Know & go
- A closer look: This week, we dig into the hunt for Satoshi’s Treasure, a digital and physical treasure hunt for $1 million worth of bitcoin (BTC).
- Three things to know: (1) Bakkt acquired crypto custodian, DACC (2) CoinMarketCap announced an initiative that aims to improve the quality of pricing and volume data (3) ErisX raised another $20 million as a part of its Series B.
- Market snapshot: Total crypto market capitalization is around $173.3 billion at press time (up 9.6% w/w). BTC is trading at $5770 (up 11.4% w/w), ETH is at $166 (up 9.7% w/w). BVOL (the rolling 30-day annualized Bitcoin volatility as calculated by BitMEX) is 42% down from 64% last week. (5/3 10:40AM ET)
Weekly market snapshot
A closer look: Ready Player Satoshi
Two weeks ago, the latest Bitcoin puzzle, dubbed Satoshi’s Treasure, was announced in a message broadcast to the Blockstream Satellite (for a primer on the Blockstream Satellite see our Weekly Crypto Recap 3/15-3/21). The game, which has drawn comparisons to the fictional Ready Player One contest, is a global hunt for $1 million worth of bitcoin stored in a currently unknown Bitcoin address. To solve the puzzle, treasure hunters have to discover and reassemble the address’ private key that has been divided into 1,000 unique parts. These key fragments will be hidden in both the physical and digital worlds, and their whereabouts can only be determined by deciphering the cryptic clues released by the game’s creators. Of the 1,000 private key parts, only 400 will be required to unlock the final prize.
Intrigued by the challenge and the chance for Bitcoin riches, ~20,000 users from over 20 different countries signed up to receive clues via phone or email on Day 1. According to The Block, this number climbed to nearly 40,000 players as of 4/19 and included a notable influx of teenagers. The international and multifaceted nature of the game led many participants to assemble teams with individuals with a variety of skillsets and different locations globally. Teams with a more distributed member base will have a distinct advantage as 20-30% of keys will need to be acquired in person. Moreover, solving the clues will require a combination of specific skills, including math, cryptography, humanities, and exploration.
At the crux of Satoshi’s Treasure are the 1,000 private key fragments hidden throughout the game. These unique parts were generated by employing Shamir’s Secret Sharing algorithm on the bitcoin stash’s private key. The scheme, developed by Israeli cryptographer Adi Shamir (co-inventor of the RSA algorithm), provides the ability to split a secret into multiple parts, called shares, so sensitive digital information can be secured in a distributed manner. To decode the original secret, an individual must hold enough key shares to meet the threshold — the minimum number of shares required to unlock the secret. For reference, Shamir’s Secret Sharing is a general implementation of multisignature Bitcoin addresses (or multisig), which require more than one key part to authorize a Bitcoin transaction similar to a joint bank account.
The game itself was co-created by Eric Meltzer, co-founder and partner at Primitive Ventures and curator of the Proof of Work newsletter. Meltzer drew heavily from his interest and experience with previous alternate reality games (ARGs — games that link real life actions to digital game elements), such as the Cicada 3301 puzzles. With Sathoshi’s Treasure, he hopes to help people understand “why Bitcoin is cool” and the benefits it provides as a payments system while experiencing a fun yet challenging alternate reality journey. ZCash co-creator Ian Miers has also been linked to Satoshi’s Treasure — as an advisor but not in clue creation — along with eighteen other anonymous contributors. Meltzer remains the primary spokesperson for the hunt and is reportedly in charge of sharing clues, though he does not hold all of them for security reasons.
Satoshi’s Treasure becomes the latest entry in a long-standing tradition of similar bitcoin related puzzles or games. Unlike the alternate reality nature of Satoshi’s Treasure, the majority of previous contests involved artists — “whether by virtue of generosity, curiosity, boredom or all three” — embedding bitcoin private key parts into their work. The most recent example occurred earlier this year when a French street artist hid 0.26 bitcoin (~$1,000 at the time) in a rendition of the famous “Liberty Leading the People.” Challengers managed to solve the puzzle in six days. One of the more prominent puzzles in Bitcoin’s short history is The Legend of Satoshi Nakamoto, which took three years to crack. By the time the private key was deciphered in early 2018, the five bitcoin reward was worth ~$50,000.
The race is on
Meltzer released the first online clue on 4/16, three days after the Blockstream Satellite broadcast, with plans to release the second and third clues on subsequent days. According to the co-creator, these initial tasks were anticipated to stump would-be solvers for at least a week. Instead, developer John Cantrell broke the encryption for all three key shards in mere minutes, finding the latter keys through a combination of source code exploration and a brute force dictionary attack when asked for a password. He later detailed his discovery process in this Github post.
Clue #4, released on 4/21, was quickly solved once again by John Cantrell and his team as described on Github. The EV Clan also walked through the solution in this video. Clue #5, however, has yet to be cracked after being announced five days ago. In order to find the key behind the fifth clue, players will have to identify and locate three actual people — called “Field Agents” in the hint — that could be positioned anywhere internationally. As of Thursday, only the first Agent has been unmasked while the remaining Agents have yet to be discovered.
Each solution so far has been shared publicly by the player or team behind it. While the collaborative effort speaks to the ethos of the open-source crypto community, key shards are unlike bitcoin in that multiple people can claim ownership to them. Therefore, any interested participant can follow the guided discovery posts to claim all four known key parts. These altruistic actions should occur less frequently as the $1 million bitcoin prize draws closer. John Cantrell has already announced he will no longer be open sourcing his methods going forward. Moreover, the clues are scheduled to get progressively more difficult, which should increase inter-team competition.
Additional interesting developments include the prospect of secondary markets for key shards and the introduction of side quests. As an increasing number of clues are solved, value should begin to accrue to the lesser known and more difficult to obtain keys. Teams may look to purchase rare key fragments or outside help if unable to decode a certain clue. While secondary markets may form organically, the Satoshi’s Treasure creators have considered launching an app that would facilitate key shard exchange. Meltzer mentions the soon-to-be launched app will feature the ability to store and combine keys as well as prove their ownership in a decentralized manner. Sell and trade functions will be added at a later date.
The creators are also planning to introduce smaller side-quests to the game as it progresses. Some mini-games may impact the primary game, while others will be independent and feature instant prizes. Primitive Ventures co-founder Dovey Wan hints that these quests “might be geographically localized, or require a very specific set of knowledge.” Meltzer and crew may also consider partnering with other projects and incorporate the side-quests as well as the hidden key shards into existing platforms.
At the moment, the address for the prized Bitcoin wallet is unknown. Therefore, players cannot check the contents of the wallet for themselves via a Bitcoin block explorer. Instead, everyone must trust that the creators have already issued the advertised amount of bitcoin to appropriate wallet. Meltzer said this move was intentional and that finding the address would be one of the quests. An additional issue, raised by Meltzer himself, is the creators have no way of proving whether the existing Sharmir’s keys correspond to the wallet in question without actually revealing the private key. This is an unfortunate consequence of the cryptographic methods used and will require players to trust the game was created in good faith. The only way to determine the validity of the keys fragments is to collect the minimum number of parts necessary (in other words win the game) and attempt to claim the bitcoin reward. With that said, the game and the contributing team “have a lot more to gain by running [it] correctly than trying to scam people.”
For more information on the latest clues, check out the Satoshi’s Treasure website.
In other news
- CoinMarketCap is launching a new initiative to make crypto exchange price data and trading volume more transparent. The new alliance, named the Data Accountability & Transparency Alliance (DATA), will feature cryptocurrency exchanges Binance, Bittrex, OKEx, Huobi, Kucoin, and Bitfinex, among others, as its early members. CoinMarketCap intends DATA members to meet biannually in an effort to improve current transparency issues, and the data provider is mandating all exchanges featured on its platform to provide live trading and orderbook data. This action might be in response to the recent reports stating most reported trading volumes are fake and implicating CoinMarketCap in the process for promoting this incorrect and misleading data. Source.
- Jaguar Land Rover, the largest car manufacturer in the U.K., is developing “smart wallet” technology for its cars that will enable drivers to earn rewards in IOTA. Jaguar and Range Rover drivers would be issued IOTA for “helpful” actions such as sharing useful data (e.g. traffic congestion, pothole locations) or for participating in a ride-sharing program. Reuters states the earned cryptocurrency “could also be used to pay for tolls, parking and charging for electric cars.” Source.
- Retail brokerage firm ETrade is reportedly preparing to offer Bitcoin and Ether trading onto its over 5 million customer base. According to the New York Times crypto journalist Nathaniel Popper, the firm is currently searching for a third party custodian to hold the coins. This news comes shortly after rival TDAmeritrade began exploring a similar offering through the ErisX crypto marketplace. Source.
- Blockchain startup Editional launched its Ethereum-based app that users to create, claim, and trade digital art as unique collectibles. The app, available for iOS devices, aims to empower art creators by lowering the barrier to entry, a hurdle historically seen as being “too high for most people to get involved” according to CEO John Egan. The New York based startup previously raised a $1.5 million seed round from ConsenSys Ventures, Digital Currency Group, and CoinFund. Source.
- According to Bitfinex stakeholder Dong Zhao, the Hong Kong based crypto exchange is planning to issue a proprietary exchange token similar to Binance’s BNB. The news comes soon after the New York Attorney General’s office alleged Bitfinex lost $850 million in customer and corporate funds and proceeded to secretly arrange a loan from stablecoin affiliate Tether to cover its losses. Zhao also claims he suggested the idea to issue an exchange token in an effort to bring in new money. The announcement was met with some skepticism considering Bitfinex previously stated it would be able to recover the lost funds. Source.
- FedEx CIO Rob Carter recently stated enterprise blockchain use should be a requirement for international shipping and that enforcing blockchain standards would facilitate the process of tracking goods across borders. FedEx continues to push for blockchain adoption among shipping and manufacturing companies and has teamed up with DHL express and UPS to create blockchain standards. Source.
- Digital asset manager Grayscale Investments launched a marketing campaign encouraging investors to drop gold from their portfolios in favor of bitcoin. The firm aims to promote the inherent benefits of bitcoin (i.e. security, speed, efficiency) and claims that the preeminent digital currency is a better store of value than gold in our increasingly digital world. The marketing campaign also pushes Grayscale’s flagship product, the Grayscale Bitcoin Trust, as a “key vehicle” for intrigued investors. Source.
- AWS made its Amazon Managed Blockchain service available to the public, five months after the product was announced last November. The Blockchain-as-a-Service (BaaS) platform enables users to create and manage custom blockchains, add network nodes, and deploy smart contracts. At the moment, Amazon Managed Blockchain only leverages the Hyperledger Fabric framework, but support for Ethereum is intended to come later this year. The announcement also states companies such as AT&T, Nestle, and Accenture, among others, are using the blockchain solution. Source.
- New research released by Fidelity Investments suggests institutional interest in digital assets is increasing. According to the survey, 22 percent of institutions have already invested in digital assets and 47 percent see a place for digital assets or digital asset-related investments in their portfolios. When asked about the appeal of digital assets, Financial advisors (74 percent) and family offices (80 percent) responded the most favorably. Fidelity notes institutional sentiment mirrors the positive developments observed around network development and regulatory conversations and that institutions are more aware of these particular developments. Source.
- Facebook officially announced its long-rumored plan to launch a cryptocurrency-based payments system. Project Libra, the code name attributed to the secret project, will feature a digital coin that users can send to others and make payments. Facebook’s plans may also include the potential for users to receive digital coin rewards for their activity. The social media giant is currently looking to raise $1 billion to help underpin the value of the coin and keeps its price stable. Source.
- Bakkt announced it has acquired the Digital Asset Custody Company (DACC), a crypto custodian for institutional clients. The bitcoin futures exchange hinted the DACC acquisition would also help it add cryptocurrency offerings beyond bitcoin once launched. In the same post, Bakkt revealed a partnership with financial services firm BNY Mellon to help set up “geographically distributed” private key storage secured by the bank. The ICE-backed exchange remains in regulatory limbo and needs approval from the CFTC before it can launch. Source.
- Truffle Blockchain Group, the former ConsenSys spoke that makes the most popular Ethereum developer tools, raised $3 million from ConsenSys to expand into enterprise-grade solutions. The team announced it will begin to integrate with AxCore, the Ethereum-based blockchain created by Goldman Sachs and enterprise DLT provider Axoni. Truffle also plans to start processing Depository Trust & Clearing Corporation (DTCC) transactions worth up to $10 trillion annually. Source.
- ErisX raised another $20 million as part of its Series B from Castle Island Ventures, Dragonfly Capital Partners, and New York Digital Investment Group. The company has now secured $47.5 in total funding. ErisX also announced the launch of its crypto spot trading platform, the same product that TD Ameritrade has reportedly been testing as it prepares to offer crypto trading to retail customers. Source.
- Crypto data platform Digital Assets Data raised a $6 million seed round supported by Digital Currency Group, Galaxy Digital, Morgan Creek, and other investors. The funding will be used to ramp up efforts to provide enterprise grade data services. Source. This raise is the latest in a handful of recent funding rounds directed towards the digital asset data sector, a theme detailed in our 1Q 2019 Cryptoretrospective report.
Global regulatory roundup
- India’s government had reportedly drafted a bill that would ban cryptocurrency trading and issuance. There already appears to be support for the ban based on previous sentiment expressed by India’s Department of Economic Affairs and the Investor Education and Protection Fund Authority. Source.
- The U.S. Department of Justice charged two individuals for bank fraud in a system that involved depositing funds into crypto exchanges. According to a U.S. attorney, the defendants “allegedly ran a shadow bank that processed hundreds of millions of dollars of unregulated transactions on behalf of numerous cryptocurrency exchanges.” The firm in question was also affiliated with the parent company of Crypto Capital, the payment processing firm named the Bitfinex-Tether investigation. Source.
- Tether’s general counsel confirmed that stablecoin issuer holds about $2.1 billion in cash and short term securities, meaning the USDT stablecoin is only about 74% backed by fiat equivalents. Operating under a “fractional reserve” like system contradicts an earlier statement displayed on the Tether website that said USDT is backed 100% by US dollars. This company added some language to this statement within the last few months that altered the definition to include cash equivalents alongside actual physical cash. Source. Surprisingly, cryptocurrency investors appear to be undeterred and continue to trade using USDT. Source.
- Individual Canadian provinces are offering low-cost energy incentives to attract Bitcoin mining firms. Energy issues are determined at the provincial level, and government interest in Bitcoin mining has led some provinces to cut energy costs. For instance, Quebec, the largest Canadian province, blocked a proposed rate increase by its energy provider so Bitcoin miners can pay the same rate as large industrial companies. Source.
What we’re reading
- Crypto Mega Thesis by Kyle Samani
- 5 Differences Between Cosmos and Polkadot by Julian Koh
- A Stake to the Heart: Why Uncle Sam Loves Proof of Stake by Ben Davenport
- Narrative Watch | Spring 2019 Edition by Nathaniel Whittemore
- Bitcoin is a Demographic Mega-Trend: Data Analysis by Spencer Bogart (survey by The Harris Poll on behalf of Blockchain Capital)
- I’m Not an International Drug Dealer: So Why Do I Need Privacy? by Meltem Demirors
- 2019: Tech IPOs = Boom for Crypto? by Scott Army (Vision Hill Capital)
- Ring Signatures (Part 1): Schnorr Identity Protocol by Joe Kendzicky
- Bitcoin – The Unseizable Asset by Rayne Steinberg
- Fast Takes: dYdX Review by Su Zhu (Uncommon Core)
What we’re listening to
- Off the Chain: Jae Kwon, Founder & CEO of Tendermint: Byzantine Fault Tolerance and Environment Awareness
- What Grinds My Gears: Tarred and Tethered – The Never-Ending Saga of Tether, the $3B Stablecoin
- What Bitcoin Did: Christian Decker on the Tech Coming to Lightning
- The Token Daily: David Fauchier, the Founder of Cambrial Capital: The Road Ahead for DeFi
- Unchained: Want to Connect Blockchains? Cosmos Has Tools for Coders
- Base Layer: Diogo Monica (Co-Founder, Anchorage)
- Blockchain Insider: Curated scavenger hunts
- POV Crypto: Blockchain Archeology with David Puell
- The Blockcrunch: Deep Dive into Crypto Valuation Methods – Dan Zuller (Vision Hill Advisors)
Circle in the news
- Circle Research’s lead analyst Ria Bhutoria was featured in a short video on the lastest Nathaniel Whittemore’s Long Reads Sunday (LRS) tweet thread. Ria covered some of the top themes explored in our 1Q 2019 Crypto Retrospective report released last week.
- Poloniex provides an improved version of its mobile app to give traders more power, control, and security.
Where we’ll be in May
- TiECON East, Boston, 5/7
- The Future of OTC Trading (Everbloom event), Boston, 5/8
- (Off) The Chain Summit presented by Pillar & Castle Island Ventures, Boston, 5/8
- Future of Finance: Stablecoin New York, 5/12
- Consensus 2019, New York, 5/13-5/15
- FINRA Annual Conference, Washington DC, 5/16-17