• The Open Network blockchain (TON) experienced significant transaction delays this week due to heightened activity from a Bitcoin Ordinals-inspired protocol
• By Thursday, over 2.5 million pending transactions were recorded, causing the blockchain’s speed to dip below one transaction per second
• Inscriptions have caused issues on other blockchains, including Bitcoin and Polygon

The Open Network blockchain (TON) is experiencing significant transaction delays due to increased activity from a protocol inspired by Bitcoin Ordinals. Starting on Tuesday, the congestion saw over 2.5 million pending transactions recorded by Thursday afternoon, causing the blockchain’s speed to drop to less than one transaction per second. The congestion led popular TON cryptocurrency wallets, such as Wallet and Tonkeeper, to temporarily suspend services.

Tonano Launch Behind Lagging Transactions?

The issues appear to relate to the launch of Tonano, a service for creating blockchain inscriptions based on Bitcoin Ordinals, using the TON20 token standard. The severe congestion resulted from validator nodes running on insufficient hardware, rented for low loads with no provision for increased demand.

This insufficient provision resulted in inscriptions flooding the blockchain with data and clogging it up to near choking point, an issue that famously plagued the Bitcoin blockchain earlier this year when Ordinals launched. The storing of such data on the TON blockchain has been a controversial issue, as it has on all blockchains that have run an inscription-type service; the situation with Bitcoin has led to an influential developer labeling it a vulnerability in Bitcoin’s code and implementing a patch to ‘fix’ it.

Not the Last

A patch has since been issued to the TON blockchain to address the problem, and stricter penalties for lagging validators are planned for the future. With TON the latest in a line of blockchains to have to deal with inscriptions and the fallout of their implementation, we will almost certainly see more blockchains experiencing the same spike and concomitant pressures in the future.

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• A United States committee has passed a bill compelling the country’s commerce secretary to promote blockchain technology in the country
• It hopes to use the bill to become a leader in blockchain usage and development
• The bill seeks to introduce the best practices, policies and other factors to govern blockchain usage in the country

The United States House Committee on Energy and Commerce has passed a compelling the country’s commerce secretary to promote the use of blockchain technology in the country. It introduces best practices and policies to govern the technology’s usage in the hopes it’ll become a leader in blockchain development. Although the bill is yet to become law, it comes when other countries like China and the European Union have advanced in the field.

US Seeks to Redress China Dominance

Passed unanimously on December 5, the Deploying American Blockchains Act 2023 directs the commerce secretary to boost the country’s competitiveness when it comes to decentralized technologies like blockchain.

The Chamber commends for passing the bi-partisan “Deploying American Blockchains Act of 2023” (46-0!!!). This is the kind of common sense, useful legislation that we need to support this innovative industry.

Read the bill text here:

— Chamber of Digital Commerce (@DigitalChamber)

The bill suggests the creation of a committee whose membership will include entities from government agencies, stakeholders and experts in the blockchain space. It also suggests the use of blockchain technology by government agencies.

Individuals commenting on the bill congratulated the committee for the move, noting that it’s time the U.S. controls a section of the blockchain space that is majorly in the hands of China.

Thank you and ! This bipartisan bill will help preserve U.S. leadership in blockchain development, which is sorely needed.

If you think not, China currently owns 84% of all blockchain patents. It’s time for the U.S. to step up.

This bill helps.

— Cody Carbone (@CodyCarboneDC)

Has a Long Way Before Becoming Law

The bill now needs passing in the House, Senate, Congress and presidential approval before becoming law. 

Its passing comes a few weeks after U.S. lawmakers created a bill seeking to block government entities from interacting with Chinese blockchains. It also comes when other countries like Belgium and Japan are increasing their involvement with blockchain technology.

With the U.S. showing interest in blockchain technology, it’s to be seen whether it’ll overtake China in blockchain development.

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• The Arbitrum community has agreed to expand its grant program, STIP, to help support more projects
• The decision is meant to prevent a common scenario where projects are approved but not funded
• STIP will now fund 56 projects up from 36

The Arbitrum community through its that it targets to use the extra funds to widen the range of supported projects.

143 Million Votes in Favor

The proposal to increase STIP’s cap, which was open for voting for two weeks ending December 2, attracted a total of 216.77 million votes, with 143.15 million agreeing to the idea while 73.44 million rejected it. 

Apart from increasing the grant amount, the proposal also sought to make the protocol inhabitable “for new projects [and] avoid potentially irreversible harm of crushing small, high potential builders.”

 According to the proposal, the decision will help backfund approved projects and raise the number of funded projects by 26.

Although the proposal was supported by a majority of the community, some dissenting members that an increase in funding would see STIP support projects “with mixed” qualities. Others also noted that it was better to open another round of funding instead of a backfund.

DAOs are Falling Apart

The Arbitrum community’s move comes at a time when other DAOs are having issues either within themselves or with the core protocol team.

NounsDAO, for example, recently experienced a fork from unhappy Nouns NFT supporters. AzukiDAO has also in the past proposed to repossess funds raised during an NFT sale claiming that the NFT project is “scamming” the community.

With a decision to increase the STIP fund, it’s to be seen whether Arbitrum will be able to guarantee the quality of supported projects.

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• Polygon funded DraftKings and gave it special treatment to run a validator node on the network
• Polygon categorically withheld information about the special treatment describing DraftKings as an equal member of its validator pool
• DraftKings however failed in its duty and was eliminated from the validator pool

Ethereum scaling layer Polygon funded sports-betting firm DraftKings to run a validator node on the network but indicated that the validator was an equal member among other validators on the protocol. The secret funding was unearthed by sifting through blockchain data linked to the protocol’s validator program. Despite getting special treatment, DraftKings failed to hold its part of the deal leading to its disqualification as a validator, raising questions as to why the layer 2 platform would fund the validator.

An Important Milestone

Early last year, the layer 2 platform disclosed that the sports-betting firm was joining its pool of network validators, terming it an “important […] milestone” since DraftKings was a publicly traded company.

Polygon however failed to disclose that it was subsidizing DraftKings’ operation costs. According to an by Coindesk, Polygon initially spent over 2.3 million of its former native token MATIC to fund the validator’s operations.

Apart from the undisclosed funding, the validator was also accorded special treatment that allowed it to earn more rewards through staking.

Despite having an edge over other validators, it failed to honor its part of the deal. For example, instead of taking not more than 10% of profits from delegated tokens, it charged 100% commission meaning that delegators never received profits. 

The Arrangement is Unusual

One such delegator estimated that they lost roughly $800 since they didn’t realize that the validator charged 100% on profits earned, with Polygon seemingly comfortable with such an arrangement.

Tokens staked by DraftKings averaged 65.5 million in 2022 with most of it, 91%, coming from Polygon. Although it’s not unusual for Polygon to delegate its tokens to a validator, the amount given to DraftKings combined with the special treatment is unheard of in the web3 world.

With the special treatment allowing DraftKings’ earnings to surpass those of other validators, it’s unclear how the blockchain community will react to such revelations.

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• 75% of blockchain games released in the last five years have failed according to a new study
• The study considered a game “failed” if its average usage has dropped by 99% from its highest
• 2022 had the highest number of failed games with 2021 having the highest number of successful games

A by CoinGecko has disclosed that 3 out of 4 blockchain games have failed to keep an active user base. The study focussed on web3 games launched between 2018 and 2023, defining a failed game as one whose average user activity has plummeted by at least 99% since launch. According to CoinGecko, only 690 out of the 2,817 games launched during this period still have noticeable user activity, an observation that coincides with a recent report indicating that investments into the gaming field dropped by 38% in Q3.

80% of Web3 Games Fail Each Year

The study revealed that around 80% of games launched each year have become inactive, with 2022 having the highest number of inactive games. CoinGecko also observed that the development of blockchain games slowed in some years, specifically in 2019 and 2020, due to the start of the ongoing crypto winter.

Ever wondered how many Web3 games have failed?

Our study shows that approximately 3 out of 4 Web3 games have become inactive in the five years since the emergence of the GameFi niche.

Read the full study:

— CoinGecko (@coingecko)

The two years also recorded the highest failure rate at 94%, a scenario that changed the following year which recorded a failure rate of below 50%, a phenomenon that was aided by a recovering crypto market.

This year, 70.7% or 509 games have fizzled out, with the study noting that the failure rate is lower than in other years, except 2021, which may be a sign that the industry is stabilizing. The stabilization may be due to leading web3 and traditional firms partnering to support developers in the space.

Amazon, Unity, and Razer Enter Web3 Gaming

Amazon and Immutable, for example, partnered to extend blockchain gaming boundaries. Others like gaming engine Unity and gaming hardware manufacturer Razer have also announced entry into the web3 game world.

Although the web3 game failure rate is still high, this may likely change when the bear season ends.

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• The Australian Stock Exchange has decided to overhaul its clearing and settlement software, abandoning a 2017 blockchain initiative 
• The attempt to integrate blockchain faced delays and complaints, causing it to be halted last year
• The exchange’s shift away from blockchain technology indicates challenges and uncertainties, impacting broader sentiments toward blockchain adoption in financial markets

The Australian Stock Exchange, ASX, has chosen Tata Consultancy Services (TCS) to revamp its clearing and settlement software following a failed experiment to run it on blockchain technology. This shift marks a departure from ASX’s 2017 decision to take the lead in adopting blockchain-like technology, a move plagued by delays before being postponed last year. The failed experiment doesn’t bode well for other stock exchanges looking to implement the technology, or blockchain adoption in general.

Delays and Complaints

ASX announced a blockchain trial at the height of blockchain mania in December 2017, stating that it would replace its existing CHESS (Clearing House Electronic Subregister System) with distributed ledger technology developed by its technology partner Digital Asset. 

The exchange that its use of blockchain gave it the opportunity to “replace

CHESS with a next generation post-trade platform using contemporary technology,” but the reality hasn’t lived up to the expectation; in 2020, Computershare, one of the main share registry companies in Australia, asked for a two-year delay in implementation because it had not been given the necessary technical, operational and regulatory information on how the new system would operate or the fees that would be charged by the ASX for existing and new services.

Project Was Halted Last Year

Worse was to come the following year when Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC), took the unprecedented step of imposing conditions on ASX’s license over its switch to blockchain technology. ASIC warned that the new system would reduce the liquidity and transparency within the markets, two elements crucial to a healthy market.

After multiple delays, in August 2022 a company was commissioned to look into the state of the project, with the consultant’s report identified problems including timelines, communication, and complexity, and suggested that its implementation, which the ASX had indicated as “near-ready”, was no more than 63% complete.

All Eyes on London

In the aftermath, in November, the ASX halted the project and said it would write off as much as A$255 million ($173 million) in technology costs. TCS will now set about rectifying the issues and building a new system without blockchain technology, with estimates of more than A$100 million ($65 million) for just the initial stage.

ASX’s cautionary tale will alarm users of the London Stock Exchange, which recently accelerated its blockchain integration plans, although it seems that its tests have so far been more successful than those down under.

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• OKX has announced its own native Ethereum Layer 2 protocol called X1
• The exchange partnered with Polygon Labs to create X1, a high-performance, secure network geared towards developers.
• OKX is the latest exchange to develop its own blockchain following the likes of Binance and Coinbase

Crypto exchange OKX has announced its own native Ethereum Layer 2 protocol, called X1, which it says will “drive the future of Web3”. OKX teamed up with Polygon Labs for the project and yesterday jointly unveiled the testnet for X1, a high-performance, secure network geared towards developers. The development makes OKX the latest exchange to develop its own blockchain following the likes of Binance and Coinbase, the latter of which has seen great success with its Base protocol this year.

ZK Proofs Offer Scalability, Speed, and Low Costs

OKX said in X1 that it aims to use it to shape the future of Web3 by fostering collaboration across DeFi, enterprise, and other sectors. The collaboration positions OKX as a key contributor to Polygon CDK, with a substantial investment in engineering resources to enhance Ethereum scaling solutions. X1 will also connect over 50 million users with the Polygon and Ethereum communities.

X1 employs ZK proofs for enhanced security, scalability, and reduced transaction costs, making it compatible with Ethereum for deploying DApps seamlessly and securely connecting with various smart contracts, wallets, and tools. OKX added that the development underscores the commitment of both itself and Polygon Labs to advancing blockchain technology and fostering a thriving Web3 ecosystem. The exchange’s native native token, OKB, will facilitate gas fee payments.

OKX Joins the Party

Binance got the proprietary blockchain bandwagon rolling when it launched Binance Chain in 2020, but it has taken a while for other major exchanges to follow suit. Coinbase announced its own Base blockchain this August, leading to a summer of crazy gains from projects that launched on it.

OKX will be hoping for a similar level of success, with OKX Chief Innovation Officer Jason Lau calling X1 a “key pillar of our efforts to educate and bring our users onchain and into the world of Web3.”

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• Blockchain staking firms have updated their governing rules to protect users
• The new rules now require staking firms like Lido and Coinbase to clearly convey information to new and existing users
• The alliance also wants to use the new rules to boost innovations in the staking world

to protect users and boost innovations in the stalking field. The new rules now require staking platforms to provide clear information about their services and fees to allow users to make informed decisions. Among the firms that signed the new rules are Lido and Coinbase, a sign that entities offering blockchain-based products are ready to self-govern to avoid attracting intervention from conventional regulators.

No Guarantees on Rewards

According to the alliance, platforms offering staking as a service need to adequately inform their users on whether they’re providing “ self-custodial software-as-a-service staking, delegated staking or smart contract-facilitated liquid staking.”

POSA added that its members should “refrain” from promoting a certain digital asset or excessively advertising the benefits users would gain from staking. POSA also discouraged staking firms from offering “investment advice.”

The updated rules also prevent staking service providers from promising extra rewards outside what a platform offers, adding that a platform shouldn’t have hidden charges.

Other rules include allowing users to explicitly choose the type of staking they need, the staked amount and ensuring that users maintain ownership of staked assets. The alliance also discouraged staking platforms from “providing guarantees on the amount of rewards earned.”

Appeasing Regulators

The alliance noted that the new rules are due to “the current regulatory climate in the United States.” The United States’ securities watchdog, for example, has in the past said that it’s considering banning retail staking. The country’s taxman has also indicated that staking income should be taxed.

With POSA updating its principles, it’s to be seen whether regulators will allow blockchain-focused platforms to self-govern themselves.

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• Botswanan diamond mines are set to join De Beers’ Tracr program, which utilizes blockchain to trace the movement of diamonds, aiming to combat “blood diamonds”
• President Mokgweetsi Masisi recognized blockchain’s potential to enhance transparency in the diamond supply chain in a recent conference
• De Beers’ Tracr, launched in 2018, is extending its reach throughout the production chain and has successfully registered over one million diamonds at source.

Botswanan diamond mines will join De Beers’ Tracr program which uses blockchain technology to trace the movement of diamonds, potentially cutting down the phenomenon of ‘blood diamonds’. President Mokgweetsi Masisi recently recognized the potential of blockchain technology to enhance transparency and traceability within the diamond supply chain, telling the ‘Facets 2023’ conference that blockchain can play a pivotal role in verifying the ethical sourcing of diamonds, pointing out that decentralized ledgers can offer consumers assurance that the diamonds they purchase have been ethically sourced. Diamond giant De Beers launched its Tracr protocol in 2018 and recently opened it up to more entities throughout the production chain.

Blockchain Can Assure Ethical Sourcing

Botswana boasts the world’s second-largest diamond mining industry, but it has been under scrutiny for past human rights violations, exploitation, and environmental damage, as well as alleged connections to conflicts in Africa funded by the diamond trade. African nations dominate the production of uncut diamonds and hold prominent positions on the list of top producers, as outlined by the Kimberley Process Certification Scheme, with Botswana coming second only to Russia.

Masisi extolled the virtues of blockchain tracing during Facets 2023, which was held in Botswana:

Transparency and traceability are vital components in the assurances that we, as diamond-producing countries, must provide to our global customers. Blockchain technology, with its immutable ledger, can provide consumers with the guarantee that their diamonds have been ethically sourced.

Botswana is at the forefront of harnessing blockchain’s transformative capabilities to cleanse the vital mining industry, showing its commitment by joining Tracr, which has traced more than one million uncut diamonds since launching in October 2018. Tracr is the world’s first fully decentralized diamond blockchain platform, commencing at the source and operating at a substantial scale.

Tracr Racks Up One Millionth Traced Diamond

De Beers reports that Tracr has successfully registered over one million rough diamonds at their source and 110,000 diamonds at the manufacturer level, all securely recorded on dedicated Tracr instances. The company also holds a significant ownership stake in Botswana’s diamond reserves. 

Tracr integrates a variety of cutting-edge technologies, including blockchain, artificial intelligence, the Internet of Things, as well as advanced security and privacy measures. In June 2023, Tracr was made available to the broader diamond sector, signifying a pivotal step toward enhancing transparency and ethical standards in the diamond industry.

This initiative could potentially help alleviate concerns related to human rights violations and environmental impact within Botswana’s diamond mining sector, as well as in the wider global diamond trade.

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• JPMorgan’s digital asset, JPMCoin, has successfully processed over $1 billion in daily transactions
• Takis Georgakopoulos, Global Head of Payments at JPMorgan, shared this news on Bloomberg TV and expressed the bank’s commitment to further expanding JPMCoin’s use
• The bank plans to develop a retail version of JPMCoin using its permissioned blockchain

JPMorgan has successfully handled over $1 billion in daily transactions using its digital asset, JPMCoin, showing a strong level of adoption and asking further questions over the potential of public blockchains in the private sector. Takis Georgakopoulos, the Global Head of Payments at JPMorgan, and expressed the bank’s commitment to expanding the use of JPMCoin. The bank plans to further expand its use and is considering the development of a similar asset for retail investors, aiming to enhance the efficiency and speed of transactions.

JPMCoin Pulling Up Trees

JPMCoin was introduced in 2019 to facilitate cheaper inter-bank transfers using Quorum, a permissioned version of Ethereum, and Georgakopoulos revealed that the uptake within its Interbank Information Network now runs into the billions of dollars per day.

In the interview, Georgakopoulos emphasized the shortcomings of existing payment systems, including speed limitations, cut-off times, and cross-border payment delays, which JPMCoin was created to solve:

The reason why we created the JPMCoin and in general we are looking at digital currency as a way to solve those issues. What we do with JPMCoin is the institutional side of that solution, working in a permissioned environment with companies that are trusted and trust each other so that they can move money within their ecosystem 24/7.

Georgakopoulos also pointed out the challenges of dealing with separate movements of money and information, which hinder reconciliation, understanding, and tracking, something that the bank is looking to tackle with its newly launched Onyx network.

JPMorgan Looking at Retail Version

Although JPMCoin primarily serves institutional requirements, Georgakopoulos revealed the company’s intention to develop a retail version of the asset to extend its efficiency to the retail sector, further calling into doubt the efficacy and use case for cryptocurrencies such as XRP. Georgakopoulos stated that Central Bank Digital Currencies (CBDCs) are a potential route to achieve this goal, something that won’t enamor him with the crypto sector, even if they cared for him in the first place.

Georgakopoulos pointed out that banks have the potential to create commercial versions of digital deposits, mirroring traditional deposits in functionality but utilizing distributed ledger technology. This approach would provide the same benefits, including 24/7 efficiency, cost-effectiveness, instant transactions, and programmable payment methods. However, as many have pointed out, this comes with strong personal privacy concerns, with the issuing government able to track and influence spending habits.

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• The lack of regulation is hindering blockchain adoption in the finance sector, says David Treat, managing director at Accenture
• Treat says that regulatory approval is crucial to ensure fair market practices in securities markets.
• Blockchain companies such as Chainlink are making progress with trials, but regulation is needed for broader acceptance

The lack of regulation around that financial giants are interested in the audible nature of blockchains but that the lack of rules in place is holding them back from widespread adoption. Some firms are finding success with trials of blockchain solutions, but more regulation is needed if the promised blockchain revolution is to take place.

Regulations and Liquidity Are Core Issues

Treat told the Financial Times that the adoption of blockchain technology in traditional financial markets faces several hurdles, primarily driven by regulatory constraints and liquidity concerns. Regulatory approval is needed to ensure fair market practices, particularly in securities markets like bonds, commodities, and stocks, where significant investments by individual investors are already in place.

In the world of finance, Treat added, the most active markets tend to offer the best prices and lower transaction costs, which has hindered the widespread adoption of blockchain technology in sectors like the bond market. This discrepancy is particularly evident in markets where trillions of dollars are already traded through well-established networks.

Progress is Being Made

The immediate areas for blockchain growth lie in functions closely related to trading and cash markets, such as trade settlement and processing, with a key challenge being the connection of blockchain-recorded transactions with those recorded off the blockchain.

However, progress is being made in this direction, thanks to companies like Chainlink which uses oracles that link blockchains with external data, with its progress reflected in a recent tie-in with messaging service giant Swift; in August, the pair successfully tested a system enabling the transfer of value between different blockchains, bridging the gap between previously isolated networks.

Citi and JPMorgan Testing the Waters

Traditional financial institutions are dipping their toes into the blockchain waters, and with promising results. Citi, for example, is testing a blockchain project designed to allow institutional and corporate customers to convert cash into digital tokens, simplifying cross-border money transfers, particularly during traditional market closures. While Citi’s tokens are currently transferable only within the bank, efforts are underway to develop a framework for interbank and inter-institution token transfers in collaboration with regulators and financial industry stakeholders.

JPMorgan is another major player that is well known for its blockchain trials. In early October, the bank announced the initiation of transaction processing between customers using a blockchain-based settlement network, which represents the latest in the company’s years-long association with blockchain projects. These developments indicate a growing acceptance of blockchain technology within traditional banking.

Rather than being the tip of an iceberg, these examples represent the largest of very few successes to date. Despite the challenges, experts like Accenture’s Treat are optimistic about the adoption of blockchain technology in traditional financial markets, assuming that proper guidelines and security frameworks are in place. This vision for simplified blockchain-enabled networks is within reach, although it may take time to fully materialize.

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• Layer-2 network Base has opened its smart contract code to the public in a bid to build “in the open”
• The Coinbase-funded network said the move will help increase transparency and accountability
• Base revealed it’s comfortable with developers copying the code to create similar products or experiment with functions

Coinbase’s Ethereum scaling layer Base has disclosed that it has opened its code to the public to increase transparency and build “in the open.” The protocol said that it’s comfortable with developers copying the code to create similar projects and experimenting with functions already baked into the platform such as withdrawals and deposits. Base is also opening other aspects of its operations such as its website to the public, an indication that it’s committed to keeping up with the ethos of the crypto world.

$1 Million for Vulnerabilities

In a blog , Base said open-sourcing its code “also serves as a catalyst for collaboration” since it enables access, building upon and refining the code. The network added that security-minded persons can win up to $1 million by scrutinizing the code for any vulnerabilities.

We’ve open sourced our smart contract repos to provide developers with increased transparency around Base’s contract development, deployment, and upgrade process

All contracts and scripts for Base are publicly available on GitHub

— Base (@BuildOnBase)

Base believes the move is a key element in its push to create “an on-chain ecosystem” since it paves the way for critical community feedback.

The decision to open-source the protocol comes as the network continues to make notable strides in the space in its attempts to become the leading Ethereum scaling layer. For example, its daily transactions recently surpassed those of Ethereum, a phenomenon that was traced to the hype around Friend.tech.

700,000 NFTs in Less a Month

The protocol’s recent event dubbed ‘on-chain summer’ attracted top conventional brands like Coca-Cola and saw over 700,000 NFTs launched on the platform in less than a month.

With Base opening its smart contracts, scripts and web elements to the public, it’ll assist in building a loyal community and may help arrest vulnerabilities before they’re exploited.

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