Bitcoin sidechain developer RSK is revamping how users swap bitcoin for its network’s tokenized version of the cryptocurrency. 

IOVlabs, the company that develops the RSK platform, has created a new system for monitoring how bitcoin is “pegged to” (or, swapped for) RBTC, a token that represents a 1-1 peg to real bitcoin. RBTC is the native coin on the RSK sidechain – a Bitcoin scaling solution that uses a blockchain-like network that sacrifices decentralization in favor of faster transaction speeds.

Before this change, RSK users would send bitcoin to a multi-signature wallet address – a wallet controlled by 12 different parties. The “signatories” for this wallet would then approve the transaction and transfer the proportional RBTC to the user’s RSK wallet.

Powpeg

The new system, dubbed Powpeg, will supplant these with an automated process, and most of the 12 signatories will now act as “pegnatories,” a group of validators who will monitor the RSK multi-signature wallet and the minting of RBTC to protect against wrongdoing. 

Unlike the previous design, Powpeg automates the final step of the RBTC minting process. Now when users send bitcoin to the multi-sig wallet, they generate a proof of that transaction and then send this proof to “special-purpose hardware security modules called PowHSMs,” according to an IOVlabs press release. Once these modules receive the proof, they distribute the RBTC to the corresponding user.

In the event the user does not reveal the proof, the pegnatories will provide the proof, but they do not manually sign off on the transaction; that’s the PowHSM’s job, which also stores the individual private keys for each signatory. 

Decentralizing how sidechains work

RSK co-founder and IOVlabs Chief Innovation Officer Sergio Lerner told CoinDesk that miners, exchanges and mining pools will make up the first round of pegnatories. He also expects that the number of pegnatories “probably will grow in size in the months to come” since the “security risks associated with adding pegnatories are much lower than [signatories] in a federation.”

IOVlabs says the design change was made to decentralize the pegging process for RSK and minimize the trust involved between the pegnatories and the users. 

The Powpeg redesign comes on the heels of IOVlab’s efforts to bring the utility of Ethereum’s DeFi apps to Bitcoin’s ecosystem. The RSK sidechain features a number of DeFi-like services, including the MakerDAO-like stablecoin platform Money on Chain and Sovryn, a Bitcoin lending and derivatives market. 

Launched in 2018, RSK is a Bitcoin sidechain which can support Ethereum smart contracts. The RSK sidechain is “merge mined” with Bitcoin, meaning miners who mine Bitcoin’s blockchain also contribute hash rate to mine blocks on RSK. According to IOVlabs, mining pools representing 50% of Bitcoin’s hashpower currently mine on the RSK chain.

Bitcoin’s average transaction fees have well surpassed all-time highs as miner outages in China have slowed block production at a time when demand for block space has never been greater.

Per multiple sources, the average fee is roughly $59. In 2017, during the peak of bitcoin’s (BTC) last bull market, average transaction fees just tapped $50. 

These high transaction fees coincide with a series of accidents at Chinese coal mines which have taken mining farms in the coal-rich regions of China offline. Bitcoin’s hashrate has fallen some 25% to 125 exahashes a second, according to mining pool-reported data.

“This is a combination of ASIC shortages, huge price increases of BTC outpacing difficulty and the sudden hashrate drop, resulting in slower block times, backlog of transactions and extra fees per block,” Compass Mining Chief Business Officer Thomas Heller told CoinDesk.

The effect of hashrate on Bitcoin transactions

With as much as a quarter or more of bitcoin’s hashrate reduced and Bitcoin’s mining difficulty at an all-time high, blocks are coming in at a slow and scattered pace, with multiple blocks taking an hour or more to be mined. (One block took two hours, an incredibly rare occurrence).

At this rate, Bitcoin’s mining difficulty will probably adjust in the first few days of May. This self-correcting score manages how hard or easy it is for miners to find the next block in Bitcoin’s blockchain, and it typically changes every two weeks (or more accurately, after every 2,016 blocks).

Bitcoin can only adjust its difficulty by 25% each retargeting period, but estimates suggest Bitcoin is due for a 30% adjustment to correct for the drop in hashrate (which would imply more than one downward adjustment ahead, assuming more hashrate doesn’t come online). If the affected miners come online before the next difficulty adjustment, the correction wouldn’t be as severe. 

“We are expecting to hear more information in the coming days in regards to the timelines for coming back online. If things progress smoothly then it’s possible the machines could be online by the weekend,” Heller said. But “most Xinjiang miners are waiting it out,” he continued, to migrate their machines to Sichuan in anticipation of China’s rainy season. 

Miners from F2Pool told CoinDesk they didn’t know for certain when these miners would be online.

Nasdaq-listed Canaan Creative (Nasdaq:CAN) is supplying 11,760 bitcoin (BTC, -0.4%) mining machines to U.S.-listed Mawson Infrastructure Group Inc. (WIZP:OTCQB), formerly known as Wize Pharma.

• The Chinese bitcoin miner manufacturer said Wednesday it will be shipping and installing the A1246 ASIC AvalonMiners for Mawson Infrastructure throughout 2021, adding an additional 1.05EH to its global mining operations.
• Headquartered in Sydney, Mawson has mining operations across the United States and Australia.
• Canaan’s latest AvalonMiner model, the A1246, was launched in the third quarter of last year. Canaan said the SHA256 bitcoin mining rig produces a hashrate of 90TH/s with a power efficiency of 38J/TH.
• “Backed by our robust supply chain model, we are excited to be partnering with Mawson in their next phase of growth as they ramp up their mining activities,” said Nangeng Zhang, CEO of Canaan.
• In March, Canaan reported orders for its cryptocurrency mining machines were rising amid sky-high prices for bitcoin, with increased demand for its equipment from North America and Central Asia since late 2020.
• As reported by CoinDesk, bitcoin’s hashrate, which is a way to measure the total power consumption and mining output of the network, has topped new all-time highs as mining firms like Mawson Infrastructure continue to add more hash power.

This week, we do a deep dive into the intricacies of one single Ethereum 2.0 metric: total value staked (TVS). There’s a lot of nuance to this metric, but once you do the legwork a little knowledge can really pay off in terms of insight into the protocol and a better understanding of how to interpret what seems at first like major discrepancies in the data across providers and sources. 

Then, in true nerd fashion, we delve into an ongoing hackathon that, even if you’re not particularly keen on joining, you’re still going to want to know about. Why? Because the future of Ethereum 2.0 depends on it. 

Pulse check: Interpreting the metrics of TVS

There are a number of different ways users and data providers interpret the metric total value staked (TVS) on Ethereum 2.0. Depending on that interpretation, the calculations for this metric and the resulting figures will differ, sometimes by thousands of ETH (+7.38%). 

Whenever reading figures for TVS on Eth 2.0, it’s important to consider how the metric is being interpreted in order to understand and make sense of the discrepancies found in its value in different sources. 

Most users and data sources will calculate TVS by how much ETH has been sent to the Eth 2.0 deposit contract. 

As background, the deposit contract is an Ethereum-based smart contract used by the Eth 2.0 blockchain to verify which users are eligible to become active validators and earn rewards on Ethereum’s parallel proof-of-stake (PoS) network. A one-time deposit of 32 ETH must be sent to the deposit contract before a user can become an Eth 2.0 validator. 

Summing up the initial deposits of prospective Eth 2.0 validators is how sites such as Etherscan, Dune Analytics, CryptoQuant and Glassnode calculate value accruing on Ethereum’s PoS network. Between these sites, the total amount of ETH sent to the deposit contract may differ by one or two validator deposits, depending on when a particular site last queried the Ethereum blockchain and updated their webpages with the latest on-chain data. 

Other data providers query the Ethereum 2.0 blockchain directly and calculate total ETH staked by summing the balances of validators who are online and eligible to earn rewards on that network. 

Not all deposits of 32 ETH on Ethereum are immediately activated on Eth 2.0. At times there is a pending queue where validators must wait for a period before their stake is eligible to earn rewards. In other cases, a validator is offline or disconnected from the internet; therefore, that stake would not be used toward finalizing blocks or transactions. Validators can also be forcefully removed from the network for malicious behavior and, again, in this case their 32 ETH deposit would not be eligible for fulfilling validator responsibilities. 

The total balance of all online and active participants on Eth 2.0, including validator rewards, is the second way in which the metric reflecting total ETH staked can be interpreted. Both beaconcha.in and BeaconScan use this figure for their chart and data analysis. Because it does not count the initial ETH deposit of all validators in existence but selectively chooses the stake of eligible validators, the resulting total is usually less than what is tracked by the first method. 

The third way in which TVS can be calculated is by summing the deposits of all validators and their reward balance irrespective of their status or eligibility. 

So long as transfers of ETH to Ethereum 2.0 remain a one-way deposit and any rewards accrued on Eth 2.0 stay on Eth 2.0, this interpretation of TVS reflects a cumulative total of all the wealth that has been sent to Ethereum’s PoS blockchain since its launch, as well as how much new wealth has been issued in the form of interest on validator balances. 

It usually results in the highest estimate for TVS. Compared to the amount of ETH in the Eth 2.0 deposit contract, which is 3,891,586 ETH, and the amount of eligible stake on Eth 2.0, which is 3,876,812 ETH, the total value accumulated on Eth 2.0 stands at 3,978,285 ETH, all at time of writing. 

Since launching the CoinDesk Data Dashboard, I’ve been using this last interpretation to calculate TVS on Eth 2.0. It is the widest definition for this metric, and one that I think captures how much is riding on the protocol overall. 

Each of these interpretations, however, is set to evolve and become less interchangeable as a way of measuring value growing on Eth 2.0 once the network initiates its merge with Ethereum. 

New frontiers: Transitioning to Ethereum 2.0 With ‘Rayonism’

Let’s talk about Rayonism, the hackathon project for Ethereum’s forthcoming transition to PoS. 

As background, Ethereum developers launched a parallel PoS blockchain dubbed “Ethereum 2.0” back in December 2020. It operates separately from the existing Ethereum blockchain and was originally going to be the network onto which users and decentralized applications (dapps) are eventually transferred. 

With Rayonism, the thinking has changed. 

Instead of deprecating Ethereum’s  proof-of-work (PoW) network through a multi-phased upgrade, developers are looking to rewire the protocol so that consensus – that is, the way blocks and transaction history get finalized in a decentralized protocol – happens on Ethereum 2.0. 

The “consensus layer” of Ethereum would essentially get swapped out from PoW mining to Eth 2.0 staking. The execution of user transactions and dapps would continue as normal on Ethereum and be maintained by the same software clients many of us know and love like Geth, OpenEthereum and Hyperledger Besu. 

The software clients maintaining Eth 2.0 (such as Prysm, Lighthouse and Teku) would also continue to have their role in maintaining and supporting Ethereum’s PoS consensus layer. Merging these two parallel systems, as opposed to transitioning from one into another, does introduce complications. 

This means consensus and execution are not done on one single piece of client software, as most Ethereum users and dapp developers are used to doing today. After “the Great Merge,” Ethereum’s software will have a composite design consisting of two parts: a consensus node and an execution node. 

What does Rayonism look like in practice?

Well, no one is really quite sure. To find out, Ethereum developers have kicked off a month-long hackathon for designing a test network (testnet) that has all the features of Rayonism implemented, plus functionality for sharding. (If you don’t know what sharding is, I recommend reading this article,but, in short, it’s a way to greatly scale Ethereum’s transaction capacity and keep fees low on the network over the long term.) 

Over the next four weeks, hackathon participants will be heads down building and iterating upon a list of shared ideas and to-do’s for making Ethereum’s Great Merge a reality. On May 14, all projects will be presented and judged in the hopes that abstract plans for PoS activation on Ethereum are made more concrete and brought forward in the network’s development timeline. 

As always, the goals are ambitious with Ethereum developers and the Ethereum 2.0 project. Will Rayonism succeed? As always, I look forward to seeing it try. 

Validated takes

• Bitcoin and ether are recovering from a price nosedive. What happened? (Video, CoinDesk)
• Canada approves three Ethereum ETFs in one day (Article, CoinDesk)
• DeFi protocol EasyFi reports hack and loss of over $80 million in funds (Article, CoinDesk)
• Web 3.0 is coming for the “sharing” economy (Article, CoinDesk)
• RSK: the Bitcoin-based smart contract platform (Podcast, Epicenter)
• Magic Money: the mystical world of Anchor, Alchemix and Gyroscope (Video, The Defiant)
• NFTs will be far bigger as digital clothes than as collectibles (Article, The Defiant)

Factoid of the week

Open comms

Valid Points incorporates information and data directly from CoinDesk’s own Eth 2.0 validator node in weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post. 

You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is: 

0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb. 

Christine Kim will be extending the conversation on Ethereum 2.0 with Consensys’ Ben Edgington in a CoinDesk podcast series called “Mapping Out Eth 2.0.”  New episodes air every Thursday. Listen and subscribe through the CoinDesk podcast feed on Apple Podcasts, Spotify, Pocketcasts, Google Podcasts, Castbox, Stitcher, RadioPublica, IHeartRadio or RSS.

Solana, the native token of the blockchain backed by FTX’s Sam Bankman-Fried, logged a record daily percentage gain on Sunday, defying bitcoin’s (BTC) 6% sell-off.

The SOL tokens surged 30% on the FTX exchange to near $33 that day, according to TradingView. It was a staggering daily return considering that prices for bitcoin, along with most of other crypto assets, dropped to multi-week lows.

After a year-to-date return of nearly 1,600%, Solana now has a total market capitalization of more than $8.3 billion, according to Messari, just after Tron’s $9.17 billion.

Bankman-Fried said in a series of messages via LinkedIn that the factors driving Solana may have been independent from the forces at work in last weekend’s crypto sell-off.

“SOL traders were probably not as leveraged long, and so there were fewer liquidations,” he said.

Crypto futures market saw a record $10 billion worth of liquidations over the past weekend, with bitcoin’s futures totaling about $5 billion, according to data from Bybt:

Whereas solana’s futures liquidations contributed roughly $18.1 million of the total crypto liquidation:

Alameda, a trading firm led by Bankman-Fried, has been heavily investing in the Solana ecosystem in a bid to promote an Ethereum alternative capable of faster transactions and higher scalability. The Ethereum blockchain has become increasingly congested, leading to an increase in transactional tariffs known as “gas fees.”

Bankman-Fried’s team chose to build Serum, a decentralized exchange (DEX), on Solana.

A representative of Solana community in China told CoinDesk via WeChat that public blockchains including Binance Smart Chain and Solana have been able to lure away more decentralized finance (DeFi) developers and projects from Ethereum due to the consistently high gas fees on Ethereum.

Ethereum currently handles about 15 transactions per second (TPS), while Solana is capable of more than 1,000 TPS, according to data from blockchair and Solana Beach. 

“It is a combination of people being fed up with gas fees and comparisons on decentralization with other major non-Ethereum blockchains,” Bankman-Fried said.

As a proof-of-stake blockchain, Solana grants reward incentives for SOL token holders who are staking their tokens to help secure the network, according to Chris Bo, China lead for Solana blockchain. Another incentive for Solana validators is an inflation-related mechanism that went live in February. With an initial annualized inflation rate of 8%, newly minted tokens go to validators and stakers in proportion to their staked amounts.

The inflation rate will decrease by 15% each year until it reaches 1.5%, according to Solana’s website.