Vitalik Buterin Under Fire Over Ethereum’s Premine

  • In a recent Twitter exchange, podcaster Matt Odell called out Ethereum creator Vitalik Buterin for popularizing premined cryptocurrencies.
  • Vitalik expressed concern for the energy used in Proof-Of-Work mining.

Recently, podcast host and Bitcoin supporter Matt Odell entered a heated exchange with Ethereum creator Vitalik Buterin on the topic of premined cryptocurrencies.

Vitalik’s original comment came in a thread where he’s influence was being discussed. He said:

Matt’s response was:

To summarize: Vitalik is seemingly happy to have popularized the premined initial coin offering (ICO) model that took over the cryptocurrency space in 2017. He also expressed concern over Proof-Of-Work (PoW) mining and its energy consumption, which aligns with Ethereum’s shift to Proof-Of-Stake (PoS) mining.

The Problem With Premines

Matt’s argument is that premined cryptocurrencies are inferior compared to Bitcoin. When Bitcoin was launched, there was no premine. Satoshi Nakamoto – its pseudonymous creator - announced when mining would begin, and published the software beforehand. That way, no one could have had an unfair advantage by starting their mining early.

This is what’s called a “fair launch” - when 100% of the cryptocurrency has to be mined by the people.  Premines, on the other hand, do the opposite. By design, premined cryptocurrencies create a share of the supply at launch, in the first block. The premine is often distributed to developers, team members, and ICO investors.

When Ethereum launched, 12 million ETH were created for the developers, and 60 millionETH were premined for ICO participants to buy. Consider there are 102 million ETH in circulation today, that means 71% of the existing supply was premined during Ethereum’s launch.

Before Ethereum, any coin that had a premine was instantly rejected by the cryptocurrency community. Ethereum was the first mainstream premined coin, and after that, premines became widespread.

The criticism of premines is that they centralize control of the cryptocurrency’s supply.  For example, take XRP. When it was launched, 100 billion tokens were created. 20 billion were given to the founders, and 80 billion were given to the Ripple Corporation, in order to fund development.

By holding all of those coins, the founders could easily manipulate the price, or influence governance decisions thanks to their large share of the coin. For these reasons, many in the cryptocurrency community believe premines are scams.

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Attacker Exploits Defi Protocol to Make $360,000 in a Single Transaction

Francisco Memoria

Ab attacker has managed to exploit the decentralized finance (DeFi) protocol bZx to make over $360,000 worth of profit in a single transaction through what’s known as flash loan.

Using a decentralized trading platform dYdX, a hacker borrowed 10,000 ETH, currently worth around $2.5 million, and then sent half of it to decentralized finance lending platform Compound, and half to decentralized trading platform bZx.

Using the funds on Compound, it borrowed 112 wrapped bitcoin tokens (wBTC), ERC-20 tokens backed 1:1 by bitcoin. Using the half on bZx, the hacker entered a short position for 112 wBTC. He then sent the 112 wBTC it got from Compound to another trading platform, Uniswap, in a move that lowered the price of the tokens which made the short sale profitable.

The hacker then repaid his loan to dYdX and kept the profit from the short sale, 1,300 ether that were then worth $360,000. All of this was made in a single transaction that cost around $8 worth of transaction fees.

single transactionSource: Etherscan

The attack was pulled in a single transaction through what’s known as a flash loan. Essentially, the attacker borrowed 10,000 ETH without any collateral as he borrowed the funds in the same transition that paid them back. Through a smart contract, it was possible to pull the transaction.

Using the exploit, the hacker made over 1,000 ETH in profit and cost the bZx protocol over $620,000 in equity. bZx has made it clear users won’t suffer from the loss as it will compensate them. Those behind the project are set to release a detailed analysis at 5pm MST.

Data from DeFi Pulse shows that investors quickly started withdrawing from bZx right after the incident occurred, but started regaining confidence as soon as the project addressed the issue and clarified they wouldn’t be socializing the loss.

Featured image via Pixabay.