Hype, crackdown, and sudden wealth: the life of blockchain players in the cold winter

This article was first published on Tencent Technology. The authors are BlockBeats 0x66 and 0x29. Any reproduction without permission is prohibited.

At the end of 2018, facing the bearish market environment of the blockchain industry, many people still had expectations for 2019. Unfortunately, people's expectations lasted from the beginning of the year to the end of the year.

Because of last year's bear market, next year's halving of Bitcoin production capacity, and KOLs' predictions on Bitcoin prices, people believe that Bitcoin prices will rise, but what is uncertain is how high Bitcoin will rise this year. Therefore, every factor or event that can trigger a rise in Bitcoin prices can stir people's nerves and attract everyone to enter the market. People don't know which information will arouse market sentiment, and they dare not miss anything.

Judging from the aspect of stirring people's nerves alone, the performance of the blockchain industry in 2019 was not bad. A lot of things happened in the industry, and it seemed that many trends were introduced. New terms and new ways of playing were the most prominent features of this year. New terms appeared every few months, grabbing people's attention.

But have these new terms, which are changing all the time, brought about any changes in the industry?

The price curve is the psychological curve of people in the market. The most direct perception is: if you bought Bitcoin from the market on December 16 this year, the price at that time is the same as the price in March this year. No matter whether it rises or falls in the middle, you can still buy Bitcoin at the same price as 9 months ago.

Let’s take a look at the factors, events, and people that caused people’s emotions to rise and fall throughout the year, and ultimately return to the starting point at the beginning of the year.

Crack down on blockchain crime

Regulation is a key word that cannot be avoided in the blockchain industry in 2019.

In the second half of 2019, Shenzhen was the first to launch a new round of nationwide cleanup and rectification.

On November 21, the Office of the Leading Group for Special Rectification of Internet Financial Risks in Shenzhen issued a "Risk Warning on Preventing Illegal Activities of 'Virtual Currency'" on the official website of the Shenzhen Local Financial Supervision and Administration Bureau, and launched an investigation and evidence collection on illegal activities such as virtual currency speculation.

Shanghai also spoke out soon afterwards. On the afternoon of November 22, the Shanghai Financial Stability Joint Conference Office and the Shanghai headquarters of the People's Bank of China also stated that they would increase regulatory and prevention efforts to crack down on virtual currency transactions. Illegal activities would be dealt with immediately upon discovery.

On the same day, people close to the National Internet Financial Risk Special Rectification Team Office clearly pointed out that blockchain is not equal to virtual currency. At present, all promotional activities about virtual currency under the banner of blockchain are illegal and against regulations. The regulatory authorities have not changed their attitude towards cracking down on virtual currency speculation and virtual currency trading venues.

According to the Securities Times, Shanghai, Beijing, Dongguan, Hangzhou, Shenzhen, Henan and many other places have introduced regulatory policies for cryptocurrencies. In a month, relevant policies have been introduced intensively. This year's regulatory atmosphere is obviously different from previous years. The most obvious thing is that criminal suspects in the cryptocurrency industry have been arrested this year.

On October 30, Beijing police cracked a fraud case of an illegal digital currency trading platform and arrested dozens of suspects. This is not an isolated case. A source revealed that because the CEO of the trading platform IDAX Global disappeared, users were unable to use the wallet function on the trading platform. IDAX has been filed and "the police have arrested many people in Shanghai."

On December 23, the official Weibo account of the Taiyuan Public Security Bureau of Shanxi Province disclosed that the Taiyuan Public Security Yingze Branch successfully cracked the city’s first case involving the Yunbi platform, which was disguised as a blockchain-based virtual currency transaction. 72 criminal suspects were arrested, more than 300 victims, and the case involved a value of more than 30 million yuan.

It is obvious that regulators will not be lenient towards illegal financial activities conducted under the banner of blockchain.

Model coin disguised as a Ponzi scheme

After the Qingming Festival this year, the three words that appeared most frequently in the industry community were "model currency".

"Model coin" is a synonym for a type of project, and their way of playing is called "following the model". There has never been a specific definition of the word "model". Generally speaking, it is all ways that can make the price of a project rise, including recruiting people, pyramid schemes, high control, etc., which make investors believe that the price can rise. This is the model.

In a bear market, model coins are surprisingly popular.

In May this year, a project called (VDS) became popular. VDS claims to be a resonance coin and belongs to a type of model coin.

According to the rules of VDS, investors need to deposit Bitcoin into a pool in exchange for VDS. The earlier you deposit, the more VDS you can redeem. When the project was just launched, one Bitcoin could be exchanged for more than 3,700 VDS. As the superiors continued to pull in subordinates and more and more users participated, the exchange ratio became smaller and smaller. The goal of VDS is to have a 1:1 exchange ratio with Bitcoin.

No one expected that VDS would have such an amazing ability to attract money. In just two months, it attracted 30,000 BTC, and the price of VDS also soared from 2 yuan to 80 yuan, a 40-fold increase. The total market value once soared to 13th in the world, second only to Monero.

At its peak, VDS even made the once less famous trading platforms popular. With the help of the huge traffic of VDS, the second-tier trading platforms became the hottest platforms in the community. They became another kind of beneficiaries. The platform token skyrocketed, which brought huge traffic and rich income from listing and handling fees.

Project owners were also affected by the model coins. First, they imitated VDS and tried to attract a wave of popularity in the same way. At the same time, some projects that had already been launched also chose to follow the model for traffic. For a time, the model became the mainstream, and projects that did not follow the model had difficulty in the market at that time.

But the dealer always has to leave the market, and the money he earns is always from the investors who come later. The collapse of these model coins one by one finally made those who believed they could successfully leave the market believe that they could never successfully leave the market.

The model coin that emerged during the Qingming Festival this year has ceased to be the focus of industry attention in less than half a year.

Blockchain financing innovation

The first new term in 2019 is none other than IE0. IE0 — Initial Exchange Offering, the first token issuance by an exchange.

The concept of IE0 is not difficult to understand. It means that a new project is first launched on a trading platform, and users can only invest in the new project through the platform token of the trading platform. Binance invented this gameplay.

On January 28, Binance launched the Launchpad section. The first IE0 project was BTT (BitTorrent), which was recently acquired by Justin Sun. Within 15 minutes, 60 billion tokens were sold out. Trading was opened 3 days later, and the highest price in the secondary market increased 15 times compared to the IE0 crowdfunding price.

At the beginning of this year, when investors were losing money no matter what they invested in, a strategy that allowed investors to make 15 times the money emerged, just like the sudden appearance of the iPhone among full-keyboard phones such as Nokia, BlackBerry and Motorola in 2007.

Thus, the first hot spot appeared in 2019, and mainstream trading platforms rushed to announce the provision of IE0 sections. The time for each crowdfunding rush was calculated in seconds. The shorter the time, the more popular the platform and project.

Investors also began to think of ways. Due to the restrictions on participating users and winning tickets by the trading platform, investors began to purchase overseas KYC, book Internet cafes, hire people to buy, write program scripts to buy, or modify browser codes to buy, etc., just to be able to participate in this rare "wealth-making" event.

When IE0 was at its peak, some players even booked Internet cafes to buy it.

According to incomplete statistics, there are more than 40 projects participating in IEO. When the enthusiasm of the public is the highest, the trading platform will launch an IEO every week, and some trading platforms can launch 4 IEO projects at a time. Some platforms are not satisfied with IEO. In order to attract traffic, they take advantage of the popularity of IEO and launch other IXO games or sell at half price. IEO has brought traffic to the trading platform, and the platform's activities have come one after another. In the context of the slow rise of Bitcoin, people have the illusion of a bull market.

Illusions are always unreal.

This kind of game of exchanging low prices for liquidity in a bear market, the fundamental factors that support the continued rise in project prices mostly do not exist. Therefore, most of the tokens launched under the name of IE0 have fallen one after another after a sharp rise at the opening. Investors who participated in IE0, those who left early will make a profit, while those who left late can only be forced to take over.

After the early craze, most of the once popular IEO projects have broken their issue prices, and many projects have seen a drop of 80%-90%. Investors’ enthusiasm has faded, and this carnival that started in early 2019 did not last for a year.

Libra, the global stablecoin, is under attack from around the world

Facebook's cryptocurrency stablecoin Libra is undoubtedly the highlight of the industry worldwide this year.

On June 18, with the entire industry eagerly waiting, Facebook, an Internet giant with 2.7 billion users worldwide, officially announced its cryptocurrency plan. In this 28-page white paper, the planning, technology, members, and future plans of the cryptocurrency stablecoin Libra are introduced in detail, and it is pointed out that "Libra's mission is to build a simple, borderless currency and financial infrastructure that serves billions of people."

The issuance of digital currency by an Internet giant with 2.7 billion users, equivalent to more than one-third of the world's population, has once again attracted people's attention to the blockchain industry, which has always been full of labels such as "bubble" and "scam". Regarding this newly released white paper, practitioners in the financial, Internet, and blockchain industries, and even the President of the United States, expressed their comments from different perspectives.

But no matter how people evaluate Libra, it cannot be denied that the emergence of Libra is a perfect public relations for Bitcoin, using Facebook's size to promote Bitcoin worldwide. The price speaks for itself. Four days after Libra appeared, the price of Bitcoin once again reached $10,000 after a lapse of 15 months, and then continued to rise to $14,000.

$14,000 is the highest point of Bitcoin price this year.

KuCoin data shows that Bitcoin is approaching $14,000 on June 26, 2019

However, even with the giants leading the charge, the advancement of Libra is still full of difficulties. After experiencing the "multiple blows" of public opposition from Germany, France and Italy, concerns from regulators, the withdrawal of association members, and Zuckerberg's visit to Congress to be questioned by lawmakers, whether Libra can be smoothly promoted remains a focus of attention.

Recently, a researcher discovered that there have been some subtle changes in the content of the Libra white paper, especially regarding how the reserve assets themselves operate. In the original version of the white paper, the part that "the interest on the reserve assets will be used to pay system costs, ensure low transaction fees, pay dividends to investors who provide funds to launch the ecosystem (here refers to the Libra Association members), and support further growth and adoption." was changed to "The interest on the reserve assets will be used to pay system costs, ensure low transaction fees, and support further growth and adoption." The part about dividends was removed.

Some analysts said that this change is intended to minimize the risk of Libra being regarded as a security and to remove as many obstacles as possible on the road to Libra's compliant launch.

Canaan Creative goes public

On November 21, as everyone expected, Canaan Inc., the world's second-largest Bitcoin mining machine manufacturer, successfully landed on the Nasdaq in the U.S. with the stock code CAN. It issued 10 million ADSs with a U.S. stock price of $9, firmly establishing itself as the "No. 1 stock in the global mining circle."

Due to the uniqueness of mining machines, mining machine manufacturers including Bitmain have sought to go public many times, but all to no avail. The profits of mining machine manufacturers are closely related to the price of Bitcoin. When the price of Bitcoin rises, the supply of mining machines exceeds the demand; and when the price of Bitcoin falls to the point where mining machines have no profit, it is difficult to sell the mining machines.

Canaan's prospectus also shows the dependence of mining machine manufacturers on the price of Bitcoin. In the first half of 2018, the price of Bitcoin reached an all-time high of $19,000, and Canaan could earn 220 million yuan in revenue; but in the first half of 2019, the price of Bitcoin climbed from $3,500, and Canaan could not make a profit at all.

After three failed attempts at going public, Canaan Creative finally succeeded in listing on the Nasdaq in 2019, which also announced that blockchain companies have gained recognition from the traditional financial community.

However, the listing of mining machine manufacturers did not bring any fluctuations to the blockchain industry. The price of Bitcoin did not rise, and Canaan Creative's stock price had already fallen below the issue price.

The blockchain internal financial model has been implemented

These are two of the few concepts this year that can be seen as the development process of the industry.

The story of Staking starts with the consensus mechanism PoS. Different from the node mining represented by Bitcoin's PoW consensus, the nodes of the PoS consensus network first hold tokens and then pledge the tokens to obtain the system's token rewards. In short, from the perspective of currency standard, Staking is current storage.

Starting with Tezos, Cosmos, Algorand and other star public chain projects have successively announced the gameplay of Staking, and the trend of Staking has begun to rise. Ordinary players, project parties, mining pools, wallets, trading platforms, node service providers and other entities have also entered the market and gradually formed a scale.

In order to attract users, the gameplay of Staking is also constantly evolving. At the beginning, users actively locked up their positions and pledged to get rewards, but the unlocking time was long. For example, the unlocking time of Cosmos takes 21 days, and users cannot perform any operations during these 21 days. In response to user pain points, some trading platforms have launched soft lock-up services, such as KuCoin Exchange's Soft Staking currency holding rebate service. Users do not need to actively stake on the platform, and can trade or withdraw freely, while receiving daily staking income rewards, eliminating the trouble that users have more coins after Staking, but their assets have shrunk due to falling coin prices.

Now it seems that the popularity of Staking is not without reason. Investors who are optimistic about the project in the long term can pledge their tokens to node service providers to obtain corresponding inflation income. This is also an option for coin holders to obtain stable token income in a bear market.

Another thing worth mentioning is decentralized finance - Defi. This is not a new concept this year, but it has exploded this year.

The core principle of DeFi is to provide a new, permissionless ecosystem of financial services without any centralized authority, accessible to anyone in the world.

The significance of decentralized lending is that it treats everyone equally, so that anyone holding digital assets can get reasonable treatment. Although traditional private lending is regulated, the demand for lending has not decreased. Decentralized lending minimizes the cost of trust. As long as you trust the code, you can complete the loan.

Top capital is also optimistic about this field. DeFi applications on Ethereum, including MakerDAO, Compound, dydx, etc., have received investment from top capital such as a16z and Polychain Capital. Compared with last year, the scale of assets locked in DeFi applications has increased by more than 10 times, from US$50 million to nearly US$1 billion today.

The decentralized lending products or arbitrage platforms that have developed from this are also constantly enriching and prospering, from Bloqboard, Compound, Dharma, to InstaDApp, Lendroid, Zerion, etc. Although such products have not reached ordinary investors, it does not prevent them from becoming one of the most promising types of financial products.

However, Staking and Defi are not perfect either. The most obvious problem is that when the price plummets and falls to the point where Staking and Defi can no longer be sustained, how can users still participate in Staking and how can they use Defi?

$0.32 Bitcoin

August 23, 2019, may be remembered in the history of cryptocurrency. On that day, a computer room of Amazon Cloud Server (AWS) failed, and all enterprises and users using AWS Tokyo servers were affected, including cryptocurrency exchanges.

The overseas trading platform Binance was the first to be affected. The market maker made an error when reading the price data. The imperfection of the market maker's trading program at the code level caused the program to deviate from the price judgment. The prices of currencies on other platforms anchored to Binance prices, such as BitMax, Citex, Hopex, and BKEX, all fluctuated violently.

Someone bought 45 bitcoins at a price of $0.32 per bitcoin on Citex, which means he bought bitcoins worth 3.15 million yuan for 100 yuan. Someone also sold ADA worth 0.35 yuan for 163 Ethereum, which is 221,000 yuan.

There are also many people who made hundreds of thousands or even millions of dollars in just 5 minutes. There is nothing wrong with the blockchain technology, but this technical accident made people dream back to 2009, when they bought Bitcoin at an unexpectedly low price.

Who is Satoshi Nakamoto?

Let’s start with Satoshi Nakamoto, the creator of Bitcoin . The first big event of this year is still “Who is Satoshi Nakamoto?”, a topic that has dominated the hot search list in the blockchain industry for several years.

On February 8 this year, Craig S. Wright, the representative of BSV, which had just forked from the BCH network in November last year, who claimed to be Satoshi Nakamoto in 2016, officially expressed his attitude in public for the first time. He published an article on his Medium titled "I Was Satoshi Nakamoto."

At the same time, he also released some evidence on Twitter to prove that he is Satoshi Nakamoto, including letters with the Australian government, early Bitcoin white papers, etc.

Soon, netizens found evidence that Craig had forged the documents. Although Craig denied it, most people still chose not to believe him because of his previous radical remarks.

The BCH camp was also not idle. On the same day that Craig posted the article, BCH's chief developer Amaury Séchet stood up and also said on Twitter that he was Satoshi Nakamoto and published an ECDSA digital signature.

The purpose of a digital signature is to verify a public key. Of course, the signature given does correspond to Satoshi Nakamoto’s public key, but some people say that the signature can be forged, which does not fully confirm that he is Satoshi Nakamoto.

The fight for the title of "Satoshi Nakamoto" lasted for a few days before coming to an end. Although some activities later appeared, claiming that "we can tell you who Satoshi Nakamoto is at a certain time tonight", they were all marketing methods for promoting their own projects.

Ten years after the emergence of Bitcoin, there is still no conclusion on "who is Satoshi Nakamoto".

After reviewing the development of the blockchain industry in 2019, the main theme is a cold winter, but it is still an unusual year.

As an industry standing at the forefront of the storm, from IE0 to resonance coins and model coins, to the now increasingly mainstream Staking and DeFi, as well as the highly anticipated Libra and DCEP, and finally to the successful listing of Canaan Creative, these new things produced in 2019 are like pebbles that, after being thrown into the big pool of blockchain, have caused splashes of water, and by the end of the year, have returned to calm.

In May next year, Bitcoin will officially be halved. Whether the long-awaited halving effect will come, and what new concepts and trends will emerge in the crypto field in the new year, remains unknown. However, in this rapidly changing industry, endless variables also mean endless opportunities.

The following is a summary of the variable events in the blockchain industry in 2019 by BlockBeats:

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*BlockBeats reminds all investors to guard against the risk of chasing high prices. The views expressed in this article do not constitute any investment advice.