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The University of Texas’s Tether study is a lot like watching The Force Awakens

The words are new and but you somehow feel you’ve seen this before, and the ‘revelations’ fail to shock anyone.

A new study has been published by a group of academics, claiming that bitcoin’s price was manipulated by Tether in the run-up of last year. ‘While it is difficult to pin price drops on any specific event, experts and analysts have suggested the most recent fall in value can be attributed to a new study which suggests market manipulation was behind the 2017 bubble. Researchers at the University of Texas investigated the Bitfinex exchange and a virtual currency called Tether that was created by the Bitfinex owners.’

So writes the so-called Independent: https://www.independent.co.uk/life-style/gadgets-and-tech/news/why-bitcoin-crash-cryptocurrency-price-spike-study-market-manipulation-tether-a8397051.html

You can read ‘Is Bitcoin Really Un-Tethered’ here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066. The abstract states, ‘Less than 1% of hours with such heavy Tether transactions are associated with 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies. The flow clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests incomplete Tether backing before month-ends. These patterns cannot be explained by investor demand proxies but are most consistent with the supply-based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices.’

Is this new? Not even slightly. It’s arguably even more derivative than the latest in the Star Wars franchise. Way back in January an anonymous researcher carried out a detailed analysis and found much the same results. You can read his report at https://www.tetherreport.com/

So this is a total non-story. Or, to be more accurate, the real story here is the timing. Why publish this now, months after the fact, when it was already widely known and had already been widely reported on, albeit in the crypto rather than mainstream media?

Conspiracy theorists would point to collusion between big media and financial organisations, or between the owners of the publication and wealthy individuals – the idea being that one last push of FUD would provide the best buying opportunity.

Or it might just be that academics are slow and mainstream media will publish anything bad they can find about crypto right now.


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Gold and BTC futures: what happens next?

The $7,800 ceiling that we noted on Tuesday (https://telegra.ph/Tuesdays-Inferno-market-report-06-05) remains intact, with bitcoin bumping up against it once again yesterday, before dropping back. If the same pattern continues to play out this will paint a higher low, before bitcoin once again takes a run at that resistance level – and, this time, hopefully breaks through it. As we also noted on Tuesday, the deadline for a significant move is approaching, since the long-term rising support line will place more and more pressure on the price as it pushes towards $7,800. One way or another, the days of sideways movement will soon be over.

On Twitter, Armin van Bitcoin paints this bullish picture for bitcoin, noting the months-long consolidation: https://twitter.com/ArminVanBitcoin/status/1004011244238594048. It’s also interesting that Google searches for ‘bitcoin’ (which have historically correlated well with price) are down 75% from January: https://www.investopedia.com/news/google-searches-bitcoin-down-75/. That’s worth watching as an indication of what might happen next.

Meanwhile, the fundamentals are pretty good. Venezuelans are buying more bitcoin, though that shouldn’t be a surprise for a country with 25,000% inflation: https://cointelegraph.com/news/bitcoin-buying-on-the-rise-again-in-venezuela

And the prospect of ‘Italeave’ (Italy exiting the Eurozone) has prompted renewed awareness of bitcoin as a safe haven asset: https://bravenewcoin.com/news/italexit-prompts-speculation-that-bitcoin-is-a-new-safe-haven-asset/

That’s all for now! Stay tuned for the next Inferno post.

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What is an Atomic Swap?

Atomic swaps are a means of exchanging coins across blockchains, without a centralised party like an exchange or escrow. The development of atomic swaps is critical in continuing to develop a secure crypto ecosystem with trustless, decentralised trading.

When you trade crypto on a regular exchange, you send your coins to a company, who (hopefully, but by no means always) store them safely for you. Your balance is credited in their database, a record is created with the funds you deposit, and their order-matching engine pairs your buys and sells with those of other users.

It all works pretty well, most of the time. When it doesn’t, though, it can be catastrophic. Traders and investors have lost billions of dollars in crypto when exchanges have been hacked, or gone offline at a critical time for one reason or another.

]This is where atomic swaps come in. They allow traders to exchange coins on different blockchains, peer-to-peer. No hacks, no downtime, no trust required. Let’s say Alice and Bob want to exchange BTC and LTC:

Alice creates a secret phrase and hashes it (a hash is a one-way mathematical function – you can easily create the hash from the secret phrase, but not the phrase from the hash)

Alice creates a transaction to Bob on the Bitcoin network that includes the hash she created. It has the condition that the transaction will only be executed when the secret to the hash is revealed.

Bob creates the corresponding transfer to Alice on the Litecoin network, with the same hash as part of the condition. Bob does not know the secret, but knows that Alice’s transaction will only complete when she reveals it.

Alice publishes the secret to the hash, executing Bob’s transaction to her on the Litecoin network.

The secret is now public, so Bob can execute Alice’s transaction to him on the Bitcoin network.

Alice and Bob can both put other conditions in their transactions, such as cancelling them if the secret isn’t revealed within a certain amount of time.

The new generation of decentralised exchanges will feature atomic swaps, all within a handy user interface that manages the secret creation for you.

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Update on Tether and Bitfinex

250 million Tethers were printed on 18 May. Bitfinex’s most vocal critic has disappeared. What’s the deal?

Earlier this year, we published a series of articles about Tether and Bitfinex:

https://telegra.ph/Tether-could-be-guilty-of-perpetrating-a-huge-fraud-just-not-the-one-we-think-02-01

https://medium.com/@CryptoInferno/tether-cant-audit-won-t-audit-854703059a5b

https://medium.com/@CryptoInferno/itbitfinexed-ups-the-ante-6a14edfe5033

As you’ll remember, the early part of the year saw intense concern and speculation around Tether, the company that issued supposedly dollar-backed blockchain tokens, USDT. Leaked documents revealed that Tether and Bitfinex are essentially the same organisation, meaning that the exchange also has the ability to print the currency of its main pair — analogous to the New York Stock Exchange also being the Federal Reserve. The scope for abuse in this arrangement should be obvious.

Fractional reserve and the Bank of Tether

Indeed, this was precisely the concern around Tether-Bitfinex: that they were creating USDT out of thin air and using this fake money to buy BTC on their own exchange — artificially inflating the price of crypto and running a fractional reserve. @Bitfinex’ed (https://twitter.com/Bitfinexed), a vocal blogger, repeatedly accused them of exactly this, and a multitude of other shady practices.

Our own research suggested a slightly different picture. Instead of printing unbacked USDT and using the fake dollars to buy bitcoin, leaving the Tethers unbacked (and therefore introducing a systemic risk into the crypto world), we believe the evidence points to Bitfinex buying BTC with fake dollars and then selling these on other exchanges, retrospectively backing the USDT and profiting from the difference in price. In other words, USDT is fully backed with real dollars, but the way those dollars were acquired is fraudulent. If that’s true, the good news is that USDT isn’t about to implode and take the whole crypto world with it. The bad news is that anyone trading on Bitfinex is at the mercy of an organisation that is happy to profit at the expense of its users and will never be transparent about their business. Tether won’t allow an audit of their books because it will reveal what they’ve been up to — even if their USDT are backed, they got the money through means that were probably illegal.

All goes quiet

After a slew of activity in the bull run at the end of 2017, with hundreds and hundreds of millions of new USDT printed, Tether went quiet. No new USDT have been created since March, which itself was the first time in almost two months. But on 18 May, another 250 million USDT were created — right as the market was experiencing new panic and the price headed for a local low.

At the same time, blogger Bitfinex’ed has disappeared. His last tweet was almost two months ago. He received many threats, both physical and legal, and had recently hired in legal counsel to address them. There are suggestions he was doxxed, which would potentially put his life in danger. In all, this has been a very unpleasant episode.

It’s pretty odd that a stack of Tether should be printed right when the market is at its shakiest. BTC is teetering on the brink, looking set to plunge beneath a long-term support level. Is there an angle here for Tether, or is the demand really there? There are a few possibilities.

1) The demand is really there. Institutions are getting into bitcoin. Big money tends to be smart money, and knows the right time to buy. Buying now, even if there is still further to fall, is a better prospect than buying six months ago at $20,000.

2) Bitfinex is playing games. It has often been noted that large print runs of USDT tend to precede uplifts in price. They are printing more money to attempt to kickstart the market out of its downtrend, or to squeeze a few more millions of dollars out of traders in a cycle of diminishing returns.

3) The cycle is about to restart. The market is bottoming out, and Finex wants to be ready when it does. Printing 250 million USDT puts them in a good position to buy the dip they may believe is coming, if prices fall back towards $6,000. Then the new bullrun will begin, and Finex will own tens of thousands of bitcoins they bought at rock-bottom price, and can then sell at huge profit — probably netting another $250 million or more.

Note that these are not mutually exclusive options. Bitfinex has always been opaque about its books and about its banking relationships. We just don’t know where the money is coming from — whether USD is being deposited to create USDT, which is being used to buy BTC; or whether USDT is being created, which is being used to buy BTC, which is being sold for USD.

Bitfinex’s biggest critic may have been silenced, but nothing about their activities has been resolved satisfactorily.

What is blockchain?

Bitcoin and almost every other crypto runs on it, but most people don’t really understand what a blockchain actually is…

A blockchain is a kind database, which is just a means of storing information in a way that’s organised and easy to search and retrieve. Databases have existed for decades and there’s nothing very special about the idea — think of an offline information storage system like a filing cabinet or a Rolodex, and you’ll realise it’s not rocket science.

The important bit about a blockchain is that it’s a community-run database. A large number of computers participate in maintaining the data in it, and ensuring that its users stay honest. Whilst a normal database is straightforward enough, a collective database gets a lot more complicated — so complicated that it’s only recently, with the creation of bitcoin, that it’s been possible to achieve at all.

The catch lies in keeping miners — the ones who collectively maintain the database — honest. If anyone can update the database, how do you make sure that it’s only updated legitimately — that is, that no one tries to transfer money they don’t actually have? In other words, if anyone and everyone has access to the filing cabinet, how do you ensure they don’t falsify the accounts in their own favour?

The answer is to make it easy to check whether the ledger makes sense, but very hard (and therefore expensive) to add entries to it. The Bitcoin protocol effectively holds a competition to allow miners to add a new block of transactions, and gives a reward for every computer that does so. It’s easy to tell whether a new set of transactions is honest, and so if a computer tries to do something it shouldn’t, the other computers discard those transactions and the effort and expense are wasted.

Look at it a bit like this. In a traditional system, one person — the office secretary — is allowed access to the filing cabinet. That secretary is able to keep the system honest because he or she is a benevolent dictator.

In a collective approach, let’s say anyone in the office can add entries to the filing system. Everyone has a copy of the contents of the filing cabinet and when anyone wants to add something new, they photocopy it and give it to everyone. If an employee tries to add a fraudulent entry, the others immediately realise it by checking their records and comparing them against everyone else’s, and that person is fired — losing their monthly pay in the process.

That way, the information in each filing cabinet is the same, and no single employee can get away with anything dishonest.

Mining Rig Rentals: review

If you’re interested in getting started with mining but aren’t yet ready to buy your own rig, you could do worse than learn the ropes on www.miningrigrentals.com.

Mining is a critical part of the crypto ecosystem. While there’s no point even trying to mine bitcoin unless you have very deep pockets and cheap electricity, other coins can be mined profitably. It’s also good to support the crypto projects you like by throwing some hashrate behind them and helping secure the network.

But mining isn’t exactly easy to understand for the beginner. There’s a steep learning curve. And if you want to do it properly, you’ll need to invest some money as well as time – unless you happen to have some decent GPUs lying around the place. (These are good for mining certain alts and can be quite profitable if you know what you’re doing.)

MiningRigRentalsis a great way to figure out how all this stuff works, so you can get a feel for the mining life, learn what you need to and decide whether to take it a step further. Simply sign up, fund your account and rent hashrate from miners who have connected their rigs to the platform. (Conversely, if you have a rig, you can make some money by selling hashrate.) As an aside, we suggest funding your account with LTC, not BTC, especially if you’re sending money from an exchange. The transaction fees are lower and it’s faster; LTC works great as a transactional currency.

You’ll need to pick a coin you want to accumulate, and probably connect to a mining pool. Any good coin community will help you negotiate the details of that process, making suggestions about which pools have the best payouts and how to configure your miner (don’t worry, it’s not overly complicated unless you really want to take a step up and do some heavy-duty mining).

The chances are you won’t mine profitably, due to the additional costs of renting a rig over owning your own. But if you pick your coin and your rig, you can almost break even, building a stake that will hopefully be worth much more in the future. Best of all, you’ll learn a lot and be well placed to mine solo with your own rig, should you choose to go down that rabbit hole…

External factors influencing crypto adoption

Back in 2013, bitcoin got a boost when Cyprus started ‘bailing in’ its banks – taking money directly from account holders to pay their debts. A way to store value beyond the reach of governments suddenly became quite appealing. The same happened a couple of years later when China started imposing capital controls. But that has not been the case for the last year or so, as the dynamic is changing. What kind of geopolitical factors might drive crypto adoption now?

With greater adoption, bitcoin is no longer uncorrelated from the mainstream markets and traditional asset classes. Once the case, this dynamic reduced with growing interest from institutional and large investors. Bitcoin now more closely follows other market cycles. It no longer acts like ‘digital gold’, as a kind of alternative safe-haven asset that some investors move money to when there is turmoil on the markets.

Is crypto now immune to economic misery elsewhere? The case of Venezuela suggests that’s not quite so.

Venezuela’s economy is a basket case, with a currency plummeting in value, vast debts and harsh US sanctions. President Nicolas Maduro announced the Petro, Venezuela’s blockchain currency, back in December – explicitly stating it was a way to sidestep the sanctions. Petros are supposedly backed by the country’s oil reserves. Maduro claims that the pre-sale raised over $3 billion in Russian roubles, BTC, ETH and NEM (the blockchain on which it was launched), but the opposition-backed National Assembly has declared it illegal.

A dictator, using crypto to raise money when the international community puts the squeeze on him. We also have North Korea hacking the South, amongst other countries, and raising money in the form of bitcoins from various illegal sources. Doubtless these won’t be the only two examples.

The demand for bitcoin is there, and it’s still linked to economic trouble – just not in the way it used to be.

KYC and the Game of Life

This articlefirst appeared back in 2015, with an update a year ago, but recently made a reappearance on Medium.

The article uses Conway’s Game of Life – an early artificial life simulation programme – to demonstrate the spread of bitcoin adoption. The writer makes the case that the days of KYC are numbered. His point is that, as bitcoin is used by more and more people, the proportion of bitcoin-to-bitcoin transactions compared to bitcoin-to-fiat transactions will increase. In other words, the more people who use bitcoin, the less need there is for fiat gateways and the accompanying KYC.

It’s a neat idea, if a little misguided. For one thing, fiat money isn’t going out of fashion. The regulatory picture has changed a lot since 2015, and it’s clear that there are always going to be points – and, in fact, an increasing number of points – where governments pay attention to money moved around on the blockchain. The world isn’t going to turn into one huge black or grey market.

But the number of crypto users is increasing and will continue to do so as real-world use cases progressively come online. That’s the real story of the Game of Life simulation here. Right now, crypto isn’t used much as a means of payment. It’s used as a store of value or investment – more like an equity stake in a startup than dollars or euros. But the more people use it as a currency, the faster that process will accelerate as network effect starts to take hold. And that is an exciting proposition: not for its KYC implications, but for the rise of new, decentralised currencies that run on maths rather than monetary policy. Whilst not entirely outside the remit of governments and regulators, their supply and economics are beyond their interference.

Read more at https://hackernoon.com/bitcoin-adoption-and-conway-s-game-of-life-54ca71db7b88

Why ‘Bitcoin Dominance’ is a dumb metric

You’ll hear some crypto enthusiasts talk about something called ‘Bitcoin dominance’, which is basically the share of total crypto market cap bitcoin enjoys. When it plunges below 50%, bitcoin maximalists start crying. Ultimately, though, it’s a meaningless metric. In time it will drop below 10%, and lower still – and that’s a good thing for crypto.

Bitcoin is the grand-daddy of crypto, the first and still the largest peer-to-peer online currency. It’s not going anywhere in a hurry. One day something may unseat it from its #1 throne, but not just yet: the promised Flippeningisn’t around the corner.

But even if bitcoin stays at the top of the heap, its Dominance will continue to fall. Why? Simple: because other crypto projects are not just growing, they are becoming more numerous.

It doesn’t matter if bitcoin achieves a $10 trillion market cap (which would be awesome – $500k BTC buys a lot of Tesla Roadsters). If there are thousands of $10 billion market cap crypto projects, which is more than possible, its share of the total will fall towards the single digits.

A smaller slice of a bigger pie. A much bigger pie. Is that such a bad thing?

XRP: crypto or not?

Ripple is a polarising technology in the crypto world. Some people love it, others hate it. A core of die-hard crypto believers don’t view it as cryptocurrency at all, seeing it as a centralised protocol that doesn’t use a blockchain and is just another tool to help banks and bankers do what they have always done: siphon money off the rest of us.

Ripple launched in 2012 as a B2B solution for financial organisations. Its token, XRP, trades just like other cryptos on most exchanges. Ripple doesn’t exactly use a traditional blockchain: instead it has a distributed consensus ledger that relies on a network of validating servers. It’s not open like the bitcoin blockchain, more ‘semi-permissioned’, involving gateways and so-called trust lines.

The market treated XRP much the same as other cryptos in the bubble at the end of last year. Traders certainly believe Ripple has a future as a payment network between banks. But is it crypto? That depends on your outlook.

Ripple is a different model to blockchain. It certainly represents an improvement on existing money transfer protocols, which is why many banks are starting to take an interest (fuelling that speculative demand for XRP). It won’t be for everyone, especially the more libertarian of bitcoin believers. It’s more open than existing banking solutions, but hardly in the same category as popular blockchains.

Will it be part of the new financial order? Undoubtedly.

To find out more about Ripple vs blockchain, see https://hackernoon.com/the-ripple-currency-problem-why-permissioned-blockchains-will-devalue-xrp-d79aef84c074

Twitter

Ripple Growing Their Network With Payment Remittance Company In South Korea — Sentbe
#Ripple, #blockchain, #crypto, #cryptocurrency

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