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Analysis

The Lightning Network: Truth Or Liar’s Poker

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As a former Wall Street analyst I always tried to know the most about whatever company I was assigned to work on.  Hours of research went into this effort. But in the end the question became: What’s the bottom line?

Today, there are dozens of crypto analysts but trying to get an answer on what’s the bottom line when it comes to The Lightning Network is another matter.  Bright, well traveled experts are claiming both amazing growth and acceptance while others insist TLN is a complete failure.

Here is my bottom line: The Lightning Network is a huge step forward for Bitcoin that will ultimately contribute to whatever level of mass adoption ends up taking place.  That is because its purpose is to facilitate small peer to peer transactions that represent the vast majority of daily financial transactions.

TLN probably sacrifices a certain amount of security… but, so what? No hacker in their right mind would waste their time swiping $5 and $6 transactions when their is far bigger fish to fry in the vaults of crypto exchanges. So security is not the most critical issue here.

After less than six months in operation TLN supporters and naysayers are engaged in a silly game. If we could only look into their crypto holdings I suspect we would have a clear picture of their bias.  But unless they choose to reveal their holdings, we will never know.

Background Briefing

In order to progress to mass consumption, crypto networks need to process transactions almost instantly.  As of August 1, the average confirmation time for Bitcoin was 23 minutes. That’s simply never going to foster mass adoption.

TLN is the technology touted as the solution to Bitcoin’s scalability problem. Introduced in March of this year, just about everyone is impressed with its growth.  And just about everyone agrees that the way to measure growth is by having a running total of the number of nodes.

Rompert.com counts 2014 nodes in the total TLN network compared with 29 when it was opened.  By some technique, they determined the network capacity at over $153,000. That is not a huge number by any means, but after all, TLN is still a baby learning to walk.

The Ridiculously Negative Case

Recently we ran across a headline claiming a 99% chance of failure of TLN on transactions larger than $200 and only ridiculously small sized transactions of less the five cents are completely successful.  If this were true, the next observation makes absolutely no sense whatsoever.

The claim is made that  since TLN was launched in March, transaction prices today are now $1.06 down from $55 back at the peak of December.  Meanwhile, transaction volumes on the network are nine times higher.

Somebody here is confused and I think it must be me.  Who in their right mind would pay a $1.06 fee to transact less than a nickel worth of crypto?

The Ridiculously Bias Positive Case

Completely contradicting the above expert is a quote from Bitcoin developer and so called long standing critic of TLN, Peter Todd.  Mountains of praise are now being heaped on TLN after Todd made payments of $3, $5 and $40 in near instant transaction time. Even though we are offered no proof that such transactions ever took place, at least we know where Peter is coming from.

The Bottom Line

Lightning Network promises to enable millions of transactions per second using a peer to peer network atop the Bitcoin blockchain. This is the fastest financial transaction network in the world, even compared to competing blockchain technologies, like Ethereum’s 15 tps, Ripple’s 1,500 tps, or the newly launched EOS with a maximum of 8,000 tps.

But the moniker, fastest financial transaction network in the world, is only a momentary notion. The Bitcoin Cash network is now claiming a new single day transaction record of 484 per second. Is this a valid number? Since the event just happen to take place on the first anniversary of the network launch, we suspect it is a phonied up claim: time will provide the truth.

There are all kinds of ways to measure the progress of TLN and we are in the time when there is enough date to prove the earth is flat.  To me the most important short term barometer is the growth of nodes. This is the truest measure of market acceptance. And TLN’s growth confirms it is going in the proper direction toward mass acceptance.

Headlines about TLN move Bitcoin prices so armed with this information makes for better investing skills, no matter if you are a trader or long term investor.  So much of the noise can be thrown into the category of short term imperfections or simply a game of liar’s poker.  

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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4.4 stars on average, based on 114 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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4 Comments

4 Comments

  1. Pgaucher

    August 4, 2018 at 10:43 pm

    The main debate around BTC vs BCH has to do with on-chain scaling vs. Off-chain scaling. BCH proponents are saying Bitcoin can scale on-chain without any issue and that Moore’s law will take care of bandwidth and storage issues just as it has for the past 9 years. So far, they are spot on. Using both on a daily basis, I cannot fault BCH in the speed and transaction costs.

    Ease of use is key to driving adoption and LN is far from being user friendly at this stage. It may be fine in 2 years, but by that time the BCH ecosystem will be so developed and well established that it will be difficult to catch-up.

    If scaling on-chain proves to be possible over time, then the utility of LN becomes questionable.

    I think a more in depth research is warranted which covers a number of items, including:

    – developers (# of teams) working on each platform
    – # of real life new applications being launched on both platforms
    – merchant adoption numbers (in pure #) for both platforms
    – mining costs for both
    – # of miners (not non-mining nodes) on both platforms
    – user satisfaction levels (merchants and consumers) for both platforms
    – transaction speed for different situations ($0.1 $1 $5 $10 $25 $100 $1000) and fees associated with each, on both platforms.
    – etc.

    Simply stating one’s position without supporting the position with factual information is similar to the current state of affairs.

    Full disclosure, I own BTC and BCH.

    • James Waggoner

      August 4, 2018 at 11:16 pm

      Thanks for the knowledgable and well reasoned comment. It is always good to have the facts.

  2. Daniel Won

    August 6, 2018 at 8:10 am

    No hacker in their right mind would waste their time swiping $5 and $6 transactions when their is far bigger fish to fry in the vaults of crypto exchanges. So security is not the most critical issue here.

    What if you swiped a million $5 or $6 transactions?

    Instead of robbing the bank, go after a million average people

    The latter becomes a lot easier with technology that allows for scale via automation (scripts, etc).

  3. James Waggoner

    August 10, 2018 at 8:31 pm

    You are right, so far scaling options have left the question of security unanswered.

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Analysis

Ripple Price Analysis: XRP/USD Subject to Pullback Before Another Surge; More Partners Added to xRapid and RippleNet

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  • Ripple continue to add new partnerships for both xRapid and RippleNet.
  • XRP/USD subject to a near-term pullback, ahead of any firm committed upside move.

Ripple adds Viamericas to xRapid Solution

The Ripple foundation have been extremely busy, since the official launch of xRapid earlier in the month. Viamericas, who are a “licensed money transmitter offering international money transfer.” They cover over 76,000 locations in 29 countries. Viamericas is the latest to be added to Ripple’s xRapid.

Last month, Ripple held a two-day the Swell Conference. This is where Ripple’s CEO Brad Garlinghouse unveiled xRapid. Furthermore, at the time he covered that Ripple has partnered xRapid with three firms already, Cuallix, Mercury FX, and Catalyst.

UK E-Money Firm Moneynetint Joins RippleNet

Moneynetint are the latest company to join RippleNet, after recently completing integration. The business is a UK e-money institution. They facilitate in cross-border money transfers and currency exchange for corporate and private clients globally. As a result, The CEO of Moneynetint Yishay Trif, CEO commented, “The cooperation signed with Ripple is part of the company’s strategic move to advance into innovative areas of the payments industry. To become a groundbreaking institution in the field”.

Furthermore, direct commentary from Ripple, their director of account management. Nadeem Ladki, director, added, “by leveraging Ripple’s blockchain technology, Moneynetint will now be able to simplify and reduce the FX conversion rates for their customers, Increase the speed of settlement and offer services to new markets, that would otherwise have been too difficult or too costly to reach in the past.”

Technical Review – 4-hour Chart

XRPUSD 4-hour chart

XRP/USD has been attempting a break-down of a stubborn supply area observed from $0.4800-0.5000 region. The price for now continues to face rejections. After going through a period of high volatility, XRP/USD managed to find stability. This resulted in it grinding higher within a small ascending wedge pattern, which consequently has seen a breach. Even more, looking at playing out to the textbook with a breakout south.

The below demand area will be in focus, seen within the $0.4500-0.4350 territory. If near-term downside momentum is maintains its current course, the broken descending channel will be eyed. Finally, this support could likely be seen at $0.3900, just on top of the channel.

Technical Review – Daily Chart

XRP/USD daily chart

Looking for the daily view, the significance of the mentioned above supply and below demand areas are evident. Between the period of July – August, the price was swinging between these zones. The range was narrowing. This saw an eventual breakout south from the demand area, $0.4500-0.4350. As a result, XRP/USD went on to drop almost 80% down to a low of around $0.2445, on the 14th August.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

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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4.5 stars on average, based on 31 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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Analysis

Crypto Update: Coins Edge Lower in Quiet Trading

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The cryptocurrency segment continued to trade without momentum in the past 24 hours, as although some of the small-cap coins experienced heavy trading the top currencies are virtually unchanged. The technical setup is also little changed, with only Stellar getting closer making progress since the Monday market-wide spike. Ripple, which was also among the more active coins couldn’t maintain its momentum, while Bitcoin and Ethereum got stuck in very narrow short-term ranges.


BTC/USD, 4-Hour Chart Analysis

Bitcoin continues to trade between the $6275 and $6500 levels, as another very narrow trading range developed following the Tether-indices surge. The most valuable coin is still well below the previously dominant broad triangle pattern after last week’s breakdown, and the short-term sell signal remains in place in our trend model.

While the long-term setup is neutral, traders should still not enter positions here, with further resistance levels ahead at $6750 near $7000, and with support levels also found near $6000, $5850, and between $5000 and $5100.

Stellar/USDT, 4-Hour Chart Analysis

Stellar drifted above the key support zone that surrounds the $0.24 price level which also marked the top of the Monday rally. Should the coin hold above that level, a new short-term uptrend would be established even as the broader declining trendline is just ahead, and traders could enter small positions in anticipation of a break-out. That said, given the bearish segment-wide pressures, these setups are still to be treated cautiously, as no leadership has been established.

Top Coins in Deadlock as Long-Term Setup Still Bearish

XRP/USD, 4-Hour Chart Analysis

Ripple is still holding on above the key $0.42-$0.46 zone, but it still failed to show meaningful follow-through after the move out of the triangle consolidation pattern, and a new short-term uptrend is still not confirmed, so traders should still not enter positions here.  XRP faces strong resistance levels near $0.51, $0.54, and $0.57, while further support levels are found at $0.375 and near $0.35.

ETH/USD, 4-Hour Chart Analysis

Ethereum is trading in a similarly narrow trading range as Bitcoin, also on a short-term sell signal, with the focus being on the $200 support level. Ethereum’s long-term outlook is still clearly negative, with the broader declining trend being intact, and a move towards the bear market low remains likely in the coming weeks.

Traders and investors should stay away from the coin, despite Monday’ spike, as we expect the downtrend to resume soon. Strong resistance levels ahead at $235 and $260, while support is found at $180, $170, and $160.

LTC/USD, 4-Hour Chart Analysis

Litecoin also failed to make progress since Monday and a move below the $51 support level is very likely in the coming week. Below that support is found near $51 and the bear market low at $47, while the major zone of interest is near the $44 price level.

The weakness of LTC is a bearish sign for the whole segment, and traders should still not enter positions here, with strong resistance levels ahead near $56, $59, and $64.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

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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4.6 stars on average, based on 378 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Analysis

Hawkish Fed Lifts Yields, Dollar as Stock-Correction Continues

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US stock markets had a choppy and mixed session, and the major indices closed the day virtually unchanged, despite the early losses and the negative news flow. The US housing market disappointed again, the EU-Italy debate over the country’s budget continued, the US-Chinese relations further deteriorated, and the Fed also provided a negative catalyst towards the end of the day.

Dow 30 Index Futures, 4-Hour Chart Analysis

Investors were eagerly waiting for the meeting minute form the Fed’s latest meeting, but those expecting a dovish surprise were let down. The transcript contained more hints to tighter-than-expected monetary policies in the coming months and years, but still after an initial dip stocks rebounded to pre-announcement levels.

US 2-Year Treasury Yield, 4-Hour Chart Analysis

While especially shorter-dated yields rallied after the release, we would add that although there were voices that the Fed should exceed the “neutral” interest rate to cool the economy in the future, those voices will likely be muted by any major correction in financial markets or even a moderate slowdown in the economy.

Russell 2000, 4-Hour Chart Analysis

Stocks weathered the rise in yields so far, but after-hours, futures markets are drifting lower, and should yields resume their recent swift advance, another wave of selling could hit risk assets. With a lot of stocks and benchmarks still clearly in oversold territory concerning the short-term momentum indicators, the choppy correction could also continue, but we remain defensive towards global stocks, and we expect the risk-off period to continue in the coming weeks.

Dollar Extends Early Gains as WTI Crude Dips Below $70

Dollar Index (DXY), 4-Hour Chart Analysis

While the Dollar was already up in early trading against most of its major peers, it got a strong boost from the meeting minutes, with the Dollar Index climbing above the key support/resistance level near 95.50, establishing a swing low.

Barring a quick reversal, the Greenback headed for another important leg higher, and all eyes will be on the 1.15 level in the EUR/USD pair, as an extended move below that could open up the way for a strong momentum move in the USD. On a positive note, the most vulnerable emerging market currencies continue to perform well, in contrast with equities in the segment, and that could give some stability to risk-on currencies in the face of the broadly negative technicals

WTI Crude Oil, 4-Hour Chart Analysis

Commodities mostly finished the day with losses amid the rally in the Dollar, but while gold still only gave back a small part of its recent gains, oil plunged to a new almost one-month low, at least as measured by the WTI contract.

The Brent contract continues to outperform despite the easing of the US-Saudi tensions, but overall the risk-off shift in global markets is clearly hurting oil.  Copper is still stuck in a volatility compression pattern, but given the lengthy consolidation, a significant move is expected in the coming days by the industrial metal.

Featured image from 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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4.6 stars on average, based on 378 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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