Research and report

Josh Olszewicz,


25 Jan 2018 -


Ethereum, Opinion, Price Analysis

Ethereum (ETH) has continued to recover from the 47% pullback last week. The cryptocurrency's market capitalization currently stands at US$104 billion, with US$2.7 billion traded over the past 24 hours.Transactions per day and block times have both decreased this week, and the pending transaction pool is essentially zero at this time.


The popular cryptokitties Decentralized Application (dApp) had been driving much of the transaction increase throughout the end of 2017. Total auction sales of cryptokitties now account for US$19,215,092.24.

Many other dApps are coming online in 2018, which may increase transactions dramatically.




Block times have decreased thanks to a continued rise in hashrate, despite mining profitability declining significantly. As difficulty rises mining profitability will continue to decrease, given a constant number of transactions. With more dApps on the horizon, miners may be attracted by rising profitability this year.


While many factors influence mining profitability, such as price, block times, difficulty, block reward, and transaction fees, the end game for ETH will be a switch from Proof of Work mining to Proof of Stake.


This process is still in development, will occur through a series of hard forks, and will ultimately change the consensus algorithm with the release of Casper. The Casper testnet is currently up and running.




A variety of government bodies have also begun to experiment with cryptocurrencies, and the ETH protocol in particular.In an effort to combat hyperinflation, Venezuela will be issuing an oil-backed cryptocurrency, the Petro, within the next few days according to Information Minister Jorge Rodriguez. U.S. Senators Marco Rubio (R-FL) and Bob Menendez (D-NJ) blasted the plan, citing concerns over exploiting cryptocurrency for “nefarious purposes” which would “thwart the intent of U.S. imposed sanctions.

”State legislators in Virginia introduced a bill yesterday which looks to explore ways blockchains can improve “efficiency, cost savings, and cybersecurity.” A Chinese state-backed CryptoYuan is also rumored to be in development.Russia recently announced plans for a CryptoRuble. Ethereum’s creator, Vitalik Buterin, met with Vladimir Putin in June of last year.


The Canadian government is currently exploring possible use cases for bringing transparency to government funding with the ETH blockchain, while India joined the Ethereum Enterprise Alliance last year, which aims to nurture and enable further Ethereum based technologies.On the exchange side, ETH trading volume has been led by Bitcoin (BTC), the US Dollar (USD), and the Tether (USDT) trading markets.


South Korean Won (KRW) trading volume remains down sharply, likely due to regulatory constraints surrounding anonymous banking and trading accounts.



Technical Analysis

ETH has shown strong bullish momentum since breaking its multi-month ascending triangle consolidation in November. Trend continuation past the all time high, ~US$1400, can be analyzed with Fibonacci extensions, Ichimoku Cloud, and Exponential Moving Averages (EMAs).





On the weekly chart, since breaking the horizontal resistance at US$420, price has continued to push higher through several fib extensions. Should this trend continue, the next resistance level resides above US$1,500. The yearly pivots show resistance at US$1410 and US$1945 (not shown).


On the daily chart, the Ichimoku Cloud using singled settings (10/30/60/30) for quicker signals shows bullish continuation after a Kijun mean reversion. The psychological level of US$1,000 continues to hold. A bearish TK cross would indicate a long exit signal.


A long exit was previously indicated with a fractal stop violation at US$1,087 on January 16th.




Also on the daily chart, using Ichimoku Cloud with doubled settings (20/60/120/30) for more accurate signals shows a strong likelihood of bullish continuation due to multiple Kijun bounces.


A long entry is not explicitly warranted on this timeframe, if bids were not already placed on the Kijun.





On the four hour chart, a bullish reversal pattern, the Adam (V) and Eve (U), has formed with a descending volume profile. The pattern has a 1.618 fib extension and measured move of US$1,400 and US$1,558 respectively.

A previous inverted Adam and Eve brought price below US$800. Price has also bounced above the 200EMA while the 50EMA has remained above the 200EMA indicating bullish momentum.



The Ichimoku Cloud on the four hour chart is showing a potential long entry within the next few candles. Price currently remains in the Cloud, the TK cross is bearish, and the Cloud is also bearish. A long entry would occur when all three of these metrics flipped bullish.





On the one hour chart, the 50/200EMAs are indicating a potential bullish cross within the next few candles with price breaking the 200EMA, prompting a long entry. The previous break of the 200EMA and subsequent 50/200EMA cross indicating a short entry signal in a similar fashion.




Lastly, the Cloud on the one hour chart is also indicating a long entry signal within the next few candles. Price is above Cloud, TK cross is bullish, and Cloud is bearish. A long entry would occur when the Cloud flips bullish.


ConclusionETH continues to inch its way towards a PoS scaling solution. While several developments remain pending, the move remains inevitable. The year ahead will continue to be a trailblazing opportunity for governments around the world to enter the crypto foray, some of which are already taking an interest in the Ethereum platform.


Technicals indicate a higher timeframe mean reversion support test, with lower timeframes indicating several confluent long entry signals. Targets include the previous record high and resistance levels above US$1,500.


Further background information on the technical indicators discussed above can be found here.

Discover more deep insights and analytical cryptocurrency reports and charts form Brave New Coin here: https://bravenewcoin.com/news/ethereum-price-analysis-governments-turn-their-attention-to-blockchain...


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 Brady Dale  


"We look at ethereum like AOL or Myspace."That's how Mobius Network co-founder and CEO David Gobaud explains why his startup ran its initial coin offering (ICO) on the Stellar network instead of ethereum, the most popular blockchain for token sales.


The comment underscores the growing interest in some corners of the crypto community for faster and cheaper payment rails as ethereum, like bitcoin, struggles to scale.


Mobius announced Thursday that it has raised $39 million in the ICO — one of the larger recent token sales and the largest by far on the Stellar platform.


The company accepted only Stellar's native currency, lumens (XLM), in exchange for its own token, known as mobi.According to Mobius, the sale hit its $39 million hard cap after only two hours, selling 35 percent of the total 888 million mobi tokens.

Participants in the round included China's Angel Chain Capital, Nirvana Capital and WaltonChain, an internet of things (IoT) startup that is building devices to enable manufacturers and retailers to track supply chains, according to the firm's website.In addition to this backing, Gobaud emphasized that Mobius deployed its decentralized app (dapp) store alongside its ICO, saying it was important for the company to come out with live code early, to prove the project was real.


But what's perhaps most striking about the sale was the choice of blockchain.While latency or cost might not be a dealbreaker for some blockchain projects, they are for Mobius' use case. Its thesis is that traditional tech companies will soon want to integrate with cryptocurrencies and, eventually, a decentralized web.


Mobius' white paper compares the company's work to that of Stripe, the Silicon Valley darling that took integration of credit card payments down to a few lines of code (and incubated Stellar in its early days). Mobius aims to do the same thing for cryptocurrency payments and, down the line, for publishing data to trade on decentralized marketplaces.


So the company needed an IoT-friendly network that could handle large amounts of transactions and data quickly, with low or no fees.The goal is to "make it easy to connect every device, developer and data stream to the blockchain ecosystem," Gobaud said.

Yet while the vast majority of ICO-funded projects have been run on top of ethereum, using the ERC-20 standard, that blockchain has suffered from transaction backlogs and pendulum-like swings in fees.


Hence, after beginning its project on ethereum, Mobius switched to Stellar, the protocol created by Ripple co-founder Jed McCaleb. Like Ripple before it, Stellar was designed specifically for frictionless payments.

Trade-offs

Ethereum's scaling challenges have become acute in recent months. The issue moved Kik to announce that it would move its kin token off ethereum in December 2017.While the ethereum developers recognize and are working on the problem, the Mobius team couldn't wait for a scaling solution, Gobaud said."We were building our dapp store on ethereum and then we connected with Jed," he said adding:

"We realized there was no way that ethereum could handle our technology. It was too slow, too expensive and too insecure. ... We see all these other projects with these immense problems"

Gobaud highlighted the problems with safely deploying smart contracts. "They are Turing complete programs, but they are really hard to write," he said, pointing to the first and second multi-million-dollar ether losses on Parity.


Solidity was not a language built with security in mind, Gobaud argued.In Stellar, "we think we've uncovered this underutilized, really unknown technology," Gobaud said.


For example, Stellar supports multi-signature wallets at the protocol level, making custodianship much easier for developers.But Stellar has its downsides, Gobaud acknowledged. It's not Turing complete, for example, but Mobius is happy to make that trade-off in exchange for vastly faster and cheaper transactions.

What's next?

The white paper discusses a lot of use cases for the mobi token and its protocol, but the easiest one to explain is payments.For anyone who believes that cryptocurrency will become more and more appealing to online businesses, the company that makes transacting in crypto easy the fastest stands to recoup benefits with a long tail.

If Mobius can make accepting crypto payments a matter of adding a few lines of code, that would be compelling if online companies begin accepting cryptocurrency more widely.


Talking to Gobaud, though, payments seems more like a way to sell the traditional internet on blockchain integration.He's most excited about the market that will come when firms start posting their data to decentralized marketplaces, selling it via secure, live auctions he calls the "NASDAQ for data."Gobaud said:

"More advanced or technical users are really excited about the data marketplace because they are aware that getting data into blockchain ecosystem is really complicated."

Data generated on blockchain protocols is easy to verify because they are closed environments. But data from the real world can't be verified on a blockchain without help.


That's why Mobius is building a proof-of-stake oracle system, so that data streams with data from the real world can build up reputations as reliable sources over time. With the system, to put its data up for sale on the market, a company would have to prove it holds a certain amount of tokens.

If that marketplace catches on, the cost of staking should be more than paid for by revenue from selling data over time.


This could be anything from data about road conditions from a smart vehicle or local weather from a sensor on top of a commercial building.To reach the point where the decentralized web has a rich enough ecosystem to support these marketplaces, the team is also working to solve other small problems faced by developers on the way there.


For example, it built a universal login protocol, where a website can verify that a device holds a token to let its user log on to a service. Some sites might want to take this a step further and use tokens to integrate the level of access someone has to a site.


So, on a platform like Reddit, a user might only need one token, while a moderator might need a few tokens to log in with more advanced permissions.In the meantime, developers are already building dapps for Mobius' store, but it's small scale offerings so far, little video games or prediction games.


That's work at the experimental level, but Gobaud said he's encouraged by the fact that people already want to work with it. The websites on Geocities were crude, too, but they were a stepping stone to the web we know today.He concluded:

"It's like the early days of the internet."

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Ripple. Mobius strip

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Interested in offering your expertise or insights to our reporting? Contact us at [email protected]. 

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

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Iota is a cryptocurrency, but unlike just about every other cryptocurrency, it's not built on a blockchain. Aiming to design a distributed ledger that's low-cost and scalable enough for the internet of things (IoT), the project's developers have started from scratch and built a new sort of structure they call the "tangle.

"The tangle is not the first attempt to find a radically different way of achieving distributed consensus, but following iota's stint in early December as the world's fourth-most valuable cryptocurrency, it's become one of the most prominent blockchain alternatives.Iota's proposed application, IoT, could benefit enormously from a network able to complete high volumes of minute transactions.


Making that network trustless and distributed, as iota aims to do, could open up new economic possibilities. A smart device could "pay its assembly, its maintenance, its energy and also for its liability insurance by giving data, computing power, storage or physical services to other machines," write Carsten Stöcker and Kerstin Eichmann of innogy SE in a post on iota’s blog.


Before iota can make "economically independent machines" happen, though, the project has to confront a number of obstacles: achieving full decentralization, establishing trust in newly invented cryptography, and ensuring that resource-constrained IoT devices can support the network. Several of the iota team's decisions have drawn criticism, and their responses to that criticism haven't always inspired confidence.

But while the only tangle around today is iota's, there is nothing that necessarily limits the tangle to that one implementation or even to IoT. Bitcoin's architecture has been repurposed thousands of times with every application and capability imaginable in mind (not that very many of these attempts have succeeded yet).


Iota could turn out to be revolutionary or a footnote; either way, the tangle has the potential to transform a number of industries in need of fast, efficient, trustless systems: digital ad sales, for example.If it works, that is.What is the tangle? How is it being implemented in iota?


Could it expand beyond that project? And does it really represent—as Serguei Popov wrote in the tangle white paper—blockchain's "next evolutionary step"?

tangle The tangle is what is known as a directed acyclic graph (DAG): a data structure that moves in one direction without looping back onto itself. Like the blockchain, the tangle is a distributed ledger, in which a network of independent accounts perform transactions among themselves, reaching consensus about who owns what without depending on a centralized authority.


That's about where the similarities between tangle and blockchain end. Picture a blockchain: a single string of consecutive blocks, each bolted on top of the last, each containing a set of transactions. The tangle looks rather different. The image below is taken from the white paper:



The tangle. Source: Popov. (Here's another way of visualizing it.)Time passes from left to right in this graph. Each box represents a transaction issued by a device (or "node") on the network. In proof-of-work blockchains like bitcoin's and ethereum's, Popov writes, there are "two distinct types of participants in the system, those who issue transactions, and those who approve transactions"; in the tangle, every device works to maintain the ledger.


Every node is also a kind of miner.Here’s the process: every time a node wants to transfer some value, it must validate two previous transactions, which the arrows in the image above show. This validation requires a small amount of proof of work in order to secure the network, meaning that transactions are not strictly free.


Since there is no distinct group of miners that must be compensated, though, there are no fees. The white paper argues that this no-fee structure enables the kind of microtransactions that would be impossible with bitcoin.


As a tangle transaction receives approvals, and the transactions approving it receive approvals in turn, the "cumulative weight" of that transaction builds up. Similar to confirmations for a bitcoin transaction, higher cumulative weights indicate more reliably immutable transactions.


gray boxes at the far right of the diagram, representing recent transactions that have received no validations, are called "tips."Consensus without blocksSince transactions are not being shared all at once as blocks, divergences are more prone to happen on the tangle than the blockchain. "It is important to note that the iota network is asynchronous," Popov writes.


"In general, nodes do not necessarily see the same set of transactions. It should also be noted that the tangle may contain conflicting transactions."Eventually, some conflicting transactions are "orphaned"—not completed—while others stand. The tangle relies on incentives to reach consensus about these transactions' fate.


As the white paper points out, "if a node issues a new transaction that approves conflicting transactions, then it risks that other nodes will not approve its new transaction, which will fall into oblivion."In order to find transactions to approve that are unlikely to lead its own transaction to be orphaned, a node runs a "tip selection algorithm." Iota's tangle doesn't mandate any algorithm in particular, but the white paper makes the case for the Markov Chain Monte Carlo (MCMC) variety.


Popov's MCMC algorithm would place at least two "random walkers" somewhere back on the tangle: not at the beginning (that would take to long), but not too recently (the quality of the selection would suffer). These move chronologically along the paths defined by validations, favoring paths linking transactions of similar cumulative weight.


Say that transaction x (cumulative weight = 20) was approved by transaction y (= 19) and transaction z (= 3). The walker has a much higher probability of moving from x to y.


The rationale is that "lazy" nodes—ones that rarely issue transactions and therefore rarely validate others' transactions—will be at a disadvantage. Punishing lazy nodes is useful not just because it cuts down on freeriders, but because lazy nodes pose a risk for double-spend attacks: the white paper describes several such attacks and the ways an MCMC could be used to defend against them.

What the white paper doesn't mention

Popov states point-blank, "the concrete implementation of the iota protocol is not discussed" in the tangle white paper (there is no iota white paper). The IOTA Foundation has built a working tangle—the only one—but there is a gulf between the ideal of the tangle and the reality of iota. The developers face a number of challenges in getting their technology ready for the IoT, and some of their decisions have attracted strong criticism.


StorageStorage is an immediate concern for tiny, resource-constrained IoT devices. The white paper doesn't address this issue, but lightbulbs and toasters clearly aren’t able to store the entire tangle, as full nodes do the entire 153 GB bitcoin blockchain or 338 GB ethereum blockchain.

Iota's development roadmap, published in March 2017, describes solutions including automated snapshotting—similar in principle to pruning—and a swarm client, which would allow devices to shardand collectively store the database.


Cryptography In September, a team led by Neha Narula of the MIT Media Lab pointed out a flaw in the "curl," a cryptographic hash function developed in-house by the iota team.


The impetus for designing the curl is the threat of quantum attacks, but "rolling your own crypto" is a gamble, and it appears to have backfired. Iota co-founder Sergey Ivancheglo, aka Come-from-Beyond, justified the flaw Narula's team identified as a "copy-protection mechanism" that would allow iota "to easily attack scam-driven copycats.

" Ethereum developer Nick Johnson described it as "booby trapping the code."DecentralizationIf a party controls more than a third of the tangle's hashing power, the network is insecure.


Bitcoin and ethereum are generally considered secure as long as a single party does not control a majority of the network. In other words, while blockchains are vulnerable to 51% attacks, the tangle is vulnerable to a 34% attack.Iota's implementation does attempt to mitigate this vulnerability, however, by amassing hash power itself.


The IOTA Foundation runs what it calls a "coordinator" node; Eric Wall, an engineer at Cinnober Financial Technology, argues that this decision makes iota "centralized." Joi Ito, the director of MIT's Digital Currency Initiative, wrote that the coordinator represents "a single point of failure.

" In response to Wall, iota founder David Sønstebø called the coordinator "temporary training wheels" to protect against 34% attacks.


(The IOTA Foundation has also responded to Ito.)The next blockchain?Tangle may be the "next evolutionary step" of blockchain, as Popov argues, but it does not appear to have achieved that through its only implementation so far. Justifiable concerns about iota's degree of decentralization and security have held the tangle back.

If it is a serious competitor or even successor to the blockchain, tangle should demonstrate the blockchain's versatility and be adapted to other projects, in other industries, with other applications. Bitcoin has not been the blockchain's only application for some time.


I asked Popov if the tangle could follow the same trajectory and become independent of iota. "Yes," he told me via email, "the Tangle is just a math model, it can be applied everywhere it suits."Not everyone is sure about the tangle itself, though.


Wall told me via private message, "I'm a long-term skeptic that per-transaction user-generated PoW"—proof of work—"will ever be enough to secure a cryptocurrency." He added that the tangle as described in the white paper "will probably rely on centralized elements for a very long time.

"Hypothetically, he said, "you could have a DAG with transaction fees and mining incentives" but then you might as well use a blockchain. Or you could have proof-of-stake DAG, but that tests the boundaries of what the term "tangle" encompasses.


In his email, Popov stressed that "the full potential of the IOTA itself is largely underestimated - there are so many things being quietly developed now…" He may be right, and iota may transform how devices interact and what they are capable of.


That shouldn't prevent other tangle projects from getting underway.Then again, perhaps Wall has a point. The basic principle behind the tangle—that users validate each other's transactions using proof of work—may always be either too centralized or too insecure.


We'll know once more people try it.The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Nasdaq publishes several perspectives, articles and reports about distributed ledger technologies, blockchain and cryptocurrencies. Discover more from Nasdaq here: http://www.nasdaq.com/article/what-is-the-tangle-and-is-it-blockchains-next-evolutionary-step-cm9110...


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This technology is as ingenious as it is effective, but as with all technology, it can also be legally deceptive for the unwary.
By TOM KULIK





By know, most of you have probably heard about blockchain technology.  At its essence, it is a distributed ledger technology (“DLT”) that leverages a decentralized computer system to create secure, verifiable and permanent records of transactions.


Each block contains data not only about the transaction, but other data that “links” it to the previous block in the chain. Think of a log of transactions (blocks) linked together (chain) in an encrypted ledger without a centralized administrator, replicated and authenticated across a computer network and synchronized so that they all reflect the information as it is updated.  


You have probably heard it most often in conjunction with cryptocurrencies, such as Bitcoin and Ethereum — examples of decentralized, digital currencies that use blockchain technology at their core to verify and record the exchange of currency directly between two parties, all without the involvement of a centralized banking structure.


This technology is as ingenious as it is effective, but as with all technology, it can also be legally deceptive for the unwary.It is no surprise that blockchain/DLT has become such a hot button technology — it provides a secure transaction methodology that lends itself to a degree of automation.  Security is a seminal benefit, as the names of the parties are pseudonimized, each block is authenticated across the network prior to being added to the chain, and the records are encrypted.  


Moreover, the blocks in a blockchain are immutable by design — they cannot be changed once authenticated and added to the blockchain due to the use of “hashing” algorithms (mathematical functions that essentially transform the data being hashed into a unique output of a fixed length creating a digital “fingerprint” of the underlying data) that order each block in the blockchain with reference to the previous block’s hash.  


These hashes are not amenable to being easily reversed, securing the entire blockchain as it grows.  Of course, this is a very rudimentary explanation, but you get the basic point — it creates a secure, distributed database of information and transaction records.


Cryptocurrencies are the most common example of implementing DLT, but in fact, we have only scratched the surface of applications for this foundational technology.  There are a multitude of other applications of DLT that look to transform a host of other industries beyond cryptocurrency, such as securities (e.g., digital stock certificates; records of stock trades), health care (e.g., medical data and billing management) and general business transactions (e.g., “smart” contracts).  


The music industry is looking at DLT as a secure way of ensuring royalty payments, and it wouldn’t surprise me if our right to vote becomes exercised by way of DLT someday (really).As with all such technologies, however, the law is still playing catch-up. Where you company (or client) are considering DLT applications, there are specific risks involving this technology that must be evaluated and cannot be underestimated as you evaluate their implementation.  Here are three big ones that should not be ignored:


Data Privacy

By its very nature, DLT is decentralized and distributed — it is not only possible, but likely, that certain applications will be tailored to keep personal information within the blockchain.  As a result, such blockchains would foreseeably be comprised of blocks containing personal information from data subjects resident in a multitude of jurisdictions.  Which data privacy laws would apply?  


The EU-US Privacy Shield may provide some protection for cross-border transfers of personal information from the EU to the US, but the scope and extent is unclear (and is itself limited to EU-US data transfers). What about the EU General Data Protection Regulation (GDPR) that becomes effective in May 2018?  The GDPR  is a comprehensive regulation designed to protect the privacy of personal information of EU citizens for transactions taking place among (and with) EU member states.  


Although pseudonymization of personal information is part of the GDPR requirements (something that is already implemented within DLT), the requirement that data subjects be able to request deletion of their personal information directly contradicts the immutability of information in records contained within the blockchain. Failure to comply with GDPR requirements can result in hefty fines, so the answers to these questions are not only complicated, but carry significant potential risk.


Jurisdiction and Dispute Resolution


With a distributed ledger, jusrisdictional issues become problematic. Although “smart” contracts can be constructed to require consent to a specific jurisdiction as part of the “terms of use” for the technology, what if such terms are not present?  Even if such terms are present, will they be deemed enforceable?  


What about governing law and venue — what tribunal would (or should) address the dispute? Serious thought should also be given to the type of award that may be given under any terms of use as well.  


For example, arbitration clauses are common in online terms of use; however, the enforceability of such clauses should be carefully evaluated when overseas transactions are involved.  Without question, serious consideration should be given to dispute resolution mechanisms as part of any application of DLT in any business being engaged in by your company (or client).


Regulatory Risks


Of all the potential risks involving DLT, regulatory risk is the most unpredictable.  As of the time of this writing, the U.S. federal government has not preempted the states from passing their own laws and regulations regarding DLT, so state regulation of blockchain remains quite possible.  


That said, the increasing acceptance of digital currencies may push federal regulators to implement mechanisms and safeguards for consumers that open the door to increased federal regulation. Internationally, the approach to DLT has been cautiously optimistic, with the European Commission openly supporting more projects based upon DLT for its member states.  


Similar to privacy concerns, there is every indication that US and international laws may need to be reconciled as DLT becomes more prevalent across industries.


Without question, DLT presents a foundational technology that will gradually reshape the way business is transacted (even if there is a long way to go before there is widespread adoption). 


Even though DLT blocks may be immutable, your company’s (or client’s) risk is not — businesses cannot afford to ignore the writing on the distributed ledger (so to speak) as the technology gradually moves mainstream. DLT is likely here to stay for a while, so get ahead of the curve — this is one set of risks that i
 worth hashing out.







Tom Kulik is an Intellectual Property & Information Technology Partner at the Dallas-based law firm of Scheef & Stone, LLP. In private practice for over 20 years, Tom is a sought-after technology lawyer who uses his industry experience as a former computer systems engineer to creatively counsel and help his clients navigate the complexities of law and technology in their business.


News outlets reach out to Tom for his insight, and he has been quoted by national media organizations.


Get in touch with Tom on Twitter (@LegalIntangibls) or Facebook (www.facebook.com/technologylawyer), or contact him directly at [email protected].

https://abovethelaw.com/2018/01/3-risks-every-lawyer-should-know-about-blockchain-technology/


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In brief

Bitcoin mining reportedly accounts for more energy consumption than many of the world's nations. The environmental effect of this activity can't be overlooked.


The price of progress


Bitcoin might feel a bit like gold lately, but its rise has not made it very green. In November, a report was published that indicated that activity related to the cryptocurrency exceeded the energy consumption of 159 countries around the world.


“I think it’s a massive problem,” said Alex de Vries, author of the report on Bitcoin energy consumption, in an interview with Futurism. “We’re basically consuming thousands of times more energy for something we can already do at the moment – we can already do transactions, we don’t have to use bitcoin if we trust our current system. I don’t see how bitcoin justifies its energy use at the moment, given that most people do have a certain level of confidence in the current system.”


However, it may be reductive to look at the energy consumption of bitcoin mining purely at the surface level. The real issue is the fact that a large proportion of the electricity used is generated via fossil fuels. A great deal of mining takes place in China, where coal is comparatively cheap, despite the government’s efforts to phase it out in favor of renewable resources.


But even if the cryptocurrency were to be mined using renewable energy, would the problem be solved?

Green and efficient?

Nadine Damblon is the co-founder of a startup called HydroMiner that specializes in bitcoin mining using hydro power stations. According to her, the energy situation is a little less dramatic than it might seem.


“Basically, we see an old argument here,” she said in email to Futurism. “People used to say that the streets would be no longer usable because they would be covered in horse manure – not long ago they said Google’s search engine would use up all the worlds energy.”


She argues that as cryptocurrency evolves, more efficient hardware will be introduced that requires less energy. However, for the time being, there’s an urgent need for a shift toward renewable energy.


This argument – that as hardware improves, cryptocurrency mining will use less electricity – is a pervasive one. De Vries doesn’t see that as being the case.“I’ve actually seen this argument come up a lot of times, and I honestly have no clue where it comes from, or what it’s based on,” he said.


“What we’ve seen over the past years is that mining equipment has become hundreds of times more efficient, and has actually contributed to more energy” being drawn from the network, he explained.


He says this is because mining has become increasingly reliant on specialized equipment. Rather than standard CPUs and GPUs, application-specific integrated circuit chips (ASICs) are nigh essential for anyone that wants to remain competitive.


“I would expect the total hash output would increase rather than the output staying the same and the energy consumption decreasing, because you can still afford the same amount of electricity,” he added.

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It seems unlikely that serious miners would cut down on their efforts simply because they can use less electricity in the process. This means that even as hardware gets more efficient, there will be no drop in consumption – and that could mean that this problem will only get worse.


Even if we were able to swap the whole Bitcoin network onto renewable energy, de Vries still sees there being a problem.


“The whole system still uses thousands of times more energy than we have before,” he said. For example: though operationally, solar energy is clean, the lifetime emissions cost of making and disposing of a solar panel is not; the energy-hungry cryptocurrency would require the creation of many more solar panels than needed otherwise. “We’re still creating a carbon footprint that’s bigger than it has to be,” de Vries says.


Vital fork

Bitcoin isn’t necessarily evil; the problem, experts say, is the system we call proof of work.


Proof of work is the system that Bitcoin uses to verify transactions, one of the core tenets of its operation. However, it’s not the only option available; proof of stake and proof of burn are two alternate options.


Proof of stake gives more mining power to those who own more of a cryptocurrency. In proof of burn, a block is created by a transaction that “burns” some of your existing coin by sending them to a wallet where they cannot be spent.


Image: BlockGeeks


“Blockchain technology, in general, is not meant to be efficient,” argued de Vries. “It’s not efficient by design, because if I have a transaction, it’s not going to be checked a single time by a centralized system, it’s going to be checked thousands of times by all the distributed nodes in the network.”


De Vries says that bitcoin could be 99.9 percent more efficient than it is today if we swapped out proof of work. “Right now, there isn’t any use case that justifies the energy use that’s going into the network,” he emphasized.


Dropping proof of work would be a massive change of direction for bitcoin, but it’s not impossible. By forking the cryptocurrency, these changes could be implemented without affecting its overall stability.


It certainly seems that something needs to change if cryptocurrency is to be sustainable in the long-term. That said, it remains to be seen whether action will be taken before usage swells further, and its energy consumption grows even greater.


Disclaimer: Several members of the Futurism team, including the editors of this piece, are personal investors in a number of cryptocurrency markets. Their personal investment perspectives have no impact on editorial content.


Share   Written by Brad Jones, Writer for FuturismThis article is published in collaboration with Futurism.The views expressed in this article are those of the author alone and not the World Economic Forum.

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