Author: Werner

Freelance crypto content editor, strategist and writer since the very top of 2017's bull run.  Based in Cape Town, SA and previously lived in Asia for a decade. I'm a big believer in the good that decentralized network technology and ethical AI can bring to make the world a more fair and transparent place.

SocialFi Primer: Why It’s SoFi So Good for Web3’s Creator Economies

Posted on by Werner

Introduction

Social networks have risen back to prominence over the course of 2023, with Elon Musk’s Twitter rebranding to X and headlines screaming about its battles with Meta’s Threads. Meta’s continued push into a VR-powered metaverse is finally picking up steam, as this astonishing new Lex Fridman podcast demonstrates. 

With 4.7 billion users plugged in for an average of 2.5 hours a day on traditional social media, creator economies are blossoming and it’s no surprise that its Web3 version, Social Finance (SocialFi/SoFi) is high on the priority list for crypto investors and builders for finding new decentralized ways to monetize users’ social network clout. 

Despite the lowest crypto VC funding since 2020, Q3 2023 saw multi-million investment rounds for SoFi projects such as RepubliK and Phaver. A lot of this can be attributed to the Base chain’s surprise hit Friend.tech, which allows social media accounts to be tokenized and traded. Its 2023 buzz is giving off some early Axie Infinity tingles, not for GameFi but this time for SocialFi. 

Let’s take a closer look at what this emerging trend for crypto’s potential bull cycle of 2024/2025 is all about. 

What is SocialFi?

Please note: ‘Social finance’ can also refer to another altruistic form of finance that supports real-world communities, which shouldn’t be confused with social network finance, the topic of this article.

SocialFi stands for “social finance” and combines the principles of social media and decentralized finance (DeFi) to offer a Web3 approach to social interactions through the power of blockchain technology. At its core, SocialFi is about empowering content creators, influencers, and participants who seek better control over their data and freedom of speech, aka data privacy and censorship-resistance. 

These lofty ideals are admirable, but a network can only be successful if users are sufficiently incentivized to share their resources and time with it. This is where those quirky little digital assets come in – the ones we either love or hate, depending where in the cycle we bought and sold them: 

• Cryptocurrencies (e.g. ETH or a governance token) provide avenues for monetizing social media engagement and rewarding infrastructure and security providers.

• Non-fungible tokens (NFTs) establish the management and digital ownership of assets.

The Three Core Principles of SocialFi

So what makes SocialFi platforms different from their giant Web2 equivalents like Facebook, X (Twitter), YouTube, and Instagram?

Three words: Decentralization. Tokenization. Governance.

Decentralization: Distributed control

Decentralization is the backbone of SoFi, setting it apart from social media platforms like Facebook and Twitter. Unlike these centralized platforms, where a single server hosts user data and content, SocialFi is spread over a decentralized network. This shift in architecture gives users more control over their own data and enhances the platform’s resistance to censorship and major data breaches. 

The level of decentralization depends on the underlying blockchain; Bitcoin and Ethereum are highly decentralized, making them secure and resilient, while others are ehhh, not so much. Tools like DappRadar and DeFiLlama can help you gauge the health of a Social Finance project.

Tokenization: Quantifying social influence

Tokenization is another core principle in SocialFi. It transforms the fuzzy idea of social influence into a measurable asset. Users earn tokens based on their contributions to the community, and these tokens are multifunctional. They can be used for micro-payments, trading, or even voting on platform changes. This token-based economy is made possible through smart contracts, which autonomously distribute value to users, providing a reward to make the platform more engaging.

Governance: Community decision-making

The third pillar of SocialFi is community governance, which puts decision-making power into the hands of the users. Unlike traditional platforms where changes are dictated by a managing company, SocialFi uses a DAO (Decentralized Autonomous Organization) to allow users to vote on significant changes or new features. This democratic approach fosters a sense of ownership and aligns the platform more closely with the needs and preferences of its community.

Credit: Tesfu Assefa

How SocialFi democratizes social media

1. Monetization and Data Ownership

The terms “There’s no such thing as a free lunch” and “If the product is free, then you are the product” ring especially true for social media platforms. These platforms exploited early Web2 users’ reluctance to pay for any online service or content during the 2000s and 2010s through a Faustian offering of free services. Years later, users learned their behavior was recorded all along to build models to manipulate human online behavior for commercial and other purposes. Don’t be evil my ass.

Traditional Web2 social media platforms have been criticized for their centralized control over user data and monetization strategies. Platforms like Youtube, Twitter and TikTok milk their users’ content and engagement to generate billions of dollars of revenue but share only a fraction of profits with the actual content creators. While this is starting to change and some Web2 platforms are onboarding their own token and even NFTs, it’s still too lopsided.

It was reported in 2022 that creators still rely on brand partnerships for up to 77% of their income, whereas subscriptions and tips make up around 1–3%. SocialFi platforms instead use social tokens or in-app utility tokens to manage incentives fairly. These tokens can be created by either the application or the user (a fan token), allowing creators to manage their own micro-economies. 

2. Freedom of Speech

Another big bugbear with Web2 platforms, especially in these increasingly fractured and divisive political times, is the centralized decision-making process that often ends up in a final form of censorship. 

There is sometimes a need to stop harmful content from being disseminated across the internet, but the question is who gets to do this. It can be a very bad thing to have a centralized arbiter of truth that stifles opposing views from controversial public figures (read the prescient books Animal Farm, 1984, and A Brave New World). A decentralized curation process, aligned with Web3 ethos, could offer a fairer approach. 

Social media initially created new communities and united old ones. Unfortunately, a weekly post or two by an average user doesn’t pay the bills for platforms. Controversy stimulates emotion and magnetizes user eyeballs, and that brings in dollars. So, biased algorithms were created to herd users into digital echo chambers and online political fight clubs. Web2 platforms are as complicit in spreading hatred across social media as any Tate or Trump. 

SocialFi platforms beat censorship through decentralized curation. All publicly viewable posts can be swiftly tagged based on their topic and nature of the words used. Individual nodes can be assigned the control and responsibility over filtering. 

Three Key Challenges for SocialFi

Scalability

One of the primary challenges for SocialFi is scalability. Traditional social media platforms like Facebook generate massive amounts of data daily. Blockchain solutions like DeSo claim to address this issue through techniques like warp sync and sharding, but these solutions are yet to be stress-tested at scale during bull market volatility.

Sustainability

Another challenge is creating sustainable economic models. While many platforms promise high incentives, these are often short-term growth hacks. The models need to be stress-tested through various market cycles to ensure long-term viability. Another problem is the intricate issue of token emission schedules.

Security 

Unfortunately in blockchain your network is only as strong as your weakest link. The hacking incident on the Roll platform raised concerns about the safety of SocialFi platforms – and in a field where smart contracts and hot wallets play such a crucial role, the threats from malicious or faulty code, or phishing scams, must be overcome before we can expect mainstream adoption. This is where the concept of account abstraction (see my article on Vitalik’s 3 Ethereum transitions) should revolutionize user safety.

Ten Trending SocialFi Tokens for 2024

Below are some SoFi tokens trending currently.

1. Galxe: A Web3 social community project built on Ethereum with over 10 million active users.
2. Torum: A social media platform built on Binance Smart Chain that combines DeFi and NFTs.
3. Friend.tech: A decentralized social media platform built on Base Network that allows users to tokenize their social network.
4. NestedFi: A SocialFi project that supports building, managing portfolios, copying trades of the best traders, and supporting social trading with just one click.
5. STFX: A SocialFi protocol for short-term digital asset management.
6. Hooked Protocol: A launchpad project (recently invested in by Binance) that supports SocialFi.
7. Lens Protocol: A project made about Social Graph and running on the Polygon network, developed by the founder of AAVE.
8. Safereum: A decentralized memecoin project with decent performance.
8. Bitclout: A social token project that gained significant attention by allowing brands, organizations, and individuals to create their tokens.
10. Rally: A social token project that allows creators to monetize their content and engage with their audience.

Disclaimer: I do not hold any of these tokens and be advised that you shouldn’t invest in any of them without doing proper research. They are very risky and require an advanced grasp of crypto knowledge. You’ll need to understand tokenomics like their vesting unlocked schedule, fully diluted value, the team behind them, and their supposed value proposition and use cases. Many of these projects will likely not be around in 5 years’ time.

SoFi So Good. What’s next? 

By combining the principles of social media and decentralized finance, SoFi can reshape the social media landscape and help the normal user reclaim rightful ownership of their data, and monetize it fairly and transparently if they choose to do so. 

SocialFi is an amalgamation of Web3 and social media trends, and thus perfectly geared towards boosting creator economy models. However, as we’ve seen with other trends such as Play-to-Earn (P2E), and even DeFi to some extent, early hype and traction mean nothing if they’re not built on something of substance. SoFi experiences will need to have engagement and staying power if they are to retain real users and the network effects that come with them. 

Therefore, SocialFi’s robustness can only be claimed after it has weathered a few market downturns and soldiered through them. With an evolving Web2 industry and new frontiers like the metaverse and artificial intelligence on the doorstep, the opportunities are endless. 

Just one last thing: Please, let’s ban infinite scroll.

Let us know your thoughts! Sign up for a Mindplex account now, join our Telegram, or follow us on Twitter. 

Wen Web? The Decentralized Internet’s Current State and 2024 Odds

Posted on by Werner

Introduction

Since the start of the decade, Web3 has been touted as our salvation from the ills of Web2, as the fully decentralized foundation for a censorship-free new Internet that preserves privacy and restores the cypherpunk vision of the 1990s, with extra power-ups unlocked by distributed ledger and cryptocurrency technology (in particular AI cryptos this year) on blockchains like Ethereum and Cardano.

Web3’s hype train derailed in late 2021 and throughout 2022, as record inflation, rising interests, and a cascade of centralized custodial blowups deflated crypto markets. However, hope springs eternal in the world of digital assets. With 2024 just around the corner, filled with the promise of the Bitcoin halving, spot ETFs (for both BTC and Ethereum), a pivot in global macro-economic policy, and other wonderful things, the talk around Web3 is heating up again, especially in Asia, even if artificial intelligence has stolen a lot of the thunder and VC funding this year. 

Will 2024 or 2025 be the Year of Web3, or is it all just a wishful thinking, bad investments, and the echo chambers of Crypto Twitter and YouTube? What does the average person know about Web3.0?

An extensive survey conducted by major US cryptocurrency exchange Coinbase, called the “International Survey of Web3 adoption”, polled over 32,000 internet users across 16 countries. The countries span developed economies like the US and Japan as well as emerging markets like the Philippines and Vietnam. This provides a valuable snapshot of how Web3 technologies are being embraced on a global scale.

The 16 countries were: the United States, Canada, and Brazil in the Americas; the United Kingdom, Germany, Italy, France, Spain, and the Netherlands in Europe; and in the Asia-Pacific region Australia, Philippines, Indonesia, India, Thailand, Vietnam, and Japan. 

Survey Broad strokes: Demographics and Web3 Awareness 

With a 50-50 gender split, the survey captures a balanced view from both men and women. Most respondents are city dwellers (46%), with a good mix of suburbanites (32%) and rural folks (21%). Education and income levels are all over the place, from high school dropouts to advanced degree holders, and from low to high earners. 

A whopping 80% of people know about cryptocurrencies, and two-thirds have heard of at least one Web3 use case. Europe is leading the pack in awareness, while emerging countries and, oddly enough, Japan are lagging. 

The report suggests social media platforms play a vital role in driving awareness of Web3, especially in emerging market countries. Up to 2 in 5 cryptocurrency users rely on sources like YouTube, Facebook, Twitter, and cryptocurrency websites for information. Far fewer – only 16% to 26% – rely on mainstream news sources.

So what’s hot in Web3 right now? Trading on centralized exchanges (sadly) and blockchain gaming are the go-to activities. Nearly half of Web3 users have a software wallet, and about 30% are rocking a hardware wallet.

Looking ahead, the survey predicts a 50% surge in Web3 adoption by 2026. The future looks especially bright in developing countries, where crypto is becoming the new way to pay. When questioned about specific Web3 use cases, the applications most familiar to respondents were cryptocurrency payments, NFT trading, and trading on centralized cryptocurrency exchanges (CEXs). Despite the regulatory alarms, centralized exchanges are still the main gateway to the Web3 world.

33% were familiar with crypto payments, 24% with NFT trading, and 23% with CEX trading. Comparatively, awareness of more complex and risky decentralized finance (DeFi) activities like staking, decentralized exchange trading, and borrowing/lending were significantly lower; roughly 1 in 6 people were familiar with DeFi staking, trading, and lending or borrowing.

Web3 Services

One of the most commonly used Web3 services after centralized cryptocurrency exchanges (CEXs) is crypto gaming platforms, while self-hosted cryptocurrency wallets, both software and hardware, are gaining increased mainstream traction and adoption.

The report suggests CEXs currently serve as the primary entry point for most people into the Web3 ecosystem, providing a bridge to the mainstream finance world. Despite growing regulatory scrutiny, CEXs are expected to continue spearheading cryptocurrency adoption into the future.

When survey respondents who had used Web3 before were asked about their initial experiences, trading on CEX platforms emerged as the number one entry point, accounting for 21.1% of first interactions. This aligns logically with CEXs often being the first stop for users looking to convert fiat currency into cryptocurrency.

Interestingly, the report also highlights how initial entry points into Web3 differ significantly between countries. In developed nations, CEX trading was by far the most common gateway into Web3, likely because people in these regions are already familiar with using financial systems.

On the other hand, in emerging market countries like the Philippines and Vietnam, playing crypto games emerged as the most popular entry point. This may be boosted by play-to-earn crypto games providing income generation opportunities during COVID-19 for lower-income users.

Below are ten use cases ranked from most to least familiar:

  1. Crypto Payments (33%)
  2. NFT Minting/Trading (24%)
  3. Trading on Centralized Exchanges (23%)
  4. Overseas payments (23%)
  5. Playing crypto games (23%)
  6. Using P2P trading platforms  (19%)
  7. Use of crypto payment card (18%)
  8. Staking for returns (17%)
  9. DEX Trading (16%)
  10. Borrowing/Lending (13%)

International Survey of Web3 Adoption (Credit: Coinbase Institute)

Barriers to Entry

Among respondents who had not used Web3 before, around 46% cited a lack of knowledge about Web3 technology as a key barrier to adoption. Over 25% of non-users also noted they simply did not know where to begin exploring the space.

Beyond educational barriers, concerns around volatility, hacks, scams, and government regulation also deterred usage among some respondents. Regulation concerns were particularly acute in some countries, like India and Canada, where 26% of respondents cited this as a barrier.

Web3 in Asia

The Coinbase report notes that Asia contains countries at varying levels of technological adoption, and with diverse regulatory environments. During the pandemic, Asian crypto markets and innovations played a vital role in sustaining Web3 development globally.

Here are some insights:

  • Japan has comparatively low awareness of Web3, likely due to a challenging regulatory environment including high crypto taxes. This has led many crypto firms to choose alternative locations for their operations.
  • Emerging countries like the Philippines exhibit greater Web3 awareness than more developed nations. The Philippines has a young, tech-savvy population with high remittance flows that could benefit from blockchain technologies.
  • Vietnam has low Web3 awareness currently but a rapidly growing interest in blockchain and crypto, particularly for gaming.
  • Gaming and metaverse participation are more popular Web3 use cases in Asian emerging markets compared to developed countries.
  • Developed Asian countries focus more on crypto payments and financial services, whereas emerging markets prioritize remittances more.

The Promise and Potential of Web3

Web3 carries enormous potential across a wide range of use cases like supply chain management, digital identity, healthcare, and insurance. However, there are challenges between the potential and the actual. 

  • The decentralized nature of Web3 makes scalability difficult, as the network waits on nodes to validate transactions.
  • Interoperability issues arise from the multitude of different blockchains that don’t always work together seamlessly. 
  • Usability remains a barrier, with many Web3 applications having non-intuitive user experiences.

But Web3 momentum is clearly building. Monthly active developers have surged 297% since 2018. Gartner predicts 25% of enterprises will use Web3 applications by 2024. With solutions in areas like decentralized finance and play-to-earn gaming already demonstrating value, Web3’s possibilities are vast despite current limitations.

Credit: Tesfu Assefa

The Outlook for Web3 in 2024

The prognosis for Web3 adoption by 2024 looks positive, as developers work to address current challenges. Improved scalability, interoperability, and usability will likely emerge to make Web3 more accessible to mainstream audiences.

Familiar technological challenges remain though:

  • Scalability: Web3’s decentralized structure hampers easy scaling, limiting its adoption.
  • Interoperability: Multiple blockchains exist, but they don’t always sync well, affecting Web3 adoption.
  • Usability: Complex Web3 apps deter users, posing a barrier to widespread adoption.
  • Blockchain projects often over-promise and under-deliver, eroding trust and adoption.
  • Onboarding process: Clunky onboarding experiences can kill user interest, hindering adoption.

On the plus side, as more and more people become more familiar with Web3 capabilities, adoption is expected to accelerate, across ever more diverse use cases. Custom-built and application-specific modular blockchains will simplify development, and the eventually ubiquitous implementation of zero-knowledge rollup proofs will enable greater security and privacy.

While the Coinbase report shows it’s still early days, Web3 is rapidly evolving. Its awareness is reasonably high worldwide, but substantial barriers around education and regulation still remain and will have to be dealt with. 

If you’re a business looking to ride the Web3 wave globally, you’ve got to be a bit of a cultural chameleon. Different places have their own vibes, especially in the diverse landscape of Asia. So, understanding the local scene – be it regulations, economics, or even just what people are into – is key.

Looking ahead, Web3 is set to graduate from being this edgy, niche thing to becoming part of our daily lives and how we do business, turbocharged by emerging tech like AI and machine learning. Buckle up for the future!

Let us know your thoughts! Sign up for a Mindplex account now, join our Telegram, or follow us on Twitter. 

The Top 20 AI Cryptocurrencies For 2024 (Part 1)

Posted on by Werner

Introduction 

AI cryptocurrencies, as we explained in our last article, have really come to mainstream attention in 2023, at least for cryptocurrency enthusiasts,  following the breakthrough of popular large language model (LLM) such as OpenAI’s ChatGPT and the image generator Midjourney. In addition, we also had the Summer of Trading Bots this year.

While some experts like DeFi pundit Andre Cronje believe that artificial intelligence and blockchain technology (presently) shouldn’t mix, there is a growing cohort of promising AI projects that integrate both blockchain and cryptocurrency technology on chains like Ethereum and Solana in order to sustain and grow their ecosystems. 

Mindplex Magazine is excited about the use of artificial intelligence in the world of Web3 and cryptocurrency, and this article will be the first in a series that focuses on identifying top AI cryptos. 

With both AI and Web3 innovation expected to continue its ascent next year, here are five of the best AI cryptocurrency projects for 2024:

Credit: Tesfu Assefa

1. SingularityNET (AGIX): The AI Marketplace

Name
SingularityNET

Ticker
AGIX

Year Founded & Team

Founded in 2017 by Ben Goertzel (CEO)

Institutional Investors

Kosmos Ventures, Fundamental Labs, LDA Capital, Elizabeth Hunker, Zeroth.AI

What is SingularityNET?

SingularityNET is a decentralized platform that enables users to buy and sell artificial intelligence (AI) services. The platform uses blockchain technology to create a marketplace where AI service providers can offer their services to artificial intelligence and blockchain users.

Main Purpose

To provide a secure and transparent way for users to buy and sell high-quality AI services.

What Are Its Use Cases?

SingularityNET is basically a one-stop shop hub for all things AI. You can build new AI apps, carry out artificial intelligence research, and even launch your project into the real world. It’s like a marketplace where you can find, mix, and match various AI services to meet your unique needs.

How It Utilizes AI:

SingularityNET’s platform isn’t just about offering artificial intelligence services; it also uses machine learning to make your life easier. It helps you discover services that fit your needs, ensures you’re getting a fair price, and even checks the quality of the service you’re using.

Why SingularityNET Is Important?

SingularityNET democratizes AI usage for everyone. It does this by connecting developers to users to sell and buy AI services in a secure and transparent way. By making AI marketplaces more efficient and fair, it helps to bring the cost of machine learning down and raise its impact. 

What is the AGIX token used for? 

The AI crypto token AGIX helps SingularityNET manage transactions, govern its DAO and enable global access to artificial intelligence services. The token works across multiple chains like Cardano and Ethereum, and AGIX holders can stake their tokens with interest to provide platform liquidity.

Chains: Ethereum and Cardano
Fully diluted market cap: $358 million (Oct 2023)

2. The Graph: The AI Librarian

Name
The Graph

Ticker
GRT

Year Founded & Team

The Graph was founded in 2018 by Yaniv Tal, Brandon Ramirez, and Jannis Pohlmann, and in December 2020 it launched its mainnet.

Institutional Investors

Early investors included Launch Code Capital, Ganesh Kompella andFuture/Perfect Ventures.

Project Definition

Think of The Graph as a super-smart librarian for blockchain data. It sorts and organizes this data into neat categories called subgraphs. This helps developers and analysts find exactly what they need, whether they’re working on digital currency exchanges, virtual collectibles, or other blockchain-based projects.

Main Purpose

In simple terms, The Graph aims to make the messy world of blockchain data a whole lot easier to navigate through the use of artificial intelligence. If you’re looking to build a decentralized app (dApp) or just trying to analyze blockchain data, this platform is your go-to resource.

Use Cases

Primarily, The Graph is a big help in two areas: building dApps and researching blockchain data. Developers get a smoother way to integrate blockchain data into their apps, while researchers get a more streamlined method to sift through and analyze the data they need.

How it Utilizes AI:

AI plays a handy role here. It’s like the assistant librarian, helping you find the most relevant and high-quality subgraphs. It’s also the pricing guru, making sure you’re not overpaying for the data you’re after. Overall, machine learning is used to enhance The Graph’s functionality, ensuring the info you get is both reliable and fairly priced.

Why should you care about The Graph?

Because it’s essentially making blockchain data more approachable and user-friendly. Thanks to its AI features, it’s an invaluable tool for anyone wanting to build dApps or analyze blockchain data. It’s smoothing the path toward wider adoption of blockchain technology, making life easier for developers and data nerds alike.

What is the GRT token used for?

The Graph’s GRT token is a machine-learning cryptocurrency that’s used for staking, delegating, contributing to network governance, and payment to network participants.

Chains: Ethereum, Solana, Avalanche and more
Fully diluted market cap: $922 million, with infinite token supply (Oct 2023)

3. Fetch.AI (FET): The AI Agency

Name
Fetch.AI

Ticker
FET

Year Founded & Team

Founded in 2017 by Humayun Sheikh (CEO), Toby Shorin (CTO), and AJ Gordon (COO)

Institutional Investors

Fetch.AI raised $75m through investors like Outlier Ventures, GDA Group, BitGet and DWF Labs.

Project Definition

Fetch.AI is a game-changer in a few areas. It’s making supply chains smarter by automating stuff like keeping track of inventory and filling orders through the use of autonomous agents. If you’re into the Internet of Things (IoT), it’s also useful there—managing how devices collect and share data. Plus, it gives people a way to monetize their data.

How it Utilizes AI:

First off, Fetch.AI gives you the tools you’d need to build one of these smart agents. Once you’ve built one, it helps you deploy it to do whatever job it was designed for. And it doesn’t stop there; it uses artificial intelligence to make sure a bunch of these agents can work together efficiently to reach common goals.

Why It’s Important?

Fetch.AI is making businesses run smoother by automating a lot of their tasks. Because it’s all built on AI, it’s leveling up the marketplace for these autonomous agents, making this cool tech more available and cheaper for everyone.

What is the FET token used for? 

Fetch.AI’s FET is an artificial intelligence cryptocurrency used as a utility token for the Fetch ecosystem and network transaction fees. FET is required to find, create, deploy, and train autonomous economic agents and is essential for smart contracts, oracles, and transactions.

Chains: Ethereum, BNB Chain, and Cosmos
Fully diluted market cap: $267 (Oct 2023)

4. Ocean Protocol (OCEAN): The AI Data Merchant

Name
Ocean Protocol

Ticker
OCEAN

Year Founded & Team

Founded in 2017 by Trent McConaghy (CEO), Bruce Pon (CTO), and Brian Singer (COO)

Institutional Investors

Ocean Protocol has 20 institutional investors including Outlier Ventures, Amino Capital and Blockchain Coinvestors

Project Definition

Ocean Protocol is like an online marketplace, but specifically for data. The Singapore-based project uses the security of blockchain to help people buy, sell, and share data safely. It puts data owners in the driving seat, letting them decide who gets to access their data.

Main Purpose

The big idea here is to give people a safe and clear-cut way to deal with data. Whether you’re buying, selling, or just looking to share, it’s all above board and secure.

Use Cases

So what can you do with Ocean Protocol? A lot, actually. If you’re a business or a researcher looking to team up and share data, then this is your playground. Got valuable data? You can sell it here. If you’re on the hunt for very specific data, Ocean Protocol can help you find it.

How Ocean Protocol Wields AI:

The Ocean platform uses AI to make their user experience a case of plain sailing. It weeds out low-quality data so you’re only dealing with the good stuff. Plus it uses artificial intelligence to hook you up with the data that suits your needs and even helps to set a fair price for the data you’re interested in.

Why It’s Important?

Why does any of this matter? Well, Ocean Protocol is making the data world a better place. It’s more secure and transparent, so people are more willing to share. And thanks to AI, it’s also super efficient. This is great news for everyone from researchers to everyday data owners who want to unlock the value of their data.

What is the OCEAN token used for? 

The OCEAN token allows users to buy and sell data tokens and services, participate in governance, or stake within the Ocean Protocol ecosystem. 

Chains: Ethereum ERC-20 token
Fully diluted market cap: $450 (Oct 2023)

5. Cortex (CTXC): The AI Garden

Name
Cortex

Ticker
CTCX

Year Founded & Team

Founded in 2017 by Li Tian (CEO), Li Mu (CTO), and Jianping Chen (COO)

Institutional Investors

Cortex has 9 institutional investors including FundamentalLabs, IOSG Ventures, and Global Blockchain Innovative Capital.

Project Definition

Cortex uses smart contracts to facilitate transactions and ensure fairness and transparency in the AI marketplace. Think of Cortex as a communal garden for AI—anyone can come in, plant a seed (an AI model), nurture it, and sell the fruits. All of this happens on a decentralized blockchain, meaning it’s not controlled by any single entity.

Main Purpose

The core mission of Cortex is to make AI as accessible as Wi-Fi in a coffee shop. By offering a decentralized space to create, run, share, and even make money off artificial intelligence models and build AI-infused decentralized apps (dApps), it’s breaking down the ivory towers that often make AI seem unattainable for regular folks.

Use Cases

Cortex is a jack-of-all-trades when it comes to AI. Whether you’re a developer, a researcher, or someone looking to make a buck off your AI model, Cortex serves as your one-stop shop.

How it Utilizes AI:

Here’s where it gets meta—Cortex uses machine learning to make its AI marketplace better. If you’re looking for a specific AI model, its algorithms will match you up. And just like an auctioneer, it dynamically sets the prices based on what’s in demand. Plus, it makes sure whatever you’re choosing is up to snuff quality-wise.

Why It’s Important?

In a nutshell, Cortex is almost like the Robin Hood of AI. It’s making sure that AI technology isn’t just for the elite, but for everyone who wants in on it. By offering a decentralized, open platform for artificial intelligence, it’s tearing down the walls that have traditionally kept people out of this exciting field.

What is the CTCX token used for? 

The CTXC token is an ERC-20 asset and utility token for the Cortex platform, which is focused on AI and machine learning. It is used to pay for AI services, incentivize developers, and participate in the governance of the platform.

Chains: Ethereum ERC-20 token
Fully diluted market cap: $36 (Oct 2023)

Let us know your thoughts! Sign up for a Mindplex account now, join our Telegram, or follow us on Twitter. 

The Rise of AI Cryptocurrencies: How Machine Learning is Reshaping The Crypto Industry

Posted on by Werner

Artificial Intelligence (AI) tools like OpenAI, and blockchain-powered networks like Ethereum have shaped the first few years of the 2020s, leveraging the power of Big Data, decentralized computing and network effects to disrupt a multitude of industries and reshape economic, social, and even environmental issues for better or worse.

The cryptocurrency revolution aims to transform finance through blockchain technology. Now, artificial intelligence (AI) is supercharging crypto with sophisticated machine learning algorithms. 

Where AI and blockchain intersect, they unlock a new wealth of possibilities for users, bolstered by AI’s productivity gains, blockchain’s security and its transparent and immutable participation trophies of cryptocurrency and non-fungible tokens (NFTs).

The appeal is easy to understand: AI offers real solutions to major challenges like security, scalability, and accessibility. And the industry is taking note, with more and more blockchain projects appearing that integrate machine learning into their DNA. 

This new breed of AI cryptocurrencies are rising from the wasteland of 2022’s crypto bear market to leverage AI for optimized transactions, predictive analytics, automated trading, and more. 

So the big question is, can AI-enhanced digital assets really unlock crypto’s true capabilities? Or will artificial intelligence’s data privacy issues drag virtual assets down with it to regulatory purgatory? Let’s check what all the hype’s about.

What Are AI Cryptocurrencies? 

AI cryptocurrencies are tokens that power AI-related blockchain platforms such as The Graph (the biggest AI crypto by market cap) and SingularityNET, arguably the most high-profile AI crypto project. 

In most cases, these tokens serve either as a means of payment for transactions, or as rewards for participants on the AI platform, or as a way of giving governance rights to holders. 

It’s important to note that not all cryptocurrency or blockchain projects which use AI in their systems have a token. 

How AI Cryptos Work

AI cryptocurrency projects use machine learning algorithms to make core crypto features smarter. They sift through huge datasets to offer a more personalized and improved user experience.

These AI coins are special types of crypto assets. They use artificial intelligence to make things better for everyone – whether it’s making your user experience smoother, scaling up the network, or tightening security.

And it’s not just about enhancing existing features; these coins are fueling new kinds of AI-focused projects. From decentralized marketplaces like SingularityNET to future market predictions and even managing your crypto portfolio like SingularityDAO, these AI coins are here to transform every inch of the digital financial landscape. Who and how will be addressed in a later article in our Crypto AI series. 

The Top Five AI Cryptocurrency Projects in 2023

You want names? OK OK. Here are five cool crypto projects that are leveraging artificial intelligence right now. We’ll cover more in our next article. 

  1. SingularityNET (AGIX) 

Founded by well-known AI researcher Ben Goertzel, SingularityNET is a decentralized AI-focused blockchain that allows anyone to monetize or utilize AI services. In its own words it’s building the next generation of decentralized AI and its network is powered by its AGIX token. SingularityNET has a blossoming ecosystem of partners and supported projects, such as Cardano and (yours truly) Mindplex. 

  1. Fetch.ai (FET) 

Fetch.ai is building an AI-powered blockchain to enable autonomous smart infrastructure. The open-access decentralized network allows devices to transact and share data via AI agents, with use cases across smart cities, supply chains, healthcare, and more. 

  1. Numerai (NMR)

Numerai is playing a numbers game, as its name suggests. It crowdsources machine learning for stock market predictions, and encrypts and anonymizes datasets to organize data science competitions among its community of data scientists. Winners are rewarded in NMR tokens based on the accuracy and predictive power of their models.

  1. Matrix AI Network (MAN) 

Matrix AI Network leverages AI to optimize blockchain architecture. The Intelligent Contracts and Intelligent Services chains allow smart contracts and machine learning models to interact seamlessly.

  1. Ocean Protocol (OCEAN)

This project focuses on data sharing, aiming to make datasets available for AI development without compromising on privacy. 

Benefits and Challenges of AI Cryptocurrencies 

Sorry Bitcoin: AI-injected digital assets deliver many advantages over traditional cryptocurrencies. Such as: 

They’re more efficient 

By automating manual processes, AI reduces costs and errors. Through the use of smart contracts, users also eliminate intermediaries, reducing another source of friction.

They’re more secure 

AI algorithms provide adaptive defense, and better threat detection against increasingly sophisticated cyberattacks. 

They can be personalized

AI analyzes trends and patterns to tailor solutions to each user. This provides a better customer experience.

They’re faster and more scalable 

AI optimizes protocols and transactions, increasing throughput, which translates to faster payments and high network capacity.

It’s not all a case of OK Computer though.

What are the biggest challenges for AI cryptos? 

Complexity and Cost

Sophisticated AI models require advanced expertise and resources, which many of today’s crypto projects, hamstrung by a long bear market, have in short supply. 

Data Privacy 

AI’s lifeblood is abundant user data. With Web2’s previous data exploits still fresh in the mind of consumers and regulators, this raises ethical concerns around consent and surveillance. And scanning people’s eyeballs isn’t providing good optics either, so to speak.

Energy Use

Training complex machine learning models uses a lot of computing power, which is a big no-no nowadays. Couple this with the general misconceptions over Bitcoin’s proof-of-work footprint, and it’s not a good look, even if most DeFi chains are environmentally-friendly proof-of-stake chains. 

Regulation

Laws have not kept pace with the rapid pace of AI and crypto development. Legislation for AI and crypto is in the pipeline that could put the brakes on the growth of both sectors. 

Credit: Tesfu Assefa

How is AI applied in Crypto? 

Let’s now look at some of the most popular current trends of utilizing AI in crypto:

AI in Decentralized Finance (DeFi) 

  1. Automated Crypto Trading 

As we covered in a previous article, AI-powered crypto trading bots have risen to prominence in 2023 due to their ability to automate the buying and selling of trading and investment positions based on technical indicators. 

AI bots can analyze market data, identify trends, and execute trades faster (sniping) and more efficiently than humans. Recently a Cointelegraph journalist took on an AI bot in a trading competition and lost. 

  1. Predictive Analytics

AI analyzes historical patterns in crypto prices, demand, and volatility. This powers price forecasting and predictive investment algorithms.

  1. Security 

AI algorithms can detect anomalies and cyberthreats. Then they adapt cyberdefenses, like in Numerai’s cryptographic security protocol.

  1. AI-driven DAOs: 

AI tokens are already used to fuel decentralized autonomous organizations (DAOs) and their applications, such as AI-powered trading algorithms and decentralized AI marketplaces. AI tools can optimize and speed up many DAO tasks, such as making proposals, summarizing governance decisions, transferring assets, and attracting new members.

  1. Fraud Detection

By learning normal user behavior patterns, AI can identify suspicious activities like ransomware attacks, hacking, and money laundering.

  1. Transaction Optimization 

AI can fine-tune transactions and protocols to enhance speed, cost, scalability, privacy, and other parameters.

  1. Personalization 

Analyzing user data allows AI cryptocurrencies to offer curated, tailored recommendations on investments, trades, and DeFi applications.

AI in Crypto Mining

AI presents solutions to enhance mining processes by improving algorithms, offering real-time data insights, and suggesting advanced hardware. Crypto mining uses powerful computational resources and specialized hardware to solve complex mathematical problems – whereas AI has a different set of hardware requirements.

Future Trends of AI in Crypto

Looking ahead, AI will likely evolve in tandem with blockchain infrastructure and aid its growth.

Here are four emerging trends:

AI-powered DeFi: Personalized and Efficient

DeFi is no longer just about simple transactions. With AI on board, DeFi are now your personal financial advisors, offering automated trading, advanced credit assessments, and tailor-made recommendations. 

AI Oracles: Bridging Real and Digital Worlds

AI Oracles go beyond regular data feeds; they intelligently enable AI systems to bring real-world data into smart contracts, bridging the gap between crypto and the real world.

Autonomous Agents: The Smart Brokers

Think of AI agents as your switched-on personal financial planners. They represent you in DeFi transactions, adapting to market changes and aiming to boost your returns.

Embedded AI: The Evolution Ahead

In the future, AI won’t just be an add-on; it’ll be part of the blockchain’s DNA. Embedded AI will perform a myriad of tasks such as improving transaction validation and enhancing security.

Endnote

While AI has taken a lot of limelight and lucre away from blockchain and crypto since its explosive rise in 2023, it should be viewed as a long-term ally that compliments instead of competes against digital asset technology. Its convergence with blockchain technologies has given rise to numerous promising AI crypto projects that will thrive over the coming decade. 

The benefits are easy to see: machine learning can make blockchains faster, cheaper, and more accessible, while AI cryptocurrencies are poised for mass adoption as the technology improves. 

Harnessing AI’s potential while addressing ethical concerns will be critical in democratizing DeFi and Web3’s realms. If that balance can be met, AI can transform crypto as limitlessly as it can transform other fields.

Let us know your thoughts! Sign up for a Mindplex account now, join our Telegram, or follow us on Twitter. 

Understanding EIP-4844: Ethereum’s Proto-Danksharding Upgrade for Layer-2s

Posted on by Werner

Introduction

Ethereum is drawing closer to another upgrade in Q4 of 2023 which will have a transformative effect on its whole ecosystem.

The Cancun-Deneb (Or Dencun) upgrade will feature the important EIP-4844 protocol, designed to boost Ethereum’s competitiveness and the performance of its slew of layer-2 scaling chains.

Also known as Proto-Danksharding, in honor of two of its researchers, Proto Lambda and Dankrad Feist, EIP-4844 is a part of the broader Ethereum Improvement Proposal protocol, which allows for the introduction of new features to its network. 

It was conceived by Ethereum co-founder Vitalik Buterin (who recently shared his vision of three transitions needed to scale the network) along with a team of developers with the primary objective of lowering gas fees, particularly for layer-2 rollup solutions such as Optimism, Arbitrum, and zkSync Era, without compromising on the network’s decentralization. 

But what exactly is EIP-4844, and why is it so crucial for the future of Ethereum and the development of Web3? Let’s take a closer look. 

Sharding vs Danksharding vs Proto-danksharding

To fully grasp the impact of EIP-4844, it’s essential to understand what sharding and danksharding are. 

  • Sharding is a long-time end goal for Ethereum that dates back all the way to the 2018 Casper roadmap. It involves partitioning a blockchain network into smaller units, known as ‘shards,’ to improve transaction throughput and reduce network congestion. To get there though, some preliminary steps are needed.
  • Danksharding is a new architectural approach that relies on data blobs to scale the Ethereum blockchain. It’s a complex process that will be implemented in phases, with EIP-4844 serving as the initial step.
  • In the words of Vitalik Buterin, proto-danksharding provides the “scaffolding” for future sharding upgrades. It implements most of the logic required for danksharding without actually initiating sharding.

What is EIP-4844?

In short, EIP-4844, or Ethereum Improvement Proposal 4844, aims to enhance scalability by exponentially lowering gas fees on layer-2 rollups through innovative blob-carrying transactions. Yes, you read that correctly. 

Interestingly, EIP-4844 is a temporary fix – until sharding is fully supported on Ethereum and solves scaling. EIP-4844 introduces a new way to split transaction information, such as verification rules and transaction formats, without the need for full sharding.

What Are Shard Blob Transactions?

One of the most groundbreaking features of EIP-4844 is the introduction of a new transaction type known as “blob transactions”. These transactions allow for data blobs to be temporarily stored in the beacon node.

Blobs are essentially data packages around 125kB in size. Compared to regular transactions, blob transactions are cheaper to execute, but they are not accessible to the Ethereum Virtual Machine (EVM).

Scalability and Data Bandwidth

The data bandwidth for a slot in proto-danksharding is capped at 1 MB, a significant reduction from the previous 16 MB, which is a massive change aimed at alleviating Ethereum’s well-known scalability issues. The EIP-4844 update does not affect gas usage for standard Ethereum transactions.

Credit: Tesfu Assefa

Why is EIP-4844 A Game-Changer For Ethereum and L2s?

High gas fees have been a significant barrier to Ethereum’s mass adoption, as any DeFi user will tell you. People who tried to trade on Uniswap or flip NFTs during 2021s wild bull run (with its record-high ETH gas fees) can attest that some transactions cost hundreds of dollars in fees. Network fees on any blockchain can skyrocket when on-chain activity increases, making the network expensive and inaccessible for many users.

The advent of layer-2 side chains that use optimistic and zero-knowledge (ZK) rollup technology to compile transaction batches has done a lot to alleviate the pressure on Ethereum’s mainnet. The Optimism chain was presented in March 2022 by Proto Lambda with claims that it could potentially lower L2 transactions by up to 100x. But as things stand, when network usage and congestion soar, transactions still get unacceptably pricey.

EIP-4844 aims to be a game-changer by significantly reducing transaction fees and increasing throughput. Yet it’s only a stop-gap measure until the full implementation of data sharding, which would add around 16 MB per block of dedicated data space for rollups to use.

The Future of Ethereum and Rollups

With so much building happening on Ethereum due to its stable infrastructure and proven security, it’s no surprise that Buterin believes that the future of scaling the world’s first smart contract network will revolve around these rollup chains. Proto-danksharding is a pivotal stop on this roadmap. 

Post-implementation, users can expect faster transactions and lower fees, which will enhance Ethereum’s competitiveness in the blockchain sector, and help it to stretch its massive lead over rival layer-1s such as “ETH killers” like Solana, Cardano, and EVM-compatible chains such as Avalanche and BNB Smart Chain. These chains have also all been plagued with their own development setbacks from time to time. 

Conclusion

EIP-4844, or Proto-Danksharding, is more than just a not-so-catchy name; it’s a pivotal upgrade that promises to address some of Ethereum’s most pressing issues. From reducing layer-2 gas fees to paving the way for full sharding, this proposal is another worthy milestone on the road to Ethereum’s final state as the world’s computer.

The scheduled rollout in Q4 2023 should hopefully go through without any major surprises, if the network’s last few upgrades are anything to go by. Sailing was rarely smooth for any update prior to 2020’s Beacon Chain fork (2019’s Constantinople fracas comes to mind), but the ones after all breezed through with flying colors, giving ETH users and developers much-needed confidence. Let’s hope the Dencun update provides more of the same. 

Let us know your thoughts! Sign up for a Mindplex account now, join our Telegram, or follow us on Twitter. 

Discovering ADA: A Guide to CARDANO in 2023

Posted on by Werner

Introduction

Cardano, one of the top ten blockchains by market capitalization, is an established decentralized network with a growing ecosystem that aims to provide a more secure, reliable, and sustainable ecosystem for cryptocurrencies, non-fungible tokens (NFTs), and decentralized applications (Dapps). 

What sets it apart from other public blockchains is its scientific philosophy and meticulous, academic nature, which has seen it develop at a much slower pace than rivals like Solana and even Ethereum as the world’s first peer-reviewed blockchain. With so many new security threats draining user funds in the Web3 space, this tortoise vs hare approach and emphasis on longevity is not necessarily a bad thing.

Cardano was founded in 2015 by Charles Hoskinson, one of the co-creators of Ethereum. 

Hoskinson famously left Ethereum in 2014 due to a dispute with one of Ethereum’s well-known faces, Vitalik Buterin, over the commercial route the network should take. 

Cardano continues a course that connects all Web3 technologies, including artificial intelligence (AI). In 2020, IOHK (the developer of Cardano) and SingularityNET Foundation announced that a significant portion of SingularityNET’s decentralized protocol and platform had been ported from Ethereum to Cardano. The partnership is continuing to blossom, with big strides being made to soon enable AGIX staking on Cardano, according to the latest SingularityNET report.

What is Cardano?

Cardano is an open-source, decentralized public blockchain for building and deploying Dapps, digital assets and more to help serve a variety of purposes for the common good, especially in less developed countries. 

Developed by Input Output HK (IOHK), Cardano is a research-driven, flexible layer-1 blockchain written in the Haskell programming language with a sustainable and scalable design. It takes a long view to the development of its network, prioritizing security over being first to market. 

Launched officially in 2017, Cardano finally added its Plutus smart contract functionality in September 2021 with its successful Alonzo hard fork. This opened the blockchain platform to the decentralized finance (DeFi) sector while being interoperable through bridges with Ethereum, EVM chains and non-EVM blockchains.

Smart contract capabilities are needed to help build a robust, secure, scalable, and energy-efficient blockchain platform for building Dapps.

What is ADA? 

Cardano got its name from Gerolamo Cardano, an Italian mathematician. Its native currency, ADA, is named after English mathematician Ada Lovelace. 

ADA currently has a market cap of over $10 billion and a fully diluted value (including all potential tokens) of $13 billion. The ADA coin can be used to send and receive payments, cover transaction fees on the Cardano network, or for staking (through pool delegations), trading, or just simply a long-term HODL investment. It can be easily bought and sold on the open market or almost all leading crypto exchanges. 

ADA Tokenomics

ADA has a maximum token supply of 45 billion, with an inflationary emission rate. There are currently already 35 billion ADA in circulation, and it has the following token distribution: 

  • 57.60% is allocated to ICO
  • 11.50% is allocated to the Team
  • 30.90% is allocated to Staking Rewards
Credit: Tesfu Assefa

Cardano Basics: How Does the Cardano Chain Work?

Architecture

Cardano uses a unique two-layer architecture system to meet its goals of sustainability and scalability. The two layers are:

  1. Cardano Settlement Layer (CSL), whose purpose is to account for value and handle transactions
  2. Cardano Computation Layer (CCL), whose primary purpose is the execution of smart contracts and Dapps. This splitting is required to allow Cardano to have a high throughput.

Cardano Programming language: Plutus (Haskell)

Cardano has a unique native smart contract language called Plutus to ensure that smart contracts are executed correctly. Plutus Core is a Turing-complete script written in the functional programming language Haskell, which makes it fully testable in isolation. Plutus Core forms the basis of the Plutus Platform – a development platform to develop Dapps on Cardano.

Consensus mechanism: Ouroboros (PoS)

Cardano uses Ouroboros, a unique proof-of-stake consensus mechanism that is provably secure and energy-efficient. This is different from the proof-of-work (PoW) used by Bitcoin. PoW, a consensus mechanism popularized by Bitcoin, relies on miners who use highly specialized equipment to be the first to solve a time-consuming math puzzle. 

While it scores big on decentralization, it’s high on energy costs and low on speed. 

PoS does not demand as much energy as PoW and provides a more sustainable solution. Instead of miners staking their energy costs, PoS relies on validators who stake their cryptocurrency to validate transactions. 

The Cardano network is distributed across staking pools. Each stake pool has a slot leader who is rewarded for verifying and adding new blocks to the chain. ADA holders may stake their tokens to specific stake pools, thereby increasing their chances of being chosen as stake leaders and enjoying rewards.

Layer-2 scaling: Hydra 

It’s well-documented that Cardano can be a bit slow, with a current max of around 6 transactions per second, and an average of only 2TPS. 

In May 2023, the Hydra Head layer-2 scaling solution went live on Cardano’s mainnet to help speed up the network and boost its DeFi capabilities whilst lowering transaction fees. Speculation that it can handle up to 1 million TPS is probably unrealistic, but what is certain is that it will significantly speed up and scale Cardano transactions once it’s optimally operational. 

Cardano Background

Let’s take a look at the teams and communities behind this fascinating chain. 

Cardano was launched in 2017 as a third-generation blockchain (Bitcoin is a first-generation chain while Ethereum is a second-generation one) and started life as an ERC-20 token before it migrated to its own mainnet. 

It is closely tied to three entities that provide the infrastructure, tools and services it needs to scale – the Cardano Foundation, Emurgo, and IOHK. 

  • The Cardano Foundation is a Swiss-based non-profit organization that oversees the worldwide development and advancement of Cardano in enterprise applications. Apart from supporting and engaging with the Cardano community, The Cardano Foundation helps to build the tools that the Cardano community requires to solve problems in new, innovative ways.
  • Input Output Hong Kong (IOHK) is a blockchain infrastructure and engineering company founded by Hoskinson and Jeremy Wood in 2015 that is contracted to design, build, and maintain the Cardano platform.
  • Emurgo is Cardano’s founding entity and provides services and products to builders that drive Cardano’s push into the Web3 ecosystem.

Cardano’s Use Cases and Ecosystem

ADA, Cardano’s native cryptocurrency, has seen a surge in adoption in the U.S., and this is fueling the growth of its ecosystem.

Cardano’s ecosystem – which will be covered in a follow-up article – spans Web3, DeFi, NFTs, gaming, decentralized exchanges (DEXs), the metaverse, and more. These are the key areas that continue to propel the crypto industry forward as a whole.

But how do you explore and learn more about Cardano and its ecosystem?

Here are three DYOR (do-your-own-research) tools at your disposal:

  1. CardanoCube

CardanoCube is a platform for discovering and exploring projects and Dapps building on Cardano. This is important for stakeholders such as investors and developers who need to have a clear picture of the ecosystem before taking a plunge. 

The platform wants people to have up-to-date, accurate information about the Cardano ecosystem and the developments happening around it.

  1. CoinMarketCap and CoinGecko

In crypto, all research often starts with CoinMarketCap and/or CoinGecko, the world’s two most popular crypto data aggregation platforms. Both have dedicated landing pages solely for the Cardano ecosystem, namely:

CoinMarketCap Cardano ecosystem projects
CoinGecko Cardano ecosystem projects

  1. DeFiLlama

A vital tool in any DeFi degen’s arsenal is DeFiLlama. Use it to find out what’s happening on-chain on Cardano and its most popular Dapps like decentralized exchanges. 

According to its Cardano page, the network currently has a total value locked (TVL) of $162 million and 35,400 active users. 

Credit: DeFiLlama (Cardano’s page on August 18, 2023)

What Can Cardano Be Used For?

Due to its versatility and scalability, Cardano has a myriad of use cases. The biggest at present are:

  1. DeFi

Much like Ethereum, the Cardano platform can be used to build and deploy DeFi protocols such as lending protocols. A core vision for Hoskinson and IOHK is to create a new financial system for emerging markets and to help “bank the unbanked” in less developed countries, that is people who do not have access to traditional financial services. 

DeFi on Cardano therefore is a crucial component to the success of the chain’s vision, and makes the implementation of scaling solutions like Hydra and other new products even more important.

  1. Supply chain management 

The platform can be used to implement secure and transparent supply chain solutions to ensure the traceability and authenticity of products. In 2021, Cardano rolled out an anti-counterfeiting supply chain solution.

  1. Voting and governance

The platform can be used to build tamper-proof voting solutions

  1. Identity verification 

Cardano can be used to protect people’s identity by building decentralized identity verification systems, which will also help people without official government IDs gain access to decentralized financial services such as micro-loans and potentially universal basic income. 

Cardano’s Push in Developing Nations

New technologies and innovations usually favor first-world countries. However, Cardano wants to take a different approach by starting with Africa. 

How does Cardano see opportunities in Africa?

Cardano wants developing nations to break free from the traditional banking system (about 45% of people in Sub-Saharan Africa don’t have access to financial services), expensive middlemen, and political structures that favor a few. The blockchain platform sees an opportunity in Africa where the continent’s young population is more receptive to new technologies.

Third world countries stand to benefit a lot from blockchain technologies. This is because they rely on legacy systems of government that usually have big, open backdoors for corruption. It is estimated that developing nations lose $1.26 trillion annually to corruption, tax evasion, and theft. By using automated blockchains, African nations could close the tap of corruption.

This focus on emerging markets sets Cardano apart from almost all other blockchains and could set it on a course of explosive adoption for decades to come.

Final Thoughts on Cardano

Cardano distinguishes itself from its peers through a 2-layer architecture and a commitment to sustainability. Its use cases range from staking to leveraging the power of smart contracts. The Cardano platform offers developers, investors, and other crypto stakeholders several opportunities to engage with the ecosystem, which is growing in leaps and bounds since its launch.

Join us for our next article on Cardano which will take a closer look at its ecosystem and use cases.

Let us know your thoughts! Sign up for a Mindplex account now, join our Telegram, or follow us on Twitter. 

Crypto Trading Bots on Telegram and Discord: DeFi’s New Killer App?

Posted on by Werner

Introduction

As Decentralized Finance (DeFi) matures to better serve crypto users and keep them safe, new technologies and strategies are emerging to help traders maximize their profits. One innovation that has gained significant attention in recent years is the use of crypto trading bots, most recently by Telegram and Discord users.

Ever tried to snipe a trade on Uniswap, or a new NFT mint, only to see the price spike right as you’re executing the transaction, forcing you to increase your price slippage tolerance just to get the trade through? The reason is often crypto trading bots, which have been a dirty little secret used by top traders for a while now, and is only now with the advent of artificial intelligence coming to broader awareness. 

These automated tools have revolutionized the way traders interact with the market, making it easier than ever to execute trades and manage portfolios. In particular, the rise of Telegram and Discord bot traders has changed the game, offering new recourse for DeFi users who want to avoid the risk of trading on centralized exchanges.

Disclaimer: Please be aware that Crypto Trading Bots come with significant financial risk as they’re rarely reviewed for code and security issues and are often created by anonymous teams. Therefore the risk of phishing or rug pulls remains high. Do not share the private keys of a big wallet with these applications under any circumstances and do your own research. 

Understanding Crypto Trading Bots

Crypto trading bots are automated software programs that interact with cryptocurrency exchanges to analyze trading data, place trades, and manage orders on behalf of the trader. They operate based on predefined algorithms and trading strategies, allowing for rapid, round-the-clock trading that would be impossible for a human trader to achieve.

Trading Bots and AI

Artificial Intelligence (AI) plays a crucial role in the functionality of these bots. Machine learning algorithms analyze market trends, make predictions, and execute trades with increasing accuracy as they learn. This makes them invaluable for both novice and experienced traders.

The Rise of Telegram and Discord Bot Traders

Telegram and Discord, two popular messaging platforms, have become hotbeds for crypto trading activity. Developers have created bots that integrate with these platforms, allowing users to trade using their messaging apps as the controls, while under the hood are sophisticated functions from copy trading to airdrop farming. Let’s take a look at the most popular. 

10 Key Features of Crypto Trading Bots

In crypto trading, speed matters. Crypto trading bots come with a range of features designed to expedite and seamlessly automate the trading experience. Broadly, some of the most popular features include:

  1. Trade Execution

Bots can execute trades quickly and efficiently based on predefined rules

  1. Copy Trading

Bot users can input wallet addresses and automatically copy these wallets’ trades and transactions.

  1. Multi-Wallet Creation Sniping

Some bots help users create batches of wallets. The user can execute the same trade on multiple wallets at a time, to bypass limits on individual wallets.

  1. Liquidity Sniping

They can execute a buy order when the bot detects liquidity being added, maximizing the number of tokens a sniper gains on a new token.

  1. Method Sniping

This is an advanced form of sniping tokens that allows a sniper’s buy transaction to execute as early as possible based on the ‘Method ID’ of a developer’s pending transaction.

  1. Airdrop hunting

Some bots can automate the process of applying for airdrops by fulfilling various criteria required by new crypto airdrops.

  1. Stop Loss and Take Profit Orders

These bots can automatically execute trades when a token reaches a certain price, allowing users to automate buying and selling.

  1. Anti-Rug Features

They can detect potential rug-pull attempts by token developers, and execute a quick sell to liquidate the position before liquidity is pulled.

  1. Honeypot Checking Features

They can detect incoming malicious transactions by a token developer, and liquidate the position before it becomes a honeypot.

  1. Native Tokens 

Many bots have released their own native tokens. Holders of these tokens usually enjoy lower fees on the platform and exclusive access to certain features.

Case Study: Unibot and Other Successful Bots

Crypto markets are currently awash with dozens of new crypto trading bots, thanks to a wave of influencers hyping their potential, which has seen the native token prices of some shoot through the roof. (Many of them dropped 50% in value in one weekend recently – another reminder to not invest without doing proper research.)

Unibot, a Telegram decentralized exchange (DEX) trading bot, is a prime example of the success that can be achieved with these tools. Since its launch, Unibot has swollen to a market cap of over $1 million. Other bots like Maestro, MEVfree, and LootBot have also gained attention for their unique features and profitability.

According to research by channels like Crypto Banter and other tools such as CoinGecko’s Telegram Bots list, here are a few of the hottest new Telegram trading bots (Warning: these tools have not been reviewed and may come with serious financial risk. User caution is advised when interacting with these tools):

Trading BotDescription
Maestro Maestro is currently the most popular Telegram crypto bot trader. It automates on-chain tasks, simplifies processes, and generates significant fees. It offers customizable trading experiences, allowing users to set orders, stop losses, and take profits, automating transactions based on their parameters.
Unibot Unibot is another profitable trading bot on Telegram. It offers features like whale-tracking and copy trading, and it also provides revenue sharing.  At present, it has a valuation of $171 million, very high compared to other bots. 
Wagie bot Wagie bot is a trading bot that integrates with GMX, allowing users to open purpose trades directly from the bot through Telegram.
Alpha Scan Alpha Scan is a project that tracks and highlights social mentions of different tokens, helping users identify trending crypto assets early.
Collab. land Collab.land is a bot used on Discord and Telegram to access gated content. I also serves as an infrastructure for deploying crypto bots.
LootBotLootBot is an airdrop-focused Telegram bot that automates on-chain interactions and acts as a streamlined frontend for hundreds of chains. It allows users to create or follow automated tasks that could help with objectives such as Airdrop Farming.
NeobotNeobot is an analytics tool that provides real-time notifications on different events, and is recommended by reputable influencers. It is more geared towards researchers than traders.
Genie botGenie Bot is a B2B software offering AI chatbot services to protocols and projects. 
BetbotBetbot is a competitor to Roll Bit that allows users to play various casino games on Telegram. 
Credit: Conor O’Higgins via Midjourney

The Future of Crypto Trading Bots

As the crypto market continues to evolve, it’s clear that trading bots will play an increasingly important role. With their ability to automate complex trading strategies and execute trades at lightning speed, these bots have the potential to revolutionize the industry. As more and more traders recognize the benefits of these tools, we can expect to see continued growth and innovation in this space.

Negating the Risk of Telegram Bots

While the benefits of crypto trading bots are clear, security concerns should not be dismissed. As with all innovations in crypto, it doesn’t take long before the bad actors arrive to look for ways to exploit new users’ lack of knowledge for scams and phishing attacks, or even smart contract vulnerabilities or backdoors added by the bot creator.

Therefore, to avoid hacks or scams or rug pulls, it’s crucial to research any bot you choose to use and interact only with bots from verified developers. While many bots will create a new wallet for you, some applications will request access to your existing wallet. To be safe, users should create a new ‘burner’ wallet to connect to the bot and only transfer in an amount they’re comfortable losing. Also, it’s advisable that once a trade’s closed, a user should withdraw all their funds from that address as soon as they can. 

How to Get Started with Telegram and Discord Bot Traders

To get started with Telegram and Discord bot traders, follow these steps:

  1. Research your coin: do research on CoinGecko or CoinMarketCap on LISTED coins. Do note that any listed coin’s price will most likely be significantly inflated, therefore it’s important to study its 7-day or 30-day performance, and also review its total market cap and full diluted value. If you want to degen in really hard, you can look at DexTools to identify Telegram bot coins before they get picked up by these sites. Due to the frequency of scams however, this is not recommended. 
  2. Create an account: Use Coingecko or CoinMarket and follow their social links to check out the bot on social media and then its website. Visit the website and follow instructions, such as joining a Telegram or Discord channel. 
  3. Understanding bot commands: Familiarize yourself with the bot’s commands and features through the provided documentation.
  4. Risk management strategies: Set clear risk management parameters to prevent excessive losses.
  5. Use small investments: Begin with a small investment to get acquainted with the bot’s performance and effectiveness. 

Conclusion

As crypto trading bots proliferate, they’re going to be a necessary evil for those trading to stay relevant, with even leading exchanges like Binance now offering them. Telegram and Discord bot traders in particular represent an exciting opportunity as it simplifies the experience of getting trading bots to execute popular functions.

By automating complex trading strategies and offering a new level of convenience, these tools are helping traders of all levels to maximize their profits. As with any investment, it’s important to do your research and understand the risks involved. But with careful use, these bots offer a promising way to navigate the ever-evolving world of cryptocurrency trading.

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Regulatory Gaslighting? SEC and BlackRock To Decide Crypto’s Future In the US

Posted on by Werner

Introduction

In early June 2023, the US Securities and Exchange Commission (SEC) delivered the latest blow against the crypto industry and its investors in the United States by filing lawsuits against the two biggest US crypto exchanges, Coinbase and Binance, and adding several top cryptocurrencies to its list deemed to be securities.

With all appearing to be lost for the digital assets sector in the US, crypto firms and VCs like A16Z swiftly announced plans to move operations abroad at friendlier locations such as the EU, UK, Singapore and Hong Kong. 

The SEC’s actions ended a tumultuous first half of 2023, where federal regulators allegedly launched a coordinated attack, thought to be delayed retaliation for the investor carnage that FTX led in 2022. Dubbed Operation Choke Point 2.0, its perceived aim was to cut off all banking services to the US crypto industry – an aim in which it has largely succeeded, with many of the biggest crypto-serving banks closing their doors. 

Less than two weeks after the SEC actions, which spooked TradFi away from crypto, there was a stunning reversal of fortune. An unlikely savior in the form of BlackRock, the world’s largest financial assets manager, appeared and flipped the Crypto Fear and Greed Index meter back to the right. BlackRock announced it had filed its first Bitcoin spot ETF (exchange-traded fund) application with the SEC, rallying the price of Bitcoin to over $30,000. Interestingly, BlackRock listed Coinbase as its official crypto custodian. 

Soon, ETF filings from several other TradFi and previous crypto applicants rose from the dead, essentially looking to ride the coattails of BlackRock into the promised land of mainstream crypto adoption. BlackRock has over $10 trillion assets under its management, and a 1% allocation to Bitcoin could move the market in ways hard to imagine. BlackRock’s gold ETF track record shows this.

A Bitcoin spot ETF approved by the SEC has long been a crypto sector’s holy grail, but with dozens of applications rejected by the SEC with little to no explanation, it got to the point where Grayscale, creator of the flagging GBTC Trust, decided to sue the SEC in return for not approving its ETF filing. 

With a filing success track record of 575-1 and big sway in Washington, crypto pundits believe that BlackRock will finally achieve what countless other firms couldn’t: get a spot Bitcoin ETF approved and open the floodgates for mainstream crypto adoption. 

Was this all part of the plan, taking out the crypto incumbents in the US to make way for a Wall Street takeover? Or did BlackRock expedite its ETF launch and intervene in order to save the US crypto sector? Nobody knows yet. However, with the Bitcoin Halving less than a year away, the FOMO is back in crypto, despite fears of a recession and new interest rate hikes. 

Let’s review what we do know, and dissect the current landscape of crypto regulation in the US.

Current landscape 

While crypto regulation in other jurisdictions like the EU (under MiCA) and Hong Kong has become much clearer and better streamlined, the opposite is happening in the United States, where several federal agencies are involved in regulating this burgeoning sector, each with its unique mandate and approach. This is causing a lot of confusion in the process, despite President Biden’s March 2022 executive order to federal agencies to analyze the digital assets sector and make recommendations to help the US remain in front. 

Here’s a quick primer on the main players in the US: 

  • The Securities and Exchange Commission (SEC) oversees cryptocurrencies it deems to be ‘securities’: tokens sold to investors with the expectation of return. The SEC has been proactive in enforcement, taking action against several companies for violating securities laws, but has been criticized for failing to provide clear guidance in the process.
  • The Commodity Futures Trading Commission (CFTC) regulates cryptocurrencies it classifies as commodities. These tokens, often traded on exchanges, are used for hedging or speculating on price movements. In 2015, the CFTC issued a framework for regulating cryptocurrency derivatives, providing guidance on their classification and trading.
  • The Financial Crimes Enforcement Network (FinCEN) enforces the Bank Secrecy Act (BSA) with the aim of stopping anti money-laundering and countering the funding of terrorism (AML/CFT), requiring financial institutions to report suspicious activities. In 2013, FinCEN issued guidance for cryptocurrency businesses to comply with the BSA, requiring them to register with FinCEN and report suspicious activities. 
  • The Internal Revenue Service (IRS) treats cryptocurrencies as property for tax purposes, meaning transactions are subject to capital gains taxes. In 2014, the IRS issued guidance on how cryptocurrency businesses should report their taxes.
  • The Office of Foreign Assets Control (OFAC) also plays a significant role. OFAC, responsible for enforcing economic and trade sanctions, requires cryptocurrency businesses to block transactions involving sanctioned entities, and caused a lot of consternation when it blacklisted Tornado Cash, a cryptocurrency mixer.
  • The Office of the Comptroller of the Currency (OCC) charters and regulates national banks. Under its Acting Comptroller Brian Brooks, it confirmed in 2020 that national banks and federal savings associations could provide cryptocurrency custody services, allowing them to hold cryptocurrencies for their customers. Interestingly enough, after leaving office, Brooks served as the CEO of Binance.US until he suddenly resigned in 2021.

The SEC and CFTC have been vying for years in a turf war over who gets to officially regulate the crypto space, publicly classifying cryptocurrencies as ‘securities’ and ‘commodities’ respectively.

The SEC – being the much bigger regulator – considers itself to be the headlining agency, and of course, the government funding it attracts and financial settlements it collects from plaintiffs in court also serve as powerful motivation.

Operation Choke Point 2.0

Operation Choke Point 2.0 refers to the efforts of the US government, including the White House, Federal Reserve, OCC, FDIC, DOJ, and influential members of Congress, to limit the cryptocurrency industry’s access to traditional finance and ‘debank’ them. Their goal is to hinder the industry by making it difficult for traditional banks to work with cryptocurrencies. This operation is seen as a continuation of a previous campaign that targeted risky industries like payday lenders.

The strategy involves labeling banks that deal with cryptocurrencies as ‘high risk’. This leads to increased costs for these banks, restrictions on their activities, and the risk of facing negative evaluations from regulators. These measures drive a wedge between the US crypto industry and the banking system it needs to function.

US lawmakers, regulators, and agencies have shown an attitude towards cryptocurrencies best described as strong pessimism. This has resulted in negative actions like banks withdrawing services from crypto-related clients, and crypto companies being denied entry into the Federal Reserve system.

Some of the casualties so far in 2023 are: Signature Bank, Silicon Valley Bank, Silvergate, and Custodia, who all played a vital role to provide banking services to US crypto firms. 

SEC vs Crypto

The SEC shocked the digital assets sector in 2023 when it sued the world’s two leading exchanges, Binance and Coinbase, in short succession for a list of transgressions. This bold move has made the industry sit up and wonder if the organization (led by former MIT blockchain professor Gary Gensler) has a personal vendetta against the space. 

After 2022’s cascade of crypto custodial collapses (most notably FTX, which cost retail investors billions in lost assets) the government’s reserves of trust are running low for trustless technology. 

Of course, there lies the great irony: anyone that understands cryptocurrency and blockchain technology will know that it was created for this very reason: to negate the risks and drawbacks that come with using centralized financial intermediaries, most notably the risk of fraud, scams, and a gradual erosion of your portfolio through fees and monetary inflation. 

SEC chairman Gary Gensler openly stated in the last 12 months that he considers almost all cryptocurrencies – with the exception of Bitcoin – to be securities, in accordance with the Howey Test. He refused to label Ethereum (which the SEC previously declared was not a security) during his recent appearance in front of Congress, most likely due to legal considerations. The SEC is currently fighting the crypto sector in several battles, most notably the three-year long case against Ripple and XRP, which may end up providing very important legal precedent. 

Credit: Tesfu Assefa

The Case Against Binance and Coinbase

The SEC leveled serious charges against Binance and its CEO Changpeng Zhao (or ‘CZ’), alleging various legal violations, including failure to register as a broker-dealer, misleading investors, permitting unauthorized trading, mishandling customer funds, and inflating trading volumes. Binance’s considerable $1 billion legal fund implies a prolonged legal battle, which could significantly shape the future of the cryptocurrency industry.

As for Coinbase, the SEC alleges that it has operated without necessary licenses, acting as a stock exchange, broker, and clearing agency. Accusations include unregistered facilitation of trade for 13 cryptocurrencies considered as securities, and running an unregistered ‘staking-as-a-service’ program. These alleged breaches have reportedly yielded substantial illegal profits. The SEC aims to halt these operations and retrieve any illicit funds. Coinbase vehemently denies these allegations, citing a lack of clear regulatory guidelines.

Understanding the Howey Test

The SEC contends that crypto investors satisfy the Howey Test’s four conditions:

  1. they invest in projects’ initial fundraising rounds known as ICOs,
  2. cryptocurrencies are part of a common enterprise, traded on the same exchanges and subject to the same market forces
  3. investors expect profits,
  4. and their profits rely on the efforts of others

Coinbase CEO, Brian Armstrong, argues that not all listed coins meet these criteria, and that some initially deemed securities have become commodities due to their decentralized nature.

Conclusion

With so much confusion, crypto holders can be forgiven for feeling US regulators are gaslighting them. 

Are the SEC and other regulators under Biden trying to kill off crypto? Or are they trying to gentrify it enough so that TradFi giants like BlackRock can run the neighborhood as they see fit? 

Will all cryptocurrencies bar Bitcoin and Ethereum be deemed securities in the future? Will stablecoins be outlawed to make way for Central Bank Digital Currencies? Will we see a reform of securities law in the US to accommodate digital assets and move away from 1933’s outdated Howey Test?

This article provides answers to none of the above, and any article that claims to do so should be viewed with caution. There are likely many pieces in play that have not been revealed yet, such as the 2024 US presidential elections where crypto users’ votes can become pivotal and where a change of administration could see a big shift in strategy, reflected in new regulations and legislation. 

Also, the geopolitical game that the EU, UK, China and Middle East are playing to lure the best and brightest in blockchain to their shores will have to be addressed by the US sooner rather than later, and the SEC and Gensler in particular have been subjected to immense pressure from Congress to provide regulatory clarity in order to retain US crypto firms. 

The cases against Coinbase, Binance, and others like Ripple will continue likely for years, and serve as important battlegrounds for the future of crypto not only in the US, but globally. This is a war that the crypto industry has expected for years. 

As the saying goes: First they laugh at you, then they ignore you, then they fight you, and then you win. What victory will look like in the end and whether it brings a satisfying end to crypto’s crusade to reform the financial system remains to be seen. 

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VitalikVision: Ethereum’s 3 Transitions Needed For Global Adoption

Posted on by Werner

Introduction

Ethereum, the second-largest cryptocurrency by market capitalization, has been a driving force behind the blockchain revolution since its inception in 2015, driving innovation and adoption across the crypto frontiers.

It’s done this by birthing new sectors such as DeFi, NFTs and Web3, cross-pollinating other chains through its EVM compatibility, and nurturing disruptive new Layer 2 networks that use experimental new technology such as optimistic and zero-knowledge proof rollup to scale the entire Ethereum ecosystem. 

Renowned co-founder Vitalik Buterin serves as the frontman (and target of ETH meme lords) for the smart contracts pioneer, frequently sharing his thoughts on the future of the world’s “decentralized computer”, as Ethereum and its Ethereum Virtual Machine are often called, as well as a host of topics that range from anything from crypto adoption to stablecoins to ChatGPT.

Buterin recently outlined three significant technical transitions that Ethereum must undergo to mature from an experimental technology into a robust tech stack capable of delivering an open, global, and permissionless experience to average users. He believes that these transitions are not only crucial for Ethereum’s future but will also reshape the relationship between users and addresses on the blockchain.

As the leading smart contract-powered chain, the evolution of Ethereum will have important ramifications and lessons for both its Layer 2 networks and the slew of ‘Ethereum Killer’ Layer 1 chains, which will reshuffle their own value propositions and roadmaps in response. 

Ethereum’s Evolution: A Recent History

Before delving into the three transitions, it’s essential to understand Ethereum’s evolution from a fledgling blockchain with a unique mission to the decentralized foundation of the most important technological changes and expansions in the crypto space over the last five years. 

Ethereum has undergone several significant upgrades since its inception in 2015, each aimed at improving its scalability, security, and sustainability.

The Ethereum network last year underwent the ‘Merge’, transitioning from a Proof of Work (PoW) consensus mechanism to a Proof of Stake (PoS) model, making it 99.95% more energy efficient and much more attractive for institutions as an ESG-compliant investment. However, its staking mechanism has also put it in the potential crosshairs of US regulators like the SEC, who are on a witch hunt for any crypto asset it can define as a security. 

The Merge transition was a vital part of Ethereum 2.0, also known as Serenity, a long-awaited upgrade aimed at addressing the network’s scalability and security issues. The Merge followed the successful deployment of the Beacon Chain in December 2020, which marked the beginning of Ethereum 2.0.

Another significant upgrade was EIP-1559, introduced as part of the London hard fork in August 2021. This upgrade changed the way transaction fees, or ‘gas fees,’ are calculated on Ethereum, aiming to make them more predictable. 

It also introduced a mechanism to burn a portion of these fees, giving ETH the potential to become a deflationary asset over time, as we can see from this UltraSound Money chart below. Thanks to its PoS transition, over 3 million fewer ETH is now in circulation than if it had remained on the PoW network.

Credit: ultrasound.money

Looking ahead, Ethereum plans to introduce sharding, a scaling solution that involves splitting the blockchain into smaller pieces, or ‘shards,’ each capable of processing its transactions and smart contracts. Sharding is a hugely significant long term milestone expected to significantly increase Ethereum’s capacity and speed.

All these recent innovations have largely come without any major hiccups, a welcome departure from its first five years when upgrades such as 2019’s Constantipole were delayed several times, on one occasion at the 11th hour due to a possibly catastrophic re-entry attack vulnerability.

The Three Transitions

Credit: Vitalik.ca

In short, Vitalik proposes three evolutionary changes to the Ethereum network if it is to meet its full potential (and based on predictions by the likes of Van Eck Research, a potential price of between $11.8k to $50k by 2030 if the winds blow in its favor). 

These are: L2 scaling, wallet security and privacy. 

1) The L2 Scaling Transition: 

  • Vitalik has been outspoken in the past on the importance of Layer 2 scaling in solving Ethereum’s network congestion and fee issues, and promotes moving everyone to rollups like Optimism, Arbitrum and the new class of ZK-powered Layer 2s like ZKSync and Starknet. 
  • Rollups execute transactions off-chain and then post the data on-chain, significantly increasing transaction throughput. Without this transition, Ethereum risks becoming too expensive for mass-market products, leading to the adoption of centralized workarounds. 
  • For instance, the Ethereum network currently processes around 15 transactions per second (TPS), but with rollups, it’s expected to handle thousands of TPS, making it more suitable for mass adoption.

2) The Wallet Security Transition: 

  • This transition involves moving Ethereum ecosystem users to smart contract wallets. Vitalik is a big proponent of crypto self-custody, particularly through the use of multisignature (multisig) wallets, and in 2021 he proposed the use of social recovery wallets to help Ethereum users protect their assets. 
  • These wallets offer additional security features, such as multi-signature transactions and spending limits. Without this transition, users may feel uncomfortable storing their funds and non-financial assets on Ethereum, leading to a shift back towards centralized exchanges (centralized workarounds) that don’t require the safekeeping of a private key or recovery seed.

3) The Privacy Transition: 

  • Vitalik’s third transition requires ensuring that privacy-preserving funds transfers are available, and that privacy is preserved with other developments like social recovery, identity, and reputation. Without this transition, the public availability of all transactions could lead to a significant privacy sacrifice for many users, pushing them towards centralized solutions that offer more privacy.

The Implications of the Transitions

Buterin emphasizes in his article that Ethereum can’t stand without all three legs of this “Ethereum Transition triangle”. It would risk failure due to high transaction costs, user discomfort with storing funds, and privacy concerns.

Here is an overview and takeaways of the more technical parts of the blog post:

  1. The three transitions will radically reshape the relationship between users and addresses: 

The transitions will change the way users interact with Ethereum, requiring deep changes from applications and wallets. 

  1. The three transitions and on-chain payments (and identity): 

Buterin discusses the challenges introduced by the transitions, such as the need for more information than just a 20-byte address for simple actions like payments. 

  1. The three transitions and key recovery: 

Buterin proposes an architecture that separates verification logic and asset holdings to address the issues of key changes and social recovery in a many-address-per-user world. 

  1. Lots of secondary infrastructure need to update: 

Buterin highlights the need for application-layer reform and provides examples of areas that need to be updated.

  1. Wallets will need to secure both assets and data:

 In the future, wallets will not only protect authentication credentials but also hold user data, increasing the risk of data loss. 

  1. Back to identity:

Buterin concludes by discussing the future of user identity on the blockchain, suggesting that the concept of an “address” will have to radically change and proposing potential solutions.

Let’s dig a little deeper.

On Users And Their Wallet Addresses

Vitalik anticipates a radical transformation in the dynamics between users and their addresses due to three key transitions.

  1. In a Layer 2 scaling world, users will exist on multiple Layer 2s, meaning the days of a user having only one address will be gone. For example, a user could have an account on Optimism for participating in a DAO, another on ZkSync for a stablecoin system, and yet another on Arbitrum for a different application. This will make the concept of a single address obsolete.
  2. Secondly, the introduction of smart contract wallets will complicate the user-address dynamic. While these wallets enhance security, maintaining the same address across the Ethereum Mainnet (Layer 1) and various Layer 2 solutions becomes complex due to the technical differences between these environments.
  3. Lastly, the pursuit of privacy could lead to an explosion in the number of addresses. Privacy schemes like Tornado Cash bundle funds from many users into a single smart contract, using internal systems for fund transfers.

On Payment Challenges:

Ethereum is exploring cross-layer payment solutions in its Layer 2 ecosystem, such as automated functionality for consolidating funds and cross-L2 bridging systems. Transitioning towards smart contract wallets will require technical adjustments – such as tracking Ethereum transfers from Externally Owned Accounts (EOAs) and those sent by smart contract code.

On Privacy Concerns: 

With privacy remaining a key component of blockchain’s allure, Ethereum is introducing stealth protocols and meta-addresses. These secure digital boxes hold both a unique ID for spending and the key to lock or unlock your information securely. They work well with other privacy-focused systems, even those not based on Ethereum, like PGP keys.

On Data Storage:

Lastly, Ethereum is addressing data storage issues, particularly in the sphere of Zero-Knowledge (ZK) proofs. For instance, Zupass, a ZK-SNARK-based identity system dubbed Buterin’s “social experiment”, uses ‘stamps,’ a privacy-centric version of POAPs (Proof of Attendance Protocol). 

To mitigate the risk of data loss or unauthorized access, Zupass proposes storing the key across multiple devices or employing secret sharing among trusted individuals. Digital wallets are likely to manage both asset and encryption key recovery in the future, making the blockchain experience more user-friendly.

On Key Recovery:

These transitions pose significant challenges due to the intense coordination required to resolve them. However, Vitalik proposes several solutions, including keystore contracts, which exist in one location and contain verification logic for addresses on different Layer 2s. 

Spending from these addresses would require a proof going into the keystore contract showing the current spending public key. Another solution is to put more things into the keystore contract, such as various information about how to interact with the user. This contract could serve as the user’s primary identifier, with the actual assets they receive stored in different places.

Credit: Tesfu Assefa

The Future of Ethereum

Vitalik’s vision for Ethereum’s three transitions paints a picture of a more scalable, secure, and private blockchain. The transitions are not just about technical feasibility but about actual accessibility for regular users. Achieving scalability, wallet security, and privacy is crucial for Ethereum’s future. 

The challenge is to ensure that these transitions do not result in an opaque “tower of abstraction” where developers struggle to make sense of what’s going on and adapt it to new contexts. 

To maintain and continue to grow the incredible network effect that it currently has, Ethereum must rise to meet this challenge to ensure its future success. While the road ahead is fraught with challenges, the potential rewards are immense. As Ethereum continues to evolve, it’s clear that these transitions will play a crucial role in shaping it and the crypto sector’s future.

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