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The Australian central bank sees no need to issue its own retail digital currency just yet, a top official said Wednesday.

Tony Richards, head of payments policy at the Reserve Bank of Australia (RBA), told the UWA Blockchain, Cryptocurrency and Fintech conference that his agency had evaluated retail central bank digital currencies (CBDCs) and found “no strong public policy case” for introducing a general use version of the Australian dollar.

“Even though the use of cash for transactions is declining, cash is still widely available and accepted as a means of payment,” he said. “In addition, Australian households and businesses are well served by a modern, efficient and resilient payments system that has undergone significant innovation in recent years, including the introduction of the New Payments Platform, which is a real-time, 24/7 and data-rich electronic payments system.”

Related: The IMF, G20 and BIS Gear Up for the Central Bank Digital Currency Era

Still, he did not discount the fact that the bank might change its mind in future: his group will continue to examine the merits or concerns around introducing a CBDC, he said, including “the conditions in which significant demand for a CBDC might emerge.”

Central banks worldwide are looking CBDCs and whether it would make sense to create and issue a tokenized version of their national currencies. China is perhaps the furthest along, and is currently in the testing phase for a digital yuan. Other nations, like the U.S., are still in the early stages of determining whether a CBDC is even desirable.

According to Richards, the RBA looked at a number of factors that could help shape a potential CBDC, including the role of the central bank and private entities; whether it would be account-based or token-based; whether it could be used offline; what degree of anonymity might be allowed; and even whether an Australian CBDC would be based on a blockchain or distributed ledger platform.

Other considerations include the problems a potential retail CBDC would solve and what issues the introduction of such a digital currency might create, he said.

Related: Digital Ruble Can Help Track Government Spending, Bank of Russia Says

Still, the RBA is still evaluating and experimenting with the underlying technology, he said. If another central bank does decide to launch a retail CBDC, “there will be many central banks like us who will be closely watching.”

“In the meantime, separate to our work monitoring the case for a retail CBDC, the Bank is conducting research on the technological and policy implications of a potential wholesale CBDC,” Richards said.

In his words, this wholesale CBDC could be used as an interbank payment system or for tokenized financial assets.

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Square’s recently announced $50 million investment in bitcoin (BTC) is a “strong vote of confidence for the future of bitcoin” and a signal the payments company sees “a lot of potential” for the cryptocurrency as an asset, JPMorgan analysts said in a report dated Tuesday.

• While Square’s $50 million investment pales next to MicroStrategy’s recent $425 million loading up of the cryptocurrency, JPMorgan’s global market strategists wrote that Square is likely to make more purchases.
• Other payment companies will also likely follow in Square’s footsteps or risk getting shut out of a growing segment, the JPMorgan analysts wrote.
• Millennials have been using Square’s Cash App to buy BTC, the researchers noted, and that demand, along with Microstrategy’s purchases, indicate Q3’s bitcoin demand exceeded supply at a greater level than Q2’s.
• While noting that options contracts to BTC have risen, due to how institutional clients prefer to deal with established exchanges like the CME, the JPMorgan strategists said it’s likely retail traffic is driving the surge in options.
• While Square’s investment is a strong vote of confidence long-term, since the September selloff in BTC only partly alleviated what the JPMorgan team described as overbought conditions created during late July/early August, an overhang of net long positions could create a headwind for the price of BTC near-term, the analysts said.

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Venture capitalist Tim Draper’s investment office Draper Goren Holm is sinking larger investments in virtual currency-only startups.

Draper Goren Holm, a cryptocurrency investment firm in Los Angeles, told CoinDesk that it raised $25 million for its first venture capital fund to buffer its startup accelerator and back blockchain companies at higher investment valuations. 

The venture fund, announced last week, is planning to invest $250,000 to $500,000 in seed, Series A and a few later investment rounds, the firm said, whereas the accelerator funds pre-seed rounds for between $10,000 and $50,000 and 4% to 10% ownership stakes in startups.

Related: Tim Draper Leads Targeted $5M Series A for India Crypto Exchange Unocoin

“A majority of the value is captured in winning companies as they grow,” Alon Goren, a co-founding Draper Goren Holm partner with Josef Holm, said. “If we don’t have the cash to double down or triple down, we get diluted and lose some of that value.”

Draper Goren Holm, which brought Tim Draper onto its partnership last year, has invested in CasperLabs, a blockchain that mimics the Ethereum blockchain’s model; Vertalo, a Tezos blockchain security token issuer; and Tezos Stablecoin Technologies, a Tezos Foundation offshoot developing stablecoins, digital currencies pegged to fiat currencies.

Forge, a subsidiary of French investment bank Societe Generale, selected Tezos in September to test the issuance of central bank digital currencies (CBDC) and digital securities.

Billionaire Tim Draper’s namesake Silicon Valley venture capital firms – Draper Fisher Jurvetson, which he departed in 2013, Draper Venture Network, Draper Associates and Draper University – have invested in preeminent technology companies such as Tesla, SpaceX, SolarCity, Hotmail, Skype, Twitter, Twitch, Baidu and Ancestry.com.

Related: On-Chain Real Estate Startup Propy Raised $1.2M in Draper-Backed Round

Draper is also a bitcoin aficionado who paid $19 million for 30,000 government-seized bitcoins in a 2014 United States Marshals Service auction and invested in the digital currency exchange Coinbase and cryptocurrency-friendly stock trading app Robinhood with his personal money.

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Three hundred investors have ponied up funds for the initial public offering (IPO) of crypto exchange INX, according to Etherscan.

• The Ethereum blockchain also shows more than 650 transactions where investors have been whitelisted or registered. (The true number of registered investors could be higher because of how long the know-your-customer (KYC) process takes.)
• According to Douglas Borthwick, chief marketing officer and head of business development at INX, the sale has seen interest from retail, accredited and institutional investors. 
• Doing an IPO on-chain gives the public, and INX itself, a novel outlook on the process, which traditionally has been a back-room affair. 
• Traditionally, to get information on who beneficially owns an interest in securities held at central securities depositories like the Depository Trust Company, investors or issuers would have to go to the investment banks or broker-dealers who coordinated the sale.
• Since INX is self-issuing and national exchanges cannot list digital securities, the sale is only available in 15 states in the U.S. The exchange is also selling tokens to investors abroad.

Read more: How to Watch INX’s IPO in Real Time on the Ethereum Blockchain

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After the latest addition of 42 banks, about 100 Italian banks are officially operating on the country’s banking blockchain network, Spunta, built on R3’s Corda, the Italian Banking Association (ABI) announced Tuesday. 

• Banks first joined the blockchain project designed to improve interbank data transfer and settlement speeds back in March 2020 and by May, 55 banks had joined the network.
• According to ABI’s announcement, since March 204 million transactions were processed on Spunta’s infrastructure, and the association predicts this number will exceed 350 million by the end of the year. 
• The blockchain speeds up the complicated process of interbank reconciliation, where banks have to agree on how much money is owed by one bank to another.
• Earlier this year, an ABI official said that traditionally, reconciliation took weeks to complete, but because the blockchain keeps a verified interbank transfer log, processing can be done within a day. 
• Spunta is a project created by ABI Labs, which began trialing interbank transfers on Corda as early as 2018. 
• Italian banks joined the Spunta network in waves. There have been 32 banks since March, joined by 23 more in May, and 42 more in October, according to the announcement.   
• The ABI is made up of over 700 banking institutions, and announced earlier this year that Italian banks were ready to pilot a digital euro.

Read More: 85% of Italian Banks Are Exchanging Interbank Transfer Data on Corda

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Bitcoin’s price is slipping while the amount ether parked in DeFi is in neutral.

• Bitcoin (BTC) trading around $11,397 as of 20:00 UTC (4 p.m. ET). Slipping 1.3% over the previous 24 hours.
• Bitcoin’s 24-hour range: $11,313-$11,730
• BTC below its 10-day and 50-day moving averages, a bearish signal for market technicians.

Bitcoin’s price was able to crack $11,700 in the past 24 hours, going as high as $11,730 on spot exchanges such as Bitstamp. The world’s largest cryptocurrency by market capitalization then trended downward, dipping to as low as $11,313 before settling at $11,397 as of press time. 

Read More: Bitcoiners Have Trillions and Trillions of Reasons to Ignore US Election

Related: What Yearn Finance’s ‘Blue Kirby’ Incident Means for Pseudonymity

Despite bitcoin’s downward move Tuesday, Cindy Leow, portfolio manager for multi-strategy trading firm 256 Capital Partners, said its overall upward price trend since Oct. 8 has created a new bullish price floor. Leow’s analysis shows bitcoin above $11,000 signals a longer-term bull trend. However, if bitcoin’s price goes below that “support” level, she maintains, a long-term bear market could develop. 

“Since its break upwards at the end of last week, bitcoin’s support now squarely rests on the average price paid for BTC since the early September peak at $12,000. This new support is at $11,000,” Leow told CoinDesk.  

The declining influence of Seychelles-based derivatives venue BitMEX, which is mired in a myriad of regulatory and legal issues, appears to have had a positive impact on the market, Leow noted. 

“With BitMEX and its aggressive liquidation engine slowly becoming less relevant, bitcoin’s sudden $1,000 wicks are growing more infrequent, another healthy sign for BTC,” she added. Wicks are the vertical lines that appear at the top and bottoms of candles in technical charts that indicate the total price range during a specific trading period.

Related: Boardroom Raises $2.2M for Blockchain Governance Toolset

Indeed, bitcoin’s implied volatility, which forecasts price gyrations and is used often by options traders to analyze trading strategies, is at a low not seen since July.

Alessandro Andreotti, an over-the-counter trader based in Italy, notes that bitcoin has been operating in tandem with the stock market. Increasing correlation with the S&P 500 based on data from the CoinDesk Bitcoin Price Index seems to back this up.

Andreotti predicts bitcoin’s price could hit fresh 2020 highs should stocks also continue to rise. “If the S&P 500 can break into all-time highs, bitcoin could move up to $13,000.” 

Ether locked in DeFi stalls

The second-largest cryptocurrency by market capitalization, ether (ETH), was down in Tuesday trading at around $378 and slipping 2.3% in 24 hours as of 20:00 UTC (4:00 p.m. ET). 

Read More: COTI Launches Decentralized ‘Fear Index’ for DeFi Markets

Since Sept. 18, the amount of ether “locked” in decentralized finance, or DeFi, has remained relatively flat, averaging around $8.26 billion. Ether holders park the cryptocurrency in various smart-contract based protocols on the Ethereum network and receive a “yield” in return.

By contrast, the amount of bitcoin locked in DeFi has for the most part steadily increased, and is now closing in on 150,000 BTC. 

Brian Mosoff, chief executive officer of investment firm Ether Capital, said bitcoin holders may be seeing a powerful DeFi use case for the world’s oldest cryptocurrency that didn’t exist until recently.  

“Until recently, bitcoin was isolated from the power and flexibility of Ethereum,” Mosoff said. “Now, bitcoin holders can wrap their BTC and interact with a decentralized exchange, or borrow against a stablecoin. The Ethereum community has been able to natively do these things since day one.”

Other markets

Digital assets on the CoinDesk 20 are mixed Tuesday, mostly in the red. Notable winners as of 20:00 UTC (4:00 p.m. ET): 

• bitcoin cash (BCH) + 3.8%
• 0x (ZRX) + 2.5%

Notable losers as of 20:00 UTC (4:00 p.m. ET):

• chainlink (LINK) – 7.1%
• zcash (ZEC) – 6%
• monero (XMR) – 4.2%

Read More: IMF, World Bank, G20 to Create Central Bank Digital Currency Rules

Equities:

• Asia’s Nikkei 225 ended the day in the green 0.18%, led higher on gains from robotics manufacturer Fanuc, climbing 4.2%.
• Europe’s FTSE 100 fell 0.53% as negative sentiment surrounding increasing coronavirus cases and Brexit negotiations weighed on the index.
• In the United States the S&P 500 slipped 0.30% as the news that drugmaker Eli Lilly's coronavirus vaccine trial was paused by U.S. regulators fueled negative sentiment.

Commodities:

• Oil was up 1.7%. Price per barrel of West Texas Intermediate crude: $40.19.
• Gold was in the red 1.5% and at $1,893 as of press time.

Treasurys:

• U.S. Treasury bond yields all fell Tuesday. Yields, which move in the opposite direction as price, were down most on the on the two-year, dipping to 0.143 and in the red 7.6%.

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On Oct. 1, Diginex became the first crypto exchange operator to list on Nasdaq. Although the business is still in its early stages, a look into Diginex’s operations and filings can give us deeper insights into the exchange industry, historically unknown to the public.

CoinDesk Research presents an in-depth look into Hong Kong-based Diginex, the digital asset financial services company.

Some takeaways:

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Once in the business of cryptocurrency mining, Diginex sold most of those operations in 2018 and changed its focus to developing a digital asset financial services stack that includes an exchange, custodian, trading system and other complimentary business lines.

The company is centered around its institutional-focused exchange, Equos, which competes with several well-established players in a high-risk and competitive environment. Having just launched a few months ago, there is no significant financial information yet available for its exchange. However, recent filings show Diginex’s financial projections for the next three fiscal years.

Read more: Diginex Going Public Is About More Than a Nasdaq Ticker Symbol

Management estimates the exchange will bring in nearly $300 million in revenue by fiscal year 2023 with $2.4 billion in average daily trade volume (which is over five times the daily trade volume Coinbase averaged in September).

Related: US Senator Toomey Highlights Digital Currency Regs as He Eyes Banking Panel Chairmanship

Diginex also expects to achieve operating margins of 53% by 2023 as the company achieves economies of scale. As a point of reference, filings from the U.K.’s Companies House show Bitstamp achieved $127 million in revenue with a 49% operating margin in 2018.

Read the full report here.

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CORRECTION (Oct. 14, 2020, 04:25 UTC): This article originally said Fidelity recommended that portfolios consider a 5% allocation in bitcoin. The language used was a hypothetical. CoinDesk regrets the error.

Fidelity Digital Assets said bitcoin’s market cap has plenty of room to grow in a Tuesday report on the benchmark cryptocurrency’s uncorrelated nature.

• Director of Research Ria Bhutoria wrote that the crypto’s current market capitalization “is a drop in the bucket compared with markets bitcoin could disrupt.”
• Bhutoria argued that while institutional inflows may damp bitcoin’s uncorrelated performance, the crypto is “fundamentally less exposed” to the “economic headwinds” that other assets will likely face.
• Bitcoin is therefore a “potentially useful” asset for uncorrelated return-seeking investors.
• “In a world where benchmark interest rates globally are near, at, or below zero, the opportunity cost of not allocating to bitcoin is higher,” the report said.

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Fidelity Digital Assets recommended in a Tuesday report that investors “consider” diversifying 5% of their portfolios into bitcoin.

• A disciplined 5% would position investors to capitalize on bitcoin’s potential growth while protecting against losses, the cryptocurrency unit of the mutual fund giant wrote in its latest report on bitcoin’s investment thesis, spotted Tuesday by Decrypt.
• Director of Research Ria Bhutoria wrote that the crypto’s current market capitalization “is a drop in the bucket compared with markets bitcoin could disrupt.”
• Bhutoria argued that while institutional inflows may damp bitcoin’s uncorrelated performance, the crypto is “fundamentally less exposed” to the “economic headwinds” that other assets will likely face.
• Bitcoin is therefore a “potentially useful” asset for uncorrelated return-seeking investors. “Consider a portfolio with a target allocation of 5% bitcoin,” she wrote. 
• “In a world where benchmark interest rates globally are near, at, or below zero, the opportunity cost of not allocating to bitcoin is higher,” the report said.

UPDATE: 20:42 UTC: Adds details from the report.

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Decentralized application blockchain NEAR Protocol is live following a six-month release roadmap begun in May, according to the developer team.

The Andreessen Horowitz-backed blockchain project successfully transitioned to phase 2 of Mainnet today, Oct. 13, following an unexpected vote from the network’s validators, NEAR Protocol co-founder Illia Polosukhin told CoinDesk in a phone interview.

“It is now possible for anyone to send or receive tokens, to create accounts, to participate in validation, to launch applications or to otherwise use the network,” the team said in a release shared with CoinDesk.

Related: Will a Sharded Ethereum Be Flexible Enough for Decentralized Finance?

Polosukhin said the project’s “liquid democracy” function that allows token holders to delegate governance to validator pools unexpectedly led NEAR Foundation members to launch the network earlier than expected.

The network was previously operating under a limited Proof-of-Authority (PoA) model. The Ethereum Virtual Machine (EVM)–compatible blockchain is now operating under its own “Threshold” Proof-of-Stake (PoS) consensus algorithm.

NEAR Foundation CEO Erik Trautman told CoinDesk the project took longer to vet over the summer months than originally intended as “edge case” performance issues were being addressed. He said some 1,000 delegations occurred ahead of the vote that launched NEAR on Tuesday.

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The Financial Stability Board (FSB) recommended on Tuesday that governments closely regulate “global stablecoin” projects to keep those privately issued currency competitors from disrupting the world economy.

• FSB unveiled 10 “recommendations” for regulating stablecoin data safeguards, contingency plans, governance frameworks and other apparent pain points in its report.
• As the nongovernmental group’s broadly worded, non-binding proposals still need tailoring for specific jurisdictions, the report underscores how far prospective stablecoin issuers still have to go.
• The G7 economic bloc – U.S, Canada, Japan, Germany, France, Italy and Britain – also reiterated Tuesday that it will stonewall any “global stablecoin project” that tries to launch before clearing regulators’ strict (and evolving) scrutiny.
• Reuters first reported on the G7’s draft statement.
• Facebook-backed libra is undoubtedly the best known stablecoin initiative. It is also the most frequent target of regulators’ ire, often blastied by name. Here, however, officials appeared to focus on global stablecoins overall, never once specifically mentioning libra.
• The Libra Association has already made major concessions in past attempts to calm regulators’ concern. In April, the Association ditched plans to back its not-yet-launched stablecoin with a basket of national reserve currencies.

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Russia’s central bank, the Bank of Russia, issued a report about potentially launching a digital ruble.

The new report, published on the Bank of Russia’s website on Tuesday, does not promise an immediate launch. According to the report, the bank is open to feedback on the idea until Dec. 31. Then it will evaluate the data and possibly pilot a digital ruble with a limited set of users. Only at that point will the bank make a decision on whether or not such a project will be officially launched. 

The report proposed a central bank digital currency (CBDC) that will complement other forms of money, namely cash and bank accounts. Whether it will use a distributed ledger, a centralized system or a hybrid is an open question. The report underscores the value of smart contracts, which were pioneered on the Ethereum blockchain. 

Related: The IMF, G20 and BIS Gear Up for the Central Bank Digital Currency Era

CBDCs have been a buzzword for a while. Various central banks are discussing the topic and the People’s Bank of China is moving fast to launch a digital yuan.

This isn’t the first time Russia’s central bank has explored this concept. Last summer, the Bank of Russia’s head, Elvira Nabiullina, said the bank will not issue its own digital currency any time soon but was studying the question.

Unlike cryptocurrencies and stablecoins (specifically mentioned in the report), the digital ruble’s viability will be guaranteed by the government and the Bank of Russia in particular, the report said. The already-existing digital payment infrastructure used by payment terminals and ATMs can be also employed as payment rails for the digital ruble, the Bank of Russia believes. 

The digital ruble will stimulate innovation and competition in the financial sector because it will make transfers of funds from one financial broker to another faster and easier, the report said. It can also help make sure the funds allocated to government-funded projects are not misappropriated as a result of corruption. Each unit of the digital ruble can be tagged according to how exactly it can be spent. 

Related: Bank of Russia Considers Issuing Digital Ruble, Starts Public Consultations

Read more: Russia’s Latest Draft Bill Would Still Largely Ban Crypto, Stifle Miners

The report pays special attention to privacy. Although it won’t be possible to use the digital ruble anonymously, unlike paper cash or decentralized cryptocurrencies, “data about transactions with the digital ruble will contain more limited information than the existing payment systems,” the report said.

In particular, banks will have access to information on who participated in a transaction, but not the purpose of the transaction, the report reads. The users of the digital ruble will be go through know-your-customer (KYC) procedures on the Bank of Russia’s tech platform.

The regulator envisions that the potential launch of the digital ruble can create a period of instability for banks if people start withdrawing funds from their accounts to buy digital rubles. In this case, the Bank of Russia will help banks maintain their balances with additional loans. 

The amount of digital rubles that can be acquired at one time will also be limited, similar to the limits on cash withdrawals.  

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Ethereum scaling solutions are heterogeneous, which, as a result, makes them hard to monitor.

For those conversational about all things Ethereum, rollups are the newest need-to-know technology that largely made their debut one calendar year ago at Devcon V in Osaka, Japan. In fact, a majority of the top 20 Ethereum-based decentralized applications (dapps) have switched or plan on switching to a rollup solution in the coming months, according to teams polled by CoinDesk.

For example, Coinbase Wallet now has native support for Optimism’s OVM testnet, according to a Tuesday blog.

Related: Will a Sharded Ethereum Be Flexible Enough for Decentralized Finance?

Entirely different from the fruit variety, a rollup is an off-chain aggregation of transactions inside an Ethereum smart contract. Ethereum users can transact inside the contract with security guarantees their transactions won’t be misused and they will settle to the mainchain at some future point.

The main advantages of transaction aggregation for dapps were witnessed time and time again this summer as the average Ethereum transaction fee broke historical records numerous times.

Read more: Decentralized Finance Frenzy Drives Ethereum Transaction Fees to All-Time Highs

The method of guaranteeing transactions is where rollup constructions diverge: One on side are Zero knowledge proof rollups (ZKR), relying on math; on the other are Optimistic rollups (OR), relying on financial incentives.

Lay of the land

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Rollups have been around in concept since 2014, described as “shadow chains” by Ethereum co-founder Vitalik Buterin.

Ethereum developers – like all blockchain devs – have been searching for viable scaling options since the project’s launch in 2015. Most solutions have failed or only partially worked, including Plasma and state channels. Those failures led many developers to revisit Buterin’s shadow chains, which we now call rollups.

Indeed, in a blog this month Buterin called rollups the “scaling strategy for the near and mid-term future,” due to high demand for a scalable blockchain today. Ethereum 2.0 – a new, sharded, Proof-of-Stake (PoS) blockchain – is intended as a long-term fix, but won’t be production-ready for years.

Read more: Everything You Need to Know About Ethereum 2.0

The two best-known rollup firms are Paradigm-backed Optimism, formally known as Plasma Group, for its OR and Matter Labs for its zk-Rollup, ZK-Sync. Teams like Fuel Labs and Starkware are also working on much hyped implementations.

Rollups as throughput solutions

One point of clarification is needed, however. Rollups are not a scaling solution for Ethereum or any blockchain, but a “throughput solution.” 

Scalability, as Summa co-founder James Prestwich said in a July tweet, increases the number of transactions a network can process without changing hardware requirements.

Throughput, on the other hand, increases the number of transactions as well but requires more hardware to get it done.

As Prestwich notes, the hardware issue truly boils down to what is required to validate every transaction. Layer 2 (L2) solutions like ZKR and OVR require additional hardware setups because the proof to settle rollup transactions on-chain often requires additional hardware support to get the job done.

ZKR vs. OR

The nexus of ZKR and OR is the mechanism that proves the validity of transactions. In plain language, that means the bundle of transactions included in a rollup needs to be verified in some sort of way. 

Stepping back, rollups can be thought of as a mining block, of sorts. Transactions are moved off-chain, bundled, sequenced and then sent back to the mainchain. 

ZKRs bundle a group of transactions, compress them and slap on a zero-knowledge proof to certify the state transitions validity, as Buterin describes in a 2019 blog post. When the transaction is sent to the mainchain, the block is verified by the attached zero-knowledge proof.

Read more: EY Reveals Zero-Knowledge Proof Privacy Solution for Ethereum

ORs, on the other hand, use game theory. Instead of attaching a proof, a sequencer leaves a bond up for grabs called a fraud proof that is seizable if a sequencer commits any malicious act such as sequencing transactions against prior rules.

That’s what makes Optimistic rollups optimistic: They operate under the assumption everyone is acting ethically, but include a fallback in case a malicious party arrives.

Trade-offs

At first take, ZKRs may seem more favorable than ORs: There’s no bond, and trust is ensured by the zero-knowledge proof.

But ZKRs do have some drawbacks, at least for now. For one, ZKRs do require specialized hardware to create the computationally expensive proof.

For example, privacy coin zcash is based on zero-knowledge proofs and was not able to launch shielded transactions on its mobile wallet until this year because of the difficulty of creating those proofs without large computational power.

Read more: Zcash Latest Hard Fork ‘Heartwood’ Makes Mining Private

Additionally, ZKRs cannot interact with the Ethereum Virtual Machine (EVM) in the same manner ORs can. This limits the application of ZKRs to a few blockchain actions such as a basic transaction.

“The advantage of fraud proofs is their simplicity – Zk-rollups require writing your contracts as a complex zero knowledge circuit and lots of fancy math. This means you can’t use the EVM, so you lose a half-decade of developer tooling and mindshare,” Optimism co-founder Ben Jones said in an email to CoinDesk.

Matter Labs founder Alex Gluchowski told CoinDesk in a Telegram message that Optimistic rollups have their own particular issues as well. 

For example, a tension exists between how large an OR can be compared to the amount of an asset it is processing, Gluchowski said. 

In other words, it’s theoretical an OR-based sequencer processes enough transactions that it becomes profitable to misuse their position as a sequencer – even if they could have the fraud proof slashed. In that way there is likely an upper bound on the number of transactions an OR can be trusted with processing compared to ZKRs, he said.

“The more assets a single OR has, the more vulnerable it becomes for various attacks. And the more transactions in a single OR, the harder it gets to run a full node, further decreasing security,” Gluchowski said.

CoinDesk’s invest: ethereum economy is a fully virtual event on Oct. 14 exploring the ramifications for investors of the sweeping changes underway within the Ethereum ecosystem. Learn more.

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If you haven’t bought Bitcoin for the first time yet, the odds are good that you will. The question is whether you will do it sooner — and be glad that you did — or do it later and wish you had acted much earlier.

CoinDesk is preparing for the invest: ethereum economy virtual event on Oct. 14 with a special series of newsletters focused on Ethereum’s past, present and future. Every day until the event the team behind Blockchain Bites will dive into an aspect of Ethereum that excites or confuses us. Today’s intro is written by CoinDesk research analyst Christine Kim.

This year, 2020, is proving to be wildly successful for Ethereum in terms of market performance and technological development. 

Since January, ETH has so far tripled in value, beating out the gains made by the majority of the top crypto assets by trade volume. The only other crypto asset in the CoinDesk 20 that has outperformed ETH in the markets year-to-date is the LINK token, which is based on the Ethereum blockchain. 

Related: Will a Sharded Ethereum Be Flexible Enough for Decentralized Finance?

A growing number of stablecoins, which are crypto assets that track the value of one or more base assets such as the U.S. dollar, are beginning to be issued primarily on Ethereum. As of the end of September, 70% of stablecoins were issued from Ethereum. The collective demand for these assets has also grown significantly over the last nine months. Total stablecoin market capitalization has tripled year-to-date and now exceeds $20 billion.

But it’s not only Ethereum-based tokens that have seen a surge in demand this year. The underlying utility of new decentralized applications on the network have increased dramatically too. Trade volume on decentralized exchanges such as Uniswap and Curve Finance has soared from $4 billion to over $22 billion from January to September. As of Sept. 29, monthly aggregate DEX volume makes up for over 10% of total trade volume. 

As if the growth in value and network activity on Ethereum wasn’t eventful enough, core developers building the next phase of Ethereum’s base layer technology expect to see the first phase of “Ethereum 2.0” go live before the end of the year. To this end, users are beginning to explore what options are available to participate in the seminal launch of the new Ethereum blockchain. 

For a full rundown of the main Ethereum-related trends and events of 2020, download the full research report, featuring additional chart visualizations about the network and its upcoming 2.0 launch, here. 

Related: Ethereum Is Building the Internet of Value

Also, be sure to tune in to the virtual event invest: ethereum economy tomorrow.

Featured panel

The move to ETH 2.0 will bring the Ethereum network ever closer to fulfilling its original vision: that of a “world computer” that plays host to a parallel, decentralized financial system. This system has taken the crypto world by storm recently, but has been limited by ETH 1.0 infrastructure. Will ETH 2.0 be the rocket fuel that takes this nascent financial engine mainstream?

Vitalik Buterin will go live, kicking off invest: ethereum economy, at 9:00 a.m. ET tomorrow. 

Ethereum 101

With final preparations for the launch of Ethereum 2.0 soon to be underway, CoinDesk’s Christine Kim spoke with lead developer at Prysmatic Labs Raul Jordan and project lead at DAppNode Eduardo Antuña Díez about what’s left to do and what comes next.

Raul Jordan, who has been building Ethereum 2.0 software for over two years, explained his team would be wrapping up all feature development by Oct. 15. 

“At that time, it’s all hands on deck to just have good documentation, good user experience, fix up security holes [and] basically prepare for launch. That’s where we are today if all remains on track,” said Jordan. 

The final features currently in development by Prysmatic Labs and other software development teams include making sure different code implementations of Ethereum 2.0, also called “clients,” are interoperable and can be used interchangeably by a user without running the risk of losing validator rewards. 

It’s not only client developers who are beginning final preparations for this network upgrade. Ethereum startups building hardware and tooling for users to participate in the Ethereum 2.0 launch are also working on adding last-minute features to their products. 

Díez said, “The most important thing that we realized after the first [Ethereum 2.0] testnet is that people need to know the status of their validators. Having a good monitoring system to be able to know when your validator is down … we are working in that direction.” 

Before Ethereum 2.0 goes live, Jordan and Díez both noted a new contract will be created on the current Ethereum blockchain to receive deposits of 32 ETH. Only once this contract accumulates a minimum of 524,288 ETH, which is worth roughly $181 million at time of writing, will the new Ethereum blockchain officially kick-start at midnight UTC the following day. 

About the security of the deposit contract, Jordan said, “There’s no way to retrieve [funds]. … It’s considered a burn in the short term. It’s not like there’s any sort of admin key or any sort of way to take those funds out. There’s no way somebody can take all the ETH that is locked in there.”

The ledger

Christine Kim and colleague Shuai Hao put together a history of Ethereum in five charts. Originally published this summer, an excerpted version is reprinted here. 

Part 1: A Bloodless Secession

Not one year after the launch of Ethereum, a seminal event split the community in two – resulting in the creation of a new cryptocurrency called “ethereum classic,” cloned from the original Ethereum codebase.

Ethereum classic was created July 20, 2016, after $60 million worth of ether was stolen from users of a dapp known as The DAO. After weeks of deliberation, Ethereum developers reached a consensus that they should turn back the clock – reverse The DAO hack transactions and restore users’ lost ETH. 

The changes could only be implemented through a network-wide upgrade, also called a hard fork. Those who opposed the change argued in favor of retaining the integrity of the original blockchain’s history of transactions and balances – hacked funds and all.

On July 20, 2016, when the upgrade to restore user funds was executed, the Ethereum blockchain split in two. The portion of the community that retained the original log of transactions and balances from The DAO hack and did not upgrade the software created a parallel network, Ethereum Classic. 

Since the split, the Ethereum network has hard forked seven additional times, though none of these subsequent upgrades have reached the same level of controversy as “The DAO Fork” of 2016.

Part 2: Those Darned Cats

The first dapp on Ethereum to gain real user traction was a collectibles game known as CryptoKitties. At the height of their popularity, tokenized cats were trading on Ethereum for upwards of $200,000. However, the influx of users and a high volume of transactions from this one viral dapp clogged the Ethereum blockchain to unprecedented levels. 

A backlog of 30,000 transactions had piled up by December 2017, meaning that users would have to wait days for their transfers of ETH to be confirmed. 

The developers behind CryptoKitties hastened to help stem the tide of new users by increasing game fees. Shortly after CryptoKitties’ launch, Ethereum saw the highest total for daily transaction fees in its history, on Jan. 10, 2018. Over $4.5 million was collected in fees by Ethereum miners that day. 

In many respects, the CryptoKitties craze was the rude awakening that reminded Ethereum developers of the platform’s technical limitations. 

Part 3: Testing the Limits

The popularity of initial coin offerings (ICOs) – a way to crowdfund early stages of a cryptocurrency project – by dollar amount raised reached its peak in 2018. A total of $7.8 billion was raised for over 1,000 projects that year. According to ICObench, over 80% of all ICOs rely on the Ethereum blockchain to create their tokens and issue them to investors. 

Trends like the ICO boom of 2018 are indicative of the ways blockchain technology can be leveraged in more ways than simply peer-to-peer electronic cash. Ethereum, as the world’s first general-purpose blockchain platform, has become the central hub where dapp developers congregate to build any and all types of use cases for blockchain, be it gaming- or finance-related. 

Part 4: Dapp Dominance

In order to ensure interoperability between different dapps on the network, common frameworks were developed – like the ERC-20 and ERC-721 token standards. These innovations have blazed the trail for other general-purpose blockchain platforms to emerge since Ethereum’s birth in 2015. 

EOS, stellar, tezos and tron are four cryptocurrencies in the top 15 by market share that also feature dapp creation and deployment. Despite the growth in the number of alternative dapp platforms, Ethereum remains the most popular general-purpose blockchain both in terms of number of users and dapps, as shown in the chart above.

Ethereum hasn’t fulfilled its vision yet, however. Developers are convinced that the current blockchain infrastructure as it currently exists is wholly inadequate to handle an influx of millions, if not billions of users around the world. 

Part 5: The Long Road to 2.0

The Ethereum 2.0 roadmap is almost as ambitious as the original one which brought the first dapps into existence. While the launch of this technology is forthcoming, an important part of understanding Ethereum’s five-year history lies in studying the many iterations that Ethereum 2.0 underwent in its years of planning. 

Originally, Ethereum 2.0 in 2015 was thought of as the final development phase for the project and dubbed “Serenity.” Serenity was tentatively expected to be rolled out 16 months after initial mainnet launch (which would have been November 2016). The upgrade would transition Ethereum from its reliance on a computationally intensive process for block production inherited from Bitcoin, known as “mining,” to a more energy-efficient process of validating.

To this end, developers created what is called the “difficulty bomb” to slowly but surely encourage this transition away from mining. The bomb, which was activated on March 14, 2016, increases the difficulty levels for miners to find an Ethereum block over time. This schedule at which this bomb slows block production has been delayed three times over the course of the last five years as developers re-worked plans for launching Ethereum 2.0. 

While there is no telling what new technologies and standards of blockchain practice will be innovated as a result of Ethereum 2.0, looking back at the first five years of the network’s development does give some indication. In that time, Ethereum has undergone network-splitting upgrades, faced crippling technology bottlenecks, advanced new forms of fundraising for crypto projects and formalized a launch plan for migrating to Ethereum 2.0.

At stake

Ben Edgington, an Eth 2.0 adviser for ConsenSys, reflected on the year of testing and configuring the Beacon chain, the first real implementation of Ethereum 2.0. His conclusion? It’s time for Ethereum 2.0 to launch.

Skin in the game

We’ve spent the last nine months testing the life out of this thing. The year began with huge, long-running single client testnets: Sapphire, Topaz and Onyx networks run by Prysmatic Labs. In April, there were small multi-client networks: Schlesi, Witti and Altona – all named after subway stations, in keeping with Ethereum testnet tradition. 

And then the big one, the Medalla testnet. Named after Medalla Milagrosa on the Buenos Aires Underground, it has been running for over two months, with four different client implementations involved throughout that time. It continues to run today with over 50,000 validators actively participating, making it one of the largest decentralized consensus networks in existence. 

Progress has not all been smooth. A few days after the start of the Medalla testnet, one of the clients suffered a critical issue that disrupted the chain for a few days. But this is what testnets are for. We kept the chain running and were able to bring it back to full health, with a slew of lessons learned. 

Perhaps the biggest lesson? It is hard to faithfully replicate proof-of-stake on networks that are not incentivized. Participation in these testnets is completely free, which is not at all realistic. On testnets, stakers can neglect their nodes with no real consequences; they can register thousands of validators then just switch them off and they can put down stakes but never join the network. 

On the real beacon chain, with significant value genuinely at stake, we expect user behavior to be quite different.

This is why it is now time to go live with the beacon chain. We have tested everything else in every way we can: the deposit contract has been formally verified; the deposit tools have been audited; the specification has been audited; the beacon chain has been formally modeled; the node discovery protocol has been audited; the networking protocol has been audited; the crypto-economics have been simulated; we are running incentivized attack nets; we’ve been doing fuzz testing; every client has undergone at least one third-party security audit. Hundreds of pairs of eyes have scrutinized the whole process over the last year.

However, the real beacon chain will have real rewards and real penalties, and we simply can’t simulate these with testnets.

We’ve tested these things as far as we can in the lab: Now it’s time to run it in the wild. 

Top shelf

G20, CBDCs
The Group of Twenty (G20) – an organization of finance ministers and central bank governors representing the European Union and 19 countries across every continent – is working with the International Monetary Fund (IMF), the World Bank and the Bank for International Settlements (BIS) to formalize the use of central bank digital currencies (CBDCs) in banking systems. Well-designed CBDCs could be interchangeable with existing money, settle high volumes of transactions instantaneously, be impervious to cyberattacks and lead to greater monetary oversight. There are also privacy concerns the industry must reckon with. The G20’s regulatory stablecoin and CBDC framework are expected in 2022.

Coinbase backspin?
Tennis superstar and investor Serena Williams may have shed her stake in popular U.S.-based cryptocurrency exchange Coinbase, according to a Business Insider report. The website of Williams’ venture firm, Serena Ventures, no longer displays Coinbase among its portfolio firms. The company first listed the investment in Coinbase in April of last year. William has also tweeted about the investment at the time. If indeed her VC firm has divested its stake in Coinbase, it may come as the result of a recent statement from Coinbase CEO Brian Armstrong, who effectively banned employee activism at the exchange and said the firm would focus solely on its financial mission.

HBCUs & blockchain
Dozens of historically Black colleges and universities (HBCUs) are exploring the next phase of decentralized technologies in a bid to put Black students at the forefront of new blockchain protocols. “These schools see it as a way to participate in Web 3.0,” said Tonya Evans, chairperson of the MakerDAO Foundation and visiting professor at Penn State’s Dickinson Law School. “We were not participating in the dot-com era. Most of the Black community didn’t know about it at the time.” Ryan Cooper, a graduate of Bowie State University who started a campus blockchain group, said, “On the East Coast, certain majority-white colleges do this with their spare time anyway. At HBCUs, you have to incentivize this.”

$1.7T boost
Blockchain technology stands to boost the global economy by $1.7 trillion in the next decade, according to a new report by consulting company PricewaterhouseCoopers. PwC economists forecast a tipping point in 2025 if blockchain technologies are adopted at scale across the world, and expect blockchain applications to boost global gross domestic product (GDP) by $1.76 trillion, (1.4% of global GDP) by 2030. “Serious activity around blockchain is cutting through every industry across the globe right now,” Steve Davies, global Blockchain leader at PwC, said in the report. According to the report, blockchain will make the biggest impact on Asia’s economy with China, India and Japan driving adoption in the region.

Quick bites

• Bitcoiners Have Trillions and Trillions of Reasons to Ignore US Election (Brad Keoun/CoinDesk)
• Your Wallet in 2030 Will Be Full of Free Money (Yoni Assia/CoinDesk)
• The Rise and Fall of Blue Kirby (Anthony Sassano/The Daily Gwei)
• Stone Ridge Reveals $115 Million Bitcoin Investment As Part Of Billion-Dollar Spin-Off (Michael del Castillo/Forbes)
• Call me Ishmael (BitMEX Research)

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G7 leaders Tuesday sounded the alarm about the global surge in ransomware attacks, calling the hacking technique a threat against the critical infrastructure of the world’s top economies.

• Canadian, French, German, Italian, Japanese, British and American officials said ransomware attacks against schools, hospitals and companies “have intensified in the last two years,” and pose a particular threat during the COVID-19 pandemic.
• The statement said the G7 member nations will share information related to such threats, including financial information, cyber tactics and procedures, in order to guide coordinated action.
• Ransomware attacks burrow into and encrypt malware into computer networks before demanding payment from the victims to unlock their files. But regaining control of one’s network is seldom assured.
• “The fact that criminals often demand that ransoms be paid in virtual assets is of particular concern,” the G7 statement warned. Bloc leaders said “virtual assets” are hackers’ pathway for money laundering.
• Laundered crypto ransoms could end up financing terrorists or bankroll the state-sponsored “proliferation of weapons of mass destruction,” the G7 speculated. (North Korea allegedly funded its weapons of mass destruction (WMD) program with billions of dollars in hacked crypto.)
• The statement called upon more countries to implement the Financial Action Task Force’s virtual asset safeguards and praised the watchdog’s information-sharing “travel rule.”

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• Spain Working on Bill to Force Crypto Holders to Disclose Assets, Gains

Stone Ridge Holdings Group is stashing 10,000 BTC with the institutional asset manager’s crypto subsidiary NYDIG, which on Tuesday announced it raised an additional $50 million in funding.

• The private firm called bitcoin its new “primary treasury reserve asset” in a statement shared with CoinDesk. That language was first adopted by publicly traded MicroStrategy.
• VC fund FinTech Collective led the NYDIG raise with participation from Bessemer Ventures and Ribbit Capital, Forbes reported.
• NYDIG is one of a handful of companies to wield New York state’s BitLicense. It maintains a series of multi-million dollar crypto funds and offers prime brokerage and custody services to institutional clients.

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Blockchain governance suite Boardroom has announced a $2.2 million funding round led by Standard Crypto, with additional participation from Variant, CoinFund, Framework and Slow Ventures.

“We are seeing an accelerating volume of protocols interested in public governance enter the market each month,” Jake Brukhman of CoinFund said in a press release.

Boardroom provides a simple interface for token holders to participate in votes on different blockchains or dapps whose tokens the user holds.

Related: What Yearn Finance’s ‘Blue Kirby’ Incident Means for Pseudonymity

“It’s clear to us that engaged and informed community governance is a distinguishing characteristic of successful crypto-networks – but from a user point-of-view the experience is quite painful!” Alok Vasudev, a co-founder of Standard Crypto, told CoinDesk in an email. “Boardroom makes it easy for users to participate in protocol governance – from voting, to delegating, to staying informed – by providing a common interface across multiple protocols.”

With delegating built in, Boardroom should accelerate the era of so-called protocol politicians, those who follow the nuances of each blockchain’s governance more closely than small holders often have time for.

Read more: SushiSwap Migration Ushers in Era of ‘Protocol Politicians’

“We believe crypto networks will uproot traditional management and ownership structures. They have already demonstrated a powerful new economic model for building software applications, wherein users build and operate products and services they use every day,” Kevin Nielsen, the founder, wrote in an announcement of the investment shared with CoinDesk in advance.  

Related: Indian Trade Finance Startup Raises $3.7M in Token Sale Led by Arrington XRP

Boardroom is designed to be a solution for blockchain participation that can scale with the growth of crypto communities. 

“Community-governed communities, coordinated via a token, are not only the future of DeFi, they may be the future of all software,” said Priyanka Desai, one of the co-leads of Boardroom investor The LAO. “Boardroom sits in the middle of this emerging ecosystem, lowering the cost of governance and helping to foster a new era of protocol politicians.”

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Nasdaq-listed company Marathon Patent Group is forming a new joint venture with a U.S. power provider that will bring a supply of cheap energy for its bitcoin mining operations.

• In an announcement Tuesday, Marathon said it’s teamed up with Maryland-based Beowulf Energy for the venture. Beowulf develops and operates power generation and industrial infrastructure facilities internationally.
• The arrangement will see Marathon co-locate a bitcoin mining facility within Beowulf’s Big Horn Data Hub at its 105-megawatt power station in Hardin, Montana.
• Beowulf will supply electricity for the mining farm at a production cost of $0.028 per kWh, according to the announcement.
• That’s 38% below Marathon’s current aggregate power cost for mining and facility operations, $0.034 per kWh.
• The company says this, in turn, will cut its breakeven costs to mine one bitcoin from approximately $7,500 currently to $4,600.
• Under the deal, Beowulf is also becoming an equity shareholder in Marathon, while the mining firm will retain all of the bitcoin mined at the Big Horn facility.
• Marathon plans to install 11,500 S19 Pro Antminers previously acquired from manufacturer Bitmain; 500 of the devices are already in place, it said.
• The facility is expected to be fully operational in Q2 2021, with an output around 1.265 exahashes per second.
• Marathon said the center has the capacity for nearly three times the planned number of miners, giving ample scope for future expansion.

Also read: Riot Buys 2,500 More Bitmain Miners in Latest Fleet Expansion

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Blockchain and trade finance have always seemed like natural partners, and a company based in India is taking another stab at cracking the code.

Persistence has built the back-end infrastructure for a trade finance system that will allow small and medium-sized buyers to more easily find financing for commodities purchased from sellers, traveling between the main trade hubs of Asia, places like Singapore, Hong Kong and Dubai, among others.

The startup closed a $3.7 million token round led by Arrington XRP, along with Alameda Research and South Korean stablecoin company Terra, among others. The backers are purchasing the Persistence token, or XPRT, which is set to be released sometime late this year or early next year, once macroeconomic conditions appear to be stabilized, said Persistence CEO Tushar Aggarwal.

Related: Boardroom Raises $2.2M for Blockchain Governance Toolset

“Commodity trading is a notoriously difficult industry to penetrate,” Aggarwal told CoinDesk in an interview, noting that other firms like Perlin and Centrifuge have already entered this space.

Persistence’s advantage, Aggarwal said, lies less in its technology than in its business-development strategy.

To build an application that would appeal to companies outside of the blockchain industry, Persistence settled on Tendermint as its base layer, after investigating both Ethereum and Waves.

“A big focus of ours is the institutional folks. On the institutional side we tried to abstract away some of the complexity,” Aggarwal said.

Related: Dapper Labs Raises $18M in Token Sale for NFT-Centric Flow Blockchain

Read more: Cosmos Gains Traction in India Amid Broader Crypto Resurgence

The specific trade finance platform was built as a separate application atop Persistence, called Comdex. That platform was turned over to a third party that already has access to the trade finance industry. Invoices get turned into non-fungible tokens (NFTs) that can then be collateralized to back loans.

“Because it’s driven by people who already have networks, you just accelerate the process,” Aggarwal said.

Comdex’s website shows its CEO is Uday Joshi, whose LinkedIn page shows that he has an additional role at Rhodium Resources. Joshi is also depicted in Rhodium’s corporate brochure, which describes the firm as specializing in the “physical trading of commodities and trade logistics,” with access to more than $1 billion in trade financing credit lines.

Though only a testnet now, Aggarwal said that “$41 million worth of commodities have been tokenized on-chain, which also represents the transaction volume.”

Because the XPRT token is not yet live, Comdex and Persistence are simply running the technology now and keeping track of the performance of the validators on the testnet, with redundancies built in to back up the chain in case there is some kind of failing.

Once Persistence hits mainnet, its validators will be rewarded accordingly, in XPRT.

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