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Bitcoin just misses major exploit – are alts next?

Bitcoin just misses major exploit – are alts next?

 

A bug has just been fixed that could have crashed older versions of Bitcoin Core, potentially bringing the network to its knees.

 

Bitcoin Core 0.16.3 was released on 18 September, patching a bug that could have caused mayhem for bitcoin. The update reads:

 

Security issue CVE-2018-17144: it was discovered that older versions of Bitcoin Core will crash if they try to process a block containing a transaction that attempts to spend the same input twice. Such blocks are invalid, so they can only be created by a miner willing to sacrifice their allowed income for creating a block of at least 12.5 BTC (about $80,000 USD as of this writing). This release eliminates the crash, allowing the software to quietly reject such invalid blocks.

 

This is pretty concerning. By sacrificing a block of coins, a rogue miner could have badly disrupted the network by preventing transactions from completing. The cost of that to the miner would have been around $80,000. That is not a large amount of money to destroy billions of dollars of value, which is what would have happened in the event of an exploit: traders would have sold immediately, crashing the market.

 

In fact, a smart miner could have taken out a leveraged short position on BitMEX, then attacked the network and made many, many times his ‘investment’ back.

 

For now, we can breathe a sigh of relief. Two problems remain:

  1. This was a zero-day exploit that could have destroyed Bitcoin’s utility and crushed its price. It was spotted before harm was done – this time. This particular problem was introduced back in 2017 and quietly sat there for 18 months before it was noticed. Are there other serious exploits that could be discovered by less benign researchers?
  2. Many alts are based on Bitcoin’s code. The same vulnerability is likely present in a large number of them – and now it’s publicly known. Expect an attack on any major alt that doesn’t hustle to fix it really fast.

 

Please update your nodes to 0.16.3 as soon as possible!

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Bakkt 2: the future (of bitcoin)

With apologies for the title, Bakkt – a major new bitcoin infrastructure project that seemingly came out of nowhere in August – has published a second update about what it’s planning to do. TL;DR it’s good stuff for crypto.

 

Early in August, the same week the SEC gave the bitcoin markets a kick in the guts by postponing their decision on the SolidX-VanEck ETF, Bakkt entered the scene with its announcement interview in Fortune magazine. The initiative had been developed under strict secrecy for over a year, for launch in November this year.

 

At a time of pessimism over crypto and uncertainty about an ETF, Bakkt is an exciting proposition. Backed by Microsoft and Starbucks (for their experience with digital payments, not for a way to buy coffee with bitcoin), the intention is to drive bitcoin adoption in both the financial sector and, ultimately, in retail.

 

As the Fortune article explains: ‘This morning Intercontinental Exchange—the trading colossus that owns the New York Stock Exchange and other global marketplaces—announced that it is forming a new company called Bakkt. The new venture, which is expected to launch in November, will offer a federally regulated market for Bitcoin. With the creation of Bakkt, ICE aims to transform Bitcoin into a trusted global currency with broad usage.’

 

Bakkt have gone about their business the right way, quietly building the tech and infrastructure and only announcing it shortly before launch, rather than looking to market vapour. Their updates have not been frequent or numerous. This article is only the second from the project itself, and consequently it’s worth a read. (You can read the first, which is about price discovery, here.)

 

As both the first and second article are at pains to state, physical delivery is a critical part of what Bakkt are doing. This is a vital element of price discovery and creating a more stable, liquid and active market for bitcoin. As a first step, Bakkt are offering bitcoin futures, combining existing financial market infrastructure and regulation with the tech to store bitcoin safely. Among other things, that means they’re not offering leverage. ‘Futures’ in this instance isn’t a paper contract, the kind of Monopoly money that’s shuffled around between traders in vast quantities every day. This is not like precious metals – the futures market for which exceeds the actual quantity of gold and silver many, many times over. Buy a Bakkt bitcoin future and it involves purchasing an actual bitcoin: that demand is passed through to the market.

 

Bakkt’s aim at this point is to serve institutional finance by providing them with the infrastructure they need to buy and sell bitcoin within the necessary regulatory framework. We know that’s something for which financial organisations have been crying out, as they see a new and exciting asset class get away from them.

 

We’ll know more in just a few weeks, but this is a great development for crypto. So, while the ETF would be nice, what Bakkt are doing makes it a little less important.

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Tuesday Inferno market report

More turbulence on the markets – and it’s not over yet.

 

We’ll start with a brief sketch of the last week in the bitcoin markets, and then move on to some of the wider factors in play as we eye the next month or so.

 

Bitcoin hit a local low 10 days ago after the crash from $7,400, bottoming at $6,120 (Bitfinex). Since then it has made two successive higher lows, although yesterday’s was only just higher: $6,170 on 11th, before a mini-rally to just under $6,600, and then another fall to $6,203 a few hours ago, after another surprise $200 drop.

 

Moving out to the one-day chart – our preferred timeframe for the bigger picture – we see BTC is drifting in a neutral-to-bearish way. Volatility is decreasing, as is clear from the size of the swings in price over the past seven or eight months. Zoomed out, the bitcoin chart looks like the path of a bouncing ball, losing energy and momentum every time it touches the $6k floor.

 

For all that, we can’t call whether this bear market will end with a bang or a whimper: a final capitulation and hard rally, or a slow attenuation before price gradually picks up. Almost from day to day sentiment changes, oscillating between gloom and excited expectation. Both, clearly, have been misplaced each time – so far.

 

The month ahead

Looking at some of the external factors in play, another decision by the SEC on the VanEck-SolidX bitcoin ETF is due on 30 September. At this point, most traders have probably priced in another delay. The final decision may well be postponed until the spring, though there are no guarantees. That will, as we and many others have commented before, fundamentally change the game in terms of investor confidence and inflow of money.

 

Before that, we have the expiration of CBOE futures tomorrow – something analysts have previously noted as a catalyst for significant downward price movements. Then there is the meeting of MtGox creditors on 26 September with the exchange’s trustee, at which he will update them on the assets held. Creditors will have another month to register their claims. This could potentially see BTC sold by creditors receiving funds back; however, it does mean the full 160,000 BTC held by the trustee won’t be dumped at market price.

 

Thus there are numerous factors that hint at considerable volatility over the coming weeks, likely compounded by the lower than usual trading volumes.

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Get your hot Goxcoins now!

Back in 2014 the last bear market was kicked off in style by the collapse of MtGox, the largest bitcoin exchange around at the time. Having topped out in a classic bubble at the end of 2013, the market was just looking for a reason to confirm its hunch that BTC was still badly overvalued. Gox closing its doors and taking 850,000 BTC with it did the job.

 

Since then Gox has continued to cast a long shadow. The recovery of 200,000 ‘mislaid’ coins held out some hope that users would one day get some money back, and indeed that has now – apparently against all odds – come to pass. (Under Japanese law typically everything would be sold to repay creditors rather than assets being distributed directly, but a special ruling has been made in this case after the crypto world reacted with dismay after the trustee cashed out a tranche and ostensibly crashed the market. Gox will now be dealt with as a civil rehabilitation case rather than a bankruptcy.)

 

Around $1 billion of funds are at stake – the balance of the 200k BTC left. These will now be distributed pro-rata to Gox holders who sign up with the online claim filing system that has been set up (see https://claims.mtgox.com/assets/index.html). The deadline for submissions is 22 October.

 

160k BTC incoming

The reason this is now featuring again in the crypto news is because, after the price drop that took place a couple of weeks, the crypto world is hyper-attuned to the impact of whales cashing out.

 

What will be the impact of 160,000 BTC being distributed to old holders? In BTC terms, they will receive just a sixth of what they lost, but the massive bull market of 2017 means they will probably break even in fiat terms.

 

Dire warnings have been given that these coins will flood and crash the market, and that is certainly possible. Many people may just want to pull out their capital and walk away. Others, naturally, with continue to hold. At this point in the market cycle, bitcoin is a gift – whatever the short-term fluctuations, the medium term looks good as BTC builds a solid base around $6k.

 

As ever, the most likely scenario lies between the extremes. There may be some impact on the market of sellers who just want their cash. But you also have to factor in a large number of bitcoiners who have stuck around since 2014, albeit with burned fingers, and are pleased to get this windfall. True believers will put it in cold storage and carry on hodling.

 

Inferno’s opinion: this event will be priced in long before the distribution takes place. With everything going on in the crypto world right now, old Goxers selling coins here and there will just be background noise against the broader signal.

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Inferno Poll: what will BTC price be at the end of the year?

Back at the end of 2017, the predictions were outlandish. $50,000, $100,000, $1 million BTC by the end of 2018.

 

Even when the bear market was well under way, we still saw plenty of predictions for an ATH (all-time high) for bitcoin before the year was out, if not higher – though the six-figure forecasts started to disappear.

 

At the end of June, BitMEX CEO Arthur Hayes was still publicly standing by his $50,000 prediction for the end of the year. Around the same time Tom Lee, co-founder and head of research at Fundstrat Global Advisors – someone with some track record of success in these matters – reiterated his earlier claim that bitcoin would end the year at $25,000. And in June Tim Draper, who famously purchased a large tranche of bitcoins from the FBI’s raid on the Silk Road during the last bear market in 2014, said he too expected $25,000 by the end of the year – and $250,000 by 2022.

 

If there’s one thing we’ve learned about crypto, it’s that the picture can change in an instant. As the year wears on, however, those predictions of $25,000 are looking less and less likely. (Admittedly, some were predicated on the SEC approving one or more bitcoin ETFs in the near future, and America’s regulators haven’t exactly been racing to make that happen.) But the question remains: What will one bitcoin be worth when midnight on 31 December 2018 rolls around?

 

With a little over a hundred days to go, we thought we’d hold a poll of our own.

 

How much do you think BTC will be worth at the end of the year?

  • <$3,000
  • $3,000–$5,000
  • $5,000–$6,000
  • $6,000–$7,000
  • $7,000–$8,000
  • $8,000–$10,000
  • $10,000–$12,000
  • $12,000–$15,000
  • $15,000–$20,000
  • Above the ATH

To cast your vote, please use this Google Form. We’ll keep the poll open for a week, after which we will publish the results and the insights we gain from it. Thank you for your participation!

 

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Monday Inferno market analysis

After the carnage of the end of last week, it’s been a fairly quiet weekend for bitcoin – but that never lasts for long, especially not at the moment.

 

To recap, last week saw a brutal fall in the value of bitcoin from $7,400 down to a low of just over $6,100. While that was a ‘higher low’ that didn’t break the previous low of $5,877 (Bitfinex), itself higher than June’s low of $5,755, it was still an dramatic move that caught many traders unaware.

 

While mainstream media reported the immediate trigger was Goldman Sachs’ decision to shelve their plans for a crypto trading desk, when Goldman denied this as ‘fake news’ the price failed to recover. As we reported, a far more likely explanation are the $10 million in BTC that were sent from an old wallet, somehow connected to the Silk Road, to Binance and Bitfinex at the very end of last month.

 

While that’s not much in the context of overall volumes, it is a lot when dumped at market rates on a single exchange. The crash was most likely a catalyst for further selling by traders and the lower prices that followed. However, it’s worth saying that even this volume of coins wouldn’t have been a problem if the market hadn’t already been at a fragile point in its recovery. Traders didn’t have the confidence to absorb the sells, instead bailing out before matters got any worse. In short, the recovery up to $7,400 had been too fast. It was looking promising, and perhaps it would have continued and gained momentum, but the Silk Road coins had the effect of a bucket of cold water.

 

Since the initial falls, the market stabilised somewhat around $6,400. We then saw a ‘Double Bart’ formation, with a crash-consolidation-spike followed by the reverse spike-consolidation-crash. Right now bitcoin sits at $6,270, but that figure is likely to be out of date in minutes.

 

Zooming out to the daily chart, we can see that the 200 MA is really coming down fast now, since the price on a large number of the last 200 days has been beneath it. The 50 MA, which reacts more quickly, of course, is heading south even faster – but conversely it picks up more quickly too with a recovery. Price is well below both, indicating downward momentum. However, resistance around the $6,000 zone has once again held, demonstrating the strength of demand here. RSI has come off its lows, indicating deceleration of downward movement. That’s hardly surprising after such massive selling, though: on the 4h chart, RSI signalled BTC was more oversold than at any point since June.

 

In short, a day of reckoning is on the way. The downward-sloping resistance line that has held since February will soon meet the demand zone at $6,000. One will give. That must happen in the next month – and it’s highly unlikely the pattern will play to the end without a breakout.

 

Traders will rightly be cautious here. If it does go south in a meaningful way, lots of analysts are talking about $5,000, but this is a point where both big risk and big opportunity lie. $6k has proved a demand level many times before. On the other hand, markets are inherently unpredictable and Mr Silk has plenty more BTC to dump. If you buy, be prepared to HODL or set a tight stop loss.

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What coins have any users?

A look at the data suggests that only a handful of coins and tokens have any kind of significant userbase.

 

We know that bitcoin has a large and genuine userbase – that is, people who actually own it or use it long term, hold it in their own crypto wallets and make real transactions, rather than just trading it on exchanges. You can read that information from the blockchain easily enough. The same is true of Ethereum. People are holding it and transacting with it, and building real applications with its smart contracts.

 

But can the same be said for many of the almost 2,000 cryptos that now exist?

 

We’re afraid not.

 

We used the site https://onchainfx.com/ to compare not just prices and market cap (which is all that most people care about) but active addresses (send/receive in the last 24h) and numbers of daily transactions.

 

As expected, Bitcoin has the most active addresses (664,000) followed by Ethereum (307,000), Litecoin (89,000), Dogecoin (73,000 – yes, that’s still a thing) and EOS (58,000).

 

After that, it rapidly declines. There are just 19 cryptos shown with more than 1,000 active addresses. Only 21 show more than 1,000 transactions a day.

 

It’s not quite as bad as it seems. Onchainfx doesn’t supply data for all cryptos, so there are some glaring omissions here. For example, it doesn’t offer active addresses or transaction numbers for Waves, which is an extremely active network, averaging around 40,000 transactions per day for this month so far, which would put it above Litecoin on that measure.

 

On the other hand, there are some anomalies: Bitcoin Cash, for example, has twice the daily transactions of Bitcoin Core, but less than 10% of BTC’s active addresses. Clearly, some shenanigans are afoot here, because that’s certainly not organic usage. A spammer or stress test or just plain old fake tx volumes can skew figures.

 

Still, the overall picture for the majority of cryptos isn’t great. These are tiny communities with very few real users. Where it gets interesting is the smaller number of cryptos that do have a real and active userbase. Network effect counts, and those communities will give their blockchains a stronger chance of long-term success.

 

And, of course, deeper analysis of that list may show some interesting opportunities to pick up coins that are undervalued on their fundamentals.

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Waves set to smash blockchain throughput record

Blockchains have historically been notoriously limited in the volume of transactions they can process. In 2016 and 2017, Bitcoin was the subject of a ferocious scaling debate due to its ability to support just a few transactions per second (tx/s). That debate resulted in the controversial BCash fork, while the Bitcoin Core chain has since implemented SegWit, enabling greater throughput and off-chain transactions via the Lightning Network.

 

Still, few blockchains can support even a few dozen tx/s on-chain, and none have come remotely close to the 24,000 tx/s capability claimed by Visa (though Visa’s regular throughput is more like 2,000 tx/s). Numerous projects have boasted that they will enable enormous transaction volumes, but these are still in development. What counts is not theory, it is real-world results. Now, Waves is set to post some very impressive results after an extremely promising test by Marc Jansen:

 

‘I just pushed 100k transfers through the #wavesplatform TESTNET. About 4892 transfers per second. Proof? Check blocks 354731-354734. A detailled report will follow after i reproduced the experiment on MAINNET!’

 

Approaching 5,000 tx/s – and that’s before any further optimisation, and before off-chain scaling is implemented.

 

It needs to be stated that testnet transactions are not the same as mainnet use, just as any other tests carried out in the lab typically cannot be replicated in the real world, where variables cannot be so easily controlled. Nevertheless, we await the results of the mainnet stress test with interest!

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Huge stash of dark market bitcoins on the move

It’s a like a Hollywood movie. A shadowy figure works out out how to plunder a huge hoard of cash hidden away years ago by person or persons unknown, somehow connected to the criminal underworld. The money moves but no one knows who’s doing it – only that something big is happening, and that there are machinations going on far behind the scenes that most of us will never understand.

 

Thousands of bitcoins sat in numerous accounts that have been dormant since 2014 have started moving. The original address and the activity connected to it have been the topic of an extensive investigation by reddit user sick_silk. The total value of those accounts, including BCH and other fork coins, approaches a billion dollars.

 

In one post he discusses the origins of the BTC; in another, he shows that large amounts – around $100 million – have just been moved to Binance and Bitfinex – suggesting they will be sold for alts and USD respectively.

 

From the analysis, it seems that the bitcoins ultimately come from a Silk Road address – the famous dark market that sold drugs and other illegal items for BTC, and that was shut down by the FBI in 2013. It appears that the coins were ‘tumbled’ back in 2014, and split among many different addresses. However, it was still possible to link them back to the original account, which was set up in 2011, with a transfer associated with Ross Ulbricht: the ‘Dread Pirate Roberts’ who founded the Silk Road.

 

Sick_silk is apparently an old redditor but has created a new account to post his insights and conclusions. Asked why he used a freshly-created reddit account, he simply replies ‘Good opsec’: someone is moving a lot of money and if it’s connected to the Silk Road or other illegal activity, there may be some unpleasant characters behind it. Anonymity is wise under such circumstances – though all of the data required to conduct his analysis is available online, thanks to the transparency of the blockchain. As he says:

 

I can track the owner’s funds, but I cannot find out who he/she is.

Also if I am able to graph this, imagine what the FBI/CIA/NSA/… can do with their tools and brains…

So I think I am not really a threat to this owner, however I prefer staying Anonymous just in case 🙂

And if I die (!!!), someone else will be able to continue the work, it’s free.

Peace.

 

The discovery that this massive stash of BTC is being sent to exchanges is a big deal because it signals some very large sell orders may be about to hit the market – for USD (or USDT), on Bitfinex, and for alts on Binance.

 

It’s also interesting that the coins, clearly linked to the Silk Road, haven’t been touched in four years. It’s possible that someone who conducted various illegal activities several years ago has sat tight on their BTC (perhaps because, languishing in prison, they had no alternative?), and is now about to reap the benefits in a major way. Perhaps Ross Ulbricht, who was sentenced to life without parole for running the Silk Road, has finally given up the keys to a fortune. Or perhaps it’s some other early adopter who frequented the Silk Road back in the day, either as customer or merchant.

 

Perhaps the most likely scenario is that Ulbricht was telling the truth when he maintained that the Silk Road was not run by him alone, and that more than one ‘Dread Pirate Roberts’ had access to those coins.

 

There’s a lot more to this, both fact and speculation, and doubtless further details will emerge in time. This is an intriguing story that harks back to a different era in bitcoin’s history, as well as one that has ongoing implications for the crypto sector today.

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Tuesday Inferno Analysis

The picture for BTC and the alts is looking good. As traders come back from their summer holidays, it looks like the bull is also back in town and growing stronger with each passing day.

 

On a technical level, it’s been a great couple of weeks for BTC, as traders have pushed up through multiple layers of resistance. Regular pull-backs have ensured the market doesn’t get ahead of itself too fast, making this a strong and sustainable rally. The most immediate support levels at $6,800 and $7,000 held on tests. At the time of writing, BTC is bumping against the ceiling of downward-sloping support, with the next target to break around the $7,500 zone.

 

On the daily chart, we’re sat between the 50 and 200 moving averages, and RSI is heading north – though not yet into overbought territory. A look at the daily RSI over the last several months shows that it has been an excellent indicator for buying and (particularly) selling. We would advise caution, though: in the last bull market, there were periods when the daily RSI spent significant periods of time over 70, and selling there would have meant missing out. When BTC goes into bull mode it’s a raging bull, and the rules change.

 

The technical picture is broadly positive for now, then, though breaking $7,500 and then $8,000 would consolidate that impression. Pushing above the 200 MA would give traders a confidence boost, and likely when $10k is breached there will be another wave of media interest and speculation (of both kinds).

 

Right now, volumes are still lower than they were earlier in the year or at the end of 2017. Nevertheless, the mood has changed over the last month. More longs are opening on the futures markets, with CME reporting both a reduction in shorts and an increase in longs. On top of that, another 100 million USDT have recently been printed, suggesting incoming demand. Big money (which usually equals smart money) is signposting its expectations.

 

On the other side of the coin, one other factor that has attracted interest in recent days is the movement of large quantities of bitcoins from a wallet that has been dormant since 2014. Around $100 million has apparently been moved to Bitfinex and Binance, presumably to sell for USD and altcoins, respectively. We’ll take a closer look at this tomorrow, but that could indicate considerable sell pressure in the short term. Right now, though, the market doesn’t seem to care.

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