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‘Bitcoin is a Constantly Evolving Suite of Protocols’ 101
Source: iStock/allanswart

Bictoin (BTC) managed to bring in numerous developers to improve and build innovations on its underlying code base, from layer 2 technologies to emerging smart contract solutions, but it remained the same – nobody so far managed to change its core properties, says Lucas Nuzzi, director of technology research at Digital Asset Research, a cryptocurrency research company. Not everybody agrees with Nuzzi’s conclusions though, the Ethereum (ETH) camp especially.

“So much is happening at the many layers of Bitcoin’s technology stack, it can be incredibly difficult to keep track of emerging solutions,” says Nuzzi in his recent report and adds that “Bitcoin, in its totality, is a constantly evolving suite of protocols.” This is due to two of BTC’s biggest values, he says:

  • no single party can dictate how Bitcoin evolves;
  • the lack of centralized control protects Bitcoin’s monetary properties.

But “In spite of the limits enacted by this constitution, innovation is still flourishing,” tweets Nuzzi. “There’s too much at stake to move fast and break things, so innovation is implemented as modules. These layers of software can ultimately fail without infringing upon the monetary system.” When it comes to BTC, leadership is minimized, says Nuzzi, and its technology is a sum of dozens of interconnected protocols. It is due to the inflexibility of Bitcoin’s core layer that several additional protocols specializing in various applications have been created in the Cryptoworld.

Nuzzi shared a diagram, in an “attempt to map all relatively new initiatives and showcase a more complete picture of Bitcoin’s technology stack.”

(Find the full size diagram here.)

‘Bitcoin is a Constantly Evolving Suite of Protocols’ 102
Source: Lucas Nuzzi

Layer 2: the Lightning Network

When it comes to adoption, metrics commonly looked at are the number of channels and total BTC locked in Lightning, which some find are in decline, but Nuzzi warns that these metrics are fundamentally flawed given the way Lightning operates.

“One of the most underrated virtues of the Lightning Network is its straightforward privacy properties,” he says. He cites the estimates of Christian Decker, core tech engineer at Blockstream (an important contributor to the Lightning Network), which says that 41% of Lightning channels are private, and 59% are public.

Activity happening within these channels is not captured by popular Lightning explorers. As such, an increase in private usage of Lightning results in a decrease in what can be publicly measured, leading observers to erroneously conclude that adoption is down.

Though there are “substantial usability barriers” to overcome, among the interesting recent developments in layer 2 privacy, Nuzzi mentions WhatSat, a private messaging system atop Lightning, and points out the growth of Lapps (Lightning Applications).

Smart contracts

There have recently been new approaches to smart contract architecture in Bitcoin, says Nuzzi, which can minimize unpredictability and provide vast functionality. Among these we find:

  • Merkleized Abstract Syntax Trees (MAST), prompting the creation of more supporting technologies that attempt to optimize the trade-offs between security and functionality, such as Taproot;
  • a new architecture for the implementation of covenants, or spend conditions, on Bitcoin transactions;
  • Schnorr signatures as the basis of potential new smart contract applications.


Since Bitcoin mining pool operators still retain a power structure that can be further decentralized, new technologies are being created to try to flip that power structure. Two relevant changes have been seen here:

  • the second version of Stratum, the most popular protocol used in mining pools – Stratum V2, which “enables mining pool constituents to decide the composition of the block they will mine and not the other way around”,
  • reignited interest in hashrate and difficulty derivatives.


“Although it is likely that privacy in Bitcoin will continue to be more of an art than a science,” this area has also seen interesting innovations, writes Nuzzi, and adds:

the biggest impediment to private transactions across digital assets is the fact that most solutions are half-baked. Privacy assets that focus on transaction-graph privacy often neglect network-level privacy, and vice versa. Both vectors suffer from a lack of maturity and usage, which makes transactions easier to de-anonymize via statistical traceability analysis at either the P2P network layer or the blockchain layer.

Among the solutions for these issues, Nuzzi mentions: the privacy-preserving network protocol Dandelion, a new transaction relay protocol Erlay, as well as CoinJoin’s P2EP, CheckTemplateVerify and the proposal of SNICKER (Simple Non-Interactive CoinJoin with Keys for Encryption Reused), a new way to generate CoinJoins with untrusted peers.

Pro and Contra and ETH

On the one hand, there are certainly a number of supporters online who found the report an interesting and informative contribution to the community. There are also those, from the Ethereum camp mostly, who didn’t think much of the diagram’s value.

Others persisted that BTC is old technology, prompting another ‘new vs old vs innovative vs limited’ debate.

And then, ETH was mentioned. Some ETH supporters didn’t think BTC is that impressive or deserving of the praise, with BTC fans jumping to its defence.

Meanwhile, BTC is currently (15:23 UTC) trades at c. USD 7,500. It’s up 1.8% in the past 24 hours and 2.8% in the past seven days.

Sead Fadilpašić , 2019-12-04 17:39:05 ,

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NewsBlock © 2019 - 2020 All rights reserved.

NewsBlock © 2019 - 2020. All rights reserved.

While Bitcoin’s price seemingly moves without rhyme or reason — collapsing by dozens of percent and embarking on face-melting rallies on a whim — the cryptocurrency market is filled to the brim with fractals.

Related Reading: Analyst: Bitcoin Price Likely to Fall to Low-$8,000s as Chart Remains Weak

A brief aside: A fractal, in the context of technical analysis and financial markets anyway, is when an asset’s price action is seen during a different time. This form of analysis isn’t that popular, but it has proven to be somewhat valuable in analyzing Bitcoin.

One recent fractal popularized by a well-known cryptocurrency trader is implying that BTC is going to return to the low-$7,000s in the coming days.

Bitcoin Fractal Implies Retracement to Low-$7,000s

A well-known crypto trader going by “Tyler Durden” on Twitter recently posted the chart below, which shows that a Bitcoin price fractal may be playing out. The fractal has four phases: horizontal consolidation marked by one fakeout, a surge above the consolidation phase, a distribution, then a strong drop to fresh lows.

If the fractal plays out in full, BTC could reach the low-$7,000s again, potentially as low as $7,100. This would represent a 20-odd percent collapse from the current price point of $8,800.

It isn’t only a fractal that is hinting Bitcoin has the potential to visit its lows. As we reported on Saturday, Bloomberg believes that if the GTI Vera Convergence Divergence Indicator flips red, a downtrend could push the cryptocurrency back to $7,300.

Related Reading: Stephen Colbert Pokes Fun at Bitcoin in Monologue: Mainstream Gone Wrong?

Can Bulls Step In?

But again, many believe it is irrational to have such bearish interpretations of the cryptocurrency’s chart at the moment. As reported by NewsBTC earlier, Popular crypto trader Mayne recently noted that the “people waiting for $6,000” are irrational. He quipped that Bitcoin retracing and consolidating after its fourth-biggest bull move in history ($7,300 to $10,500, a 42% gain) is perfectly par for the course, but noted that it’s totally possible we can go lower from $8,800.

The medium-term technicals support this.

Trader and CoinTelegraph contributor FilbFilb found that by the end of November or start of December, the 50-week and 100-week moving averages will see a “golden cross,” which he claims is far more significant” for the Bitcoin market that other technical crosses.

Also, a Bitcoin price model created using Facebook Prophet machine learning found that the leading cryptocurrency is likely to end the year at just over $12,000. What’s notable about this model is that it called the price drop to $8,000 months in advance, and forecasted a ~$7,500 price bottom for BTC.

To put a cherry on the cryptocurrency cake, Crypto Thies observed that when Bitcoin bottomed at $7,300, it bounced decisively off the 0.618 Fibonacci Retracement of the move from $3,000 to $14,000, which correlates with the two-week volume-weighted moving average. He added that summer 2019’s consolidation was marked by Bitcoin flipping major resistances into support levels, implying that a bullish reversal and subsequent continuation is likely possible in the coming weeks.

Featured Image from Shutterstock

Nick Chong , 2019-11-10 12:00:38

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