CoinDesk Crypto

La fungibilidad ha sido un tema constante en 2021, tras el ascenso meteórico de los tokens no fungibles (NFTs, por sus siglas en inglés). Pero, ¿qué pasa con los tokens semifungibles y cómo funcionan?

El interés en torno a los NFTs alcanzó niveles asombrosos en la primera mitad de este año. Los datos de NonFungible mostraron que las ventas de estos tokens se dispararon a más de $2.400 millones en el primer trimestre de este año, 20 veces más que en los tres meses anteriores. Ese impulso no ha mostrado signos de ralentización en lo que va de la segunda mitad del año: el principal mercado de NFT basado en Ethereum, OpenSea, experimentó un volumen de operaciones récord de $49 millones el 1 de agosto, por encima de su volumen medio diario de operaciones, de $8,3 millones. El precio medio de CryptoPunks —una de las primeras colecciones de NFT que debutaron en la blockchain de Ethereum— también estableció un récord durante el mismo mes, de 66.919 ETH por NFT (unos $220.000 al cierre de esta edición).

Read this article in English.

Related: How Much Energy Does Bitcoin Use?

El crecimiento explosivo ha generado una nueva ola de innovación en torno a los activos no fungibles, incluida la aparición de un nuevo tipo de token semifungible (SFT) que comienza siendo fungible y finalmente se convierte en no fungible. Comencemos a desglosar estos términos.

Tokens fungibles

La mayoría de los criptoactivos que los inversores controlan y negocian regularmente son fungibles; es decir, son fácilmente intercambiables. Por ejemplo, si dos personas intercambiaran un ether por otro no habría pérdida de valor y ninguna de las partes saldría perdiendo. Esto se debe a que no hay distinción de valor entre dos ether o dos bitcoins (excluyendo las monedas conocidas como “contaminadas” o “sucias”, las cuales han sido robadas o utilizadas en actividades ilícitas).

El dinero fiduciario, como los dólares estadounidenses, también es fungible. En otras palabras, un token es fungible cuando tiene la capacidad de ser intercambiado o sustituido por otros tokens del mismo tipo sin que su valor sufra una modificación. 

Tokens no fungibles

Los NFTs son tokens basados en blockchain que pueden utilizarse para representar la propiedad digital de algo único y escaso, como obras de arte, objetos de colección, bandas sonoras o real estate virtual. Dado que cada artículo tiene un valor distinto basado en características inherentes —quién lo creó o su rareza, por ejemplo—, los NFTs no pueden intercambiarse mutuamente como el ether o los dólares estadounidenses. Por ejemplo, una tarjeta de béisbol digital no podría intercambiarse por una parcela de tierra virtual, ya que los dos son activos completamente diferentes. Eso, sin tener en cuenta que la tarjeta de béisbol digital podría formar parte de una colección excepcionalmente rara, mientras que la parcela de terreno virtual podría estar en una ubicación no deseada.

Related: NFT Trading Surges 8X as Penguins, Apes Drive New Boom

El hecho de que los NFTs se almacenen en una cadena de bloques significa que cada token tiene las siguientes características:

• Indivisible: no es posible comprar fracciones de NFTs. 
• Indestructible: no pueden ser destruidos o eliminados. 
• Inmutable: es imposible cambiar la información subyacente una vez almacenada. 
• Verificable: como los NFTs se almacenan en blockchains públicas, la autenticidad y la propiedad pueden ser fácilmente verificadas por cualquier persona en cualquier momento. 

¿Qué son los tokens semifungibles?

Los SFTs representan un grupo relativamente nuevo de tokens que pueden ser tanto fungibles como no fungibles durante su ciclo de vida. Inicialmente, los SFTs actúan como los tokens fungibles normales en el sentido de que pueden negociarse de igual a igual con otros SFTs idénticos. 

Por ejemplo, un token que representa un vale válido de $10 de Amazon tendría el mismo valor que un vale idéntico con la misma fecha de caducidad y, por tanto, sería intercambiable. 

El factor distintivo que hace que estos tipos especiales de tokens sean semi-fungibles es que, una vez canjeados, los tokens fungibles pierden su valor nominal. Esa pérdida de valor intercambiable hace que los tokens caducados no sean fungibles.

Otra forma de entenderlo es imaginando que se posee una ficha que representa una entrada para el último concierto de los Beatles. La entrada tendría un valor nominal y podría cambiarse por otra idéntica, siempre que se tratara del mismo grupo musical, en la misma fecha y en la misma zona de asientos. Una vez finalizado el concierto, la ficha que representa la entrada se convertiría en un objeto de colección y tendría un valor totalmente nuevo. También significaría que la ficha ya no podría cambiarse por una entrada de concierto válida del mismo valor nominal inicial para ver a una banda diferente. 

Ese proceso de transformación de un token fungible a uno no fungible al canjearlo es el que da nombre a los semi fungibles.

Cómo crearlos

Hoy en día es posible acuñar SFTs utilizando el estándar ERC-1155 de Ethereum. Se trata de uno de los varios estándares de tokens de Ethereum; es decir, planos para crear tokens en la blockchain de Ethereum que son compatibles con todos los demás proyectos basados en el ERC.

El estándar ERC-1155 fue desarrollado por los desarrolladores de juegos de blockchain Enjin, Horizon Games y The Sandbox en 2017, y es esencialmente una combinación de los estándares ERC-20 (token fungible) y ERC-721 (token no fungible). Esto permite crear y gestionar tanto tokens fungibles como no fungibles mediante un único contrato inteligente, un programa informático que se autoejecuta cuando se dan determinadas condiciones.

Los SFTs son especialmente útiles en el sector de los juegos, donde hay elementos fungibles como la moneda de un juego —lingotes de oro o V-Bucks, por ejemplo— así como artículos no fungibles, como coleccionables y armas. Esto significa que las empresas de juegos pueden crear ambos tipos de tokens y asegurarse de que sean interoperables para que los jugadores puedan intercambiar fácilmente cosas como armas por lingotes de oro, y viceversa

Related Stories

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The hacker who carried out a $600-million-plus exploit on the blockchain protocol Poly Network has threatened to delay the full return of funds until at least next week.

“YOUR ESSAYS ARE VERY CONVINCING WHILE YOUR ACTIONS ARE SHOWING YOUR DISTRUST, WHAT A FUNNY GAME,” the attacker, identified on the blockchain-tracking website Etherscan as “Poly Network Exploiter 1,” wrote Wednesday in a transaction data field on the Ethereum blockchain. 

The saga has already dragged into its second week, as executives behind the project plead with the attacker to return the looted funds from the Aug 10 attack. They have created a destination account for the return of the funds, but it requires multiple signatures to unlock the funds, and the attacker’s cooperation is needed.

Related: DeFi-Powered Social Token Site Rally Submits Plan to Decentralize Itself

“I AM NOT READY TO PUBLISH THE KEY IN THIS WEEK,” the attacker wrote. 

In what appeared to be a reply, a subsequent message posted on Ethereum and signed “Poly Network Team” said that “we still hope you can provide the key to us this week, because thousands of users are waiting to get their assets back.”

“The sooner the asset recovery can be carried out, the more negative emotions will be avoided,” the message read. “We are unlikely to get a proper rest until we fully return the user assets.”

The Polygon Network negotiators have referred to the attacker as “Mr. White Hat” – ostensibly a reference to a  “white hat” attacker who tries to exploit vulnerabilities in a protocol to help expose and ultimately fix bugs or loopholes in the underlying code. 

Bounty paid in ETH?

Related: Avalanche’s AVAX Token Jumps on $180M Incentive Program

They have also promised to send the attacker a $500,000 bounty for helping to identify a vulnerability in the protocol.

And in the message on Wednesday, the Poly Network Team address wrote that “we still decided to go ahead and transfer 160 ETH” to an address associated with the attacker. The dollar equivalent of 160 units of ether (ETH) works out to roughly $500,000. 

But as of press time, CoinDesk could not independently confirm that such a transfer had been made. 

Poly Network officials did not immediately reply to a request for comment on the latest blockchain banter. 

The transparency of blockchain data has turned the back-and-forth negotiations between the attacker and Poly Network team into a surprisingly suspenseful drama playing out in public.

As reported previously by CoinDesk, bystanding cryptocurrency users have sent dozens of complimentary messages to the attacker pleading for a share of the loot, and some of them have even used the Ethereum blockchain to send small increments of cryptocurrency as tips. 

Related Stories

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Bitcoin is roughly flat over the past 24 hours as short-term momentum fades. The past few days have been relatively quiet in the crypto market, which typically precedes periods of higher volatility. Some analysts expect crypto prices to consolidate, albeit with the continued relative outperformance of altcoins such as ether and cardano. 

Bitcoin, the world’s largest cryptocurrency by market cap, was trading at around $45,400 at press time and is up 55% year to date, compared with a 19% return for the S&P 500 and a 30% return in commodities over the same period.

Latest prices

Cryptocurrencies:

• Bitcoin (BTC) $44,888, -0.98%
• Ether (ETH) $3026.5, -2.31%

Related: Bitcoin Use Will Be ‘Totally Optional’ in El Salvador, Finance Minister Says

Traditional markets:

• S&P 500: 4400.3, -1.07%
• Gold: $1785.3, -0.03%
• 10-year Treasury yield closed at 1.272%, compared with 1.262% on Tuesday

Analysts are also watching institutional flows throughout the crypto market. A review of regulatory documents reveals that a parade of megabanks, including Goldman Sachs, JPMorgan, Citigroup and Bank of America, and even states such as Tennessee, have told securities regulators they held Coinbase stock (NASDAQ: COIN) on June 30, reports CoinDesk’s Danny Nelson.

But not all investors are dedicated to their crypto holdings. Cathie Wood’s ARK Invest continued to reduce its holdings of COIN and the Grayscale Investment Trust (GBTC) in the past week, according to Chainchatter and Wu Blockchain. Wood is a noted crypto investor. Grayscale is owned by Digital Currency Group, CoinDesk’s parent company.

Crypto could attract a wall of institutional money, says LMAX CEO

Large institutions are warming up to cryptocurrencies and will demand more robust trading infrastructure. “There is a wall of institutional money, and we could see exciting new entrants into the custodian, credit intermediation, and aggregation space,” David Mercer, CEO of LMAX Group, a global institutional exchange, said in an interview. 

Related: VanEck Adds to ETF Applications With Ether Futures Filing

“Forty percent of our digital-asset clients also trade FX (foreign exchange) and 34 of the world’s biggest banks connect with us,” Mercer said. 

LMAX Digital is an institutional cryptocurrency exchange operated by LMAX Group.

Mercer stated that some institutional clients have increased their exposure to crypto from a minority holding to a majority holding. And although altcoins are popular, Mercer does not see ether taking over bitcoin in the near-term.

Institutions face risks with crypto that are different from traditional foreign exchange markets, according to Mercer. For example, “capturing differences in spot prices is very capital intensive and institutions are trading with a lot of unknown counterparties, including exchanges,” Mercer said. 

The reliability of technology, depth of liquidity and execution are some important factors that institutions consider when selecting a trading venue, according to a LMAX Digital survey. 

In general, Mercer is bullish on cryptocurrencies and expects the total market cap to increase by  $5 trillion within the next two years with major financial institutions paying more attention to the field. The total market cap of cryptocurrencies stands at $1.93 trillion, according to CoinMarketCap.

“For me it’s a no-brainer that that amount of money will enter the crypto space, and is looking for a home, and looking for assets to invest in. When one bulge-bracket bank starts trading actively for their clients, the others will follow,” Mercer said.

Crypto adoption shifts to emerging markets

Crypto adoption has increased 23-fold globally over the past year with India, Pakistan, Ukraine and other emerging markets driving the surge, Chainalysis said in a report Wednesday, as CoinDesk’s Muyao Shen reports.

In its “2021 Global Crypto Adoption Index,” Chainalysis found that Chinese and U.S. positions as crypto adoption leaders have been waning amid the Chinese crackdown on crypto trading and the growing role of major financial institutions in crypto markets.

The annual study underscores that crypto adoption is accelerating quickly worldwide and that its use is shifting to markets that not long ago were more moderately active on the crypto front. Meanwhile, those markets that were previously at the forefront are confronting big changes with regulations and financial services.

Instead of measuring crypto trading volume, which favors countries with high levels of professional and institutional adoption, Chainalysis focused on blockchain activity by non-professional and individual crypto users. That methodology encompasses crypto adoption in more ordinary activities, including savings, rather than just trading and speculation.

Bitcoin dominance decline

The market dominance of bitcoin, or the largest cryptocurrency’s value as a share of the overall market, declined to 44% over the past week. The relative market cap loss occurred as altcoins such as ether and cardano outperformed bitcoin during the recent crypto rally. 

“Despite bitcoin and ether’s excellent performance this year, neither asset is anywhere close to cardano’s return,” Alexandra Clark, a sales trader at U.K.-based digital asset broker GlobalBlock, wrote in an email to CoinDesk. Cardano is up about 65% month to date, compared with a 21% rise in ETH and a 14% rise in BTC over the same period.

Clark sees future potential for cardano driven by network upgrades. 

“Cardano’s Alonzo mainnet hard fork, which is scheduled for Sept. 12 and is one of the most anticipated events in the crypto calendar, will help cardano compete on equal terms with Ethereum,” Clark wrote. “Cardano will tackle one of the asset’s biggest deficiencies by allowing users to run smart contracts on the network.”

Slowdown in money supply

The slowdown in global money supply could weigh on bitcoin, according to Stifel, a global investment bank. Global central banks are preparing to tighten policy as unprecedented amounts of fiscal and monetary stimulus is absorbed in the economy. And with some asset prices running high, analysts at Stifel expect a repricing of speculative markets such as cryptocurrencies. 

On Wednesday, minutes from the July Federal Open Market Committee (FOMC) meeting showed most Fed officials expected to scale down easy money policies this year. 

Altcoin roundup

• Avalanche’s AVAX Token Jumps: Avalanche’s AVAX token surged Wednesday after the blockchain announced plans for a $180 million “liquidity mining incentive program” to scale in decentralized finance, or DeFi. The token was up by 18.8% in the last 24 hours at press time, trading at $26.9. The price has more than doubled in the past month, according to data from Messari. The Avalanche Foundation said in a press release the DeFi incentive program titled “Avalanche Rush” will bring top DeFi applications to the platform, including Aave and Curve.
• White hats defused a potential $350M heist on SushiSwap: A group of people in the crypto community, led by crypto investment firm Paradigm’s research partner, Sam Sun, may have just prevented SushiSwap’s token fundraising platform Miso from losing more than $350 million worth of ether after the group discovered and fixed a bug on the platform in less than five hours. Because of the collective efforts, SushiSwap says no funds have been lost. According to a post published by SushiSwap on Monday, Sun and his colleagues Georgios Konstantopoulos and Daniel Robinson – all from San Francisco-based crypto investment firm Paradigm – reached out to the team at Sushi to alert them to “a vulnerability” on the “Dutch auction” contract on the Miso platform.
• Rally submits plan to decentralize itself: Social token startup Rally has submitted a proposal to decentralize itself into an array of entities – some corporate, other community controlled – that would independently build out the Rally ecosystem. The road map would see the crypto-based “creator coin” platform split up into a venture studio, an Asia-based outpost, a Swiss nonprofit, a decentralized autonomous organization (DAO) and a Delaware-based corporation that would carry the Rally name.

Relevant news:

• Bitcoin Lightning Network Growth Passes New Milestones
• Evolve Funds Files for Crypto ETF in Canada
• Crypto Asset-Management Market Will Exceed $9B by 2030: Study
• Bitcoin Mixing CEO Harmon Pleads Guilty to US Money-Laundering Charge
• Minneapolis Fed President Kashkari on Crypto Market: ‘Thousands of Garbage Coins’
• Facebook: Novi Digital Wallet Is ‘Ready to Come to Market’

Other markets

Most digital assets on CoinDesk 20 ended up lower on Wednesday.

Notable winners of 21:00 UTC (4:00 p.m. ET):

cardano (ADA) +2.78%

Notable losers:

filecoin (FIL) -8%

aave (AAVE) -7.79%

uniswap (UNI) -7.7%

Related Stories

• Crypto Made the Agenda at Last Month’s Fed Meeting
• Bitcoin Lightning Network Growth Passes New Milestones

Robinhood reported Wednesday that the percentage of its total revenue derived from commissions on cryptocurrency trading jumped to 41% in the second quarter, up from 17% in the first quarter. Overall, it said that more than 60% of its customers traded cryptos in the quarter.

• Cryptocurrency-based revenue for the second quarter was $233 million, versus just $5 million in the year-ago quarter. 
• Robinhood further specified that 62% of its cryptocurrency revenues in the second quarter came from the trading of dogecoin, up from 34% in the first quarter.
• Robinhood noted this heavy reliance as a risk in its earnings report. “If demand for transactions in Dogecoin declines and is not replaced by new demand for other cryptocurrencies available for trading on our platform, our business, financial condition and results of operations could be adversely affected,” the company wrote.
• Wednesday’s report was Robinhood’s first earnings report as a public company. Overall, the company lost an adjusted $2.16 per share, compared to consensus estimates for a loss of 26 cents per share. It recorded revenue of $565 million, ahead of estimates for $559.5 million.
• The company also warned of lower revenue expectations for the third quarter. “For the three months ended Sept 30, 2021, we expect seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer funded accounts than in the prior quarter,” the company wrote.
• Shares were down almost 6% in after-hours trading to $46.94  on Wednesday following the release of the report. The company went public on July 28 at an IPO price of $38 per share and closed down 8% on its first day of trading.

UPDATE (August 18, 20:56 UTC): Adds information in the first and fifth bullet points.

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• Robinhood IPO Priced at Lower End of Range, Valued at $32B

Fund manager VanEck filed for an Ethereum-based exchange-traded fund (ETF) on Wednesday that would seek to sidestep U.S. regulators’ crypto ETF blockade by trading ether indirectly.

The Ethereum Strategy ETF would invest in ether futures contracts, Canada’s approved ether ETFs, private ether funds and exchange-traded products with exposure to ether. What it won’t do is buy the digital asset itself, according to a filing.

VanEck already has a pure-play ether ETF before the SEC. But that product’s fate remains unclear and is likely tied to that of over a dozen bitcoin ETF bids (all so-called “33 Act” products) also before the crypto-cautious securities regulator.

Related: Market Wrap: Bitcoin Trades Sideways as Institutional Demand Expected to Rise

By contrast, VanEck’s indirect ether ETF is a “40 Act” fund. That ETF structure likely carries more investor protections than its 33 Act counterpart – an important distinction for SEC chair Gary Gensler.

Earlier this month, D.C.’s self-appointed crypto cop hinted the SEC could look more favorably upon bitcoin ETFs that only trade futures contracts. He did not comment more broadly on crypto ETFs. Ether and bitcoin are the only two crypto assets approved for futures trading in the U.S.

That VanEck’s proposed fund would trade a broad array of ether products might fall outside Gensler’s guardrails. 

The company has also filed for a similar fund that would invest indirectly in bitcoin, alongside its more direct bitcoin ETF application.

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Coinbase has amassed a cash stockpile of $4.4 billion to ensure it can continue growing despite potential business risks such as regulatory crackdowns, cyberattacks and declines in trading volume, according to a report from The Wall Street Journal. 

• Alesia Haas, Coinbase’s chief financial officer, told the paper that the exchange maintains cash reserves so that it can continue to invest and expand even in the worst-case scenario of a “crypto winter.”
• Coinbase’s cash reserves stood at $4.36 billion at the end of June, up from $1.1 billion at the end of last year.
• “We want to ensure that we maintain those cash reserves so that we can continue to invest and continue to grow our products and services in the event that we go into a crypto winter,” Haas said.
• Coinbase, which generates nearly all of its revenue and profits from its comparatively high trading fees, has thrived with the surge in trading over the past year. Last week, Coinbase reported a net income of $1.6 billion for the second quarter, compared with a net income of $32 million from the same period in 2020.
• Haas also told the Wall Street Journal that the stockpile could be used for acquisitions. In recent months, Coinbase has scooped up data analytics platform Skew, investment visualization startup Zabo, and Bison Trails, a blockchain infrastructure provider.  

Related Stories

• Bridgewater, Citadel, Even Tennessee’s Treasury Among Coinbase COIN Whales
• Market Wrap: Bitcoin Rally Expected to Pause
• Chip Giant Intel Owns Coinbase Shares: Report
• Coinbase Stock Up More Than 8% After Record Quarter

Coinbased has amassed a cash stockpile of $4.4 billion to ensure it can continue growing despite potential business risks such as regulatory crackdowns, cyberattacks and trading declines, according to a report from the Wall Street Journal. 

• Alesia Haas, Coinbase’s chief financial officer since 2018, told the Wall Street Journal that the exchange maintains cash reserves so it can continue to invest and expand even in the worst-case scenario of a “crypto winter.”
• Coinbase’s cash reserves stood at $4.36 billion at the end of June, up from $1.1 billion at the end of last year.
• “We want to ensure that we maintain those cash reserves so that we can continue to invest and continue to grow our products and services in the event that we go into a crypto winter,” Haas said.
• Coinbase, which generates nearly all of its revenues and profits from its comparatively high trading fees, has thrived during the surge in trading over the past year. In Q2, Coinbase earned $1.6 billion, up almost 5,000% from the same period in 2020.
• Haas also told the Wall Street Journal that the stockpile could be used for acquisitions. In recent months, Coinbase has scooped up data analytics platform Skew, investment visualization startup Zabo, and Bison Trails, a blockchain infrastructure provider.  

Related Stories

• Bridgewater, Citadel, Even Tennessee’s Treasury Among Coinbase COIN Whales
• Market Wrap: Bitcoin Rally Expected to Pause
• Chip Giant Intel Owns Coinbase Shares: Report
• Coinbase Stock Up More Than 8% After Record Quarter

Top Federal Reserve officials are so concerned about the potential danger posed by cryptocurrencies to the financial system that they discussed it during a seminal monthly closed-door meeting in July.

“Some participants cited various potential risks to financial stability including the risks associated with expanded use of cryptocurrencies,” according to minutes of the July 27-28 meeting of the Federal Open Market Committee (FOMC). This is the panel at the U.S. central bank that sets monetary policy, and the interest-rate decisions announced after its monthly meetings are the subject of much soothsaying and Kremlinology (in the figurative sense).

While officials from the Federal Reserve Board in Washington and regional Fed banks have expressed a range of views about crypto in recent months, from welcoming to wary, this appears to be the first time the topic has come up in the FOMC.

Related: Facebook: Novi Digital Wallet Is ‘Ready to Come to Market’

As such, it’s another sign the industry has “arrived,” following its role holding up the $1 trillion infrastructure bill in Congress.

Released Wednesday, the minutes did not say which members of the 11-seat committee voiced these concerns.

A few officials also highlighted the need to regulate stablecoins, according to the minutes.

The officials noted the “fragility and lack of transparency associated with stablecoins, the importance of monitoring them closely, and the need to develop an appropriate regulatory framework to address any risks to financial stability associated with such products,” according to the minutes.

Related: Minneapolis Fed President Kashkari on Crypto Market: ‘Thousands of Garbage Coins’

While the document does not elaborate, one reason FOMC members may be concerned is the investments made by issuers of stablecoins, which are supposed to be redeemable 1-for-1 with dollars, and the potential for a sell-off in the underlying assets should these outfits be hit with a high number of redemption requests simultaneously.

“There’s increasing evidence that [stablecoins] are material players in the commercial paper market and operating like unregulated money market funds—which aren’t even stable themselves,” Steven Kelly, a research associate at the Yale Program on Financial Stability, an initiative focused on understanding financial crises, told CoinDesk.

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Social token startup Rally has submitted a proposal to decentralize itself into an array of entities – some corporate, others community-controlled – that would independently expand the RLY ecosystem.

The road map would see the crypto-based “creator coin” platform split into a venture studio, an Asia-based outpost, a Swiss nonprofit, a decentralized autonomous organization (DAO) and a Delaware-based corporation that would carry the Rally name. 

“Today, we lay out our plans for the community to decide the future of the network,” Rally founder Kevin Chou wrote in the proposal. The vote will conclude on Aug. 25.

Related: Avalanche’s AVAX Token Jumps on $180M Incentive Program

An “aye” from RLY holders would make Rally the latest crypto project to embrace self-decentralization. Some have done so radically: Shuttered ShapeShift’s legacy operations are now run exclusively by FOX token holders through a DAO. The Maker Foundation also plans to hand its decentralized finance (DeFi) keys back to a DAO.

Rally would not be as aggressive. Its centerpiece entity would be run by appointed executives, including prospective CEO Bremner Morris, who is already Rally’s community-appointed chief marketing officer.

Rally’s plans are roughly comparable with Blockstack’s (now “Stacks”) effort in 2018 to slice itself into five entities. There are some key differences, though. For starters, Rally’s decentralization plan must first win community support. 

“We’re trying to take it a step further by really establishing a very community-focused DAO on top of the ecosystem as well,” Chou told CoinDesk in an interview.

Related: Impossible Finance Names OpenSwap as First Project for DeFi Launchpad

RLY token holders in the RLY Ecosystem DAO would get a starter budget of 10 million RLY tokens (worth roughly $5.4 million at today’s prices) to spend through community votes on network development. That represents one of the smaller pieces of a budget pie worth 245 million RLY tokens and $86 million in USDC.

Of that, Rally would get 150 million RLY and 60 million USDC, a yet-to-be-named Asia affiliate would get 70 million RLY and 17.5 million USDC and venture studio SuperLayer would get 50 million RLY (with credit lines and investments up to 45 million USDC). Chou and co-founder Mahesh Vellanki will run SuperLayer.

The protocol itself would be overseen and maintained by the nonprofit wing, Swiss-based $RLY Network Association.

Rally raised $50 million in a previously undisclosed token sale, company representatives told CoinDesk.

Zack Seward contributed reporting.

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• ShapeShift, DAOs and the Future of Work
• White Hats Just Defused a Potential $350M Heist on SushiSwap

Evolve Funds has filed a preliminary prospectus with the Ontario Securities Commission (OSC) for an Evolve Cryptocurrencies exchange-traded fund (ETF).

• The Evolve Cryptocurrencies ETF would give investors “indirect exposure” to certain cryptocurrencies selected by an investment manager, weighted on a market cap basis and rebalanced monthly, the firm said in a press release.
• Purpose Investment was the first firm to receive OSC approval and launch a bitcoin ETF in North America. Evolve is Canada’s second ETF issuer to have a bitcoin ETF approved by the OSC to trade on the Toronto Stock Exchange.
• On April 16, three ether ETFs, launched by Purpose Investments, CI Global Asset Management and Evolve ETFs, all received approval. The began trading on the TSX on April 20.
• Investors in Canada can hold cryptocurrencies in their brokerage account, including their Registered Retirement Savings Plan (RSP) and Tax-Free Savings Account (TFSA), said Raj Lala, CEO of Evolve ETFs.
• “With the Evolve Cryptocurrencies ETF, investors will be able to take a broader approach by allocating to cryptocurrencies based on their market cap weightings,” Lala said.

Read more: Evolve Becomes Second Canadian Issuer to Win Approval for Bitcoin ETF

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The price of AVAX, the token of the Avalanche platform, surged Wednesday after Avalanche announced plans for a $180 million “liquidity mining incentive program” to increase its scale in the world of decentralized finance (DeFi). 

The token was up by 16% in the last 24 hours at press time, trading at $27.69. The price has more than doubled in the past month, according to data from Messari. 

The Avalanche Foundation said in a press release that a $180 million DeFi incentive program titled “Avalanche Rush” will bring top DeFi applications to the platform, including Aave and Curve.  Avalanche is a platform that’s used to build custom blockchain networks and decentralized applications, knowns as “dapps.”

Related: DeFi-Powered Social Token Site Rally Submits Plan to Decentralize Itself

“Aptly dubbed ‘Avalanche Rush,’ the program will lead exactly to that, an avalanche of hot money rushing towards AVAX,” said Denis Vinokourov, head of research at Synergia Capital. 

The token is still well off its all-time high of about $59 that it hit six months ago, according to CoinGeko.  

“In the spirit of strength in numbers, strong partnerships, such as those utilized by Polygon with Curve, Aave and others, is a better strategy to attract and to retain users as opposed to re-inventing the wheel on their own,” Vinokourov said. 

Often dubbed as an alternative to the Ethereum blockchain, Avalanche says the fact that it processes thousands of transactions per second and has low fees makes it a “haven for Ethereum defectors,” according to Messari research. It is not a single-blockchain network like Ethereum as it features multiple chains that perform different functions. 

Related: Impossible Finance Names OpenSwap as First Project for DeFi Launchpad

“As DeFi becomes more and more popular, it becomes clear that the Ethereum blockchain is currently struggling to fit all the activity. Thus, it is important to expand to other chains and layer 2s (L2s),” Michael Egorov, CEO at Curve Finance, said in the press release. 

“We find Avalanche offering an excellent opportunity with its unique decentralized consensus mechanism, high throughput and low transaction fees,” he added.

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The Lightning Network – a layer 2 payment product built on top of the Bitcoin blockchain that enables secure, private and near-instantaneous transactions at little to no cost – has surpassed 25,000 active nodes for the first time, an indication that the network is growing stronger with more nodes and more channels. 

During the past 30 days, the number of active nodes has risen 8% to 25,010. A node is essentially a “user” on the network who sets up their computer to interact with other nodes. That way, they can send, verify and receive information – in this case, bitcoins.

As a decentralized network, the Lightning Network has no central data server that stores all of the transactions or interactions between users. Instead, its decentralized network of distributed nodes keeps track of the data, or part of it. 

Related: How Much Energy Does Bitcoin Use?

In order to reduce congestion on the Bitcoin blockchain, the Lightning Network allows users to route their transactions through off-chain channels. All of the transactions that pass through a channel are rewritten into a single transaction and settled on the Bitcoin network, allowing for millions of transactions to be made in a matter of seconds. These channels run between the various nodes that have chosen to connect in this way.

Not every node, however, operates a channel. Currently, the number of nodes with channels is 14,419, or about 58% of all nodes. The remaining 42% are simply there, for the time being, at least. 

But for those who do choose to open and fund a Lightning Network channel, there is the potential to earn yield.

Earning yield on the Lightning Network

In order to open a channel, node operators have to “fund” it with a small amount of BTC. Right now that average funding amount is about 0.035 BTC. Whatever amount is in that channel represents the maximum value of any transaction that can be routed through that channel. In return for providing that channel liquidity, node operators collect a small fee when a transaction routes through one of their channels. 

Related: Bitcoin Holds Support Near $43K as Rally Pauses

In the Lightning Network, not every node is connected to every other node; that would require far too much storage per node. Usually a transaction has to “hop” through channels, from one node to the next in order to find a path to its final destination. To accomplish that, the Lightning Network uses onion routing from the Tor Network, a privacy-based network protected by encryption, which essentially allows a transaction to hop from node to node until it reaches a target. 

Each hop through a channel requires its own fee – so the fewer hops, the better. Currently, the average hop distance is 8.8 hops.

Since we last reported on July 15, the number of channels has increased to 65,739 and expanded their capacity by roughly 78%, from 1,800 to over 2,300 BTC, according to data from 1ml.

The increase in the number of channels means that there are more connections between the nodes. Since every single jump between nodes costs a fee, having more channels available increases the chances of finding a more efficient route for the transaction’s final destination. Thus, increased connectivity can greatly reduce the fees associated with sending transactions.

Greater connectivity and more channels also translates to more competition in facilitating transactions. Average fees have dropped below the base fee. Although the base fee for passing through a node’s channels is 1 sat, the median fee that is being charged is only 0.000006 SAT/SAT spent or $0.000000003018/SAT spent. (A “sat” is a satoshi, the smallest unit of a bitcoin.)

Furthermore, the network capacity signifies a more developed network because it means that cumulatively, users have “invested” in the network. In order for transactions to hop from node to node, each channel must be funded adequately. The higher the capacity, the more funds can be sent.

Driving forces

The growth is, in part, due to the increasing need for a solution to Bitcoin’s scalability problem, which states that Bitcoin is limited to only seven transactions per second on the base layer. Layered networks like Lightning and sidechains like Liquid have gotten the attention of big names in crypto like Twitter and Square CEO Jack Dorsey, whose Twitter user name now includes a Lightning bolt for the Lightning network.

Earlier this summer, the Lightning Network made headlines when Jack Mallers, CEO of payments company Strike, announced the adoption of bitcoin as legal tender in El Salvador. In partnership with the president of El Salvador, Nayib Bukele, Mallers’ Lightning-based payment app Strike was implemented throughout the country. 

Now, Mallers is taking an aggressive stance against big centralized exchanges like Coinbase by bringing on app bitcoin purchase fees to near zero. All of these big moves signify his dedication to fostering the growth of Bitcoin as well as bringing attention to Strike and Lightning.

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Boston-based financial services corporation Fidelity revealed this week that 90% of its clients are interested in investing in Bitcoin and other cryptocurrencies. Founded in the 1940s, the private firm has $10.4 trillion in assets under management as of 2021.

Blockchain identity company Civic is promoting current chief operating officer Chris Hart to CEO, current CEO Vinny Lingham announced in a post on Wednesday.

• Hart has served as the company’s COO since 2017.
• As part of the change, Lingham will become Civic’s Executive Chairman of the Board of Directors.
• Lingham wrote that last summer, Civic decided to move to an “ecosystem that can support a high volume B2B model,” given the impact of high Ethereum gas fees on its wallet product. That shift was one of the main reasons Civic  moved early to integrate with Solana. 

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Crypto rewards app Fold is trying out a new way to get its users excited about bitcoin: an augmented-reality crypto scavenger hunt in the style of “Pokémon GO.”

Fold’s AR feature allows users to explore their surroundings while searching for bitcoin and other rewards, including merchant deals and cashback prizes. The app’s wait list went live today with a full launch slated for later this month.

“One of the barriers to entry with bitcoin is that it’s money, but it’s not visible for everyday people,” Will Reeves, Fold’s CEO and co-founder, told CoinDesk. “This augmented reality experience allows people to see bitcoin, to pick it up, and essentially brings the world of bitcoin, which exists in zeros and ones, and makes it tangible.”

Related: Tron Foundation Launches $300M Fund to Invest in GameFi Projects

Fold is not the first to make a game out of bitcoin. In recent years, gamification in crypto – and finance in general – has been on the rise, from Robinhood adding game-like features to its investing platform to all-out crypto adventures like Satoshi’s Treasure, which used a bitcoin prize to promote tokens. 

Fold cardholders will be able to access the AR feature every hour, while users who only have the app will be able to access it once per day. Bitcoin prizes range from what Reeves describes as “a couple satoshis” to “a gold mine” of bitcoin. A satoshi is the smallest unit of bitcoin. 

During the current testing period, Fold will give away about $100,000 worth of bitcoin, but Reeves said the number would fluctuate in future months depending on sponsorship and user interaction levels.

The launch of Fold’s new AR feature coincides with the removal of all sign-up and activation fees associated with its Spin debit card, which offers rewards of up to 25% back in bitcoin on purchases.

Related: British Fashion Brand Burberry Releases First NFTs

Update (Aug. 18, 16:34 UTC): Corrects app launch date.

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Larry Dean Harmon, the jailed former chief of darknet bitcoin mixing service Helix, pleaded guilty to one count of conspiracy to launder monetary instruments on Wednesday in D.C. District Court.

Between July 2014 and December 2017, Helix processed a reported 354,468 BTC for drug vendors on Alphabay and other marketplaces. At the time of transaction, this sum was worth over $311 million. At today’s prices, Helix processed over $16 billion worth of bitcoin. 

Harmon was arrested in Ohio on Feb. 6, 2020, and charged with conspiracy to commit money laundering, operating an unlicensed money transmitter business and money transmission without a license. In October 2020, Harmon was ordered to pay a $60 million civil penalty. 

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The case against Harmon was the first time the Department of Justice (DOJ) and associated financial watchdogs like the Financial Crimes Enforcement Network (FinCEN) called bitcoin mixing services illegal.

In a press statement after Harmon’s arrest, Assistant Attorney General Brian Benczkowski wrote: “This indictment underscores that seeking to obscure virtual currency transactions in this way is a crime.”

Many in the crypto community have expressed concern that Harmon’s arrest set a precedent where creating a bitcoin mixer is considered unlawful, and any service that uses obfuscation tactics to conceal bitcoin’s publicly accessible path could face legal pushback. There are multiple technologies for “mixing” bitcoin payments, however, with some being less unlawful than others.

While pleading guilty, Harmon’s lawyer clarified that Helix’s double-blind nature meant that Harmon did not know the number or value of the transactions he processed.

Related: Brazilian Police Seize $33M in Crypto Money Laundering Probe

The prosecution described Harmon’s plea deal as “lenient” due to an unspecified “cooperation agreement.” 

However, Ari Redbord, head of legal and government affairs at TRM Labs, said Harmon is not getting off lightly.

“Quite the opposite. He plead guilty to the lead charge in the indictment – money laundering conspiracy – which carries a 20 year maximum sentence and his sentencing guideline range is life in prison,” Redbord said. “He now has to provide valuable information to the government in order for them to seek a downward departure from the Court. The result makes sense for both sides.”

Harmon, who remains on release pending sentencing, faces a maximum sentence of 20 years in federal prison as well as what his lawyer describes as “a large and lengthy forfeiture agreement.”

UPDATE (Aug. 18, 2021, 15:35 UTC): Adds additional comment.

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Impossible Finance, the decentralized finance (DeFi) incubator that raised $7 million in June, named OpenSwap as the first project to be featured on its DeFi launchpad.

• OpenSwap provides DeFi traders with a single location for accessing liquidity pools from multiple blockchains.
• Calvin Chu, Impossible Finance’s core builder, described the platform as a “godsend” thanks to its aggregation facilities.
• Impossible Finance’s seed funding round in June was led by institutional investors including CMS Holdings and Alameda Research.
• The protocol launched on Binance Smart Chain in May with the goals of building a network for staking, token swaps and access to liquidity pools as well as becoming an incubator for other projects.

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As new miners join the fray and the Bitcoin network continues to grow, so too does its energy usage.

It’s easy to read the headlines and assume that bitcoin, and indeed every other cryptocurrency, must be significantly contributing to climate change. In May, Tesla CEO Elon Musk tweeted his concerns that “cryptocurrency is a good idea on many levels … but this cannot come at great cost to the environment.” Shortly after, bitcoin’s value tumbled 15%. The growing global pressure on bitcoin miners to use more renewable energy has led to the creation of initiatives like the Bitcoin Mining Council and pushed mindful investors to seek out “greener” cryptocurrencies. 

As of mid-July, a single bitcoin transaction required 1719.51 kilowatt hours (kWh) – where a kWh is the amount of energy a 1,000-watt appliance uses in over an hour. To put that in perspective, that is about 59 days’ worth of power consumed by an average U.S. household. On an average day, 240,000 bitcoin transactions are sent over the network. 

How does bitcoin use power?

Related: Bitcoin Lightning Network Growth Passes New Milestones

Often referred to as the new gold rush, it can be hard to comprehend how something with no physical manifestation can be so resource-intensive. The Bitcoin network relies on thousands of miners running energy intensive machines 24/7 to verify and add transactions to the blockchain. This system is known as “proof-of-work.”

Bitcoin’s energy usage depends on how many miners are operating on its network at any given time. These miners must compete against each other to win the right to add the next block to the blockchain and earn rewards. The competitive structure results in a lot of wasted energy as only one miner can add a new block every 10 minutes. 

To maintain a competitive advantage over other miners, many larger operations are forced to scale up or upgrade their equipment. As a result, there are now dozens of mining facilities all over the world that have hundreds, if not thousands, of rigs running constantly. One of the byproducts of these industrial-scale operations is heat. Application-specific integrated circuit (ASIC) miners – the leading type of specialized computing equipment used for mining cryptocurrencies – produce a lot of heat when performing hashing functions and need to be kept cool to prevent them from becoming less efficient or burning out. Smaller operations might only need fans and a cool climate to keep temperatures in check, but large mining facilities require industrial-style cooling systems. That further increases the amount of energy consumed. 

Why is this energy consumption a problem?

While the mining industry’s steering toward cleaner energy, a large portion of the electricity consumed by the Bitcoin network is still generated from nonrenewable sources, like coal-burning power plants. It’s well understood that burning fossil fuels like coal releases huge amounts of carbon dioxide into the atmosphere – the main driver of climate change. That means that the more mining computers that join the network, the more demand there will be to create and consume energy.

Related: Bitcoin Holds Support Near $43K as Rally Pauses

Energy demands around bitcoin have long been a concern, especially now that we have seen the network quadruple since its last peak in 2017. And the network is still maturing. At its present level, Bitcoin consumes 81.51 terawatt hours (TWh) annually. If it were a country, it would rank as number 39 for annual electricity consumption, ahead of Austria and Venezuela. 

Understanding the environmental impact

It is important to note that there is a difference between electricity consumption and environmental/carbon footprint. There is no doubt that bitcoin’s miners require large amounts of electricity. But to understand the ecological impact, there needs to be information about where miners source their energy. Bitcoin itself does not inherently produce extra carbon emissions because any source of electricity can technically power the network. As of September 2020, researchers at the Cambridge Center of Alternative Finance (CCAF) found that 62% of global miners relied on hydropower, 38% used coal, and 39% used some combination of wind, solar or geothermal energy. But it is estimated that only 39% of bitcoin’s energy consumption is carbon neutral. 

While other industries need specific environments and conditions, bitcoin can capitalize on energy sources that are inaccessible to others. In the Chinese provinces of Yunnan and Sichuan, large quantities of excess hydropower were harvested to power the growing mining factories in China. During the rainy season, these provinces could be responsible for 50% of all mining operations worldwide. But in June, the Chinese government imposed restrictions on cryptocurrency mining. That has resulted in mining operations migrating to countries like Kazakhstan, which rely more heavily on fossil fuel-based electricity. 

How bitcoin compares to traditional banking

While Bitcoin’s electricity consumption may seem like a lot, it pales in comparison to the energy consumed by traditional banks. The entire bitcoin ecosystem is said to use less than half of the energy banking systems require. That is not too surprising when you take into account the sheer number of physical branches, printing facilities, ATMs, data centers, card machines and secure transport vehicles required to support the fiat currency system.

The future of bitcoin’s energy use

There’s been a notable push in 2021 to make bitcoin mining, and indeed other cryptocurrency mining, more sustainable and environmentally friendly. The Crypto Climate Accord advocates for the cryptocurrency industry to seek out new electricity sources and aims to provide crypto companies “an open-source toolbox of tech solutions” to help the industry achieve net-zero emissions by 2030. 

Finally, there may be less reason to worry than the alarming headlines proclaim. Bitcoin’s miners are unlikely to increase at the same scale as they did a few years back. That is in part due to bitcoin halving, which is built into the Bitcoin blockchain and reduces the block rewards miners get every four years. So unless bitcoin’s value continues to rise to compensate for the drop, miners will need to shift toward more efficient equipment and cheaper sources of energy in order to maintain margins and keep large-scale mining operations viable.

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Facebook said Wednesday that the global payments system is seriously flawed and that the social media giant can fix it.

• “Change is long overdue,” Facebook’s David Marcus wrote in a blog post.
• Marcus, the former PayPal chief hired in 2018 to lead Facebook’s blockchain efforts, said Novi, the digital wallet subsidiary he oversees, is “ready to come to market.”
• “We feel that it’s unreasonable to delay delivering the benefits of cheaper, interoperable, more accessible digital payments,” he wrote.
• The blog post follows reports of the increased obstacles that Facebook’s stablecoin project faces. After being introduced in June 2019, Libra ran into resistance from global regulators. The project, which was rebranded as Diem in December, has yet to launch.
• Only offering fiat currency within Novi would still provide value, Marcus wrote, though he added: “I strongly believe if there was ever a chance to create an open, interoperable protocol for money on the internet and truly change the game for people and businesses around the world, it is now.”
• Marcus noted that Facebook has secured licenses and approvals for Novi in nearly every state in the U.S., and said, “We will not launch anywhere we have not yet received such clearances.”

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The Dutch central bank joined the ranks of regulators issuing warnings about crypto exchange Binance operating without permission.

• De Nederlandsche Bank (DNB) said Wednesday that “Binance is providing crypto services in the Netherlands without the required legal registration.”
• Binance is not in compliance with the country’s anti-money laundering and anti-terror financing act, and is offering custodian wallets and services illegally, the DNB said.
• The warning pertains to Binance Holdings Ltd. as well as other Binance entities that offer crypto services in the Netherlands.
• DNB’s announcement follows similar warnings from financial overseers in a number of jurisdictions in recent months, including the U.K., Japan, Hong Kong and Malaysia.

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