Best TruStories of the Week - #6


#42

Context: This TruStory builds on two previous analyses. Chris Burniske had recently written about how Network Fundamentals for both Bitcoin and Ethereum were down less than price. The previous analyses support both his claim.


Nevertheless, implicit in his argument is the idea that network fundamental values can be assessed by their usage (transactions or active addresses). That is the subject of the current TruStory.

Claim : Metcalfe’s law (and similar laws) nearly perfectly correlate with BTC’s USD price (as of Feb 9/10, 2018); which suggests that cryptoassets can be valued by their usage (daily transactions or active addresses).

Category : Network Valuation / Token Economics

Source : https://medium.com/@clearblocks/valuing-bitcoin-and-ethereum-with-metcalfes-law-aaa743f469f6

Evidence/ Argument : The following are two main claims the author makes

  • Claim #1 : Pearson correlation coefficients of Metcalfe formulas (transactions) with BTC USD price is nearly perfect
  • Claim #2 : Pearson correlation coefficients of Metcalfe formulas (active addresses) with BTC USD price is nearly perfect

See correlation with Metcalfe formulas (Transactions & Active Addresses) Source: https://medium.com/@clearblocks/valuing-bitcoin-and-ethereum-with-metcalfes-law-aaa743f469f6

My goal was to reproduce these numbers following the author’s logic. Here are the steps:

  • Download 10-year’s worth of Bitcoin’s Confirmed Transactions Per Day, Bitcoin’s Unique Addresses, Bitcoin’s Market Price (USD), and Total Bitcoins in Circulation (Supply) from https://www.blockchain.com/charts [select “All Time” to get 10-year’s worth of data]
  • Re-Create Metcalfe’s Law (M), variations (M1 – M3) and similar, but competing, laws (Sardoff’s and Zipf’s law) for both daily transactions and unique addresses (note: I used the exact formulas the author used). Then create the natural log of each number (see below).


Note: Orange columns represent the natural log of each number (i.e., Metcalfe’s, Sardolff’s and Zipf’s law and variants (M1-M3).

  1. Calculate the Pearson’s Correlation ® between Bitcoin’s Price (USD) and various measures of ‘usage’ (i.e., daily transactions, active addresses).


Orange rows represent the correlation after all numbers had been converted to their natural log scale.

  • Special notes for calculations:
    • The authors mention only having data for “every other day as opposed to daily which may affect precision”. This is necessary when downloading 10-year’s worth of data (2009 – end 2018); for datasets dating back a year or two, daily numbers are available. Source: https://www.blockchain.com/charts/

The authors omit days when the price of Bitcoin was at $ 0 (USD). I did the same, thus all analyses begin on August 16th, 2010 through December 22nd, 2018 (when Bitcoin’s price was higher than 0). This prevents price data from being unduly skewed towards zero.

c. The authors take the natural log of all their formulas because a Pearson’s correlation measures the linear relationship between two variables (i.e., fitting a scatter of data onto a straight line). However, telecom networks, and by implication, blockchain networks do not exhibit “linear” growth patterns. A casual glance at the ‘All Time’ graphs for Bitcoin’s Price, Daily Transactions and Unique Addresses reveal exponential growth. Therefore to find the Pearson’s correlation between price and usage, it is necessary to convert the formulas to their natural log scale.
i. Another way to think about this: When Bitcoin went from 90 cents (February 8th, 2011) to $1.95 (April 27th, 2011), that’s nearly a 100% increase in Bitcoin price. Nowadays, it takes a lot more to even get a 5% increase in price – a natural log scale accounts for the differences in scale.

Outcome of Calculations The authors report above average correlations between Bitcoin’s USD price and various Metcalfe formulas – on the linear scale – ranging from 0.56 – 0.64; I got a similar, but narrower range 0.59 – 0.60. When using the natural log, the authors report near perfect correlation between Bitcoin’s USD price and various Metcalfe formulas ranging from 0.92 – 0.96; I got similarly high correlations ranging from 0.92 – 0.95.

Status: Confirmed.

This analysis corroborates the author’s claim that Metcalfe’s Law (and similar laws) is a useful framework for valuating blockchain networks and lend credence to the idea that blockchain networks behave like telecommunication networks. So long as this continues, Metcalfe’s law can help analysts understand where the demand (usage) of blockchain networks and their price intersect and where one has “significantly outpaced the other” (https://medium.com/@clearblocks/valuing-bitcoin-and-ethereum-with-metcalfes-law-aaa743f469f6) as Chris Burniske had done in his follow-up analyses.

Addendum : Because Metcalfe’s law suggests that as a blockchain network expands in scale, it behaves more like a telecommunication network. I’d argue this is one way of valuing ‘network effects’. A cool analysis would be to compare the correlations between price and usage between 2010 – 2014 and 2015 – 2018 and see if there’s a significant difference between the two. I would expect to see stronger correlations for the latter years (as network size had increased).


#43

Claim: China’s New Cryptocurrency Ratings See BTC Slip While Embattled EOS Maintains Number One

Category: Governance

Source: https://cointelegraph.com/news/chinas-new-cryptocurrency-ratings-see-btc-slip-while-embattled-eos-maintains-number-one

Evidence/Argument:
China’s Center for Information and Industry Development (CCID), under the Country’s Ministry of Industry and Information Technology, has been providing Global Public Blockchain Technology Assessment Index (GPBTAI).
The latest 8th Issue of Global Public Blockchain Technology Assessment Index was releases on Dec 20, 2018.

On translation the reference page you can find the previous versions listed.

Status: Confirmed

Reference:
http://special.ccidnet.com/pub-bc-eval/index.shtml


#44

Claim: Binance CEO Confirms XRP Will Be Added As A Base Pair

Category: Token Economics

Source: https://ethereumworldnews.com/xrp-base-pair-binance-changpeng-zhao/

Evidence/Argument:
As per official binance announcent binace has added two trading pairs.
“Binance Adds TRX/XRP and XZC/XRP Trading Pairs”

Status: Confirmed

Reference:



#45

Claim: Bitcoin blockchain is now broadcasted from space to all of Earth’s major land masses

Category: Use Cases

Source: https://cointelegraph.com/news/blockstream-launches-5th-satellite-streaming-bitcoin-blockchain-from-space

Evidence/Argument: On August 15, 2017 Blockstream announced the launch of Blockstream Satellite which aims to make Bitcoin accessible for people who are not currently connected to the Internet, due to lack of availability or affordability. They broadcast real-time Bitcoin transactions and blocks from a group of satellites in space. According to World Economic Forum there is an estimate of four billion people who don’t have internet access so this initiative might bring us closer to banking the unbanked though I haven’t found numbers yet on how many people are actually using it (maybe part of another claim).


Blockstream announced it has leased a fifth satellite on Dec. 17, which is being used to broadcast the Bitcoin blockchain to the Asia Pacific region, in addition to existing coverage over Africa, Europe, South and North America. See below coverage map

Status: Confirmed


#46

Claim: Cryptojacking (a type of Cryptomining malware) activity is up 4,000% in 2018

Source: https://cointelegraph.com/news/crypto-mining-malware-up-over-4-000-in-2018-says-mcafee-report

Category: Mining

Argument/ Evidence:
(1) The McAfee Labs Threats Report (Dec 2018) cites 4,000% increase in cryptojacking software in 2018. Report >>(https://www.mcafee.com/enterprise/en-us/assets/reports/rp-quarterly-threats-dec-2018.pdf?clickid=0g-2NcXSPw3EQc9V3qSG4zQCUkgW1%3Ayc1z8Ly00&lqmcat=Affiliate:IR:null:74047:10078:10078:null&sharedid=)
image
Source for Data Analysis: Malware data comes from the McAfee Sample Database, which includes malicious files gathered by McAfee spam traps, crawlers, and customer submissions, as well as from other industry sources.
McAfee does not share more specifics on how data source and analysis.
(2) Other reports also cite an increase in cryptomining malware. A recent Cyber Threat Alliance (CTA) report (Sep 2018) indicates a massive 459% increase in the rate of illegal cryptojacking from 2017 to 2018.
(3) Another report from Semantec (Sep 2018) also shows that sharp rise in cryptojacking detections during 2018.
While several sources discuss the rise in cryptomining malware in 2018 (key takeaway), we cannot actually confirm the validity of the statistic 4000% increase in cryptojacking since this is based on McAfee’s Sample Database and analysis.

Status: Unconfirmed


#47

@paulapivat can you explain how you got the 0.59 - 0.60 and 0.92 - 0.95 results? I didn’t see that in the spreadsheet.


#48

Claim: Lightning Network hits a milestone with a “micropayment auction” of art piece sale for $0.000000037

Category: Scaling

Source: https://bitcoinist.com/lightning-network-black-swan-cryptograffiti/
A ‘Black Swan’ art piece by Cryptograffiti has auctioned to the lowest bidder for a milli-satoshi or just $0.000000037 thanks to the Bitcoin Lightning Network, making the winning likely the world’s cheapest auction.

Evidence/Argument:

cryptograffiti was one of the earliest artists in the cryptocurrency space. His work is dedicated to spreading the crypto/blockchain movement.

A micropayment is a financial transaction involving a very small sum of money and usually one that occurs online. A number of micropayment systems were proposed and developed in the mid-to-late 1990s, all of which were ultimately unsuccessful. A second generation of micropayment systems emerged in the 2010s and some of them are based on blockchain technology which has micropayments as one of its use cases.

The auction mentioned in the source is listed in his site - https://cryptograffiti.auction/

This is the reddit post which has the video of how the cryptograffiti is made
1,297 votes and 134 comments so far on Reddit

Since it is bitcoin lightning network transaction the transaction itself won’t

be recorded on bitcoin blockchain. But this is the lightning invoice screenshot I could find from the blockstream site. I could not find more details on the channel id or node public key etc for this transaction other than the details found in this screenshot.

@DanielKoff Do you know how to find more details of this transaction from https://1ml.com/

The reason this is mentioned as a milestone in Lightning Network is the lowest denomination which could attain with this micropayment.
The bid was opened for 1 milli satoshi which is 0.00000000001 of a bitcoin
or $0.000000037

Status: Confirmed.


#49

Claim: Bitcoin can be mined by using software written in a language not based on Satoshi’s original code, which was in C++

Category: (Mining)

Source: https://news.bitcoin.com/btc-com-mines-first-ever-block-with-software-not-based-on-satoshis-original-code/ March 14, 2017

Evidence/Argument:

Status: Confirmed


#50

Claim: The investment firm, Grayscale, owns over 1% of circulating BTC supply

Category: Crypto funds & fundraising

Source: https://www.reddit.com/r/CryptoCurrency/comments/a30wsd/grayscale_continues_buying_bitcoin_while_fools/

Evidence/Argument: Gathering data from Grayscale’s website, as of Dec 24th,

|Shares Outstanding|205,047,600|
multiplied with
|Bitcoin per Share|0.00099063|

equals to total of 203,126.304 Bitcoins. Total circulating supply of Bitcoin, as per coinmarketcap, is 17,441,625. Thus, Grayscale holds around 1.16% of total circulating supply. However, it doesn’t own this as a company but holds it on behalf of the investors. But if we get in the argument, private keys = ownership, then they hold the private keys and thus can be called owners.

Status: Confirmed
with modification - Claim to be modified as ‘holds’ instead of ‘owns’ to avoid ambiguity


#51

@preethi this chart contains the different correlations I got. The two upper green rows represent the correlations before adjusting all numbers to their natural logs. The bottom orange rows represents the natural log adjustment.

You note the correlations on the green rows are lower ranging from 0.59 - 0.75, depending on if ‘usage’ is represented by daily transactions or active addresses (these correlations are still high compared to what you’d normally find in the social sciences). When adjusted to their natural log (orange rows), the correlations range from 0.92 - 0.95.

Each column is taken by correlating BTC’s USD price with one Metcalfe’s law (i.e., network activity squared) or a variation of it (M1-M3) or one of the competing, but similar laws (Sardoff’s and Zipf’s); I used the exact formula the author provided in the article.


#52

@paulapivat thank you!! this is much more clear. if you’re comfortable, would love to see the link to the spreadsheet (in case others want to independently verify the calculations themselves).


#53

Sure thing, discourse won’t allow me to post excel files, so I posted it in our slack channel :+1:


#54

Claim – Bitmain is laying off massive number of employees immediately due to serious financial problems in the company.

Category – Mining

According to a local source jinse.com/lives/72815.htm (google translation):

  • “Media confirmed large-scale layoffs in Bit China Beijing company or 700 people According to the Shenzhen-Chain financial news, it has confirmed the massive layoffs in Bitmain, and its Beijing company has cut 700 people. On the evening of December 23, Shenzhen-Finance asked the employees of Bitco, who revealed that the current mainland is actually laying off employees, and all departments will be laid off. The Beijing company will only stay around 300 people, but the list of layoffs is still not official. Ok, everyone is waiting for the official notice. According to insiders, there are more than 1,000 employees at Bitmain China’s Beijing headquarters. It is reported that the Bitland prospectus disclosed that as of June 30, 2018, there were 2,594 full-time employees in Bitmain”

There are good reasons to believe that Bitmain is experiencing financial trouble. Rumors and analyses of their IPO documents have suggested that the company is losing a huge amount of money. Simultaneously the Hong Kong Stock Exchange expressed a reluctance to allow Bitmain to IPO, citing regulatory issues.

  • “According to a report published by the South China Morning Post , the Hong Kong stock exchange regulator is fidgety about approving an IPO related to the cryptocurrency market given its tempestuous nature which has seen many companies close shop in recent months following an unprecedented price dip. It led to many cryptocurrencies losing over 75 percent of their value within weeks and crypto mining becoming largely unprofitable. - coincentral.com/bitcoin-mining-company-bitmain-faces-ipo-regulatory-issues/

  • “Fresh rumors over the financial health of Bitcoin mining giant Bitmain cast a shadow over the company again this week, suggesting it faces losses close to $1 billion.” - bitcoinist.com/bitmain-death-bitcoin-cash-crash/

  • Bitmain is also said to have fired its entire BCH development team. - cointelegraph

Several experts have suggested that Bitmain has lost hundreds of millions of dollars as a direct result of their purchasing and supporting Bitcoin Cash.

  • “Its $328 million initiative to acquire a Bitcoin Cash stash is also deemed to have backfired and now, investor capital injection is crucial for its survival.”

If true, then Bitmain’s firing of the BCH development team may have been a direct response to the major losses associated with the BCH experiment.

Sources:
https://www.jinse.com/lives/72815.htm



https://coincentral.com/bitcoin-mining-company-bitmain-faces-ipo-regulatory-issues/

https://www.ccn.com/bitcoin-mining-giant-bitmain-closes-israeli-branch-amid-market-woes/

Status: Partially confirmed. While it has been officially confirmed that Bitmain has fired hundreds of employees this week, there is no official confirmation that this is the result of financial trouble. However, there is very good evidence to suggest that Bitmain is in serious financial trouble given that the company may have lost as much as $750 million on the Bitcoin cash experiment. Furthermore, there is good reason to believe that Bitmain will not be allowed to IPO, which will prevent the company from gaining access to public market liquidity during a time when cashflows may be severely negative.

Given that Bitmain’s layoff announcement has come immediately following news that the IPO may not receive approval, it would make sense for Bitmain to be performing massive layoffs to preserve cash - especially amidst this (very cold) crypto winter.

P.S. As major BCH token holders, the pain for Bitmain has not stopped. As of 10pm EST on Dec. 24th, amidst a broader rout of the market, BCH is down sharply. I hope none of you are BCH holders.


#55

Claim: After spending decades as the dominant global reserve currency, the dollar’s position is being challenged.

Category: Governance

Source: https://www.nytimes.com/2018/12/18/business/dealbook/digital-reserve-currency.html

Argument/Evidence: According to Bloomberg Business week "Now the dollar paradox shows signs of unraveling. Political leaders who once accepted the dollar’s hegemony, grudgingly or otherwise, are pushing back. Jean-Claude Juncker, the president of the European Commission, said in September that it’s “absurd” that European companies buy European planes in the American currency instead of their own. In March, China challenged the dollar’s dominance in the global energy markets with a yuan-denominated crude oil futures contract. Russia slashed its dollar holdings this year, claiming (inaccurately) that the greenback is “becoming a risky instrument in international settlements.” And French Finance Minister Bruno Le Maire told reporters in August that he wants financing instruments that are “totally independent” of the U.S., saying, “I want Europe to be a sovereign continent, not a vassal.” https://www.bloomberg.com/news/articles/2018-10-03/the-tyranny-of-the-u-s-dollar

Status: Confirmed


#56

Great pointing out Russia’s inaccurate claim. Great Trustory.


#57

Claim: Roger Ver plagiarized Lee Camp’s Tweet about industries lobbying against legal marijuana.

Source: https://twitter.com/arjunblj/status/1077959131007516673

Argument/Evidence: Original tweet by Lee Camp: https://twitter.com/LeeCamp/status/1077685164430508033. Roger Ver’s plagiarized tweet: https://twitter.com/rogerkver/status/1077924387137904640

Status: Confirmed


#58

Have you/anyone tried updating this data set and tested correlations up to a current period?

Additionally, I would think that having data for “every other day” would significantly alter the findings compared to having the data for every day. Furthermore, I don’t understand why the author wasn’t able to get data for every day, as it is surely out there. Just through using Coinmetrics, you can put the data in an excel spreadsheet for BTC going back until January 2009.

I agree that further analysis on the relationship for different periods would be useful.


#59

Claim:

Bithumb Exchange wins court ruling in case of Crypto Investor’s $355K Hack

Source:

Category: Regulation

Evidence/Analysis:

Local Korean Financial Newspaper

Several local sources reported that Korean court ruled in favor of Bithumb not responsible for compensation for user loss of assets due to hacking.

However, couldn’t search relevant court decision yet, via Korean Comprehensive Legal Information System site:

https://glaw.scourt.go.kr/wsjo/intesrch/sjo022.do

Status:

Unconfirmed (tending to be true)


#60

Claim:

OKEx allows users to lend assets to margin traders in exchange of earning interest.

Source:

Category: Crypto funds & fundraising

Evidence/Analysis:

Official Announcement of margin loaning rewards scheme – OK PiggyBank https://support.okex.com/hc/en-us/articles/360021314511

Status: Confirmed


#61

Claim: Selfish mining (which is an attack strategy mining pools can use where they keep blocks they discovered private and reveal them at just the right time to convince the current public chain that their private chain is the longest one) has been proven in theory but never has happened in practice.

Source: https://www.cs.cornell.edu/~ie53/publications/btcProcFC.pdf

Argument/Evidence: The paper linked above goes into depth about how the Selfish mining strategy works, and how it theoretically makes Bitcoin NOT incentive-compatible. To summarize, the selfish mining is where:

The key idea behind this strategy, called Selfish Mining, is for a pool to keep its discovered blocks private, thereby intentionally forking the chain. The honest nodes continue to mine on the public chain, while the pool mines on its own private branch. If the pool discovers more blocks, it develops a longer lead on the public chain, and continues to keep these new blocks private. When the public branch approaches the pool’s private branch in length, the selfish miners reveal blocks from their private chain to the public.

[…]

We show that, above a certain threshold size, the revenue of a selfish pool rises superlinearly with pool size above its revenue with the honest strategy. This fact has critical implications for the resulting system dynamics. Once a selfish mining pool reaches the threshold, rational miners will preferentially join selfish miners to reap the higher revenues compared to other pools. Such a selfish mining pool can quickly grow towards a majority.

[…]

Since a selfish mining pool that exceeds threshold size poses a threat to the Bitcoin system, we characterize how the threshold varies as a function of message propagation speed in the network. We show that, for a mining pool with high connectivity and good control on information flow, the threshold is close to zero. This implies that, if less than 100% of the miners are honest, the system may not be incentive compatible: The first selfish miner will earn proportionally higher revenues than its honest counterparts, and the revenue of the selfish mining pool will increase superlinearly with pool size.

The paper goes on to show the theoretical proof of these claims on the feasibility of these attacks. Despite the fact that this attack is theoretically possible, it is quiet FASCINATING to see that this attack has not happened (yet) in the Bitcoin network.

Couple guesses I have as to why:

  • Even though this attack is possible in theory, in practice this type of attack may be very difficult and expensive to coordinate?
  • The consequences of the public network finding out about this type of attack would undermine the Bitcoin system, and hence make the whole attack pointless?
  • Perhaps this attack HAS happened or is happening, and we just don’t know?

Status: Confirmed