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Bitcoin ETF Explained Simply – What Does This Mean For Bitcoin

By Shawn Dexter / August 28, 2018

There has been a lot of talk about Bitcoin ETFs recently - So let’s explore the basics of what a Bitcoin ETF really is, and the implications of it. 

What Is An ETF?

Put as simply as possible, an ETF (Exchange Traded Fund) is traded on the stock market just like a stock, but instead of being a share in a public company such as Amazon, it tracks the price of an asset instead. 

There are many types of ETF's that track different things, but for simplicity lets use Gold as an example:

If you think gold is going to rise in price, you could go to a stock exchange and buy shares of a Gold ETF, which can be shares in a Trust which stockpiles physical gold. If gold goes up, the ETF shares will go up similarly. This way, you don’t have to go to a futures market or hold any gold yourself. 

What Is a Bitcoin ETF?

A bitcoin ETF would be similar to the above example: an easily tradable asset that ultimately tracks the Bitcoin price. Traders and investors could go Long (buying in anticipation of increasing price) or Short (selling in anticipation of decline).

Bitcoin ETF - ​​Why Does It Matter For Bitcoin?

It may not matter much at all. We got this far without an ETF after all. However the clearest benefit to a Bitcoin ETF is in opening the market to many more participants and significantly more capital. 

In much the same way as you don’t want barrels of crude oil in your living room, many individuals and institutions don’t fancy getting their hands dirty on the unregulated, uninsured, hackable, dodgy overseas crypto exchanges such as Bitfinex.

Wait, Wasn’t The Bitcoin ETF Recently Rejected?

Many ETFs have been proposed to the SEC (US Securities Exchange Commision). However, all but one of these were all recently denied by the SEC, killing most of the dreams and leaving one last man standing: The VanEck SolidX ETF.

This is the ETF you have probably heard most about, brought to the SEC by a partnership of Investment firm VanEck and financial services company SolidX. This proposal is also endorsed by the CBOE (Chicago Board Options Exchange), known for launching their Bitcoin futures in December), and if approved it would trade on the CBOE exchange.  

Buying this proposed ETF would basically represent shares in a Trust, and the Trust’s assets would be securely-stored Bitcoin (insured against loss or theft). Therefore as bitcoin rises in price, the assets of this Trust appreciate and make money.

Why So Many Bitcoin ETF's?

You can’t just simply start an ETF and get it traded on a stock exchange. 

Before launching in the USA, any potential ETF has to get special permission from the SEC. This is because original securities laws never allowed for ETFs, so each new ETF has to be specially exempted and allowed to trade by the regulators. 

Therefore, any party wanting to start an ETF must apply for their own individual exemptive order. The SEC deals with them on a case-by-case basis, rather than simply allowing or denying all Bitcoin ETFs.

Getting An ETF Approved - The Process

ETF Hopefuls file a “Proposed Rule Change” to the SEC. When received, the SEC posts a “Notice of Filing” and then has 45 days to approve or deny (or delay decision on) the proposed ETF. 

Here is the Notice of Filing for the most hyped up ETF of the year, the VanEck/SolidX ETF (mentioned above):

Notice of Filing of Proposed Rule Change to List and Trade Shares of SolidX Bitcoin Shares Issued by the VanEck SolidX Bitcoin Trust”

VanEck/SolidX ETF Approval - When Will We Know?

The SEC delayed the decision on the VanEck/SolidX ETF to September. They are able to delay further 2 more times, and very likely to do so. This gives the deadlines of:

  1. September 30

  2. December 29

  3. And finally, February 27 

Bitcoin ETF's & The SEC - What Does It All Mean?

The SEC is not friendly to these proposals, and their reasons are clear.

The Bitcoin market is unregulated, easy to manipulate, and not liquid enough (not enough trading volume occurs). The SEC are concerned that Bitcoin trading almost exclusively 

occurs on unregulated venues overseas that are relatively new and that generally appear to trade only digital assets.

Given these problems, the VanEck/SolidX ETF is also in trouble, as currently it does not appear to solve any of them. There is a low likelihood that it will be accepted, at least before the Crypto markets have matured a whole lot.

While an ETF would be great for adoption and more widespread trading of Bitcoin, it is certainly not a necessity, and many other projects are in the works, such as those listed in our article:

Bitcoin’s Arrival In The Institutional Market – What It Means In The Long Run
Ever since Bitcoin was created in 2009 by Satoshi Nakamoto, it has largely been pushed aside by the traditional financial[...]

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Gwei to Ether Conversion – Ethereum Units Explained

By Krisha A / August 25, 2018

Constantly having to covert Gwei to Ether for transaction/gas fees can be frustrating. The irony is that “gwei’ and all other ether units were created to rid user frustration and promote adoption. The intent was definitely well thought out - you can trust Vitalik & team with logical ideation. But perhaps we require a bit more insight on Ethereum’s units and its intent.  It may just alleviate our frustration for all future transactions.

Let’s just say Ethereum’s core team took a history lesson from bitcoin before they brought forth all the Ether Unit monsters.

What is Gwei? And All Other Ether Units …

In order to grasp the concept of ‘gwei’, lets begin with something we’re all familiar with:

The money in our wallets!
(or if you’re anything like me - the money in the deepest corner of your jeans pocket)

The money in our wallets, regardless of currency, likely also comes in denominations. But for the purpose of this explainer, lets focus on the US Dollar. 1 US Dollar has four denominations: Cents (1 cent), Nickles (5 cents), Dimes (10 cents), and Quarters (25 cents).

Like the US Dollar, Ether too has denominations.
Remember, "Ether" is the currency used within the Ethereum Blockchain. Not ‘Eth’, Not ‘Ethereum’. .... "Ether"

Ether has three primary denominations, namely (lowest to highest): 

  • Wei       
  • Gwei       
  • Finney    

In essence, ‘Gwei’ is simply a denomination of Ether - So when converting Gwei to Ether’ for gas, remember that ‘Gwei’ is Ether - Just a fraction of it. Similar to a regular economy, there are many microtransactions taking place on the Ethereum Blockchain that require payments in fractions.

Just like how a vendor wouldn’t ask you to pay “1/10th of a dollar” for a plastic bag (let’s be realistic - that’s all you’ll get), the ethereum blockchain wouldn’t ask you pay "0.0000021 ether" for transaction fees. It’s just a difficult price to convey.

Instead, you’d be asked to pay 10 cents for the plastic bag, and 2100 gwei for transaction fees. Sounds much better, doesn’t it?

When dealing with currency, fractions are difficult to convey, tedious to convert, and aren’t very user friendly. Hence, the introduction of user friendly denominations, like Gwei.

Gwei to Ether and More - A Future-Proof Ethereum

When considering all three ether units: Wei, Gwei & Finney, you can’t help but wonder - ' why couldn’t Ethereum decide on one denomination? Gwei to ether and vice versa? '
Note: There are actually 10 different ether units, 3 wasn’t too bad a compromise.

It appears that Vitalik was looking to future proof Ethereum so that people could always have an open dialogue about ether in varying quantities regardless of ether price.

the goal of specifying suggestions for all of them was to have some schelling point on what to use for smaller denominations so that people could easily talk about varying quantities of ether regardless of whether the ETH price was $0.01, $10 or $100,000 - Vitalik Buterin

All suggested ethereum units were meant to be a schelling point (an anchor term like cents) depending on various use cases. For now, the three primary ether denominations were meant for the following ether:

  • Finney = for micropayments
  • Gwei = for gas prices
  • Wei = for discussion around APIs and other use cases

If ether’s value skyrockets like that of bitcoin, we’d likely see a rise in ‘finney’ in various ether uses and discussions.

Top Ether Transaction Fee Calculators & Converters 

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ETH Gas Station - Tx Fee Calculator

  • Ether transaction fee prediction based on your set Gas limit & Gwei price

  • Gwei price/Gas price recommendations based on ethereum network conditions
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  • Real-time network ether transcation fee & network stats

Gwei to Ether Unit Converter

  • Easy 'one-input' conversions for all 10 Ether units

  • 3 Primary Ether units: Ether to Gwei; Ether to Finney; Ether to Wei 

  • 2 Ether-Fiat conversions: Ether to USD, Ether to Eur

EtherScan Gas Tracker

  • Safe-low Gwei Price Estimator

  • Proposed Gwei/Gas Price

  • Ethereum network block count

  • Transaction Confirmation Duration Estimate 

Gwei to USD Converter

  • Gwei to fiat conversions: USD, CAD, EUR, GBP and more

  • Gwei to Ether conversion

  • Supports all 10 ethereum unit conversions + fiat conversions

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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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EIP-999 & Parity Drama Explained Simply

By Shawn Dexter / July 19, 2018

In this post Shawn explains the heated EIP-999 debate. He goes over how it happened and why the EIP-999 & Parity controversy is ruffling so many feathers.

Why Am I Writing This?

A cauldron of drama-soup is boiling in the kitchen – and most of us are too distracted to smell what’s cooking.   Either we're too busy refreshing Blockfolio or the EIP-999 drama has too much technical mumbo-jumbo for the new members. Well, the soup is being stirred again – and perhaps it’s time we pay attention.

As a community we need to have an open discussion about this. For that, though, we need to first understand what is going on. In this post I’ll try to explain the issue as simply as possible.

EIP-999  & Parity

What Happened? 

A somewhat comical incident led to a disastrous consequence.  An anonymous developer managed to gain ownership to a Smart Contract – and then killed it.

But this wasn’t just any smart contract. It was the underlying contract to Parity Technlogies’ Multi-Sig Wallet – which held 514,000 Ether.  That’s worth around $300,000,000.

Killing the smart contract resulted in 514,000 Ether being utterly inaccessible.

How Did It Happen?

Seems like Parity goofed up on auditing their smart contracts….

One of the contracts was left ‘uninitialized’. And a anon developer was able to simply take ownership by initializing it. Yeah... that simple.

He then went on to hit the self-destructo-button and killed it. Why? I’m not sure. He probably fumbled. It seems like an “oopsies!” moment. Either way, the contract is dead. Kaput! Gone. it was a disaster

All Parity Multi-Sig Wallets created after July 20th 2017 relied on that contract and without it – they can’t function. Funds in those wallets were effectively… burned?

Okay… So then what?

Around 600 wallets had their funds rendered inaccessible… indefinitely. Parity now have a lot of unhappy customers – some of which are big name ICOs.  (It’s important to note, however, that Parity haven’t lost any funds themselves.)

A solution was proposed a couple months ago: EIP-999. An EIP is simply an “Ethereum Improvement Proposal”. Put in simple terms, the proposal was:

“Let’s just simply restore the contract with a patch”

This patch would replace the self-destructed contract with a brand new contract. This new contract basically:

  • Allowed users to access their funds.
  • Contained a fix for the previous ‘bug’. (bug or..oversight?)

No big deal. Right? Ah… If it were only that simple... This where the EIP-999 debate started to boil...

EIP 999 Proposal  - Contentious?

Why the Drama?

The patch is simple – but the consequences are not. A code change like this will result in a hard-fork. A hard-fork isn’t necessarily a bad thing. In fact, the Metropolis upgrade was a hardfork and everything turned out fine.

It’s when we have a “contentious” hard-fork that things get really ugly. Why? Because a hard-fork requires miners and nodes to perform a software update. If the software update is “contentious” (controversial/debated) then we may not have 100% agreement on the upgrade.

If some participants decide to upgrade and others don’t, they will “fork” off into two different chains. We will have a chain split – fracturing the network and the community.

EIP 999, unfortunately, turned out to be a contentious proposal. 

EIP 999 Vote:  Majority Say NO

Some people say EIP-999 is the “right thing to do: people deserve access to their money”.

But others say that it’s "not fair – parity shouldn't get special treatment". And then there are the “code is law: deal with it” advocates.

There are many camps, but ultimately it’s either: “For EIP-999”  vs “Against EIP-999”. A vote took place to gauge community support.

  • 39.4% voted FOR the change
  • 55% voted AGAINST the change.

The vote was informal, but was enough to see that the community was at odds.  And this is why we should care. Because if there are enough people who disagree with the other side, then a chain split WILL occur.

At that point it won’t matter what’s fair, what’s right, what’s law etc.... The community will be fractured, and a narrative will be spun for both sides.

What Now?

A few days ago the EIP-99 was set as “Accepted” on GitHub because it was “not technically objected by the devs”.  (So not saying ‘no’ means ‘yes’, now…)

Apparently this was done in error, and was quickly reverted. But it still stirred things up. And now it seems like there are changes being made to the EIP process to bypass community consensus

The cauldron is beginning to simmer.

Facing The Real Issues

All of this makes for an extremely intriguing case study. It’s in Parity’s best interest to have EIP-999 passed. But Parity doesn’t want a chain split either.  So the only way they can have that is to have EIP-999 be passed without contention.

Well, there’s clearly contention… Now what? Are they going to pass it under EIP-1 because it is “technically feasible”?  Oh dear...that would open a new can of worms.

And what about the people screaming “Not fair!”? Last year, QuadrigaCX – Canada’s largest exchange – faced a similar issue and had a huge amount of Ether rendered stuck. At the time, general consensus was “Your shit out of luck – Double check, triple check your godam code!”

Should Parity be held accountable for lack of auditing standards?

Governance & Audits

In the 2008 financial crisis, big banks were bailed out to utter disdain of the public. Regardless of whether the bailouts were the right move or not, people were upset. But unlike the Ethereum network, people couldn’t simply “fork off”.  

It’s up to the community to step up and show that we are better than the rest. Someone is going to have to bite the bullet and set the stage for future dilemmas. Who is it going to be?

Either way, it’s now evident that we need more thought and discussion put into:

a) The Governance Process
b) Auditing smart contracts with more seriousness

Make no mistake – none of this is going to be easy. After all, we are a community who hate government but are in sore need of governance.

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