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Challenges Associated with Smart Contracts and Its Implications

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Smart contracts

From vending machines to sophisticated algorithms that have driven human beings off the trading floor of NASDAQ, business logic coded as software has been automating and revolutionizing the world around us, long before the materialization of virtual currencies. In essence, smart contracts are here to stay.

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Blockchain has a substantial promise of application in executing contractual obligations and undeniably multiple organizations are exploring different use cases for smart contracts. Applying blockchain technology enables the production of smart contracts with full automation in determining and enforcing contractual obligations without the need for third parties.

Bitcoin’s growth and adoption is proof that smart contracts can work in a public environment. Bitcoin’s cryptographic primitives based on simple scripting language allow the currency itself to exist.  It would be sensible then to expect Ethereum and its fully-fledged language—Turing-complete—to open up a whole world of new possibilities.

However, there are fundamental challenges facing smart contracts.  And until these challenges are overcome, it is still premature to presuppose their capabilities in enforcing actual legal contracts that have been concluded by parties.

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Hurdles Facing Smart Contracts

Below are at least five hurdles are facing smart contracts.

#1: There is no guarantee of transaction execution

Miners wrap transactions into blocks that are sent around the network for different nodes to confirm and run smart contracts. However, there is no contractual requirement that compels a miner to include the transaction in a block. You can attach a high fee with the transaction but it can still be disregarded by miners because of censorship, collusion, or just plain bad luck.

This means that some business models will not work. For instance, E-Trade provides a “2-second execution guarantee” which is not possible in bitcoin or Ethereum systems where transaction execution is based on game theory instead of service levels.

#2: Smart contracts are still slow

Bitcoin acts as a public ledger for keeping track of balances. The mathematical operation of addition is commutative (i.e., when crediting the balance, x+y=y+x, and when debiting the balance, x+ (-y) = (-y) +x)). Therefore, it does not matter how miners package their transactions in the block since the net result will always be the same.

There could be a dependency chain, but usually transactions will be isolated from one another to allow a node to process transactions immediately as they arrive instead of waiting for the mined block to be received.

However, things are quite different with the Ethereum smart contracts.

Consider a simple calculator that has a balance of 500.

If two incoming transactions tell the calculator to divide the balance by 100 and subtract 3, the result will be 2. However, if the order of transactions were to be reversed, the output will be 4.7. Because a Turing-complete smart contract can theoretically perform anything to the global state, smart contracts can only be executed in chronological order—parallel processing isn’t supported.

The net result is that a node in the Ethereum network must sit idle waiting for a new block to arrive and the exact order of transactions must be known. Otherwise, early processing will produce results that are inconsistent with that of the other nodes. With both Ethereum and bitcoin, if a computer is unable to finish its computations before the next block arrives, that computer will fall behind the rest of the network.

Ethereum’s target of new blocks arriving every 15 seconds is quite ambitious and can raise the risks of a node drowning in the backlog of work.  And the trade-off is clear—smart contracts will yield slow Blockchains.

#3: Scaling is a hurdle

The Ethereum network has been referred to as a “world computer.” Yet its model where every node must execute every smart contract just doesn’t scale.  This is the complete opposite of what the “world computer” should be.  The launch of Cryptokitties and its impact on traffic has raised more controversies about the future of Ethereum protocol.

Decades of research into real-world grid computing and parallel processing teaches us that when there is a lot of work to be processed, it is best to divide it into small tasks which are then distributed amongst the network nodes. This isn’t the case with Ethereum smart contracts.

The Ethereum community is aware of this hurdle and one proposed solution is to shard the computations by namespace i.e. split the network into smaller networks. Other ideas that have been mooted include fee markets for off-chain computations. Bitcoin protocol faces similar scaling hurdles and ideas such as sidechains and lightning, if deployed, can effectively shard the network too.

However, it remains to be seen whether any of the proposed solutions can maintain the key selling points of a public blockchain—decentralized, trustless, and permissionless.

#4: Public blockchains are struggling to remain decentralized

In the recent past, centralization has been the blockchain’s burning issue. End users prefer to execute lightweight software that prunes transactions to focus on their own.  The number of fully-validating computers has been declining and this presents a danger to the security model of the public blockchain.

Ethereum faces the same hurdles as it gains popularity and greater demands are placed on the network, proof of this already being seen in the proposal towards sharding of smart contract execution. So, here’s a question that we should ask ourselves: “If decentralization isn’t a fundamental obligation, why jump through the hoops when we can deploy smart contracts on private blockchains or conventional servers?”

#5: Oracles can break the trust model

The bitcoin protocol can operate as a pure trustless network because its primary function is to help move an internal token around a closed system. However, for smart contracts to be useful they have to execute computations using real-world data such as election results, stock prices, or football score.

Oracles—entities that provide this data—may not be trustworthy. In other words, can we trust oracles? And how will their reputation be determined? Who will record the potentially vast volumes of data to be used by an Oracle so that a particular node can replay the blockchain from the genesis block?

Final Word

Public blockchains are so far transparent but are yet to provide the level of privacy that consumers and businesses are accustomed to with regard to enforcing contractual obligations.  Human involvement is still required to settle the legal disputes that may arise.  Centralized systems provide vastly superior performance in terms of response time.

The absence of a clear use case, compelling business advantage or even social benefits seems to be little reason to deploy an application into production based on smart contracts on a blockchain – a technology that is still in embryonic phase.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Op-Ed

This is Why You’re Here

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I often dwell on Youtube live streams of crypto traders from around the world. Most of the time it’s about technical jargon I am not really interested in, but sometimes you will get some good information on a currency that you didn’t otherwise know about. However, what sticks out to me most about these rooms (and why I love them the most) is that people from all walks off life on earth bomb in on the audio chat in different accents, “IS NOW A GOOD TIME TO BUY XYZ?” Russian dockworkers, Australian insurance salesman, Silicon Valley engineers; all of these people are scared to death put their feet in the water. Today, thankfully, I can answer all of those people. It is now a good day to buy XYZ.

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Every single one of you created your accounts for today. Not to trade when its 20% up because of a tweet. When scared people cash out, you cash in. If you aren’t comfortable with that, unregulated speculative markets may not be for you. There are functioning businesses with valuable coins that are 20-30% down as of this publication.

From where I am sitting, everything looks good here. Ethereum in the low thousand, Litecoin sub $200, XRP nearing $1. These are lows. We haven’t seen these prices in a while. The reason this is occurring is reportedly because South Korea is moving back and forth like a ping pong ball on cryptocurrency regulation. The speculative 1000x return $.001 currencies will be hit much harder from this than the functioning businesses if South Koreans are restricted from trade. The strongest speculators are South Koreans. If they are hindered, a lot of the speculative coins may be affected.

What am I looking at today? What I have been looking at for a while now. Platforms. I want places where businesses can go, and are already going. Currently, I have become enchanted with Stellar/NEO/Ethereum/Komodo’s (and Ripple, not so much XRP) way of doing business.

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Stellar

Jed McCaleb is not a man to discount. He designed the Ripple way of functioning with US entities, and I believe he has done it again, but more on the B2C side, and I didn’t mean business 2 consumer. I meant broker 2 consumer. His platform can now mass produce/customize tokens that are going to be compliant with United States laws. KYC information, AML procedures, all the bells and whistles you need for a Texan to smile. Call me a sell out, but if no one wants to follow the rules, they won’t be getting their dinner. If Stellar’s ICO platform has an imbedded value of having the functionality to deposit and settle themselves in bank/investment accounts compliantly, we have a competitive advantage you ain’t never getting past. When’s the last time you searched something on Yahoo? Bing?

NEO

I am not naive enough to think that other platforms that aren’t functioning in the US aren’t worth investing. NEO’s DAPP platform (a place where people can set up store fronts) is one of the most advanced, allowing the creators on their network a lot of room to design DAPP businesses. This is an enormous platform, just like Ethereum. Every road can have a good High Street for shopping for specific things. Or, only one could survive. I don’t intend on putting my eggs in one basket.

Ethereum

As the king of trade for primary offerings, Ethereum has had so many success stories with currencies being launched using its guidebook (ERC-20). I don’t know how much value over time, but this is a platform that people understand how to develop on. It may be clunky right now, but thanks to your generous pump, they may soon (or already) have more resources than any other platform. They have customers. I love customers. Look into it.

Komodo

This one will be the toughest to explain for someone who isn’t tech focused. The Barterdex/Atomic Swap movement is a revolutionary platform of trade. They can do cross train swaps, without using the base currency. I trade ADA for KMD. XRP for LTC. The platform is functioning, and getting better each day. No one, and I mean no one can say that they are loving the way exchanges are working right now. Anyone who is trying to move the ball forward has my interest.

Conclusion

Look at the coins you have been watching, and discuss with yourself internally what your limits are. I am hoping that you have planned for days like these by having capital on the sidelines. If you haven’t, don’t make it up out of thin air. If you’re fully invested, stay fully invested. This is a buyer’s day, not a seller’s day. If you can’t handle that, this industry is going to lose you a lot of money. I have no idea what even the next hour holds for cryptocurrency. However, a wagering man must wager. Each time it hits that new low, a small buy. There is no special sauce to buying things 20-30% off.

 

This is NOT a recommendation to buy or sell any currencies. As you can see, we sold off on ambiguous news. This boat rocks back and forth. Always do research and I wish you the best of luck on a day like today.

Do keep in touch with me about what everyone is thinking . I have created a twitter @raijincrypto, would love to hear thoughts on your plans.


The night sky 

Featured images courtesy of Pexels and Shutterstock. 

 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Op-Ed

China and America: What We Need

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Great news! We are seeing that South Korea is going to be verifying their users, not banning the practice of trading altogether. They will begin identifying who exactly is tied to every single account. I think there will still be some backlash from disgruntled Finance Ministers (or whoever-the-hell), and we haven’t seen much crazy price movement that would come with a “we’re back open” announcement. I think this good news has wrapped the bad news in a bow. Koreans are okay to trade, and we want them to continue! That country loves speculating. However, this hits the Chinese traders right in the mouth.

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China is pushing out miners, getting wiser to capital flight loopholes, and seemingly wanting nothing to do with cryptocurrency or blockchain. When Facebook is taboo, did you really think blockchain was going to be the bee’s knees? I think my two main worries going into 2018 are China and America. The way that these two economies react formally to cryptocurrency has not yet been fully developed. Probably because they are trying to figure out ways for it to work for them before they denounce it altogether. Let’s think about their problems.

China

The country who needs this the most! They have had a restrictive government that often places rules that can jeopardize the value of their hard earned savings. I love when San Francisco techies talk about de-centralization needs to happen in America NOW, when Chinese people are fighting for their financial lives each and every day. I feel for them! I want them to be able to access the things that can give them more freedom of choice in investment and storage. This Korea thing was a real stinker. When the people with the biggest problem that needs solving can’t access your products, it is tough. I am worried about this. I don’t take too much risk in this market, and this is one of those risks that could jeopardize a lot.

Here is what we are hoping to see: They deal with the devils they know. There are plenty of Chinese nationals who have dealt with government officials before, that are now putting up their crypto storefronts. I am hoping that these are the ones that they will work with to create a future that they determine. The entire internet will slowly migrate into the blockchain, I just think they want to set the rules for it. This may take a while, and I think Chinese volume will suffer for this. I really hope that better, more compromising things can come out of this government a little quicker. We are already seeing so much growth from the Chinese teams! Anyone see NEO last night? Walton, QTUM also making moves back. These are some of the best minds in the world at anything, let alone cryptocurrency. I think China will have to blink eventually.

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America: Taxes & ICOs & Donald, Oh my!

I really strongly doubt that a low key tax announcement is all we will hear from the United States. Angel list is ripe with new exchanges desperately trying to get on the market before Coinbase realizes their app is the only competitive advantage they have. GDAX and Coinbase are the pioneers, they were able to come up with something good enough for a public that needed it. However, when the pioneer doesn’t put some more crypto logs on the fiat based fire, I start to get cold. We need more things to buy in fiat, and I want a 1099 for it. Ya, I said it. I want a tax bill. We will never get to full adoption without formalized procedures. Decentralization is wonderful, but it isn’t there yet. Just spit me out a tax bill so we can get this thing started.

Make no mistake, start-up currencies and platforms from the United States are coming, and quickly. The government will formalize the ICO (ACO was the proposed?) process so that we don’t have wide scale fraud and plagiarized white papers. This will be when people can buy Exchange Traded Funds with crypto constituents. You really think there won’t be a SPDR for this at some point? My other articles continue to point out working businesses (I argue platforms for Dapps & Smart Contracts) will be the main constituents of these financial products. I am desperately trying to find ALL the United States based working blockchain focused cryptos. I will keep you posted on my findings of course. I never, ever, ever talk about something I don’t know about. There is way too much money at stake for me to talk about things prematurely. Be careful on Youtube, please please please.

Donald. The Donald. We haven’t heard one thing BIG about cryptocurrency from him. Mnuchin can say what he wants, but clearly Twitter is running the show (especially for us cryptocurrency people!!). This is a huge unknown. This can affect the dollar. This can affect the banking industry. This can affect the loan industry. We already have robots working at McDonald’s, now shirt and tie people are at risk? I am hoping we craft a peaceful transition, but less money will be available to pay people. Think about what happens when you can get a rate for a mortgage on the blockchain, sourced by global crowdfunding through intermediaries? I don’t even want to know how low that rate can get when it becomes mainstream. Humans have always had power in numbers. This can be a very big number.

None of what I am saying is a recommendation to buy cryptocurrencies, in fact it was a warning sign. Let’s all be safe, do research, and know that this can, quickly, go to $0. Best of luck.


Journey from Lao Cai to Sa Pa

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Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Op-Ed

What to Buy: Roads vs. Cars

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I guess I jinxed it. We are starting to move back down lower, as it seems there may still be some fear going on. I think you are starting to see that there are still some very resilient coins that aren’t fresh off an ICO, yet have strong gains on multiple down days. I have tried to look at each and every single one on social media to see what exactly is going on that is keeping it consistently gaining. This is where I stumbled upon my strategy.

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There are currently three ways to invest in cryptocurrencies: ICOs, speculation and investment. Of those three ways, there are two different types of currencies (Road Focused/Car Focused) that have two different types of customers (public/”corporate”). Let’s digest:

Investment Strategies

ICO

Primary offering of coins that often has some sort of incentive amount of extra coins that are awarded as an early signing bonus (Pre-ICO). If you want to retire on a beach tomorrow, you are looking on the wrong article. This website holds some of the most fantastic writing on ICOs that is available anywhere, and I don’t write it! When you buy into something that is not yet traded on an exchange, the upside potential is astronomical, especially when the people betting mortgages on them are counted in the thousands. The reason I don’t invest in ICOs is that timing the top (to sell) of that initial buzz, especially on exchanges like Bittrex/Binance is extremely difficult. If you miss it, you are left with a road map coin that better have some good tweets soon. Overall, you are already at the Mecca of ICOs. I recommend you read as much as of our ICO analyses as possible, as there will come a day when sniffing out good ICOs will become a weapon of mass affluence. For some it already has.

Speculation 

This goes back to your high supply “Future of X” “X 2.0” coins. People have made astronomical amounts of money on coins that don’t even have customers. Usually, their strategy was often buying the cheapest things on the exchange. I have done this, and when it works it is pretty awesome. However, this is all scared money. These are people who have moved money from one tweet to the next, and are often ready to jump overboard at a 20% loss just so they can buy the new thing. I have noticed this time and time again with a lot of the coins that I think are actually pretty neat, but have supplies that make my neck hairs stand. If you can time these buys correctly according to road map objectives and event driven volume, you are a better person than I. (Coincalendar.info) will help you do that. Literally, right above my virtual head you have the best guys in cryptocurrency making EXACT calls on currencies based on hours of research and data mining. 15-20 year trading veterans. Not lightning Gods, but still.

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Investment

Ah! Raiden’s territory. This is the least sexy of them all, I can assure you. A little about myself- I don’t come from the tech space. I can only understand the very surface of what is going behind the hood of the blockchain/currency. So, I go towards what I know. There are very distinct ways to see if a business is A. Valuable and B. Making money. I don’t care if they are selling hot dogs on the blockchain, if they fit those two criteria (plus a nice <150MM Supply) I can make money. Time and time again, it always leads me to the same question. Do I want a nice car or a road with tolls?

XMR is an example of a car. No one is calling them to use their roads, be it that they pride themselves on throwing IP addresses into black holes, etc. Don’t think this is a knock on these coins. Putting your money in a virtual razor wire Harry Potter cloak and sending it anywhere is probably going to be useful, and the supplies of these coins is enough to make my mouth water. This is where I must wait for volume. Coinbase additions, new fiat-based exchanges, corporate interest, intermediary indexing would the main drivers you want in car coins. I have used to LTC purchase normal online goods. I can’t say that for any other coin.

NEO/ETH are examples of roads. I will not deny- I love roads. Smart contracts and decentralized apps are making the blockchain useable for every day people-EVENTUALLY. Right now, it’s like playing pong or another old arcade game. But, but, tolls are involved. These are currencies that are becoming bedrocks for businesses (Customer type #2) to come to. They can just simply click a few buttons and there they are on the road driving along using the currency & the directions (ERC-20 guidelines) they were given. The reason I like roads is because businesses have incentive, investors do not. Yes eye popping returns have caught all of us by the nose, but not everyone. Businesses have more money, and they have a direct need for the services provided to create more wealth for themselves that isn’t related to speculative investment. This is why so many things are based off of the Ethereum blockchain. It was there when it needed to be. Perfect amount of supply, took it a step further than bitcoin, and has been an excellent performing baby brother at that.

I want you to see for yourself. Google “Ethereum Jobs” and see what comes up. What companies are hiring developers with Ethereum experience? What is the job doing? You will be quite surprised. Now, could they all be trying to make their own amazing blockchain? Perhaps. But I don’t see ICOs changing their main form of payment (ETH), especially when it’s developed off the Ethereum blockchain. It is quickly becoming the currency of the tech side. Sure crypto kitties…but once again, let’s play a little pong before Call of Duty.

Conclusion

I think all three ways of investment in cryptocurrency can be mastered through this website. I am quite new to the site, but when a non-ICO investor is deep into a BeeToken article (neither shilling nor dumping), you know you have some great people who have a ton of knowledge on this stuff. The trade recommendations we have here are spot on, we wouldn’t have a wall of fame if it was all smoke! However, Ol’ Raiden here loves his roads and low supply cars.

I love business. It’s the civilized form of warfare. Only the strongest survive, each with their own differentiated values that they provide to their customers. We aren’t investing in businesses though. We are investing in tokens that people need to want. I want to invest in the token that businesses will need to become stronger. The only token I have seen do that is ETH. The only token I see doing it is ETH. There will be a litany of successful 1000%+ coins this year, but the United States is quickly becoming an ETH country. We love the road, we have developers for hire for it, and we like that we can do business on it. Even crazier? So is RUSSIA. Vitalik and Putin talked about a Eurasian token for goodness sake! His government hates the idea, but this is still in the pong phase anyway. Roads can have cars, and eventually storefronts. Can’t they?

None of what I said is recommendation to buy or sell currencies. the ones I have mentioned today are examples of what is currently available. I am here to provide you with the armor you need during your time in the trenches of your given exchange. Every currency mentioned can, quickly, go to $0. Best of luck.

Featured image courtesy of Shutterstock. 

 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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