The Promise Of Possibility

A Gravestone Doji pattern is a particular type of Doji Candlestick Pattern that can be very powerful in detecting price signals of an asset. In our last post, we discussed the basics of the a Doji Candlestick. Today, we will explain the Gravestone Doji in a simple way that will immediately make you a better trader.

In this post we will breakdownthe Gravestone Doji Candlestick by understanding the meaning of what it's trying to tell us. This will ensure that you don't have to memorize the candlestick name. In fact, once you're done reading this post, you'll never have to reference it again.

Gravestone Doji in an Uptrend

Gravestone Doji – A Bearish Doji Candlestick

The Gravestone Doji is typically viewed as a bearish doji candlestick. But why is that? Should we simply take someone else's word for it? Or should we try to understanding the meaning behind what's going on? The mango-way prefers the latter option, of course.

So let's analyse a classic Gravestone Doji candlestick. The image underneath depicts a gravestone candle:

Gravestone Doji - Candlestick Open, Close, High, Low

A Gravestone Doji Pattern Candlestick

By simply looking at the image we can derive a story (and OHLC analysis) of what happened during the trading day.

1. The Bulls were able to push the price up to a HIGH.
2. The Bulls were not able to maintain the price at that high.
3. The Bears were able to further push the price down all the way to the Open (beginning) of the candlestick.

If you're wondering what I mean by "story" and OHLC Analysis - don't worry. OHLC is simply a short-hand for representing the "Open, High, Low, Close" of the doji candlestick. We will discuss an example of "story derivation" and OHLC Analysis of a Gravestone Doji Candlestick in the next section of this article.

This candlestick pattern is often viewed as a reversal candle. The Gravestone Doji looks like an upside "T" candlestick on a chart. The price breakdown of the gravestone doji suggests a complete sell-off of a once Green candlestick (Refer to the "High" in Image). Essentially wiping off any price gain the candlestick may have had. (refer to image)

The Gravestone Doji suggests that the bears took the bulls down at the very last moment. Despite having the initial pump (refer to high), the bulls couldn't hold price past the candlestick Open. The gravestone doji is indicative of a massive bear victory.

Gravestone Doji: Meaning & Psychology

The Gravestone Doji can be traded most effectively once a trader understands the meaning and psychology behind the pattern. Most traders attempt to memorise various patterns. This is extremely unfeasible and ineffective because each candlestick pattern is context-dependent. Once a trader understand the meaning behind the candlestick pattern, he will be able to trade the pattern in every context. In this article, we will provide examples of the Gravestone Doji Pattern in the following contexts:

1. Gravestone Doji in a Downtrend
2. Gravestone Doji in a Uptrend
3. Gravestone Doji at the Bottom
4. Gravestone Doji at the Top

Let's start with understanding the "meaning" of a Gravestone Doji Candlestick. In order to do this, we will walk through a scenario where a Candlestick Pattern is in the process of being formulated, but has not yet formed just yet. On each phase of the Doji Candlestick, we will explain the meaning we can derive from the pattern as the candle shapes itself.

There are three images below, each depicting various stages of a Candlestick pattern. Let's assume that the Candlestick represents a single day's worth of price action.

Phase 1: A Full Body Candlestick

Phase 2: Bears Step In & Sell into Candlestick

Phase 3: Gravestone Doji Canldestick

In the first image we can see a big green full body candle:

Phase 1: A Full Body Candlestick

What information is this providing us? What can we derive from this? We can start by looking at the OHLC of the Candlestick. We notice that the Open and Low are both at $1, and the Close and High are both sitting at $5. Interesting...

With this information, we can derive a story from the current phase of the candle. Since the low of the market matches the open of the market, we conclude that the bulls pushed the price up as soon as the candle opened. We don't have even the slightest of wicks under the open. With this we can conclude that the bears have not been able to exert any pressure on the bulls whatsoever.

In fact, the bulls pushed price up all the way to the $5 mark. As depicted in the image, this is the HIGH of the candlestick as well as the current "CLOSE" of the candlestick. But remember, the candlestick hasn't officially ended yet. We are watching it as it develops through the day. That being said, at it's current stage we can conclude that the bulls are in firm control

Now let's take a look at the second phase of the Gravestone Doji pattern...

Once again, we will begin with an analysis of the OHLC of the candlestick. In this phase of the candlestick pattern, we can see that the HIGH and the CLOSE of the candle are no longer matching. The HIGH of the candle is still $5. However, the current CLOSE of the candle is now sitting at $3.

Phase 2: Bears Step In & Sell into Candlestick

What does this tell us? With this new information, what can we add to our story thus far?

Well, at this current phase of the Gravestone Candlestick pattern, the Bears seem to be finally applying some pressure on the Bulls. The Bears have managed to push the price down from the HIGH of $5 back to $3.

Keep in mind, however, that this isn't the final phase of the candlestick. Until the candle officially "closes", the Bulls may still be able to push the price back up and re-assert their former control. However, on the flipside, the Bears may be able to push the price down even further.

Now let's assess the final stage of the Gravestone Doji Candlestick Pattern:

Phase 3: Gravestone Doji Canldestick

This is where things get extremely interesting. This is a completely different picture from Phase 1 of the candlestick pattern. Recall that in the first phase of the candlestick pattern, the candlestick depicted a full bodied candle. The full-body candle in the first phase of the candlestick indicated Bull-strength. However, in this final stage we have a different picture to the story.

Let's perform an OHLC analysis of the candlestick. We can see the In this stage of the candlestick pattern, the bears have pushed the price down all the way to the OPEN of the candlestick. In fact, the OPEN, the CLOSE and the LOW are all at the same price of $1.

Essentially, the candlestick Opened and Closed at the same price, despite the magnitude of the initial bullish effort. Such price action usually renders a Gravestone Doji Pattern. The key points to note are the following:

1. The Bears were able to push the price back down all the way to the initial OPEN of the candlestick.
2. The Bulls were able to defend the OPEN of the candlestick.

The second point is often ignored, but it's extremely important. The Bears were able to step up and put a lot of pressure on the Bulls, and that is definitely a good show of Bear-strength. However, a good trader should not ignore the fact that the Bears were not able to push the candlestick under the OPEN of the candlestick pattern. This information can be crucial when determining your trades within a bigger context. For example, a gravestone doji in an uptrend may be treated very differently from a gravestone doji in a downtrend.

Gravestone Doji in an Uptrend

As mentioned earlier in the article, a smart trader will always consider the contextual environment of the Gravestone Doji. A Gravestone Doji in an uptrend will have different trade opportunities compared to that of a Gravestone Doji in a downtrend. In this section we will provide examples of how to trade a Gravestone in an uptrend.

The following image is an illustration of an uptrend leading to a Gravestone Doji:

Gravestone Doji in an Uptrend

The image also indicates an uptrend that preceded the Gravestone Doji. This is important contextual information that a trader should take into consideration when putting on a trade.

For example, a more cautious trader would not be in a rush to put on a short position on the close of the Gravestone Doji candlestick. Why? Because the bulls still have the trend in their favour.

You might be asking, however: "Isn't a Gravestone Doji supposed to be bearish?" Indeed, the bears have definitely applied some pressure on the bulls. But recall from the previous section of this article, that we should not ignore this key point: The Bulls were able to defend the OPEN of the candlestick.

Gravestone Doji In Uptrend Leading To Downtrend

Since the bears were not able to demonstrate their ability to push the price underneath the open, a smart trader would instead wait for confirmation of bear strength. A trade opportunity would trigger toward the downtrend once the next candlestick took out the low of the Gravestone Doji candlestick (as illustrated in the image above).

Trading A Gravestone Doji in an Uptrend

There are multiple methods that a trader can employ to initiate a trade on a Gravestone Doji in an uptrend. In this section we will discuss three possible methods:

a) Price ticks under the OPEN of the Gravestone Doji in an uptrend
b) Price closes under the low of the Gravestone Doji candlestick in an uptrend
c) Price closes under the low of the Gravestone Doji and offers a "retest" in the direction of the uptrend.

Gravestone Doji Uptrend to Downtrend How To Trade

Three Possible Methods to trade a Gravestone Doji in an Uptrend

a) Price ticks under the OPEN of the Gravestone DojiI

In this secnario, the trader would look to enter the trade as soon as the next candle ticks under the low of the Gravestone Doji that preceded it. Price ticking under the low of the Gravestone Doji would be enough confirmation to the trader that the Bulls have lost control of the uptrend and the bears were able to push the price further down.

b) Price closes under the OPEN of the Gravestone Doji

This scenario is an extension to the previous scenario where the trader adds a bit more caution to his trade setup. In this scenario, the trader would wait for the following candle after the Gravestone Doji candle to officially close underneath the open of the Gravestone Doji. This will give the trade more confirmation of the bears applying pressure on the uptrend.

Essentially, he would not enter his trade until the candlestick that followed the Gravestone Doji has fully confirmed its close under the open of the Gravestone candlestick pattern. This is a more cautious and conservative approach where the trader is defending against the possibility of the uptrend continuation.

However, there is always a trade off. Sometimes, waiting for a candle close underneath the Gravestone Doji may lead to a trade-entry that is further away from the ideal entry that a trade may want. Depending on the traders overall strategy, he may want either he may choose to either enter the trade anyway or wait for price to retrace or "retest" the Gravestone Doji on the next candle.

This leads us to the third scenario:

c) Price closes under the low of the Gravestone Doji and offers a "retest"

In this scenario, the trader would wait for the following candle after the Gravestone Doji candle to officially close underneath the open of the Gravestone Doji. But if the price closes too far away from the open/close of the Gravestone Doji the trader may decide to wait for price to retrace upwards a bit before taking a short position. This will allow the trader to milk out more profits while still maintaining the same risk parameters.

Trading The Gravestone Doji

A gravestone doji could be found under different market contexts. Such as during bull rallies, market consolidations, as well in market dumps. Regardless of context, the Gravestone Doji remains a bearish candlestick.

The Gravestone Doji is analyzed as such when found under the following context:

Bull Rally - It takes conviction from the bulls to sustain a rally. However, a gravestone doji in a bull rally suggests the bears won out. Hence, conviction from the bulls are wearing off. The doji is viewed as a potential reversal candle in this context.

Bear Dump - Severe price dumps tend to cause panic selling. Wherein, retailers are looking for the next best opportunity to sell their bags. Hence, when price bounces even slightly, traders sell into it. This price action is likely to render a gravestone doji, and is a sign of continuation.
Market Consolidation - This isn’t always common. However when it occurs, it implies strong bearish market sentiment. The gravestone doji is viewed a sign of bearish sentiment and dominance.

The Radix Saga: Part 1

Fundamentals

By Shawn Dexter / December 1, 2020

The Promise Of Possibility

A Necessary Perfection

Over the past year, the DeFi ecosystem has taken the crypto world by storm. With repackaged branding and bandage-fixes, most projects have only now hopped onto the DeFi bandwagon. Hidden with this charade, however, exists a team that has spent nearly a decade engineering an elegant future-ready platform to put all-others to shame...

Back in 2013, visionary Dan Hughes foresaw the inefficiencies that would eventually come to plague the DeFi space. Of course, “DeFi” wasn’t even a well-known term back then. But Dan was thinking far ahead of his peers. Inspired by Satoshi Nakamoto himself, Dan envisioned a truly globally-scalable platform that would revolutionize the world as we know it.

Led by this coding genius, the Radix team has discarded iteration after iteration of consensus-models. Each of these iterations were cutting-edge innovations. But to Radix — none of them were good enough. They were stubborn in their pursuit of a truly world-breaking innovation. Some would say their approach to innovation was “perfectionist”, but Radix would argue that their approach was “necessary.” After all, Radix is embarking on a herculean mission that demands nothing less than perfection itself.

A Trillion Dollar Ambition

Scalability is often touted as the next big step for the DeFi Ecosystem. But that begs the question — what does scaling even entail? How “much” do we need to scale? And scale for “whom” exactly? The Radix team have been obsessing over these questions over the past decade, and they have found the crypto-space severely wanting.

The global financial services industry (lending, borrowing, payments etc) is estimated to be worth $25 Trillion dollars. Crypto DeFi is only a tiny fraction in comparison and still wasn’t able to meet the throughput requirements. The rebuttal to this is often “Ethereum 2.0 will solve the scalability and throughput problem”. And perhaps it may — but not without a host of other problems that lead to bottlenecks on the road to global adoption.

Dan Hughes was able to foresee these crippling hurdles all the way back in 2013. Even four years later, while everyone was touting “scalability” as the new buzz word, Dan and his team were working tirelessly away at problems that hadn’t even been discovered yet. Radix sought to engineer a solution that would be battle-ready for the demands of the trillion dollar industry that not only needed scalability — but security and ease-of-use as well.

A Four-Pronged Attack

Although extremely ambitious, Radix’s mission statement could be summed up in a single simple sentence:

A decentralized protocol to serve as the backbone of global finance.

A simple sentence indeed — but an almost impossible task. In fact, achieving this would entail battling one of the hardest problems in Computer Science. The Blockchain Trilemma states that a system cannot have all three: Security, Scalability & Decentralization without compromising on at least one of them.

Radix, however, didn’t just want their platform to fulfil all three of these criteria — but they insisted on the fourth: “Ease Of Use”. Again, while this may sound simple on paper, it would require the genius of Dan Hughes and his team to see it fulfilled.

Even the team at Ethereum struggle to provide ease-of-use to their community. While Ethereum 2.0 may eventually deliver on its promise of scalability, it will do so by adding increased complexity to an already unsavoury development experience. This makes future development efforts prone-to-error, laborious, and expensive — all of which are likely to hinder adoption.

In fact, this is a problem that plagues every major project in the DeFi space. As soon as a team attempts to tackle one problem, they inevitably sacrifice a value offering on another problem. For example, the solution provided by Ethereum 2.0 brings to doubt its core-value proposition in the DeFi Space. For while Ethereum’s solution may provide scalability, it also hampers the seamless “cross-chain composability” that made DeFi effective in the first place.

Radix realized that the only way to escape this “trap of compromise” was to approach the problem differently. Instead of trying to solve “one problem at a time”, they opted for a four-pronged attack. Tackling all four problems holistically would allow Radix to craft an innovation where each one of the solutions “complimented” each other, instead of “compromising” on each other:

Scalability with Composability
Security
Decentralization
Ease of Use

But achieving this feat would be no small matter. In fact, it would be a gargantuan task — the likes of which would raise the eyebrows of the smartest minds in the space. Dan Hughes, however, would settle for nothing less.

A Composable Solution

After years of sweat and blood, the persistence finally paid off. Radix’s stubborn determination bore fruit to what could potentially be a world-changing innovation: Cerberus — the heart of the Radix protocol.

Cerberus, aptly named after a mythological multi-headed guardian, was Radix’s statement indicating that they have finally arrived for the grand stage. It promises to encapsulate every feature the team envisioned in their dream protocol — a protocol that would serve as the backbone of the global financial system.

“We spent years building, so you don’t have to”
Dan Hughes

By incorporating a unique shard-first approach, Radix was able to elegantly solve each of the aforementioned problems. Not only does Cerberus provide a novel answer to the Blockchain Trilemma, but it does so while still maintaining ease-of use & composability — a core feature to ensure the success of the DeFi ecosystem.

Put simply, Cerberus’ pre-sharded architecture allows Radix to leverage the benefits of sharding while still maintaining seamless communication between the shards. This means that apps living on different shards can interact with each other easily (aka cross-shard interoperability) This is far more crucial and ground-breaking than it may seem. In future articles, we will provide simple explainers to all of these concepts and how Radix tackles them.

Like pieces of a jigsaw puzzle finally coming together, Cerberus is a picturesque piece of engineering where every component compliments the other. But will Radix achieve its eventual goal of global adoption? There’s definitely still a long road ahead. And at Mango; we’re excited to explore the technology further.

What Is Counterparty Risk & How To Mitigate It

Explained

By Shawn Dexter / February 17, 2019

There’s been a lot of buzz around the most recent events surrounding QuadrigaCX. For those of you who aren’t aware – QuadiragCX is a Canadian Bitcoin Exchange that have recently lost access to their customers funds. The entire incident is all rather suspicious, but we will not be diving into that drama over here. You can simply google “Quadriga Scam” to find out more. In this post, however, I want to discuss the risks that people tend to ignore when dealing with exchanges like QuadrigaCX.

Specifically I want to talk about Counterparty Risk.

In usual Mango-style, we’re going to break this concept down piece by piece. To understand what is Counterparty Risk, we first need to discuss precisely what is “Counterparty".

What is a 'Counterparty' ?

A counterparty is the person or organisation on the other side of a financial transaction. If you make a financial deal with someone, then the person on the other side of the deal is the counterparty. Here are a few examples of counterparties:

If you loan money to a friend, then your friend is the counterparty (Credit Risk)
If you put money in the bank, then the bank is the counterparty
If you deposit money into a broker (or exchange), then the broker is the counterparty

Whenever you engage in a financial transaction with a counterparty, you are exposing yourself to Counterparty Risk.

What is Counterparty Risk?

Alright, so what is Counterparty Risk? Counterparty risk is the risk that you are bearing incase the person on the other side of the transaction cannot fulfill their end of the deal

Put briefly:
Counterparty Risk is the risk that the counterparty defaults or goes bankrupt.

In the previous section we listed a few examples of counterparties. In each one of those cases, you were also bearing Counterparty Risk. Let’s use those same examples when pertaining to Counterparty RIsk:

You lend money to a friend and he cannot pay you back
You put money in a bank, and the bank goes insolvent (due to bank-run, financial collapse etc)
You deposit money into an exchange, and the exchange gets hacked or loses all your funds.

By now, you’re seeing that it’s all pretty straightforward. Whenever you engage in a transaction with another party (counterparty), you are bearing the risk that the other party may not be able to deliver when the time comes to fulfill their end of the transaction

Difference Between Counterparty Risk & Credit Risk

I’ve received this question a few times now: What is the difference between counterparty risk and credit risk?

Counterparty risk is actually a subset of Credit RIsk.

So essentially – Counterparty risk is a form of Credit Risk. Credit Risks typically refers to the risk you assume when the counterparty cannot payback a loan (for example when you buy bonds).

Real Examples of Counterparty Risk

So, now we understand what Counterparty Risk actually is. But let’s go over a few examples how bad Counterparty Risk can get. A lot of people have lost a lot of money because they didn’t take counterparty risk seriously enough. Here are a few recent examples of counterparty risks that took a bad turn:

The Flash Crash of EUR/CHF: Several brokers actually went broke overnight on this one. In 2011, the Swiss National Bank (SNB) put a price floor on the EUR/CHF pairing. Essentially, they pegged the EUR/CHF at atleast 1.2 in an effort to facilitate cheap exports. This caused a lot of traders to take advantage of the price floor.

However, after a series of events – the SNB suddenly removes the price peg and the exchange rate dropped by 20% within the first minute. This caused a massive flash-crash. Traders not only lost their entire balance, but their accounts actually went into the negative! They owed more than they actually had.

The Mount Gox Hack: Mt. Gox was a major cryptocurrency exchange back in the day. In 2014, it suddenly suspended all trading without any clear explanation other than “maintenance”. Apparently, a security breach/hack caused the exchange to go insolvent. They soon announced bankruptcy and closed trading altogether. Traders who had their funds in there lost everything.
Death Of QudrigaCx CEO: This is the most recent event/example of counterparty risk at its truest form. QuadrigaCX is a Canadian Cryptocurrency Exchange. A few weeks ago, the CEO of the exchange dies while on vacation in India (apparently!). It was then uncovered that he was the only one who could access all the customer funds in the exchange. Furthermore, his laptop could not be found after his death – making it impossible to access the cryptocurrency which was stored in a secure cold wallet. Almost $150 million dollars of customer funds have been lost. Some people lost their entire life savings.

How To Mitigate Counterparty Risk

While Counterparty Risk can be a scary thought, there are several ways to mitigate counterparty risk. Taking the appropriate steps to mitigate these steps will keep your finances in tact even if a Black Swan event takes place.

Divide your funds among Banks that insure your money: Most banks provide deposit insurance on a your money up to a certain amount. You can reduce your counterparty risk exposure by placing your money in several different banks. This will ensure the most coverage.

Don’t send your entire trading account to an exchange: If you’re a trader, it may be in your best interest to trade with only a portion of your funds and leverage the rest. For example you can send 20% of your account to the exchange, and keep the 80% in your bank. With a 5x leverage, you can trade the same amount while still protecting yourself in case the exchange goes down. If you’re looking for an good cryptocurrency exchange that allows for leverage trading, we recommend Deribit

Credit Checks & Deposit Requests: If you’re renting out your apartment, or loaning money – it’s best to do credit checks on the counterparty. If you’re a landlord you can ask for security deposits. Banks and credit card companies do a credit check on your financial history for this very reason – to reduce their counterparty risk. They will assess their counterparty risk when dealing with you as a counterparty, and accordingly offer you an interest rate. Landlords do the same and ask you for a security deposit. The interest rate and deposit rate will cover any losses that they may incur in case you don’t fulfill your end of the deal (i.e payback credit card, and not damage property)

Conclusion: What Is Counterparty Risk?

When we engage in any sort of trade/ transaction with a counterparty, it’s more often a means to an end. In the process of achieving that end we often forget to account for counterparty risk.

The rules & regulations that govern many counterparties ( banks, exchanges, businesses) usually evoke the feeling of safety and reliability amongst many of us. And while the crash of banks, exchanges and business is improbable, it is still possible.

Given that our world is highly reliant on counterparties for the purpose of trades and transactions, we can’t eliminate counterparty risk entirely. However, we can mitigate counterparty risk by doing the following: (limited to the scope of examples in the post)

For those who are “banked” – Do not put all of your eggs in one basket. Divide your funds among Banks that insure your money
For those of you who trade – Crypto, Forex etc – Don’t send your entire trading account to an exchange. Change the narrative around margin trading and use it to mitigate counterparty risk.
loaners/landlords – Do a Credit Check, or ask for a Deposit Request

In short, always think of a means to protect your wealth in the case of a black swan event. Black Swan events are notorious for taking you for everything you’ve got and more.

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Double Spending Problem Explained Simply

Explained

By Shawn Dexter / February 3, 2019

The double-spending problem has been a conundrum in the digital-cash realm for decades. In fact, it was the double-spending problem that held back the advancement of peer to peer digital cash. It wasn’t until the arrival of the Bitcoin Network that a p2p decentralized digital currency really began to be viable.

Many of us “know” that Bitcoin solves the double spending problem, but we still struggle to explain how Bitcoin solves this problem. In fact, it was only yesterday that I received this email from a regular Mango Reader:

“Hey Shawn,

Your cautionary post on the Bitcoin Doubler Scam got me thinking about the double-spending problem.

Wont a miner be able to “double spend” his bitcoin by simply broadcasting a transaction on the network and then quickly mine a block that sends the same bitcoin to another merchant?

Thank you,

Juan”

Good question, Juan. This is actually a common misunderstanding. But before I answer you, let’s quickly explain the double spending problem for the readers who may be unfamiliar with it.

Double Spending Problem Explained

Anything digital can be copied – anything. And more importantly: it can be copied exactly. This is a huge problem in the digital space when pertaining to digital rights management and… digital cash. Pirated movies, pirated music, pirated software etc. have all been birthed from our ability to copy anything that is in digital format. To most of you, this has been a blessing in disguise.

But imagine if digital cash could be pirated as well?
What would be the implications?
Hyperinflation, for one.

This is one of the primary reasons why we still rely on central authorities for our financing needs. The central authorities (like banks) maintain a ledger where they keep tab of everyone’s expenses. They ensure that double-spending doesn’t occur (..or try to!)

However, centralized solutions pose a single-point-of-failure problem. They can easily be hacked or compromised externally (bribed). But for decades, it was the only solution we had – until Bitcoin came into the picture.

Satoshi Nakamoto proposed an elegant solution in his whitepaper where he explained how the Bitcoin Network would solve the double-spending problem.

Misunderstanding Double Spending Problem In Bitcoin?

Similar to centralized solutions, Bitcoin also uses a ledger to keep track of transactions. However, this ledger is stored across the globe at multiple locations (called nodes).

This global ledger is called the “Blockchain”.

Why? Well, because it’s simply a chain of “blocks”. Each of these blocks contain transactions that have taken place in the network.

New transactions that are broadcasted to the network are picked up and put into these “blocks” by miners. Once the block is created, a miner will initiate his mining process where he attempts to solve the Cryptographic Puzzle.

The miner who solves the puzzle first wins the “right” to submit his block to the blockchain (the global ledger). They then move on to the block of new transactions.

This is where Juan’s question comes into play. He’s asking about this hypothetical scenario that explains the (misunderstood) double spending problem.

Miner Joe has only 10 bitcoin in his wallet
Miner Joe sends those 10 bitcoin to Merchant Alice
The network & miners pick up the transaction.
All the miners put together a block with this transaction: “Joe sends 10 BTC to Alice”
But sneaky Miner Joe makes a block with this transaction instead “Joe sends 10 BTC to Bob”
Miner Joe wins the cryptographic puzzle, so his block goes through.

Is that a double spend?
No, it is not a double-spend at all. Sure – it is an attempted double spend.
But Miner Joe was not able to pull it off.

Why? Because Joe’s block with his transaction : “Joe sends 10 BTC to Bob” got added to the chain. This means that the blocks containing the transaction: “Joe sends 10 BTC to Alice” did not get added – and was never considered at all.

Double Spending Problem: Forks & Longest Chain

Remember, Joe won the Cryptographic Puzzle race, so his block gets added to the chain, while everyone else’s block is rejected.

Ah, but what if Joe was not the only one who solved the puzzle?
Often, more than one miner may solve the cryptographic puzzle. This means that multiple blocks may be added to the chain at the same point – resulting in a blockchain Fork.

So what if another miner – Miner Collin – also solved the cryptographic puzzle. We would now have two blocks with the following transactions:

Joe’s Block: Joe sends 10 BTC to Bob

Collin’s Block: Joe sends 10 BTC to Alice

Would this be a successful double-spend? It may look like it – but nope, this is not a successful double-spending attack.

The blockchain has forked into two different chains, one with Joe’s block as the newest block; and the other with Collin’s block as the newest block. It is here that the Bitcoin Network will have to pick one of the chains as its main chain. How does it pick it? It will essentially use the Longest Chain Rule.

I explain the Longest Chain Rule using a simple analogy in the post above. But I’ll quickly go over it here.

The Longest Chain Rule Summarized

Essentially, the network will pick the chain that is the “longest” as it’s main chain. This means that the network will have to wait for a few more blocks to be added to the chain before a decision can be made.

If the chain with Joe’s block outpaces the chain with Collin’s block, then Joes block will be valid since it will be in the winning chain. Collin’s block, however, will be considered “orphaned” and invalid.

Even if the opposite happens, it won’t matter – because only one of the two transactions will be considered valid. So the double-spending problem doesn't really come into play here.

Double Spending Problem: Confirmations are Key!

But what about Alice? Is she at risk here? In fact, Alice is actually at risk of being victim to a pseudo double-spending problem. I say “pseudo” because it is not so much a double-spending problem within the network, but “outside” of it.

Two transactions were broadcasted to the network:

Joe’s Block: Joe sends 10 BTC to Bob

Collin’s Block: Joe sends 10 BTC to Alice

Joe’s block was added to the blockchain and Collin’s block was orphaned. But remember, transactions are broadcasted to the network – regardless of whether they get added to the chain or not. So Alice will have received a network message saying “Joe sends 10 BTC to Alice”

As a merchant, Alice may get tricked by this and give Joe some merchandise. However, this is not a fault of a network – but more so a human error. The bitcoin was not officially “double spent” inside the network.

This is precisely why it is always recommended to wait for “Confirmations” on your transactions. Each “confirmation” represents an additional block being added to the block which contains your transaction.

Every time a block gets added (a confirmation), it means that there is an increased probability of your transaction being in the Longest Chain. At around 5-6 confirmations, you can be pretty sure that your transaction is safe – you won’t be at risk of a double-spending attack.

So...Is A Double-Spend Even Possible in Bitcoin?

Yes, a double-spend is technically possible in the Bitcoin Network. However, it's going to be extremely difficult and expensive to pull it off.

If Miner Joe wanted to actually commit a double-spend, he'd have to start mining his own private chain secretly. In the original chain he'd send the 10 bitcoin to Alice. But in his private chain he'd send the 10 Bitcoin to Bob.

He'd then wait for Alice to receive her six or more confirmations. In the mean time, he would have to ensure that he mines fast enough so that his private chain outpaces the original chain. If his private chain becomes the longest chain, the rest of the network will switch over to mining on his chain instead – because of the Longest Chain Rule. This way he can pull off a successful double-spending attack.

However, this is a lot easier said than done. In my post on Proof Of Work - Determining Majority Power, I discuss how CPU Power is a crucial part of the consensus process. Miner Joe would need to expend a lot of energy and have a lot of computing power to actually outpace the Bitcoin Network.

It's possible – but far too expensive! A double-spending attack would need a lot of CPU Power

He would essentially need at least 51% of entire networks hashpower to outpace the network eventually. Remember, he has to solve a cryptographic puzzle for each an every block. And he only has a chance to win each block. His chance to win, however, is directly proportional to his hashpower. This is why the community tries to ensure that no particular mining pool has too much control of the Bitcoin Network. Anything over 50% makes the network vulnerable to an attack!

Hope this post helps! And keep the emails coming, guys! 🙂

Longest Chain – How Are Blockchain Forks Resolved?

Follow-up Reads

Understanding Longest Chain – A Simple Analogy

Cryptographic Puzzle – Understanding Proof of Work

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Bitcoin Doubler Scam – You will NOT Double Your Bitcoin!

Explained

By Shawn Dexter / January 31, 2019

There seems to be a scam going around that is picking up popularity. It’s called “Bitcoin Doubler”. I would have liked to believe that no one would be naive enough to fall for this. But then I realized that there are many new entrants in this space. Unfortunately, many of them entered at the peak of the 2018 bubble.

As a result, people seem to be desperate to recuperate their losses at any cost. Ignorance + Desperation typically leads to careless actions.

Bitcoin Doubler: What in the world?

In the past week, I’ve received a few scary & surprising questions. Here are a couple of them:

Hi Shawn,

I was wondering what you think of Bitcoin Doubler sites?

They claim to be able to double my bitcoin instantly. Is this possible?

Thank you!”

Quick Answer: No, it is not possible. All of these websites are scams. They are designed to feed off the desperate by making them gamble with their Bitcoin.

And here is another one:

“Hey Shawn,

I received an email from a Bitcoin Doubler Expert who says he can double my bitcoin in 1 hour. He says he is an expert in bitcoin and can double my bitcoin if I pay him.

Would like your thoughts,

Cheers!”

Now, hopefully, most of you are as surprised at these questions as I was. But if you’re not – I’ve clearly not been doing my job well enough. Either way, I’m going to fix that in this post. But before I go any further, let me state in bold:

Do not , I repeat, Do not trust any website or person claiming to be able to double your bitcoin. It is most definitely a scam!

If you have any doubts or questions regarding this – don’t hesitate to email me. It’d be a real shame for any of you to get scammed – especially if you’re a Mango Reader. I mean… Bitcoin Doubler? Jesus Christ man…

What is Bitcoin Doubler? Does it really work?

Bitcoin Doubler is simply a scam. That’s all there is to it. Any website or person claiming to be a “Bitcoin Doubler” is trying to steal from you. The website (or person) will coax you into sending them funds. Once you do, you will not hear from them again.

How does the Bitcoin Doubler Scam work?

There are several variations of this scam. Some of them claim to double your bitcoin in one hour for a fee . Others claim to allow you to “bet” your bitcoin for a chance to double it. Then there are some that are simply MLM-like scams (which can be even more dangerous). Let’s quickly go through some of these “bitcoin doubler” scam variations

The Bitcoin Doubler Expert Scam

In this variation of the scam, someone will likely email you and claim to be some sort of “Bitcoin Doubler Expert”. The person will use garbage terms like “black hat hacking” and will attempt to convince you that he can hack the network to double your bitcoin instantly. He will make lofty claims about having a “bitcoin doubler script” that he coded himself. All you will have to do is pay the person a fee for his efforts to develop the script. He may even try to sell you his magical bitcoin doubler script. Sigh.

Do not fall for this. No one can hack the Bitcoin Network to double your bitcoin for you. Bitcoin isn’t something that can be “hacked”. I won’t go into why in this post. It is tamper proof, immutable and decentralized. The weakest link to the Bitcoin network security is the actual user himself – i.e: The only way for you to lose your Bitcoin is if you give it away. So anyone claiming to “double your bitcoin” by hacking the network, is essentially trying to say that he is going to hack someone else's Bitcoin and give it to you. That is not possible.

The "Double Your Bitcoin Instantly" Betting Scam

This variation of the Bitcoin Doubler Scam feeds not only on desperate people – but on reckless gamblers as well. These websites will claim that you can double your Bitcoin if you place a “bet” with your Bitcoin. Most of these websites claim that your chance of “doubling” your bitcoin is more than 50%. The Bitcoin Doubler website will ask you to place your bet by sending your Bitcoin to their Bitcoin Wallet address. Once you send them your Bitcoin, it will be gone for good.

These guys are bit more “clever” with their scam. They have a good answer if you ever try to contact them. Since it is technically a “bet”, they can simply claim you lost the bet – and the victim is likely to believe them. You will also notice that a new Bitcoin Wallet address is generated each time you visit the website – this is a huge red flag! It allows them to cover up their previous victims.

The Bitcoin Doubler MLM Scam

This particular variation of the Bitcoin Doubler scam can be particularly insidious. The victim may actually be coerced into falling for this scam by his own friends or family – who are most likely victims of the scam too. It’s pretty much the same model as a Multi-Level-Marketing model (aka pyramid scheme). The scammers convince people to go out to their friends & family and trick them into sending them Bitcoin as well.

Conclusion: Bitcoin Doubler Sites are Scams! Beware.

While it’d be really nice to double your bitcoin instantly, life just doesn’t work out to be that easy. Be wary of anyone proposing to double/ multiply your bitcoin. Bitcoins are of limited supply, and the bitcoin blockchain is one of the highest standards of security achieved thus far. One can't just simply create bitcoin through sheer will of doubling their stack.

Ethereum Roadmap Update [2019]: Casper & Sharding Release Date

Follow-up Reads

Ethereum Price Update 2019

Ethereum Update 2019: Constantinople Hard Fork

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Weekly Bitcoin & Ethereum Price Prediction & Analysis

Collaboration

Market Analysis

By Shawn Dexter / January 28, 2019

Disclaimer: The ideas presented in this article should not be taken for investment advice, and are simply the views and opinions of the authors.

This is the third weekly collaboration between Eric Crown & Mango Research. Eric is, by far, one of the few technical traders in the space that really knows what he’s doing. He has over 10 years of experience trading traditional markets and market-making for equities.
What we like about Eric the most is that he doesn’t simply trade technicals – he trades the crowd psychology & behaviour derived from the technicals. We’re excited about this collaboration and will hope you enjoy & learn as much as I have from Eric.

Master Trading Yourself!

Quick Overview

A lethargic week of price action culminated with a rollercoaster weekend with an explosive break to the downside. Forecasts from the previous reports are playing out well. Overall trend still remains bearish. Multiple signs point to a revisit of the weekly 200MA. In fact, price appears to be dropping even as we conclude this report.

While we do believe that Bitcoin will eventually make new lows, we believe that we are likely to encounter strong support at the $3.2k region. Although, the break of the monthly 55EMA leads us to believe that BTC may break the $3.2K level on its current drive down.

Bloody Monday! And Rejected EMAs!

Another roller coaster weekend. But this time, we followed up with a Bloody Monday.

The entirety of the week comprised of “wicks” shooting to either side of the narrow trading range. This is a clear indication of “liquidity hunts”. Institutional money looking to distribute (and/or accumulate) in target price-areas where retail investors are likely to place their orders. Once they tap into that liquidity, the price promptly returns to the range. We witnessed that all week and cautioned against trading the lower time frames.

If price action in the past week frustrated traders, the weekend was just as bad . Bitcoin bursted out of its trading range early in the day and shot up to $3660 to test the 21 EMA. Once again, sellers promptly stepped in and the move was sold into. Krown managed to catch the move live on video this Saturday. He was quick to place a short himself – a rather exciting video after week of lethargic price action!

BTC/USD – Rejection of daily 21 EMA at $3650

The following events contributed to Krown’s conviction in the short.

Rejection of the daily 21 EMA
Rejection of the daily 10 SMA
Rejection of the weekly 10 SMA.

Furthermore, Bitcoin is still playing out the the larger symmetrical triangle that we’ve been discussing. Taking all of this into consideration, it’s no surprise that Monday started off with blood.

All signs still point to (at least) $3250

We’ve been saying it for almost a month now. All signs point to the $3250 area. Nothing has changed. There has been far too much confluence to suggest otherwise, namely:

The Symmetrical Triangle
Double-Top Murder Formation
Weekly 200 SMA

The Symmetrical Triangle

As depicted in the previous reports, BTC was forming a Symmetrical Triangle for weeks. It finally broke down at the $3850 region. While price action remains below that level, the measured move for this formation points to the $3250 region.

The Double Top

Then we had the Double-Top “M for Murder” formation on the 3-Day. The break of the neckline of this formation occurred at the $3700 region. It’s measured move pointed to the $3250 region as well. Considering this is a double-top formation on a higher time frame, we had a high degree of confidence in it playing out (and so far it is).

The 200 MA

Finally, we have the 200 MA that is sitting on the $3250 region as well – confluencing with both measured moves. The 200 MA is the mammoth of all MAs – especially on the weekly time frame. Almost all eyes are on this moving average. And the more eyes you have on a support/resistance line, the stronger it is likely to be. Bitcoin has been ranging between this 200 SMA and the 200 EMA. A break of either one of these will likely lead to a bigger move.

BTC/USD Weekly 200 MA Support at $3298

We’ve tested the 200 EMA a couple of times already – and it’s proven itself as strong resistance. And now, it looks like Bitcoin wants to test the support at 200 SMA another time. Will it hold?

Note: The 200MA has creeped up since the last test in December where it was sitting at the $3100 level. As things stand, the 200MA is currently sitting at $3298 (Bitstamp).

Lows in? Nope – Not yet.

Price may very well bounce of the 200 SMA. However, we strongly believe that Bitcoin is eventually going to break through this level and make new lows. We typically like to see at least a few flags turn green to indicate a possible low. Some of these flags are:

High Volume Buying
Volatility Index
NVT Signal

None of these signals are flashing on – which makes us lean to newer lows. Our eyes are on some key levels of support:

$2450 zone
$1900 zone
$1150 zone

Of course, these need to happen one at a time. When will this happen? Well, time-analysis can be tricky. These things can take time to play out. That being said there's a counterpoint that may indicate a more immediate break of the level: The Monthly 55 EMA.

55 EMA Monthly: An S&R Flip?

As the month draws to a close, we are approaching a crucial decision point on the charts. Over the past month we’ve been keeping a close eye on the monthly 55 EMA. As mentioned in the previous reports – higher time frames tend to hold the strongest significance. Moving averages, patterns and horizontals have a higher degree of playing out on higher time frames.

Bitcoin has never closed under the Monthly 55 EMA in its history. That being said – we must emphasize that Bitcoin is still relatively new. It hasn’t had enough time (market cycles) to test its monthly 55 EMA with conviction. This market cycle, however, has given Bitcoin ample of time and opportunity – and it’s not looking good.

BTC/USD Monthly 55 EMA Support at $3674

55 EMA on the monthly has seemed to have turned from support to resistance. This is an extremely bearish sign. The monthly 55 EMA has successfully held as support on all prior monthly closes. However, as we inch towards the end of this month of January, the monthly 55 EMA seems to have given way.

Support has turned into resistance (S&R Flip) as January struggles to break past the 55 EMA sitting at $3670 level. This confluenced perfectly with the rejection of Bitcoin’s breakout this weekend

We still have three days left for Monthly candle close. But as things stand, it likely that we are going to close underneath the 55 EMA. An official close below the 55 EMA will make the larger picture look grim.

However, anything is possible in Bitcoin land. A dramatic move to the upside should not be discounted. A lot can happen in three days.

Ethereum: Leading The Market Up ...And Back Down!

Ethereum’s news driven rally back in December 2018 took the entire market up with it. However, we cautioned that it is very likely that it takes the entire market down with it as well. It seems that the market is playing out just as we predicted. This was highly anticipated since it is class event-driven market-behaviour:

Event is announced
Market rallies leading up to the event
Market dumps closer to the event

Interestingly enough the event that was supposed to take place – never even happened. Constantinople was delayed and pushed back to the last week of February. Could we see the entire sequence of events repeat? Afterall, the initial rally seemed to have been a carbon copy of the BCH fork rally. Let’s see how things pan out..

That being said, Ethereum was forming the perfect Head & Shoulders pattern. Erik Crown stated that it had all the right characteristics for the pattern:

Correct shape
Correct Volume characteristics
Correct Price Action characteristics.
Well defined neckline.

Ethereum's Head & Shoulders neckline rejection!

However, the formation began to show some hesitation & doubt when the right shoulder got extended far too much. It was followed up with a rejection of the neckline to the upside.

But the distributive price action morphed the formation into a smaller descending triangle – which Eric discussed extensively on his daily streams. The measured move pointed to approx. $99. This seems to be playing out as we type this (Ethereum is currently sitting at $103.15)

Break down of Ethereum's descending triangle with a forecasted measured move at $99

Weekly Bitcoin Price Prediction: Summary

Overall trend remains bearish. Multiple signs point to a revisit of the weekly 200MA. In fact, price appears to be dropping even as we conclude this report. While we do believe that Bitcoin will eventually make new lows, we believe that we are likely to encounter strong support at the $3.2k region. Although, the break of the monthly 55EMA leads us to believe that BTC may break the $3.2K level on its current drive down.

Buckle Up! Its looking bumpy out there...

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Constantinople & Reentrancy Attack Explained

Fundamentals

By Shawn Dexter / January 22, 2019

In this post Shawn Dexter explains why the Ethereum Constantinople Hard Fork was delayed. He states the reason for the delay and any actions you many need to take in response to the delay. Shawn also explains security vulnerability called a Reentrancy Attack and how it was also used in the DAO Attack of 2016.

Constantinople Hard Fork Delay

Unfortunately, the long-awaited Ethereum Constantinople Network Upgrade has been delayed. An auditing team discovered that the upgrade to Constantinople would introduce a security vulnerability. Before we go over the security vulnerability, let’s quickly answer a couple of questions I’ve been getting.

What do You Need To do?

This depends on whether you’re simply an investor/trader or if you’re a miner or node operator.

Do you need to do anything with your Ether?
No – if you’re simply an investor, just sit tight. You do not have to do anything with your Trezor, Ledger, MyEthereumWallet (MEW). So, watch out for scammers who may try to confuse you.

2.Do I need to upgrade my node?
Yes – if you’re a miner or node operator you will have to upgrade to a new version of Geth or Parity before approx. 4am Jan 17th GMT.

What was the Security Vulnerability in Constantinople?

Quick Answer: The security vulnerability arises from the update that introduces Cheaper Cost Of Storage [EIP1283] that we discussed in our Constantinople Simple Explanation post.

The cheaper gas costs allowed for an exploit in the Smart Contracts. This particular exploit is called a “Reentrancy Attack”.

What is being done about it?

It's already in the process of being fixed. The developers hoped that they could fix it before the network upgrade, but these things need time for proper analysis. They decided to err on the side of caution and postpone the hard fork until they fully investigate the extent of the vulnerability.

What is a Reentrancy Attack?

I’ll give you guys a simplified explanation. A Smart Contract may communicate with an external Smart Contract by “calling it”. If the external Smart Contract is malicious, it may be able to take advantage of this and take over control flow of the first Smart Contract’s code.

This allows the attacker to make unexpected changes to the first Smart Contract’s code. For example, it may repeatedly withdraw Ether from the Smart Contract by “re-entering” at a particular spot in the code. (Essentially, it makes multiple invocations of the withdrawBalance() function)

ethereum reentrancy attack constantinople 2019

A Reentrancy Attack allows an attacker to take over control flow of the Smart Contract in concern.

Note: It’s important to note that this security vulnerability does not exist in the current Ethereum chain. All Smart Contracts on the current chain are Reentrancy-Safe!

The introduction of cheaper gas costs allows for the reentrancy attacks to be viable. Since Ethereum has not made any software upgrades yet, the main Ethereum chain is not at risk in any manner. In fact, even if the upgrade to Constantinople occured, only a small number of Smart Contracts would have been vulnerable.

So – Is this a bad thing?

Yes, and no. Yes – if you were making your investing/trading decisions solely based on this event. In a previous article we warned about how unpredictable price movement can be closer to events.

But overall this is a great thing for Ethereum – and for long term investors. Catching this security vulnerability right before the network upgrade is a gift. If Constantinople went live before and if the security vulnerability was discovered by malicious attackers, then things could got far worse!

Let’s not forget the disaster of the 2016 DAO Attack – which was actually caused by attackers exploiting code that was vulnerable to a Reentrancy Attack!

Lest We Forget: The DAO Attack of 2016

Many of you may not be aware of the DAO Attack of 2016. Attackers used a combination of two types of Reentrancy Attacks: Single Function & Cross Function.

The attackers were able to siphon 3.6 Million Ether from the DAO Smart Contract to their own accounts. Fortunately, the Ethereum community decided to Hard Fork and restored all the funds to the original Smart Contract. However, this led to a lot of controversy and led to the infamous Ethereum and Ethereum Classic network split.

Up to today, Ethereum bears the stain of the DAO controversy – albeit fading with time. It would be a disaster if it were to happen all over again.

Overall – This Is A Good Thing

The fact that this vulnerability was detected by a third party team – ChainSecurity – speaks to the network strength that Ethereum has built over the years. Ethereum has a global development strength that made itself a powerhouse. Multiple teams across the world are working on finding improvements, flaws & vulnerabilities. These are flaws that could sink other projects if gone undetected. The Ethereum community, on the other hand, is showing its strength.

Sure, prices may take a hit for the short-term. But like I said, it could have been far worse. In the long run, this delay will be forgotten. A security breach (and possible contentious hardfork that would follow) would never be forgotten.