrote? Why make my own network protocol for computers when I can use TCP/IP to connect to the internet?
Why make my own cryptocurrency network when I can build on Ethereum or Stellar? This line thinking logically progresses into: Why make my own liquidity when I can tap into a network like ZRX? Why make my own marketplace when I can use District0x?
This interweaving of utility protocols is going to create a strong fabric for ecommerce in the age of Web 3.0. Just like ZRX, District0x benefits from developers building off of their framework. These developers must place a refundable deposit of DNT to become a district creating a symbiotic relationship.
District0x provides a standard framework for any marketplace system with a reputation like Ebay or even Amazon.
One example of the districts on the District0x network is the RedLightDistrict created in partnership with Spankchain. They sell, as you might have guessed, adult content from performers on Spankchain’s network. District0x’s framework provides the RedLightDistrict with the ability to have buyer and seller reputations, an issue interface for performers to sell digital content, and seamless payments via the ZRX protocol.
The decentralized finance ecosystem grows with each new strand woven into its fabric; We are seeing more and more Dapps in the Ethereum space being built on top of or interwoven with other Dapps or protocols. District0x is just one of the threads interwoven with ZRX.
dYdX protocol is building another important product that integrates with ZRX relayers. dYdX is a protocol for short selling and derivatives built on the Ethereum blockchain. dYdX provides decentralized peer-to-peer shorting, lending, and options trading of any Ethereum based token. dYdX allows decentralized exchanges to offer sophisicated financial tools similar to centralized exchanges but in a completely trustless way. https://medium.com/dydxderivatives/introducing-dydx-2d0f0f326fd
Dharma protocol is another great example. Dharma is a protocol for issuing, underwriting, and administering debt agreements as tradeable cryptographic tokens built on top of, you guessed it, the 0x protocol. https://dharma.io/
Overall, 0x is certainly a project doing big things, and will certainly be one of the more successful projects you should keep your eye on heading into next year.
More resources on 0x:
2017- 2018Q2 Portfolio (Discontinued)
How to read this portfolio: Please click on the Chart Key tab above for definitions and color codes. The colors correspond to our 7 categories in the graphic below.