Blockchain Bites: Patoshi’s Patterns, Canaan’s Losses, DeFi’s ‘Weird’ Moment

Decentralized exchange volume recorded a third straight monthly high, Coinbase’s boardroom was mixed up ahead of a potential public listing and Tezos settled a class action asserting its $232 million ICO was an unregistered securities sale.

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DEX wrecks?
August trading volume on decentralized exchanges set its third consecutive monthly record high after climbing 160% from July, according to Dune Analytics. Aggregate trading volume on decentralized exchanges reached $11.6 billion in August, up from $4.5 billion in July as the intense enthusiasm for decentralized finance (DeFi) applications continued to spread. Leading decentralized exchange platform Uniswap reported a 283% volume increase in August, reaching $6.7 billion after topping its July record less than two weeks into the month, as CryptoX previously reported. Along with aggressive volume growth, Uniswap reported an almost 100% increase in the total trading pairs listed on the platform, totaling 6,867 as of Monday.

Unlicensed action?
The U.S. Office of the Comptroller of the Currency (OCC) is forging ahead with a plan to offer national banking charters to payment firms that don’t take deposits, easing the way for businesses like Stripe and Coinbase to become licensed. Acting Comptroller of Currency Brian Brooks, a Coinbase alum, is spearheading the move that would empower payment firms to operate across state lines with a single set of consolidated rules, CryptoX’s Sebastian Sinclair reports. The move is drawing heavy criticism from entrenched interests: “A few months into his service in an acting capacity, a bank regulator (and former cryptocurrency lawyer) pushes ahead with a legally dubious plan to give tech companies banking charters,” tweeted Graham Steele, director of the Corporations and Society Initiative at Stanford Graduate School of Business.

Boardroom shakeup
Coinbase has added legendary investor Marc Andreessen of venture capital firm Andreessen Horowitz and Gokul Rajaram, a DoorDash executive, to its board of directors – replacing outgoing board members Chris Dixon and Barry Schuler. Andreessen, whose tech-focused venture firm manages $12 billion in assets, will operate as a board observer while Rajaram, who oversees Caviar, will become a board director, according to a Monday blog post. The high-profile board additions bring major boardroom clout to the one of the most popular cryptocurrency exchanges in the U.S. and comes as Coinbase is reportedly considering going public, CryptoX’s Danny Nelson reports.

Canaan’s quarter
Canaan Creative reported a 2Q net loss of $2.38 million, or 10 cents a share. That’s less than half the size of Q1’s $5.64 million loss, as revenue rose more than 160% to $25.2 million. The Hangzhou, China-based company also reported cash and cash equivalents worth $22.2 million, down 40% from $37.3 million at the end of Q1. The company cited an increase in short-term investments for the lower cash on hand, and declined to issue forward guidance due to economic uncertainty. Canaan has traded on the Nasdaq since November 2019 after abandoning plans for an initial public offering on the Hong Kong Stock Exchange. Since its listing, Canaan shares have dropped nearly 85%, CryptoX’s Zack Voell reports.

Tezos settled
A long-running lawsuit alleging the $232 million 2017 Tezos initial coin offering (ICO) was an unregistered securities sale has been settled. The Swiss-based Tezos Foundation, as well as the project’s founders, Arthur and Kathleen Breitman, agreed Friday to pay $25 million in cash to settle the case. The class action will pay out for those who invested in the Tezos ICO but did not make a profit. While the case centered around a securities law violation, the court has not ruled on whether the Tezos ICO was an unregistered securities sale.

Patoshi pattern
New research from IOV Head of Innovation and RSK designer Sergio Demian Lerner reveals that an early miner on the Bitcoin network used a special algorithm to give him/her a leg up.

While it cannot be proven, many think this early miner – code-named Patoshi – is Bitcoin’s creator, who went by the pseudonym Satoshi Nakamoto. Lerner’s research raises questions about Nakamoto’s motivations – often looked to as a beneficent and ideologically driven coder. 

“If we take for granted that Patoshi is, in fact, Satoshi, then it’s conceivable that Bitcoin’s creator used this advantage to prevent mining attacks on the nascent network,” CryptoX’s Colin Harper reports.

While the “Patoshi pattern” has been known for years, Lerner has discovered the mechanics behind it. He now thinks Patoshi likely used multi-threading, a way to boost a CPU to sweep for multiple nonces at once, at a time when other miners were unaware of this solution. 

While this means Patoshi mined significantly more blocks than other miners in the early days – the total hoard is estimated to be 1.1 million BTC – Lerner thinks it was a strategy to keep the nascent system alive. 

Multithreading could pick up the slack when blocks were not being mined on schedule, and dialed down when the system functioned properly.

In June, Lerner pointed out that Patoshi “reduced his hashrate in several steps during the first year” and that it’s likely he turned off his miner for five-minute intervals each time he mined a new block. 

Patoshi took these measures, Lerner posits, to foster healthy competition and to make sure he didn’t hog all the new blocks. 

“The research on how Patoshi proceeded to decentralize Bitcoin taught me a lot about ideals,” Lerner said. “The first Bitcoiners were believers who cared a lot less about money that we all care now. Most of them mined to help the project see how far it could grow against all odds. Most of them donated bitcoins, received and paid with bitcoin to show its potential and never bother to speculate. Some of them mined just for fun.”

Ether’s gains
Ether (ETH), the second-largest cryptocurrency by market value, jumped to two-year highs on Tuesday, taking its year-to-date gains to 260%.  The native cryptocurrency of the Ethereum blockchain, ETH was trading at $470 at press time – a level last seen in July 2018. Prices are up more than 100% this quarter alone, according to CryptoX’s ether price index. “Ethereum’s price increase shows it is one of the main altcoins leading the market,” Simon Peters, an analyst at multi-asset investment platform eToro, told CryptoX. Investors may be entering the crypto market via ether and decentralized finance protocols rather than bitcoin, which served as a gateway to crypto markets during the 2017 bull run, Peters said.

Derivatives competition
Huobi Futures, the crypto derivatives unit of Huobi Group, said Monday it will offer trading in bitcoin options starting Tuesday, aiming to meet a surging demand from traders to hedge against risks in cryptocurrency markets. Options contacts on bitcoin (BTC) will be available for trading, starting from 10:00 UTC on Sept. 1. Currently, Deribit is the largest bitcoin options exchange by open interest and daily trading volume. The exchange accounts for more than 85% of total options trading volume of $136 million, according to data source Skew.

Do not cry for the onion
The Tor Project, the nonprofit group behind the privacy-focused Tor browser, launched the Tor Project Membership Program Monday in a bid to increase the diversity of funds in their budget. The nonprofit laid off a third of its staff in April amid the economic fallout from the coronavirus pandemic. Members of the program gain access to the Tor Project’s “Onion Advisors” group, who can help integrate Tor into their products as well as answer questions about the Tor Project’s areas of expertise, such as privacy or circumventing censorship. Founding members include Avast, DuckDuckGo, Insurgo, Inc., Mullvad VPN and Team Cymru.

Live Webinar: What to expect when phase 0 launches
Ethereum, the world’s second-largest cryptocurrency by market capitalization, is expected to undergo a radical system-wide upgrade to improve network scalability and efficiency this by early next year. Join CryptoX Research on Sept. 10 at 1:30 p.m. ET for a live discussion as we examine the potential market impacts of the launch of what’s known as Ethereum 2.0. 

Due to its sheer complexity, Ethereum 2.0 will be rolled out in several phases starting with Phase 0. Don’t miss the opportunity to understand the risks, benefits and predictions for the next phase of this technology.

Crypto dollars
Alejandro Machado, co-founder of the Open Money Initiative, has found that Venezuelans are turning to crypto dollars during a prolonged period of economic uncertainty. “Most U.S. banks don’t need Venezuelan customers to thrive, so they have been shutting down their accounts. This places an artificial limit to the growth, and even the maintenance, of digital dollar accounts that depend on traditional financial institutions. Accounts that are powered by cryptocurrency, and that are supported by dedicated firms, can be made to have much fewer user-facing requirements. A smartphone may be the only physical equipment a person needs to get an account,” he writes.

Inflation’s effect on stablecoins
Alexander Lipton, CTO of Sila, explores what the Federal Reserve’s changing stance on inflation might mean for stablecoins. “[I]n the long term it will have profound implications for the price of equities, oil, gold and cryptos, and, more broadly, to the modus operandi of the entire financial system… [opening] a real possibility for building the new economy based on programmable money and regularly complaint payment rails operating entirely (or mostly) outside of the existing banking system,” he writes.

Sustainable commitments?
The booming stock market is driven by perception of the Federal Reserve’s commitment to high prices and growing individual trading. Nathaniel Whittemore asks, “How sustainable is this?” in the latest edition of The Breakdown.