I wanted to share some thoughts on a seemingly overlooked innovation that has come to Bitcoin within the last year, called Bitpacs.

Bitpac stands for a Bitcoin Based Publicly Auditable Cooperative. Bitpacs are essentially normal bitcoin multisig wallets with the additional introduction of public auditability. Traditionally in a multisig setup, participants of the multisig are not disclosed. In a Bitpac multisig, participants are intentionally made public, which allows for transparent auditability. With this transparency, unique features, tooling, rules, and transaction crafting is possible. The goal of Bitpacs is to emulate the familiar DAO experience on other chains.

DAO’s are marketed as Decentralized Autonomous Organizations. However, Ethereum and other altcoin based DAOs only inherit the “decentralization” of their chain, so will not be as decentralized as the same experience built on Bitcoin. DAO’s are also not autonomous, as humans control and shape the decisions they make. The Bitpac definition is a more honest explanation of the tech involved and I think eventually will be a better experience for users.
Why should bitcoiners even care about DAO’s? As of Feb 18th 2024, DAO’s on Ethereum hold over $35 billion in treasury funds. There have been millions of DAO proposal makers and voters, and hundreds of millions of dollars have been transacted via DAO governance. (source) There is clear demand for on-chain governance and community management, Bitpacs allow this to come to Bitcoin.

How can Bitpacs actually work?

While Bitpacs don’t directly utilize smart contracts on the Bitcoin blockchain itself, they achieve similar functionality as DAOs through a combination of multisig wallets and carefully crafted Bitcoin transactions. The structures possible with this encompass most of what a DAO does:

• Multisig ensures that no one is ever in unilateral control of any Bitpac funds, requiring the quorum threshold to spend anything.

• Signing thresholds that mandate how many signatures are needed to finalize a transaction (3 of 5 or 6 of 10 for example) can fine tune required voting thresholds in line with the defined Bitpac consensus requirements.
• Time constraints can be applied to voting rounds, ending the signing process for proposals that haven’t achieved a signing threshold by the end of a voting period.
• Gating membership of Bitpacs based on certain criteria can be done at the platform level, like unique assets held, bitcoin contributed to the treasury, or known wallet addresses, all of which can be verified on-chain.
• All of these dynamics that cannot be enforced through Bitcoin script or pre-signed transactions, and must resort to social enforcement, are transparently verifiable on-chain guaranteeing detection of Bitpac rule violations.

What do Bitpacs enable on Bitcoin?

Bitpacs unlock exciting possibilities for bitcoin users:

• Community-driven funding: Fundraising for public goods, projects, or charitable causes becomes more efficient and secure with Bitpacs. Contributors can trust that funds are used as intended, thanks to the transparent nature of the multisig.
• Decentralized governance: Bitpacs empower communities to make collective decisions regarding fund allocation and spending. Voting rights are distributed among key holders, ensuring a transparent and verifiable process.
• Increased trust and collaboration: By eliminating the opacity often associated with traditional financial systems, Bitpacs build trust and foster collaboration between individuals with shared interests, and doing so fully on-chain.

Some specific examples of Bitpac use cases include:

• Funding open-source development: Developers can create Bitpacs to receive community funding for their projects, with transparent spending records ensuring accountability to their backers.
• Managing community treasuries: Any organization can leverage Bitpacs for transparent management of their funds, allowing members to track spending, create proposals, and participate in decision-making.
• Crowdfunding: Bitpacs can be used as a means to crowdfund bitcoin from a group of supporters for a pre-established shared goal, company, investment fund, or project.

A major lesson for the industry over the last year has been how much innovation and experimentation can still be done on native Bitcoin without requiring any changes to the network. We have seen massive interest around BitVM, Ordinals, roll-ups, sidechains, layers, metaprotocols, all within bitcoins current consensus. There is clearly a cambrian explosion of developer and user interest coming to Bitcoin which will not slow down any time soon. Tens of thousands of new niche communities will be popping up on Bitcoin in the coming years. This doesn’t include traditional companies that continue to trend towards Bitcoin adoption over time. Bitpacs can agnostically offer community organization, treasury management, and on-chain governance to all of them.

The thousands of ideas being “built on Bitcoin” should have one thing in common, eventual settlement on the base layer. Different methods of governance will be experimented with over time, but this is why Bitpacs could be the superior model. Bitpac members have direct voting access to the treasury and transactions occur at the base layer; there is no side-chain, layer, or additional protocol that Bitpac members need to trust. Potentially this cycle, people will start to realize that Bitcoin block space is just as scarce as bitcoin the asset. As we trend further towards a hyperbitcoinized world, with nation states and institutions transacting, I think that Bitpacs representing large community or entity treasuries will be one of the few things that will justify occurring at the Base layer.

–

Anybody can create Bitpacs on their own. @Tribe_btc is a centralized project I’m working on aiming to create a full tooling suite for Bitpacs. Tribe will be releasing our Bitpac documentation soon.

By Dillon Healy

BD / Partnerships BTC Inc. @dillonhealybtc

Source link

In a significant development in the world of cryptocurrency, New Zealand police have seized assets linked to a fugitive former Luxembourg spy and Onecoin adviser. This article delves into the details of this case, shedding light on the implications for the cryptocurrency industry and the ongoing efforts to regulate it.

Who is the Fugitive Former Luxembourg Spy?

The fugitive in question is none other than Jean-Luc Louis Filiol, a former intelligence officer for Luxembourg’s Service de Renseignement de l’Etat (SREL). Filiol has been on the run since 2012, following allegations of illegal wiretapping and other misconduct. His connection to the controversial cryptocurrency Onecoin has brought him back into the spotlight.

Connection to Onecoin

Onecoin, a cryptocurrency that has been widely labelled as a scam, has been under investigation by authorities worldwide. Filiol served as an adviser to Onecoin, further complicating his legal situation. The cryptocurrency’s founder, Ruja Ignatova, disappeared in 2017 and is currently wanted by the FBI for wire fraud, securities fraud, and money laundering.

Asset Seizure by New Zealand Police

In a recent operation, New Zealand police seized assets worth NZD $140 million ($90 million USD) linked to Filiol. This is the largest asset seizure in the history of New Zealand police. The assets include several high-value properties and bank funds.

Implications for the Cryptocurrency Industry

The seizure of Filiol’s assets is a significant development in the ongoing efforts to regulate the cryptocurrency industry. It serves as a stark reminder of the potential risks associated with cryptocurrencies, particularly those that operate outside of established regulatory frameworks.

• The case highlights the need for robust regulation to prevent the misuse of cryptocurrencies for illegal activities.
• It underscores the importance of due diligence in cryptocurrency investments to avoid falling victim to scams.
• The seizure also demonstrates the global reach of law enforcement in tracking down and seizing assets linked to criminal activities, even in the relatively anonymous world of cryptocurrency.

Global Efforts to Regulate Cryptocurrency

Regulating the cryptocurrency industry is a complex task that requires international cooperation. Several countries, including the United States, the United Kingdom, and Japan, have implemented regulations to oversee cryptocurrency activities. These regulations aim to prevent money laundering, fraud, and other illegal activities while promoting innovation in the industry.

Conclusion: A Wake-Up Call for the Cryptocurrency Industry

The seizure of assets linked to Filiol and Onecoin is a wake-up call for the cryptocurrency industry. It underscores the need for robust regulation and due diligence in cryptocurrency investments. As the industry continues to grow and evolve, it is crucial that investors and regulators alike remain vigilant to prevent the misuse of cryptocurrencies for illegal activities.

While the case of Filiol and Onecoin is a stark reminder of the potential risks associated with cryptocurrencies, it should not overshadow the potential benefits of these digital assets. With proper regulation and oversight, cryptocurrencies can offer a range of benefits, including increased financial inclusion, faster and cheaper cross-border transactions, and new opportunities for innovation.

Source link

Recently, Binance US, one of the world’s leading cryptocurrency exchanges, has been ordered to halt its operations in Alaska and Florida. This development has sent shockwaves through the crypto community, raising questions about the future of cryptocurrency trading in these states and the broader implications for the industry. This article will delve into the reasons behind this decision, its impact on Binance US and its users, and the potential future of cryptocurrency regulation.

Why Has Binance US Been Ordered to Cease Operations?

The decision to halt Binance US operations in Alaska and Florida comes amidst increasing regulatory scrutiny of cryptocurrency exchanges. Regulators have expressed concerns about the potential for money laundering, fraud, and other illicit activities facilitated by these platforms. In addition, there are concerns about the lack of consumer protection measures in place, with users potentially losing their investments due to the volatile nature of cryptocurrencies.

While Binance US has not been directly accused of any wrongdoing, the decision to cease operations is seen as a precautionary measure by regulators. They aim to ensure that all cryptocurrency exchanges operating within their jurisdictions adhere to the same standards as traditional financial institutions.

Impact on Binance US and Its Users

The immediate impact of this decision on Binance US is significant. The company will lose a substantial portion of its user base in Alaska and Florida, which could lead to a decrease in trading volume and, consequently, revenue. Furthermore, this could potentially damage the company’s reputation, making it more challenging to attract new users in the future.

For users in Alaska and Florida, the impact is equally significant. They will no longer be able to use Binance US for their cryptocurrency trading needs. This could force them to move to other platforms, which may not offer the same range of cryptocurrencies or have higher fees. Additionally, users may face challenges in transferring their assets from Binance US to other platforms.

Broader Implications for the Cryptocurrency Industry

The decision to halt Binance US operations in Alaska and Florida could have broader implications for the cryptocurrency industry. It signals a shift towards stricter regulation of cryptocurrency exchanges, which could potentially impact other platforms. This could lead to a more regulated and safer environment for users but could also stifle innovation and limit the growth of the industry.

Furthermore, this development could influence other states’ approach to cryptocurrency regulation. If Alaska and Florida’s decision proves successful in addressing their concerns, other states may follow suit, leading to a more uniform regulatory landscape across the US.

Future of Cryptocurrency Regulation

The future of cryptocurrency regulation remains uncertain. While there is a clear trend towards stricter regulation, the specifics will likely vary from state to state and country to country. However, it is clear that regulators are taking the potential risks associated with cryptocurrency trading seriously and are willing to take decisive action to protect consumers.

For cryptocurrency exchanges like Binance US, this means they will need to adapt to a more regulated environment. This could involve implementing stricter security measures, improving transparency, and working more closely with regulators to ensure compliance.

Conclusion

The decision to halt Binance US operations in Alaska and Florida marks a significant moment in the evolution of cryptocurrency regulation. While it presents challenges for Binance US and its users, it also signals a move towards a safer and more regulated environment for cryptocurrency trading. The future of cryptocurrency regulation remains uncertain, but it is clear that exchanges will need to adapt to survive and thrive in this changing landscape.

Source link

Maxine Waters, the Chairwoman of the House Financial Services Committee, has recently voiced concerns about Meta’s digital asset ambitions. This article delves into the details of these concerns and the potential implications for Meta and the broader digital asset landscape.

Maxine Waters has been a vocal critic of Meta’s digital asset plans, particularly its proposed cryptocurrency, Diem. She has expressed concerns about the potential for misuse of such a currency, including money laundering and terrorist financing. Furthermore, she has questioned whether Meta has the necessary infrastructure and regulatory compliance measures in place to manage a digital currency.

In response to Waters’ concerns, Meta has stated that it is committed to working with regulators and policymakers to ensure that its digital asset initiatives are compliant with all relevant laws and regulations. The company has also highlighted its efforts to build robust anti-money laundering and counter-terrorist financing measures into its digital asset systems.

Waters’ concerns could have significant implications for Meta and the broader digital asset landscape. If regulators take her concerns seriously, Meta could face increased scrutiny and potential regulatory hurdles in its digital asset initiatives. This could slow down the company’s digital asset plans and potentially impact its bottom line.

Examples and Statistics

• In 2020, Waters led a group of lawmakers in calling for a halt to Meta’s then-proposed cryptocurrency, Libra, citing concerns about privacy, national security, trading, and monetary policy.
• According to a report by the Financial Action Task Force, digital assets are increasingly being used for illicit activities, with $1.36 billion worth of cryptocurrency being used for illicit purposes in 2020 alone.

Conclusion

Maxine Waters’ concerns about Meta’s digital asset goals highlight the ongoing regulatory challenges facing companies in the digital asset space. While Meta has expressed its commitment to working with regulators, it remains to be seen how these concerns will impact the company’s digital asset initiatives and the broader digital asset landscape. As the digital asset space continues to evolve, it is clear that regulatory compliance will be a key factor in determining the success of these initiatives.

Key Takeaways

Maxine Waters’ concerns about Meta’s digital asset goals underscore the importance of regulatory compliance in the digital asset space. Companies like Meta must work closely with regulators to ensure that their digital asset initiatives are compliant with all relevant laws and regulations. Furthermore, these concerns highlight the potential risks associated with digital assets, including the potential for misuse for illicit activities. As such, companies must also invest in robust anti-money laundering and counter-terrorist financing measures to mitigate these risks.

Source link

We all have a journey to Bitcoin. Some started as sound money advocates who adored Austrian economics and gold. Others fell out of the TradFi world when they knew something wasn’t quite right. Most Bitcoiners have gone through trials and tribulations of altcoin hell. However you made it here and to Bitcoin, welcome–and buckle the F*ck up.

When I first became interested in Bitcoin, it was July of 2017, and it was already well into the bull market of that year. I bought some and watched its value increase. Then I bought more. As tends to happen during these parabolic bull runs, I kept watching the price rise and my interest go from:

Interested to Disbelief to Infatuation to Degenerate Buying to Despair.

This is a trajectory you can avoid during the next bull run if you prepare yourself properly.

If you are reading this hoping to find all the answers, I have some unfortunate news. There are no right answers in Bitcoin or life. We are all on a journey to figure out what to do and how to approach. I hope to guide you, but ultimately, your personal goals and disposition will dictate how you handle volatility. Bitcoin will test your resolve.

During the later phase of the 2017 bull run, I talked about Bitcoin to everyone in my life—completely obsessed. My neighbor at the time was older than me and had experienced the dot-com boom. I will never forget the advice he gave me; this advice was born of gaining (and losing) a lot of money during the dot-com bubble. He listened to my fervent interest in Bitcoin, and he took a very measured approach to my evident LOVE for this asset. He told me that during the dot-com boom, he made more money than he ever believed he would have, and in the end, he was right back where he began—because he rode the bull market over the top and didn’t sell anything. His advice was, “I’m glad you are doing well, but don’t forget to take some profit.” He advised me to sell 50% and keep 50%—a simple hedging strategy. I did heed his advice shortly after Bitcoin hit its all-time high and sold some of my holdings near that local top.

Now, I know that this is sacrilege to many hodlers. We don’t sell our bitcoin, right?? Well, that is a personal decision, and depending on your risk tolerance and place in life, you may want to take some risk off the table. That is part of investing, and as the old saying goes, no one ever loses money selling for a profit. This article aims to give the advice I wish I had gotten when I first discovered Bitcoin. I hope this helps newcomers to the space understand how to navigate the bombastic environment that bitcoin produces during its bull runs.

I have seen two bull runs, one in 2017 and one in 2021. These bull runs were VERY different, and I suspect that if you spoke to those involved in bull runs prior to 2017, you would find that those also had a very different feel.

The first thing I want to get off my chest is this—No one knows what is going to happen:

• Balaji talks about 1 million in 3 months
• Nobel laureates are saying it will go to zero
• Buffett and Munger(RIP) call it rat poison

Whoever you are listening to, no matter how long they have been in the space or how correct they have been in the past, IT DOES NOT MATTER. They have no idea what the future holds.

In investing, there is an idea called survivorship bias. Those who have been correct have survived, and they seem like geniuses because they have been correct. The VAST majority of those who have been wrong are forgotten. You don’t hear about them. I won’t throw anyone under the bus here, but there were prominent people in Bitcoin calling for MUCH higher prices when we were sitting at 68K in 2021. I’m not saying that they are bad people; I’m sure that they had a good reason to forecast these numbers, but if you had taken their advice at that time, you would have bought at the worst time possible and gotten crushed for YEARS.

In my view, there are different tiers of crystal ball holders out there, and the lowest tier is the technical analyst type. These are the dime-a-dozen people you see on Twitter spouting off about momentum, price levels, cup and handles, etc. These people were calling for 10K bitcoin when it bottomed at 16k. I’m not saying that TA is all nonsense; fundamentally, it is a system for predicting human action through probability. It’s a consideration at best. It should never be used in a vacuum to determine your allocations. If you use it in conjunction with fundamentals, it can be much more helpful. The point I am driving at here is there are GRAVEYARDS of TA analysts out there who told you to buy at 68K and not to buy at 16K. They are throwing probabilistic darts. Don’t put your financial future on someone’s educated guess.

The second brand of crystal ball aficionados out there are macro analysts. These people have more credibility in my view because they are assessing the general trend in the economy. They are considering interest rates, FED movements, and economic data. These types are MUCH closer to base reality because they have their finger on the pulse of the economic heartbeat. But, as with TA analysts, these people can be TOTALLY wrong. Many said that FED funds rates couldn’t exceed x or y, or the entire economy would collapse. Well, the interest rates have been elevated to levels well above their doomsday predictions, and we have not seen a collapse.

Whether you follow a TA analyst or a Macro analyst, they can be utterly WRONG because of a black swan. Nicholas Taleb—famously hated by Bitcoiners—coined the phrase black swan to label events that happen from time to time that simply cannot be predicted in standard modeling because they are so unlikely. Covid was a black swan. The war in Ukraine was a black swan. And guess what, there could be another unpredictable black swan tomorrow that could render all of the TA and macro analysts completely wrong. The world has a ton of randomness. By the way, black swans aren’t always bad. They are just as likely to be positive catalysts.

So does this mean we should remain paralyzed with fear and not trust anyone??

Absolutely not. It means we should make the effort to EDUCATE OURSELVES! You need to take responsibility for yourself and your decisions. You can take the information from the TA analysts and the macro analyst and make your own educated decisions. THIS IS OF THE UTMOST IMPORTANCE.

Educate Yourself

Bitcoin is an incredibly simple yet endlessly complex animal. Your education will never be complete, but you can incrementally expand your understanding. We did a 10-episode Bitcoin Basics Series with Dazbea and Seb Bunney, and I don’t feel like we even scratched the surface!

You want to be educated for resiliency. If you have a solid grasp of Bitcoin and how it works, you will not be easily shaken. The psychology here is VERY IMPORTANT. If you understand what you are investing in, and the market is hit by an exchange failure similar to what happened to FTX, you will understand a few things that the average person may not.

• Bitcoin is unaffected
• The price drop is temporary and without merit
• Therefore, this is a great time to be accumulating Bitcoin

Now, the opposite of this is also true. When you see mainstream headlines fawning over Bitcoin, with the gains never seeming to end, and you feel like you should drop every bit of money into Bitcoin because its price is going nowhere but up—BE CAUTIOUS. I have found that my psychology is typical. I have fear when the price is getting crushed, and I have irrational exuberance when the price is rising quickly. If I do EXACTLY the opposite of what my monkey brain tells me, I find I’m often doing the right thing. That is to say, when you feel extreme fear, this is the time to buy, and when you feel elated, this is the time to sell.

Panic buying is dangerous. When you feel an uncontrollable urge to buy Bitcoin, take a deep breath. I can assure you that you will be able to buy some, and if you are feeling the urge this strongly, the market is probably ripe for a pullback. That is no guarantee, but in my experience, this has been the likely case. I am not advocating for trading BTC, not at all. I can honestly say that I have lost more BTC than I have gained by trading, and if most people are honest, they will admit the same. Trading is a skill and discipline that very few people master.

The typical psychological roadblocks that hang people up are fear and greed. Reflect on your feelings and recognize when you are experiencing these emotions. They will cause you to make mistakes. The simplest way to mitigate all of this is simply to dollar-cost average. Swan is the PERFECT place for DCA. Dollar-cost averaging takes all the stress out. Full stop. If you level into this asset at this moment and it drops to 30% overnight, ask yourself honestly: Do I have the stomach for that? Do I have the conviction for that? Do I have the educational chops to understand why the dollar price doesn’t matter in the short term? Will I panic sell? If you aren’t convicted, dollar-cost averaging will save you. You are getting the average price over a long period of time.

I have a little DCA tactic that is simple and works for me:

When the price corrects I increase my DCA, when the price gets frothy, I feather back and average in with less. Over months and years, this supercharges your average buy.

Don’t Feel Like A Sellout For Selling BTC

Have a plan and be ready to execute. My neighbor’s plan is a solid place to start. Once you have doubled your money, take the initial investment out. There is a significant asterisk involved in this—What are you going to buy instead of Bitcoin? Inflating cash? The choices for where else you put your money these days are very limited. This might be controversial to many in the space, but I think it’s perfectly reasonable to sell some Bitcoin. If you have been holding for YEARS, and your stack could meaningfully make your life better, by all means, sell a portion.

Time is the one asset that is more valuable than BTC; we have a truly finite amount of time on this earth. If you hodl your BTC and then take a dirt nap, what was the point? If you can sell a portion of your stack and pay off your house, or get out of crushing debt, I think that is a sound decision. It may not be the BEST financial decision, especially if your house is on a low-interest rate loan, but it’s an understandable decision because of the peace of mind this could bring. However, you must also remember that selling Bitcoin will very likely be a painful decision in the long term.

Selling Bitcoin for toys on the other hand is not a great move. When you buy that 250k moon Lamborghini, which loses 50% of its value in 3 years while Bitcoin has gained more than that percentage to the upside, the regret will be unbearable. Robert Kiyosaki comes to mind. His book Rich Dad Poor Dad has been very influential on me, and his description of assets vs. liabilities hit home:

• An asset generates cash flow
• A liability subtracts cash flow

If you buy assets, your net worth will increase substantially on an exponential curve. If you are buying liabilities, you are simply getting poorer. If you sell Bitcoin, you will likely regret it in the long term.

Time Preference

Time preference is a topic often visited in Bitcoin. Having a low time preference means you are willing to forgo niceties today for a better future. Every worthwhile cathedral, every classic piece of art, everything beautiful in this world has been built because people worked with an eye to the future, not the present. If DaVinci taped bananas to the wall we would have never remembered him. If the great pyramids had been built of clay, they would be gone. If Civilization spent all of its wealth on the here and now without investing in the future it would not last.

Bitcoin itself is a digital artifact that has been crafted to perfection by a mysterious architect. It is designed to last eons; if civilization lasts, it will have perfect fidelity into the future. Because no one can change it or control it, Bitcoin is anti-entropic. This is the epitome of low-time preference craftsmanship. Bitcoin is a Da Vinci in a world of bananas taped to walls. It’s so apparent once the work is put in that it’s embarrassing more people don’t understand the value proposition.

In stark contrast to this Bitcoin masterpiece, we have the sand hills we call alt-coins or shitcoins. These have been built using Bitcoin’s technology but introducing entropy. Fidelity is lost in altcoins because each has a founder or group who controls them. When humans can control something, they inevitably manipulate it to their benefit. And whether consciously or subconsciously, it will degrade. Most of these shitcoins have been designed from the outset to scam you. Some of these alt-coins have leadership that may be well-intentioned, but they are human and capable of being influenced and coerced. The problem is LEADERSHIP. Bitcoin and its time chain have been designed to remove the human element as a primary characteristic. Introducing humans into the mix causes entropy to destroy value through seigniorage.

Bitcoin’s invention was that of NON-INTERVENTION by humans.

These are insights that take years for many people to understand completely. If you want the TL;DR on altcoins, it’s simple. Just don’t bother. You are better off taking your money to a casino and playing craps. The deck is stacked heavily against you in the crypto world; you are simply getting lucky if you make money. Take the low-time preference route and stack Bitcoin while learning as your investment grows. I can confidently say that you will be much further ahead in 5 years dollar-cost averaging into Bitcoin than you will be gambling on shitcoins.

5-Year Outlook Minimum

Most people get interested in Bitcoin during one of its parabolic bull runs. I was one of them. We are all interested in getting ahead financially, especially with the specter of inflation hanging over our heads.

If you are new to Bitcoin and this is your first foray, make sure you are prepared to hold this asset for a minimum of 5 years. You are likely here during a bull run, and unless you got lucky, it’s probably on the trailing end of the bull run. As of the date of writing in December 2023, I believe we are at the beginning of the next bull market. With the ETF approval, the halving in April 2024, and the FED poised to turn dovish, many catalysts are aligned. This does NOT make it inevitable. Black swans are always a possibility. With that black swan caveat aside, we seem poised for massive price appreciation in the next few years.

Self Custody

The first time you buy Bitcoin at the exchange of your choice, it will feel like buying any other asset at a brokerage. You buy Bitcoin, and the number on the screen reflects the amount of bitcoin you now “own.”

It is critically important that you take custody of your Bitcoin. We have seen exchange failure and downright fraud go on very recently. When these frauds are uncovered and prosecuted and the price of Bitcoin gets hammered because many people associate the asset Bitcoin with the exchanges that sell it, this becomes a HUGE buying opportunity. When FTX failed 1 year ago, the price of Bitcoin was negatively affected, and those who understood that Bitcoin had no fundamental problem loaded up. They understood that fear was coursing its way through the market (back to why being educated is SO IMPORTANT in this space). If you bought Bitcoin at that time (around 16k), you secured well over a 100% gain in a year!

Think of seed keys as the password to your Bitcoin, which must be protected because if anyone else gets it, they can take possession of your Bitcoin—no bueno. Bitcoin Seed keys are generally protected by a hardware wallet or signing device. This device protects your seed keys from hackers or bad actors. I have been using Coldcards for years, and they are some of the best devices for protecting seed keys. It works very simply. You create your secret keys using the device; it saves them and keeps them offline, never connected to the internet. That last point is IMPORTANT. You do not EVER want to save these words on an internet-connected computer. The only place to safely store your Seed Keys is on a device designed for them. If the computer is compromised (and believe me, it is VERY LIKELY COMPROMISED) the signing device will protect your Bitcoin.

This may all sound very difficult and complex if you have never done it before, but trust me, it’s easy. I would recommend that you watch BTC Sessions videos about using the signing device you choose. He has incredible walk-through videos on YouTube that explain how to do everything in detail.

Collaborative custody with a company like Swan Bitcoin or Unchained Capital is also a good idea for those new to the space. They will hold your hand and protect you from making simple mistakes that can cause issues. Collaborative custody is worth the cost if you are worried about losing your Bitcoin. Unchained offers a collaborative custody product that can hold multiple keys and can help your relatives retrieve your Bitcoin in the case of your demise.

DO NOT BRAG ABOUT YOUR BITCOIN. There is a temptation to brag about success. If you stay the course for five years, you will likely have it. You are proud that you have had the discipline and self-control to master yourself and successfully acquire what you view as a significant amount of Bitcoin. Don’t share how much you have with others. This should be obvious, but there are people that may not be so excited for you. They may tell their friends, and sooner or later someone who you don’t know, who may have the capacity for violence, may decide you are an appetizing target. This is yet another reason to use a multi-sig setup. Even if someone obtained 1 of 3 keys, they cannot steal your Bitcoin.

Don’t Buy Bitcoin That You Don’t Control

Don’t purchase the shiny new ETF Wall Street is offering. Buy Bitcoin only at places that allow you to take actual custody of your Bitcoin. Don’t put your Bitcoin on any kind of service that offers a yield, especially if that yield seems unrealistically high. As a general rule of thumb, just don’t do it.

The first and most important reason you should take custody of your Bitcoin is that you have absolute and complete control of it. There is a saying in Bitcoin, “not your keys, not your coins.” If you do not have custody of your Bitcoin, you simply have an IOU. This is the entire reason for Bitcoin’s existence. To remove middlemen and allow people to control their financial destiny.

When you have custody, you do not incur a fee like you would with an ETF. These fees can seem low, but over time they can be SIGNIFICANT. GBTC is a trust that is the most similar to a Bitcoin ETF. GBTC charges a 2% fee PER YEAR (now 1.5% with the ETF). Over time this can be significant. Additionally, the ETF products that Wall Street is selling don’t allow you to EVER custody the bitcoin. An ETF could make sense for some people in some scenarios, but for anyone who can confidently build a Lego set, taking custody of Bitcoin is of similar complexity. Just do it yourself.

As Bitcoin becomes more mainstream, it will be possible to use it as collateral. Yes, I understand that using your Bitcoin as collateral takes it out of your possession and requires trust in a 3rd party. This is another case where you should educate yourself and be SURE that you have chosen a lender that is trustworthy and will not go bust. Always defer to self-custody if in any doubt.

Borrowing against your Bitcoin is impossible if you don’t have custody of it yourself. You cannot lend the Bitcoin that Blackrock is holding on your behalf. This is significant. There are tax benefits from borrowing against Bitcoin instead of selling it. If you don’t control your Bitcoin, you are boxing yourself out of some predictable use cases in the near future and many unpredictable uses that have yet to be invented. Programmable money is not useful if you don’t have custody of it.

The final reason you should hold your Bitcoin is a bit darker. Bitcoin was designed to be uncensorable and unconfiscatable. When it becomes apparent to the state that it is losing control of the money, it will likely come for yours. This has precedent in U.S. history. In 1931, Executive Order 6102 made it illegal to own gold for U.S. citizens. They compelled people to turn in gold and receive $20 per ounce. The government then repriced gold at $35 per ounce. You could get jailed for owning gold coins in the U.S. from 1931 until the mid-1970s. This could happen again, and you have optionality if you hold Bitcoin yourself. Custodians WILL be compelled to give the government your Bitcoin in this scenario. What you do with your Bitcoin in this situation should be YOUR call, not a custodian’s.

Responsibility

If you take the steps to self-custody your bitcoin, you are responsible. This is a type of radical responsibility that can worry people. If you lose your seed keys, your Bitcoin is lost forever. There is no number to call, and no one who can help you. IT. IS. GONE.

In 2017, one of my friends at the firehouse lost what was then $1300 worth of bitcoin because he put the Bitcoin on a paper wallet. These aren’t used anymore because they are so insecure, but you can print out a QR code that will hold your bitcoin. He left the piece of paper in his car. He then cleaned out his car and vacuumed up the paper wallet. That Bitcoin is gone forever. It is now worth somewhere in the range of 4-5 thousand dollars, and it’s just gone. Well, it’s technically not gone, it’s still there; just not accessible to anyone. Without the password, no one can move the bitcoin, so it’s effectively bitcoin that is frozen forever.

Another good friend of mine lost a significant amount of Bitcoin at a company called BlockFi. This was an exchange that offered yield on Bitcoin kept at their exchange. That Bitcoin is not frozen, but it is now locked up in litigation for the foreseeable future. To add insult to injury—because the Bitcoin when held by BlockFi was not technically his, it is theirs based on the “agreement” he signed when opening the account, he will at some future date get the dollar value of that bitcoin at the price when BlockFi went bust—which is 16 thousand dollars—we have rounded squarely back to why you should take self-custody seriously!

The old saying in bitcoin is “Not your keys, not your Coins.”

Bitcoin is an endless learning journey. If you want a rabbit hole to explore, you are in luck! The amount of solid content offered in the space is light-years better than in 2017. You can go from zero to proficient in a fraction of the time it would have taken back then. As was alluded to above a couple times, we have curated a Basics Series at Blue Collar Bitcoin that you can use to get started. The list of great content creators and resources is so long that we can’t name them all. Just go exploring and be careful to verify, not trust.

Continue learning, and above all—think for yourself!

Remember the wisdom of Matt Odell: “Stay humble and stack Sats.”

This is a guest post by Josh. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Source link

For Bitcoin maximalists, Bitcoin is Bitcoin and cryptos are altcoins, if not shitcoins. Now that Bitcoin is heading for a bull run, boosted by the 4th halving hype and Bitcoin ETF approvals, Saylor’s MicroStrategy is already over $1.2 billion in unrealized profit territory.

The Bitcoin meme maker himself wasted no time in visualizing the payoff from his Bitcoin maximalism strategy.

With such results on the table, it’s time to examine Bitcoin maximalism more closely. Is the simple holding of BTC tokens more sophisticated than all the altcoin derivative trading in the world?

The Core Beliefs Of Bitcoin Maximalism

At its core, Bitcoin maximalism is an extension of the first mover advantage. Having launched the Bitcoin mainnet in January 2009, the pseudonymous Satoshi Nakamoto put in motion a revolutionary proof of concept. Is it possible to establish peer-to-peer money in a secure manner?

Can a blockchain-based transfer and storage of wealth resist network manipulation? Satoshi made it so by cleverly combining cryptography with economic incentives. At its foundation lies Bitcoin’s proof-of-work algorithm. It makes network participants (miners) exert computational resources when adding new transaction data blocks.

In return, miners are rewarded with BTC tokens, capped at 21 million. And because the state of the ledger has to be agreed upon by all miners, there is no single point of failure to exploit. It took until February 2017 for this groundbreaking concept to start churning altcoins, eroding Bitcoin’s market cap dominance.

With eight years under its belt to make people more comfortable with the novel concept, the rise of initial coin offerings (ICOs) diversified the crypto landscape. As one of the beneficiaries of this wave, Vitalik Buterin, the co-founder of Ethereum, equated Bitcoin maximalism with Bitcoin dominance maximalism.

“it is a stance that building something on Bitcoin is the only correct way to do things, and that doing anything else is unethical”

From this standpoint, the evolution and entrenchment of Bitcoin maximalism is predictable:

• First mover advantage leads to legitimization of blockchain-enabled wealth.
• From this process comes Bitcoin market cap dominance.
• Bitcoin market cap dominance leads to a more secure network.
• More secure P2P money network leads to greater public confidence.
• Greater public confidence leads to greater mass adoption.
• Greater mass adoption leads to greater BTC price, fortifying all the previous steps.

It is then easy to see how a flood of altcoins would have the potential to disrupt any of those stepping stones. Indeed, the very ICO craze in 2017 affirmed the idea that Bitcoin maximalism is righteous.

Namely, Satis Group conducted a study that found 78% of ICO projects as fraudulent. They were merely exit liquidity scams with project goals serving as bait. This was alongside 4% failed ICOs and 3% dead ICOs.

Yet, that finding was mild compared to the catastrophic culmination of crypto failures in 2022. Starting from Terra (LUNA), Celsius and Three Arrows Capital (3AC) to FTX, BlockFi and others, crypto enthusiasts suffered at least a $60 billion blow.

Not only did altcoins become suspect, but the entire corporate edifice attaching itself to blockchain networks did as well. In turn, these blows fed on each other, bringing Bitcoin price down to $16.5k, a price last seen in November 2020.

With public trust in “crypto” shaken, and an entire cycle effectively nullified, Bitcoin maximalists became even more eager to point out the founding virtues of Bitcoin – decentralization and self-custody.

Yet, even with these lessons behind us, does it make sense to prioritize Bitcoin above altcoins?

Economic Rationale Behind Bitcoin Preference

Bitcoin maximalists face a tough dilemma. There is only so much money to be poured into an asset, including Bitcoin. This is the market liquidity. Reaping the first mover advantage, Bitcoin has been the target of that pouring for at least a decade before this wave of thousands of altcoins were even born.

Now holding a $735 billion market cap weight, it is that much harder to gain more weight, i.e., a higher price. When the BTC price was over $50k, Bank of America calculated it would take $93 million net inflows to move its price by 1%.

This translates to greatly reduced percentage gains for new investors even if they fully understand Bitcoin’s status as a hedge against monetary debasement. Case in point:

• If one had bought 100 SOL in July 2021, they would have paid ~$2,500.
• By November 2021, their value ramped up to ~$25,000.
• Such 9x gains were only possible in early Bitcoin days when its market cap was low.

Even in the latest bullrun, without the Fed money supply element, Solana investors could have received 3x gains from October to November. The same dynamic is in play for a plethora of other altcoins and even memecoins.

With this in mind, Bitcoin maximalists adopt a distinctive approach, viewing Bitcoin as a key player in monetary evolution rather than a mere asset for short-term gains. Integral to this approach is aligning technical pattern analysis with long-term strategies to navigate Bitcoin’s market dynamics.

Philosophical Underpinnings Of Maximalism

Even for people who haven’t bought a single cryptocurrency token of any kind, the rapidly evolving blockchain space delivered valuable lessons in the public spotlight.

Previously reserved to the niche fringes of economic theory, concepts suddenly came to blockchain life: money supply, inflation rate, tokenomics, token allocation, vesting, burning, utility, governance.

It then became easy to extrapolate these mental models to the dollar itself. Applying tokenomics to USD, some Bitcoin enthusiasts even dubbed the dollar as “the ultimate shitcoin”.

• 1 node
• $2.3 trillion in circulation
• $33.75 trillion total supply (as owed to creditors)
• 1% of holders own 53% of equity (worth $19.16 trillion)
• Lost 94% of value over the last 100 years.
• Arbitrary supply tweaks, triggering rollercoaster inflations and recessions.

This is the new mental modeling that Bitcoin enabled, previously unavailable to the masses. For Bitcoin maximalists, the pioneering cryptocurrency represents the first viable alternative to a one-node (central banking) system. After all, Satoshi Nakamoto launched Bitcoin as a reaction to the central banks bailing out commercial banks with taxpayers’ money.

To either store or transfer wealth, people no longer have to ask for permission from anyone. More importantly, there is no central entity that can put its weight on the Bitcoin network and tweak its money supply. In turn, money can finally be truly private and serve as a savings vehicle.

In the long run, Bitcoin maximalism is all about not needing any off/on fiat ramps for Bitcoin. Rather, the Bitcoin standard would form a new decentralized monetary system. Auditable, transparent, and capped, they envision a system that terminates at the root the governmental penchant for corruption and wars.

In the meantime, as they currently stand in the debt-based monetary model, all fiat currencies incentivize risky investments to outpace inflation rates. While the Fed’s coveted inflation rate is 2%, Bitcoin is heading for under-1% inflation rate following the 4th halving in April 2024.

At this point, altcoin proponents may say, “but hundreds of altcoins have negligible inflation rates and capped coin supplies”. Bitcoin maximalists have a simple retort. Relying on a proof-of-work algorithm, Bitcoin is grounded in physicality, or as Michael Saylor put it, “digital energy”.

In practice, anyone can clone altcoins, which are then subject to capital (stake) network influence, accrued with more staking. Equally, one can clone open-source Bitcoin code. Yet, this is entirely irrelevant because Bitcoin is secured by networked energy, not capital. One leads to centralization, the other doesn’t.

Conclusion

Bitcoin is singular in its lack of attachment to any organization or personality. The same cannot be said of its oppositional altcoin army, starting with Ethereum. The cost of this decentralized resilience is paid in energy rather than capital stake. This has been the frictious source of countless articles and politicians’ remarks attacking Bitcoin’s use of energy.

Nonetheless, even these eco-oriented pressures seem to have lost steam. Can anyone truly tell what is the fair price for financial sovereignty? Looking at that horizon, Bitcoin maximalists are more focused on the escape from the central banking system rather than on short-term altcoin gains.

Although some maximalists view all altcoins as a wasteful distraction on that path, it is certain Bitcoin will be integrated in the altcoin ecosystem. At the end of the line, incentives create a blockchain landscape on their own regardless of opinions.

This is a guest post by Shane Neagle. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Source link

As Scottish economist and philosopher David Hume observed in A Treatise of Human Nature, nothing we know about what is true can tell us what ought to be true and nothing we know about what ought to be true can tell us what is true. The world of objective fact and moral truth are entirely separate. Hume called this the is/ought problem and his argument that descriptive and normative reasoning should be separated is known as Hume’s guillotine.

Hume’s guillotine is a philosophical razor – a rule of thumb for reasoning about the world. It is a way of cutting apart two lines of reasoning that become entangled when they intertwine. An argument where one side argues about what is true and the other side argues about what ought to be true is a useless argument. Those people are talking past each other.

Even more importantly, the guillotine is a tool for reducing bias in our thinking. Left unsupervised, our hopes can corrupt our beliefs – leading us to assume that which is true is good (naturalistic fallacy) and that which is good is true (wishful thinking). In the Bitcoin industry there are many who let their conviction about what Bitcoin should be distort their understanding of what Bitcoin is. They need to study the guillotine.

Decentralization Will Never Be Cheap

One harsh but simple truth is that real decentralization is too expensive to be universal. If you believe in the value of decentralization it is easy to see why you would want it to be universally available. But if you understand how decentralization works it is also easy to see why that will never be possible. The math simply does not allow it.

Decentralization is – by definition – more expensive than a centralized alternative. To be decentralized, networks need more copies of the network history (blue squares) and more connections between nodes (red arrows). Coordinating a centralized network is fundamentally cheaper and easier to do. Depending on the purpose of the network, decentralization might be worth paying for – but it will never be the cheapest option.

The expense of running a network is split between users and validators. Networks can either limit activity on the network (which makes transactions expensive because they are scarce) or they can demand more work from validators (which centralizes the network). Bitcoin keeps the cost of network validation low by limiting the block size – but that also by definition means transaction space is limited. Transaction fees on Bitcoin are expensive by design.

Adding more capacity to the network wouldn’t make it cheaper for individual users, anyway. That’s because Bitcoin’s transaction fees aren’t set by the network, they are set by users’ willingness to outbid each other in the blockspace auction. You can’t lower transaction fees by increasing capacity because increasing capacity doesn’t change anyone’s willingness to pay. Users don’t decide whether to pay for a transaction based on how full the blocks are, they decide based on how high the fees are.

Larger blocks would be good news for miners (because there would be room for more paying customers) but it wouldn’t change much for users – transaction fees would be about the same. The fancy economics term for this counterintuitive result is Jevons paradox.

Inventing new Layer2 technology won’t make transacting on Bitcoin any cheaper, either. Technology like Lightning, Liquid, Fedimint and Ark expand the power and flexibility of what Bitcoin transactions can do – but making transactions more useful does not make them cheaper, it makes them more valuable. More ways to use Bitcoin transactions means more demand for the limited available blockspace. We should expect Layer 2s to make L1 Bitcoin transactions more expensive, not cheaper.

That’s ok, because Bitcoin is not supposed to be cheap. It’s supposed to be Free.

Free As In Freedom 

The lure of cheap decentralized transactions is strong. It was the heart of the blocksize wars and it is the central value proposition of most altcoin networks today. It’s also the driving force behind the widespread but misplaced belief that the Lightning network will allow Bitcoin scale to universal adoption. The reality is more nuanced: Lightning lowers the cost of using Bitcoin. That’s not the same thing as making Bitcoin cheap to use.

The truth is that Lightning channels require Bitcoin transactions and Bitcoin transactions will inevitably be expensive. Bitcoin confirms ~0.4M transactions/day. That’s one transaction/person every ~55 years, assuming no one is born or dies while waiting. The long term price of a bitcoin transaction is difficult to predict, but it isn’t difficult to predict they will be rare: either because most people can’t afford them or because most people don’t want them in the first place.

There are proposals to make channel management cheaper (e.g. channel factories) but since every proposal ultimately depends on some on-chain anchor transaction, every channel will need to be purchased/leased somehow from someone who can afford the original transaction. Anthony Towns did some interesting analysis and estimated that there was room for approximately ~50,000 entities to transact directly on-chain. Everyone else would need to rent custodial services from one of those on-chain entities. You can use a copy of this spreadsheet to tweak the assumptions and run your own estimates.

Even if we ignore opening/closing costs entirely, channels themselves are not cost-free to maintain. Users need an online presence to receive payments / supervise their counterparties for misbehavior. They need to either perfectly balance their sent/received payments or periodically pay a liquidity provider to rebalance their channels. Most importantly, any bitcoin being used to create Lightning channel capacity is necessarily online and not in cold storage.

The marginal cost of individual Lightning transactions is very small, but the total cost of creating, using and maintaining a Lightning channel is actually quite high — because it is denominated in bitcoin and bitcoin is the scarcest resource in history. Telling retail users to open Lightning channels to make cheap transactions is like telling them to launch their own satellites for cheaper mobile internet.

To be clear, I am a believer in the value of the Lightning Network – I just don’t think it will bank the unbanked. The Lightning Network makes Bitcoin transactions more powerful, not cheaper. Payment channels will only make sense for people who make enough payments to justify paying to streamline them. For most people even owning a single on-chain UTXO will be a privilege of significant luxury. I’m not trying to defend that outcome as good. It simply is. It exists on the other side of Hume’s guillotine.

Bitcoin Is For Saving, Not For Spending

The enormous size and continued growth of the stablecoin market is proof there is plenty of demand for low-cost, disintermediated retail payments. But Bitcoin is not a panacea – just because low-cost payments are useful does not mean that Bitcoin is a useful way to make low-cost payments. Bitcoin is not designed to be cheap – it is designed to be durable. Those aren’t the same goals and they probably won’t be achieved by the same system.

Even in a world where Bitcoin transactions were somehow cost free we should still expect stablecoins to dominate payments. Why would anyone who thinks bitcoin is precious want to spend it? Why would anyone who doesn’t think bitcoin is precious have any to spend? Bitcoin is emergency money, not convenience money. No one should be spending it on coffee.

Decentralized networks do not make good retail payment tools – they’re expensive, slow and unforgiving. Using Bitcoin to make a retail purchase is like driving to the mall in a M4 Sherman tank. It might be cool, but it isn’t practical – and it will never be normal. 

This is a guest post by knifefight. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Source link

A PDF pamphlet of this article is available for download.

You’ve been hopped up on debt for so long, you can’t even remember how it feels to be free from it. Every piece of debt you took on gave you that high, that euphoric rush. Not directly, of course, but from the short-term high of instant gratification that comes from buying something you really, really wanted. Your long-term goals seemed too far away, so you bought that car, that handbag, that new laptop, that house. You financed it all through years of debt service.

Let’s pause and think about those words for a moment: “Debt-service”. You’re literally serving the owners of the debt. You were a slave under debt. Really, you were a slave to your own high time preference choices. In a sound money economy, you would have learned a lesson through the natural outcomes of such frivolous spending, like suffering from having less money for essentials. But under fiat money, you can delay, delay, and delay until declaring bankruptcy. All it costs is your goals, your dreams, and your soul. You became a debt zombie.

But you found bitcoin and started waking from your fiat-induced stupor. Instead of going down the well-trodden debt-slavery path, you got your financial house in order. So now, through years of study, saving, and selling chairs, you’ve reached a point where you’re finally free!

But you don’t know what to do with yourself. The freedom is almost too much to handle; you’ve never had this much responsibility before. Being in debt slavery sucks, but at least you knew what you needed to do. You either had to keep running from the debt collectors or slave away and pay it off slowly, even as you accumulated more debt. The certainty was comforting. Having freedom is hard to handle because you have to think about your life again, and what you actually want. You have to have goals, meaning, and purpose. You’re no longer a debt zombie. You have to think and desire things for yourself, and that’s not something you’re used to doing. Can a recovering zombie have a soul?

Unfortunately, many people waste their newfound freedom and dive right back into debt, just of a different kind. Maybe it’s slavery to an altcoin, where you do its bidding, selling your reputation and integrity. Maybe it’s slavery to some other high time preference activity, like degenerate gambling. Freedom itself is a righteous burden. You have the responsibility to make something of yourself. But too many people would rather just serve some other master.

Many get caught up in fiat status games. They want to get invited to the right parties, so they buy big houses or the proverbial Lambo. But again, that’s a fiat mentality. You’re competing to be the chief debt slave — the kind who can leverage enormous amounts of debt and weaponize it. But do you really want to be Bill Gates? He might have money, but he’s a slave like everyone else in the fiat system.

The journey to financial freedom is a roller coaster of emotions, filled with moments of self-realization, ironic twists, and the occasional chair-selling escapade. It’s breaking free from the chains of debt, learning to embrace the responsibility of freedom, and discovering that maybe, just maybe, you don’t want to be Bill Gates after all.

As you navigate the unfamiliar world of financial freedom, you’ll encounter the withdrawal symptoms of fiat money: the temptation to indulge in high time preference activities, the allure of debt-driven status games, and the realization that freedom is a double-edged sword requiring a new level of self-awareness and responsibility. Through it all, you’ll find that breaking free from the fiat system is a journey worth taking — a journey that leads to a life of purpose, meaning, and self-sovereignty.

It’s not about the Lambos, the parties, or even the chairs (as important as they may be). It’s about understanding that the fiat mentality is a trap, a Venus flytrap of debt that ensnares those who fall for its seductive allure. It’s about recognizing that the fiat system imprisoned us, not just economically, but also mentally. To break free from its values can be harder than breaking free from its debt.

Fool me once, shame on you. Fool me twice, shame on me. As we escape the cycle of debt addiction, the temptation is to keep the mentality that had us enslaved. Your very desires, in other words, need reexamination. Fiat values are vices of the soul. Modern society is crumbling under the weight of the fiat incentives these values create. An examination based on first principles of what we really need will ultimately drive us to build. We will use our unique gifts and talents to add our own goods and services.

As you embark on this journey to financial freedom, remember that the withdrawal symptoms of fiat money are just that — symptoms. They’re temporary roadblocks that you can overcome with dedication and reflection, especially around the unquestioned assumptions of fiat idiocy. Embrace the challenge, find your purpose, and always remember the debt slavery you’ve been freed from.

Now, go change the world.

This article is featured in Bitcoin Magazine’s “The Withdrawal Issue”. Click here to subscribe now.

A PDF pamphlet of this article is available for download.

This is a guest post by Jimmy Song. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Source link

Shinobi’s Strawman is a weekly series where our Technical Editor Shinobi challenges the Bitcoin community, aiming to stir up conversation around heated technical debates.

_________________________________________________________________

Here is part two of the experiment. Last week I published a short prompt challenging readers to respond with their own defense or criticism of drivechains. The purpose of this was to instigate challenges to my own criticisms, questions, or even new criticisms I have not thought of or considered. Written form content is generally more thorough and easier to digest than real-time communication, as both parties have time to sit and think before formulating a response as opposed to needing to do so immediately. I think this can help to change the tone of conversations around contentious topics by trying to facilitate them in this format.

So that said, time to go through the responses to last week’s prompt.

Paul Sztorc

Paul Sztorc responded in long form on Twitter, the entirety of which can be found here. For formatting clarity in quote snippets, bold text is denoting which of my statements Paul is responding to.

> 1) Drivechains introduce a hodgepodge of new variables into miners’ incentives … Drivechain is comparable to RIOT’s use of “power curtailment credits”. https://riotplatforms.com/bitcoin-mining It is just a new way for miners to make money. When I’m asked: “does drivechain affect miner incentives?” I say “no”. I personally lived through the invention of: FPGAs/ASICs, heat-reuse, stranded natgas flaring, curtailment credits, and a whole lot else. Merged mining was invented by Satoshi in 2010, and is already in continuous use — https://truthcoin.info/blog/security-budget-ii-mm/#c-its-too-late–mm-is-already-widespread . Same with the withdrawals — miners do plenty of nice things, such as MASF activate soft forks or hold peoples mistaken fee money ( https://x.com/satofishi/status/1701042302238724512?s=20 ), or hire Bitcoiners to shill Bitcoin. So, to someone like me, getting revenues from merged mining, or overseeing 4 fully-automated withdrawals per sidechain per year, doesn’t even register as a change. It’s just business as usual.

Paul claims that power curtailment agreements are equivalent to the centralizing pressures of drivechains. This is a broken comparison for a few reasons, first of which is the wild difference in terms of scale. Something like operating infrastructure for drivechains, or the proportional advantage of pool size in doing so, runs on economies of scale. The larger an operation engaging in such a behavior is the more of a global advantage it gives them. Power curtailment on the other hand doesn’t, it has diseconomies of scale. One mining operation engaging in power curtailment on Texas’s grid has no impact at all on miners connected to another grid being able to engage in similar agreements. Combine this with mining actively being used to expand renewable energy production, which creates the need for these curtailment agreements, and the entire dynamic over time is guaranteed to decentralize and become more and more open to other miners. Also, the claim that miners being put in absolute control of custodying other people’s funds and decide which withdrawals to process (somehow without knowing the current balances of legitimate users) is no change in their role is just patently false.

> 2) Existing Sidechains Have No Adoption Wait!? I thought sidechains were going to change miner incentives?? Not if they have “no adoption”. Anyway… RSK/Liquid are federated, and the federated model is terrible. “federation vs PoW”, is literally the only difference between Bitcoin (a success) and its failed predecessors. We can similarly expect BIP300 to outcompete Federated. Furthermore, they aren’t even in the same league. Liquid does not provide us a website (for example) where we can paste in (for example) the zCash Altcoin source code, and get out of that a zCash federated sidechain. Instead we are stuck with just one piece of closed source junk that we cannot modify. That misses the entire point of sidechains. Comparing RSK/Liquid to Bip300 is comparing two handwritten books to the printing press. Liquid was completely closed source until very recently; no one knows who the federation members are (despite the model relying solely on their reputation); all of the Liquid txn fees go only to the corporation that created it. For a while (and still to this day, in my opinion), Blockstream engineers could abscond with the funds if they actually put five man-hours into it (see https://x.com/_prestwich/status/1277089486111817728?s=20 ). RSK aspires to be a drivechain — so I have their vote, at least. They agree with me that they should be a drivechain, not federated. Finally, the fact that we have failed to build things that the end-user enjoys? That should only spur us onward, to invent new things. Not give up faster.

I don’t know what to say here…essentially every claim here is false. Liquid/Elements the platform has always been entirely open source and possible to modify, only the code the federation members run to sign blocks and withdrawals was closed, but that is now open source. Paul pretending and trying to imply the entire project was closed source is not true. As well, the claim that “five man hours” could steal all of the funds is entirely false. The incident that he is referring to was a bug (that has been patched) in the federation member code. All Liquid coins have a timelocked recovery path using a 2-of-3 keyset in the event of catastrophic key loss by federation members that would result in all funds being lost. In order for these keys to be used, the Federation must fail and cease moving these UTXOs. That is not “five man hours” of work as Paul claims, it is attacking a globally distributed set of HSMs that are incredibly robust to remote attacks and almost certainly require physical access to compromise.

> 3) Drivechains Exacerbate The Risks Of MEV > MEV is something that is possible on Bitcoin already … but … Drivechains open the door to arbitrarily complex forms of MEV on sidechains, MEV = “miner side hustle”. In other words, if I offer Foundry $20 to shine my shoes, then that is MEV. If Slush Pool sells t-shirts on the side, then that is MEV ( spoiler alert they already do: https://shop.braiins.com/products/braiins-polo-shirt ). Miner’s main hustle is ordering transactions and blocks — anything else they do, is a side hustle. Obviously we don’t want the two hustles to conflict! I addressed such “cross chain MEV” long ago, in 2016, long before anyone had ever heard of shinobi (or MEV) ( https://youtube.com/watch?v=2OOKgTSrITs&list=PLw8-6ARlyVciMH79ZyLOpImsMug3LgNc4&index=2 ). I designed Drivechain to have something called “categorical control”, to *defeat* cross chain MEV …unlike for example Blockstream’s simplicity which I believe could exacerbate it (see Part 5 / code obfuscation ; or see http://truthcoin.info/blog/contracts-oracles-sidechains/ http://truthcoin.info/blog/drivechain-op-code/ http://truthcoin.info/blog/wise-contracts/ for more). Truthfully though: MEV is a distraction. Could a smart contract pay miners to reorg, or censor txns?? Yes. But a human, could also bribe a miner to do those things. Ultimately it comes down to: $ from txn fees, vs $ the attacker pays. Best way to help miners is to make sure they are rich — collecting lots of $ from the “main hustle”. Ie lots of merged mining.

I don’t know what else to say except that Paul continues to make absurd and extreme arguments here. Selling t-shirts requires new equipment, new services, new investments, whereas reusing your mining hardware doesn’t. A miner picking up a penny on the ground does not have any relevant impact to miner income or incentives, whereas someone offering miners $10,000 a week to reuse their hashrate for a new purpose does. Comparing the two is absurd.

These are in reference to my reply https://twitter.com/Truthcoin/status/1699093434026406322 to his previous article. I stand by everything in that reply! > …these just shove the liquidity requirements onto yet another party, assuming they will provide massive amounts of liquidity for almost nothing in return Both halves of this are wrong. First, on the L1 side of the trade, nothing is locked up — EVERY coin on L1, is already “providing liquidity” (in this context). Second, they certainly don’t get nothing! They charge a fee. The model would be: “buying 1 sidechain coin, for 0.99 L1 coins” (for example). > don’t think it’s a foregone conclusion that enough liquidity to cover the “solution to the security budget problem”

I think Paul here is oversimplifying what is going on, and ignoring the dynamics of arbitrage, which is what is happening here. Yes, in an ideal scenario, all mainchain coins are available to swap for sidechains, but in reality that is not the case. That assumes everyone thinks drivechains are equivalently secure to the mainchain. In reality, there is a security and risk difference, and people engaging in this arbitrage are bearing that risk on behalf of people they swap with. Most Bitcoiners are not taking their bitcoin and arbitrage trading for yield with it, they just hold it. That won’t magically change because of drivechains, and ultimately the people doing this arbitrage need to get the coins they have swapped into drivechains back out to the mainchain to close the arbitrage loop. This simply shifts that bottleneck directly from sidechain block constructors to arbitrage traders. Also at the end of the day, this adds another cut someone else is taking from the fee sharing, and is a margin that miners can capture by running a sidechain node themselves.

idBrain

Anon idBrain on X (Twitter) posted the question what would I do if drivechains were activated. Well, in most situations nothing. A URSF (User Resisted Soft Fork) trying to go up against the entire ecosystem would be mostly futile, i.e. if most users, businesses, and miners all supported activating the proposal. If only miners activated it, with no users or businesses worth mentioning enforcing it, it might be worth it to continuously propose withdrawal transactions, looting the sidechain and paying it all out to miners. If 51%+ of miners defected from enforcing the rules all drivechains could be looted with no time delay in a single block. If it did successfully activate with wide support though, I would probably cease looking at Bitcoin as something that could realistically stand up to state and alter the dynamics of money and state. It would be simply a fiat denominated investment to me at that point on the road to state capture.

Mister Ticot

Mister Ticot sent in an email a question: 

You mentioned sidechains arn’t being used and are only federated. What about Stacks? Doesn’t it qualify as a permissionless side-chain with some level of success?

I would not qualify or describe Stacks as a sidechain at all. I would call it a para-chain, or a parasite chain. Stacks is an independent network with a native base token different from Bitcoin, and as such I do not qualify it as a sidechain. It interacts with Bitcoin in a similar way, and by that virtue can influence Bitcoin miner incentives, but it is not built on a foundation of BTC as the core native asset, which I think is the main requirement for a secondary blockchain to be considered a sidechain.

Micah Warren

Micah Warren wrote in an email: Responding to your call to stir up technical conversation.

Responding to your call to stir up technical conversation.

My understanding is that the huge unavoidable havoc-wreaking problem with blind merged mining is that it’s trivial to obtain as many blocks as you’d like simply by outbidding other ‘miners’. It quickly degenerates into a bluffing/signaling game. It also create situations where you can create massive MEV opportunities by committing to longer reorgs, in addition to short term plays like fee-sniping. In proof of work, if someone tries to perform a longer reorg, the honest miners (provided there’s 51%,) can just default to the same thing they always do. However in BMM, once you commit to winning the auction to carry out your shenanigan, there is no default mode that honest miners can retreat too. All bad stuff. In my opinion, this makes BMM not really a serious consensus mechanism.

HOWEVER, it probably can be fixed- you just have to slightly think outside of the PoW box.

Here’s the thing, because the map from SC blocks to L1 blocks is injective, we obtain a linear, sequential, total ordering of all candidate sidechain blocks. So really, we’re 99% of the way there as far as consensus goes – we’ve narrowed it down from trillions of possible blocks to a small discrete handful of candidate blocks and these blocks come with a clear total ordering. The only thing wrong with taking the first block at height N to be the canonical one is that such a block at height N might not be valid. So all you need is a simple mechanism to determine, within a short period of time, whether the block at height N is correct or whether it should be discarded. Clearly invalid blocks will eventually be discarded, the only question is how to enforce a time limit so that someone can’t maliciously withhold a block for a long time in order to jam up consensus.

This doesn’t seem like a hard problem. One solution: You could simply declare a jury of community-trusted sidechain nodes, say 5 of 9, who would wait 20 seconds after the block is mined, and if they can validate the underlying block, they say it’s good, it’s now in the canon. If they can’t see the block or can’t validate it, they declare it invalid.

Now the 20 seconds is arbitrary, the jurors are just calling balls and strikes, there doesn’t need to be a correct answer – the only thing is that 21 seconds after the last L1 block has been mined, sidechain miners now know for sure whether to mine a new block or on top of the old one.

Problem solved. The only drawback (laser-eyed maxis might want to ear muff for this), you have to rely on something other than proof of work to resolve rare consensus disputes. Of course, such disputes would almost never happen, because the only reason they would happen is if an adversary was trying to create a schism point, and by breaking the tie instantly, you are obviating the schism point.

Of course what happens on a sidechain is the sidechain’s business – but if I could argue that the best design of a sidechain would always involve some reorg protection, then all the concerns about chaotic reorging forcing the L1 miners to enter the game are no longer valid.

In response to this observation, I would say a different potential solution that is superior would be a Zero Knowledge Proof of correctness for commitments to new sidechain blocks. However, I think solving this issue undermines one of the core goals of drivechains architecture: to not introduce new reasons or incentives for miners to reorg the mainchain to accomplish a reorg on a sidechain. Micah’s proposal for federating validity attesting to sidechain blocks would create the same incentive, but additionally ultimately backstop the entire trust model of the sidechain with a federation. I.e. nothing would be considered valid without the attestation of those chosen arbitrators. This defeats the purpose of drivechains design, which is to have miners fill the role as the ultimate backstop in the trust model.

Alright, so that is it for this week’s Strawman. Next week I will try to be more triggering. 

Source link

Shinobi’s Strawman is a weekly series where our Technical Editor Shinobi challenges the Bitcoin community, aiming to stir up conversation around heated technical debates.

______________________________________________________________

We are going to try something of an experiment today.

Drivechains are being proclaimed by some as the savior of Bitcoin, the answer to all of its problems. It solves the long term security budget, allows complete freedom to incorporate new features into Bitcoin, and presents no downsides for existing Bitcoin users.

Sounds too good to be true? It is:

1) Drivechains Change Miner Incentives

Drivechains introduce a hodgepodge of new variables into miners’ incentives, and after introducing that instability advocates push for users simply adopting a degraded security model for all new use cases and functionality by using a sidechain in lieu of changing the base layer. How is this any different than an outright attack on Bitcoin self custody?

2) Existing Sidechains Have No Adoption

There have been many different design proposals for sidechains over the years, but the only currently deployed ones are run by federations (Liquid and RSK), both of which have failed to gain any meaningful level of adoption since they were deployed. Does this mean sidechains are not worth continued development effort? Or are they worth it, and the failure of federated chains to be adopted is simply the result of shortcomings in that specific sidechain design?

3) Drivechains Exacerbate The Risks Of MEV

MEV is something that is possible on Bitcoin already, as systems like Stacks are demonstrating, but currently the forms of MEV possible on Bitcoin are either generated by totally independent altcoins like Stacks (which historically have trended to an insignificant percentage of miners’ income, like Namecoin), or very low in the level of complexity (like frontrunning Inscriptions). Drivechains open the door to arbitrarily complex forms of MEV on sidechains, while also ensuring that the token generating that MEV is pegged to the price of Bitcoin. I.e. it cannot simply fade away to an irrelevant fraction of miner income as people stop buying an altcoin. This drastically worsens the risks and potential damage of MEV on Bitcoin.

4) No, Swap Markets Aren’t An Answer

Paul Sztorc replied to some of these concerns on Twitter, but these responses do not really address the root issues. Swap markets might sound like an answer, but the reality is that these just shove the liquidity requirements onto yet another party, assuming they will provide massive amounts of liquidity for almost nothing in return. That might work for small scale utility users, or having liquidity available to arbitrage uncertainty around the peg, I don’t think it’s a foregone conclusion that enough liquidity to cover the “solution to the security budget problem” without slippage is a given, to say nothing of all the other users who would want to swap in and out. He then goes on to ignore the difference between a mainchain reorg, which requires redoing work and energy expenditure, versus a sidechain reorg which does not. Finally, he equates a random person for no logical or profit driven reason giving money away with someone generating a profit with an activity they are the sole gatekeepers of.

Look, ultimately, I’m a Bitcoin maximalist. I want what’s best for Bitcoin.

I think drivechains are stupid, dangerous and a waste of time, but I want to hear your thoughts on the subject. Am I wrong about the points above? Is there another reason that I should be against drivechains that I’ve overlooked?

Please do not write to me with some random hopium. I’m open to novel opinions. I want the conversation to progress. Above is my best summation – we simply aren’t anywhere close to a meaningful consensus on drivechains.

My DMs are open. [email protected]. Let’s hash it out.

Source link