About the author

Shawn Dexter

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

Ethereum Price Update 2019

By Shawn Dexter / January 12, 2019

In this post Shawn provides us a brief overview on the Ethereum Price Update for the beginning of 2019. He discusses Ethereum's rally and the sell off that ensued.

DISCLAIMER​: This ideas presented in this article should not be taken for investment advice, and are simply the views and opinions of the author 

Ethereum Price Rallies

The final quarter of 2018 was looking pretty grim for Ethereum. Between early September and mid December the price of Ether saw a decline from $280 to as low as $80.  Suddenly, however, Ethereum seem to have found new vigor and the price recovered to $160. This instilled a lot of new hope (and fomo?) in several people.

But just when price action took a turn for the better, Ether took another lurch downward back to $120. A lot of people who got bullish at the $150-$160 area saw staggering losses. The question is… Could this have been foreseen?

Perhaps.  There were a few red flags right from the beginning. In this weeks Ethereum Price Update we’ll go over some of the signs that pointed toward this move potentially playing out.

Ethereum’s Similarities to BCH

On November 14th 2018, Bitcoin Cash was to undergo a hard fork – a big event in the crypto world. Two weeks prior to the event, Bitcoin Cash began to rally. The price surged upward from around $410 to $630.  However, seven days before the actual date of the event – the price began to decline. And it do so rapidly! In the next seven days leading up to the event, Bitcoin Cash dropped all the way back down to $410. It literally gave back all it’s gains.

Ethereum, so far, seems to be following the same story line. Ethereum’s hard fork - Constantinople - is scheduled   Jan 16th, 2019. This hard fork has been long awaited by the community since it delivers the Block Reward Reduction that everyone wanted.

After seeing a decline from $280 to $80, Ethereum began to rally around December 15th (almost a month prior to the fork).  The price rallied all the way up to $160 and instilled excitement in the entire crypto community. Ethereum was leading the market, and the other coins (Bitcoin included) seemed to have been following suit.

But in an almost “deja-vu” sorta way, Ethereum lurched downward exactly one week before it’s long-awaited hard fork. Within a day the price of Ether declined from $150 to $120.

Apples to Apples: Events to Events

Now, a lot of people are going to say “No!  the Bitcoin Cash fork was contentious! The Ethereum fork is a bullish update!”

The truth is that it doesn’t matter what the event actually was. All that matters is the crowd-psychology and the emotions people go through leading up to the event. For example, these are a couple of possible mindsets:

Bitcoin Cash Fork:  “Omg, this is my chance to get free coins! I’ll buy and sell right after the fork”

Ethereum Fork: “Omg, this update is so bullish. I’ll buy before the update and sell when things get crazy!”

In both situations, ‘investors’ are being baited to buy the top – and then inevitably get dumped on.

Ethereum’s Retracement

Remember, BCH gave back 100% of what it gained in the seven days leading up to the fork. Now the question is: Will Ethereum also undergo the same retracement that BCH did?

Perhaps. It’s key to note, however, that the BCH rally spanned only one week. The Ethereum rally, on the other hand, spanned almost a month. Usually, these things come down as fast as they went up. So Ethereum may take a bit longer to see the same retracement.

  Things come down as fast as they went up!

That being said – all it takes is one big player to change things.  A big player with a large enough sell order can cause a quick retracement to the downside. Similarly, another big player with a large enough buy order can cause a real market turn around to the upside.

Yeah, I get it - this is probably not helpful. But this a probability game – and nothing is for certain. If you’re trading (or ‘investing’) in this market, you need to come to terms with that.

However, if you’re thinking about being a buyer at these prices there’s one more thing I’d like to discuss.

The Impetus to the Big Dump at 6k

Bitcoin was sitting around it’s major $6000 support at the time of the BCH fork event. Leading up to the event, bitcoin saw itself rally to $6500. Again, this instilled a lot of hope in the market. But the Bitcoin Cash dump seemed to have led the way for the rest of the market as well. Bitcoin was rejected at $6500, and went on to break the key $6000 level that it was being supported at for a long time.

The Bitcoin Cash fork & dump seemed to have been the impetus for the major 6k break. Today the major level everyone is eyeing is the $3000-$3200 region.

Will the Ethereum fork prove to be next impetus for the major break? It will be interesting to see how things play out .

Until then, just remember: The Trend Is Your Friend. Going against the trend is like trying skiing uphill. Protect yourself.

(None of this is financial advice.)

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Ethereum Update 2019: Constantinople Hard Fork

Introduction

In a previous post we discussed the Ethereum Roadmap for the coming year. One of the key milestones on the roadmap update was the Constantinople hard fork. Constantinople was initially scheduled for 2018. However, due to inevitable software development delays, Constantinople was pushed to early 2019. That being said, the wait has definitely been worth it.

Ethereum Roadmap 2019

Ethereum Roadmap: Byzantium, Constantinople, Serenity

Constantinople has been much awaited by the community primarily because of the Block Reward reduction. The Block Reward reduction effectively reduces the inflation rate of Ethereum. I explain how in a simply post here: Ethereum Inflation Rate & Difficulty Bomb  However, aside from the Block Reward reduction, there are few other exciting improvement updates in Constantinople which is scheduled for Jan 16th 2019.

In this post I will explain these updates simply and briefly! 🙂

Ethereum Constantinople: What Is It?

So what exactly is Constantinople? Is it a Hard fork? If so, will you be getting two coins? (like all the other hard fork fiascos?)  Yes, Constantinople is a Hard fork - but you won’t be getting two coins. Unlike the other fiascos, this isn’t a “contentious” fork. To understand this, let’s go over a couple of terms quickly & simply:

What is a “Hard Fork”?

A “fork” is simply when the blockchain undergoes a software update. The fork may require all participants (primarily nodes & miners) to update their software to be part of the same network. This is because the software update is not compatible with the older version. This is called a “hard fork”

What is a “Contentious Fork”?

A contentious fork is when participants do not agree with software updates. In this case, they may choose to either stay with the old software or implement their own updates. Essentially, they choose to go their own way because they don’t agree with the direction of the core team (yay, democracy!)  This causes a “fork” in the original chain, and two new chains will begin to exist independent of each other.

Constantinople: Not A Contentious Fork

Fortunately, Constantinople is not a contentious fork. Everyone (for the most part) is on the same page with the proposed software updates on the Ethereum Blockchain. So what are the updates? In the next section I will provide a simple overview of the Ethereum Constantinople 2019 Hard fork!

Constantinople:  A Quick Overview

The Ethereum Constantinople 2019 hard fork marks an important milestone in Ethereum’s transition from Proof of Work to Proof Of Stake (Casper).

As mentioned in the previous section, the Constantinople hard fork is simply a software update. The software update will have improvements that have been accepted by the community. These improvements were proposed ahead of time and are simply called “Ethereum Improvement Proposals” (EIP).  There are five of these Ethereum Improvement Proposals that will be included in the Constantinople Update for Jan 16th 2019.

Ethereum Constantinople Update 2019

Ethereum Constantinople: EIP1234, EIP145, EIP1052, EIP1014, EIP1283

Performance Improvements:

  1. Block Reward Reduction ← A BIG ONE!

  2. Cheaper Smart Contract Execution

  3. Increased Efficiency on Verification of External Smart Contracts

  4. State Channels!

  5. Storage Cost Improvements

[EIP 1234] Block Reward Reduction: “The Thirdening”

This is the big one that everyone was waiting for all of 2018. The update falls under the EIP1234 proposal and will have two major changes:

  1. Block Reward Reduction
  2. Delaying The Difficulty Bomb

I explain both of these in more detail (with simple analogies) in this post, but I’ll go over them quickly here as well.

Ethereum-inflation-rate

Block Reward Reduction: Constantinople will officially mark the reduction of the rewards issued to miners from 3 ether to 2 ether. This effectively reduces miner rewards by ⅓  and is often referred to as “The Thirdening“. This reduction in Block Rewards will significantly reduce the inflation rate of Ethereum.

Ethereum Inflation Rate Definition (Quick'n'Dirty)
 The speed at which each Ether loses it's purchasing power/value.

Difficulty Bomb:  Miners are issued rewards each time they successfully add a new block onto the chain. The Difficulty Bomb is a tool within the EVM that the developers can use to adjust how difficult it is for the miners to do this.  If the bomb “detonates”, it will get exponentially harder everyday for miners to find blocks. This was put in place to incentivise miners to transition from the Proof Of Work Chain to the Proof Of Stake Chain.

So why delay? Well, two reasons:

  1. Ethereum is not moving to Casper just yet - so there’s no reason to incentivise the miners to stop mining here just yet.

  2. The inflation rate has already been reduced by decreasing the issuance rate.

[EIP145] Cheaper Smart Contract Execution: 

Constantinople will include the EIP145 proposal which will introduce “Shifting operators” to the Ethereum Virtual Machine. Put simply, this will allow Smart Contracts to initiate certain instructions for only 3 GAS compared to the 35 GAS it would have costed without the Shifting Operators.

This is a drastic reduction in the cost of these operations and contributes to Ethereum’s efficiency improvements.

[EIP1052] Increased Efficiency on Verification of External Smart Contracts

This is another key efficiency improvement in the 2019 Constantinople update. Smart Contracts often need to perform verification checks on other Smart Contracts. Currently this is done by copying the bytecode of the external Smart Contract and then performing the needed verification. However, this can unnecessarily expensive when dealing with large Smart Contracts.  EIP 1052 tackles this problem by introducing a new function that will allow the Smart Contract to pull a hash of the bytecode instead.  This will make verifications far more efficient.

[EIP1014] State Channels!

The Ethereum Constantinople 2019 Update will also include a keystone update for State Channels in Ethereum. EIP 1014 will allow interactions be made with addresses on the main chain that don’t exist yet .  This may sound confusing but is a key milestone for the implementation of State Channels. The goal of State Channels is to have as little load on the main chain as possible while still remaining secure. Unnecessary calculations and processes will take place off chain – thereby increasing the efficiency of the main Ethereum chain.

[EIP1283] Cheaper Cost Of Storage

Constantinople will also include an update that will reduce the storage costs in Ethereum. EIP 1283  proposes a change to how gas is charged for EVM storage operations. The primary initiative of this proposal is to reduce excessive gas costs where unwarranted. And to enable new use-cases for contract storage.

With this, transactions that are making multiple updates to the same storage slot will cost significantly less!

Ethereum Constantinople Update 2019: Conclusion

Ethereum’s soon approaching Constantinople hard fork, while significant, is still only a piece of the larger puzzle that is Serenity – Ethereum’s transition to Proof of Stake. 

Ethereum Casper Release Date Updated 2018 - Infographic & Illustration

Updated Ethereum Casper Release Dates (2018 Estimates]

While Constantinople brings about a reduction in miner block rewards (EIP 1234), it must be noted that the hard fork is not a Contentious Fork.  All 5 EIPs within Constantinople gained majority approval across the Ethereum community as a whole, thus will not result in two coins after the hard fork on January 16, 2019.

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The Animal Spirits in Crypto – Irrational Exuberance & Crypto Bubbles

By Shawn Dexter / October 28, 2018

Three times.

Three times this week I was asked the following question:

“Why are the prices still low when the fundamentals seem so strong?”

Fortunately, there’s a two-worded answer:  Animal Spirits 

It’s not a simple answer – not by a long shot. But it is, indeed, a short answer that encompasses the intricacies of greed, fear and human behaviour.

To understand this, let’s first question if prices are really low? Or are we simply benchmarking prices at their all time high  –  prices that were guided by the animal spirits of crypto investors.

John Maynard Keynes, a famous economist, used the term “Animal Spirits” to describe the irrational decisions investors make in an uncertain environment.

But today the phrase “Animal Spirits” seems to be used primarily in environments of high confidence.  Confidence & optimism, however, aren’t the only byproducts of Animal Spirits. Fear & pessimism play an equal share in the phenomenon.

Irrational Exuberrance. Irrational Anxiety

Should it not then make sense that irrational confidence be followed by equally irrational fear? Optimism that drove prices to exuberant highs should follow with a similar anxiety that would drive prices to irrational lows. For if it does not follow, eventually at least, then perhaps the optimism was not irrational after all. In a way, this explains the driving mechanism of “bubbles” (and also why it’s claimed impossible to forecast)

Nobel Laureate winner Robert Shiller defines a ‘speculative bubble’ in his book ‘Irrational Exuberance’ as follows:

 I define a speculative bubble as a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, and, in the process, amplifies stories that might justify the price increase…”

Shiller akins a bubble to that of an epidemic virus – something that can “catch” and get out of control very easily. Similar to their virus counterparts, speculative epidemics can result in massive losses when culminated with doubt, fear and anxiety.

But the key question here is: Are we already past the irrational anxiety?  Or is it yet to play out?

Recurrence of Epidemics . Reflating of Bubbles.

Interestingly, Robert Shiller makes sure to emphasise that “speculative bubbles” don’t simply burst and disappear. Rather, they tend to inflate and deflate in accordance to the accepted narrative.

A viral epidemic can reappear if a new environmental factor reignites the contagion rate.

Similarly, a deflated speculative bubble can “re-inflate” if a new narrative is strong enough to ignite the animal spirits of investors.

Ah, but this poses yet another tricky question for the crypto space.  Have we already “re-inflated”? After all, prices did surge to an all-time-high of $1000 before deflating to $200.

Have we already re-inflated?!

Is it possible that we see another epidemic spark the animal spirits to a point irrational confidence?

A Great Time To Be Alive

A strong argument can be made in favour of another speculative bubble – a larger one. In his definition of a “speculative bubble”, Shiller goes on to explain what follows the price increase in a speculative bubble:

...The price increase brings in a larger and larger class of investors, who, despite doubts about the real value of the investment, are drawn to it partly through envy of others’ successes and partly through a gambler’s excitement”

The crypto market allowed for a new class of investors to be first entrants. They consisted mostly of people who were young & technologically sophisticated. But they were by no means the “large class of investors”. Those are yet to come in mass.

Already we hear  reports of new & larger entrants into the market. Will their success draw the envy of other institutions? And will that, in turn, lead to an environment of overconfident gambling and exuberance that we have seen in the past?

Only time will tell. But one thing is certain, never before have we seen events play out at this rapid of a pace. Ahh, what a time to be alive.

Related Readings:


The Myth Of The Rational Market - A history of risk, reward & delusion by Justin Fox

Irrational Exuberance by Robert J Shiller

Get Em For Free!


You can get both of these books for free on Scribd:  Simply use my invite link.

You will get free unlimited access to all their audiobooks & eBooks for two months. Simply cancel after the second month. 😉

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Radix Coin – Relatively Stable, Infinitely Scalable

In this post Shawn breaks down the Radix Coin (RDX) as a stable and scalable cryptocurrency. He discusses Radixs' novel economic approach to solving the pain point of crypto price stability for consumers and businesses.

Radix Coin – An Intensively Scalable & Stable CryptoCurrency

Radix DLT is beginning to garner increasing attention in the crypto-space. Radix rose from an obscure and exotic "coin" in 2017 to one of the most discussed technologies in 2018. Every week, I receive several questions on Radix’s Scalability & Sharding or on their Tempo Consensus Method.  But one of the more common questions goes something like this:

"Hey, what are your thoughts on the Radix Coin ? "

It recently dawned upon me that while I’ve discussed Radix’s infrastructure, I haven’t really delved into the “Radix Coin”.  While Radix does indeed sport a crypto coin, it is so much more than that. Radix DLT is a fully fledged distributed ledger technology platform. The platform will feature decentralised applications, mass scalability, and of course, the Radix Coin as well – 'RDX'.

In this post, however, we focus our discussion on the Radix Coin (RDX) and its purpose in revolutionizing the digital economy. If you’re interested in the Radix  DLT Infrastructure – mainly its Consensus and Sharding approach, then you can read the following introductory & simple explanations:

The following sections will discuss how the Radix Coin will serve and benefit from the Radix DLT infrastructure.

Radix (RDX) As A Stable Coin

The Radix Coin will be the token used on the Radix DLT platform to fuel various operations. However, the coin and the platform have special features that make the dynamic rather interesting. The Radix coin will be a relatively stable coin. Notice the word "relatively" – this is key. Several people mistaken the Radix Coin to be a stable coin. This can lead to confusion – especially for interested investors. 

Radix DLT designed the RDX token so as to have low-volatility. In that vein, the Radix Coin will initially be pegged against the US Dollar where 1 Radix Coin will be equivalent to $1 USD. However, after a certain period, the price of the Radix coin will float free.  Low-volatility and relative stability will be maintained by increasing the supply of the coins. 

“Wait, what the… what do you mean by ‘increasing’ supply of the coins? “

Don’t worry – we’re not talking about ‘Supply inflation’ here. Radix DLT will be using an algorithmic model that will monitor demand and accordingly increase as well as decrease the total supply of the Radix Coin at regular periods. The low volatility of the Radix Coin will help facilitate mass adoption. And the flexible supply should satisfy investor needs as well.

In the following sections, we will discuss how investors and merchants both benefit from this flexible supply system.

Radix Coin for Investors - Should Investors Worry?

Upon first hearing “stable coin”, cryptocurrency investors are immediately skeptical. After all, why invest in something if it’s going to be stable in value? This is an understandable concern since we’re conditioned to the volatility of cryptocurrencies. The Radix Coin, however, functions sort of like a Bond with a variable interest rate.  The value of each Radix Coin may not rise and fall substantially. But the investor will receive more RDX at regular intervals which should increase his total amount of RDX.

For example, let’s say John has  2000 RDX. At the time, each RDX is valued at around $1.10.

  • No. of RDX: 2000   
  • Value of each RDX:  $1.10
  • Total Value: $2200

In the coming months/years, the demand for the Radix Coin skyrockets! Now, each of John’s RDX will not increase drastically in value. Instead, the total number of RDX he has will increase.  His total Radix Coins will increase to 6000 RDX and each RDX will be worth $1.15 (Remember – the Radix Coin will be relatively stable.)

  • No. of RDX: 6000  
  • Value of each RDX:  $1.15
  • Total Value: $6900

Note: This is just an example – as details on the calculations have yet to be released.

On the flip side – if the demand for the Radix Coin reduces, the platform has mechanisms in place that will perform a token-burn process to reduce the total supply of the Radix Coin. Again, details on how this process is yet to be revealed. We will all have to wait for the economic white paper that should be released closer to their mainnet launch.

However, we can rest assured that investors don’t have to worry about their investments being “stale”.

Radix Coin for Mass Adoption

Relative Price Stability

One of the biggest reasons the Radix Coin features relative stability is to facilitate mass adoption. Without stability, mass adoption across the world will be near impossible.

As things stand, the general public find it troublesome to hold cryptocurrencies for anything other than a speculative investment. You may hear increasingly more reports of merchants accepting cryptocurrencies as a form of payment. However, most of these merchants are immediately converting their cryptocurrency back into regular FIAT.  Why? Well, simply because merchants need to be able to rely on their revenue holding value in the months that follow. Cryptocurrencies are far too volatile to offer the level of reliability that merchants need in order to run an efficient and sustaining business.

Similarly, regular consumers will only hold a fraction of their purchasing power in cryptocurrencies for similar reasons. With the current state of the market, it’s a serious gamble to rely solely on your holdings of cryptocurrencies to pay your rent or mortgage. The Radix coin will safeguard against violent price swings using an elastic-supply. This will allow merchants and consumers to hold their Radix Coins with reduced risk.

Decentralized Transaction Scalability

Scalability has been one of the biggest limitations of current blockchain solutions. Most DLT consensus models have to make the tradeoff between throughput and decentralization. Radix, however, achieves high throughput, security and decentralization using a unique approach to Sharding along with their Consensus Method – Tempo .   The Radix DLT platform ensures that every single device can be part of the network and use the Radix Coin to transact with high speed across the globe.

Radix Coin - Conclusion

With "Stable Coins", like the Radix Coin, being the latest talk of the town, its no surprise that investors and enthusiasts alike are blazing with questions on how to seize opportunity on this relatively new crypto class.

The concept of price stability around the radix coin will be primarily based on elastic supply. Depending on the demand of RDX, there will either be a coin issuance to each RDX holder, or a coin burn. While much of the economic structure behind the Radix coin is yet to be unveiled, their scaling solution - Radix Sharding & Tempo Consensus – has been fully implemented and tested. 

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Ethereum Casper V2: Beacon Chain & Sharding Explained Simply

In this post Shawn breaks down the Ethereum Casper V2 update. He discusses ethereum's transition to Proof of Stake, and how beacon chain fits into ethereum sharding.

Casper V2: Beacon Chain , PoS , Sharding

There’s been a great deal of confusion in regard to Ethereum’s new approach to Casper. Part of the confusion stems from the updated timeline for Ethereum’s PoS (proof of stake). And the other part of the confusion stems from this new “Beacon Chain” thingy.  Yes, I said ‘thingy’.

So, in this post I’m going to try to break things down in an easy manner for you guys. What exactly is the Beacon chain? And what role does it play in Proof Of Stake and Sharding

As usual, I’ll keep it simple – and avoid the unnecessary details.

Ethereum: The Initial Roadmap

Before we go any further, allow me to break down the structure of Ethereum’s Casper V2.  There will be three chains that we are concerned with:

  1. The Ethereum PoW Chain
  2. The Beacon Chain
  3. The Sharding Chain(s).

All three of which will be linked together in Casper V2.

Ethereum Casper: 3 Types of Chains

Ethereum PoW Chain

This is the chain that Ethereum is currently using. It’s using the traditional Proof Of Work (PoW) consensus method. In Ethereum’s Proof Of Work chain, miners currently validate blocks by running the PoW Cryptographic Puzzle.

However, Ethereum will be using Proof Of Stake in Casper. Miners will have to transition to the Proof of Stake chain if they want to keep validating blocks for the Ethereum Network.  To do so, they will have to deposit 32 Ether into the Beacon Chain. Once they do that, they will become Validators on the Beacon Chain.

Important:  Miners are not the only ones who can become validators. Anyone can deposit 32 Ether from the Ethereum PoW Chain to the Beacon chain to become a validator

Ethereum Casper: PoW to PoS

The Beacon Chain

Alright, so the Beacon Chain is where all the confusion stems from. But it’s actually quite simple. The Beacon Chain serves two primary roles

  1. The main Proof Of Stake chain

  2. The base layer of the Sharding solution


  3. To Simplify: The Beacon Chain will link to the Shard Chains and “signal” which blocks from the Shards should be added onto the main chain. The main chain will be validated & finalized using Proof Of Stake. The main chain also resides on the Beacon Chain. The Beacon Chain will also play a crucial role with the Shard Chains. It links up to the Shard Chains to listen for blocks that will be included onto the beacon chain (the PoS chain).

The Sharding Chain(s)

Yes, there are going to be multiple Shard Chains. Remember, Sharding is an attempt to avoid having “every single node validate every single transaction”. This will allow for more scalability.  In order to do so, instead of having one single chain, we will have multiple shard chains. I explain Sharding in more detail in this article: Ethereum Sharding Explained Using An Analogy.

Essentially, you can think of the Shard Chain as a group/block of multiple chains. All the transactions will take place on these Shard Chains – and will be split between each shard.  The account data will also be stored on these shard chains.

Above, I mentioned the Beacon Chain links up to a Shard. Well, there’s also a link from the Shards to the Beacon chain. This link needs to be attested/signed-off by a sub-group of Validators that will be pseudo-randomly picked.

Ethereum Casper: PoW to PoS

Ethereum Casper: Validators vs Miners

Casper will be using Proof Of Stake which does not require “mining” to validate blocks. If a miner wants to continue validating blocks on Casper, he will have to deposit 32 Ether into the Beacon Chain like everybody else.

Once 32 Ether is deposited, the person will go into the “Queued Validator” pool and eventually get added to the “Active Validator” pool. Active Validators will be responsible for producing blocks, sign off on blocks and sign off on links (to shards).

Why “Beacon Chain”?

You may be wondering why the Ethereum team chose the term “Beacon Chain?”.  The Beacon Chain was originally only part of the Sharding spec. It’s role was (and still is)  to link up to Shard Chains and signal which blocks should be added to the main chain. 

The Validators utilize the crosslinks between the two chains to “listen” for new blocks on the shard chains. They then sign off on the block and the crosslink if it is to be included on the main chain.

Beacon essentially means “Lighthouse/signal” – and that’s precisely what the role that the Beacon Chain serves.

Disclaimer: I’m sort of taking an educated-guess at this one. To be honest, a lot of the terminology in Sharding & Casper PoS is sorta...confusing (e.g: proposer, collator, validator, committee...come on Vitalik!)

Conclusion

As you can see, the Beacon Chain in the new Casper implementation isn't all that complicated. All you need to know is that it will serve as the foundation for the Proof Of Stake and facilitate the communication via the Shard Chains (via cross-links).  You can become a Validator on the Beacon Chain if you deposit 32 Ether from the current PoW Chain. Once you do that, you can take part in the Proof Of Stake consensus process as well. ValidationFinality  will take place on the Beacon Chain. Transactions & Account Data will be on the Shard Chain.

Simple, eh? Tbh, maybe all you need to read is the conclusion of this post. Damn. Oh well.

Follow up Reads:
1. Casper Roadmap Update Explained
2. ​Ethereum Sharding - A Simple Analogy
3. Finality: Understanding Settlement & Finality

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3 Reasons Why You’re Getting Wrecked In Crypto & How To Fix It

By Shawn Dexter / September 15, 2018

Why Am I Writing This?

I usually refrain from posts like these. But recent discussions have made me wonder if there's a increasing lack of maturity in our community. I'm seeing a lot of posts on how much money people have lost and how they are "out" etc etc. To each their own – but I figured I'd share some of things I've learned in my journey thus far. 

1) You’re a victim and you don’t know it

We are ruled by our emotions. Almost every single buying decision we make is an emotional one. News sites, advertisers, salesmen and pro-traders all understand this very well –– and they use it against us. The question is: Do you understand this about yourself?

Last week the narrative was:
“Ethereum scaling issues, ICOs are dumping etc etc”.

This week there was a push for
“Breakthrough in Ethereum Scaling! Novo calling the bottom!”

I hope you see a pattern here. Think back to last year:  
“BTC mempool, BTC can’t get their shit together, China banning exchanges!”

A  good salesman uses emotion to make a great sale. Similarly, a good trader will use emotion to make a good buy (at the bottom). He’ll then use emotion to make a good sell (at the top). 

In a way, you can’t help but appreciate the art of it all. But do not be a victim to this. Your emotion is the sword they wield when they attack. But it’s your sword. You can keep in check.

​​​​How To Fix It:  Know thy enemy & know thyself.

I spend most of my time on the fundamentals/technology in this space. But that hasn’t stopped me from learning about how traders think & how market cycles work. I have read over 10 books on market psychology, trading mindset and market cycles/crashes. Does this make me a pro-trader? Absolutely not – but it does arm me with knowledge that keeps me from making bad decisions. 

So pick up some books/tutorials on the trading psychology, market cycles etc. If you have money invested, you owe it to yourself to spend time learning some of the basics. This doesn’t mean you have to become a trader yourself. This will simply help you become more aware of what’s happening around you

2) You’re trading and you don't even know it 

Many of us think that we are “investing” – but in truth, our behaviour leans closer to that of a trader.

“Woah..woah… I hate Technical Analysis! I don’t believe in that crap”

News Flash: You don’t need to be using TA to be trading. Here are some signs that suggest you are trading without realising: Are you making your buying & selling decisions based mainly on the price?  Are you trying to time the tops & bottoms to increase your stack? Yes? You’re a trader.

We’ve all heard the saying: “96% Of Traders Lose Their Money”. So the odds are already against you – but imagine being a trader and not even knowing you are one.  It’s like walking into a Ice Rink with soccer sneakers.

The truth is that most of us in this space behave like traders – and we don't even know it.

To be an investor, you need to speculate on the direction, fundamentals & adoption of the technology.

A trader on the other hand, mainly speculates on the direction of the price (and may use short-term fundamentals to strengthen his thesis) But since very few of us understand the fundamentals, it’s easier to speculate on the price.

How To fix this?

  1. If you’re not interested in trading – and “in it for the technology” – then it’s time to start living up to the claim. Before you invest your money, invest your time to learn the underlying fundamentals. You don’t need to learn it all. Start with Bitcoin & Ethereum.  ​You can refer to my Blockchain Analogies page for simple explanation to various concepts

  2.  Realise and accept that you’re trading – and it’s what you enjoy. Trading is a competition/game. You’re going to keep losing if you don’t even know you’re playing. Learn “how” to trade – start with the basics, and start small.
     

Again, I understand that it’s a struggle to find good resources, so let me know you need help to find something specific. I’ve read a lot of great books, and a lot of shitty ones as well.

3) You are forgetting what this space is all about

It seems like we’re rapidly diverging from the ideology that gave birth to this space: Decentralisation. Most of us are focussed on the upcoming ETFs and the scaling issues of Bitcoin and Ethereum. Are we really excited for a financial tool that will allow for further centralisation and possible manipulation? Isn’t that precisely what we wanted to get away from?

“Oh but we don’t scale enough yet for adoption, we need this asap”

How To Fix It?  
Think back to why you really entered this space. Was it the ideology? Or the money? Make your decisions accordingly. But try not to get caught on the fence.

Final Thoughts

I'll end my rant here, but the takeaway is this: If you're playing the game, it's important to know that you're playing. And if you're playing – you better get good at it. If not, just stay in the sidelines (aka: buy & hodl)

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Ethereum Difficulty Bomb & Inflation Rate Explained

By Shawn Dexter / September 5, 2018

In this post, Shawn explains the Ethereum Difficulty Bomb. The recent debate around the Ethereum Inflation rate has many people discussing the current ethereum mining rewards &  "difficulty bomb".  But what is the difficulty bomb? Shawn explains it clearly and succinctly!

What Is The Ethereum Difficulty Bomb?

 With Ethereum's Constantinople update coming up on  January 16th 2019, there have been an increasing number of questions regarding Ethereum's "Difficulty Bomb".  Most other explanations out there are either far too complex are simply wrong. 

Ethereum Difficulty Bomb: The Simple ​Explanation

The Ethereum Difficulty Bomb simply refers to a tool within Ethereum. This tool allows the core Ethereum developers to adjust how difficulty it is for a miner to win a reward. ​Miners win rewards each time they create a new block and add it to the blockchain.  

When the Ethereum Difficulty Bomb is set to "detonate", it will get exponentially difficult for miners to win rewards via mining. But why would the developers want this? Because eventually they will want miners to stop mining and start validatingRemember, Ethereum is set to transition from Proof of Work to Proof of Stake. There is no mining in Proof Of Stake. We will have validators instead.

Ethereum Difficulty Bomb: A Dis-Incentive For Miners

Even though Ethereum may switch to the Proof of Stake chain, the miners may  continue mining on the Proof Of Work chain if not properly incentivised. In order to avoid security issues (like a fork), the developers wanted to give the miners a little "nudge" to switch to Proof Of Stake. The Ethereum's Difficulty Bomb would reduce their rewards on the Proof Of Work chain, and thus incentivise them to switch to the Proof Of Stake Chain.

Why Was The Ethereum Difficulty Bomb Delayed?

Unfortunately, the network upgrade to Proof Of Stake was delayed. And the entire point of the Difficulty Bomb was to incentivise miners to switch to Proof of Stake. So the Ethereum team decided to delay the difficulty bomb until Casper was ready.

Ethereum Inflation Rate & Difficulty Bomb

The delay, however, did not sit well with long term investors. Long term investors were looking forward to the difficulty bomb (and Proof of Stake). Why? Because lower Block Rewards would mean a lower Inflation Rate. This was going to be a very bullish update for long-term investors.

To understand this fully, let me quickly explain Ethereum's Inflation Rate. We will then discuss how the difficulty bomb & block rewards relate to it! Don't worry – I'll keep it super simple 😉

Ethereum Inflation Rate Explained

The past year has seen a back and forth debate between the miners and the rest of the community . The debate was about the current inflation rate in the Ethereum ecosystem. Essentially, the community wanted a reduction in the Ethereum Inflation Rate.

Ethereum Inflation Rate Definition (Quick'n'Dirty)
 The speed at which each Ether loses it's purchasing power/value. 

There are two ways the core-developers can decrease the inflation rate in Ethereum:

  1. Add A Difficulty Bomb in Ethereum
  2. Decrease the Ether Issuance to Ethereum Miners
Ethereum-issuance-rate

Ethereum Block Time vs Ethereum Block Reward

In this post we'll be discussing the Difficulty Bomb. However, please note that the Difficulty Bomb's purpose is not ONLY to adjust the inflation rate.

Ethereum Difficulty Bomb: What Is It? (In Detail)

The Difficulty Bomb is sort of a "tool" within the Ethereum consensus algorithm. It allows the core devs to elegantly adjust how difficulty it is to create a new block. For example, the Difficulty Bomb can be set to "detonate" at a particular time-period. Upon detonation, it would get exponentially more difficult to mine a block as the days passed (more on why later).

However, to understand the Difficulty Bomb and it's implications – we need to first understand how blocks are actually created. It's actually quite simple. Let's go over it quickly:

Ethereum Mining: How Are Blocks Created In Ethereum?

Each time you send a transaction on the Ethereum Network, it is being broadcasted to the Ethereum Miners. Ethereum Miners pick up your transaction along with a bunch of other transactions – and  put it into a "block".

But that's not the hard part. The hard part is getting the block approved by the rest of the network as "Valid".


To understand this bit, let's use my Lock & Key Analogy

Each miner needs lock the block before submitting it to the network. However, in order to "lock" the block, they need to find the key. A block is not deemed valid by the rest of the network until the minder "finds the key". (This is why you will find people using the phrase "finding a block".) 

(Note: This is a simplified explanation. You can find my simple explanation on the PoW Puzzle here)

Once the key is found, the block will be added to the main Ethereum blockchain.  The miner who "found the block" will get a reward issued to him.

Block Time & Difficulty Bomb in Ethereum Mining

However, finding the key is no easy task. It's much like trying to find a needle in a haystack: You could find it immediately, or it could take you a very long time. The time in takes to find the "key" or block – is known as the Block Time. 

The time in takes to find a block is known as the Block Time.

In Ethereum, we don't want either of the two extremes. Of course, taking forever to find a block is not good. But, nor will finding it too soon. We want the time to be...just right. Like Goldilocks & her soup.

ethereum difficulty bomb block time

Fortunately, Ethereum can adjust the average time it takes miners to find a block. It can be adjusted to either decrease the block-time or increase the block time. 

An adjustment to increase the block-time is known as a difficulty bomb

Why is it called the "difficulty bomb". Because Ethereum will make it more difficult to find the needle in the haystack. Another way to look at it is this:

​​​​​​​​​The time it takes a miner to find a block will increase. Hence, it gets more difficult for him to earn his rewards.

We will discuss how this is adjusted in another post. For now, this is all you need to know 🙂

Ethereum-inflation-rate

Ethereum Inflation Factors: Block Time & Block Reward

Conclusion: Difficulty Bomb, Ethereum Inflation & Prices

The Difficulty Bomb in Ethereum  can/will be used to adjust the time it takes a miner to find a block. This has a direct impact on Ethereum's inflation rate since it reduces the speed at which miners receive rewards. This, in turn, will reduce the total expected supply of Ethereum for the years to come. If supply goes down, prices will go up. If prices go up – then purchasing power  of each Ether increases. 

As of this writing, the average time it takes a miner to find a block in Ethereum is around 14 seconds. Remember, new Ether is issued to the miners as a reward each time a new block is created/validated. A difficulty bomb will decrease the rate at which these rewards are handed out And, in turn, reduce the inflation rate in Ethereum.

Ethereum's Casper was supposed to include a difficulty bomb along with Proof of Stake. As of now, both Casper and the difficulty bomb have been delayed

Ethereum Roadmap Update [2019]: Casper & Sharding Release Date
In this post Shawn discusses the recent Ethereum Update in regard to their roadmap for Casper & Sharding. Casper FFG[...]

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Ethereum Inflation Rate: Ether Issuance Debate 2018

By Shawn Dexter / September 1, 2018

In this post, Shawn provides a simple breakdown of the Ethereum Inflation & Issuance Debate. He explains the debate from the PoV of Ethereum miners, as well as community members.  In addition, he summarizes the 3 Ethereum Improvement Proposals (EIP) being considered by the core team. 

UPDATE:  Seems like EIP1234 has been accepted – on a conditional basis, however. Furthermore, the proposal still remains in a "draft" state, and minor changes may be made before finalisation. Read this post to know more!

Ethereum Inflation: Introduction

The past thirty days have seen a prolonged debate on an important matter: Ethereum’s Issuance. But be it an important matter or not – few of us seem to understand what’s going on.

To be fair, this issue has complexities that has brought indecision to even the best minds of this space. So, it’s not surprising that many of us have decided to glaze over the issue. However, as a community, we owe it to ourselves to understand at least the basics of this issue.

In this post, I will break down the Ethereum Issuance debate as simply as possible.  This will be an easy read – and by the end of the post you will have a firm understanding of what is going on.

​​​​Ethereum Issuance & Inflation Rate

Ethereum is “inflationary”. You hear it all the time. But many don’t seem to understand how the inflation is caused. It’s rather simple.  Ethereum miners get rewarded for mining new blocks. These miners get rewarded/paid in Ether. But this isn’t “existing” Ethereum; this is Ether that is freshly minted/created.

Essentially, miners are rewarded by issuing freshly minted Ether into the system. This “inflates” the existing supply in the market.  Hence the term “Inflation Rate”

Ethereum Inflation Rate vs Issuance Rate

The Ethereum inflation rate and issuance rate are pretty much the same thing – for the most part. There’s a tiny ‘difference’ that is worth discussing.  Let’s think about this for a second. There are two factors that will affect Ethereum’s inflation rate:

  1. The speed at which fresh Ether is given out
  2. The AMOUNT of Ether given out each time

Analogy
I can give you one piece of candy every minute; OR give you ten pieces of candy every ten minutes. Either way, over time I inflate your candy supply  at the same rate. You’ll have 100 candy pieces in 100 minutes.

Ethereum-inflation-rate

Ethereum Inflation Factors: Block Time & Block Reward

Speed of Ether Issuance

Currently, the speed at which Ether is issued out is pretty stable. Ether is issued to miners as a reward each time a new block is created/validated. As things stand, the time taken to create a block is relatively stable at ~14 seconds.

However, if Ethereum increases the difficulty of “block creation”, then it will take longer to create each block. This is what people are referring to when they mention the “difficulty bomb”.  If it takes longer to create create blocks, then less Ether will be rewarded over a period of time

Analogy
I stop giving you 10 pieces of candy every 10 minutes, and instead give you 10 pieces of candy every 15 minutes. After 100 minutes, you’ll have only 66 pieces of candy (instead of 100)

Ethereum-issuance-rate

Ethereum Block Time vs Ethereum Block Reward

Amount of Ether Issuance

The amount of Ether issued for each reward is the next driving factor for Ethereum’s inflation rate. And this is the most debated factor at the moment. Ethereum is currently issuing roughly 5.5 Ether per block (as rewards) If Ethereum decides to reduce the amount of Ether given out per reward, then the inflation rate will drop regardless of the difficulty bomb.

Analogy
I keep giving you candy every 10 minutes. However, I give you only 6 pieces of candy each time – instead of 10. You’ll have only 60 pieces of candy after 100 minutes.

The Problem

Reducing the Ether issued will cut into miner profits. But not reducing Ether issuance will anger the rest of the community (more on why later)

What is the Debate About?

The Background

The current inflation rate is around 7.3% annually. The Ethereum community was promised somewhere around 2% - 4% with the release of Casper. (In fact, Vitalik once quoted ~0.5% as a feasible number – leading to even more expectations)

Casper Delay

So, the community has been patiently waiting on a reduction in Ethereum’s inflation rate. This was supposed to happen with the release of Ethereum’s Proof Of Stake: Casper. If you’re keeping updated, you know about the delay on the Casper release.

Casper was also supposed to include a “difficulty bomb” that would increase the time it takes to find a block. This would decrease the ethereum inflation rate

ethereum-supply-cap

Ethereum Inflation Cap Debate - Community vs Miners

Community Side

However, since Casper has been delayed, the community wants the matter of issuance being addressed right away.  If Ethereum has to delay the difficulty bomb, then the other course of action is to reduce the amount of Ether being issued per block. Many community members are advocating for a reduction of issuance that would align inflation rate to ~2%.  This would align the inflation rate to what it would be if Proof Of Stake was not delayed.

Miners Side

However the Ethereum Miners don’t like that idea – since it would cut directly into their profits. It’s important to note that Ethereum is still using Proof Of Work – which consumes a lot more power per block than Proof Of Stake would. Many miners claim that they would be forced off the network since the rewards would not be enough to cover their costs.

Why do we care about Miners?

Miners do more than just process/validate our transactions. Each miner contributes to the security of the network via their hashpower. If overall hashpower drops, the network is easier to attack. (I touch on this in a YouTube video on 1% Shard Attack)

Essentially, the more miners we have, the more security we have. If miners drop off the network, security will begin to drop – and we’re more vulnerable to attacks.

As you may now be noticing, this issue does not have an easy solution. But we can get a better idea of which direction to take. First, let’s quickly go over where we currently stand.

Ethereum Issuance: Blocks & Uncles

What is the Ethereum Issuance currently?

The current Ether that is being issued is roughly 5.5 Ether per block. It’s important to note that unlike Bitcoin, the reward issuance is not straightforward.  Here is a simplified breakdown of the rewards distributed:

  • Block Reward:  3 Ether
    Uncle Rewards:  ~2.4 Ether

  • Total Ether issued per block: ~5.4 Ether   (Issuance reduction will decrease this)
    No. of blocks per day:  ~6000 Blocks (difficulty bomb will decrease this)

  • Current Annual Increase:  ~7.3% (issuance reduction and/or difficulty bomb will reduce this)

Uncle Rewards...What the..? 

(If you know what are Uncle Rewards , then you can skip this section)

Unlike Bitcoin, Ethereum rewards miners that find blocks that don’t make it into the longest chain. These blocks that are considered “stale” in Bitcoin, and are orphaned. In Ethereum these are called Uncles and are rewarded for their work.

This is primarily because Ethereum has a much lower block-time (the average time required to find a block). This “small window” may result in smaller miners unfairly losing out on potential rewards due to network latency etc. As such, miners are rewarded for their work.

Of course, we cannot predict the exact number of Uncles – but we’re estimating that around 2.4 Ether will be given out to Uncles on average. Uncle Rewards are important because they:

a) Incentivise decentralization (small miners are less likely to join pools)
b) Increase the security of the chain. (more on this in another post)

Cool.. So What is Being Proposed?

Alright, now the fun part. There are three proposals – Ethereum Improvement Proposals  (EIPs) to be specific. Here’s a list and summary of each of them:

EIP-858:  Reduce block reward to 1 ETH

This would be a significant decrease from 3 ETH to 1 ETH. It would probably put several small/mid-size miners in the negative profitability.  Many miners may drop off the network. However, this would probably benefit miners who have access to cheap electricity since they will be able to accrue more rewards for themselves. Larger miners may probably benefit for the same reasons.

EIP-1294:  Keep block reward at 3 ETH. Reduce Uncle Rewards to ~0.56 ETH. 

This will be a significant reduction to the Uncle Rewards – from ~2.4 ETH to  ~0.56 ETH. Ouch. This will affect small miners the most since they rely on the Uncle Rewards. Furthermore, this reduces the incentive for them to remain independent; and may lead to larger shift of small miners to joining pools.  Of course, larger miners who aren’t affected by network latency issues do not get affected by this reduction. They benefit the most from this since the issuance will be maintained.

EIP-1234  Reduce block reward to 2 ETH

This EIP seems to be receiving the most favour from the community. It serves as a good middle ground. it will still eat into profits of miners, but not as significantly as the reduction that EIP 858 proposes. EIP-1234 does seem to have an air of “compromise”. It will offer developers enough time to develop & release Casper while keeping both sides of the community at bay. Is compromise the best way to go? -shrug-

So..What Has Been Decided?

 A vote took place – that lasted 30 days – where the community voted on their preference. Although the results were leaning significantly toward one side, these results are not binding. The vote was more-so to gauge community sentiment. Quite frankly, this issue is far too important to be decided over a vote like this. It requires serious consideration & research.

There was a core-dev meeting that took place last week where the matter was discussed. It seems like the developers are leaning towards EIP1234 – the reduction to 2ETH. However, I'm not certain if this has been confirmed.  If so, EIP1234 will be included in the upcoming hardfork scheduled for mid October.

I’ll keep you guys posted – and I will be updating this post regularly as news develops.

UPDATE:  Seems like EIP1234 has been accepted – on a conditional basis, however. Furthermore, the proposal still remains in a "draft" state, and minor changes may be made before finalisation

Ethereum Roadmap Update [2019]: Casper & Sharding Release Date
In this post Shawn discusses the recent Ethereum Update in regard to their roadmap for Casper & Sharding. Casper FFG[...]

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RadixDLT Sharding Explained: Scalability Done Right

By Shawn Dexter / August 13, 2018

Shawn uses a simple analogy to explain the RadixDLT Sharding approach - A step towards scalability and mass adoption. 
(Note: I capitalize ‘Sharding’ throughout this post to emphasize its importance, and to avoid reading it as ‘sharing’)

Sharding has morphed from an obscure concept in 2017 into the buzz-word of 2018. The need for blockchain scalability has become glaringly obvious, and several projects have turned to Sharding as a solution.

However, Sharding a blockchain is not a simple task. In fact, it poses challenges that have our best thought-leaders scratching their heads. Several projects have made lofty promises of future scalability using Sharding. But, only few have provided a viable Sharding solution for mass adoption. RadixDLT is one of the rare projects that brings forth a novel approach to Sharding –– an approach that seeks to meet the demands of mass adoption

Right from its conception, the goal for Radix was:  Every single person, on every single device using a single protocol simultaneously.

Every single person, on every single device using a single protocol simultaneously.

The RadixDLT Sharding architecture was designed (unlike other projects that approached Sharding “after-the-matter”)  to allow for unbounded scalability while maintaining security, and maximizing decentralization.

In this post, I will explain how Sharding works in Radix in a simple way – without any technical jargon.

RadixDLT: Sharding

What is Sharding ?

Break a window, and you have shards of glass. Break an iceberg and you have shards of ice. A shard is simply a broken piece of ‘something’.  So, when you “shard” something, you’re simply breaking it into smaller pieces.

But, why do we shard? Well, you usually shard something because it’s easier to manage. For example, we ‘shard’ a large pizza because it’s easier to eat one slice at a time. It also allows us to share (distribute) the pizza with friends a lot easier.

Similarly, when a database gets too large to handle, we shard it and distribute it across multiple computers. There you go –– you now understand distributed computing & Sharding. It’s really that simple.

Sharding has been used to partition databases for a long time. You simply cut the database (think of an excel sheet) horizontally into several pieces and distribute across multiple “database servers” (machines that ‘serve’ you data when you need it). When the data needs to be retrieved or processed, the relevant database server is called upon to do the task.

In Blockchain these “servers” are what we call “nodes”.  However, Sharding a decentralized system isn’t as straightforward as we’d like. There are complications that a centralized system doesn’t need to concern itself with.

Why Is Sharding Difficult in Blockchains

Every distributed system requires a Consensus Method. But, developing a Consensus Method for a Sharded blockchain is tricky. You find yourself sacrificing security in favor of scalability.

Why? Well, a huge component of the security comes from the fact that every node stores all the data. Since every node keeps a copy of the entire database – you can’t cheat/lie about past events. But when you shard that database, each node stores partial data. Suddenly, you can tell Node Bob one thing, and tell Node Lisa another.

To understand this better, think back to when you were a kid.

Remember when your Mom grounded you and your Dad didn’t know about it? If you were anything like me, you tried to sneak out by asking your Dad for permission. Dad didn’t have all the info. And you took advantage of it.

Mom and Dad represent a Sharded database. Sure, together they have all the info needed to run the household. But as individuals, they don’t – and can be lied to about past events (like you being grounded or not)

RadixDLT Sharding: The Basics

Founder & CTO  Dan Hughes identified the scalability issues that would plague Bitcoin back in 2012. After several attempts at improving the protocol, he realized that the only solution is a brand new architecture and consensus method. Six years and a lot of sweat later, he brought us Radix DLT – a unique Sharding approach and consensus algorithm.

Radix DLT approaches Sharding in a unique but simple manner.  Most projects take existing Consensus Methods and build a Sharding solution on top of it. But as discussed, this leads to sacrificing security. For example, Sharding on PoS network could result in a One Percent Shard Attack.

Radix, however , started with a Sharded network –– and built a unique consensus method on top of that network. This “Sharding-first” approach allowed them to bypass the limitations faced by other consensus methods.

RadixDLT Sharding
The RadixDLT network is sharded into 18.4 Quintillion shards of 2mb each  – enough to  store the entirety of Google’s data and throughput!  And we all know that Google stores a lot of data. The goal was to have at least as many people using Radix as there are people using Google.

Essentially, Radix began with the end state in mind, which is:  every single person on every single device using a single protocol.

Pre-Sharded Network Explained

Radix’s pre-sharded network serves as a fundamental around which they have designed their consensus method (Tempo).

The size of each shard, and the number of total shards are predetermined. Nodes then place themselves atop shards – and can overlap with other nodes in layers. 

This is where it gets interesting…

Remember, every shard has already been created. They all live in the same “Universe” and their location ID is known. Every transaction is stamped with a blend of the sender’s ID and shard ID.

This makes it extremely simple to locate the Shard from which the transaction that has been sent.  Now, if Node Bob tries to double-spend his $10, we don’t need to check every other shard to catch him cheating. We can simply check his shard.

To better understand this let’s go back to our Mom & Dad analogy

Your Mom grounds you. But this time, she stamps your forehead with the word “Grounded”. You now go to your Dad’s study room and ask him if you can out to play. Your Dad simply looks at your forehead and says “Nope”.

He didn’t need to go check with your Mom. He didn’t need all the info – and was still able to stop you from cheating.

Similarly, the overlapping of nodes and easy cross-shard communication allows each node to store partial info. Which essentially means: not all nodes have to store all the data!  This plays a significant part in Radix’s massive scalability without sacrificing security.

(I simplified this, of course. But we will discuss more on Atoms, Universes timestamping & Temporal Proofs in future posts)

As mentioned earlier, the need to store and process every transaction is a huge limitation for blockchains. Radix is a cleverly designed network that avoids this limitation.

Concluding Thoughts - RadixDLT Sharding

Radix has presented an innovative and noble approach to solving the scaling issues of DLTs. 

Over six years of sweat and frustration, Dan Hughes and team remained true to the goal: Every single person, on every single device using a single protocol simultaneously. The project is still in alpha and the team urges us to participate and help find any potential issues or flaws. 

Although this was an introductory explanation, I’m sure you can’t help but wonder... Will Radix DLT be the answer to the burning question for mass adoption? Time will tell.

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Blockchain Clearing And Settlement: Securities & Trades

By Shawn Dexter / August 8, 2018

Shawn uses a simple example to explain the concept of blockchain clearing and settlement. He also explains what is blockchain settlement – and why businesses would opt for a blockchain for clearing and settlement of trades & securities.

Why We Need A Blockchain For Clearing And Settlement

Clearing Daily Transactions

The current process for clearing and settlement is wasteful – and blockchain tech is poised to change that. The results will be a net gain for everyone -- not just for businesses, but for consumers as well.

We tend to take our daily transactions for granted. It’s as simple as swiping your credit card or depositing a cheque, right? Wrong. It only seems that way. In truth, every transaction you make is simply a promise. Once the promise is made, a clearing house steps in to facilitate and  settle the promise .

The clearing house consists of a plethora of middlemen. They ensure that the finality & settlement of the promise made. And in return for their good-deed, they charge you hidden fees. Ding!

Clearing Trades And Securities

Businesses have to endure these unnecessary fees as well – but on a grander scale. They trade securities that have various risks managed by the clearinghouse. This leads to higher fees. Businesses are then forced to pass these costs down to their consumers.  Ding!

We essentially get Double-Dinged!  But wait – it doesn’t end there. Since we’re getting double-dinged, we have less money to buy stuff. And because we have less money to buy stuff, businesses lose profit. Businesses now have to either increase prices or close shop. As you can see, it’s just one never-ending loop of economic waste!

However, eliminating the middlemen like settlement Clearing houses has been all but a fantasy… until the advent of blockchain technology.

Blockchain Clearing And Settlement: Efficient & Fast!

Our current models of eCommerce are facing a hasty demise. Enterprises have been swift to leverage blockchain clearing and settlement solutions. The efficiency and cost savings that the technology delivers has been far too enticing to ignore.

A blockchain allows a network of businesses to use a shared ledger upon which they can conduct their transactions. This shared ledger provides all parties with security, speed and transparency – while removing middlemen and reducing friction.

Traditional methods of clearing and settlement rely on middlemen to facilitate trust & security. But the friction is so severe that it can take weeks to settle a single transaction.

However, blockchain and distributed ledger technology provide trust & security without  a middle man. This reduces friction and costs for all parties. Furthermore, transaction settlement is conducted within seconds! The resulting cost savings are massive – which are then passed down to consumers.

blockchain-clearing-and-settlement

Blockchain Trade Settlement: The Adoption Has Begun

Across the globe, big name firms and established players have been experimenting with blockchain and distributed ledger technology. The list extends from one end of the world to the other

USA based Broadridge Financial Solutions will be using blockchain trade settlement in the repo market.  Broadridge believes that blockchain technology can

  1. Reduce counterparty risk

  2. Eliminate wasteful manual intervention

  3. Streamline current processes for confirmation

  4. Increase audibility, and transparency

London based SETL already utilizes a blockchain platform for settlement of payments. They empower participants to deploy their own blockchain within minutes.

In 2016, India based uTrade was the first Indian company to  employ a blockchain technology for trade settlement. Their “uClear” blockchain platform allows for real time clearing and settlement of securities.  Fast forward to 2018, and we have the Security and Exchange Board of India (SEBI) have begun exploring blockchain technology for trading the stock market.

The Australian Securities Exchanges (ASX) isn’t interested in falling behind either.  ASX will be launching their blockchain based financial services by 2021. The goal is to allow stockbrokers & fund managers to use the blockchain for real-time settlement and tracking.

Challenges in Blockchain Clearing And Settlement

Established processes and policies have firm roots in modern day operations. Uprooting these policies and redistributing resources will be the biggest challenge firms will face. Change is not easy – and will face strong resistance and certain junctions. Furthermore, the technology itself requires to be battle-tested some more. The complexity combined with the shift in mindset may cause onboarding issues.

Conclusion: Advantages Too Good To Ignore

Even with the political and regulatory resistance, the adoption of the technology has been moving forward. As understanding increases, decision makers will be coaxed into action by the following advantages:

  1. Drastically reduced transaction costs

  2. Near instant settlement and clearing

  3. Easier Risk management

  4. Increased Transparency

Blockchain technology is paving the way for a financial revolution that eliminate a lot of economic waste.

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