Bitcoin Will Use Cosmos to ‘Absorb Everything’, Says Tendermint’s Zaki Manian

Tendermint isn’t a name most cryptocurrency users know, but it’s a company that was partly behind the creation of the Binance Chain, the native blockchain of Binance’s BNB token. 

The Cosmos Network, often referred to as the “internet of blockchains,” was initially built by the Tendermint team. Cosmos is a “decentralized network of independent parallel blockchains, each powered by BFT consensus algorithms like Tendermint consensus.”

CryptoGlobe recently caught up with Tendermint’s director, Zaki Manian, who revealed he started getting interested in cryptography back in 2012, and that he started learning about cryptocurrencies after founding a civil liberties organization.

Manian noted that in 2018 he joined Cosmos as an employee, and was behind its launch earlier this year. When asked to explain in simple terms what the core idea of Cosmos is, he explained that  there is a “wave of 2.0 blockchains largely inspired by ideas” that surround fast consensus algorithms, proof-of-stake that are emerging. However, his team observed people have different preference and "political" allegiances when it comes to cryptoassets and blockchains, and they don't believe there will be a “one size fits all” solution:

We do not believe there will ever be one final system that like encompasses everyone. Because, not for technical reasons, I believe you can build very scalable blockchains. But for political reasons, that you will never be able to get everyone to agree with each other.

Manian added that Cosmos’ mission is, as such, to “build the minimum viable product of the next generation blockchain,” which will allow new blockchains that will come into existence to “interoperate economically without interoperating politically,” making them part of a larger economy.

When asked about the potential motivation behind its proof-of-stake consensus algorithm, he noted that while Tendermint’s founder, Jae Kwon, believes proof-of-work is a “waste of energy” and “incredibly damaging to the environment,” he is motivated because it’s more “technically complex.”

He added proof-of-stake opens up possibilities surrounding the types of blockchain and protocols that can be designed:

I'm excited about using this notion of staking and slashing and collateralization to build this sort of expansive universe of useful blockchain protocols. That would be really hard to do under proof-of-work. Proof-of-work definitely favors the simplicity of something like Bitcoin.

Shutting Down a Blockchain

CryptoGlobe then asked Manian on whether it wouldn’t be easier for bad actors, which potentially may one day be government-sponsored, to shut down a proof-of-stake blockchain than a proof-of-work blockchain.

Tendermint’s director replied that he believes it wouldn’t “be any easier for them to shut down Cosmos or a proof-of-work blockchain. I think roughly the same techniques apply.” He noted, however, that if governments were to attack the cryptocurrency space, they’d have a better solution.

Per Manian, it could actually be easier for a government to “just ban large scale Bitcoin mining.” While he conceded shutting down small scale Bitcoin mining operations would be “very difficult,” banning larger operations wouldn’t, and could significantly affect the flagship cryptocurrency’s security.

After shutting down every large BTC mining operation, all governments would have to do is do a 51% attack against it.

Bitcoin Will Use Cosmos

When asked on what he would reply to a Bitcoin maximalist who doesn’t see value in altcoins as BTC may in the future absorb everything, Manian revealed he believes “Cosmos is the technology Bitcoin will use to absorb everything.”

He noted that with Cosmos, Tendermint’s team didn’t create money, as the ATOM token isn’t intended to be money. Instead, ATOMs are intended to be a “form of collateral” users can use to “collateralized the security of many computational assets.”

Manian added:

So we’ve created an opportunity for money to come into the system, because obviously people who are using our blockchains will need mediums of exchange, and I think many people in the project hope that medium of exchange will be big.

He also noted bitcoin is “radically far ahead” when it comes to being widely distributed, sound money, but revealed he believes it doesn’t have an insurmountable lead.

If a cryptocurrency were to challenge BTC’s lead, he added, it wouldn’t come from an initial coin offering (ICO) that raised a few millions, but out of nowhere, when nobody could be expecting it.

CME Looks to Double Bitcoin Futures Limit, but Is This Wise?

The Chicago Mercantile Exchange (CME) has a new request for its regulator, as it looks to double open position limits on bitcoin futures contracts in the face of significant interest.

Nasdaq reports that the CME has already petitioned its regulatory body, the Commodity Futures Trading Commission (CTFC), asking for an increase from 1000 contracts per spot month to 2000 per investor. Each contract represents five BTC, so essentially, at its peak,  a single investor's total position may edge towards a monumental 10,000 BTC.

This is in direct response to the contract's recent growth which is currently depicting record levels of activity, citing $370 million being traded per day. A spokesperson for the CME noted that the idea to increase limits was proposed on the continued maturity of the market:

Based on the significant growth and acceptance of our financially-settled CME Bitcoin futures markets, as well as our analysis of the underlying bitcoin market.

However, as Nasdaq writes the increase in the upper limit of positions is somewhat superfluous. As of July, the number of open interest contracts reached an all-time high of just 6100; given this, it seems the CME may be future-proofing.

Open to Manipulation?

However, concerns remain about the limit increase, as without them, the potential for manipulation rises; often to the detriment to the underlying asset. Although, as per the CTFC website, the threat of manipulation from bitcoin futures contracts is "low":

In general, position limits are not needed for markets where the threat of market manipulation is non-existent or very low.

Instead, Nasdaq posited that this might point to a lessening on the CTFC's strict rule of bitcoin; as well as a maturing of the market in general.

Nevertheless, some believe the CME's bitcoin futures contracts do pose a significant threat to the price of BTC; with some suggesting that blatant manipulation continues unchecked within the market.

As reported, there seems to be a correlation between the expiry dates of CME bitcoin futures contracts and a lull in the price point of BTC. In several instances, a significant drop in bitcoin's price has coincided with a closure from the CME. The most recent example of this occurred on Labor Day, September 2, when bitcoin rose an extraordinary 8% shortly after the CME shut.

Crypto analyst, Alex Kruger, highlighted this, noting the large gaps which formed on the CME chart, from the price discrepancy before and after closing.

This has become a pretty accepted practice within the market. Kruger has even gone to the lengths of compiling statistics each time this phenomenon transpired:

On these occasions, bitcoin cited an average 4.6% price discrepancy following the close of the CME.

Whether this is a coincidence or the market is indeed being actively manipulated is as yet unclear. Either way, with the increase of these limits it might be only a matter of time until we know for sure.

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