Xtrabytes — An Update on Fundamentals

26.04.2019

The Last Months

Setting aside all the evidence of this being a scam, it might anyway be educational to map the other worsening fundamentals of the Xtrabytes project as well. Let's start with what occurred in the ecosystem these last months. The initial review period started with more patent filing updates by Xtrabytes Ltd. 2018 then ended with what seemed to be more patent delays as the legal team had to take time in trying to understand the implications borzalom's new code.

2019 began with the cryptocurrency exchange Cryptopia getting hacked, which left XBY traded only on two other exchanges at the time. Catching no breaks, Xtrabytes lost the CEO and COO shortly thereafter, after what seemed to have been major disagreements with the two founders CCRevolution and borzalom. These disagreements officially stemmed from the fact that one of the founders saw the project as a cryptocurrency, while others in the team saw it as a blockchain development company.

The Xtrabytes bounty program was still active during this period with users earning XFUEL for blog posts and tweets. By working on a mobile wallet, the Xtrabytes team was pushing for more adoption as well. February also saw a push to list XBY on the Waves DEX (Decentralized Exchange) in order to make the XBY and XFUEL tokens more liquid and less dependent on a few single centralized exchanges. With the work on the Waves gateway proceeding, borzalom confirmed a renewed focus on the since long planned Xtrabytes X-CHANGE DEX. The Waves DEX Xtrabytes trading launched on March 22, 2019.

As a result of PoSign patent application restrictions, the intellectual properties law firm working with Xtrabytes advised the team to incorporate as a Canadian company (XTRABYTES Intellectual Properties Inc.). The Xtrabytes team soon thereafter started planning for a future governance model which included the tokenization of all shares of said Canadian company, and subsequent distribution of some of these tokens to STATIC node operators as well as project contributors. 80% of all these XIP tokens were to be sold to the public in exchange for other tokens.

Finally, some new STATIC node information was published in April. A multitude of fees to Xtrabytes companies were detailed, and mandatory KYC for STATIC node operators was planned as well. The XBY deposit for the different STATIC node tiers were kept at 500 000, 250 000 and 125 000 (with possibilities to combine with XFUEL), but a 10% fee of the deposit amount was probably going to be introduced as well, essentially making it very expensive to setup a new node.

A new bitcointalk.org thread went up on April 22nd, 2019.

Ecology

Xtrabytes has an interesting dynamic going on on its subreddit. The place is dormant in the sense that there are not many new threads at all, but when a new thread actually gets posted (often links to blog posts by the team), there is considerable activity within it. Coin holders are still very upset by everything, especially delayed patents. Many comments are deleted in the threads as well.

In a move to completely demolish any kind of broad ecosystem forming around the Xtrabytes blockchain, the team is not only implementing huge fees on new STATIC nodes, but is also looking to impose licensing fees on dapps, trademark usage, and on patents and patent technologies. It is hard to see why any serious project would like to build on Xtrabytes as opposed to on other free, permissionless blockchains.

Technology

GitHub shows very limited development activity. Due to the closed source nature of most parts of Xtrabytes, coding may or may not occur on private repositories. BD Ratings needs proof, as usual.

For almost exactly two years ago, CCRevolution stated that the network could practically start running on STATIC nodes immediately. The problem then was that the amount of XBY needed to create such a masternode was deemed too high, and so the community was going to be polled on the matter. Whatever the results were, it is a bit strange that the network today still doesn't use STATIC nodes to the full extent as the level 2 and level 3 tiers are inactive.

By introducing trust scores for STATIC nodes, it is likely that the system could be 'gamed'. If the STATIC node system is gamed, it increases the likelihood of monopolies forming, with subsequent integrity loss of the whole consensus mechanism.

Decentralization

The issuance of XFUEL has started to raise questions within the Xtrabytes community. And this is the same point BD Ratings has made in prior articles; if the team had enough centralized power to issue XFUEL tokens to fund development (thus breaking the social contract of early stakeholders), who says they can't issue more in the future. Even though this is a separate token, the choice to issue more of it signals to XBY holders that their tokens may be diluted in the future as well. In this thread, a number of Xtrabytes team members are seen selling XFUEL for BTC.

Sadly, a version of the above actually came true. By planning to create a virtual company in Canada and then tokenize the shares for future sales, the Xtrabytes team again demonstrate that they have no qualms over creating tokens from thin air and sell them forward for profit. It is somewhat similar to the whole XFUEL scheme and is a form of dilution of total project valuation.

In the latest specifications for STATIC node tiers, the Xtrabytes team states that any person may only own one level 1 node, five level 2 nodes and ten level 3 nodes. As the team cannot control for this unless it conducts some type of KYC, this is exactly what is going to happen. Node operators will have to provide KYC documents, including address verification. This obviously introduces attack surfaces for the network as different entities may collect this list of people who are maintaining the blockchain. It is also highly ironic that many team members are anonymous while trying to enforce KYC on node operators because of trust issues.

Valuation

Xtrabytes still runs the risk of being diluted through various issuance schemes. By linking XFUEL to masternodes, the Xtrabytes developers made sure to really screw with the whole protocol.

All XBY in existence are valued to around USD 5M at time of writing. The sharp drop in price since prior ratings has pushed Xtrabytes out of CMC top 500, and frankly, that is where this project belongs.