Know & go
- A closer look: This week, Lightning Labs announced the launch of its desktop wallet, leveraging Neutrino protocol, on Bitcoin mainnet. We provide an overview of Neutrino protocol below.
- Three things to know: (1) NYAG alleges Bitfinex lost $850 million and used reserves from its affiliate Tether to cover losses (2) Samsung invests $2.9 million into crypto hardware wallet provider Ledger (3) Binance DEX goes live with MITH/BNB as its first trading pair.
- Market snapshot: Total crypto market capitalization is around $158.1 billion at press time (down 6% w/w). BTC is trading at $5252 (down 1.8% w/w), ETH is at $154 (down 11.9% w/w). BVOL (the rolling 30-day annualized Bitcoin volatility as calculated by BitMEX) is 64%, largely unchanged w/w. (4/26 11:15AM ET)
Weekly market snapshot
A closer look: Lightning Labs’ New(trino) app
This week, Lightning Labs announced the launch of its desktop Lightning app on Bitcoin mainnet that incorporates its Neutrino light client technology (in this context, Neutrino refers to the protocol being developed by Lightning Labs, not the blockchain analysis company acquired by Coinbase). The app works on macOS, Windows, and Linux. The team also mentioned that a mobile wallet is in the works, which is potentially where the true power of Neutrino is unlocked. The motivation behind the desktop – and soon to arrive mobile – wallet was to create a more secure, private, easy-to-use non-custodial wallet for users of the Lightning Network by using Neutrino protocol.
Neutrino protocol is experimental software written in Go for mobile Lightning Network clients on Bitcoin. It was designed to address security risks associated with centralized wallets (“not your keys, not your bitcoin”), the complex and time consuming process of downloading a full Bitcoin node, and the UX and privacy challenges of simplified payment verification, or SPV. Satoshi Nakamoto mentioned SPV in the original Bitcoin whitepaper, and it was added to Bitcoin core in 2013 (BIP 37).
SPV was introduced so that low bandwidth devices could confirm that a transaction was included in a block without downloading or storing the entire chain. Rather, the SPV client requests information from full Bitcoin nodes as needed (using “filters”). These nodes then forward the SPV clients (i.e. wallets using SPV technology) the transactions that are relevant. One challenge with this setup is that a full node knows the information the client is seeking and can “lie by omission” by choosing not to forward relevant transactions. Studies have also found that “the reliance on Bloom filters within existing SPV clients leaks considerable information about the addresses of Bitcoin users.” Additionally, Jimmy Song highlights that SPV is not easy to implement, which has led to trusted light wallets – these may offer a simpler and better user interface but are custodial and trade off privacy and security.
Neutrino protocol was proposed by Lightning Labs’ Olaoluwa Osuntokun, Alex Akselrod, and Jim Posen (BIP 157 and BIP 158) to improve the UX and privacy of light clients with low bandwidth and storage capacity. Neutrino protocol aims to bring the level of privacy and security offered by light clients using the technology closer to that offered by operating a full node. Wallets using Neutrino receive a summary of full block data from full nodes rather than requesting specific data from a given block. This is intended to provide privacy enhancements relative to centralized wallets or wallets using SPV because the node “gets no special information about the light client other than what blocks it wants to look at.” It is now the client’s responsibility to determine if any of the transactions are relevant, which should prevent the node from knowing or backing into specific data (e.g. transactions or addresses) that the wallet is seeking. “The matching between the blockchain and the user’s wallet is done by the user’s software rather than by an untrusted, remote node as is the case with BIP 37.” If the wallet finds corresponding transaction data in the compressed block data, it requests greater block details to sync and update wallet balances. All of this takes place behind the scenes.
As it stands, users who want to interact with Lightning Network have to download the full Bitcoin blockchain (not feasible on mobile devices) or resort to a potentially less secure custodial wallet offering a gateway to Lightning Network. While Neutrino protocol is still nascent and requires further development*, as it matures, Neutrino could offer a solution to the challenges presented above by reducing the resources needed to connect to the Lightning Network on mobile (and other lightweight) devices and simultaneously improving security and privacy offered to current users of more centralized wallet infrastructures.
Fun fact: Pierre Rochard created an Excel plug-in leveraging Neutrino that allows users to connect to the Lightning Network directly from Excel.
*Note from Lightning Labs: ”We’d like to remind users that this is still very early technology and there’s a risk of losing all of your funds. While testing the current alpha version of the software, we advise users to not put more money in the app than they are willing to lose.” Additionally, the team is still working through UX challenges associated with receiving payments.
In other news
- Samsung announced it is developing a custom Ethereum-based blockchain network and may pursue issuing its own token (aka “Samsung Coin”) down the road. The tech giant’s blockchain task force remains at the “internal experimentation” stage of development and is still exploring whether its blockchain will be private, public, or a hybrid of the two. Source.
- New York-based startup Moon announced any lightning-enabled wallet can now integrate with the Moon browser extension. The crypto payment processing extension allows users to spend bitcoin via the lightning network on e-commerce sites such as Amazon. Source.
- Crypto trading firm GSR launched Bitcoin Variance Swaps, its new bitcoin hedging product that allows investors and traders “to hedge their portfolios against bitcoin volatility.” This announcement comes a few weeks after the firm released an algorithm designed to prevent wash trading for exchanges. Source.
- Dharma has reportedly facilitated over $6.4 million worth of crypto loans since its peer-to-peer lending platform launched publicly three weeks ago (as highlighted in our 4/5-4/11 Weekly Recap). For an interesting comparison, Dharma now has more than $10 million of ether locked in its smart contracts while centralized incumbent BlockFi has gathered ~$18 million in bitcoin and ether deposits since last month. Source.
- Binance launched its decentralized exchange (DEX) just a week after its native blockchain (dubbed Binance Chain) went live. The DEX is built on top of Binance Chain, which reportedly uses Delegated Byzantine Fault Tolerance (dBFT) as its consensus mechanism and features 11 pre-selected validators to produce blocks. Trading is now live with MITH, a social media project that migrated over from Ethereum, being the first listed trading pair (MITH/BNB). Source.
- Societe Generale issued an Ethereum-based security token representing 100 million euros ($112 million) of covered bonds. The firm issued the securities to itself, meaning no outside investors were involved, by leveraging the technology developed by its blockchain subsidiary Societe Generale FORGE. Bond rating agency Moody’s Investor Service considers Societe’s use of blockchain to be “credit positive for the issuer” due to the increased transparency and reduced likelihood of reconciliation errors. Source.
- Brave, a privacy focused web browser, debuted its Brave Rewards service that compensates users for viewing online ads. The opt-in product promises to allocate 70% of the money companies spend on these ads back to users. All funds will be paid in Brave’s native token, BAT, which were initially issued during the company’s $35 million ICO back in 2017. Source.
- Maker holders have voted to raise the DAI stability fee again, this time by 2%, and once ratified, fees will begin to accrue on MakerDAO loans at 16.5%. The recent series of stability fee hikes aim to reduce the total DAI supply as the stablecoin continues to trade below its USD peg. Source.
- Ocean Protocol, a decentralized data marketplace, is planning to host an initial exchange offering (IEO) through Bittrex. Ocean held a token sale on the CoinList and Fractal launchpad platforms earlier this year, but failed to reach its target. The team aims to raise ~$6.8 million via the IEO, which will add to the $24 million it previously collected from Outlier Ventures, Digital Currency Group, Block Asset, and Fabric Ventures. Source.
- Samsung has invested $2.9 million into crypto startup Ledger, valuing the hardware wallet provider at roughly $290 million. According to Ledger’s executive chairman, there will continue to be a demand for hardware wallets, but “the smartphone will play a central role” in making financial and personal sovereignty accessible to all. Source.
- tZero failed to close the $100 million investment from GSR and Makara expected to close by mid-April. This is following GSR’s decision not to invest the $404 million (announced August 2018) and instead to bring on an additional investor (Makara) to co-lead the $100 million investment. Source.
Global regulatory roundup
- The New York Attorney General (NYAG) has obtained a court order against iFinex, the operator of crypto exchange Bitfinex and stablecoin issuer Tether. The NYAG alleges Bitfinex lost $850 million of “co-mingled client and corporate funds” and attempted to cover its losses by using funds from Tether’s reserves. Bitfinex later issued a response, stating the court filings were “written in bad faith and are riddled with false assertions.” Source. As a result, almost $185 million were withdrawn from Bitfinex’s cold wallets, and based on the activity of some of those wallets, the exchange appears to be processing customer withdrawals. Source. The announcement also coincided with a 5.5% drop in BTC price.
- Bakkt continues to await regulatory approval in its pursuit to offer physically-settled Bitcoin futures. CFTC Chairman Christopher Giancarlo seemed to imply the holdup is related to the ICE-backed exchange’s decision to custody Bitcoin without first seeking to become a state licensed custodian. Bakkt will require a green light from the CFTC before it can launch. Source.
What we’re reading
- Bitcoin In Heavy Accumulation report by Adamant Capital
- On TCRs and Prediction Markets: Counterweights and Collusion by Rocco
- Envisioning Capital Recycling in Decentralized Networks by Dan Zuller
- Lightning is Only the Beginning: The Emerging Bitcoin Stack by Spencer Bogart
- Will Binance Chain and DEX Succeed? By Imran Khan & Mohamed Fouda on Token Daily
- Binance Chain is one of the Most Important Developments in Crypto by Tony Sheng for BreakerMag
- The DeFi Series: An Overview of the Ecosystem and Major Protocols from Alethio
- Why There is No Ethereum Killer by Eric Olszewski
What we’re listening to
- Off the Chain: David Post, Ph.D. Managing Director, IBM Blockchain Accelerator: How to Decentralize a Centralized Network
- What Grinds My Gears: Fact or FUD – Crypto in the Media
- What Bitcoin Did: Dan Robinson on Why HTLCs are Harmful
- The Token Daily: Elena Nadolinski & JZ, Pioneer Winners: Crypto Privacy and a High School Student’s Solution to Key Recovery
- Unchained: Charlie Lee on How Litecoin Can Be Truly Successful
- Unconfirmed: Blockstack’s Reg A+ Filing and the Future of Token Offerings
- Base Layer: David Sønstebø & Dominic Schneider (Founders of IOTA)
- Blockchain Insider: Binance gets DEX’y
- Into the Ether: Austin Griffith: Path to Mass Adoption with the Burner Wallet
Circle in the news
- We released our 1Q19 Crypto Retrospective report yesterday, reviewing the top trends, market performance, and critical blockchain and token data insights seen over the last 4 months.
- Circle’s equity crowdfunding platform, SeedInvest, announced that it has received approval from FINRA to operate an Alternative Trading System (ATS) for secondary market trading of equities launched through its primary markets platform.
- Poloniex customers that participated in the Cosmos Network ICO can now trade and redeem their ATOM tokens.
Where we’ll be in April
- Fifth Annual Blockchain, Digital Currency and ICO National Institute, New York, 4/27