scalability Archives

Cryptocurrency prices soar in the first week of May; Will Seasonality influence Bitcoin’s prices again?

Posted on May 3, 2017 | by [email protected] | Leave a Comment

Bitcoin and Ethereum, the leading cryptocurrencies had a strong finish at the end of April by marking their respective all-time high prices. The start of 2017 has been staggering for Bitcoin as negative fundamentals have hampered its price growth consistently in phases. Just when the currency was set for a Bull Run, one or the other problem would impact the prices turning the market bullish on a short term scale. Ethereum on the other hand has had a smooth run and gained good momentum during the scalability debate of Bitcoin. Investors proactively transferred their investments from Bitcoin to Ethereum to shield themselves from the price fluctuations during this phase boosting Ethereum’s prices. As we enter the 5^th month of the year, the prices of the cryptocurrencies are going up and we believe seasonality is playing a strong role in this. Let’s dive deep into the internal dynamics of each of the cryptocurrency and what is in store for them:

Bitcoin went through threatening times:

Bitcoin had to overcome hurdles that could have ended the digital currency’s existence if the community didn’t reach consensus. The Blocksize debate or the scalability debate brought bearish clouds to the crytpocurrency’s price domain making it extremely difficult for the prices to recover in a quick time. The issue came as an insult to injury post Winklevoss ETF rejection and Chinese exchanges ban on withdrawals. Nevertheless Bitcoin has recovered in a fine fashion to break the all-time highs and register a new high for the cryptocurrency. With the scalability debate now resolved, Bitcoin is looking stronger than ever while trading around all-time highs. What remains to be seen is whether the trend will receive an unexpected boost due to seasonality or just continue to grow/dull down without any influence.

Ethereum sees unexpected boost:

Ethereum has been the cryptocurrency that tackled scalability issues in its formative stages to bounce back strongly into cryptocurrency sphere. Owing to its executable smart contracts on blockchain and applications in various verticals Ethereum has found solid ground to grow without inhibitions. With Bitcoin’s scalability issue surfacing, Ethereum’s prices have sky rocketed to over $40 in the past month. With the talks of a possible Ethereum ETF, the prices further pushed higher making an all time high of $80.

Will the Seasonality Kick in?

We have observed that especially for Bitcoin, the markets have followed a good deal of seasonality with the prices going higher towards the end of the semester. This half yearly pattern may reflect a periodic activity on the part of institutional investors or swift moving of funds from one asset to other in sync with their seasonal cycles. Whatever it may be, the seasonality is a pattern that has been holding for the cryptocurrencies and we can surely expect a sudden spike owing to these factors in the near future.

Blocksize Debate Part II: Bitcoin Reaches a Grand Compromise, Hard Fork is Happening

Posted on April 12, 2017 | by [email protected]

In the previous version of this set of articles, we delved deep into the reasons required for a blocksize increase. After considerable thought, we found that the incentives are better based on the transaction value so that it gives enough motivation for miners to confirm them. Lack of, or constant, incentives might not be the best motivator to include old transactions that have been missed by miners in the past.

The Bitcoin community has reached a grand compromise on the scalability debate and a hard fork is happening. Read below for the details of how the hard fork is going to be executed followed by the impending dynamics.

The final decision:

The decision was made in a series of non-public meetings where independent journalists and observers were invited to observe. Key figures from Bitcoin Core, Bitcoin Unlimited, almost all miners, as well as almost all of the significant bitcoin businesses managed to reach an agreement after a week long discussion. Gregory Maxwell, Peter Todd, and others from Bitcoin Core, together with Andrew Stones, Peter Tschipper, Andrea Suisani and others from Bitcoin Unlimited, as well as J Wang Chun, ihan Wu, Bobby Lee, Alex Petrov, plus Brian Armstrong, Nicolas Cary, Mike Belshe have reached the following understanding:

Bitcoin developers, from both Core and Unlimited, will merge within two weeks to provide a max blocksize increase to 4MB which will then further increase by 25% yearly until 32MB blocksize is reached. This will be coupled with modified segway to remove the fee discount for signature data settling the incentive debate once and for all. On July the 4th 2017, a flag-day upgrade will take place where all nodes are expected to have upgraded by that point. The document states:

“After two years of lengthy debate where all minute details have been discussed at great length, we believe that a slightly more than two months lead time is more than sufficient for the network nodes to upgrade.”

What happens to the Bitcoin Community?

The decision resolved some differences in the Bitcoin community. Gavin Andresen and Peter Todd were spotted having friendly discussions as their animosity comes to an end. Mike Hearn and Gregory Maxwell, Roger Ver and Samson Mow were also seen catching up and thus putting an end to all the circulating rumors of hostility. It is rumored that Michael Marquardt aka Theymos, the top moderator of r/bitcoin, would resign soon. All those who have been banned from r/bitcoin on political grounds are to be unbanned as per the document. The policy of censorship will end effective immediately in a widely democratic Bitcoin community.

Effects on Bitcoin:

Bitcoin’s prices have stabilized over the announcement, putting an end to the bearish cloud that hampered Bitcoin past month. This can be viewed as a victory for both ends as the forking now seems an elected one with sufficient guard rails placed so that both the parties can have what they wanted in a fair trade off. With the fork coming up, Bitcoin prices are expected to dip a little, up to 8%, before getting into a bullish trend once again.

Blocksize Debate Part I: UCL Studies Confirm the Need for Increase in Blocksize

Posted on April 10, 2017 | by [email protected]

The debate that saw the Bitcoin community branch off into two groups appears to have reached some kind of compromise. The debate did have prolonged effects on the prices, functionality and the sentiment surrounding the digital currency. Over two years the debate had affected the prices in phases and packed a hopefully final punch in March that took the prices to below $1000 after a couple of months. The prices have now stabilized after the news of the hard fork was confirmed for an increase in blocksize. Let’s dive deep into whether a blocksize increase is the need of the hour and what the studies have revealed:

The time lag in processing the transactions:

A study by UCL Centre for Blockchain Technologies reveals that around 43% of the transactions are still not included in the Blockchain even after 1 hour from the first time they appeared on the network. Even more concerning is the fact that 20% of Bitcoin transactions are still not included on the blockchain even after 30 days. Over three months of the study revealed that in 12,000 unique nodes connected to the network, the confirmation time is inefficient for large value transactions. This exposes the inefficiency that has culminated in Bitcoin networks and why the blocksize debate has come into the picture as so critical to solve.

Reasons for lagging and inefficient transaction processing

The real problem for the non-inclusion of some transactions is due to the fact that there are no mechanisms that ensure that all transactions are actually processed. The miners are free to choose what transactions are to be included in their block. Satoshi did include a mechanism called ‘First Seen’ but it’s not enforceable at a protocol layer. The first seen method is a typical first in, first out method abiding which transactions can actually be processed instantly. However, instead of ‘first seen’, miners are opting for transactions that give them better incentives.

Possible solutions

Having no/fixed incentives for transactions might be a solution as miners would stick to ‘first seen’ transactions while processing once they see incentives aren’t based on the amount being transacted. However, Pappalardo said that:

“What we suggest is that miners have no incentives to include all transactions and therefore some are missed and after a while it becomes increasingly unlikely that a miner will willingly include old transactions. Without any incentive for proper processing and timely recording of transactions, it is unlikely the system will spontaneously invest efforts to become more efficient.”

While blocksize increase seems inevitable, the inclusion of mechanisms to make sure all the transactions are processed in time would be essential to keep the Bitcoin network honest and efficient.