A discussion about the 2018 shifts in currency value. “Money earned by luck, money lost by force.”
Here are the 10 events signifying the adventurous 2018
For most people in the world of the cryptocurrency, 2018 evokes convoluted emotions.
The year began in feverish optimism, as manic investors, dedicated to blockchain, discussed their ambitions of how blockchian was going to change the world, into the wee hours of the morning.
The year ended in a wave of pessimism, leaving once wide eyed idealists dismayed by the markets unforeseen vulnerability, with investors’ hearts mimicking the roller coaster slopes of market valuations. For many, while at the top, the downturn was unforeseeable.
Krypital Group experienced this year’s craziness by your side.
Here we will review the 10 most outstanding events of 2018.
This analysis is a self-reflection, the things we want to say to our clients as well as the industry as a whole.
We believe that a thorough understanding of past experiences will provide luminescence to otherwise tumultuous future events.
1. 3AM Sleepless Blockchain Communities
The mania created by the late 2017 bull market carried over to the 2018 Spring Festival. While people were still immersed in the holiday spirit and the fruit conferred by the bull market, a WeChat group called “3am Sleepless” rapidly spread among Chinese venture capitalists. Even people in the traditional finance and entertainment industry became aware of its existence.
At 3am February 11th, Hong Yu, the former manager of Game360 founded the 3AM Sleepless Blockchain Communities. Within a day, the number of members in the wechat group reached the upper limit 500.
Industry leaders and other group members took turns sharing their insights into blockchain applications and their predictions on future market trends. Within the group, the topics of trading and ICOs were restricted. The community was formed by industry pioneers, creating a centralized community for experts to discuss blockchain’s numerous technology applications.
From the beginning, 3AM Sleepless Blockchain Communities garnered celebrities like Nanpeng Shen from Sequoia, Hongwei Zhou from 360, Wensheng Cai from Meitu, Xiaoping Xu from ZhenFund; investors like Charles Xue; influential Chinese blockchain industry giants like Shuai Chu from Qtum, Robert Mao from Arcblock, Bo Shen from Fenbushi Capital, Weixing Chen, Shuoji Zhou from FBG, and even entertainment celebrities like Xiaosong Gao, Liya Tong, Yoona, and Geng Han.
It gained national acclaim in China’s blockchain community. People rushed in out of fear of missing the next lucrative investment opportunity. Some anecdotes only further fueled the mania. Chandler Guo, an Angel Investor in Bitcoin and Ethereum Classic startups, was kicked out the group after posting, “The greatest application of the blockchain technology is trading. I’m tired of all these boring discussion on the technology. I’m just here to make money.” He continued, “Without the consideration of making money, these discussions are utterly superficial.” The famous actor Liya Tong received the warmest welcome after joining the group. She said she was very flattered and only here to learn, subsequently sending out a ¥8,000 Red Pocket.
Experts used the platform to learn and share new knowledge. Media outlets obtained first-hand news and future maket insights. Venture capitalists were eager to gain acceptance into the group, hoping to learn the secret to becoming rich overnight. Con artists, on the other hand, developed fraudulent schemes under the group name. 3AM Sleepless Blockchain Communities became one of the most highly discussed topics in 2018. Suddenly everyone was aware of this Wechat group, and then one day, without warning, it faded away without a trace.
In the blockchain ecosystem, the community served the critical role of consensus building. Similarly, the helped the general public develop a better understanding of blockchain technology, fueling the industries application development. 3AM Sleepless Blockchain Communities, undoubtedly, set an exceptional example; however, its dwindling ending indicated a shift from intellectual curiosity to profit driven speculation. Ultimately, human greed found shelter under the veneer of an emerging technology.
As tokens issued by blockchain projects possess the traits of financial products, the tendancy for people to use them as speculative investments is unavoidable. 3AM Sleepless Blockchain Communities was an alarm for the entire industry as a whole. The blockchain industry must learn how to develop a real consensus, while avoiding over-speculation.
2. Public Chain Explosion
Although the term public chain is familiar, many people do not know its actual meaning. The public chain can be understood as the essential underlying system in the blockchain world. All decentralized applications based on blockchain technology require a public chain to provide the underlying technology. The concept is synonymous with other underlying technology infrastructures like Windows, MacOS, Linux, Android, etc. The public chain is the operating system of the blockchain world, so its importance is self-evident. Due to the industry’s immaturity, the battlefield of the public chain is highly competitive, with throngs of players competing to win the position of public chain industry standard.
The upheavals in the market at the end of April pushed the public chain battle to its peak, with numerous blockchain experts, industry big wigs, and media experts claiming that “2018 will manifest the explosion of the public chain.” Public chain tokens began to dominate the market in terms of market capitalization, with the projects maintaining a high development status.
With smart contracts, ETH represented the era of Blockchain 2.0 but was still unable to be applied to large-scale commercial applications due its insufficient TPS.
We are seeing the blockchain public chain projects develop in a way similar to operating systems. We require them to be safe, scalable, and decentralized.
● Scalability: the ability to handle large numbers of transactions every second
● Decentralization: the number of nodes involved in producing and verifying transactions.
The smartest minds and teams in the industry are trying to strike a balance between these three points, but have been unable to reach their desired standards. Krypital Group has participated in the incubation of Cybermiles, a public chain for e-commerce, Arcblock, invested in the development of Blockchain 3.0, and Echoin, an energy public chain.
The new generation public chains have made improvements to the older versions in terms of energy efficiency, the degree of decentralization, block production speed, underlying language, TPS etc. Even though it appeared that we were preparing for an explosion of public chains, the reality is less satisfactory.
Based on the data from DappRadar, EOS, ETH, and TRX are the most active public chains. While more than 1,000 Dapps were developed upon them, the total DAU was only about 80,000. According to data compiled from YiGuan on February 2018, the traditional centralized application WeChat alone had over 30 million DAU.
Youhuigou, an app most people have never heard of, ranking at 1,000, had 30,000 DAU. Even with a total market cap of over $10 billion and promising development status, EOS, ETH, and TRX are having trouble attracting users.
2018 was the year of the public chain. The fierce competition in the field fueled the development of new blockchain technologies; however, insufficient DAU became the primary problem. It was the root cause of blockchain’s lack of general acceptance, and it needs to be solved before blockchain can develop real-world applications on a large scale.
3. The death of forked BTC Forked Coin, BCH fork dispute
Hard Fork occurs when miners diverge on the blockchain protocol. When non-updated nodes refuse to validate the block produced by the updated protocol, a permanent divergence might happen and nodes will produce blocks on their own consensus, thus forming two separate chains and two different tokens.
It has been more than a year since the creation of tokens “forked off” from Bitcoin. As of today, most of them are rarely mentioned and many have completely disappeared due to the steep price drops.
In November 2018, the BCH hash war took “Fork” to the spotlight. From November 14–27thBSV began implementing reply protection. This hash war cost millions of dollars and caused an uproar in the entire industry.
The fork happened between Bitcoin ABC, led by Bitman’s Jihan Wu and BSV, led by CSW.
● The introduction of canonical transaction ordering
● The introduction of OP_DVS that improves the BCH scripting language to permit the validation of messages from outside the blockchain, with the goal of introducing non-cash transactions
● Allowed miners to mine blocks up to 128M in size
● Reactivated 4 additional Opcodes that allowed developers to do and build more on Bitcoin Cash
● Made BCH focus strictly on payments
A detailed comparison can be found in this article: 《BTC战争与进化》
At midnight 11/14/2018, the BCHABC and BCHSV chains diverged at block 556767. This is noteworthy because the two protocols are not compatible. They are two distict chains. The length of the chain and the most accumulated proof no longer constituted the node’s only judging criterion.
On 11/27/2018, BSV implemented reply protection, as a gesture of embracing a “permanent split from BCH.” Despite attacks, which chain stands out depends on a range of criteria. “The length of a chain, the accumulated proof of work, price, the size of the community, market cap, daily trading volume, and number of active addresses all serve as important factors in evaluating a chain’s data, healthiness, market acceptance and potential; however, the ultimate judgement comes from the chain’s real-world application.” https://www.blockob.com/posts/info/6188
Although the forks should have served as a mechanism reflecting the free-market of the blockchain world, this hash war did the opposite. It demonstrated that the influence of hashes is concentrated in the hands of few and showed how hashes are capable of manipulating the entire market, having negative consequences for the entire industry.
The hash war was a stimulus for BTC’s price plunge. Whether the two companies will obtain their objective of becoming the “global currency+ public chain” through different paths is yet do be determined.
4. Tether crisis and stable coins
It is important to find a relatively stable cryptocurrency within the mayhem of the volatile market. The cyptocurrency could serve as a medium of exchange, enabling key applications to be built upon blockchain. Since stable coins are deployed on the blockchain, they have several advantages including digitization, globalization, and ease of transfer. The increased transperancy and ability to audit within the open source networks increases the necessity to have stable coin values.
Tether launched USDT in 2014 and began trading in February 2015. The trajectory underwent multiple road blocks as Tether became entangled in numerous scandals involving price manipulation, blackbox operation, and others; however, due a lack of better options, USDT is still the most widely accepted stablecoin on the market.
Perhaps through hacking attacks, opaque audits of reserves, rumors of bankruptcy in Bitfinex, etc., the market's demand for transparent compliance and safe currency stabilization has risen sharply. So in 2018, we ushered in the insurgence of stable currencies.
Among them, there are fiat-backed stablecoins like Circle USDC, Gemini USD, TrueUSD and cryptocurrency-backed stablecoins like MakerDao DAI. There was also the creation of the new algorithmic stabilization coin project called Basis, which garnered much attention in 2018. Unfortunately, due to some unsolvable problems, Basis had to return the funds back to the investors.
We previously published an article that provides a more detailed introduction of stablecoins. Here’s the link: Stablecoin’s Past, Current and Future
5. Multinational policy change
The technical level, application scale, and price of the blockchain are the internal factors affecting the blockchain industry. Conversely, the country’s blockchain and digital currency policies are the external factors that effect the industries climate. Looking back to 2018, many countries and regions launched blockchain friendly policies, and others signaled positive future political transgressions.
We would like to use some countries as examples to provide insight into 2018’s shift in global blockchain policy.
Malta, a small Mediterranean country, has suddenly raised people’s awareness in the industry by becoming the headquarters of the largest global cryptocurrency exchange in the world. Such news is less surprising after examining Malta’s history of friendly blockchain policies. This 316 square kilometer country has a well developed financial services industry and is actively involved in the newest cutting-edge financial technologies. In 2013, Malta laid out a strategic blueprint for the blockchain industry, and in 2018 they passed three blockchain friendly initiatives to be set into the regulatory framework. These series of blockchain-oriented policies have made Malta the most blockcchain friendly country and won Malta the name “the future global blockchain center.”
On April 13, 2018, rumors emerged saying China was planning on setting up a free trade pilot zone in Hainan. Blockchain, as one of the new cutting-edge technologies, was projected to play an important role in that, with Baidu, 360 Blockchain, Xnet Blockchain, Huobi and other famous blockchain companies in China setting up offices in the area. On October 8th, a week before the General Office of the State Council officially unveiled their plan, the first blockchain lab in China was officially launched in Hainan. On October 10th, Hainan Resort Software Community jointly established the Oxford University Hainan Blockchain Research Center. During Huobi Hainan headquarter’s opening ceremony, its founder said, “Huobi believes that Hainan will become the next global financial center, synonymous with HK and Singapore’s position in the traditional finance world.”
As a major global economy, China plays a vital role in the development of the blockchain industry. Even though the blockchain industry is being tightly regulated in China, the establishment of this first Blockchain lab may be an indication of less stringent policies in the future.
In November 2018, the Hong Kong’s Securities and Futures Commission proposed a regulatory regime known as “sandbox” for crypto exchanges and related licenses. As the third largest international financial center in the world, Hong Kong possesses a mature and well-developed financial ecosystem. It adopted a “conditional supervision” policy similar to that of the United States, which sets an example for other countries in terms of how blockchain and cryptocurrency might be regulated. The friendly tone adopted by this financial hub is an indicator of positive global sentiment towards the cryptocurrency industry.
"Regulation" is meant to eliminate illegal behaviors, however, in the cryptocurrency market the word has obtained a high level of notoriety. Regulations are necessary in all industries, especially in emerging industries like Blockchain. The blockchain, an emerging industry, should actively embrace regulations and let the market standardize as soon as possible.
Looking back at 2018’s changes in global blockchain policy, the countries that previously had strigent regulatory policies in place gradually began to relax their policies and explore more localized regulatory modes of action, countries that previously exhibited ambiguity regarding their position on blockchain showed welcoming signs, and blockchain-friendly countries began to implement a series of standardized laws and regulations. 2018 was the most critical year in the history of global blockchain policy revision. It is apparent that with the support of international governments, the blockchain industry will usher in a new growth of opportunities.
We have also written an article that explores the boundaries between cryptocurrency and regulations : The events involving Elon Musk and Daniel Larimer can be used as an indicator for future industry regulations.
6. Fcoin — “Trans-fee Mining” Revenue model
2018 is the most extraordinary year for cryptocurrency exchanges. Whether it was through the industry unicorn Coinbase, Binance — which made the cover of Forbes magazine, the numerous decentralized, weak centralization, and AI exchanges, or the dark horse FCoin, the blockchain business model was repeatedly revolutionized, leaving a lot to contemplate in the aftermath.
Exchanges sit at the top of the pyramid in the cryptocurrency ecosystem, because of their high profitability and difficulty to operate. While established exchanges typically obtained the bulk of the profit margin, creating high barriers to entry, FCoin became the game changer.
On May 12, 2018, FCoin, founded by former Huobi CTO Zhang Jian, was born. With a series of innovations like the “Trans-Fee Mining” revenue model, FCoin quickly reached the top of every exchange ranking list. Less than a month after its launch, FCoin’s 24-hour trading volume reached 30 billion yuan, which is larger than the trading volume of the 2nd-7th exchanges combined.
In the world of cryptocurrency, a lot can happen overnight. In addition, FCoin constantly has new promotions, incentivizing users to check the exchange’s announcements every single day.
The trade method created by FCoin is mining mode. Each day, 80% of the previous day’s handling fees will be distributed to users in the form of FCoin platform FT. The FT price surge will attract a large amount of funds to flow into FCoin. Dividends reached a scale of nearly 100 million at the peak.
In order to avoid the loss of old users and attract new users, FCoin frequently releases new rules, such as the currency change test area, FCoin leveling fund, FT1808 warrants, etc. to try to build the FCoin brand through “good news” marketing. The aim is to obtain a thriving public opinion, leading to user retention.
FCoin’s new section, FOne, is highly autonomous but lacks regulation, making FOne a paradise for air coins. The major sponsor institutions and organizations listed a series of currencies with the aim of controlling and manipulating the market.
For example, an organization forcibly exploited the same blockchain game concept of Egretia, the world’s largest H5 game blockchain platform, forcibly applying the same pass name EGT, issuing air coins, trading on its platform, and deceiving many users. The real Egretia EGT Pass has never been announced on Fcoin’s platform. Later, Egretia did not receive any response from the platform and Fcoin did not take measures to stop such behavior.
According to Fcoin’s data on December 24th on Coinmarketcap, if it follows the reported volume, it can rank 23rd in the world, but if it is viewed from the adjusted volume, it is ranked only 216th. This can be explained by the numerous trading volumes generated through algo.
FCoin’s dazzling set of routines has made it the focus of the industry. The basis of FCoin’s model is to establish a user-centered ecological concept and introduce traditional enterprises into the world of blockchain digital currency through the form of currency reform.
But the end result proves that the design of the pass is not an easy task.
If users are not careful, they may fall victim to ponzi schemes.
These series of attempts has accelerated the transformation of the industry, making the exchange more focused on users as the core. Exchanges can no longer thrive on positive user benefits and experiences, alone.
The exchanges need quality projects, appropriate supervision, and strict screening, in order to bring in real prosperity and trading volume.
7. Bitcoin ETF Journey
Since 2016, organizations have begun to apply to the SEC for the launch of Bitcoin ETF or ETF-like products to reduce the gap between cryptocurrencies and traditional capital markets. Since the cryptocurrency market is not yet mature, the SEC has always been cautious. Here, we will briefly review the applications submitted so far:
The most recent one was launched by VanEck and SolidX in the form of a trust, 25 bitcoins per share, without any leverage, only held in stock, endorsed by the Chicago Board Options Exchange.
There is still a lot of uncertainty as to whether the application will be approved. SolidX reviewed the reasons previous projects were rejected and made numerous adjustments accordingly, such as obtaining prices from exchanges with monitoring mechanisms, setting investment thresholds, and improving the overall market environment. However, the SEC chairman said at the New York Consensus Conference that the SEC would not approve the Bitcoin ETF until the two issues of custody and price manipulation were resolved, and the decision time for its application was postponed until February 27, 2019. VanEck and SolidX have solved the problem as much as they possibly can under the existing conditions, but final approval is still dependant on changes to the entire market environment in the upcoming two months.
If the ETF is approved, it will undoubtedly bolster the entire market. The volatility of the overall currency price limits its universality in traditional buyers (such as pension funds), and the high barrier to entry is still not friendly to retail investors. However, this is the first step in getting cryptocurrencies to be widely recognized in the capital markets. The launch of Bitcoin ETF products will also deliver a lot of buyers directly to Bitcoin, and may even bring the entire secondary market out of the bear market. Therefore, in the currency circle, the SEC’s decision on the ETF is not an exaggeration.
8. The rise of STO
After the ICO market experienced a bull market for more than half a year, the sudden shift to a bear market in August resulted in many projects having difficulty obtaining financing. After the early frenzy retreat, the market slowly returned to calm and began to look at this emerging financing method critically. It is unknown whether the ICO will disappear completely, but the market has already expressed distrust of unregulated projects and the way in which large funds are allocated to projects without thorough scrutiny. By the middle of 2018, there had been several incidents of companies running away with investments, selling fake assets, fines, etc. As the bear market continues, it is believed that the more reprehensible project parties will be outed.
STO, a character that was previously ignored, began gaining prominance in the middle and late 2018. Most of the certificates issued by ICO projects are defined as Utility Tokens, which do not classify themselves as securities products to avoid the risk of supervision. The Security Token, which actively embraces supervision, defines itself as a security.
To put it simply, STO converts existing traditional assets such as equity, creditor’s rights, real estate, resources, etc. into collateral to become tokenized. After the chain is turned into a securitization certificate, this process must comply with the securities laws of various countries. We have previously analyzed the case of a ski resort in Colorado: Security Token Case Analysis: Aspen Coin — The First Real Estate Security Token Offering
If ICO is an unregulated utopia, the emergence of STO has brought digital currency and the traditional financial world closer together. The importance of infrastructure will be re-emphasized with the emergence of STO. Examples of these infrastructures include a compliant digital stock exchange, the establishment of a Custody Bank of Trustees, etc. We specifically wrote about the significance of the establishment of custodian banks for institutional investors and the industry: Custody, Return To The Spotlight.
But the future of STOs is not optimistic. There is a lack of high-quality projects with sufficient market infrastructure, solid investor attention, and appropriate liquidity. Due to differences in supervision, it is likely that countries will be unable to achieve global circulation in the short term. In general, the concept of the STO is still very immature. Whether the market will embrace STOs in 2019 is still undetermined.
9. EOS Gambling Dapp Booming
May 2017 — In May 2018, a year after the development of ICOs, EOS raised $4 billion and launched online in June. In April 2018, EOS’s value reached $21.46, which is groundbreaking for a project that has not launched online.
After EOS launched online, the price stabilized for over two months, but after mid-August, it began to usher in a wave of Dapp. The wave of Dapp can be attributed primarly to spinach games. Spinach games integrate perfectly with decentralization. Using smart contracts, it solved the drawbacks of online casino opacity centralization. Simultaniously, a wave of gameplay innovations was unleashed.
From poker to scorpion, platform mining, dividends and other mechanisms became highly utilized, causing EOS CPU resource shortages.The ecology of EOS began to boom due to real user participation.
Users began to experience problems with EOS, such as difficulty in opening accounts, lack of CPU, lack of smooth game experience, lack of security, and vulnerability to hacking. The EOS project has been controversial since its inception; however, its development was an important step in the development of the blockchain industry.
In order for public chains to have a future they must be user-involved, with active users and real-world transactions. By the end of the year, other public chain projects, such as Tron, began imitating EOS, starting with the spinach game, leading to improvements in public chain user activity.
10. Bitmain IPO
On September 26, 2018, the mining giant Bitmain China submitted an A1 prospectus document to the Hong Kong Stock Exchange, officially launching the Hong Kong Stock Exchange’s main board listing plan.
According to the data submitted in the prospectus, in the first half of 2018, Bitmain’s revenue reached 2.86 billion US dollars, net profit reached 743 million US dollars, an increase of nearly 8 times, and the global market share of cryptocurrency mining machine reached 74.5%. At the same time, according to the “2018 Second Quarter Hurun Greater China Unicorn Index” report released by Hurun Research Institute, Bitmain dominated the blockchain industry with a valuation of 70 billion.
A series of data shows that this five-year blockchain company has become a veritable industry unicorn. However, the “high profit”, “high market share”, “industry unicorn” aura around bitmain is highly tumultuous.
* Bitmain’s main income comes from mining machine, mining pool and mining site services. The share of mining machine sales revenue increased from 78.6% in 2017 to 94.3% at the end of June 2018.
- Bitmain holds a large number of cryptocurrencies dominated by BCH and BTC. The cryptocurrency assets account for 28% of the total value of the Bitmain. (Bit Mainland Hong Kong IPO Prospectus Data)
However, after the application of the IPO application by Bitcoin, the bear currency market underwent an exacerbated fall due to the impact of the BCH hard-forked computing power.
Bitcoin’s price fell below the models predicted, and the change in climate from the frenzied enthusiasm at the beginning of the year caused many mining machines to become discounted at 90%. (Although the R&D of new models undoubtedly contributed to the price drop older models, the market trends undoubtedly led to the accelerated discount of older models.)
The fall in prices caused the miners’ profits to shrink dramatically. From mid-November to the end of November, just 600,000-800,000 individuals stopped mining. The sharp drop in the operating rate led to a decline in the computing power of the entire network. As of today, Bitcoin has lowered the difficulty of mining for the second time, which has dropped by 31.5% from the record high set at the end of October.
This had a huge impact on Bitmain. At the same time, the cryptocurrency held by Bitmain was greatly affected by the collapse of the currency price. A series of bad news undoubtedly casted doubts on Bitmain’s practicality, sustainability and investor risk protection.
Due to the large association between Bitmain’s business profitability and the cryptocurrency market, the company is destined to be directly affected by the price of the currency. At the same time, a series of legal and regulatory issues have also greatly increased the uncertainty of the industry. PwC’s corporate client partner, Huang Yibang, stated, “the issue of legal and accounting definitions in the crypto-asset industry needs to be clarified. Together with the recent cryptocurrency price fluctuations, the company’s listing valuation, asset pricing and business value have changed significantly.”
The plunge in the price of the currency has had a serious impact on Bitmain’s plan to go public in Hong Kong, but Bitmain is also attempting to undergo a transformation. According to the prospectus, Bitmain plans to invest a percentage of the funds raised in the field of AI chips, hoping that its superior technical strength in ASIC chips will enhance morale and boost the IPO.
If Bitmain can be listed successfully, it will serve as a framework for future development of blockchain enterprises.
Even though Bitmain’s IPO application is still being processed, its technical strength in the chip field, its market position in the blockchain industry, and the recent shift in the Hong Kong Stock Exchange’s regulatory policy all signal a positive shift in the atmosphere of the digital currency indusrty.
The balance seems to be leaning towards the industry unicorn. Whether or not the IPO will succeed will be answered by the market next year.
Before the release for this article, the media reported that Bitmain began a new round of layoffs.
2018 is expected to be another extraordinary year for digital currency. Those who are not familiar with the industry will find it difficult to bare the emotional burden brought on by the roller coaster price fluctuations, but those who have felt the highs and lows of the bears and the bulls will propel forward with calm resolution.
The historic trends of 2013, 2014, 2017 are strikingly similar. In these years, positive technological developments mirror market spikes perfectly.
When the bull market starts, people are optimistic, and when the bear market starts, people are extremely pessimistic. These two states are not real or rational. Reality rests comfortably between these two states and is dictated by daily trading volume, not just price.
Those who have had a few years of experience in the field will find that this year’s bear market is very different from previous years. In previous years, after the onset of the bear market, business ceased. Industry players explored other industries, waiting for the prices to rebound.
In 2018, however, despite the onset of the bear market, companies and project continued innovating.
Compared to previous years, 2018 signified the emergence of excellent new projects, scientific research, and the beginning of the merging of blockchain with traditional institutions entering this field.
Industry players are hopeful but know not to be foolhardy.
Krypital Group will continue to contribute to the advancement of the industry in the future!
During this blistering winter, the Krypital family extends the warmest new year wishes to the entire blockchain community!