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6. 13/02/2019 21:54
Take Two: Ethereum Is Getting Ready for the Constantinople Hard Fork Redo

Such are the words of wisdom that have been taken to heart by ethereum core developers ever since a vulnerability in the network’s code was discovered just 48 hours before the code was set to be deployed.

The network upgrade dubbed Constantinople would have introduced a series of backward-incompatible changes – also known as a hard fork – to the world’s second largest cryptocurrency by market capitalization. Yet the bug discovered led to a delay, followed by a plan to try once again in late February.

With the code expected to activate sometime during the last week of February – specifically, at block number 7,280,000 – ethereum core developers are confident that Constantinople won’t fail this time around.

“I suspect it will go as planned. The block number has been set and [the upgrade] is hard coded in the clients now so it’s going along fine,” Hudson Jameson, who handles developer relations for the Ethereum Foundation, told CoinDesk.

Adding that “valuable lessons” are learned from every hard fork, Jameson said that one of the important takeaways from last January’s hard fork attempt was “better communication with miners to let them know about the upgrade.”

While the issue in the code wouldn’t have impacted miners directly, miners and other users who run complete copies of the ethereum blockchain called nodes needed to be swiftly notified about the cancellation of Constantinople to keep it from actually being deployed and creating possible disruptions.

On this front, the smart contract security audit firm ChainSecurity, which discovered the vulnerability, told CoinDesk the organization of ethereum developers was already quite impressive.

“I was just impressed by how quickly everyone reacted and how well organized everyone reacted,” said CTO Hubert Ritzdorf. “Many people had to update so they had to know what to update to. On many different levels it became clear even though there is no central command, the [ethereum] community collaborates very efficiently.”

Called Ethereum Improvement Proposals (EIPs), four out of five EIPs will actually be activated on the main network, or mainnet. And for all technical purposes, the upgrade will be deployed in two parts – simultaneously.

Say hello to ‘Petersberg’

Developers proposed during a meeting late January to table the EIP temporarily and proceed with the rest of Constantinople as planned, determining that a fix to the buggy EIP – EIP 1283 – would delay activation of ethereum’s planned hard fork for too long.

However, given that several test networks on ethereum including Ropsten already activated Constantinople in its full glory before the security vulnerability was found, ethereum core developers also agreed that a second hard fork safely removing the EIP was needed.

Thus, “Petersberg” was born.

Already released on Ropsten, Petersberg is the informal name of the hard fork specifically designed to remove EIP 1283 from a live ethereum-like network. Later this month, the original Constantinople code will be activated on mainnet in conjunction with Petersberg.

“For all practical means for any developer out there on the mainnet, there will not have been Constantinople really, just Petersberg … Technically in the code, you have two conditions,” ChainSecurity COO Matthias Egli explained. “One says Constantinople gets active at block number [7,280,000] and at the same block number Petersberg gets activated, which takes precedence over Constantinople and immediate supersedes it.”

And in terms of what’s left to be done for Petersberg launch on mainnet, Jameson said that all of the testing for its release has been completed and major software clients including Geth and Parity are ready to deploy on the agreed-upon block number.

Now, as emphasized by ethereum security lead Martin Holst Swende, users of ethereum should be aware of important changes to the ethereum network as a result of Constantinople plus Petersberg.

The new ‘corner case’

Tweeting out a questionnaire for users last Thursday, Swende noted that after Constantinople, smart contracts on ethereum considered to be virtually immutable will be able to change code under certain conditions over the course of multiple transactions.

The new feature introduced through EIP 1014 – called “Skinny CREATE2” – is intended to better facilitate off-chain transactions on ethereum by allowing what Ritzdorf describes as “deterministic deployment.”

“When you deploy a new smart contract on ethereum, what happens is that it computes the address to where the contract will be deployed. You know this ahead of time but it depends on a lot of variables,” Ritzdorf told CoinDesk. “CREATE2 makes it easier to say, ‘We will deploy in the future a contract to this particular address.”

As a result of this, Ritzdorf explains smart contract developers could technically deploy contracts for “the second time” to the same address, noting:

“[After Constantinople] you can change code because you can first deploy to that address, destruct the code and then deploy again.”

Egli highlighted that this is “not a security bug” but rather “a corner case” that developers on ethereum should be wary of once the changes are going live. He added that continued education from auditors in advance of February’s hard fork is needed about the other four EIPs originally set for inclusion in Constantinople outside of EIP 1283.

Users anticipating the launch of Constantinople can either go to forkmon.ethdevops.io or Ethernodes to watch the release in real time. A number of other sites are also available for live metrics including mining hashrate and market prices.

According to one hard fork countdown timer created by Afri Schoedon, release manager for the Parity Ethereum client, Constantinople plus Petersberg is estimated as of press time to go live on Thursday, February 28.

7. 12/02/2019 21:34
Two Public Pensions Anchor Morgan Creek’s New $40 Million Venture Fund

Two public pension funds are dipping their toes into the world of crypto venture capital.

“As far as we know, nobody has raised money from a public pension,” Anthony Pompliano, partner at Morgan Creek Capital, told CoinDesk in an interview.

Morgan Creek, an asset manager focused on institutional clients and family offices, announced Tuesday a new crypto-focused venture fund with $40 million invested. The two public pensions anchoring the fund are Fairfax County, Virginia’s Police Officer’s Retirement System and Employees’ Retirement System.

Speaking to the conservative bent of those involved, the new fund’s investors also include a university endowment, a hospital system, an insurance company and a private foundation.

“Blockchain technology is being applied in unique and compelling ways across multiple industries,” Katherine Molnar, the chief investment officer of the Fairfax County Police Officer’s Retirement System, said in a press release. “We feel it is important to be opportunistic and are excited to participate in this emerging opportunity, due to the attractive asymmetric return profile that it represents.”

As of their most recent financial statements, the police pension fund has $1.45 billion in assets, while the fund for Fairfax government employees has $4.25 billion. While both come from the same geographic area, they are separate funds with separate investment committees, Pompliano noted.

The size of the two funds helps to illuminate the potential of bringing public pensions into blockchain investing. Such entities can take large positions in crypto funds using a very small portion of their assets under management.

We’ve previously seen major pension funds discuss crypto as an alternative investment strategy. Most notably, the California Public Employees Retirement System (CalPERS) considered it as far back as 2016. In fact, a retirement system in Ontario, Canada, took part in an investment in decentralized marketplace Open Bazaar through its own VC firm.

Still, this is very early days for pension funds picking up opportunities focused on cryptocurrency.

Selling pensions on crypto

Morgan Creek’s new fund will primarily make seed investments in equity, Pompliano explained, though in certain limited cases it will also invest in token-based projects that don’t create equity opportunities but do have cash flow. It will also hold a small amount of key cryptocurrencies.

Public pensions face an uphill battle meeting their obligations over the coming years, Pompliano said, finding that such organizations are looking to diversify beyond traditional stocks and bonds. That’s how the Morgan Creek team pitched taking a small position in the blockchain industry.

“The belief is this gives them great exposure to what we believe are some of the best risk-mitigated opportunities in a nascent industry,” Pompliano said.

The fund has already closed deals in some of the most established names in crypto, including CoinbaseBakktBlockFiTrustTokenHarbor and Good Money, among others.

“You can take a small amount of capital, you can put it in a nascent industry, you can manage your risk correctly but also get exposure to true innovation,” Pompliano explained.

Morgan Creek’s new fund will primarily seek opportunities in equity, but it’s open to some small number of security token opportunities that provide cash flow, so long as they fall under the U.S. Securities and Exchange Commission’s regulation D, which allows a smaller company to sells securities that are exempt from the larger filing requirements of a traditional public offering.

It’s been key, Pompliano explained, to be thoughtful about an investment portfolio that makes sense for well-established investors with a long view.

Even still, it took time to find executives in the pension space willing to be very early – a point Morgan Creek partner Mark Yusko has spoken to. In a statement he said:

“We are proud to partner with these investment professionals who have shown an ability to be forward-thinking and innovative.”

8. 10/02/2019 20:09
High School Team Places Third in Barclays Blockchain Challenge Event

If understanding how distributed ledger tech works inside banks is complex, finding ways to make different varieties of enterprise blockchains talk to each other is a doozy of a challenge.

And yet, that’s exactly what a team of high school students – soon to sit their A-Level exams in computer science – has done. The team, from Bedford School in the U.K., won third place in a blockchain interoperability hackathon hosted by London-based blockchain startup Clearmatics at the Barclays Risefintech hub in London.

The challenge set by Clearmatics, which is behind projects such as the Utility Settlement Coin banking consortium, was to use the company’s Ion interoperability protocol to get two blockchains (such as Hyperledger Fabric and ethereum) to exchange data, verify transactions etc.

The team of computer science students were up against teams of blockchain experts from banks like Santander and Barclays as well as seasoned startups such as Web3j and Adhara. In a way, the win underscored the diverse level of interest in the technology as well as the generational evolution taking place with new entrants in the ecosystem, so to speak. 

Dr. David Wild, head of computer science at Bedford School, said the team knew nothing about enterprise blockchain technology just two days before the event.

Drawing on his past experience working with educational software, the teacher suggested a smart contract design to share exam results between schools, exam boards and university admissions bodies, which would do so in a less fragmented and interoperable manner. The students agreed on the pitch and between them created a working solution using the Ion framework.

Wild said coming to the blockchain interoperability challenge with a naive point of view turned out to be refreshing and useful, adding,

“If you are writing a piece of software say, you want somebody who is naive to use it because they tend to use it in the ways that you wouldn’t imagine.”

Accepting the prize, one of the students said the team managed some of the steep learning curve coming to and from the two-day event.

“We learned quite a lot about Solidity and smart contracts on the train,” they told CoinDesk. 

9. 08/02/2019 22:02
Winklevoss Ordered to Pay $45K Worth of Charlie Shrem’s Legal Fees

Investors Cameron and Tyler Winklevoss have been ordered to pay back $45,000 in legal fees incurred by entrepreneur Charlie Shrem as part of an ongoing lawsuit that alleges he failed to broker a series of promised cryptocurrency purchases on their behalf.

In the order, filed in the U.S. District Court of the Southern District of New York on Thursday, Judge Jed S. Rakoff ruled Shrem should be reimbursed for a prior court ruling that gave the plaintiffs the ability to seize up to $30 million worth of his assets.

The initial order was rolled back on November 8, at which point Shrem filed a motion to recoup attorney’s fees and related costs to defending the motion.

Lawyers for Winklevoss Capital had attempted to argue Shrem should not recoup the funds for his costs, as he was only ultimately only charged a “de minimis amount” of less than $5. The court, however, ultimately rejected the idea this invalidated Shrem’s claim, though the judge found the requested damages should be reduced by 40 percent on reviewing the charges.

Brian Klein, partner at Baker Marquart LLP, said of the ruling:

“We are glad that the judge ruled for Charlie and ordered WCF to reimburse him for legal fees he incurred in overturning WCF’s approximately $30 million attachment order. This is another big step towards his full vindication.”

Overall, the court filing is the latest in a recent lawsuit that has pitted three high-profile cryptocurrency industry personalities and former business partners against each other in the headlines.

Winklevoss Capital was previously an investor in Shrem’s first startup BitInstant, an early cryptocurrency exchange that was one of the most public before its eventual shut down in 2013. Shrem was later found to have violated anti-money laundering rules during his tenure as CEO, for which he would ultimately serve a one-year prison sentence.

A trial is now set to hear further arguments in the ongoing lawsuit this June.

10. 06/02/2019 13:27
Winklevoss Exchange Gemini Shuts Down Accounts Over Stablecoin Redemptions

Two over-the-counter trading desks say their accounts at Gemini, the crypto exchange founded by U.S. investors Cameron and Tyler Winklevoss, were abruptly closed without explanation over attempts to redeem GUSD, the company’s stablecoin first introduced in September.

The claims leveled against Gemini by the OTC desks, relayed under anonymity due to fears of reputational damage, hint at the business practices developing within the stablecoin market itself, now estimated to be worth nearly $3 billion.

In one instance, email correspondence obtained by CoinDesk shows an OTC trader based in Latin America had his account closed after he informed Gemini that he planned to redeem several million dollars of GUSD. (A major cryptocurrency exchange, speaking on condition of anonymity, attested to the desk’s professionalism and reported that it was in good standing.)

Still, Gemini said in a statement to the trader that a review “determined [the] account must be closed” and that it was “not able to elaborate on the specifics for this decision.”

When contacted by CoinDesk, Gemini declined to comment on the incidents.

However, the actions may hint at how measures taken by Gemini to boost GUSD adoption have had unintended impacts in practice. In a bid to capture market share, Gemini issued roughly 1 percent discounts on GUSD in 2018 to OTC desks and market makers, who were then made to agree on restrictions that would bar them from immediately redeeming the assets.

According to the trader based in Latin America, Gemini pitched the company on a discount deal that offered his firm the ability to buy tokens at below market value. (The company declined because the desk wanted to obtain GUSD so that it could be transferred to fiat.)

When the desk later acquired GUSD from its own network, the trader said he was warned by Gemini staff that redeeming millions of dollars would harm the stablecoin.

In another instance, a U.S.-based OTC desk told CoinDesk its Gemini account was promptly shut after redeeming several million GUSD. He now believes this was part of Gemini’s strategy to “maximize their status on CoinMarketCap.”

The trader provided emails to CoinDesk that show how Gemini closed the account without offering any reason, days after the desk redeemed GUSD.

These issues are so widely known that an OTC desk with an active Gemini account told CoinDesk he’s reluctant to redeem GUSD for fear of jeopardizing his account.

The trader told CoinDesk:

“So many players are unable to redeem, even very, very big OTC desks. Having an account doesn’t guarantee redeemability.”

Iced out

The fact that cryptocurrency traders are frustrated with Gemini’s offering is perhaps nothing new, as the exchange isn’t shy about its preference for institutional Wall Street traders, even launching a pricey ad campaign this year to promote itself as a “regulated exchange.”

In response to inquiries about such claims, Gemini submitted the following statement:

“Gemini is a New York trust company. As a result, some potential customers will be unable or unwilling to pass our robust compliance program. This is a feature, not a bug, and what makes Gemini different. We understand this may frustrate some, but this is necessary to build trust in the future of money.”

Gemini told CoinDesk the company has redeemed more than $133 million worth of GUSD, over half the supply created so far, with clients redeeming up to $40 million at a time.

Furthermore, a representative from a proprietary trading firm who uses the Gemini platform to trade and redeem GUSD, who asked to stay anonymous in order to avoid revealing which exchanges he uses, told CoinDesk the criticism lobbied by OTC traders may be influenced by competition rather than a lack of utility.

“They [Gemini] are not loved like other people, so I think that some of that is being transferred onto their product,” he said.

Still, other active companies in the market report that the level of restrictions on Gemini’s accounts exceed industry norms.

A third OTC desk told CoinDesk it was denied access to a Gemini account because it was allegedly offering a competing money-services business, despite the fact it believes it adheres to the same compliance principles as regional competitors that trade on Gemini.

Seeking demand

In some ways, OTC desks do directly compete with exchange platforms like Gemini. However, external context supports the notion that there may not be much organic demand for GUSD among professional traders.

Indeed, five unaffiliated OTC desks all told CoinDesk there was no demand for GUSD among their trading networks. OTC traders said it appears a high percentage of perceived GUSD trading activity is concentrated on exchanges that they do not use.

“The trading volume is dictated by [Gemini’s] actions and has nothing to do with the market, per se,” said one anonymous OTC trader who has worked with GUSD.

According to CoinMarketCap, the exchanges with the highest GUSD trading volume include OEX, Hotbit, Bitrue and Fatbtc. Gemini has no direct association with these exchanges.

In particular, OEX and Fatbtc are both ranked on the Blockchain Transparency Institutes’ advisory list. The nonprofit estimated that over 98 percent of those exchanges’ activity comes from automated trades, which typically involves bots rather than real users.

BloomX OTC desk founder Luis Buenaventura, whose desk is based in the Philippines, told CoinDesk there are fewer liquidity concerns related to GUSD’s rival, PAX, a dollar-pegged asset issued by the exchange Paxos, suggesting the trouble isn’t inherent to all heavily regulated stablecoins.

Yet, overall, Buenaventura still said his partners prefer the less heavily regulated stablecoin Tether because there is “limited liquidity amongst the other stablecoins.”

 

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