LedgerX Contracts: Bet on Next Bitcoin Mining Rewards Halving Event

LedgerX, a federally-regulated institutional trading and clearing platform for conducting cryptocurrency swaps and options trades, has introduced a new binary contract for bitcoin (BTC).

In an official blog post, LedgerX’s development team noted that their LedgerX Halving Contract (LXHC) will allow users to bet on what they think will be the date of the next halving of bitcoin mining rewards. Every four years, the compensation bitcoin miners receive (for validating blocks of transactions) is reduced by 50% and the event is commonly referred to as “halving.”

Betting On The Next Halving Event

The next bitcoin “halving” event is expected to take place in approximately 473 days from today, or after 68,276 additional blocks have been produced on the Bitcoin blockchain. This, according to data from the Bitcoin Block Reward Halving Countdown. As mentioned in LedgerX’s announcement:

This [LXHC] contract will allow you to get a fixed payoff if the next halving block (#630,000) happens before a certain date and time. If the block is discovered after, the contract expires at zero. The result is an extremely clean binary payoff that is verifiable by all participants — a great demonstration of the value of a public blockchain.

Traditional binary contracts allow people to bet on win/lose types of events - which typically occur in sports games or elections. However, LedgerX’s bitcoin halving binary contract is different because bets are being placed on the outcome of an event that will definitely happen, whereas conventional binary contracts may bet on events which might not occur.

Comparing oil extraction processes and bitcoin mining, LedgerX’s post explains: 

To give an analogy, imagine you are an oil producer such as Exxon Mobile and know that one day in 2020, the number of barrels of oil you extract will go down by half, forever. But you’re not certain which date that will be. This would materially impact planning for investment and operations. Bitcoin miners face this exact risk approximately every 4 years for the block reward that they earn.

LedgerX's Bitcoin Savings Account

In May 2018, LedgerX launched a bitcoin savings account, which allows investors to earn interest on their BTC deposits. The crypto account also allows users to earn 2X the spot price on the product’s purchase date, if the price on maturity (expiration of contract) is approximately twice what it was when the contract was first issued.

Based in New York City, LedgerX has obtained a license from the US Commodity Futures Trading Commission (CFTC) as both a Derivatives Clearing Organization (DCO) and a Swap Execution Facility (SEF). Since launch, LedgerX has been developing crypto-related financial products that are functionally similar to traditional forms of investments. For instance, the basic idea of the LedgerX savings accounts is to allow investors to earn a yield, or return, in fiat currency (USD) on their bitcoin holdings.

In addition to 'HODLing' cryptocurrency, users can earn interest on their bitcoin deposits which is somewhat similar to what traditional banks offer with products like certificates of deposit (CD).

Error in Time-Locked Bitcoin Contracts Allows for Miner 'Fee-Sniping'

Michael LaVere
  • Crypto researcher 0xb10c discovered an error in bitcoin "time-locked" transactions that could be used as an attack vector.
  • Miners can take advantage of the program to carry out "fee-sniping" and steal funds from one another. 

Users have discovered an error in bitcoin “timelocked” contracts that could potentially allow miners to steal BTC from one another. 

Anonymous crypto engineer 0xb10c reported discovering more than one million “time-locked” transactions made between September 2019 and March 2020. In a post, 0xb10c detailed how these special bitcoin transactions were not being accurately enforced by the network. 

As opposed to normal transactions, time-locked transactions prevent recipient bitcoin from being accessed after sending. Users must wait for a specific number of blocks to be added to the network in ten-minute intervals before gaining control of their bitcoin. 

0xb10c claimed the errant time-locked transactions provided an attack vector for miners to steal transaction fees  from one another via “fee-sniping.” According to the engineer, the backlog of time-locked transactions were being purposefully designed for a “potentially disruptive mining strategy” involving the theft of miner fees. 

In an interview with CoinDesk, 0xb10c said time-locked transactions represented a “low-priority” problem at present that could eventually balloon to involve the wider network. He explained that fee-sniping would become more lucrative in a few years as the majority of miner income shifts towards transaction fees. 

He continued, 

A fix for this has been released in early 2020. However, it will take a while before all instances of the currently deployed software are upgraded.

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