In a significant move that has sent ripples across the cryptocurrency market, Ripple Labs, the company behind the popular XRP cryptocurrency, has announced a buyback program to reclaim a $285 million stake from its early investors. This strategic move is aimed at consolidating the company’s control over its assets and strengthening its financial position in the volatile crypto market.

Understanding Ripple Labs’ Buyback Program

Ripple Labs’ buyback program is a strategic financial move where the company plans to repurchase its shares from early investors. The aim is to reclaim a $285 million stake, thereby reducing the number of outstanding shares in the market. This move is expected to increase the value of remaining shares and give Ripple Labs more control over its assets.

Why is Ripple Labs Buying Back its Shares?

The primary reason behind Ripple Labs’ decision to buy back its shares is to consolidate its control over its assets. By reducing the number of outstanding shares, the company can increase the value of the remaining shares, thereby benefiting its current shareholders. Additionally, this move is also seen as a strategic step to strengthen the company’s financial position in the volatile crypto market.

Impact on Ripple Labs and XRP

The buyback program is expected to have a significant impact on both Ripple Labs and its cryptocurrency, XRP. Here are some potential outcomes:

• Increased Share Value: With fewer shares in the market, the value of each share is likely to increase. This could potentially lead to higher returns for current shareholders.
• Greater Control: By buying back its shares, Ripple Labs can consolidate its control over its assets. This could give the company more flexibility in making strategic decisions.
• Improved Financial Position: The buyback program could strengthen Ripple Labs’ financial position in the volatile crypto market, making it more resilient to market fluctuations.
• Positive Impact on XRP: The buyback program could also have a positive impact on XRP. With the company’s strengthened financial position, investor confidence in XRP could increase, potentially leading to a rise in its price.

The announcement of Ripple Labs’ buyback program has elicited mixed reactions from the crypto community. While some see it as a positive move that could strengthen the company’s financial position and boost the value of XRP, others are skeptical about its impact. Critics argue that the buyback program could lead to increased centralization, which goes against the ethos of decentralization that underpins cryptocurrencies.

Conclusion: A Strategic Move with Potential Benefits

In conclusion, Ripple Labs’ decision to launch a buyback program to reclaim a $285 million stake from its early investors is a strategic move with potential benefits. By consolidating its control over its assets and strengthening its financial position, the company could potentially increase the value of its shares and boost investor confidence in XRP. However, the impact of this move on the broader crypto market remains to be seen.

As the crypto market continues to evolve, companies like Ripple Labs are constantly exploring new strategies to navigate the volatile landscape. The buyback program is a testament to this, reflecting the company’s proactive approach to managing its assets and strengthening its position in the market. Whether this move will pay off in the long run is something that only time will tell.

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In a strategic move that solidifies its presence in the cryptocurrency sector, Thailand’s Kasikorn Bank has announced the acquisition of a 97% stake in Satang Corporation Company Limited, the parent company of the Satang cryptocurrency exchange.

The deal, valued at 3.705 billion Thai baht ($102.8 million), was conducted through a newly formed Kasikorn Bank subsidiary called Unita Capital, specifically created for investments in digital asset companies, according to local news sources.

Kasikorn is the country’s second-largest bank by assets under management, according to 2023 data from Statista.

Following the finalization of the acquisition, Satang Corporation will be rebranded as Orbix Trade Company Limited. 

In addition to the exchange services, the newly formed company will establish three additional subsidiaries: Orbix Custodian, Orbix Invest (a digital asset fund manager), and Orbix Technology, a blockchain technology developer.

Kasikorn’s support for Bitcoin specifically, as opposed to other cryptocurrencies and digital tokens, is at this time unclear.

This announcement follows K-Bank’s recent launch of a $100 million fund designed to target investments in web3, fintech, and artificial intelligence. Its counterpart, Siam Commercial Bank (SCB), is also reportedly making notable strides into web3 and the cryptocurrency space. Both banks are vying to offer a full spectrum of crypto services permissible within the regulatory framework in Thailand.

SCB had earlier this year attempted a similar acquisition of a regional rival, though it was notably stalled over regulatory issues.

Kasikorn Bank has set an ambitious goal to capture 20% of the cryptocurrency market share in Thailand by the year 2024, marking its commitment notable at a time when many global banks remain on the sector’s sidelines.

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 This is an extension to my previous article series discussing the different sidechain proposals that exist. Those articles can be found here: Spacechains, Spacechain Use Cases, Softchains, Drivechains, Federated Chains, and Trade Offs Of Sidechains.

Botanix Labs has proposed a completely new sidechain design recently, called spiderchains, for the purposes of porting the Ethereum Virtual Machine to a platform anchored to the Bitcoin network. The architecture is a pretty large deviation from most prior proposals for concrete designs. Firstly, it does not involve miners directly in consensus or use merge-mining in any of its variant forms. Secondly, it uses multisig and escrow bonds to create a second layer proof-of-stake system on top of Bitcoin. Third, it does not require any changes to Bitcoin in order to deploy.

The first thing to clarify is that, technically speaking, the spiderchain isn’t really the sidechain. Any sidechain deployed utilizing spiderchains would sit “above” the spiderchain which sits above the base layer on the mainchain. Sidechain blocks would be produced independently by the stakers (referred to as orchestrators in the paper) in the consensus system. The spiderchain, rather than being the actual sidechain, is a sort of collateral layer facilitating the custody of users’ funds and stakers bonds on the mainchain. Think of it like the middle of the sandwich between the sidechain and the mainchain.

The Proof of Stake Variant

To get a better idea of how the system works, let’s go through how the Botanix EVM chain interacts with the spiderchain layer. One of the first uses the system makes of the Bitcoin blockchain aside from actually custodying funds backing the sidechain tokens is the selection of a block constructor. Proof-of-stake chains require a selection process for which staker actually puts blocks together from the transactions in the mempool. In proof-of-work all miners do this independently and whoever gets lucky and finds a valid blockheader hash has their block accepted into the blockchain. Since the entire point of proof-of-stake is to do away with energy intensive randomizing of who selects the next block, these systems need another solution. They use a Verifiable Random Function (VRF), a function that allows all participants to verify the outcome is actually random and not biased or deterministic. Spiderchains make use of Bitcoin blockhashes in order to acquire verifiable randomness.

Just like other proof-of-stake systems Botanix divides the blockchain into discrete sections called “epochs” which are finalized periodically and a new block constructor is chosen. At the start of an epoch the mainchain blockhash is taken and applied as a source of randomness to all the stakers to choose the new block constructor. After six blocks, to account for the possibility of reorgs, the network transitions to the new block constructor for that epoch. Now this describes the way the proof-of-stake system handles block construction on the sidechain and reaching consensus on whose turn it is, time to get to how this all interacts with the spiderchain (and what exactly a spiderchain is).

The Spiderchain

In addition to using it periodically for selecting a block constructor, the sidechain also utilizes the VRF to select a random subset of the stakers to construct a multisig address for deposits into the sidechain every single Bitcoin block. That’s right, a random set of members for the peg’s multisig. Unlike a federated sidechain, which custodies funds in addresses composed of the entire set of the federation membership, spiderchains break each deposit (or change from transactions pegging out of the sidechain) off into a unique address depending on the mainchain block it confirms in made up of a random subset of the set of stakers. I.e. If there are 50 people staking at any given blockheight, 10 are randomly selected to be key holders for any deposits occurring in the next block. This may intuitively seem rather crazy, but there are a few sound logical reasons for it.

It segregates risk of funds from malicious parties. Most people think of theft, but even loss of liveness can be a disaster for systems like this. Think of a federated sidechain, you don’t need a malicious majority to cause a massive problem, just a malicious minority. If a federation requires a 2/3rds threshold to move coins, then just 1/3rd + 1 member is enough to keep those coins frozen (this is why Liquid has a time-delayed emergency recovery path with Blockstream held keys to prevent permanent coin loss in this situation). You don’t even need any malicious actors strictly speaking, just key loss could create that problem. By breaking up deposits into isolated subset keys with random members, you mitigate (not solve) problems like this. If keys were lost, or a malicious actor was able to gain enough staking percentage in the system to stall or steal, they statistically will never have access to the entirety of the funds in the spiderchain. Each block has totally independent odds of constructing a deposit address controlled by a malicious majority (or impleded by a malicious minority), and if those conditions are met only the funds deposited or rolled over through change from withdrawals in that specific block will be at risk instead of the entirety of the sidechain’s funds.

There is also another interesting security property that derives from how withdrawals are handled. Any sidechain peg mechanism that doesn’t aggregate all deposits into a single rolling UTXO begs the question of which UTXOs to use for fulfilling withdrawals. The spiderchain design has settled on Last In First Out (LIFO), meaning that any withdrawals from the sidechain will be processed using the most recently deposited UTXOs. Think of this in the context of malicious entities joining the set of stakers in order to steal funds from the spiderchain. All the money that was deposited before those malicious entities become a majority is completely safe and firewalled from them until any withdrawal requirements start necessitating spending those funds and rotating the change into new addresses. Now, even after they are the majority of stakers, they will only have access to funds where they randomly wind up as the majority of the key members in the deposit address creation protocol. So even after they have entered and taken over so to say, they will not have full access to all funds deposited after that fact because of the deposit address creation using a VRF.

This chain of randomly constructed multisigs is the spiderchain, the pegging mechanism used to lock and unlock coins into and out of the sidechain.

The Staking Bonds

The last piece of any proof-of-stake system is bonds, and it’s pretty simple. If stakers aren’t required to put anything up for collateral in exchange for participation in the consensus mechanism, then there is nothing that can be taken from them as a penalty for malicious behavior. This is accomplished by, you guessed it, using the spiderchain. The same way deposit addresses are generated for users, each block a new deposit address is generated for people who want to stake on the sidechain to deposit a bond into a multisig composed of a random set of existing stakers. Once this bond is confirmed, the new member is recognized as a staker and included in the overall set that new block constructors and deposit address members are selected from.

At that point, if a staker fails to respond and stay online or engages in malicious behavior they can be penalized through slashing and if necessary ultimately removed from the set of stakers by slashing the entire staking bond. The nice thing about the way this is done is the slashing policy, i.e. the amount in penalties for specific actions or misbehaviors, is not programmatic or social, it’s both. Slashing occurs programmatically on the base layer of the mainchain, but is initiated socially by the keyholders of a staking bond. This means there is potential for things to be a little messy, but flexibility to finetune things to an equilibrium that keeps things functioning in a way beneficial to stakers and users.

Gluing It All Together

Take the idea of proof-of-stake as a base layer consensus mechanism, and throw the idea away for right now. That’s not what this is, and the problems that need to be solved to enable proof-of-stake as a second layer system instead of a stand alone base layer are not the same. Proof-of-stake is essentially a federation, but where anyone can join and can’t be stopped from doing so, and with a mechanism to punish members for acting malicious. As a base layer that creates all kinds of existential issues, like the objectivity of a slashing penalty. Proof-of-stake as a second layer does not have that problem when the bonds for slashing are on the mainchain, governed by proof-of-work.

The problem with proof-of-stake as a second layer is how do you guarantee that new members cannot be kept out of the “federation.” If all the funds are custodied by the current members, a majority (or malicious minority of 1/3rd + 1) could prevent any funds from being transferred to a multisig with new members included. They could be stopped from joining. The way that deposits and staking bonds make use of the spiderchain, and it’s provably randomly generated multisigs composed of subgroups of the “federation”, it elegantly solves that problem of current members being able to exclude new members. Everything governing the address members and new entrants is provably verifiable and enforced by second layer consensus with information viewable on the mainchain governed by proof-of-work. Once someone posts a bond, they’re part of the set that gets selected to custody deposits and other staking bonds. It’s all there and verifiable.

It also creates some interesting security properties and dynamics based on how it works. In a federated sidechain the instant funds were rotated into multisigs composed of enough malicious entities the entirety of the sidechains funds are compromised. With a spiderchain, the entrance of a new malicious majority can be almost completely mitigated if it is recognized quickly. Just ceasing new deposits until slashing can trim out enough malicious participants can keep the amount of funds at risk limited to the statistical portion of new deposits that wound up in addresses they control since they became the majority. They would be unable to slash any old staking bonds from before their entrance, but pre-existing members would be able to statistically slash a portion of their bonds.

As long as the size of individual multisigs are balanced right with the total number of stakers, and the value of all deposits compared with staking bonds, this could be a very workable system.

Overall it is a very interesting proposal that proposes interesting solutions to the problems of “upgrading” federations to a proof-of-stake system: the ability for anyone to join, mechanisms for protecting against malicious members, and an incentive to participate because the stakers can split transaction fees. The kicker? Why should you care? It doesn’t require any fork at all to enable, so it’s going to happen. 

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Introduction

In a blockchain network where participants remain anonymous, a dependable coordination mechanism is essential. The “proof” acts as confirmation that a participant has met the requirements to validate a block of transactions, signifying their good-faith participation. One such consensus algorithm employed to generate new blocks, distribute new cryptocurrency, and validate transactions is proof of stake (PoS).

This mechanism provides an alternative to the original consensus method, proof of work (PoW). Rather than the energy expenditure necessitated by PoW, PoS requires validators or miners to make contributions to the network from their own holdings of the blockchain’s native cryptocurrency, i.e., their “stake.”

To avoid losing their stake, validators are incentivized to operate honestly and reach a consensus on the order and validity of transactions. PoS miners are selected based on the amount of cryptocurrency they hold or “stake” in the network; therefore, the more cryptocurrency a validator stakes, the more likely they will be chosen to create the next block.

Read More >> Technical Guide To Proof Of Stake

Comparison With Proof Of Work

Instead of stakes, PoW requires considerable computational resources and energy consumption to validate transactions and create new blocks. For this reason, people assume proof of stake is more energy efficient and less resource intensive than PoW. Yet, we will learn later in this article that this is a somewhat false assumption.

Both consensus mechanisms aim at producing new blocks and validating transactions. They must also maintain the security and integrity of the blockchain network, but they do so in different ways.

In PoW, miners compete to solve the Byzantine Generals’ Problem faster and reach a consensus on the validity of transactions. The quickest miner to complete the target hash creates a new block and receives the block reward, the network’s token of value. By selecting the chain with the most work, the network overcomes any ambiguity, and double spending is prevented due to requiring at least 51% of the global hash power for a double spend block to catch up.

In Ethereum’s PoS, by means of comparison, the double-spending problem is solved using “checkpoint blocks” at various points in time, approved by a two-thirds majority vote through a stake to “assure” everyone in the network about the “truth” of the system.

Another significant difference between PoS and PoW is the incentives and the ethics behind them. In a PoS network, incentives hide a negative (penalty-based) connotation since validators may lose their stake if they act maliciously. This contrasts with PoW, where miners are only incentivized to behave honestly to be rewarded with cryptocurrency through a positive (reward-based) incentive system.

Bitcoin miners who attempt to break the rules by producing poorly formatted blocks or invalid transactions will find their blocks ignored by full nodes. As a result, they will incur substantial electricity costs. Moreover, they would need to command 51% of the hash power to build upon older blocks; otherwise, these chains will lag behind, leading to even more costly energy waste.

One of the most heated debates in consensus mechanisms is decentralization and the ability to maintain this decentralization. PoW decentralization is secured by an active network of full nodes, in addition to miners, a vital feature that isn’t reflected in PoS consensus mechanisms. The importance of nodes in PoW was marked in the blocksize war of 2017 when the small block supporters won the battle against big blockers by starting the user-activated soft fork (UASF) movement and voting for the BTC chain instead of Bitcoin Cash (BCH). That historic Bitcoin event emphasized how nodes could win against big corporations and that miners do not control the network, unlike PoS validators.

How Proof Of Stake Works

In a proof-of-stake network, participants can be miners or validators who verify and authenticate transactions and create new blocks based on the amount of the blockchain’s native cryptocurrency they hold or “stake” in the network.

Validators are randomly selected to add the following block based on their stake; the more cryptocurrency a validator has staked, the more likely they will be chosen to validate transactions and create new blocks.

When a validator is chosen to create a new block, they need to validate all the transactions in the block and add them to the blockchain. To validate the transactions, the validator must check that they are valid, are not “double spending,” and that the sender has enough cryptocurrency to make the transaction.

Once all transactions are validated in the block, a new block is created and added to the blockchain. At that point, the successful validator is rewarded with native tokens for their work.

In a proof-of-stake network, consensus is achieved when most validators agree on the state of the blockchain. If a validator creates a block that is not accepted by the majority of validators, the block is rejected, and the validator may lose their staked cryptocurrency.

Valid Criticisms Of Proof Of Stake

Although proof of stake is often perceived as more energy efficient and less resource demanding when compared to proof of work, these assumptions can be easily refuted, showing that decentralization and security are compromised with proof of stake and that PoS is a mirror image of the current monetary system, which is known to be particularly energy inefficient, as well as unfair to the majority of participants.

One key argument against the perceived advantages of proof of stake is the concentration of wealth and power this can lead to. In a PoS system, validators with more stake (or wealth) have a higher probability of being chosen to validate transactions and create new blocks. This results in a rich-get-richer scenario, where the wealthiest validators gain even more control and influence over the network. The table below from Nansen Research provides a clear picture of the staking landscape within the Ethereum proof-of-stake system. 

This concentration of power contradicts the principles of decentralization, as a small number of validators can potentially dominate decision-making processes. Unlike proof of work, where miners have to invest in computational power, proof of stake allows validators to accumulate wealth and control the network based on their initial stake, rather than their ongoing contributions to the system.

Another valid criticism of proof of stake is the pre-mine configurations many cryptocurrencies, including ether (ETH), are based on. Mining tokens before their public launch means that founders, stakeholders, and developers may access a lot of wealth and have a considerable advantage over any other investors or validators who later join the network. While such a design could also apply to proof-of-work blockchains, it is more often used in the proof-of-stake ecosystems, because in such systems, it’s possible to have a greater share of the validation process, due to the absence of nodes.

Common critiques of the PoS consensus mechanism:

• Lack of decentralization: validators who hold a large amount of cryptocurrency have a higher chance of being selected to create new blocks, receive rewards, and they have more influence over the network, leading to a concentration of power in the hands of a few validators. This could lead to a situation where a small group of validators controls the network and its rules, potentially compromising its security and decentralization and reinforcing existing wealth inequalities.
• The validation process can be manipulated: since the network could be manipulated by owning 51% of the tokens in circulation, it is easier to influence the transaction validation than with a 51% attack on PoW, which requires controlling 51% of a network’s current computational power.
• Security: in PoS, the network’s safety depends on the amount of cryptocurrency held by validators, making it more vulnerable to attacks if a large number of validators were to collude.
• Complexity: there are various types of proof of stake, such as delegated PoS (DPOS), leased PoS (LPOS), pure PoS (PPOS), and other hybrid types. These are all variants of an overengineered system, which is difficult for anyone to truly explain and understand. The more complex a system is, the more likely it is to fail.
• Environmental impact: proof of stake (PoS) is often criticized for its environmental impact, mirroring the concerns associated with the existing monetary system. Unlike proof of work (PoW), which incentivizes the expenditure of energy, PoS systems are considered less energy intensive. However, the proliferation of blockchains relying on inefficient PoS mechanisms collectively exacerbates their environmental footprint.
• Nothing-at-stake problem: the nothing-at-stake problem is a theoretical weakness in PoS, where validators have little to lose by creating multiple versions of the blockchain. In a PoS network, validators could create multiple versions of the blockchain, hoping that one version will become the “correct” version. This could lead to a situation where the network is unable to reach a consensus, compromising its security.
• Difficulty in determining the right amount to stake: determining the optimal amount of cryptocurrency to stake in a PoS network is challenging. Validators must balance the desire for higher rewards with the risk of losing their stake.

Would Bitcoin Ever Move To Proof Of Stake?

Ethereum’s recent shift from PoW to PoS in September 2022 sparked ideas across the corporatized environmental world that Bitcoin should do the same and therefore abandon the “extreme energy consumption” required by its consensus mechanism.

Changing Ethereum to a PoS system won’t/didn’t reduce energy consumption by 99.95%, as it fails to take into account that expensive enterprise farms and corporations use enormous amounts of energy to subsidize the work necessary to complete PoS transactions globally.

The Greenpeace “Change the Code” campaign funded by Ripple Labs to discredit the energy usage of Bitcoin’s proof-of-work system is a typical example of how the corporate world does not encourage change and, instead, promotes the perpetration of an elitist system that is now fully mirrored in Ethereum’s consensus mechanism.

Besides proposing a new revolutionary and fair monetary system, PoW fosters renewable energy innovation and the use of stranded and wasted energy which will benefit the environment more than a supposedly energy-efficient PoS system in the long term. Proof of stake is merely better at concealing the energy purchases made by the corporations that enable its validating mechanism.

Thankfully, Bitcoin’s code is highly resistant to these types of attacks and was purposely developed this way. It is improbable that a proposal to change the code would even pass any initial stage of consideration by the developers, let alone the community.

Conclusion

In free markets, it is important to allow both proof-of-work (PoW) and proof-of-stake (PoS) mechanisms to coexist and evolve in ways that are profitable and beneficial to their respective supporters. Bitcoin, as an innovative monetary system, not only brings about technological advancements but also strives to have a positive impact on the environment. Educating individuals about the significance of PoW in this transformative process is a responsibility that Bitcoin enthusiasts understand and embrace.

If you’re concerned about wealth protection, financial inclusion, and fostering a better environment for all life on earth, the ideal choice is a currency that is borderless, permissionless and embodies pristine hard money and freedom technology.

This type of money, which is impervious to censorship and safe from confiscation, highlights the superiority of proof of work over proof of stake. In years to come, Bitcoin may likely be the only token of value, and the decision to support proof of work will be seen as obvious in hindsight.

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Crypto exchange Binance.US and its founder Changpeng Zhao (CZ) are reportedly looking for ways to reduce his stake in the firm amid harsh scrutiny from United States federal regulators over the past year. 

The crypto executive — Binance.US’ majority owner — has reportedly been trying to reduce his stake in the U.S.-based exchange since last summer, according to a May 11 report by The Information that cited people familiar with the matter.

Binance and Changpeng Zhao have seen intense scrutiny from United States federal regulators over the past year.

In March, the Commodity Futures Trading Commission sued Binance and CZ for operating what it alleged was an “illegal” exchange with a “sham” compliance program.

The firm was accused of willfully evading U.S. law, “while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit.”

In response to the lawsuit, Binance has claimed regulatory compliance, telling Cointelegraph, “We have implemented a robust ‘three lines of defense’ approach to risk and compliance,” at the time.

Since then, Binance.US bosses have reportedly been seeking ways to reduce CZ’s stake and influence over the company, worried that they may not be able to acquire certain regulatory licenses as long as CZ remains the majority owner.

Cointelegraph reached out to global exchange Binance, which did not comment on the matter related to Binance.US and CZ as an individual and majority shareholder of the U.S. exchange. Binance.US did not respond by the time of publication.

Related: Here’s why CFTC suing Binance is a bigger deal than an SEC enforcement

In February, the SEC sued Paxos, the issuer of Binance’s stablecoin BUSD, resulting in the end of minting. Meanwhile, the regulator blocked approval of a Binance.US bid for assets belonging to bankrupt crypto lending firm Voyager Digital.

It appears that the Securities and Exchange Commission is specifically targeting American-based crypto exchanges to bring them under the same stringent regulations as banks and stock brokerages.

The result has been an exodus from the U.S., with major players, including Coinbase, Gemini, Ripple, and Galaxy Digital, among those eyeing a move offshore following recent SEC enforcement action.

Other major exchanges such as Kraken and Bittrex have already fully or partially shuttered services in the United States as the war on crypto continues.

Magazine: Does SEC Chair Gary Gensler have the final say?