The Protocol: Bitcoin NFT Debacle, Vitalik's 30th, Farcaster Frames, 'Private Mempools' - Bithubi (2024)

General

Ok, mühlet, humans invented blockchains. But why do they have to mess it all up?

In this week’s issue of The Protocol newsletter, we’ve got lots of humans doing things in blockchain – some quite impressive, not all so successful. There was the messy-and-ultimately-suspended sale by Taproot Wizards of its inaugural “NFTs-on-Bitcoin” collection “Quantum Cats,” and Wednesday brought news of a reported hack at Ripple.

Our Sam Kessler writes about the “private mempools” that Ethereum users are relying on to keep transactions from getting picked off by front-running “MEV” bots, and Margaux Nijkerk reports on the growing use of “councils” – call them blockchain boards – that projects are creating to provide adult supervision over still-quite-adolescent networks.

PLUS – January’s leaders and laggards among the CoinDesk 20 digital assets.

This article is featured in the latest issue of The Protocol, our weekly newsletter exploring the tech behind crypto, one block at a time. Sign up here to get it in your inbox every Wednesday. Also please check out our weekly The Protocol podcast.

ME-OUCH! With robust development and NFT minting atop once-sleepy Bitcoin tipped to be one of blockchain’s hottest trends, this week’s sale of the “Quantum Cats” digital-art series from the Ordinals inscriptions project Taproot Wizards was supposed to be the cat’s meow. After all, it was only a couple months ago when Taproot Wizards, led by Udi Wertheimer and Eric Wall, raised $7.5 million from investors amid a wave of euphoria over “NFTs on Bitcoin.” And earlier this month, the first-in-series “Genesis Cat” fetched a fur-fluffing $254,000 at the venerable auction house Sotheby’s. Remaining Quantum Cats were set for a fixed sale price of 0.1 BTC, or about $4,300 at the current bitcoin market price. But when the Taproot Wizards minting website opened on Monday to whitelisted buyers, there was more sour milk than catnip. Frustrated claimants filled up the Taproot Wizards Discord channel with screenshots showing web glitches and hung transactions. “This has got to be one of the worst mint experiences I’ve ever seen,” one user wrote. Taproot Wizards suspended the process after about 1,000 of the 3,000 images were sold, according to project officials, delaying the remainder until Tuesday, and then subsequently delaying it again until Thursday. “We didn’t live up to your expectations of us and to our expectations of ourselves,” Wertheimer posted on X. At this point nobody’s talking about purr-fection.

BLOCKCHAIN BOARDS: “Trust the humans” might be the new mantra for Ethereum’s top layer-2 projects. As our Margaux Nijkerk reported this week, that principle stands at the core of a new trend in the blockchain industry, where overseers of various networks are establishing groups of people to help steer protocol changes and ensure security. The goal of these “protocol councils,” sometimes called “security councils,” is to nudge the nascent networks toward increasing decentralization, by gradually removing them from under the control of their original developers. Before cutting the cord completely, where the networks essentially run automatically, or subject to some sort of democratic process, the thinking is that a panel of well-meaning humans can serve as the ultimate guardians – able to step in quickly when emergencies arise, or providing the final sign-off on major protocol changes. Polygon, the Ethereum layer-2 network, has a 13-person “Protocol Council.” Arbitrum, another major Ethereum-focused layer-2, has a “Security Council,” while Optimism also has a “Security Council.” A member of the Polygon council, Mehdi Zerouali, who is the director of Sigma Prime, a blockchain security firm, told CoinDesk that “This is a necessary evil.”

ALSO:

Top picks of the past week from our Protocol Village column, highlighting key blockchain tech upgrades and news.

See the entire Protocol Village list from this past week here.

Ethereum is swarming with bots that are programmed to front-run transactions. The bots exploit the brief window of time between when transactions are submitted, and when they’re officially finalized, to copy trades from other users, quickly execute them, and in doing so eat into any would-be profits.

It’s a practice called maximal extractable value (MEV), and it’s a huge nuisance to novice crypto traders and to veterans alike.

But Ethereum’s transaction pipeline has undergone a quiet shift over the past two years as more of the chain’s users have embraced “private mempools” to execute their trades – bypassing the blockchain’s “public” transaction lobby to avoid broadcasting trades to the whole world before they’re finalized. This helps to prevent MEV and help users get better settlement for their transactions.

While there are obvious benefits to this stealthier mode of using Ethereum, experts say private mempools carry risks of their own.

“I think most everyone, including myself, expects there to be more private transactions moving forward, not less,” Matt Cutler, CEO of MEV firm Blocknative, told CoinDesk. “I think the big question in my mind is, would more private transactions be a good thing or a bad thing for the network?”

Read the full story by Sam Kessler here

Fundraisings

Deals and Grants

Data and Tokens

Our colleagues at CoinDesk Indices earlier this month unveiled a new “CoinDesk 20” index, positioned as the new benchmark for crypto-markets performance – the blockchain industry’s version of the Dow Jones Industrial Average. It’s a market-capitalization-weighted selection of the biggest digital assets in the CoinDesk Market Index (CMI).

Through the first 30 days of January, the CoinDesk 20 slid 5.1%, underperforming the Standard & Poor’s 500 Index, a benchmark for the stock market:

Luckily for The Protocol readers, we can track the leaders and laggards in the CoinDesk 20 each month to monitor who’s up and who’s down among the biggest blockchain projects, at least in the eyes of crypto traders.

Big losers in January included XRP, which tumbled 18%; Polygon’s MATIC, down 16%; and Filecoin’s FIL, off 16%. The big winner was the proof-of-work blockchain Ethereum Classic’s ETC, which gained 14% despite the project being a bit of an afterthought in crypto developer circles. Bitcoin (BTC), by far the biggest member of CD20, with an $854 billion market cap that’s roughly equivalent to all other blockchains combined, managed to eke out a gain, its fifth-straight month in the green. So did Ethereum’s native cryptocurrency, ether (ETH):

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