The Crypto Insider Report #4: Bitcoin under 60k. What's next?
Disclaimer: Everything we write in "The Crypto Insider" newsletter is an x-ray of the industry as we see it, through the lens of publicly available information. We are not financial advisors.
After the bearish divergence on the daily chart and the hyper optimism in the market, it was expected that the market would catch its breath a little, and a very good place for bottoming is where the 50 MA on the daily meets the previous support in the 58,500-59,500 area. All the more so as, on the lower time frames (4h chart), there are already bullish divergences with the price already in the oversold area on the RSI. It's the typical setup for a correction ending on bitcoin.
Could there be news coming in to push the price even lower? No doubt, but strictly on a technical level, the correction could see its end at this point.
It was very important for the health of the subsequent evolution of the run to have another shake-out before attacking new all-time highs to distribute coins and reset the market. What's interesting is that in the recent sell-offs, the bitcoins that moved were not those held by hodlers who accumulated in the 30-40k range, as is usually the case in a bull run, but rather those held by traders.
This means that on what is seen on-chain, the guys with "smart money" stay put and wait for higher prices, and until then, they will seize every opportunity (such as this setup featuring oversold on the 4-hour chart with a bullish divergence) to accumulate. I hope that in this week's video update, I will come up with some explanatory graphs in this sense.
All in one, at the macro level, nothing has changed.
Vlad
P.S. Over 50% of the $STANDARD in the market (65,000 out of 127,000) has reached the liquidity pool that is now rapidly approaching $2,000,000. Thank you for your support!
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The first steps in crypto:
What Are Layer-2 Solutions and How Do They Work?
Although blockchain technology ensures a variety of benefits, ranging from decentralization to high levels of security, it is still facing scalability issues. To reduce congestion, improve scalability, and increase security, various scaling solutions have emerged.
The two primary methodologies for achieving such results are Layer-1 and Layer-2 solutions. To recap, Layer-1 solutions improve the base protocol itself, while Layer-2 solutions are networks or technologies that work on top of an existing blockchain protocol to improve scalability and efficiency.
Layer-2 scaling solutions increase throughput and do so without tampering with any of the original security or decentralization characteristics that are integral to the original blockchain.
Simply put, they take a portion of a Level-1 blockchain’s transactional burden and shift it to another system architecture. The Layer-2 blockchain will then handle the processing load and report to the main blockchain for result finalization.
Since much of the data processing is shifted to this adjacent architecture, the Layer-1 blockchain becomes less congested, which improves scalability. For example, Bitcoin is a Layer-1 network, and the Lightning Network is a Layer-2 solution that was built to improve transaction speeds on the Bitcoin network.
Types of Layer-2 Solutions
Some of the most common Layer-2 solutions include the following:
Nested Blockchains
Such a chain is a blockchain built atop another blockchain. The nested blockchain architecture usually involves a base blockchain that lays down the ground rules for a broader network, while executions are carried out on an interconnected web of secondary chains. Several levels of blockchains can sit on top of the main chain, being connected to each other to form a parent-child chain connection. The way they work is rather simple, as the parent chain delegates work to child chains that process and return it to the parent once it is completed.
For example, the OMG Plasma project is a Layer-2 nested blockchain infrastructure that is used atop the Layer-1 Ethereum protocol in order to facilitate not only faster but also cheaper transactions.
State Channels & Payment Channels
State channels enable two-way communication between a blockchain and off-chain transactional channels. By using multi-signature or smart contracts, they make it possible for users to quickly and easily transact off-chain. When the entire transaction set is completed on a state channel, the final state of the channel is added to the underlying blockchain.
While this type of channel can handle more complex interactions, payment channels are used, as the name suggests, for payments between two participants. One of their advantages is the high transaction throughput at a very low cost. Ethereum’s Raiden Network is a popular state channel solution.
Sidechains
Considered a hybrid between Layer-1 and Layer-2 solutions, sidechains are separate blockchains that have their own consensus mechanism and block parameters. They run parallel to the main blockchain and act as an extension to it, compatibility being achieved through a two-way bridge. They are used for large batch transactions, with the mainchain confirming batched transaction records and maintaining overall security. For example, xDai is an Ethereum sidechain that ensures 5-second block times and low gas prices.
Rollups
These L2 solutions roll up sidechain transactions into a single transaction. They then generate a cryptographic proof, which is known as a SNARK (succinct non-interactive argument of knowledge) that is submitted to the base layer. In this case, sidechains handle all transaction state and execution. There are two main types of rollups, namely, zero-knowledge and optimistic rollups.
Conclusions
With scalability seen by many as the greatest obstacle to mainstream adoption of cryptocurrencies, it is only natural to look for solutions that solve it. Layer-2 blockchain solutions are among them. They are secondary frameworks or protocols that are built on top of an existing blockchain and operate without tampering with the base layer protocol.
By performing a great portion of the work that would be performed by the main chain, they ensure high throughput, reaching even thousands of transactions per second. L2 solutions enable micro-transactions and low fees. Moreover, the way they were designed also improves speed as users don’t have to waste time on miner verification.
However, they are not free of limitations. For example, while plasma chains ensure high throughput and low costs per transaction, they only allow for basic transactions, such as swaps and token transfers.
Animation of the day: What is token minting?
Tania
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The Altcoin Pulse
1. Elrond announces the possibility to add liquidity to the EGLD/MEX pool starting with November 16th. From November 19th, users will be able to swap between the two assets, and the liquidity incentive program will roll out. A link to the distribution of the MEX token.
2. After acquiring Hermez Network, Polygon takes a few more steps in the development of zero-knowledge technology by launching the first version of Virtual Machine (called Miden), an open-source, STARK-based ZK rollup. Miden VM comes with an important feature, through which for any program executed on the VM, a proof of execution is automatically generated. This proof can be used by other entities to verify that the program was executed correctly, without the need for a re-execution or to know what that program consisted of.
https://cointelegraph.com/news/polygon-launches-a-zk-stark-scaling-solution-for-dapp-deployment
3. Sandbox announces the release of the alpha version of its metaverse on November 29th.
https://cointelegraph.com/news/sandbox-metaverse-alpha-launches-nov-29-after-four-years-in-development
4. The launch of Injective Protocol's mainnet comes with a $120m incentive program aimed at attracting market makers and reducing trading fees for users.
https://decrypt.co/86185/defi-derivatives-project-injective-protocol-launches-mainnet-120m-incentive-program
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Interesting Headlines
1. The last week stood out by net flows of $151m in the digital asset funds tracked by CoinShares, the 13th consecutive week of positive net flows. Most volumes went into Bitcoin funds ($98m). Ethereum continues the series of positive net flows ($17m), while Cardano ($16m), Solana ($10m), and Polkadot ($5m) attract significant amounts.
MTD=month-to-date (November), YTD=year-to-date, AUM=total assets
2. Paradigm raises the largest crypto-oriented investment fund to date, worth $2.5 billion.
https://techcrunch.com/2021/11/15/crypto-vc-firm-paradigm-debuts-monser-2-5-billion-fund/
3. Staples Centre in Los Angeles, one of the most popular sports and entertainment venues in the U.S., will change its name to Crypto.com Arena, after a $700m deal with the crypto platform of the same name, which is valid for 20 years.
https://www.theverge.com/2021/11/17/22786809/staples-center-arena-los-angeles-renaming-crypto-com
4. A community came together in the form of the Constitution DAO to raise the funds needed to participate in the auction of one of the first printed copies of the American Constitution (it is one of a set of only 13 documents left).
5. Brave browser launches a built-in crypto wallet, similar to MetaMask.
https://www.coindesk.com/business/2021/11/16/brave-browser-launches-built-in-crypto-wallet/
6. StarkWare, an Ethereum Layer 2 developer, raised $50m in a Series C funding round that values the company at $2bn.
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Article of the week:
Snowden explains in plain English what is actually meant by CBDCs and where the danger comes from as far as they are concerned.
Business book of the week: The cost of these dreams by Wright Thompson. About the costs of big dreams.
Youtube clip of the week: Real Vision's Ash Bennington in talks with The Defiant crew -