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Who Let The Bulls Out?

This morning on chain's weekly newsletter for 08/11/2021.

Who Let The Bulls Out?
Photo by Hans Eiskonen / Unsplash
Top 5 Cryptos by Volume, Prices as of 08/11/2021

Photo by Jack Finnigan / Unsplash

Ethereum's "London" Update

This past week Ethereum rolled out a big update named “London”, we’re going to sum it up but first a few definitions.  A Hard fork is basically a permanent update; EIP is an Ethereum Improvement Proposal---just what it sounds like, it’s a proposal to update Ethereum; burning is destroying (or permanently locking away) tokens.  Since the update to the Ethereum protocol went live, there is roughly 3.7 ETH (~$10,000) being burned per day!  We breakdown each proposal below, but there is a summary at the end.  Here’s the nitty gritty details for each EIP:

  • EIP-1559: Changes that cut the cost of transaction fees; burning some of the fee so that the total supply of Ethereum starts to decrease.  People are really excited about what this means for the economics of ETH if the total supply starts to decrease because it’s expected to drive up the price.
  • EIP-3198: This is a companion to EIP-1559, it includes a basefee for use in the 1559 changes, and allows for return of fees beyond what was required to transact (one of the mechanisms making the cost more efficient).
  • EIP-3529: Changes some of the refunding mechanisms on chain.  In practice, the mechanism that this changes was causing large variances in block sizes (taking swings from ~50% to ~20%).
  • EIP-3541: Small change that identifies contracts running on the new protocol and enforces the change over.
  • EIP-3554: Delays the “difficulty bomb”, which is the cut over to Proof of Stake (PoS), which will take effect December 1st, 2021.  There have been multiple delays before due to PoS not being ready, but this is the shortest one so far.  This is a good sign that core developers are confident about PoS coming soon.

Bottom Line:  Ethereum rolled out some deflationary mechanisms and cost efficiency improvements, so it should cost less to do things in Ethereum and the value of each ETH should increase as the supply decreases.
If you want to read the details on all these proposals, here’s a link to the community project management post.


Crypto is taking off in the developing world

A key promise of crypto has always been the ability to easily cross borders and create stability in unstable economies.  Well, crypto is making good on that promise.  Recent reports show that there are now more crypto users in Nigeria than there are in the U.S. (1 in 3 in Nigeria vs 3 in 50 in the U.S.).  In the past year, crypto use in the developing world has exploded, here’s a few examples:

  • El Savador voted to make Bitcoin legal tender
  • Ethiopia partnered with Cardano to track student progress
  • Brazil’s trading volume is up 2,247% in the past year
  • Venezuelans have been fleeing hyperinflation by using bitcoin + lightning network

The big picture: There’s a lot of focus on the U.S. and China, but crypto may be making faster progress outside of the biggest economies.


Photo by Behnam Norouzi / Unsplash

Balance of Bitcoin on Exchanges Falls 4% at End of July

Previously, sudden large decreases in Bitcoin held in exchanges has correlated with increases in the price of Bitcoin. The thinking is that the Bitcoin that is in exchanges is intended for trading or converting to fiat, while Bitcoin that has been moved to cold storage is intended to be held long term.

According to Coindesk writer Myuao Shen, we can't be certain what a large decrease in Bitcoin balance on exchanges means for the price of Bitcoin.  The crypto economy is too diverse now to infer what decreases on exchanges means for Bitcoin.

For what it's worth, the price of Bitcoin has increased over 10% during early August trading. So while we can’t be certain of how large decreases on exchanges affect the Bitcoin price, we continue to see the trend that decreases on exchanges increase the price of Bitcoin.


Photo by Zbynek Burival / Unsplash

Rumor: Saudi Government Will Mine Bitcoin

Saudi Aramco, one of the largest companies in the world, is rumored to be investing in a Bitcoin mining operation. Saudi Aramco is an oil company that is 98.5% owned by the government of Saudi Arabia.

Currently, Saudi Aramco burns "flare gas," unwanted gas by-products of the oil refining process. Bitcoin blogger, Ray Nasser, believes the company will use this flare gas to generate electricity for mining Bitcoin. He claims that Saudi Aramco burns enough flare gas to power half the Bitcoin network. Several other gas companies have already begun to generate electricity intended for cryptocurrency mining using similar processes.

Saudi Aramco has denied that it will mine cryptocurrency. Historically, Saudi policy has been restrictive of cryptocurrency.

Today, most Bitcoin miners are believed to be in China, and China has massive influence on the Bitcoin economy. The Saudis could potentially dominate the Bitcoin network and alter the worldwide cryptocurrency economy. And they can do it with gas they burn to get rid of and technology in use at other companies.


Quick Non-Fungible Token (NFT) Check-In

Weekly NFT trade volume chart:

Observations:

  • Axie Infinity is blowing up!
  • NBA TopShot failed to bounce back. Is TopShot’s popularity seasonal, or is this the new norm?
  • CryptoPunks remains very popular

Most traded NFT projects with low market cap

These are the low market cap NFTs with the highest trading volume:


Photo by Maria Krasnova / Unsplash

Chia (XCH) Farmers Respond to Pools

Chia is a "Proof of Space" cryptocurrency that uses hard drive space instead of electricity to operate its network. In April 2020, Chia exploded in popularity, causing retail shortages of large capacity consumer hard drives.

The Chia version 1 release allowed enthusiasts, called "farmers," to use consumer-grade hardware to mine Chia paid in exchange for keeping hard drives online to operate the Chia network. Early adopters filled hard drives with Chia "plots" used to power the network. A standard plot is takes 101 GiB of hard drive space and several hours to generate. Generating Chia plots puts considerable wear on the hardware used--usually a Solid State Drive (SSD).

The original Chia network operates on a lottery that pays 2 XCH (~$530) at a time, but for non-commercial farming operations, it can take months to win. The new Chia software release allows farmers to create new plots and join pools that pay out smaller amounts more frequently and consistently. Pools and original plots will operate on the same network.

Earnings of a farmer with 1,000 plots, or roughly 6 16TB hard drives:

  • Old software: $530 per 2-3 months
  • Pools release: $7 per day

The Chia sub-Reddit surveyed farmers about their preferences following the pools release, here's the results:

  • Small farmers (less than 1PiB) are ~2.5x more likely to re-plot for pools
  • Large farmers (more than 1PiB) are split on whether they'll re-plot or continue with their original plots

This makes sense. Small farmers benefit from joining a pool because they will win more consistently, eliminating the variance in income. Large farmers already win daily and have less need to join pools.