San Francisco-based Coinbase, one of the United States largest cryptocurrency exchanges, is following up their most profitable fiscal year with aggressive expansion, making a number of big name acquisitions such as Earn and Cipher Browser, and rolling out an extensive suite of new products aimed at satisfying the needs of institutional investors.

As part of their expansion strategy, Coinbase yesterday announced the rebranding of their flagship GDAX trading platform to Coinbase Pro, along with the acquisition of the 0x protocol-based decentralized exchange Paradex. Through Paradex, Coinbase will first offer peer-to-peer trading of ERC20 tokens outside of the US, with plans to bring the service to the US after making some compliance-related changes.

The news sent waves throughout the cryptocurrency community, but one important part of Coinbase’s announcement was mostly overlooked: Coinbase plans to offer crypto staking in the future. According to Coinbase Pro GM David Farmer via an official Coinbase blog post, the firm’s vision “is to give customers the ability to participate in services like staking and protocol voting that are distinct to crypto,” adding:

“As the decentralized ecosystem advances, we expect there will be many more opportunities for customers to interact with digital assets in new and unique ways.”

Cryptocurrency staking is a process in which investors can generate and earn passive income simply by holding coins in their wallet, and leaving it open. Coinbase adding staking would make their platform even more attractive for long-term ‘HODLers,’ as long term investors can keep their coins safely in a secure, insured wallet, all while generating interest on their holdings.

Coinbase Pro is available as of this writing, while GDAX will cease to exist as of June 29th in what Coinbase calls a seamless rollover. No timeframe was given on when staking may be expected, but it’s clear that providing investors with features that are unique to crypto are among Coinbase’s top priorities.

Image courtesy of Carty Sewill, http://cartyisme.com/

Ethereum Overview

Ethereum has maintained its position as the second largest cryptocurrency for long enough that it appears firmly established as a stable entity in the cryptocurrency space. In addition to its popularity and significant market capitalization, it is also targeting a slightly different use-case than Bitcoin, meaning it has the potential to forge its own identity, separate from Bitcoin and other contenders.

Purpose

Ethereum was designed from the start as a platform to develop “smart contracts”. Essentially, a smart contract is a way for two people to record any kind of exchange, and with a blockchain being an immutable record, that record can be referenced and verified by anyone. Currency is merely one form of contract, and the main currency on the Ethereum blockchain is their native token, called Ether. While other forms of contract besides currency are theoretically possible, by far the most popular use of this blockchain has been to create new alternate currencies. These additional currencies on the blockchain are referred to as ERC20 tokens. ERC stands for “Ethereum Request for Comments”, and 20 is a number designation for when the standard was created that allowed for new token creation. By using this blockchain, new coins are able to leverage the established trust of Ethereum, which could be seen as an advantage over other coins that start from scratch.

Ethereum is currently the go-to standard for smart contracts and token creation. However, since its creation, there are many new blockchains which aspire to capture the smart contract market, in whole or by focusing on niche applications. Ethereum has a considerable head start, but things can change surprisingly fast in the world of cryptocurrencies.

Technical

Ethereum can be mined on Graphics Processing Units, or GPUs, which are a type of computer chip that has long been available for people to purchase for their computers to improve the visual experience of games, media, and other uses. By making Ethereum available to mine on widely available hardware, it takes advantage of an existing broad base of computing power. However, one disadvantage to using GPUs instead of a dedicated computer chip is that computations are slower and energy consumption is higher, and subsequently it is relatively a more expensive process.

Ethereum encrypts all transactions with a hashing algorithm called Kekkak-256, which provides a similar level of security to the SHA-256 algorithm favored by Bitcoin. Also, like Bitcoin, all transactions are pseudo-anonymous, meaning that users of the system are not named in any way on the system, but the numbered transactions themselves can be viewed publicly on a blockchain explorer. (https://etherscan.io/ for example)

Market

As of May 2018, Ethereum has a market capitalization of roughly 79 billion US, which is less than half of Bitcoin, but more than double the next coin down the list — Ripple, at roughly 3.5 billion. As one goes down the list of coins, the volatility increases exponentially, but Ethereum, near the top, has so far mostly been on the rise for over a year and a half. It is, however, notable that the initial surge in investment in Ethereum coincides with the beginning of the highly fractious scaling debate within the Bitcoin community. While this may simply turn out to be the catalyst that helped launch Ethereum into its own future, it may also indicate that its success may still be contingent on the fortunes of its predecessor, Bitcoin.

Image courtesy of Carty Sewill, http://cartyisme.com/

hack

Many cryptocurrency exchanges and brokerage services have suspended ERC20 token deposits after researchers discovered a bug in at least a dozen smart contracts that allowed attackers to generate a virtually unlimited amount of tokens.

Researchers say that the bug, which was discovered over the weekend and is known as a type of integer overflow error, allowed attackers to manipulate a _value parameter that ensures that the value of the tokens transferred through a transaction is lower than the total number of tokens created by the contract. In short, the attackers managed to print a virtually unlimited number of tokens out of thin air.

In one instance, the attackers managed to generate 65,133,050,195,990,400,000,000,000,000,000,000,000,000,000,000.891004451135422463 fraudulent units of SmartMesh (SMT), whose total token supply is supposed to be fixed at 3,141,592,653.

In another, the attackers created 57,896,044,618,658,100,000,000,000,000,000,000,000,000,000,000,000,000,000,000.792003956564819968 BeautyChain (BEC) tokens through a single transaction.

Researchers say that they have found at least a dozen tokens that are vulnerable to the bug, though they have not provided an exhaustive list.

Importantly, the attack appears to have been executed through a function — batchTransfer — that is not present in the official ERC20 standard. This is one reason that only a small number of tokens appear to be vulnerable to the bug.

Nevertheless, many exchanges — including OKEx, Changelly, and Poloniex — suspended ERC20 deposits across the board while they investigate the issue further and have rolled back some trades involving the fraudulently-created tokens.

“To protect public interest, we have decided to suspend the deposits of all ERC-20 tokens until the bug is fixed,” OKEx wrote in a statement. “Also, we have contacted the affected token teams to conduct investigation and take necessary measures to prevent the attack.”

SmartMesh — one of the affected cryptocurrencies — said that it has reached agreements with a number of exchanges to “resolve losses” associated with the bug. The SmartMesh Foundation will also destroy an equivalent amount of SMT to the number of counterfeit tokens that are unable to be frozen or recovered to ensure that SMT’s token supply remains consistent.

Featured Image from Pixabay

 

Digital currency exchange giant Coinbase announced via their official blog that they’ll soon be supporting Ethereum-based ERC20 tokens across their various platforms, including GDAX and the newly launched Coinbase Index Fund.

Coinbase currently offers only four cryptocurrencies: Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. The addition of ERC20 token support opens up the possibility of Coinbase adding one or more of the over 500 ERC20 tokens that exist on the market currently.

Coinbase itself only lists cryptocurrencies after they’ve been listed on GDAX, though Coinbase points out that just because an asset is offered on GDAX doesn’t necessarily determine if it’s offered via Coinbase as well. Coinbase cites liquidity and price range as factors that go into choosing an asset for listing.

On GDAX, Coinbase states that it’s waiting for further clarity on regulation and the effect it may have on the classification of specific assets (ie. a security, commodity, or currency).

Both Coinbase and GDAX supporting ERC20 tokens means there will soon be a pathway to recover any funds customers lost by sending ERC20 tokens incorrectly to an Ethereum address – a mistake that is surprisingly common.

Coinbase offers secure wallets for substantial value crypto holders through Coinbase Custody, which will also support ERC20 tokens. Coinbase Custody too is likely to offer additional asset storage beyond what is offered via GDAX or Coinbase proper.

Lastly, for Coinbase’s newly launched Coinbase Index Fund, the Coinbase Asset Management division will follow their previously announced approach, that any assets added to GDAX will automatically have its market cap applied to the Index Fund’s weighted average.

Coinbase took the opportunity to reiterate that despite the newly added support for ERC20 tokens, no specific asset support or listings are being announced at this time.