About the author

Shawn Dexter

Shawn is a blockchain & distributed ledger technology enthusiast with a strong background in Computer Science, Product Management and Entrepreneurship.

Position Sizing and Leverage Trading

TLDR: Your leverage (3x , 5x, or 10x) does not change your Position Size or Portfolio Size ever. Your leverage only dictates how much margin you need on the exchange to EXECUTE the trade. The higher the leverage, the lower the margin/funds needed. But your position size is still the same regardless of leverage. MRM and YOU dictate the position size. Not the leverage

How To Position Size with Leverage?

So, the other day I received a question from new Mango Seedling in regard to Position Sizing when using Leverage:

"Hey Shawn,


“I’ve decided to start with a very small portfolio of a $1000 to get comfortable with longs and shorts


 if i did a 3x leverage does that mean I will input $3000 instead under the portfolio amount? "




It seems like some of you are still confused on how to position size your trades when putting on a leverage trade.

I've received similar questions like this in the past. So I thought I'd address this in a post.

Leverage vs Position Sizing

There are actually two points I want to address in the question. But let's start with this bit here:

   if i did a 3x leverage does that mean I will input 3000$ instead under the portfolio amount? "


 Your leverage should NOT impact how 
you position size...ever!


Your position size is to be determined first, and your leverage only after the fact.  



Mango Analogy: Position Sizing & Leverage


Think about a simplified mortgage example:


 Let's say you wanted to buy a brand new 3-bedroom house.


After doing a lot of financial planning and thinking, you decide that you can afford a maximum of $500,000.


We can use this scenario to draw parallels to your trading:

1. "Financial planning & Thinking" =  Risk Management Strategy

2. "Afford maximum of $500,000" =  Position sizing.


Now you tackle the big question of the down-payment. 


Again, let's keep it simple and assume you only have to worry about liquidity and monthly payments.


After more thinking, you decide the following:

1. You have $100,000 of spare liquidity

2. You want to put 20% down-payment


Again, we can draw parallels to our trading here:


1. "20% down" = 5x leverage

2. "$100,000 liquidity" = The minimum you need to have in the exchange.


(In case you're confused here, let's break down the math:


You are buying $500,00 home. But you are putting down only $100,00 of your money, and borrowing $400,00 from the bank.


When you put down only $100,000 to buy a $500,000 home, you have essentially 5x'd your buying power.


You have taken a leverage trade on your house. )


So now you have determined your position sizing and your leverage. You go over to the bank, and talk to one of the useless mortgage brokers who pretend to know what they are talking about.


The broker says:

"Hey, you can afford a $1,000,000 home if you put a 10% down-payment instead of a 20% downpayment"


Hmm... let's think about this....What happened here? 


By decreasing your down payment, the broker has:

1. Increased your position size

2. Increased your leverage.


And most importantly:


3. Taken control of your Risk Management.


Red. Frigging. Flag.



Take Control Of Your Own Risk


Your risk management should be dictated by YOU (and the MRM Tool Sheet if you're in the
Seed Program) before you even enter the exchange.


The position size remains constant once your risk criteria has been determined.

Remember from the program modules:


Do NOT let the exchange dictate your risk management. 


Again, remember that The Mango Way is:  RISK FIRST 


And your position size is a huge component of your risk. 


Once you've determined your risk, your position size is determined as well.


You should NOT change your position size... no matter what leverage you decide to use after that.


In fact, it's the exchange and leverage that should mould to your risk, not the other way around.


 Every exchange is going to have subtle differences in how you can EXPRESS your risk on the exchange.

 

The exchange is just a tool for your to express your risk.

Risk First, Leverage Second


Now let’s address this bit:


“I’ve decided to use $1000 for my portfolio….. my question is, if i did a 3x leverage does that mean i will input $3000? “


This is another example of letting leverage dictate your risk management (as opposed to the other way around).


Remember:  Your trade does not dictate your portfolio size, your portfolio size dictates your trade size.


Same rules apply here. If you're in the Seed Program and you're using the MRM Sheet, then your portfolio size remains fixed for the duration of the trade. (In this example, the your portfolio size should be set to $1000.)


Furthermore, it worth emphasizing that leverage is not used for position sizing decisions EVER


It's only used to increase efficiency and reduce counter-party risk.


Final Thoughts

New traders, disastrously, allow the temptation of high leverage dictate their risk management. 


Never do this. It's not the Mango Way!


Don't start with:
 "I want to 3x leverage so what should my position size be?"
 
Instead, start with : 
"What should my position size be? Oh, the MRM Sheet is saying $1000?" 
Okay, that means I need to put around $350 minimum in the exchange to so I can use 3x leverage to get to $1000 position size

Why $350?
Because 350 x 3 = $1050, this will be an approximate minimum of what you'd need to satisfy your MRM sheet.

But of course you can put more margin in your exchange account - for example $500.


However, if you set your isolated margin to 3x and position size to "$1000", it will isolate 330ish to give you the same position. And you'll have around $200 margin left over.


But now I'm ranting, and we're digressing to a new topic.


Hmm...Do you guys want me to discuss more on the differences between Isolated Margin vs Cross margin?


If so, let me know in the comment section and I'll get on it 🙂

KEY TAKEAWAYS:


  • Do NOT let the exchange dictate your risk management. Your risk management is dictated YOU (and the MRM Sheet)
     
  • The exchange and leverage should mould to your risk, not the other way around

  • Your trade does not dictate your portfolio size, your portfolio size dictates your trade size

  • Leverage is not used for position sizing decisions EVER It's only used to increase efficiency and reduce counter party risk
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Gravestone Doji – Types of Doji Candlestick

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 Candlestick Pattern

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.

Gravestone Doji playing out

Phase 1: A Full Body Candlestick

Gravestone Doji getting sold into

Phase 2: Bears Step In & Sell into Candlestick

Gravestone Doji upon candle close

Phase 3: Gravestone Doji Canldestick

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

Gravestone Doji playing out

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. 

Gravestone Doji getting sold into

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:

Gravestone Doji upon candle close

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 Candlestick Pattern

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

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:

  1. 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.
  1. 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.

  2. 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.

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The Radix Saga: Part 1

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.

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What Is Counterparty Risk & How To Mitigate It

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:

  1. 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.

  2. 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.

  1. 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.

  2. 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.

  1. 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.

  1. 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

  1. 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)

  1. For those who are “banked” – Do not put all of your eggs in one basket. Divide your funds among Banks that insure your money

  2. 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.

  3. 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

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.

  1. Miner Joe has only 10 bitcoin in his wallet
  2. Miner Joe sends those 10 bitcoin to Merchant Alice
  3. The network & miners pick up the transaction.
  4. All the miners put together a block with this transaction:  “Joe sends 10 BTC to Alice”
  5. But sneaky Miner Joe makes a block with this transaction instead “Joe sends 10 BTC to Bob”
  6. 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! 🙂

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Bitcoin Doubler Scam – You will NOT Double Your Bitcoin!

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. 

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Weekly Bitcoin & Ethereum Price Prediction & Analysis

DisclaimerThe 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.

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.

  1. Rejection of the daily 21 EMA

  2. Rejection of the daily 10 SMA

  3. 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:

  1. The Symmetrical Triangle

  2. Double-Top Murder Formation

  3. 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:

  1. High Volume Buying
  2. Volatility Index
  3. 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:

  1. $2450  zone
  2. $1900 zone
  3. $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:

  1. Event is announced
  2. Market rallies leading up to the event
  3. 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:

  1. Correct shape
  2. Correct Volume characteristics
  3. Correct Price Action characteristics.
  4. 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

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.

  1. 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.

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Weekly Bitcoin Price Prediction & Analysis – January 2019

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

January 21st Bitcoin Ethereum Price Update 2019

This is the second 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.

Quick Summary

Our overall bearish bias remains intact. The weekend displayed a glimmer of hope with Bitcoin rallying to nearly $3800. But the quick sell off that ensued only served to strengthen the bearish case. The sell off lined up perfectly with a retest & rejection of both: the daily 21 EMA & 3-Day M-formation neckline.

Furthermore, this also confluences with the breakdown of the larger symmetrical triangle on Bitcoin. All signs point toward a retest of the $3250 area.  But will that be the bottom? We discuss our opinions on this matter and the rest in this report.

Weekend Roller Coaster – Key Rejection of 21 EMA

It’s been a roller coaster of a weekend. Bitcoin price witnessed a sudden $200 move in both directions within a matter of hours.

Saturday started strong with Bitcoin making a quick move from the $3600 to $3775 – almost a $200 move to the upside. Could we have foreseen this move? Perhaps.

Bitcoin formed a smaller Symmetrical Triangle over the week. Eric Crown has emphasised that symmetrical triangles have an equal opportunity to break to either side.  However, in a overall bearish trend – we tend to lean toward the downside.

“ Symmetrical Triangles have an equal opportunity to play out to either side
Eric Krown

Surprisingly, Saturday saw Bitcoin break the smaller Symmetrical Triangle to the upside. The breakout hit the measured move perfectly. Although Eric himself leaned to the downside, he demonstrated his professional skills by responding to market action and trading the breakout perfectly.

Rollercoaster action: Upward break of the triangle and promptly sold into..

The break to the upside had many people feeling bullish about the markets once again. But the anticipated follow up simply failed to arrive.

Instead, sellers stepped in promptly and sold heavily into the $3775 level. The price quickly retreated to $3700 which resulted in a successful rejection of the daily 21EMA break. And this was key! (we’ll discuss why in the next sections)

BTC Price prediction January 2019

Rejection of the 21-Ema on the daily.

Sunday showed a powerful response to the rejection of the 21 EMA. With rejuvenated confidence sellers were able to push the price of Bitcoin all the way down to $3500. A $200 move to the downside this time.

Interestingly enough, the rejected 21 EMA lined up with $3700. The $3700 was also the neckline for the  3-Day M-For-Murder formation (double top) that we also discussed in the previous post.

Incoming Murder? M-Formation Retest

As Krown would say: “M” stands for Murder!”. If you’re forming an M-like formation, you don’t want to break that neckline. And Bitcoin did just that when it closed a three-day candle under $3695. This neckline break has a high degree of playing out to the downside – especially on the higher time frames.

However, these formations may occasionally show a false breakout to trap people. A re-test of the neckline isn’t uncommon. But a rejection of the retest adds further probability of it playing out.

Notice the weekend rejection of the 21-EMA lined up beautifully with this neckline (as displayed in the image below).  This is very likely to increase seller confidence, as they begin to target the measured move for this break.

“ Rejection of the neckline retest on the 3 Day

Bitcoin 3 Day Price Analysis - January 2019

Double top (M-formation) break and retest of the neckline.

The measured move for this is typically the length between the neck and the top. This points to a move downward to around $3200 level area.  

And this is where things get even more interesting. We’re already seeing confluence with the Daily 21 EMA rejection and the 3-Day M-Formation rejection. These also line up perfectly with Bitcoin’s Symmetrical Triangle formation and the 200 Simple Moving Average.

Confluence Galore.. Bitcoin's Symmetrical Triangle

BTC toiled away on a larger symmetrical triangle for around 2 weeks. We first discussed this in our previous post. The projected measured move on the triangle pointed us down to the $3200 level.

The triangle broke down on January 10th – with volume confirmation. What do we mean by volume confirmation? Simply that there was high enough volume on that break down, to justify our conviction in the break. Essentially, a lot of sellers stepped in for that move.

“ As long price lives below $3850, the symmetrical triangle is still in play
Eric Krown

Break of the symmatrical triangle – pointing to $3250 range

The 200 MA's

The 200 Moving Average is typically a strong level that draws in a lot of attention.  It gets even stronger on the higher time-frames such as the weekly chart. Currently, BTC has been ranging between the weekly 200 Simple Moving Average and the 200 Exponential Moving average.

After breaking the 200 Exponential on its first pass, Bitcoin went on to test the  200 Simple Moving Average which proved as strong support. Bitcoin then went on to test the 200 Exponential a few times and was rejected each time. This leads us to believe that a test of the 200 Simple Moving average is imminent.

Weekly 200 SMA (red) proving strong support. And 200 EMA (purple) proving resistance.

The 200 Simple Moving Average is currently sitting at the  $3250 range which has perfect confluence with:

  1. M-formation breakdown
  2. Symmetrical Triangle breakdown

Both of the patterns above have a measured move to the $3250 range as well. The big question now, however, is: 

“ Is $3250 the low of the market?

Many seem to believe that we have seen the lows. However, we strongly believe that the lows are not in just yet.

Volume....Where Art Thou?

Unlike most other cryptocurrencies, BTC has ample price cycle history to draw some clues from. One of the clues left behind is the Volume Signature during the 2014-2015 bear cycle.

Volume – while often misused – is one of the best ways to understand the overall crowd behaviour on a particular asset. Remember, we aren’t simply trading the indicators. Instead, we are trying to derive information about the mindset of the crowd.

“ Volume allows you to pinpoint the footprints left by the big market players
Eric Krown

Let’s take a look at the low of the 2014-2015. BTC saw a devastating weekly price drop of 45%. This was accompanied with volume doubled that of the preceding weeks of price action. Below is the 2015 BTC weekly chart:

Bitcoin Price Prediction January 2019 in relation to 2015

Volume indicating massive participation during the 2014-2015 bear cycle.

A closer look at the current volume profile indicates low participation. What does that mean? Essentially, we aren’t seeing the same anxious/exuberant selling & buying behaviour that we saw in 2014.  Does that mean we are looking for the exact percentage drop & volume profile repeat once more? No, absolutely not.

Volume in the current conditions showing corrective behaviour.

However, the historic data does give us an idea of the behaviour we would like to see. If we see data that indicates a certain behaviour, then we may conclude that there are signs of a bottoming. As of now, however, we are not seeing any clues that point toward a bottom being in.

Do we believe that we will blow past the bottom right away? No – these things take time. In fact, Bitcoin is showing characteristics that are very reminiscent of it’s consolidation during the $6000 region. It may very well be that Bitcoin consolidates in a very similar way before finally break the $3k region.

That being said, there is one factor that may lead Bitcoin to it’s lows quicker than anticipated – Ethereum.

Ethereum H&S - Breaking It or Faking It?

As mentioned in the previous report, Ethereum does seem to be leading the market. The event-driven rally was followed up with the much expected dump in price. Typical event-driven-market-behaviour:

  1. Event is announced weeks in advance.
  2. Price begins to rally closer to event.
  3. Sell-off begins just before the event.

And this is precisely how Ethereum’s price action has played out over the past month. It rallied closer to the event date, and then the price began to reverse. Additionally, Ethereum seems to be putting together a bearish reversal pattern that points to possible new lows as well.

Typical event-driven market behaviour: Ethereum rallies & dumps.

We typically do not like to point out a Head & Shoulders pattern prematurely – especially since it’s one of the patterns that is most often acted upon far too early. However, Ethereum has all the underpinnings of a Head & Shoulders (H&S) pattern. Eric Crown agrees with the likelihood of Ethereum forming a reversal H&S pattern as well, stating:

  1. Correct shape
  2. Correct Volume characteristics
  3. Correct Price Action characteristics.
  4. Well defined neckline.

“ However, and this is a big “however”... We do not have the break of the neckline yet.

And until the neckline is broken with Volume Confirmation, we cannot call this a fully formed H&S. For now, we can say that Ethereum has all the makings of a Head & Shoulders – but it’s missing the final element: The neckline break

Ethereum Price prediction January 2019

Ethereum shaping a H&S formation – but wait for the neckline break.

So what happens if we do get the neckline break? Well, this is where things get interesting (or scary, depending on your disposition) The measured move for this neckline break points to a price of approximately $70.

While this may surprise people, it’ll be prudent to remember the following points:

  1. Ethereum has already visited the $80 region
  2. If Bitcoin were to make new lows, it’s not far fetched to point Ethereum to new lows as well.

But again, we must emphasize that this thesis is only valid if the H&S neckline breaks. Ethereum is currently sitting at a strong support level. And If the neckline doesn’t break relatively soon, then we could possibly consider the H&S thesis invalidated

Weekly Bitcoin Price Prediction: Summary

Overall trend still remains bearish, and multiple signs point to Bitcoin visiting the $3250 region. While we do believe that Bitcoin will eventually make new lows, we don’t believe that we are likely to break the $3k region just yet. However, Ethereum is putting together a bearish reversal pattern that points Ethereum to new lows. Since Ethereum has been likely leading the market recently, we wonder if it could be the impetus for Bitcoin visiting new lows as well. That being said, all of this is predicated on Ethereum breaking it’s neckline – which it hasn’t done just yet.

Interesting times ahead of us. Interesting, indeed.

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

By Shawn Dexter / January 15, 2019

In this post Shawn discusses the recent Ethereum Update in regard to their roadmap for Casper & Sharding. Casper FFG with the 1500 ETH minimum stake will be removed from the Ethereum Roadmap and replaced with Casper v2 implementing a beacon chain. Shawn also provides us with estimates for the updated Ethereum Casper release dates

Ethereum Roadmap 2019:  Updates, Changes & Release 

If it’s been awhile since you last checked the Ethereum Roadmap – then oh boy, you’re in for some surprises. A lot has changed since the beginning of 2018 and even 2019!. We've seen sudden delays, timelines  extended and priorities have shifted (rightfully so…).

The biggest one of date has been the postponing of Ethereum's Constantinople Update for 2019. However Ethereum has also unveiled a "new" roadmap called Ethereum 2.0.

The most recent Ethereum updates have a lot of people confused. I don’t blame them. Crucial updates are found buried in comment sections across various forums and news websites have been vague. It's hard to keep up. 

Ethereum Roadmap:  Updates & Delays!

The recent delays and roadmap changes have created some confusion. Several people are misunderstanding Ethereum 2.0 – and I don't really blame them.

In this post, we will clear out any confusion in regard Ethereum 2.0 roadmap update (Serenity), the Constantinople Delay, the expected ETH PoS date and any other updates on Ethereum's Serenity release.

NoteThis post has been updated as of January 17th 2019 – and a lot may change from now. In the beginning of this article we discuss the roadmap update for Ethereum – which includes the big Serenity Release. We then discuss a keystone of the roadmap & Serenity – the Constantinople update and its delay in 2019.

Further down in this article we discuss Ethereum's casper release date estimations and why the release of POS has been pushed back. 

Ethereum Roadmap: Ethereum 2.0,  Constantinople & Serenity

Ethereum 2.0

Ethereum unveiled their new roadmap and dubbed it "Ethereum 2.0". But everyone seems to be misunderstanding the concept behind Ethereum 2.0. In fact, the core team has been receiving criticism for changing their minds too often. In truth, plans haven't changed much at all – they are simply more defined.

Ethereum 2.0 won't be a single big update release. Instead, it will be a series of updates that will lead to a more efficient, faster & scalable Ethereum.

Ethereum 2.0: Solving The Trilemma

Some of the major updates that will be included in Ethereum 2.0 will be:

  1. Sharding 
  2.  Proof Of Stake & Beacon Chain
  3.  eWasm.
Ethereum Roadmap Update Ethereum 2.0 2019

Ethereum 2.0: Roadmap Update 2019

The combination of these releases will synergise with each other in order to tackle the Blockchain Trilemma problem (read my analogy: The Village Trilemma) In essence, the Blockchain Trilemma forces a blockchain to pick two of the following:  

  1. Security
  2. Decentralization 
  3.  Scalability

However, Vitalik Buterin and the rest of the Ethereum team sought to find the right balance between the three. This was no easy problem to tackle. However,  the release of Sharding, Proof Of Stake and eWasm achieves just that. Ethereum 2.0 will be a huge milestone in the Ethereum roadmap.

Constantinople: Pivotal In The Roadmap

Another pivotal and much awaited milestone on the Ethereum roadmap is the Constantinople Hard Fork.  I provide a simple breakdown of the Constantinople and its major updates in a separate post. But I'll give you guys a quick rundown over here as well.

The Ethereum team has had three major roadmap milestones laid out for them since 2016:

  • Byzantium 
  • Constantinople
  • Serenity

Each of these milestones laid the groundwork for eventually moving to Proof OF Stake (Serenity). Byzantium provided the much needed security. And Constantinople was going lay the pieces to allow the transition to Serenity (Casper V2).  Constantinople was originally supposed to include a hybrid PoW/PoS model. However, the Ethereum developers decided to scratch that idea and move forward with another plan. This led to a delay in roadmap – and Serenity (proof of stake) would have to be pushed back.

I explain the reasons for the change in plan and the delay of PoS later in this post.

Ethereum Roadmap Before Update 2018

Ethereum's Roadmap: Byzantium, Constantinople & Serenity

Constantinople plays an important role in Ethereum's transition to Ethereum 2.0. The update is going to include major improvements such as the block reward reduction, reduced transaction costs and compatibility for State Channels.

A description of Ethereum's Constantinople Roadmap Update in 2019

Constantinople was key in the Ethereum Roadmap

The hard fork was initially scheduled for for January 16th 2019 but was delayed at the last minute due to a  discovery of a security vulnerability.

Ethereum's Roadmap & Release Schedule 2019 - 2021

The Ethereum Roadmap will always be evolving. However, the major goals of achieving the right balance of scalability, security & decentralization have never changed – and will be unlikely to change in the future. Ethereum 2.0 is simply a new label to define those  goals in a clear & concise manner.

Ethereum Casper V2 – Still Part Of The Ethereum 2.0 Roadmap!

At this point, some of you may be asking:

"Wait – what happened to Ethereum's Casper?"

As can be seen from the image above, Ethereum 2.0 includes Proof Of Stake and Sharding as its major updates. Both of these updates are the two major components of Ethereum Casper V2.  So in truth, Casper V2 is  included in the Ethereum 2.0 roadmap. 

The image below shows the estimated release schedule and roadmap based on the new Ethereum Casper Updates.

Ethereum Casper Release Date Updated 2018 - Infographic & Illustration

Updated Ethereum Casper Release Dates (2019 Estimates]

As you can see, the expected dates for Ethereum PoS (test & release) is somewhere in mid 2019. The exact date for Ethereum's Casper Proof Of Stake is uncertain. If you are an ETH investor or interested in investing, I suggest you read up on the events leading up to these delays. In the next section I explain transition from the Initial Ethereum Roadmap and the Updated Ethereum Roadmap with Casper Version 2.

Ethereum PoS Date & ETH Roadmap - The Quick Read on ETH PoS

I know some of you are busy and  want a quick overview on the Ethereum Roadmap and pos date. So I wrote this section in that vein. This section will likely evolve with the updates on the Ethereum Casper release dates.

ETH holders are probably excited for the Ethereum PoS release date. The Proof of Stake update will allow them to stake their ETH and become validators on the Ethereum Network. However, the Ethereum roadmap changed since the beginning of 2018 which has caused a few delays. This pushes the new Ethereum PoS date back to mid 2019. But it's not all bad news. In fact, for most ETH holders the new ETH PoS date may be a blessing in disguise.

Ethereum PoS Date & Delay - Not All Bad News

Casper FFG has been discarded and we will be moving directly to Casper V2. This will allow ETH investors to become a validator with as little as 32 ETH. This is a huge win for a majority of ETH holders and will also keep the network decentralised.  Initially, Casper FFG would require a deposit of 1000 ETH into the Ethereum Proof Of Stake chain. And the plan was to reduce the 1000 ETH requirement when Sharding would finally be released. During this time, only large ETH investors would be able to take part in the PoS process – which leads to centralisation and lack of inclusivity.

However, they have now decided to skip a step, and build Casper on the same chain that will be used for Sharding. This called the "Beacon Chain" which will serve as the ETH PoS chain and also serve as the base layer for Sharding. I explain this in more detail over here:  Casper V2: Sharding & Beacon Chain Explained Simply.  This is the fundamental reason why the 32 ETH deposit will be feasible. 

Ethereum: The Initial Roadmap

First, let’s quickly go over what the road map was supposed to be last year. Again, I’m going to keep this simple.

As of last year, the roadmap included two major milestones: Metropolis & Serenity

Both of these milestones were efforts to move towards eventual scalability with Proof Of Stake & Sharding. 

Ethereum Roadmap Before Update  2018

Ethereum Roadmap Before Update

Metropolis was divided into two phases:

Phase 1: Byzantine
The Byzantium update would bring privacy improvements. It took place on the Ethereum chain last year.  

Phase 2: Constantinople  
PoW/PoS Hybrid (Casper FFG) and more.  Constantinople was supposed to happen earlier this year. But all priorities were shifted to rolling out Proof Of Stake & Sharding as soon as possible.

Up until June 2018, Constantinople’s Casper FFG was still in play. However, that plan is now being dropped as well – for something more clean and efficient. This brings us to the new release-date milestone on the Ethereum Roadmap for 2018:  Casper V2

Casper 2.0: The Initial Plan

The initial plan was to transition to Proof Of Stake with Casper FFG. Casper 2.0 was to be a Smart Contract that allowed you to become a validator with a deposit of 1500 ETH. The Ethereum estimated this release date to be somewhere in 2018.

Proof Of Stake was to be implemented first and the team would roll out Sharding after. There were separate deposit pools for Sharding and Casper.  

To Summarise:

  1. Casper FFG to be a Hybrid PoS and PoW chain
  2. 1500 Ether deposit required to become a validator
  3. Casper rolled out first, Sharding rolled out after

​​​​Casper 2.1: The Confusion over the Releases

Due to some misleading posts and misunderstood comments, several people are confused. These are the two primary impressions that people have in regard to the Casper update:

  1. Casper and Sharding will be combined and launched together.
  2. Sharding will now be prioritized over Proof Of Stake

This is not true at all. And it’s important that expectations are set right.

Casper 2.1: The Real Roadmap

The plan for Casper FFG requiring 1500 ETH deposits will be scrapped.  Casper V2 will be implementing a “beacon chain” – onto which Casper and Sharding will be merged (here is where people get confused).

This does not mean that Casper and Sharding will be launched on the beacon chain together. It simply means that Casper and Sharding will be implemented on the same chain.  So, Casper could come first, and Sharding be implemented much later. Or vice-versa. 

Ethereum Roadmap Casper FFG vs Casper V2 Ethereum Update

Casper FFG vs Casper V2 Ethereum Update

So to summarise:

  1. A Beacon Chain that will be used for both: Casper & PoS validators

  2. Sharding and Casper will be worked on concurrently – they are independent efforts

  3. Only 32 Ether minimum staking deposits

The beacon chain was originally supposed to be used only for the Sharding implementation.

An Analogy For The Casper V2 Update 

The Casper V2 Ethereum Update has been confusing a lot of people. I don’t blame you guys – the information has been all over the place. But maybe this analogy will help:

Think of the Casper and Sharding as two cars going to a family picnic. To get there, both cars have to merge onto Highway 10. We’re not sure which car will merge on first. We simply know that:

  1. Both cars are headed there (Casper and Sharding are the two cars)
  2. Both need the Highway to get there efficiently (Beacon chain)
  3. Everyone needs to eventually get to the family picnic (scalability)

Similarly, Casper and Sharding are two independent projects – either could be completed first.This unified approach will allow for a minimum staking requirement of 32 ETH deposits.

Casper will most likely be launched first, but we can’t rule out the possibility of Sharding going faster.

Ethereum 2.0 & Casper Release Date:  Conclusion & Summary

Ethereum's release date for Casper FFG was scheduled for 2018. However, the new version of Casper will have a release date somewhere in 2019-2021. Yes, the rather timeline for release is vague, but there's good reason for that. Let's recap quickly:

PoS Release Date Delay: FFG was Scrapped

As mentioned, the initial plan was to roll out Casper FFG as a hybrid PoS/PoW. Casper FFG would have Proof of Stake (PoS) but would not have Sharding. With the PoS release, Validators would be allowed to deposit ETH in order to stake. However, they would require to 1500 ETH in order to participate in the PoS consensus. This wasn't ideal because it would entail a lot of centralisation.

Ethereum Casper Release Date Updated 2018 - Infographic & Illustration

Updated Ethereum Casper Release Dates (2018 Estimates]

In 2018,  the need for scaling became increasingly urgent. The Ethereum team shifted all focus to the key releases that would move the needle toward scalability; namely, the PoS release and Sharding release.  Casper FFG was to be the first PoS release, but would still use the PoW chain. This release date was estimated to be somewhere in 2018. The team was to release Sharding after PoS.

Ethereum Shifted Focus to Releasing Casper & Sharding ASAP

Casper FFG allow Ethereum to release a PoS quicker. However, it would entail "double work". Since Ethereum would have to eventually release/migrate to a pure PoS chain. Because of this, they decided to scrap working on Casper FFG. They will now be working toward releasing Casper V2 – which will have PoS on the beacon chain as well. Since Sharding will be implemented on the beacon chain as well, it allows Ethereum to have a unified approach for their releases.

Unfortunately, this  pushes back the release date for Ethereum Casper V2 to around 2019-2020. Sharding will be released on the same beacon chain that will be used by the PoS release. This does not imply that Casper and PoS are coming together.  I would estimate it's release date to be in 2021. But there's a possibility that it may beat the PoS to the release finish-line. 

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