Coinscious Demonstrates How Accurate Crypto Market Data Ultimately Leads to Winning Model

Coinscious, a data and trading analytics provider for the cryptocurrency market, today announces the publication of its article illustrating the high importance of accurate data when creating quantitative and high-frequency trading models with far greater than average performance.

To view the article in its entirety, visit: https://coinscious.io/coinscious-lab/accurate-crypto-market-data/

OHLC Error Rates

A key aspect that is often overlooked in quantitative crypto-trading is the quality of the data being used to design sophisticated prediction models. In the new era of cryptocurrency trading, those with the most data of the highest quality will surely win as the underlying data ultimately determines the execution prices, the model’s behavior, and the model’s ability to fit the market efficiently and effectively.

Many algorithmic traders incorporate massive amounts of data into their algorithms to create better pricing models and leverage large volumes of historical data to backtest their trading algorithms. Particularly with recent advances in machine learning, the data-driven approach to modeling is being emphasized more than ever before.

In the article, the error rates of Binance, Bittrex, Bitfinex, Bitstamp, Bitmex, Huobi Global, Okex, and Coinbase Pro were measured and then placed in bar chart format to illustrate the accuracy of Coinscious data compared to Kaiko and CoinAPI. The data quality was assessed by comparing each well-known exchange’s OHLCV (open, high, low, close, volume) data with derived OHLCV data.

Whether viewing error rates in trading volume or price movements, Coinscious data proved to be the most accurate among the other data vendors for the top 3 coins (BTC, ETH, and XRP). In average, Coinscious data are 38% better than Kaiko’s data, where the relative errors on OHLC are 39%, 41%, 31%, and 37% respectively. Similar results have also been shown using four alternative coins (ADA, XLM, TRX, ZRX).

When answering the question of why accuracy discrepancies exist across different data providers, a couple of possible reasons are given. For example, it could be due to downtimes of exchange APIs or rate limits getting in the way when there is high activity among the thousands of combinations of cryptocurrency exchanges and trade pairs.

While many companies are collecting vast amounts of data across different exchanges and coins, the quality of the data may be hidden underneath the quantity of the data. Especially in this era of a data-driven finance world, success and risk can be heavily dependent on the data quality and the data operations environment. Obtaining the right trading tools and hiring talented traders can certainly help, but even then, tools and people cannot guarantee success if the data is imperfect. The cryptocurrency finance market could benefit from having more of data quality analysis in order to understand the granular level of datasets and where they can be obtained.

About Coinscious 

Coinscious provides comprehensive data, insights and solutions to professional and non-technical cryptocurrency traders alike. We focus on delivering quick and accurate data to our users, connecting trading systems and strategies to the dynamic crypto market through our enriched data sources and data-driven insights. We specialize in providing traders with tools to allow them to backtest, validate, optimize and execute their own strategies.

To learn more about Coinscious, visit: http://www.coinscious.io


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Author: Coinscious Inc
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Reddit Founder Talks Crypto Winter and Ongoing Innovation in the Space

The founder of the social news discussion website Reddit has once again commented on his belief in the future of crypto. Alexis Ohanian has long been a believer in the fintech innovation and states that the bear market has driven many speculators from the space, allowing developers to concentrate on building out much-needed infrastructure.

Despite his optimism for the industry, Ohanian did not give any price predictions for any digital assets. He was famously proved spectacularly wrong with a call he made last year for Ether’s end of 2018 price.

Alexis Ohanian: All That is Left in Crypto is the True Believers

The founder of Reddit and software venture fund Initialized Capital appeared on Yahoo! Finance’s “Influencers with Andy Serwer” show earlier today. Alexis Ohanian was asked by Serwer to comment on a variety of topics, ranging from the history of Reddit, his interest in paid annual leave for employees, and whether social media could use regulation to help prevent harassment of users.

After these topics, the conversation turned to crypto. Serwer asked Ohanian if he was still confident in the future of digital assets. To this, the Reddit and Initialized Capital executive responded that he was indeed optimistic. He added:

“So, this is the crypto winter, no doubt. But a friend of mine – Brian Armstrong, who is the CEO of Coinbase – said, ‘This is the spring of crypto innovation.’”

Ohanian then elaborated on this point, stating that many of the mindless speculators that fuelled the impressive bull run of 2017 had left the space now and that those remaining were fuelled by passion for the technology, rather than trying to make a quick buck:

“The people who are now building on crypto are true believers, and they’re actually builders. They’re actually building the infrastructure that it’s going to take to really make this happen.”

He continued, stating that some of the brightest minds he knew were working on creating new products, services, and companies to take cryptocurrency and blockchain mainstream.

Next, Ohanian addressed the recent announcement by JP Morgan to create the JPM Coin. Although not particularly innovative in terms of its design, the fact that the bank headed by one of crypto’s biggest naysayers is even exploring such an idea is evidence for the Reddit co-founder that digital assets are here to stay.

Finally, Ohanian commented on investor expectations in the crypto market. He stated that investing in digital assets, and any other sector for that matter, should always be a long game:

“It’s a painful thing for a lot of people to see those accounts but if you were investing in it in the first place, you really should have been thinking long-term.”

One thing absent from Ohanian’s interview with Serwer was discussion of any particular digital assets or their specific price performances. Previously, the former Reddit exec has had proverbial egg on his face thanks to his Ether price predication last year. Seemingly defying all logic, Ohanian stated that he believed that the price of a single ETH coin would reach highs of more than $15,000. Clearly, this particular call never came true and prices of almost all digital currencies continued to slump throughout 2018.


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Author: Rick D.
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Crypto Fundamentals: What is Driving The Massive $20 Billion Rally and How Long Will it Last?

In the past 3 weeks, the valuation of the crypto market has increased by more than $22 billion from $111 billion to $123 billion.

There is no shortage of technical charts, indicators, analysts and observers trying to predict where crypto markets and Bitcoin will go next. They are far more volatile than traditional stock or forex markets so many of these indicators may not be applicable in the same way. A lot is just guesswork so a combination of fundamentals and technicals may give us a better idea of what is going on.

A Fundamentally Strong Environment for Crypto

While most analysts agree that from a technical standpoint the bear market is not over yet, fundamentally things could not be better for Bitcoin and crypto. Late 2018 and so far this year the news has all been pretty good for Bitcoin and its brethren despite the opposite happening to prices.

Now that the US government has been switched back on, progress can be made at the SEC and CFTC on regulatory approval for a number of highly anticipated crypto investment products. Huge names including the Intercontinental Exchange (ICE) and Fidelity are in the holding pattern alongside others such as ErisX waiting to launch Ethereum futures. It is expected that one of these will be approved within the next month or two which could be a big driving factor for market momentum.

Digital asset regulation is progressing in many nations in the Middle East and across Asia as doors slowly open to crypto. Two years ago the space was a daunting quagmire for many governments and only China seems to have slammed the door on it completely. Today more countries have welcomed the nascent industry than ever before.

Big banks getting involved are unlikely to drive momentum for individual cryptos but things like the JPMCoin serve to increase overall awareness and acceptance of them. Digital currencies are here to stay and the fintech and internet giants need to be a part of it. Samsung’s next flagship smartphone, the Galaxy S10, will have crypto wallet functionality built in. Google and Facebook are actively recruiting blockchain teams and Rakuten, Japan’s equivalent of Amazon, is reportedly considering crypto payments.

Lightning Network Growth

On the technical side Bitcoin’s Lightning Network continues to grow in terms of unique channels which are now numbered at over 25,000. Ethereum is due for a network upgrade at the end of the month when Constantinople finally gets deployed and progress is being made with a lot of the major blockchain dApp platforms such as EOS, TRON, and NEO.

Some crypto assets have already turned around and have started up trending since their lowest points of last year. Cryptos that have made over 100% since mid-December include Litecoin, EOS (on today’s rally), TRX, Binance Coin, and Ethereum is close with a recovery of 80%.

Fundamentally things are looking good for the industry so if this current rally doesn’t last, don’t worry, the next one probably will.


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Author: Martin Young
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Their Goal: Make Cryptocurrency Less Scary

If you have a tough time with the idea of putting even a dollar of your net worth into a digital cryptocurrency — Bitcoin, Litecoin, Ethereum, and the like — no sensible person would blame you.

Aside from the price fluctuations, there’s the question of who’s protecting those digital assets. Is it an institution like QuadrigaCX, an exchange for cryptocurrency run from its founder’s laptop, which reportedly lost $140 million in customer funds after the founder died in India in December? Or one like Tokyo-based Coincheck, which had $532 million in cryptocurrency stolen by hackers in January 2018?

“Every time I see one of these exchanges get hacked, or the founder take off with money in some kind of scam, it’s another reminder of how immature this industry is,” says Matthew Walsh, a former Fidelity Investments vice president who helped launch a private fund that invested in cryptocurrency there. “It’s bordering on a joke how immature the infrastructure is — and how dangerous it is.”

But for a growing group of venture capital firms and startup companies in Boston, the dangerous and mostly unregulated realm of cryptocurrency represents an opportunity. They see these digital currencies — which can store value and operate independently of government-controlled monetary systems — eventually becoming as safe for investors as a Bank of America money market fund. That, however, is going to require a lot of new technology. Which they plan to build and sell.

Walsh’s new venture capital firm, Castle Island Ventures, is among them. After he and cofounder Nic Carter left Fidelity, they raised $30 million to invest in what Walsh says is a “whole new category of infrastructure” required to make cryptocurrency safer and more reliable.

Sharon Goldberg and Ethan Heilman cofounded Arwen, a Boston startup trying to make cryptocurrency exchanges more secure.

“The reason we launched the fund is we think a lot of these cryptocurrencies will be investible assets,” Walsh says — even if they don’t feel that way to most mainstream investors today.

Castle Island has already invested in six startup companies, Walsh says, and other local firms like General Catalyst, First Star Ventures, Highland Capital Partners, and Underscore VC have also been writing checks to fledgling cryptocurrency companies.

Highland and Underscore helped incubate a startup called Arwen, founded by a Boston University computer science professor and her doctoral student.

“We’re in the early days,” says Arwen CEO Sharon Goldberg. “But let’s go back to 1999 and using credit cards on the Internet. Nobody wanted to put their credit card number into a website. But you do today, because you trust the encryption. You see that little lock in your browser.”

Goldberg is taking a sabbatical from teaching to build the company, which has eight employees and earlier this month moved out of Underscore’s space into its own office.

She points out that cryptocurrency is designed to be a “decentralized” system — there’s no central bank regulating how much of it there is, just software code running on computers. Yet if you want to exchange one kind of cryptocurrency for another, or turn cryptocurrency into dollars or yen, you need to entrust that transaction to a centralized exchange. “Centralized exchanges are the way to trade this decentralized currency,” Goldberg says. “It’s strange.”

So Arwen is creating a layer of technology that would enable you to convert one currency into another securely, even if the exchange gets hacked or goes offline in the middle of a trade. Arwen’s technology is based on something called an “atomic swap,” which Goldberg explains using the metaphor of a briefcase full of cash. If two people intend to swap briefcases filled with two different kinds of currency, the risk is that you hand your briefcase to the other person and they run off. An atomic swap ensures that each person get the other person’s briefcase, even if the other person tries to split.

Late last month, Arwen launched a “sandbox” environment for demonstrating the technology, and Goldberg says the company is talking with prospective customers. “The majority of our customer calls are outside of the US,” Goldberg says. “In Japan, for instance, there are just a massive number of companies creating ways to buy cryptocurrencies.”

Why is the United States behind? “Regulation is stronger here, and other institutions are more trustworthy,” she says.

Arwen is working on “an important problem” and it could prove “a key missing piece needed to get wider adoption of crypto assets as a real investment asset class,” says Drew Volpe of Boston-based First Star Ventures.

Volpe’s firm last year put money into Everbloom, which is building its own cryptocurrency exchange that tries to solve the issues of trust and reliability “from the ground up.” Everbloom, he explains, is a decentralized exchange that never has to take ownership of the asset itself — similar to Arwen’s approach, the trades happen “trader to trader” using the same atomic swap idea.

Two things could happen to make holding and trading cryptocurrencies more trustworthy, observes Boris Revsin, managing director of Republic Labs, a firm that has made recent investments in the cryptocurrency sector.

One is that trusted financial services brands like Fidelity or Charles Schwab will launch cryptocurrency-related products and services and “offer recourse if something terrible happens” to your money, he says.

But the other is that non-brand name exchanges that today are not trustworthy could start to incorporate technology from Arwen or other companies like it, and begin to build trust with investors.

Either of those scenarios, Revsin says, could encourage more asset managers and investors to move some of their assets into cryptocurrency.

In case you haven’t been tracking it closely, the price of Bitcoin is down almost 60 percent from February 2018. But over two years, the price has risen 240 percent, and more than 800 percent over three years. It’s a risky place to keep your wealth today — but investors and entrepreneurs are betting that just as credit card transactions on the Internet became more trustworthy, that will change.


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Author: Scott Kirsner
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Crypto CEO Dies Holding The Only Passwords That Can Unlock Millions In Customer Coins

Gerald Cotten’s sudden death left C$190 million ($145 million) in Bitcoin and other digital assets protected by his passwords unretrievable. Without the digital keys, clients lose access to digital coins and funds.

 

Digital-asset exchange Quadriga CX has a $200 million problem with no obvious solution — just the latest cautionary tale in the unregulated world of cryptocurrencies.

The online startup can’t retrieve about C$190 million ($145 million) in Bitcoin, Litecoin, Ether and other digital tokens held for its customers, according to court documents filed Jan. 31 in Halifax, Nova Scotia. Nor can Vancouver, B.C.-based Quadriga CX pay the C$70 million in cash they’re owed.

Access to Quadriga CX’s digital “wallets” — an application that stores the keys to send and receive cryptocurrencies — appears to have been lost with the passing of Quadriga CX Chief Executive Officer Gerald Cotten, who died Dec. 9 in India from complications of Crohn’s disease. He was 30.

Cotten was always conscious about security — the laptop, email addresses and messaging system he used to run the 5-year-old business were encrypted, according to an affidavit from his widow, Jennifer Robertson. He took sole responsibility for the handling of funds and coins and the banking and accounting side of the business and, to avoid being hacked, moved the “majority” of digital coins into cold storage.

His security measures are understandable. Virtual currency exchanges suffered at least five major attacks last year.

The problem is, Robertson said, that she can’t find his passwords or any business records for the company. Experts brought in to try to hack into Cotten’s other computers and mobile phone met with only “limited success” and attempts to circumvent an encrypted USB key have been foiled, his widow, who lives in a suburb of Halifax, said in the court filing.

“After Gerry’s death, Quadriga’s inventory of cryptocurrency has become unavailable and some of it may be lost,” Robertson said. The company’s access to currency has been “severely compromised” and the firm has been unable to negotiate bank drafts provided by different payment processors.

Quadriga CX’s directors posted a notice on the firm’s website Jan. 31 that it was asking the Nova Scotia court for creditor protection while they address “significant financial issues” affecting their ability to serve customers. On Tuesday, the court granted Quadriga a 30-day stay in a bid to stop any lawsuits from proceeding against the company, The Canadian Press reported. The firm was also granted protection from creditors.

“For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit, as well as sourcing a financial institution to accept the bank drafts that are to be transferred to us,” the firm said. “Unfortunately, these efforts have not been successful.”

As is often the case with crypto, the episode has raised speculation on Reddit’s online forums, where posters are wondering aloud if the business was a scam, calling for class-action lawsuits and even concocting conspiracy theories that call into question whether the CEO is even deceased. The latest online speculation suggests that Quadriga CX funds have been moving — even though the firm claims they can’t get access.

Cotten filed a will 12 days before his death listing substantial assets, according to court documents.

He left all his assets to his wife and made her the executor to his estate, the documents show.

The will outlines numerous assets he held, including several properties in Nova Scotia and in Kelowna, B.C., a 2017 Lexus, an airplane, a Jeanneau 51 yacht and his pet chihuahuas, Nitro and Gully.


Author: Doug Alexander

Want a Bitcoin Tax Refund? You Might Need an Accountant

It’s tax season again, and unlike last year at this time—when many Bitcoin investors were sitting on exponential 2017 gains—there may be another reason for cryptocurrency holders to file their taxes: the possibility of a Bitcoin tax refund.

The price of Bitcoin fell nearly 74% in 2018, making it likely that many people sold their cryptocurrency last year at a loss. And just like the IRS requires paying taxes on capital gains, so too can losses be deducted on tax forms, lessening what tax filers owe or increasing their eligibility for a tax refund.

But figuring out the Bitcoin price when you bought it—also known as cost basis—and the price at which you sold it may be harder than it seems, says Jake Benson, founder and CEO of Libra, which built the first cryptocurrency tax calculator. That’s because the IRS does not require cryptocurrency brokers to provide clients with the traditional form, known as a 1099-B, that stock brokers must use to provide such information to customers, Benson explains on the latest episode of Balancing the Ledger.

“The burden is left upon the fund or the individual that’s trading to track cost basis, and this is extremely challenging,” says Benson, calling on the IRS to update its guidance on the issue. “Some customers track their cost basis, some rely on proceeds, and it’s a really challenging scenario.”

TurboTax and H&R Block—the mainstays of do-it-yourself tax filing—may not be sufficiently versed in the complexities that come with cryptocurrency trading, Benson adds, so many people might want to seek out an accountant specializing in crypto.

Libra works with institutional cryptocurrency investors and firms, including Circle and Mike Novogratz’s Galaxy Digital, helping them calculate their investment performance and net asset value (NAV), and produce financial statements for auditors—some of whom are also Libra clients.

Those services could also be a stepping stone towards the approval of a Bitcoin ETF, or exchange-traded fund. The U.S. Securities and Exchange Commission (SEC) has rejected multiple applications for a Bitcoin ETF, citing a lack of oversight and safeguards, as well as concern that it would be difficult to consistently calculate NAV, and that Bitcoin trading “seems impossible to audit effectively.”

Benson, however, thinks Libra may be able to help with at least some of those problems. “I think it is currently being solved,” Benson says. “We’re not solving every piece of the infrastructural issues, but on an auditability side, on an evaluation side, yes, that is what we focus on.”


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Author: JEN WIECZNER
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The Ledger: Crypto vs. Cannabis, Blockchain and Jamie Dimon in Davos, Facebook Coin

We’re back in your inbox after taking last Monday off to honor MLK.

If you follow me on Twitter, you may have noticed that lately I’ve written less about crypto and more about cannabis. I spent much of the last two months working on my new cover story for February issue, “The Marijuana Billionaire Who Doesn’t Smoke Weed.”

No, the words “Bitcoin” or “cryptocurrency” do not appear anywhere in the story. Still, throughout my reporting, I was constantly struck by how alike the crypto and cannabis communities seemed—both were caught up in market bubbles that recently popped; both know the pain of constant regulatory headaches—even as they operated on seemingly parallel planes. If one were to draw a Venn diagram, the circles would overlap only slightly.

That got me thinking: Perhaps cryptocurrency and cannabis could learn a little something from each other. After all, with cryptocurrency we spend a lot of time talking about cross-border transactions; for my cannabis story, I spent some time actually crossing borders. For instance, here’s what happened when I returned from Canada with Brendan Kennedy, the American CEO of British Columbia-based cannabis producer Tilray:

“I would not mention what we just did,” the CEO quietly advises as we sit on the tarmac in Seattle again, awaiting a customs officer to clear us to come home. While Kennedy has never been questioned, he has reason to be nervous: A few Canadian cannabis executives and investors have been detained at the border and even barred entry to the U.S. for life; a senior official at the U.S. Customs and Border Protection agency confirms that even American executives operating legally in Canada can face additional inspections upon their return. Adds Kennedy: “We generally don’t talk about what we do when we go back in the U.S.”

As far as I know, blockchain has not yet made it easier for people to traverse borders, but the experience does underscore just how powerful it is to have a currency that circumvents central authorities who could otherwise stop money from leaving or entering. In fact, many cannabis businesses that operate in the U.S. struggle to get financial services; plenty of banks, citing the enduring federal ban on marijuana, refuse to work with companies that grow or sell the drug even in states that have legalized weed. That means unbanked cannabis businesses are forced to pay their taxes in cash—dropping it off in suitcases or garbage bags—and also invest in security to guard the heaps of it sitting at dispensaries.

It also makes cryptocurrency a natural fit for the legal cannabis industry, providing it with banking services that need not navigate discrepancies between state and federal law (the way Bitcoin has also facilitated the illegal drug trade). And yet the cryptocurrency industry has not quite reached a standard of security and stability that would make it a suitable business currency even for cannabis businesses walking that gray line of legality.

A couple of months ago, I spoke with Jon Brandon, the CEO of Foria Wellness, a company that sells cannabis-infused massage oils and “aphrodisiacs” in states where it’s legally allowed. He described the difficulty of finding banks that would do business with the company, and said he’d considered cryptocurrency as an alternative option, but ultimately decided against it. His thought process: “Then I gotta take the crypto risk on top of a sex and drug business?”

One thing that seems to be working in the cannabis industry’s favor: As it has grown up, it has also become more centralized, moving from street dealers and backyard growers to multibillion dollar international corporations with industrial farming operations. That mainstreaming has opened the market to investors, with Tilray last summer becoming the first cannabis producer to go public on the Nasdaq, and also helped sway public opinion, with laws steadily changing to reflect greater acceptance.

Even as Bitcoin diehards and cryptocurrency traditionalists insist that decentralization is core to the technology’s success, they may eventually have to confront a trade-off: mainstream acceptance may depend on the emergence of more polished—and yes, centralized—institutions who play by the rules. Indeed, that seems to be exactly what the SEC wants from a Bitcoin ETF it would be willing to approve—a “centralized, regulatory data source” and “a surveillance-sharing agreement with a regulated, bitcoin-related market of significant size. Wall Street and other investors likely feel the same way.

For now, cryptocurrency seems to be struggling to corner even the obvious marijuana market: PotCoin, which bills itself as a “digital currency for the cannabis industry,” fluctuates between one and two cents.


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Author: ROBERT HACKETT, JEFF JOHN ROBERTS, and JEN WIECZNER
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A Faster, More Efficient Cryptocurrency

Design reduces by 99 percent the data users need to join the network and verify transactions.

 

MIT researchers have developed a new cryptocurrency that drastically reduces the data users need to join the network and verify transactions — by up to 99 percent compared to today’s popular cryptocurrencies. This means a much more scalable network.

Cryptocurrencies, such as the popular Bitcoin, are networks built on the blockchain, a financial ledger formatted in a sequence of individual blocks, each containing transaction data. These networks are decentralized, meaning there are no banks or organizations to manage funds and balances, so users join forces to store and verify the transactions.

But decentralization leads to a scalability problem. To join a cryptocurrency, new users must download and store all transaction data from hundreds of thousands of individual blocks. They must also store these data to use the service and help verify transactions. This makes the process slow or computationally impractical for some.

In a paper being presented at the Network and Distributed System Security Symposium next month, the MIT researchers introduce Vault, a cryptocurrency that lets users join the network by downloading only a fraction of the total transaction data. It also incorporates techniques that delete empty accounts that take up space, and enables verifications using only the most recent transaction data that are divided and shared across the network, minimizing an individual user’s data storage and processing requirements.

In experiments, Vault reduced the bandwidth for joining its network by 99 percent compared to Bitcoin and 90 percent compared to Ethereum, which is considered one of today’s most efficient cryptocurrencies. Importantly, Vault still ensures that all nodes validate all transactions, providing tight security equal to its existing counterparts.

“Currently there are a lot of cryptocurrencies, but they’re hitting bottlenecks related to joining the system as a new user and to storage. The broad goal here is to enable cryptocurrencies to scale well for more and more users,” says co-author Derek Leung, a graduate student in the Computer Science and Artificial Intelligence Laboratory (CSAIL).

Joining Leung on the paper are CSAIL researchers Yossi Gilad and Nickolai Zeldovich, who is also a professor in the Department of Electrical Engineering and Computer Science (EECS); and recent alumnus Adam Suhl ’18.

Vaulting over blocks

Each block in a cryptocurrency network contains a timestamp, its location in the blockchain, and fixed-length string of numbers and letters, called a “hash,” that’s basically the block’s identification. Each new block contains the hash of the previous block in the blockchain. Blocks in Vault also contain up to 10,000 transactions — or 10 megabytes of data — that must all be verified by users. The structure of the blockchain and, in particular, the chain of hashes, ensures that an adversary cannot hack the blocks without detection.

New users join cryptocurrency networks, or “bootstrap,” by downloading all past transaction data to ensure they’re secure and up to date. To join Bitcoin last year, for instance, a user would download 500,000 blocks totaling about 150 gigabytes. Users must also store all account balances to help verify new users and ensure users have enough funds to complete transactions. Storage requirements are becoming substantial, as Bitcoin expands beyond 22 million accounts.

The researchers built their system on top of a new cryptocurrency network called Algorand — invented by Silvio Micali, the Ford Professor of Engineering at MIT — that’s secure, decentralized, and more scalable than other cryptocurrencies.

With traditional cryptocurrencies, users compete to solve equations that validate blocks, with the first to solve the equations receiving funds. As the network scales, this slows down transaction processing times. Algorand uses a “proof-of-stake” concept to more efficiently verify blocks and better enable new users join. For every block, a representative verification “committee” is selected. Users with more money — or stake — in the network have higher probability of being selected. To join the network, users verify each certificate, not every transaction.

But each block holds some key information to validate the certificate immediately ahead of it, meaning new users must start with the first block in the chain, along with its certificate, and sequentially validate each one in order, which can be time-consuming. To speed things up, the researchers give each new certificate verification information based on a block a few hundred or 1,000 blocks behind it — called a “breadcrumb.” When a new user joins, they match the breadcrumb of an early block to a breadcrumb 1,000 blocks ahead. That breadcrumb can be matched to another breadcrumb 1,000 blocks ahead, and so on.

“The paper title is a pun,” Leung says. “A vault is a place where you can store money, but the blockchain also lets you ‘vault’ over blocks when joining a network. When I’m bootstrapping, I only need a block from way in the past to verify a block way in the future. I can skip over all blocks in between, which saves us a lot of bandwidth.”

Divide and discard

To reduce data storage requirements, the researchers designed Vault with a novel “sharding” scheme. The technique divides transaction data into smaller portions — or shards — that it shares across the network, so individual users only have to process small amounts of data to verify transactions.

To implement sharing in a secure way, Vault uses a well-known data structure called a binary Merkle tree. In binary trees, a single top node branches off into two “children” nodes, and those two nodes each break into two children nodes, and so on.

In Merkle trees, the top node contains a single hash, called a root hash. But the tree is constructed from the bottom, up. The tree combines each pair of children hashes along the bottom to form their parent hash. It repeats that process up the tree, assigning a parent node from each pair of children nodes, until it combines everything into the root hash. In cryptocurrencies, the top node contains a hash of a single block. Each bottom node contains a hash that signifies the balance information about one account involved in one transaction in the block. The balance hash and block hash are tied together.

To verify any one transaction, the network combines the two children nodes to get the parent node hash. It repeats that process working up the tree. If the final combined hash matches the root hash of the block, the transaction can be verified. But with traditional cryptocurrencies, users must store the entire tree structure.

With Vault, the researchers divide the Merkle tree into separate shards assigned to separate groups of users. Each user account only ever stores the balances of the accounts in its assigned shard, as well as root hashes. The trick is having all users store one layer of nodes that cuts across the entire Merkle tree. When a user needs to verify a transaction from outside of their shard, they trace a path to that common layer. From that common layer, they can determine the balance of the account outside their shard, and continue validation normally.

“Each shard of the network is responsible for storing a smaller slice of a big data structure, but this small slice allows users to verify transactions from all other parts of network,” Leung says.

Additionally, the researchers designed a novel scheme that recognizes and discards from a user’s assigned shard accounts that have had zero balances for a certain length of time. Other cryptocurrencies keep all empty accounts, which increase data storage requirements while serving no real purpose, as they don’t need verification. When users store account data in Vault, they ignore those old, empty accounts.


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Author: Rob Matheson
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Why Crypto Bot Trading Is Choking Mass Adoption

Regulators are not going to help the industry, until it helps itself.

 

To a crypto layperson, hearing about Bitcoin price manipulation via sophisticated yet easy-to-procure trading bots may conjure dime-a-dozen conspiracy theories.

The deeper one delves into the intricacies of this exciting and often treacherous crypto industry though, the more sense such talk makes.

Not only is price manipulation very real and – at a closer glance – quite blatantly obvious, it is yet another major hurdle in the path of regulation, institutional adoption, and by extension: mass adoption.

According to CoinList’s Andy Bromberg, such practices “hurt the market’s reputation and they hurt individual investors”.

How do crypto trading bots work and why do people use them?

Long story short: trading bots are algorithmic auto-traders, capable of opening and closing positions, mimicking the activities of several trading accounts and pulling off a number of other hair-raising stunts that squarely put a nail into the coffin of crypto trading legitimacy, every time they’re executed.

These bots can be programmed to push a number of abusive trading strategies long banned in other markets, such as “wash trading” (the artificial generation of seemingly massive trading volumes, through the simultaneous opening of buy and sell orders) and “spoofing” (the opening of fake orders to generate fake buy- or sell-volumes, thereby pumping or driving down the price of an asset) etc.

The goal of such shenanigans is always to make money at the expense of the ‘honest’ trader.

Price manipulation hurts individuals, and it hurts mass adoption

How price manipulation hurts individual traders is self-explanatory: the mini pump-and-dump schemes resulting from abusive trading activity net profits for the bot users at the expense of regular, well-intentioned traders who believe they’re playing on a level field.

The damage wrought upon the overall direction of the crypto industry by these short-term profit-chasers is truly massive. They de-legitimize the very mechanisms responsible for crypto asset price-discovery, compromising the integrity of the market and prompting regulators to squarely deny ETF proposals, citing these issues.

It’s the reason that the CBOE wouldn’t get anywhere with its ETF proposal – and therefore withdrew it from consideration just minutes before publication of this article.

Can the industry self-regulate and rid itself of this “disease”?

The short answer is yes. The Winklevoss twins are already involved in various efforts and initiativesaimed at self-regulation, and the community as a whole acknowledges the need for some sort of market regulation.

But the real problem is that instead of punishing such activities, exchanges often welcome them as means to pump their own volumes. Indeed, some exchanges are known to readily put bots programmed for abusive trading activity at the disposal of their users.

While all this goes on, crypto enthusiasts over at Reddit entertain themselves by dabbling in a bit of attempted price manipulation of their own: a thread aimed at tricking bots into gleaning positive crypto sentiment off internet chatter was launched, and it took off big time.

Unless of course, the bots upvoted it themselves… oh dear God, Skynet.


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Author: James West
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What We Learned in 100 Crypto Talks With Institutional Investors

Through meetings with over 100 institutional investors over the past four months from California to New York, one thing has stood out most − an overwhelmingly positive response.

These endowments, family offices, pensions and other institutions are enthusiastic about crypto assets despite an overall pullback in crypto valuations upwards of 75 percent from their all-time highs.

This is remarkable.

Though the majority of these investors want to dip their toes in the crypto pool, they come from varying backgrounds and have different levels of knowledge:

  • Those just beginning their crypto educational journey
  • Those that didn’t have a “crypto specific mandate,” but are evaluating crypto managers in the same way they evaluate all emerging fund managers
  • Those that are well versed in crypto, and considering an immediate allocation.

Not surprisingly, each category of investors had different questions and goals.

The ‘Beginning’ Investors

Learning a new industry can be daunting.

The typical learning curve looks something like this:

  • Phase I: The first time you hear about blockchain or crypto –> Skepticism
  • Phase II: You spend the next six months researching and learning –> Optimistic but confused
  • Phase III: You spend the next 12 months going deeper down the rabbit hole until you want to dedicate the next 20 years to this new technology –> Passion and full adoption

Most investors considering digital assets are somewhere between “Phase I” and “Phase II” and, even if they weren’t thinking of allocating, it was not uncommon to hear some variation of “crypto is hard to ignore right now.”

Two points resonate universally with this group:

  • You’re 100% long the financial system right now! Even if you moved to 100 percent cash across all of your investments, you are still 100 percent long the financial system (via the banking system). As we saw in the 2008 banking crisis, 2011 European sovereign crisis and the 2018 emerging market currency crisis, there is systemic risk out there that investors want to hedge against. Crypto offers investors exposure outside of the traditional financial system, and many argue it is actually more dangerous NOT to have some exposure to crypto than it is to have a small allocation.
  • Crypto is both an asset class and an infrastructure. As an asset class, there are opportunities today to participate in the growth of emerging technologies. The pie is growing even as prices collapse and, with enough research, you can figure out which slices of the pie to grab.As an infrastructure, you have time to wait. But you’ll want to familiarize yourself today because one day soon, every asset class you own may be represented in digital asset form (equities, fixed income, real estate, hard assets). Viewing the utility of cryptocurrencies through price alone misses the fundamental revolution. Cryptocurrency and blockchain have uses far beyond price.

What matters most is understanding how crypto assets can meet their goals and fit within their risk tolerances, as well as how it fits as a smaller piece of an overall balanced and diversified portfolio.

Understanding every nuance is secondary. For example, most investors who invest in healthcare equity funds don’t fully understand Medicare reimbursement, hospital admissions and patent processes. Instead, these investors know enough to recognize that they want exposure to healthcare, and then hire experts to express the individual views for them.

This is likely what will happen in crypto.

The ‘Traditional Hedge Fund Due Diligence’ Investors

Investors in this camp spend most of their time seeking out strategies that expose them to the potential upside while limiting downside risk:

This is what most often gets their attention:

  1. Don’t focus on how high it can go; focus on how low it can go. A good fund manager in any asset class tries to capture most of the upside, while ensuring that downside risk is mitigated. This is an especially important message for investors to hear in crypto, since most of what they see and hear strictly focuses on outlandish return potential.
  2. DO NOT short this market today. I’ve spent my entire career trying to isolate idiosyncratic risk and removing market risk through cap structure arbitrage trades and long-short trades, but this strategy does not yet work in crypto for a variety of reasons (asymmetric upside, low liquidity, high costs, etc). As such, the best hedge today is simply not to own a token that you don’t like. Currently, the best way to protect against the downside is by sizing positions correctly according to risk/return profiles, taking chips off the table when this equation is no longer favorable, and using derivatives to hedge tail risk.
  3. A top-down AND bottom-up approach. Active management matters in crypto, perhaps more than in any other asset class, because of the large swings and bifurcations between top performers and underperformers. Understanding the macro landscape (top down) while simultaneously searching for value (bottom-up approach to security selection) is how to take advantage of current market conditions. Few investors want to hear about best ideas because they are not ready to execute them on their own − but they do want to understand the process.

Conversely, the biggest pushback from this group is that the underlying asset class itself is still so new, and it’s hard to invest in something that has unknown tangible value. But it’s important to remember that many asset management strategies can work on top of any underlying asset class. For example, there are managed futures funds that focus on very esoteric underlying assets (like weather futures).

Others in this group point to how some crypto assets are “frauds” or have market values in large excess compared to value. But this exists in traditional asset classes too.

There are hundreds of penny stocks that retain market cap value and trade, despite no underlying value. And there are plenty of “stub bonds” in the corporate bond and distressed market that have no value but remain priced and trading for decades.

As the overall size of legitimate crypto assets grows, these outlier, “worthless,” tokens will fade and become less impactful.

The ‘Savvy Crypto’ Investors

As you might expect, investors in this bucket are trying to figure out which managers they trust to generate high risk-adjusted returns in the crypto space. In addition to focusing on risk management like group 2 above, this group of investors often got much more granular with their questions about what specifically goes into a crypto portfolio.

The two messages that resonated the most were:

  1. Developers are the new research analysts. Research has greatly evolved over the past decade, especially with the emergence of digital assets. The ability to read lines of code in GitHub, test pre-launch products and engage with various development communities is a must for any fund investing in this space.
  2. What is ‘fundamental research’ in crypto? This is a smart question. Unlike traditional asset classes like equities and fixed income, there is no widely agreed upon Graham & Dodd Security Analysis in crypto. BUT, that doesn’t mean valuation frameworks aren’t in the works. There has been great work done like MV = PQ, NVT analysis and even variations of Metcalf’s Law. It’s right to question the fundamental value of these new technologies, but wrong to dismiss the lack of progress.

Looking ahead, this group is already excited about today’s crypto assets, but also focused on what is coming in the future. They want to align themselves with managers who are in a position to take advantage of today’s opportunities, while also being on the front-line when new opportunities arise.

Conclusion

This past year has opened my eyes to the progress that is being made on both the technology side and the education side. Whether investors have a specific mandate or not, most are trying very hard to figure out where crypto fits into their process and portfolio.

While it is true that many funds already have some secondary or tertiary exposure to crypto via their traditional hedge fund or VC investments, it’s becoming clear this alone is not satisfying their needs.

As stated earlier, “Crypto is pretty hard to ignore right now.” Unless investors want to completely write it off, they will have to figure out how to get involved.


Source
Author: Jeff Dorman
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