The HiFi Crypto Letters

Dear Reader,

As many of you know, I am a huge supporter of self-custody. I’ve written an entire series of articles dedicated to helping you understand self-custody basics, and I thoroughly believe that most, if not all, of our Bitcoin should be held by us.

We won’t convince everyone though. Some people will want to use custodians for one purpose or another. For example, earlier this week I wrote about the future of Bitcoin banks and how they may contribute to rewarding Bitcoin miners as the block subsidy ends.

Not So Stable Stablecoins

In a concerning turn of events, people have used custodians and technologies over the past few years to attempt to recreate Bitcoin’s utility on other blockchains. The most popular example is “bridging” Bitcoin over to the Ethereum blockchain in order to use one’s Bitcoin within Ethereum’s DeFi ecosystem, which occurs through the use of so-called Bitcoin “stablecoins”.

Trading your Bitcoin for an Ethereum-based token opens you up to a number of different risks that simply wouldn’t exist otherwise. For example, users expose themselves to risks inherent to the Ethereum blockchain, such as centralization and censorship. Ethereum-based stablecoins also rely heavily on smart contracts, many of which are infamous for being glitchy and susceptible to hacking.

The biggest risk of course stems from the fact that most Bitcoin stablecoins require users to give their Bitcoin private keys to someone else. There are a few different ways to create a Bitcoin stablecoin, and quite frankly they leave a lot to be desired in terms of allowing you to maintain sovereignty over your Bitcoin:

Custodian-Based Stablecoins

The most popular Bitcoin stablecoin is called “Wrapped BTC” or “wBTC” for short. Wrapped BTC can only be minted by sending your Bitcoin across its native blockchain to the wallet of a custodian enabled to “mint” wBTC tokens. Once the custodian has your Bitcoin in hand, it can send the minted wBTC to you across the Ethereum blockchain.

Proponents of custodial Bitcoin stablecoins claim that all is well because public blockchains allow some visibility into the underlying smart contract. I find it hard to agree with them though. The power structures behind the “Decentralized” Autonomous Organizations (DAOs) and custodians are often opaque, and it’s hard to understand exactly what their service entails without reading the fine print and without having the ability to review and debug their smart contracts.

“Decentralized” Stablecoins

Another common type of Bitcoin-based stablecoins on Ethereum are so-called “decentralized” stablecoins. Users call them decentralized because, rather than sending your real Bitcoin to a custodian, you send them to wallets controlled by a network of signers selected at random.

Contrary to what people might think, I actually find “decentralized” stablecoins to be a worse option than custodial stablecoins. At least you can look into the background of a custodian to perform some level of assessment of counterparty risk. Good luck trying to understand the motives and background of random people around the world to whom you’ve handed over your Bitcoin private keys.

Synthetic Stablecoins

Synthetic stablecoins have been created that attempt to peg their token to the value of Bitcoin without actually using any Bitcoin as collateral. Instead, their underlying protocols use native tokens as collateral.

On the one hand, users aren’t required to hand over any Bitcoin in order to access synthetic Bitcoin stablecoins. That isn’t necessarily better though, since instead of having the possibility of getting actual Bitcoin back when they want to exit the stablecoin or if the protocol fails, users are forced to buy niche crypto tokens that risk imploding from one moment to the next.

Bitcoin “Stablecoins” Are Not Real Bitcoin

The most important fault of all with Bitcoin-based stablecoins is the fact that they aren’t really Bitcoin to begin with. The only real Bitcoin is one on its native blockchain for which you hold the private keys. Bitcoin-based stablecoins are nothing more than IOUs, with all the risks we discussed above, and countless more that we didn’t.

Why trade Bitcoin for IOUs?

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This is not financial or business advice. This newsletter and related content are for informational purposes only. Cryptocurrencies and digital assets can be risky. Always do your own research before making any sort of investment.

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Dear Readers,

When people hear the words “Not Your Keys, Not Your Coins”, they naturally think of Bitcoin, as well as perhaps “Crypto” since that space has adopted the saying too given that many digital assets use public key cryptography like Bitcoin does. However, it seems unlikely that people think of traditional banks when they hear it. I intend to change that with today’s discussion.

The sentiment behind “Not Your Keys, Not Your Coins” reflects the fact that, if you leave your Bitcoin in someone else’s control, then you effectively hand them ownership over the private keys protecting your Bitcoin, and you can never be 100% certain that you’ll be able to get them back. That reality became painfully obvious to many people during 2022, as failure after failure among crypto companies led to massive user losses.

However, the idea that leaving your money in someone else’s hands carries risks that don’t exist when you hold it yourself applies to far more than just Bitcoin, as tens of thousands of customers in the traditional banking system found out just last week…

Want Your Deposits Back? Don’t Bank On It

I thought crypto companies failed quickly, what with several major companies failing over the course of 2022. However, traditional finance has seemingly put that to shame, as three major banks failed in just a handful of days last week:

Silvergate Bank, a “leading bank for business & crypto” was the first to go down, announcing on Wednesday that it would wind down its operations entirely.
Silicon Valley Bank, which claimed to be the bank of choice for over half of startups in the U.S., failed outright on Friday, quickly becoming the second-largest bank failure in U.S. history.
Regulators announced Sunday evening that they had forcibly closed Signature Bank, one of the largest banks in the state of New York, apparently believing that it represented a potential systemic risk.

Depositors, shareholders, and bondholders are probably in various stages of disbelief, and many of them will likely not receive the full value of what they had put into the banks. They trusted those banks and the regulators overseeing them to protect their money and their interests. They’ve now learned the hard way that trust only holds its worth until it’s broken.

Regulation Is All About Control

As an outsider who has (so far) not been impacted by this situation, I’ve recognized a disturbing fact that many people may not think about: regulators are stepping in to seize banks’ assets, including customer deposits, and shut the banks down.

Some people may be relieved by that. After all, regulators have largely convinced people around the globe that they’re only interested in protecting economies, businesses, and everyday people. However, the fact remains that the government was able to step in and seize private assets from massive corporations with little pushback and little visible effort.

If this doesn’t alarm you, it should. It’s bad enough that banks can lose your money through rehypothecation, malinvestments, theft, or any number of other mismanagements. But it’s now painfully obvious that governments can step in from one second to the next and take your assets out of the bank and into their coffers. Today they’re doing so seemingly to protect your money from corporate mismanagement. Tomorrow they could be doing it because you said something they didn’t like or because their bills have come due.

Not Your Keys, Not Your Money

Bitcoin is the only money in the world that is truly decentralized and wholly resistant to confiscation, censorship, and debasement. If you protect your private key well, I believe there’s nowhere safer to keep your money. So why would I keep my money anywhere else?

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Listen now to learn how owning Bitcoin instead of paying down debt is the ultimately attack against fiat that none of use realize we're launching.

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Listen now to learn how Bitcoin is the most available money in the world - in every sense of the word.

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Listen now to learn how even governments can't be bothered to protect your money from crypto custodians.

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Listen now to learn how your Bitcoin are only as safe as you keep your private key.

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Listen now to learn how value is dependent on so much more than just what a monetary instrument is "backed" with.

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Listen now to learn how inflation and hyperinflation repeatedly took their toll on Zimbabwe's people and economy over the course of decades.

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Listen now to learn how Bitcoin is the only financial system in the world that can allow us to protect ourselves from the coming onslaught of government censorship.

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Listen now to learn how fiat severely distorts the true costs of one of the world's "new" energy technologies.

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Listen now to learn how Bitcoin is designed to mitigate some of the supposed risks posed by mining pools.

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Listen now to learn how there's much more to Bitcoin's volatility than critics and the media would have you believe.

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Listen now to learn how even seemingly intelligent critics can be woefully uninformed about the Bitcoin revolution.

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Listen now to learn how Bitcoin is the best way to store the value of one's time.

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Listen now to learn how Bitcoin is much more immune to 51% attacks than you may have been led to believe.

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Listen now to learn how "decentralization" means so much more than what you've been told.

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Listen now to learn how Bitcoin is the most equitable money ever released.

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Listen now to learn how the ability to choose is a key part of Bitcoin's decentralization.

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Listen now to learn how Bitcoin can't be banned, no matter which government tries to stop it.

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Listen now to learn how physical Bitcoin are one way that Bitcoin can be used without the need for any connectivity to the blockchain.

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Listen now to learn why the Bitcoin blockchain can continue to operate even if the internet is down locally or globally.

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Listen now to learn how no money is more available when you need it than Bitcoin you custody yourself, if you protect it well.

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Listen now to learn how crypto custodians may be Proof of Stake's worst nightmare.

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Dear Readers,

When I first entered the crypto space several years ago, I found myself inundated with a variety of fantasies around how cryptocurrencies would change the world. I was fascinated by all the use cases that were being thrown about by influencers who seemed to be in the know. In short, I was taken in by the promises of crypto, so much so that my very first newsletter issue described cryptocurrency as a “21st Century Tool for Finance”.

Don’t get me wrong. There IS one cryptocurrency that will change both finance and the world: Bitcoin. But as time has passed, I’ve come to realize that many of the “revolutions” offered by the crypto space lose their luster due to a combination of hacks and bad management, with a healthy dose of unrealistic promises mixed in.

Take the Solana blockchain for example, which proponents have styled as the “go-to” blockchain due to its high transaction capacity and smart contract capabilities. Over just the past year alone, the blockchain has been halted numerous times to deal with critical failures. On top of that, millions of dollars’ worth of assets were lost last week when private keys were stolen thanks to faulty crypto wallets. Solana’s appeal has certainly worn off a bit for any user who suffered as a result of the blockchain stoppages or wallet hack.

Built Better On Bitcoin

I know some people reading this are eagerly wanting to point out that Bitcoin isn’t perfect. So let me set the record straight: the Bitcoin community has had its own missteps. In fact, I’m writing an entire series of articles describing how those missteps have proven the depth of Bitcoin’s resiliency.

I use Bitcoin, not because it’s perfect, but because Bitcoin is the most secure blockchain in existence. I use it because it has the most equitable monetary policy of any financial system in the world. I use it because it has the most powerful incentive structure known to humanity protecting it.

Bitcoin is the best cryptocurrency and blockchain in existence, and everything built on top of Bitcoin benefits by virtue of association with the king cryptocurrency.

But What Does “Built On Bitcoin” Mean?

When outsiders hear the term “built on Bitcoin”, they automatically assume that the term refers exclusively to protocols and other tools that are coded right on top of the Bitcoin blockchain. They then quickly follow-up with a rebuttal about how [insert their favorite blockchain] is so much better for development than Bitcoin is, in their opinion. They’re misunderstanding what’s actually being said.

First off though, there actually are some pretty impressive applications that live on the Bitcoin blockchain. The Lightning Network and RSK are two of the more well-known examples. But “Built on Bitcoin” means so much more in my opinion.

I believe that any system built using Bitcoin as its base currency will be better for it than if it uses any other currency. No other currency in the world can go toe to toe with Bitcoin: gold is less secure and less transferable, fiat currencies are cesspools of government-sanctioned robbery through inflation, and other cryptocurrencies can’t lay claim to the level of decentralization exhibited by Bitcoin.

Let’s take this thought experiment one step further:

Imagine how much stronger real estate markets would be if they used the Bitcoin blockchain rather than rent-seeking intermediaries to settle transactions.

Imagine how much more transparent equity markets would be if ownership were indelibly linked to entries on the Bitcoin blockchain.

Imagine how much more stable commodities markets would be if they were priced in one perfectly capped currency like Bitcoin, instead of a never-ending parade of mismanaged fiat currencies.

Any system that successfully integrates with Bitcoin can benefit from its security, decentralization, solid monetary policy, and so much more.

Will You Build On Bitcoin?

If you’re building something right now, whether it’s “crypto”, crypto-adjacent, or something completely unrelated, ask yourself: how could your project benefit from integration with Bitcoin and its blockchain? If you sincerely ponder that question, you may be surprised at the conclusion you come to.

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Dear Readers,

The evolution of the “crypto” space over the past decade and a half is mind-boggling. Bitcoin started it all in the late 2000s, and still reigns supreme as the most popular cryptocurrency and as the only truly decentralized monetary medium in the world. The space is ever-evolving though and new blockchain-based projects are launching every week. Some may eventually provide a bit of lasting value to their users…but many likely will not.

As time has passed and as the number of projects piggy-backing off of Bitcoin’s success has grown, an increasingly large group of Bitcoiners have adopted a new mantra to help remind participants and spectators of where true value can be found: “Bitcoin is not Crypto”.

“Bitcoin is not Crypto” means different things to different people. My goal with today’s discussion isn’t to tell you what it should mean to you, but rather share my own experiences with and opinions on the topic.

Let’s dive right in:

What Is Crypto?

A lot of “hard-core” Bitcoiners will tell you that everything in crypto is a scam, and that only Bitcoin matters. There are certainly a large number of scams in the space, and I certainly amhighlyskeptical about many of the so-called “revolutions” happening in the space outside of Bitcoin. That said, I am open to the idea that there may be some people in crypto who are genuinely trying to improve people’s lives. Their project isn’t on the same level as Bitcoin though, as we’ll see later on.

In a nutshell, I see things in crypto that aren’t scams the same way I see normal businesses: attempts to solve everyday problems in a way that makes incremental improvements in customers’ lives.

I don’t despise search engines for making knowledge more accessible. I don’t despise grocery stores for making food easier to get. I don’t despise social media for introducing new ways to connect and socialize. But I recognize that each of them have significant tradeoffs in terms of resistance to centralized control.

In that same vein, I don’t hate crypto for introducing new ways to interact with art, video games, finance, and more. But I recognize that none of those endeavors is anywhere near as important as ensuring that the world has accessible, manipulation-proof money.

In other words, I recognize that the goals of crypto and business may be acceptable in certain cases, but they are secondary in importance to the goals championed by Bitcoin and its community.

What Is Bitcoin?

So why is Bitcoin so important? There are a number of different answers to that question, and answering it is why I write this newsletter. But if I had to narrow it down to one answer, at this moment I’d focus on the world’s absolute need for money that can’t be controlled or co-opted by any government or corporation for its own benefit.

Simply put, our world is being destroyed by governments and corporations who put their needs and their opinions above the lives and livelihoods of everyone else. Fiat currencies grant them the ability to do that quite easily, so it should come as no surprise that governments have spent decades ensuring that more and more of their citizens’ lives run on top of the fiat monetary system. They want to control their citizens and will fight against anything that gets in the way.

Bitcoin gets in the way. In fact, Bitcoin completely blows fiat systems out of the water in a side-by-side comparison. They are polar opposites, and the competition doesn’t bode well for fiat:

Fiat is restrictive, but Bitcoin is accessible.

Fiat is controlled, but Bitcoin enables freedom.

Fiat is worthless, but Bitcoin retains value.

Bitcoin is an escape from the financial slavery propagated by fiat. Bitcoin is a lifeline to those who are drowning under the excesses and control of the fiat system. Fiat is taking us to a dark place, and Bitcoin is a light to lead us back from the brink of destruction.

That is why Bitcoin is not crypto. For all its promises, real or contrived, of soon-to-arrive benefits, crypto offers little more than an incremental improvement over the status quo. In more ways than one, crypto’s offering is wildly less important than Bitcoin, which is freedom money in a world that’s losing its freedom.

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Dear Readers,

If you’ve been reading The HiFi Bitcoin Letters for a long time, you may notice that the title of this article is nearly identical to the title of an article I wrote late last year on the topic of Bitcoin mining and the energy grid in Texas. That was intentional on my part, as the prediction I made back then was recently proven right.

Back then, I, along with other Bitcoin educators, spoke at length about the positive change that Bitcoin mining was driving in energy consumption. Bitcoin uses a vast amount of energy and miners are incentivized to find the cheapest energy available in order to ensure that they are as profitable as possible. Since miners are such consistent energy customers, my expectation was that energy providers in Texas and elsewhere would be incentivized to build infrastructure and improve technology in order to serve Bitcoin miners and that energy grids would be stronger as a result.

As expected, Bitcoin mining has been a huge benefit for the Texas energy grid and all its customers. Bitcoin miners are providing regular revenue to energy providers working to build out wind and solar farms in the area, not to mention more established energy sources like natural gas and coal. And as we saw earlier this month, miners are also supporting the grid by turning off their machines in times of high energy demand.

You read that right: even though mining revenue is completely dependent on machines running for as long as possible, miners in Texas willingly turned off their machines when the grid was in need. By doing so, they pushed over 1,000 megawatts of power back onto the grid, a significant amount that helped to keep the grid running smoothly during the hot summer days.

Not bad for a technology that critics erroneously want you to believe is harming the environment.

Environmental FUD Is Way Out Of Line

If you’ve been in the Bitcoin space for more than a little while, I’m sure you’ve heard so-called environmentalists and other critics throw out some pretty wild claims about how Bitcoin usage is harming the environment.

Don’t believe me? Newsweek ran an article in 2017 stating that “Bitcoin Mining [was] on Track to Consume All of the World's Energy by 2020” and other news outlets ran hit pieces claiming that Bitcoin would single-handedly raise global temperatures. Years have passed since then, and Bitcoin continues to consume only a miniscule percentage of the world’s energy and has limited negative environmental impact worldwide.

It’s hard to know exactly why so many people continually attack Bitcoin mining, but perhaps it stems from one of the following false ideas:

Lie #1 - Energy usage is bad

If Bitcoin gets a bad rap for using energy, then that must mean that using energy is bad right? Wrong. In fact, all value that has ever been created throughout human history stems from the expenditure of energy, either energy from our own bodies or energy from the technologies that we’ve built.

Energy powers the hospitals where lives are saved. Energy powers the farms where our food is grown and the facilities where it’s refined. Energy powers the homes where we live and where we raise our families.

Energy usage, when expended in order to improve lives and livelihoods, is inherently good. Don’t let anyone tell you otherwise.

Lie #2 - Bitcoin isn’t a good use of energy

Alex Gladstein, Chief Strategy Officer at the Human Rights Foundation, has shared an interesting and important perspective on why Bitcoin is so essential:

Billions of people worldwide are having their wealth and financial security stolen from them thanks to government-sponsored inflation through fiat currencies. There is no way around it: that loss is devastating to society and is contributing to suffering on a global scale.

Contrast that with Bitcoin, the most inflation-proof currency in human history, which is allowing people all over the world to regain their financial sovereignty. If that’s not a good use of energy, I’m not sure what is.

Bitcoin Is Good For Energy And Good For Society

The value created by Bitcoin can be seen all around us. Don’t allow uninformed or ill-intentioned critics to cloud your judgment about Bitcoin, the currency that can single-handedly restore financial sanity to a world that so desperately needs it.

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Dear Readers,

Pundits on social media and mainstream media often make it seem like governments outright despise Bitcoin and the ideals that it stands for. That certainly seemed to be the case earlier this month when we rebutted a number of poorly-developed theses produced with the backing of the United States Department of Defense.

Governments have definitely given themselves a lot of reasons to fear Bitcoin’s success as well. Bitcoin can’t be controlled, which means that governments can’t use it to control you. That’s a godsend for you and me and a nail in the coffin of government overreach.

However, from time to time we’re reminded that governments are made up of individual people, and that not all of them are opposed to the brewing Bitcoin revolution. That seems to be the case for some members of the Federal Reserve Bank of Cleveland in the United States.

Bitcoin Is A Payments Revolution

A pair of researchers within the United States’ Central Bank are apparently interested in Bitcoin’s ability to serve as a payment network, and more specifically, in the Lightning Network’s ability to help scale Bitcoin transaction throughput. In fact, the FED’s researchers seem to have a rather rosy outlook on the subject:

We find a significant association between LN adoption and reduced blockchain congestion, suggesting that the LN has helped improve the efficiency of Bitcoin as a means of payment.

Their research stands in direct contrast to a lot of FUD being spread by Bitcoin critics who claim, incorrectly, that Bitcoin can never scale to serve as a global currency. For example, Bitcoin scalability was one of the primary drivers in the creation of copycat cryptocurrencies, Bitcoin Cash and Bitcoin Satoshi Vision, which both chose to add an excessive level of centralization to their operations in order to marginally increase transaction capacity on their layer-1 blockchains.

As we discussed last week, Bitcoin is destined to become a revolution in money and payments. No amount of FUD can stop that from happening. And as the researchers from the FED astutely observed, the Lightning Network is poised to become a key part of everyday Bitcoin transactions.

Everyday Lightning Payments

The main critique against Bitcoin’s scalability hinges on the number of transactions that it can process per second, which is currently estimated at around seven. Since tens of thousands of transactions per minute occur worldwide, critics assume that Bitcoin can never be usable as an everyday currency.

What those critics ignore however, is the fact that each of Bitcoin’s on-chain transactions can represent any number of off-chain transactions happening within Bitcoin banks and on layer-2 solutions like the Lightning Network. What we see as only seven transactions per second on the Bitcoin blockchain, could in reality be hundreds or even thousands of exchanges.

The Lightning Network offers us a perfect example: two Bitcoin users can open a channel by depositing Bitcoin to a smart contract and are then able to process any number of transactions amongst themselves before settling the final amount back on the blockchain. In fact, the network can be even more efficient than that since not all users are required to open a payment channel with every other user. Instead, the users who want to transact with one another without establishing a channel just have to find enough peers in common and piggy back off of their peers’ payment channels.

Without a doubt, solutions like the Lightning Network, and others that haven’t even been thought of yet, will make it easier for everyday users to engage with the Bitcoin blockchain. As a result, Bitcoin’s payment revolution isn’t a matter of if in my opinion, but simply a matter of when.

For a deeper explanation on how the Lightning Network works and what it accomplishes, check out the primer I wrote about it last year:

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It was done: his piece de resistance, his crowning achievement. The policy that, for better or for worse, would come to define the new regulatory department that he had the honor of heading.

Probably “for better” honestly. After all, the consensus among the general public seemed to be that Bitcoin and crypto were a “Wild West” that needed to be understood and regulated. Who better to lead the charge than regulators in New York, the financial capital of the world?

Benjamin had a lot riding on the policy. He had told a lot of people that other states would soon follow suit and adopt their own similar legislation. His career would be made if that came true.

The above account is a fictionalized dramatization that is loosely based on the reported events surrounding New York’s BitLicense and its architect, Benjamin Lawsky. As such, it should not be taken as factual.

Dear Readers,

Government regulation is a mixed bag in my opinion. It may be that some regulations end up having a positive impact and even actually achieve their stated goals on rare occasions. But history is full of instances where regulations did more harm than good.

Still, society at large has become quite comfortable with the idea that faceless bureaucrats in far-off places should dictate how economies and businesses should work and grow. So much so that when Bitcoin burst on the scene, it wasn’t long before some people were clamoring to share their two cents about how the new space should be allowed to operate.

A Bit About The BitLicense

The BitLicense out of New York in the United States was one of the first such attempts at corralling Bitcoin. The creator of the BitLicense, Benjamin Lawsky, believed strongly that Bitcoin and related technologies needed the firm hand of regulation in order to succeed, being quoted as follows:

If we get [the regulation] right, I think the outlook for virtual currencies in one form or another is quite bright in New York.

With the benefit of hindsight, I’d say that there’s pretty solid evidence that Lawsky and the New York Department of Financial Services (NYDFS) didn’t get it right.

For example, New York residents and businesses are restricted from interacting with any Bitcoin company that hasn’t successfully jumped through the State’s hoops to acquire a BitLicense. That might not sound like a big deal, but the reality is that the process requires piles of money and thousands of hours, and applicants aren’t guaranteed to pass. In fact, applying is so difficult that Lawsky actually started assisting companies in acquiring the BitLicense after leaving NYDFS.

Need further proof? Out of the hundreds of Bitcoin and Crypto companies, only a little over twenty have successfully applied for the BitLicense in the seven years since its inauguration. Every other company is more or less restricted from doing any business in the state, which means that there is significantly less competition and innovation within Bitcoin companies in New York.

Thank goodness that other states haven’t followed in New York’s footsteps.

An Argument Against Bitcoin Regulation

On its face, regulation sounds like a good thing right? Regulators are just trying to protect us aren’t they?

Regulation starts to become much less appealing though when you remember that regulations are put in place by whoever happens to be in power at any given time. What are the chances that you don’t agree with everything that the people in charge say and do? Pretty high I’d say.

Frankly, regulation of Bitcoin itself is unnecessary. At any given moment, there are hundreds of developers and tens of thousands of users actively using the Bitcoin network and deciding what it should be in order to provide the most value to everyone on the network, not just a handful of powerful people at the top. A small group of bureaucrats, who probably know less about Bitcoin’s inner workings than the newest entrant to the space, have zero chance of concocting a better blockchain than the one actively being developed across the entire community.

But perhaps the most important point of all is this: it’s impossible for any one group, government, or person to actually control Bitcoin anyway. Bitcoin doesn’t have a leader and there are powerful examples over its history of groups that have failed to force Bitcoin and its users to conform. They’d be better off just building up the network rather than trying to recreate it in their image.

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Dear Readers,

Throughout history, a person’s financial standing has always been heavily influenced by rulers and intermediaries, from the kings and money changers of ancient times, to the governments and financial institutions of the present day. Having total control over one’s money has been a fantasy, so much so that most people don’t believe it’s possible or even desirable. After all, for decades they’ve been spoon-fed false truths about the stability and benefits that governments, banks, and the like can supposedly provide.

A never-ending series of crises across history has prepared us to understand the true need to attain self-sovereignty. After all, you certainly can’t trust anyone to have your best interests at heart more than you must trust yourself.

Bitcoin has burst onto the scene as an incredible tool for financial self-sovereignty. For the first time in history, we have money that is both free from outsider manipulation and relatively easy to protect. Thanks to Bitcoin, we now have the ability to remove our money completely from the self-interested hands of both government bureaucrats and financial intermediaries.

Unfortunately, governments aren’t too keen on our newfound financial freedoms…

Government Interference Coming in 3..2..1

The governments of the past century have thrived on the increasing level of control they’ve usurped from their populations, especially when it comes to money and economies. But their heavy-handedness comes with extreme costs, as exemplified by the rampant global inflation of today. In the face of that problem and many others, it should come as no surprise that people around the globe are fleeing to the relative safety offered by Bitcoin, money that governments can’t control no matter how they try.

Governments don’t like that. They need control over money in order to continue to thrive and survive in their current form. Like a wild animal backed into a corner, they intend to fight to bring us back in line.

Governments can’t easily go after Bitcoin directly. The network itself is robust and has survived attacks of various types over its lifetime. And users who are willing to put in the effort will find that they are always able to transfer and hold their Bitcoin. Unfortunately, a large number of Bitcoin users are unwilling to take the time to learn how to safely use Bitcoin, and choose to entrust their holdings to the same cast of intermediaries who inhabit the traditional financial system.

That’s where governments choose to make their mark. Centralized custodians and service providers are an easy target. They have headquarters that can be raided, employees with jobs to maintain, and shareholders with eyes for profits and nothing else. In short, when it comes to restricting Bitcoin, governments go straight for the corporations adjacent to the network.

Unfortunately, we’re already seeing this. For example, it’s becoming increasingly difficult to find a Bitcoin exchange that will allow you to buy and sell your holdings without providing significant amounts of identifying data in order to open your account. But, perhaps even more pernicious is the recent push from governments to force exchanges and other custodians to identify their customers’ self-custodied wallets.

Make no mistake, their move is an attack on your financial freedom and self-sovereignty. And they’ll get away with it too if we let them.

Don’t Fall For Their Lies

Governments’ war on self-hosted wallets is also being coupled with a war of propaganda against financial self-sovereignty. Here are a few of the most insidious claims they’ve made, as well as counter arguments:

Governments just want to stop money laundering

Most people are agreeable to the idea of reducing crime. I certainly find myself in that camp. But the idea of reducing crime by encroaching on every last person’s privacy goes too far.

The fact is that only a minuscule percentage of financial transactions are related to criminal or illicit activities. Treating everyone in the world like criminals in order to identify a handful of bad actors is simply unacceptable.

Why worry if you have nothing to hide?

I believe that people have a basic right to at least some level of privacy. You be the judge of how much privacy you feel you’re owed.

The idea that we should be willing to tell all just because we haven’t committed any crime is an invasion of our financial privacy. It’s for this very reason that we need money that can’t be used to force us to comply with government overreach.

Governments need to be able to manage the economy

This argument lacks self-awareness. We live in a world where governments have more information available to them than ever, while also wielding near total control over money. And yet, with all that knowledge and power, government failures in economic terms are becoming more frequent and more devastating as time goes by.

We don’t need governments to manage economies. We need governments to step out of the way and let economies and economic participants manage themselves. Bitcoin is a firm step in that direction.

Do Your Part

Fight for your right to control your own financial future. Governments certainly are fighting to control it.

Are you going to let them win?

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Dear Readers,

Writing this newsletter has become one of the great passions of my life. When I first discovered Bitcoin, I had absolutely no idea where to begin to learn about what I now realize is one of the most important developments in the history of humanity. I’ve spent countless hours studying the space, falling down the proverbial “rabbit hole” if you will.

It hasn’t been an easy journey in a lot of ways. As many of you know, this space is full of noise. I listened to quite a bit of it in my early days. I got sidetracked by alternate blockchains and by the allure of making money in “crypto”. Perhaps some of you can relate. But the more I studied and learned, the more I came to realize that Bitcoin is where I believe the true innovation lies.

I started this newsletter because I wanted to help others, including each one of you, to get off to a better start in understanding why Bitcoin’s innovation is one of a kind and an absolute necessity for all of us in this day and age. We’ve shared the highs and lows of Bitcoin together, and I don’t just mean in terms of Bitcoin’s fiat-based price. I’m looking forward to sharing so much more together.

As we look to the future of the newsletter, I have a pair of big announcements I’d like to share:

New Features And A New Price

I put my heart and soul into every issue of the newsletter, and I love to do it. It takes a lot of time and effort, but I already have new features in the works to give even more value to you than ever before.

Together we can help more and more people understand how Bitcoin can improve their lives and financial self-sovereignty, and I want to offer you all the opportunity to support that mission. And so, starting today, I’m adding a paid subscriber tier, with a discount for early signups. You’ll pay $5 a month or $50 per year when you enroll during the next two weeks. After that, you’ll pay $6.99 per month or $69.99 per year.

Paid subscribers not only support the ongoing production of the newsletter financially, but will retain all of the benefits enjoyed by free subscribers, will continue to receive both weekly newsletter issues, and will gain exclusive access to the following:

One weekly email recap of the biggest news in Bitcoin and of what I’m reading.

Monthly group AMAs with me and your fellow Readers.

A free monthlong subscription for a friend for every 12 months of your membership.

Ultimately, the support of all Readers is integral to the success of the newsletter and you’re a valued member of the community whether or not you sign up for a membership. Free subscribers will continue to receive the following:

One newsletter issue per week, including the audio and video formats.

Access to the Bitcoin Glossary and to my guest appearances on external podcasts.

And last, but certainly far from least, founding members can pay a higher annual price and will receive a one-on-one 30-minute Zoom call every year.

A New Name

Perhaps one of the biggest lessons I’ve learned throughout my time in the space is that Bitcoin is not “crypto”. For me, this is not a condemnation of crypto, but rather a realization that Bitcoin stands apart from everything else in its goal to help users attain complete financial self-sovereignty in a way that can’t be limited by governments, financial institutions, founders, developers, or other interlopers. Nothing in crypto even comes close.

I owe it to myself and to each of you to write about the things that I believe will bring true value and edification to our newsletter community. In that spirit, I have re-branded the newsletter as “The HiFi Bitcoin Letters” to better convey my singular focus on Bitcoin. I have high hopes for the future on Bitcoin that we can build together.

Sincerely,

Joshua Guest of The HiFi Bitcoin Letters

What Your Fellow Readers Are Saying

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Dear Readers,

If there’s one thing I’ve learned over the past few weeks, it’s that bear markets provide ample opportunities for Bitcoin users to learn the importance of custodying their own funds. The significance of this lesson cannot be overstated. Bitcoin transactions are irreversible. If you leave your Bitcoin in someone else’s hands, you’re at their mercy if you ever hope to get them back.

A large part of Bitcoin’s irreversibility stems from its decentralization. No centralized service exists to micromanage the blockchain, whether for your benefit or its own. While that means no authority exists to help recover errant Bitcoin, it also means that Bitcoin can’t be taken away unless users allow it through their own (arguably) poor choices.

Bitcoiners received another lesson on the need to self-custody their Bitcoin, but admittedly it came from an unexpected source: Solana-based DeFi.

Don’t DeFi Unless It’s Actually Decentralized

This is a Bitcoin newsletter, so I’ll spare you the nitty gritty details about Solana and DeFi. Suffice it to say that Solana is a smart-contract focused altcoin blockchain that has come under fire for claiming to be decentralized while also coordinating network restarts and publishing press releases.

The recent development within a Solana DeFi protocol certainly won’t assuage concerns about the blockchain’s decentralization, although in reality it reflects more poorly on the protocol itself rather than the Solana blockchain. In a bit of poor press for the protocol, it came to light that the team and DAO supporting it made the questionable decision to seize funds belonging to an extremely wealthy user in order to liquidate part of the user’s position and ease pressure on the protocol and other users.

Alarm bells should probably be going off in your head if they aren’t already. Imagine depositing your life savings, large or small, to a protocol or platform, and then the rest of the user base voted to confiscate your assets in order to protect themselves. That level of control over individuals’ finances is reminiscent of the traditional financial system we’ve suffered under for decades. And it simply shouldn’t exist, especially on a platform that bills itself as “decentralized”. But that risk will always exist when users entrust their funds to someone else.

PSA: Bitcoin Is The Original DeFi

No, I’m not referring to how DeFi protocols are now being built on top of the Bitcoin sidechains and layer-2 solutions. Although, those protocols may be arguably better by default if for no other reason than that they use Bitcoin rather than another currency as their monetary unit, given Bitcoin’s supremacy as a currency.

DeFi, or “decentralized finance”, attempts to recreate traditional financial services without relying on intermediaries like banks and governments.

Sound familiar? It should. Bitcoin allows for a variety of financial use cases like wealth preservation, remittances, exchanges for goods and services, and more. On top of that, Bitcoin is actually decentralized. There’s no central party behind the blockchain coordinating mining or issuing press releases. No biased arbiter enforcing its will upon you and seizing your funds. No central intermediary to extract its fees from unsuspecting users.

I’d venture to say that Bitcoin users have more reasons to be confident about their financial self-sovereignty than users of any other currency, altcoins included. Nothing comes close to Bitcoin in terms of decentralization. In other words, nothing is more DeFi than Bitcoin.

Are You Researching Self-Custody Yet?

I’m probably risking repeating myself too many times. But as I said before, bear markets are chock full of examples of why anything but self-custody is riskier business than you may realize.

Sure, perhaps you’ve skirted the issue so far and haven’t lost any of your Bitcoin to the large number of hacks, seizures, and outright scams that have been perpetrated against Bitcoin users over the years. But are you confident that you’ll successfully do so for years or decades? And are you certain that you’re willing to risk being wrong?

If not, it’s never too late to start looking into self-custody to see what’s best for you and your specific situation. I have high hopes for your journey.

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Dear Readers,

For new entrants to the Bitcoin space, there’s a lot to learn. We’ve never had anything quite like Bitcoin: Fully decentralized. Completely digital. Perfectly apolitical. Financially freeing. It’s simply the best money humanity has ever had. And it can be difficult to wrap your head around.

That said, those who are willing to put in the time to learn will find a plethora of resources. For that reason, it’s disheartening to see people who obviously have spent so little time trying to understand Bitcoin that they’re unable to formulate anything but illogical attacks against it. This recent Twitter post certainly falls into that category:

There’s a lot wrong with that tweet, but let’s focus on the basics:

Scarcity And Divisibility Are Not The Same

You’d think that would be obvious, but apparently it isn’t to some people.

The term scarcity is used in the context of total supply, specifically when total supply is relatively finite. So, for example, we wouldn’t refer to bananas as scarce since people are always growing more of them. Nor could we get away with calling fiat currencies scarce, especially in today’s world where new fiat can be printed with the click of a button. But we could certainly call Bitcoin scarce seeing as there are and will only ever be twenty-one million, while there are billions of people who will try to acquire them.

Divisibility, on the other hand, is something different altogether. It doesn’t refer to total supply; it instead quantifies how much each unit of the supply can be divided. But whether I divide each unit into two pieces or two hundred pieces, I’m still left with the same amount that I had before I started.

In short, scarcity and divisibility are not two sides of the same coin. They’re two different characteristics. And mixing them up while trying to attack Bitcoin is sure to fail.

So Why Do Scarcity And Divisibility Matter In Bitcoin?

Scarcity

The importance of scarcity to Bitcoin is relatively easy to understand and it’s a topic that I writeaboutfrequently. And it’s certainly easy to understand it in the context of money that isn’t scarce, like fiat.

Fiat currencies are not at all scarce thanks to currency inflation. Currency inflation robs people of their economic output and their time, and it eliminates their ability to save their way to a successful future. Inflation benefits the individuals who control the money printer at the expense of everyone else. A lot of the present and past inflation being experienced around the globe can be traced back to currency inflation. Its effects are devastating.

So why does monetary scarcity matter? Because it allows people to save without fear of losing value over the long-term. And because it allows them to be appropriately compensated day after day for spending their time and energy in economic endeavors.

People are turning to Bitcoin because its perfectly limited supply helps make it the most trustworthy money in the world.

Divisibility

Bitcoin is highly divisible. As the misguided attacker we referenced before correctly stated, each Bitcoin is divisible into one hundred million pieces, or satoshis (“sats” for short). And the reality is that there’s no theoretical limit to how sub-divisible Bitcoin can really be. Many crypto banks and layer-two solutions already divide Bitcoin further than one hundred million pieces in their ledgers, and the same could happen on the Bitcoin blockchain itself if the community decided to make that change.

But why does divisibility matter? In my opinion, Bitcoin’s immense divisibility is important because of its destiny as a unit of account. In other words, in order for Bitcoin to be usable in valuing goods and services around the globe, it has to be able to be divided in as many parts as buyers and sellers need. Otherwise, either the buyer or the seller may be leaving money on the table, so to speak.

Bitcoin’s value will continue to grow thanks to its immense scarcity and its growing desirability as money. But Bitcoin’s near infinite divisibility means it will be able to be used as money no matter how valuable each unit becomes.

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Dear Readers,

If there’s one thing we can say about the Bitcoin space, it’s that it certainly keeps us on our toes. And that has definitely been the case this week as Bitcoin’s fiat-based exchange rates have plummeted. Of course, no one can accurately guess where the “bottom” will be, but it’s important to keep the proper perspective:

The thesis for using Bitcoin hasn’t changed. Bitcoin is still global decentralized money that is resistant to confiscation, censorship, and inflation. That was true last week and last year, and it will still be true decades from now. Bitcoin’s volatility keeps us on our toes, but its use cases keep us in the game.

So What’s Happening To Bitcoin?

It’s of course impossible to attribute Bitcoin’s volatility to just one thing, but there was one event that stood above the rest early this week:

Celsius Network, perhaps the largest crypto bank in the space, completely cut off its users’ ability to access the assets they had stored on the platform, including withdrawals. Celsius has billions of dollars worth of assets on the platform. Its move to shut its users out impacted hundreds of thousands of users and tens of thousands of Bitcoin.

Unfortunately, Celsius’ actions also kickstarted a mad dash for the exits. Billions of dollars’ worth of Bitcoin have changed hands over the past few days, and there have been far more sellers than buyers. On top of that, Celsius’ top competitors, crypto banks like Nexo and BlockFi, have presumably come under pressure, as they have publicly clarified their own risk management to keep users from abandoning their platforms outright.

It’s been a tough week for many in the Bitcoin space, but perhaps not for everyone…

But First, A Moment Of Silence

My heart goes out to Celsius users whose assets are currently locked up. I have no doubt that they’re hurting, whether they have hundreds or tens of thousands of dollars’ worth of Bitcoin on the platform. It’s certainly not something I would wish on anyone.

But perhaps some good can come out of the situation, at least for those users who decide to take control of their Bitcoin and become financially self-sovereign by doing so. After all, our Bitcoin will always be at risk of being seized or locked up when we leave them in someone else’s hands. In fact, the move to lock up customer assets was always in Celsius Network’s playbook:

I shared the above screenshot just a few weeks ago, but I won’t pretend that I thought Celsius Network would make this move so soon thereafter. Regardless, these types of developments beg the question: if you let someone else custody your Bitcoin, are you sure they’re really yours?

Keep Your Keys, Keep Your Coins

Your Bitcoin are yours and there’s one sure fire way to ensure that is always the truth: self-custody. The only way to control Bitcoin is to control the associated private key. If you alone hold the private key, your Bitcoin can’t go anywhere without your approval. But if someone else holds the private key, you’re forever at their mercy.

Critics want you to believe that self-custody isn’t safe. But nothing can keep your Bitcoin safer than self-custody if you do it right.

I admit that I didn’t jump right into self-custodying my own Bitcoin when I originally purchased some several years ago. My Bitcoin journey has been one of learning, bit by bit. And how to self-custody my Bitcoin is perhaps one of the most important lessons that I’ve learned.

The choice is ultimately yours, but I invite each of you to begin your own journey towards self-custody. Take time now to learn how it works and what the best setup is for you and your situation.

And if you’re not sure where to start, check out the mini-series I wrote a few months ago all about self-custody:

On The Path To Self-Custody

Why Bother With Self-Custody?

What’s In Your (Bitcoin) Wallet?

Self-Custody - Signatures Can Make All The Difference

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Dear Readers,

Bitcoin has been hailed across the industry as “freedom money” that is resistant to both censorship and confiscation. The importance of these characteristics is growing stronger as governments seek to control more of their citizens’ lives and livelihoods.

Money is an essential tool in life, since it allows us to convert our time with relative ease into goods and services that we need to survive. Do we really want such an important tool in the hands of biased and power-hungry intermediaries? I think not.

That said, there are those in the government and on Wall Street who are actively trying to limit Bitcoin’s appeal as stateless money. And one of their more frequently used attacks is against privacy and fungibility on the Bitcoin blockchain.

One of your fellow Readers recently shared an article (here) with me that spoke at length about the idea that Bitcoin are supposedly not as fungible as most people believe. To summarize the relevant facts, the author indicated that Bitcoin may not be fungible because of the following reasons:

The Bitcoin blockchain is completely public and transparent. All transactions are visible forever, which means a Bitcoin’s history, “good” or “bad”, sticks around until the end of time.

Exchanges and miners are being pressured by governments to blacklist Bitcoin transactions and addresses who engage in privacy-enhancing behavior like using CoinJoins (as if privacy were somehow illegal).

“Dirty” Bitcoin can’t always be easily used on certain exchanges, meaning that, for all intents and purposes, they aren’t fungible with “clean” Bitcoin on those exchanges.

We can begin to understand the gravity of this situation since having two classes of Bitcoin severely limits its ability to serve as Freedom Money for the whole world. Privacy is definitely of paramount importance, but mostly to people who actually want or need it.

Counterpoints On Bitcoin’s Fungibility

Bitcoin Is More Private Than You’ve Been Led To Believe

Rest assured, privacy is available on the Bitcoin blockchain for those who want it. In fact, the majority of Bitcoin transactions aren’t actually public at all.

How so? Well, most Bitcoin transactions don’t take place on the layer-1 blockchain. They take place inside layer-2 solutions like the Lightning Network and within crypto banks and cryptocurrency exchanges.

Crypto banks and exchanges aren’t exactly publishing transactions that happen inside their ecosystems to the internet. And even though governments may be able to peel back the layers of secrecy on certain transactions, it’s not a given that they’ll be able to do that for all transactions.

The Lightning Network is even more private and secure since there’s typically not a centralized intermediary involved. Two participants are simply sending Bitcoin back and forth amongst themselves, or perhaps routing their Bitcoin across a few Lightning nodes to loop someone else into a transaction. Participants and node operators have some visibility into the transactions, but no one else typically does.

Long story short, with most Bitcoin transactions happening off-chain, it’s going to be a lot harder to impact Bitcoin fungibility than critics want you to believe.

Most People Don’t Care About Transaction History

The article identified two main chokepoints for “dirty” Bitcoin: miners and exchanges.

First off, miners are hardly a chokepoint at all. The article mentions a handful of miners who have refused to process transactions that they believe include “dirty” Bitcoin. But that’s irrelevant because it leaves aside the fact that anyone can confirm transactions on the Bitcoin blockchain. Someone is going to process the “undesired” transaction sooner rather than later for the simple reason that they just want to earn the associated transaction fees.

Next up are exchanges, which are really only chokepoints until people stop using them. And people will stop using them, or at least will stop using them as frequently, once Bitcoin assumes its rightful place as the primary money used around the world. Once Bitcoin is accepted as money rather than being used purely for speculation by so many people, there will be a lot fewer people trying to trade out of Bitcoin into fiat currencies or altcoins.

The most important thing to remember is that most people simply don’t care about a Bitcoin’s transaction history. They just want to pay or be paid. And they’ll accept your Bitcoin without a second thought, no matter what the government says about it.

Do you have a question about Bitcoin that you wish I would write about? Post it on The HiFi Crypto Letters Community Blackboard to receive an answer:

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Dear Readers,

Bitcoin adoption around the world is accelerating. Tens of millions of people are coming to understand the power of decentralized money that can’t be controlled, inflated, censored, or stolen. And billions more will learn that truth over the coming decades.

But the road to hyperbitcoinization is anything but smooth. Uninformed critics abound and are doing everything in their power to sow fear and misunderstanding about the true role that Bitcoin was built to play in society and economies. Many of them will grasp onto any half-truth or outright lie if they think it will scare people away from Bitcoin usage.

We unfortunately witnessed another example of such fearmongering just last week when lawmakers in the state of New York within the U.S. passed a far-reaching moratorium that will likely have lasting impacts on the state’s receptiveness to Bitcoin and the Proof of Work algorithm that enables its existence.

Limits, But Not Elimination…Yet

A lot of people in the Bitcoin space have misunderstood exactly what New York’s bill stipulates. While the tenor of the bill certainly doesn’t cast a positive light on Bitcoin, nor does it elicit feelings of hope for Bitcoin mining’s future in the state, the bill doesn’t actually ban Bitcoin mining. But it does rather severely cap the potential growth of Bitcoin mining within New York.

How so? The bill eliminates any chance for new Bitcoin mining operations that utilize “fossil fuels” to be created. It also limits the ability of existing mining operations that utilize those energy sources from expanding. Both limitations are in effect for at least for two years while the state’s legislators perform additional research on the topic.

Many environmentalists are likely cheering the move since it seems targeted towards reducing the use of fossil fuels in the generation of energy. However, there are genuine reasons to be concerned about how the bill has been structured:

Renewables Are A Work In Progress

Firstly, fossil fuels still produce the vast majority of energy the world needs to power homes, businesses, economies, and more.

The idea that our world can run entirely on “renewables” is currently just a pipe dream. Battery technology is nowhere close to being able to satisfy worldwide energy demand around the clock. And many sources of renewable energy are located too far away from cities to actually provide energy supply in the moment they’re needed.

Renewable energy sources and related technologies are not able at all to power widespread energy consumption, no matter the use case. Demanding that Bitcoin run entirely on renewable energy while the whole world still relies heavily on fossil fuels is distorted thinking to say the least.

Banning Use Cases Rather Than Banning Energy Sources

Perhaps the worst part of New York’s bill is that it isn’t really as postured against fossil fuels as the bill’s supporters would have people believe. After all, it doesn’t outright ban the creation of all new power generating sites that rely on fossil fuels. Just those used for Bitcoin mining.

I would say the move to ban use cases rather than ban energy sources is unprecedented, but it’s not. China moved to outright block Bitcoin mining nationwide last year, with questionable success. But it is a concerning move nonetheless.

Energy usage is key to the growth of societies and economies. It’s no coincidence that humanity’s technologies have advanced with leaps and bounds over the past several hundred years as we’ve learned to harness large amounts of electricity. If governments put themselves in a position to choose how their citizens can and can’t use electricity, those societies stand to lose out on far more than just Bitcoin’s killer app. How many people must suffer as a result of governments’ poor choices?

Education Is Key

There are people in the world who might be bearish on Bitcoin for life. Warren Buffett and Peter Schiff are two such people who come to mind. But not everyone is irredeemable. Most people in the world are still in a place where they can come to appreciate Bitcoin if they only take the time to understand its innovation.

Education holds the key to a future in which those who want to can interact freely with Bitcoin at any time. It’s up to those of us who understand Bitcoin to help teach people who are willing to learn. And it’s up to all of us to elect officials who care more about their citizens than they do about their biases, at least if we live in a place that allows us to choose our leaders.

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Dear Readers,

Inflation is the #1 driver of financial inequality around the world. But governments and the economists they sponsor certainly won’t tell you that. Why would they? They profit too much from the inflation they cause.

But inflation does its damage:

Inflation causes purchasing power to decrease, because the cost of goods and services tends to increase far faster for most people than their wages do.

Inflation causes people to save less because they’re aware, even if only subconsciously, that the fiat currencies sitting in their wallets and bank accounts buy less the more that time passes.

Inflation incentivizes people to get into debt, even bad debts, because it tends to become cheaper to manage as inflation takes its toll.

Most people aren’t oblivious to the evils of inflation. They see them every day. So governments have to kick their fear mongering into overdrive in order to convince people that other systems are worse than their own.

The Lie: A Deflationary System Like Bitcoin Isn’t Sustainable Because People Won’t Spend Their Bitcoin

“Hodling” has became a key concept within the Bitcoin community. In a nutshell, it’s driven by an understanding by veterans in the space that short-term fluctuations in Bitcoin’s exchange rates with other currencies have limited impact on the long-term trajectory of the growth in Bitcoin’s value. Looking at Bitcoin price charts, it’s not hard to see why that long-term growth is so tantalizing:

Even though Bitcoin is more than 50% off its all-time highs, Bitcoin’s value per coin has increased from mere pennies to tens of thousands of dollars in the course of just over a decade. And only a fraction of global wealth is currently denominated in Bitcoin, meaning it still has an exponential amount of growth ahead of it if bulls like me turn out to be right.

What this all means is that a lot of people aren’t actually spending their Bitcoin right now. They’re hodling it, day after day, year after year. Since one of money’s primary roles is to be a medium of exchange, critics have claimed that Bitcoin can’t possibly be money if most people don’t spend it.

Critics also argue that Bitcoin will somehow be an innately unfair system, because people who don’t have Bitcoin supposedly will be unable to get some to use as money because hodlers won’t be spending their Bitcoin.

I believe that both criticisms can rather easily be debunked:

Bitcoin Are Being Spent Everyday

Case in point: remittances. Global remittances are big business. Every year, people send hundreds of billions of dollars across borders to friends and family who are in desperate need of those funds. Most remittances are currently denominated in fiat, and those transactions extract massive fees.

Enter Bitcoin. The Bitcoin blockchain is global and is open to any individual or business that wants to send money across borders. While it’s true that only a small fraction of global annual remittances are sent in Bitcoin, it’s an absolute certainty that the majority of Bitcoin remittances are being spent rather than hodled. After all, most people value things like food, shelter, and clothing more than they value any type of money.

Bitcoin Will Be Transferred To Those Who Produce True Value

The idea that people value some things more than they value money is exactly how we debunk the criticism that Bitcoin won’t flow freely out of hodlers’ wallets at a certain point. After all, even the best money (i.e., Bitcoin) is really only good if you can buy the things you need with it.

People are incentivized to trade their time for money because it can buy them things. As we discussed before, inflatable currencies like fiat incentivize people to buy as much as possible now before their money loses its purchasing power. But people using hard money like Bitcoin still have to buy the necessities of life, and will also be incentivized to buy discretionary goods and services that they value more in the moment than their Bitcoin.

In other words, people who don’t have Bitcoin or who want to have more Bitcoin than they possess at any given time can acquire it by selling things that hodlers want or need to spend their money on. People will always spend money. Good money just makes them spend it on worthwhile purchases.

Next time you hear someone trying to scare you away from Bitcoin with half-truths and outright lies, ask yourself if they’d need to do it if the fiat system they’re trying to protect were halfway decent to begin with.

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Betterment will soon offer access to Bitcoin portfolios “managed by experts for long-term investing”. Go to betterment.com and get your entire balance managed free for the first 90 days.

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Dear Readers,

One of Bitcoin’s most important features is its resistance to interference and control. Powerful governments, corporations, and individuals are completely powerless when it comes to bending the Bitcoin blockchain to their will. They’ve tried in the past and will certainly try again in the future. They’ll fail every time.

While Bitcoin will continue to operate with or without the blessing of the world’s governments, one of you Readers recently posed an interesting question to me: How do we get governments to trust Bitcoin?

I appreciated the question and I look forward to exploring this topic together. For obvious reasons, governments have set themselves up as one of the biggest barriers to worldwide Bitcoin adoption. They have everything to gain by accepting Bitcoin, at least in terms of granting financial freedom to their constituents. And they have everything to lose by giving up the awful power they have over currencies, economies, and market participants.

What will they do?

A Tale Of Two Perspectives

For me, there are two primary ways of viewing the question of Bitcoin and governments, and they both come down to what humanity needs: do we need governments to accept Bitcoin? Or not?

We Don’t Need Governments To Accept Bitcoin

If there’s one thing that seems certain in this day and age, it’s that governments want to control everything about their citizens’ lives. Your financial accounts are overseen by government regulators, your children’s education is curated by government bureaucrats, and your rights are dictated to you based on the whims of people in distant ivory towers.

With that in mind, do we really want or need governments to accept Bitcoin? As the Reader who posed this question astutely observed, all governments don’t like to give up control once their people have given it to them. Since Bitcoin is a tool for removing government and corporate interference from finance, we can rest assured that governments coming to accept Bitcoin will entail some level of governments attempting to assert their control over Bitcoin.

But Bitcoin can’t be controlled, right? It can’t, but businesses building on top of the Bitcoin blockchain can be forced to comply with government mandates and Bitcoin users can be manipulated into working against their own best wishes. If governments want to control Bitcoin, they won’t go after the blockchain itself. They’ll go after the community.

With that in mind, perhaps our focus as members of the Bitcoin community should be less on how we can make Bitcoin appeal to governments and more on how we can make ourselves more resistant to government control and subterfuge.

We Do Need Governments To Accept Bitcoin

I suppose the theme of this discussion is that Bitcoin will move forward, block after block, no matter what you, I, or the most powerful governments in the world think or do. I certainly keep coming back to it.

The fact remains though that governments wield an inordinate amount of influence in the minds of many people. Simply put, there are a lot of people in the world who sincerely believe that their government has their best interest at heart, no matter how many times history has proven the exact opposite to be the truth.

Many of those people aren’t going to adopt Bitcoin until one of two things happens: their government accepts Bitcoin or their government succeeds in losing their trust. It’s for that very reason that so many people are bullish about Bitcoin spot ETFs being approved around the world and, maybe someday, in the U.S.: Many potential Bitcoin users are staying on the fence until their government gives them the green light to participate.

So, for the sake of argument, can we afford to keep governments at arm’s length if we know that their involvement will usher in a new wave of Bitcoin adoption?

The Truth Comes Into View

Call me a pessimist, but the idea of government oversight being welcomed into Bitcoin with open arms doesn’t instill much hope in me. Our world needs a return to financial freedom, not a continuation of the financial serfdom we’ve labored under for decades.

Perhaps it’s true that some people will come into the Bitcoin space later than they would have if governments bestowed their blessing on the blockchain. But there’s a common saying in Bitcoin that I believe conveys the appropriate sentiment perfectly: Everyone gets Bitcoin at the price they deserve.

In other words, your decision to engage with or distance yourself from Bitcoin is completely on you. And that’s exactly the way it should be.

Do you have a question about Bitcoin that you wish I would write about? Post it on The HiFi Crypto Letters Community Blackboard to receive an answer:

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Robinhood offers access to Bitcoin to help you create your financial future. Go to robinhood.com and receive a free stock worth up to $200 just for signing up and linking your bank account.

Betterment will soon offer access to Bitcoin portfolios “managed by experts for long-term investing”. Go to betterment.com and get your entire balance managed free for the first 90 days.

Publish0x is the go-to platform for Bitcoin writers and content creators. Go to publish0x.comto get paid to read and write about the latest news across the Bitcoin space.

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It couldn’t be true. It didn’t make sense. Sal had spent weeks researching Bitcoin Savings & Trust before investing and had found nothing but positive reviews.

In retrospect, that honestly wasn’t really surprising though. People were receiving the massive daily returns the scheme’s pseudonymous operator had promised. What’s not to like when the money is flowing?

But now the music had stopped. The well had run dry. And she, along with countless others probably, was left holding the bag. Turned out that Bitcoin Savings & Trust was nothing more than a Ponzi, and she was nothing more than a sucker for it…

The above account is a fictionalized dramatization that is loosely based on the reported events surrounding the Bitcoin Savings & Trust Ponzi scheme that unraveled in 2012. As such, it should not be taken as factual.

Dear Readers,

Humanity is driven to make money. For some, it stems from a drive to succeed. For others, it comes from a desire to achieve a life of ease, where one is no longer required to labor endlessly to afford the necessities of life. No matter what our motivations may be, the vast majority of us are chasing money from sunup to sundown.

Converting your time and your work into money isn’t easy. No matter where you live or what you do for a living, making money is one of the more challenging aspects of the human experience. With that in mind, it’s not overly surprising to see so many people falling for “get rich quick” scams of one type or another, year after year.

Beware of promises of easy money. Learn from the past to know how to protect yourself for the future…

A Ponzi Here And A Ponzi There

Ponzi schemes are the epitome of “too good to be true” investments. Ponzi operators promise massive returns in exchange for little to no work, and they only manage to deliver for as long as they can keep new “investors” walking through the door.

Ponzis may operate for a long time. For example, the most infamous Ponzi in history, run by Bernie Madoff, operated for decades before the Great Recession took its toll and the truth came out. But eventually the easy money runs out and people find out that it was never really there to begin with. Such was the case for Bitcoin Savings & Trust, a Bitcoin-themed Ponzi scheme operated by a Texas-based man for about a year in 2011 and 2012.

Bitcoin Savings & Trust had many of the classic hallmarks of a Ponzi scheme: its operator was shrouded in mystery, known for most of the Ponzi’s short existence by only a pseudonym, pirateat40, and he refused to provide anything more than the most limited information on how he made his money. On top of that, Bitcoin Savings & Trust “guaranteed” its users a gaudy 1% daily interest rate that, in retrospect, should have made it apparent that things were far too good to be true.

While the Ponzi’s operations were secretive, the results of its downfall are not: users lost hundreds of thousands of Bitcoin, valued at several million dollars based on average Bitcoin exchange rates at the time. Meanwhile, the wider Bitcoin community was impacted by a severe loss of confidence and the Bitcoin exchange rate dropped by about half over the course of just three days.

Anchor: A Modern-Day Ponzi?

With the benefit of hindsight, it can seem easy to dismiss both the perpetrators and victims of Ponzi schemes like Bitcoin Savings & Trust. But never forget that real people are harmed and lose fortunes and more when Ponzis go belly up.

Just take the recent implosion of the TerraUSD and Luna cryptocurrencies, in which users and investors lost billions of dollars. The crash was preceded by the breakdown of the Anchor protocol, a DeFi platform tailor made for those cryptocurrencies that had been widely regarded as a Ponzi due to the fact that it offered nearly 20% annual returns on deposits while banks worldwide offer around 1% or less for the same deposits.

What’s the lesson to be learned from all this? Learn to do your own research and how to protect yourself, because Ponzis and other scams are unfortunately not a thing of the past.

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Dear Readers,

In today’s world there seems to be quite a bit of confusion around Bitcoin’s true use case. Some people see it as a speculative investment. Others focus only on the amount of energy used by the Bitcoin network. And there are even people who think Bitcoin has no use case at all. They’re all wrong.

Bitcoin is money. Just like the fiat sitting in your pocket, but more secure. Just like the gold waiting to be pulled from the ground, but more portable. Just like the credit sitting with your card issuer, but decentralized. Without a doubt, Bitcoin is the best iteration of money humanity has ever seen.

We probably all agree that money has a number of uses. For that very reason, it’s extremely surprising to see how many people try to argue that hodling Bitcoin somehow means you aren’t using Bitcoin. As if money is only useful during the brief moment that it’s used to buy something…

Hodling Is Bitcoin’s #1 Use Case

Think I’m wrong? Think about how often you’re actually using your money for transactions, or in other words, as a medium of exchange. You might spend all day walking around a store or browsing on your favorite shopping app, but you’re still only actually using your money as a medium of exchange for the brief period of time you spend checking out. The rest of the time, your money is just sitting “unused” in your wallet, with your bank, or on the Bitcoin blockchain.

But to think of your money as “unused” just because you’re not actively buying something with it is silly. After all, when not being used in transactions, money is serving its primary purpose of storing value across time and space. Why is storing value money’s primary purpose? Because if you can’t trust that it will have value to you and others in both the present and the future, then you’ll never be able to buy anything with it.

Bitcoin users to a large extent trust Bitcoin to retain its value, especially over long time frames. In fact, the vast majority of Bitcoin on the network is currently being used for saving wealth through hodling rather than spending wealth. Naysayers who try to convince you that hodling Bitcoin isn’t using Bitcoin simply want to scare you into misunderstanding the holistic value proposition offered by Bitcoin. Don’t let them succeed.

Bitcoin Is Better Than Its Peers

It’s a bit ironic that people focus so much on Bitcoin’s ability to satisfy all the requirements of good money, but don’t seem to question the abilities of Bitcoin’s two biggest competitors, fiat and gold, to do the same. Let’s take a look:

Fiat Is A Terrible Store Of Value

Fiat currencies, of which the U.S. Dollar is only one miserable example, do a terrible job of storing value. Over long time frames, every fiat in history has either lost the entirety of its purchasing power before collapsing, or is currently in the process of doing so. Fiat currencies as they exist today are no exception to this rule, nor will the Central Bank Digital Currencies (CBDCs)of tomorrow be an improvement in this regard.

To be fair, fiat currencies didn’t have much of a chance to begin with. After all, fiat is controlled by centralized governments made up of self-interested people. The temptation to enrich oneself through wanton money printing is too great, and I don’t expect many of us would fare much better in that respect if we ourselves were in charge of our respective nations’ money printers.

That is why Bitcoin is necessary. Bitcoin removes the human element out of monetary policy, or at least structures the blockchain’s monetary policy in such a way that users are unable to manipulate it for their own gain.

Bitcoin’s hard cap of 21 million coins ensures that it will be inflation-proof as soon as that cap is reached. And once inflation is removed from the equation, Bitcoin’s value simply becomes a function of how much demand there is by people to save and transact with it. Personally, given the growth of Bitcoin usage over the last 13 years, I have high hopes for its continued growth over the coming decades.

Gold Is Not A Medium Of Exchange

For all its strengths as a store of value, gold cannot be taken seriously as a medium of exchange in this day and age. The idea that someone would heft a bar of gold to the supermarket and shave some off to buy their groceries is laughable. And forget about trying to make purchases over the internet with your gold.

In the olden days, gold functioned adequately enough as a medium of exchange. But its limited portability and divisibility, coupled with the ease with which it could be confiscated, made it a prime target for assimilation into the more liquid and less resilient fiat financial system we suffer under today.

It’s common to hear Bitcoin referred to as gold 2.0. And that moniker makes sense because Bitcoin manages to retain and even improve upon the premium store of value characteristics gold has exhibited for millennia, while also being exponentially more portable, divisible, and confiscation-resistant than gold can ever hope to be.

Bitcoin Is Money On The Pathway To Perfection

No matter how you choose to use your Bitcoin, you should feel confident knowing that you’re using the most advanced monetary system humanity has ever devised. I certainly feel that way.

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Dear Readers,

The growth of the Bitcoin network over the past 13 years is staggering. Billions of dollars’ worth of wealth are stored on it and millions of people are using it to secure their financial freedom and future. But Bitcoin is not without its detractors.

There are likely many people who genuinely misunderstand the need for Bitcoin, but certainly others whose misconduct stems from malintent rather than a sincere confusion about Bitcoin. While I won’t claim to be an expert on distinguishing the two, a number of people that observers believe are highly intelligent have recently come out against Bitcoin in stunningly uninformed ways.

Take this quote from billionaire investor Warren Buffett for example:

Whether [Bitcoin] goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything …

Or this comment that billionaire founder Bill Gates made just a few days ago:

I like investing in things that have valuable output. The value of companies is based on how they make great products. The value of crypto is just what some other person decides someone else will pay for it, so not adding to society like other investments.

Both men are pillars of the business community, highly respected for the wealth they’ve created and the advice they’ve given. When they speak, including about Bitcoin, a lot of people listen. And therein lies the problem, because they and others like them have completely misunderstood the productive capacity of Bitcoin.

What Does Bitcoin Produce?

If you, like Warren Buffett and Bill Gates, are thinking of productivity only in terms of companies producing computer software or farmland producing food, then you’re missing the point: production of value isn’t synonymous with the production of tangible goods and services. As examples, let’s look at a couple things that Bitcoin and its blockchain produce:

Trustless Money

Satoshi Nakamoto, the pseudonymous creator(s) of Bitcoin, put Bitcoin’s most potent contribution into perspective quite poetically:

The root problem with conventional currency is all the trust that's required to make it work.

It’s true. For decades, our money has been controlled by governments and manipulated by corporations. We’ve trusted them to do right by us, and they’ve repeatedly shown themselves incapable of doing that.

Simply put, Bitcoin offers humanity the ability to use money that requires absolutely zero trust in any government, corporation, or network participant. The only way to use Bitcoin is to follow the rules that the entire community has agreed to and has the ability to easily verify. There’s no way to game the system for your advantage, which unfortunately wasn’t the case prior to the advent of Bitcoin.

Freedom

“Freedom” can be a tricky word, especially for those of us who live in the pseudo-democracies of the Western world. Our governments have lulled us into a false sense of security by making us think that we’re in control and that they’re duty-bound to serve us. Unfortunately, governments don’t offer us freedom. The reality is that they are censoring us, surveilling us, and robbing us more and more frequently.

“Security” as enforced by governments is not freedom. In fact, in many ways, it is the opposite of freedom. As the Oxford Dictionary puts it, freedom is “the power or right to act, speak, or think as one wants without hindrance or restraint.” How can what governments offer be called freedom when they restrict our rights and privileges based on the amoral whims of whoever happens to be in charge?

Bitcoin offers true freedom, if for no other reason than that it allows us to have financial self-sovereignty, or inalienable control, over our money. No government can separate our Bitcoin from us unless we allow them to. And if we have the freedom to control our money no matter what, we can have the freedom to act and believe in a way that best represents who we are without fear of our lives and livelihoods being snatched from us.

Bitcoin Produces What Matters

Our civilization runs on money and we use it daily in every aspect of our lives. So the quality of our money, good or bad, impacts every facet of our societies. Good money incentivizes people to invest for the future, while bad money drives people to ruin, financial and otherwise.

Humanity has suffered under the burden of bad money for many years. Don’t we deserve to have and use good money again?

We deserve Bitcoin.

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Dear Readers,

Adoption in the Bitcoin space is a sight to behold. People from all walks of life are banding together to form a new Bitcoin economy that allows people to achieve the total financial self-sovereignty that many have dreamed about for decades. We stand on the precipice of a world in which financial success or ruin is no longer determined by a small group of elites in far-off government halls.

Adoption is also accelerating. Bitcoin has been around for over thirteen years and its group of adherents has grown in that time from a limited number of cypherpunks on an obscure mailing list to tens of millions of users around the world. And the Bitcoin network may be on the cusp of welcoming tens of millions more people if President Nayib Bukele of El Salvador has his way:

A couple years ago, most people would have laughed at the idea that entire countries would willingly choose to accept Bitcoin at the national level. But in today’s world, that reality is a foregone conclusion and the question simply revolves around not if there will be more nation-state adoption of Bitcoin, but who it will be and when they’ll make their move.

Given the accelerating pace at which governments are adopting the Bitcoin standard, I’d like to discuss why they’re finding that Bitcoin is such a powerful tool for their citizens, and why it can be such a powerful tool for you too:

Kicking The Powers That Be To The Curb

The world’s financial system is pretty messed up. A handful of powerful governments and quasi-governments, like the United States, European Union, China, and International Monetary Fund, rule over the global economy with an iron fist. They more or less dictate who can participate in the system and whether or not they’ll participate on equal terms with everyone else.

That setup is a real problem. For starters, it means that the majority of the world’s nations have to pander to the whims of their financial overlords instead of spending their time improving the lives and livelihoods of their citizens. But perhaps even worse than that is the fact that the current system enables the countries at the top to export the burdens created by their bad financial choices to the developing world through inflation of the “global” currencies simultaneously being forced on everyone.

Under that context, we should not be surprised that the countries flocking to El Salvador are from the developing world. Nor should it be surprising that the countries profiting off of them are trying to scare them away from Bitcoin adoption. Developing nations are highly incentivized to break free from the financial system that has held them back for centuries, while the countries on top are scared about the ramifications of losing their financial monopoly over the world.

Let them be scared.

The Power To Choose

Bitcoin is all about enabling each user to make their own choices. You can custody your own Bitcoin or you can let someone else hold them for you. You can run your own node or you can pay someone else to process your transactions. You can choose top-notch security on the base layer of the blockchain or you can prioritize transaction speed and cost by moving to a Layer 2 solution like the Lightning Network. Make your own choices, good or bad, basically.

Isn’t that how life should be? Is there any reason why our ability to choose should be limited or outright taken away by a bunch of bureaucrats who claim to know what’s best for us, but really have no idea? The answer is that each of us should have the sole ability and responsibility to choose for ourselves, unless we choose to willingly give that up.

Bitcoin makes that possible, especially in a financial context. The Bitcoin blockchain is open to all and the community behind it actively rejects interference from any gatekeeper. And that’s how money and finance should be: free from the biases of any one party at the expense of another.

So why are dozens of countries around the world entertaining the idea of joining the Bitcoin economy? Perhaps they’ve finally realized that their duty is to protect the interests of their citizens. All of them. I believe that no tool serves that purpose more completely than Bitcoin.

Time will tell whether the governments of the world agree. I think they will.

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Dear Readers,

For decades, the finances of everyday people have been tied up in the hands of governments and corporations, and have been manipulated or outright stolen by those same people. We as a society have arrived at the point where it’s next to impossible to believe that corporate CEOs and government bureaucrats have our best interests at heart. Our finances, economies, and money need to change.

I’m a huge proponent of financial self-sovereignty. Since we can’t trust our finances to anyone else, we need the tools to be able to trust ourselves. I believe strongly that Bitcoin is the major step in the right direction that the world so desperately needs. For the first time in history, we have money that can be completely resistant to censorship, confiscation, and inflation. But whether it is or isn’t depends entirely on how we choose to manage, or not manage as it were, our Bitcoin.

Wherefore Art Thou Bitcoin?

Case in point: tens of billions of dollars’ worth of Bitcoin are sitting in the treasuries and vaults of exchanges, crypto-banks, and custodians rather than being under the control of Bitcoin users themselves. That’s a lot of Bitcoin.

Granted, a lot of those people are afraid of holding onto their own Bitcoin. They’ve heard too many stories about the guy who accidentally threw away the private key protecting his ~8,000 Bitcoin. But risk of loss aside, controlling the keys to one’s Bitcoin is an essential component of achieving true financial sovereignty as we’ll see below.

By the way, if you’re afraid of self-custodying your Bitcoin or unsure where to start, I’ve got you covered. Check out the mini-series I wrote recently all about self-custody:

On The Path To Self-Custody

Why Bother With Self-Custody?

What’s In Your (Bitcoin) Wallet?

Self-Custody - Signatures Can Make All The Difference

My Bitcoin Are NOT Your Bitcoin

People choose to leave their Bitcoin with centralized custodians because those businesses have given them the impression that their assets are well-protected and will always be accessible. History has repeatedly shown that to not be the case, most recently in what was probably meant to be an obscure regulatory filing by Coinbase, one of the world’s largest cryptocurrency exchanges. But news around the filing has blown up courtesy of a particularly nefarious risk to Coinbase users that was disclosed:

It would be natural for you to think that the money you transfer into Coinbase and the assets you purchase with that money would be yours and yours alone. After all, your employer recognizes it as your money when your paycheck gets sent out and the government recognizes it as yours when you get taxed. But somehow, through the contortions of bankruptcy proceedings, assets that are supposed to belong to you could be lumped in with any Coinbase’s actual creditors are entitled to if it goes under. You could lose everything, through absolutely no fault of your own.

Don’t think this existential (for your financial self-sovereignty) risk is exclusive to Coinbase. It also exists with Celsius Network, one of the world’s largest crypto-banks, and likely with many other custodians, whether they admit it or not:

Not Your Keys, Not Your Coins

It’s very simple. If you don’t control the keys to your Bitcoin, you don’t actually have any Bitcoin. You have a promise from the person or company holding your Bitcoin that they’ll be delivered to you when you ask, and you have a hope that the promise won’t be broken. If you’re still inclined to entrust your Bitcoin to a custodian, just ask users of Mt. Gox, Bitfinex, and Africrypt how that worked out for them.

Don’t subject yourself, your financial self-sovereignty, or your Bitcoin to that risk. Many of the businesses in the space may be extremely well-intentioned. They may have top-notch security policies. They may have robust insurance policies. They may have all sorts of regulators peeking over their shoulders. But when it comes down to it, if they lose your Bitcoin private key or just refuse to give it back, there’s nothing you can do about it. You put the keys to your Bitcoin kingdom in someone else’s hands.

Consider doing something now, before it’s forever too late.

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Dear Readers,

When I wrote earlier this week about how companies using Bitcoin as part of their investment strategy instead of as money is not ideal, I had no idea that the market would prove my point so quickly. Of course, most people probably didn’t anticipate this week’s chaos that hit the market for the Luna cryptocurrency and the TerraUSD stablecoin it was tailor-made to support.

Coming Back Down To Earth

TerraUSD was wildly popular over the past several months, with its market cap catapulting into the top ten cryptocurrencies as a result of its growing prominence.

As a stablecoin, its goal is to maintain price parity with the U.S. dollar. But unlike collateralized stablecoins like USDC and Tether that maintain their peg by (supposedly) holding actual dollars and dollar equivalents, TerraUSD is an algorithmic stablecoin that attempts to hold its peg through a series of incentives built into the code. One TerraUSD is always supposed to be redeemable for one dollar’s worth of its sister cryptocurrency Luna. So if the value of TerraUSD falls below $1, market participants are supposed to be incentivized to buy a TerraUSD, redeem it for $1 worth of Luna, and then make a profit on the arbitrage.

Unfortunately for holders of TerraUSD and Luna, the incentives system appears to have not held up. The markets for both cryptocurrencies have been rocked as TerraUSD has completely lost its peg, sitting at around $.12 as of this writing, and as Luna lost over 99% of its value in just the seven-day period leading up to Thursday evening. A rough time to be a “LUNAtic” (as they like to call themselves), to be sure.

Call In The Bitcoin Reserves

Perhaps in recognition that under-collateralized stablecoins are notoriously risky, the Luna Foundation Guard (LFG), a nonprofit organization that seeks to support the Luna and TerraUSD ecosystems, announced several weeks ago that it would be purchasing as much as $10 billion dollars’ worth of Bitcoin as reserves backing TerraUSD’s peg. Many in the Bitcoin space were thrilled by the announcement since it added a significant amount of demand for Bitcoin. To a certain degree, it made sense as well given Bitcoin’s growing status as the world’s reserve currency. After all, if countries like El Salvador and The Central African Republic are using Bitcoin for their reserves, why wouldn’t we expect organizations inside and outside of crypto to do the same?

LFG’s plan to use Bitcoin as a reserve asset for TerraUSD is a double-edged sword though. When times are good, the organization is a net buyer of Bitcoin, as it had been up until the past few days. But when times are bad, like when TerraUSD fell massively off its peg this week, LFG becomes a net seller of Bitcoin. And after acquiring several billion dollars’ worth of Bitcoin in just a few weeks’ time, LFG had a lot of Bitcoin to dump on the market.

LFG and its founder Do Kwon have not been very transparent on the topic of Bitcoin liquidations though, in my opinion. Vague plans were recently announced on Twitter that large loans of Bitcoin would be made to “OTC trading firms to help protect [TerraUSD’s] peg”, but it was not made clear by any means that this course of action would directly lead to the sale of LFG’s Bitcoin. But after a bit of digging, we can see that’s exactly what the plan was all along. As Do Kwon explains in one of his tweets, LFG intends to buy TerraUSD by selling its Bitcoin anytime TerraUSD’s price drops below $1:

If there’s anything we can learn from Bitcoin interactions from groups like LFG and people like Elon Musk, it’s this: there are no heroes in Bitcoin. Any supporter can quickly turn into a detractor if circumstances lead them down that path.

But Bitcoin keeps chugging along, block after block.

Stablecoins Are Anything But Stable

Stablecoins have been hailed as revolutionary in many corners of the crypto space, but the reality often seems to be the opposite. After all, using the term “stable” to describe assets that track the price of fiat currencies that are perpetually declining in value thanks to inflation is a misnomer of epic proportions. And to top it off, it seems more and more likely that most, if not all, stablecoins will be regulated out of existence and replaced with central bank digital currencies that will be directly controlled by governments.

When I look for a stable place to put my wealth, I continuously come back to Bitcoin. Through all the chaos of the past week, one Bitcoin still equals one Bitcoin.

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Dear Readers,

It has been a rough few months for financial markets. Inflation in the United States and around the world has been significantly higher than usual, and that trend is accelerating as time goes on. Couple that with actions being taken by the Central Bank in charge of the world’s reserve currency, the Fed, which is attempting to combat rising inflation by hiking the base interest rate on which a significant portion of the world economy operates. The result? Stocks are down, real estate markets are cooling, crypto assets are tanking, and Bitcoin is struggling to regain its bull market.

But wait…isn’t Bitcoin supposed to be the quintessential inflation hedge? Isn’t Bitcoin’s hard cap of 21 million coins supposed to push its exchange rate against weak fiat currencies ever upwards?

Bitcoin maximalists like me have been preaching about Bitcoin’s resistance to inflation for quite some time. So why is Bitcoin not outperforming during this period of extreme inflationary pressures? Why is Bitcoin seemingly following the same trends as the rest of the market?

The answer is that there’s more to it than meets the eye.

Bitcoin Is Not An Investment…But People Treat It Like One

Bitcoin For Speculation

We spoke a couple weeks ago about how Bitcoin is money, and that treating it like a speculative investment is the wrong way to go about interacting with Bitcoin. But even though I strongly believe that Bitcoin isn’t supposed to be used for speculation, that doesn’t change the fact that a ton of people treat it like a speculative money-making investment.

To a certain degree, the fact that a lot of people approach Bitcoin with that frame of mind is understandable. Our societies have operated for decades on weak fiat monies that lose a portion of their value every year to inflation. In no small way, fiat currencies have trained us to believe that we need to be financial analysts and asset managers just to scrape together enough wealth to have some sort of retirement when we’re old. So does it make sense that a lot of people would approach Bitcoin with the same mentality of making money that has been ingrained in their psyche in every other financial market out there? Yes, it does.

But the reality is that the vast majority of us aren’t financial analysts or asset managers. And even some people who are still aren’t actually very good at investing. In short, if someone is simply speculating with their life savings or their latest paycheck in the hopes of eventually trading in their Bitcoin for more fiat than they had before, they’re going to get spooked when the Bitcoin exchange rate goes down and sell out as fast as possible.

So why does Bitcoin tend to follow other asset classes downwards when times are hard? In part it’s because speculators are getting shaken out of Bitcoin just like they’re getting shaken out of other financial markets.

Bitcoin For Risk Management

Even though Bitcoin is the most perfect money humanity has ever had, not everyone sees it that way. A lot of people and companies use it for speculation, but some also use it for the purposes of “risk management”.

Not sure what that means? Well, since most of us are terrible financial analysts and asset managers, an investing mantra has been developed around the concept of “diversification”. In other words, we’re told to take our money and spread it around as many asset classes as possible in the hope that not all of them will tank at the same time.

Take hedge funds and corporations for example, which are usually obligated to follow regulatory requirements or restrictive covenants that force them to manage their portfolios in a certain way, such as liquidating an asset when its price rises or falls by a certain percentage or when another asset in their risk-managed portfolio does.

They’re not treating Bitcoin like money. They’re treating it like one small piece in a wide-ranging financial strategy and will happily cut their Bitcoin holdings loose if they feel like it. And since companies are often some of the largest Bitcoin holders, their liquidations can add severe downward pressure to exchange rates.

Bitcoin Is An Aspirational Inflation Hedge

Bitcoin’s status as an inflation hedge is largely aspirational at this point. And a large portion of its user base just isn’t committed yet to using Bitcoin as money and holding onto it through the good times and the bad. But the number of users who do believe in Bitcoin as inflation-resistant money is growing day by day.

I find myself in the latter group. Do you?

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Dear Readers,

When the idea for Bitcoin was made public on an obscure cryptography forum in 2008, a revolution in self-sovereign money was launched. And the subsequent go-live of the Bitcoin blockchain in early 2009 sent that revolution into overdrive. The world was reeling from the effects of the Great Recession, which was the culmination of decades’ worth of financial interference on the part of governments and banks. Humanity needed a decentralized monetary medium that could ensure financial self-sovereignty, and Bitcoin overwhelmingly fit the bill.

Bitcoin’s success has also unfortunately led to quite a number of copycat projects, as well as arguably questionable uses of its underlying technology. By this, I don’t mean to imply that everything in “Crypto” and “Blockchain” has no meaning or value. There are obviously tens of thousands of people around the globe, including many of you perhaps, who find value in one project or another. But neither do I believe that every bit of humanity’s existence needs to live on a blockchain or be decentralized.

Yuga Labs And The Terrible, Horrible, No Good, Very Bad Day

I believe the recent fiasco on the Ethereum blockchain caused by Yuga Labs’ “Otherdeed” NFT mint provides an interesting example. The team behind Yuga Labs has publicly stated that it believes their NFT mint was the largest mint in history:

Whether or not that’s true, there certainly was a significant amount of demand from the market for the “Otherdeed” NFTs. Blockchain sleuths are already estimating that nearly $200 million in transaction fees were spent on the Ethereum blockchain during the mint, either on the mint itself or on other transactions that users had the misfortune of choosing to carry out at the worst possible time. For most users, the Ethereum blockchain was, at least temporarily, too expensive to use.

The impact to everyday users is without a doubt unfortunate. However, Yuga Labs’ proposed solution gives me pause:

In true Crypto fashion, the proposal amounts to nothing more than creating another blockchain among thousands. While that solution would arguably eliminate competition for blockchain space from non-Yuga Labs digital assets, I’m not convinced that it’s the right solution, mainly because I’m not convinced by the level of decentralization Yuga Labs or the Ape DAO it created to govern its projects claim to have achieved. After all, Yuga Labs has the means to acquire a controlling stake in the Ape DAO relatively easily:

The “Otherdeeds” mint helped Yuga Labs pull in around $300 million dollars’ worth of ApeCoin, on top of what it already owned. As we can see from the ApeCoin DAO’s guidelines, governance is determined by the size of your stake:

The ApeCoin DAO’s guidelines establish a straightforward way for members to delegate their votes to trusted “experts”, and even requires delegation for members whose coins are locked. Who is going to seem like more of an expert to most DAO members than Yuga Labs, the DAO’s creator and the primary driver of value on all the DAO’s projects?

The DAO’s roadmap also highlights certain governance positions that Yuga Labs is well-positioned to maneuver its way into given its voting capacity and its status as a highly-trusted member and proponent of the community:

I won’t beat around the bush any longer: Yuga Labs and their ApeCoin DAO seem to be prime candidates for the title of “Decentralized In Name Only”. And if it really is just a centralized company masquerading as a decentralized community, is there really any need for the company to have its own blockchain?

Decentralized Money Is A True Innovation

While the jury may still be out on the efficacy of and need for decentralization everywhere, the verdict is in regarding the world’s need for decentralized money. Don’t believe me? Think about how many people have suffered because of asset confiscations, financial sanctions and censorship, recessions, and other atrocities perpetuated using centralized fiat currencies and systems.

Lest anyone accuse me of being too optimistic, I don’t believe that Bitcoin will solve all the world’s problems by itself. But its resistance to censorship, confiscation, inflation, and other manipulations will put people in a position to control their own futures, financial or otherwise. And if you're truly in control of your own life, you’ll have a much greater capacity to find solutions to your own problems.

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Dear Readers,

After the country of El Salvador became the first nation in the world to adopt Bitcoin as legal tender last year, expectations were high that another country would quickly follow suit. In fact, over the following few weeks, legislators in a number of Central and South American countries went on to introduce pro-Bitcoin legislation and add laser eyes to their profile pictures on social media. Even the state of Arizona in the U.S. tried to make Bitcoin legal tender. Each of those efforts failed to launch and the question of who would be the next government to adopt Bitcoin has remained an open one for months.

That question has now been answered: The Central African Republic announced last week that its parliament had unanimously approved a resolution to recognize Bitcoin as legal tender alongside the CFA franc, previously the only legal tender in the country. While the details on how and when Bitcoin’s status as legal tender will be made official are pending, one fact is abundantly clear: The Central African Republic has taken a giant leap forward in terms of its own sovereignty.

Power To The People

A lot of commentators have speculated that The Central African Republic’s motivation for adopting Bitcoin was to allow some level of separation from its other legal tender, the CFA franc. The CFA franc is not a currency that was developed by The Central African Republic alone. Instead it is also overseen by five additional African countries and is pegged to the Euro. On top of that, in order to use the CFA franc, the six countries are required to keep a significant portion of their foreign assets with France’s treasury.

If you think that’s an unfair financial situation for The Central African Republic to labor under, you’re not wrong:

Pegging the CFA franc to the Euro means that the Eurozone and European Central Bank are able to expropriate significant amounts of wealth from The Central African Republic through inflation and other currency manipulations.

Custodying its foreign assets with France’s treasury leaves The Central African Republic at the mercy of France not to confiscate its assets, and limits the financial resources that the country has at its disposal to use in serving its own people.

With such detrimental consequences for using the CFA franc locally, it’s no wonder that The Central African Republic introduced Bitcoin as a competing legal tender.

Bitcoin Is Sovereign Money

With fiat currencies, whether the CFA franc, the U.S. Dollar, or anything else, all users, even nation states, are at the mercy of the government that controls the money printer. The primary fear of course is that the money printer will hyperinflate your wealth away at the press of a button. But the risk of being pushed out of the financial system by the government in charge of the fiat currency is also huge.

Neither of those risks exist in Bitcoin:

Hyperinflation is impossible with Bitcoin thanks to its 21 million coin hard cap. Any country, company, or person who entrusts their wealth to Bitcoin can rest assured that their wealth will never be stolen by someone else through inflation. That is by far one of the most important aspects of Bitcoin, in my opinion.

Bitcoin is extremely resistant to censorship. All users have equal ability to access the Bitcoin network, from the largest country to the lowliest individual. So if someone doesn’t like you, your beliefs, or your actions, too bad. There’s nothing they can do to stop you from interacting with Bitcoin, unless you choose to let them.

For hundreds of years, governments have been asserting greater and greater control over our lives and they extract an ever-increasing amount of value from us as a result. Without self-sovereign money, or money that allows us to have complete control over our finances with little risk of interference, we are constantly at the mercy of those who can take away our wealth by force or by inflation.

Bitcoin is that money. Bitcoin allows you and you alone to control your finances, unless you choose to trust another entity and give your power, or at least a portion of it, away. Humanity has arguably never had self-sovereign money of as high a caliber as Bitcoin, and I believe that we will continue to see nations, companies, and individuals adopt it as their currency of choice well into the future.

If you haven’t adopted Bitcoin yet, what’s stopping you?

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Dear Readers,

There’s a lot of confusion in the world these days as to what Bitcoin is and what it isn’t. To a certain degree, that’s understandable. Bitcoin has only been around for just over a decade, and in that time only a small percentage of the world’s population has meaningfully interacted with Bitcoin and its blockchain. Most people just haven’t spent too much time up to this point researching Bitcoin.

Many people throughout the world have heard about Bitcoin’s meteoric price increase though. Actually, it’s hard not to have heard about it when stories about $400 million pizzas and a $500 million hard drive sitting in a garbage dump hit mainstream media every few months. During its short lifetime, Bitcoin’s per coin price has risen from nothing to an all-time high of $69,000 U.S. dollars, spawning a group of Bitcoin millionaires and billionaires, not to mention millions of people daydreaming about how their lives may have been different had they been among Bitcoin’s early buyers.

Couple that reality with recurring news of Wall Street banks and investment firms buying Bitcoin for themselves and their clients, and it’s no wonder that so many people think of Bitcoin as an investment rather than as money. Take Fidelity Investments, one of the largest asset managers in the world, for example. The company announced just days ago that it intends to be the first major 401(k) platform to allow participants to allocate a portion of their 401(k) retirement plans directly to Bitcoin. The normal entrants in a 401(k) portfolio, stocks, bonds, and ETFs, are classic examples of investments, so including Bitcoin in their midst inside an investment portfolio is sure to confuse people as to what Bitcoin really is.

Bitcoin Is Money

Bitcoin is simply money. Bitcoin’s pseudonymous creator envisioned Bitcoin as a “purely peer-to-peer version of electronic cash”, and Bitcoin has largely achieved that goal and more. While detractors might argue that many Bitcoin transactions occur over platforms run by exchanges and crypto banks, the fact remains that Bitcoin can be transferred from one person to another without requiring the assistance of any intermediary and whether or not governments, corporations, or powerful individuals want those transfers to happen.

On top of that, Bitcoin also fulfills to a large degree each of the primary functions of money:

Store of Value

People gravitate towards monetary goods that will allow them to maintain their purchasing power over time. Why? Because our ability to produce value ebbs and flows over our lifetimes depending on our skillsets and our circumstances, but our need to pay for food, shelter, clothes, and other necessities is constant. In short, we need the money we earn intermittently to keep its value long enough for us to spend it when we actually need it, not just when we originally earn it.

Bitcoin’s hard supply cap is the primary reason why Bitcoin succeeds as a store of value. The supply of Bitcoin is programmed to stop increasing once the amount of Bitcoin in circulation reaches 21 million, and its incentive structure is such that changing or removing the supply cap is all but impossible. So while the supply of most other goods will increase over time thanks to technological advances and population growth, the supply of Bitcoin will remain the same. If there are more goods and services available for purchase, but the same amount of Bitcoin available to exchange, users will be able to buy more goods and services with their Bitcoin. That’s just how supply and demand work.

Unit of Account

If a money is a unit of account, it means that it can be used to price goods, services, and assets. This quality is of paramount importance because economies have millions of different transactions daily. If people can’t easily price their offering over time and distance, it becomes all but impossible to frictionlessly acquire what you need to survive and thrive.

Bitcoin has the furthest to grow under this function of money, in my opinion. That said, it’s already very common to see digital assets priced in Bitcoin, like in trading pairs on cryptocurrency exchanges. Additionally, as people stop treating Bitcoin like a speculative investment and start using it as money, I believe Bitcoin’s exchange rate volatility will decrease substantially and people will be much more comfortable pricing their goods and services directly in Bitcoin, rather than using fiat prices as proxies.

Medium of Exchange

Bitcoin is already a medium of exchange within the world of Crypto. It’s common to see Bitcoin as the main payment method on cryptocurrency exchanges and NFT marketplaces, in the metaverse, and elsewhere. If you’re looking to buy a crypto asset, you’re likely to find a lot of people accept your Bitcoin as part of the exchange.

That said, Bitcoin is arguably a medium of exchange outside of Crypto as well. A lot of businesses are accepting Bitcoin as payments for their goods and services, and many employees are choosing to be paid in Bitcoin for their labor. I also believe Bitcoin’s strength as a medium of exchange is set to grow exponentially as more people begin to use Bitcoin as money in their day-to-day lives.

Bitcoin Is Not An Investment

While Bitcoin has certainly appreciated in value over the years, and I believe will continue to do so well into the future, treating Bitcoin as nothing more than a speculative investment will likely lead one down the path of missing out on it’s true calling: that of being the best money humanity has ever had, and the money that humanity absolutely needs to combat the trials of our current age.

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Dear Readers,

There’s a common saying in the Bitcoin space that’s intended to quickly convey the importance of having direct control over one’s Bitcoin holdings: “Not Your Keys, Not Your Coins”. It’s derived from the fact that the only way to truly protect your Bitcoin is to ensure that you alone have access to the private keys behind your Bitcoin address. If you entrust your private keys to someone else, no matter how much you trust them or what ethical standards or regulations are in place, there’s always a risk that your Bitcoin can be lost or taken away through no fault of your own. Simply put, no one is more interested in your success, and willing to pursue it at all costs, than you are.

The reality is though that battling for sovereignty over one’s finances extends far past Bitcoin private keys alone. People are being banned from financial systems, social media, public spaces, and more left and right. It’s even happening in crypto. No matter who you are or where you live, your freedoms, assets, and livelihoods can never be completely safe when entrusted to a government, company, or another person.

Recent events in the Bitcoin space have provided us with an interesting case study of this, albeit an unfortunate one for the victims:

BitRiver + Compass Mining = Lost ASICs

It all started a few days ago when the Office of Foreign Assets (OFAC) in the United States issued sanctions against BitRiver, a Russian company that operates Bitcoin mines and provides hosting services domestically and internationally. Russia’s cheap energy prices and cold climate have made it very attractive for mining Bitcoin, and BitRiver seems to have had quite a bit of success attracting clientele to its hosting business, including from the U.S.

The intent of the sanctions was to hurt Russia’s ability to finance itself, per OFAC’s statement:

By operating vast server farms that sell virtual currency mining capacity internationally, these companies help Russia monetize its natural resources.

It may or may not be the case that the sanctions will directly impact the finances of the Russian government. I certainly don’t claim to have knowledge one way or the other. But the negative impacts are already being felt on innocent third parties who had nothing to do with the decisions being made by the Russian or U.S. governments.

Take clients of the U.S. company Compass Mining for example, which was using BitRiver to host ASICs for a large number of its customers. As a U.S.-based company, Compass River really only had three options when BitRiver was sanctioned: follow the sanctions, fight them in court, or break the law and get shut down. The company chose to protect its own interests. The company made the following announcement shortly after the sanctions were originally announced:

Due to recent sanctions by the US, Compass Mining is required to immediately cease all dealings with BitRiver…Machines will be turned off today and they will not be turned back on. At this time, it is not possible to export any of the machines from Russia.

Rather than take a total loss, Compass is making all commercial efforts to liquidate the hardware for our customers and return to them whatever funds we can obtain for the sale of these machines. We cannot guarantee that the machines will sell.

This is no doubt devastating to affected clients, who have in many cases paid tens of thousands of dollars for Bitcoin miners that are now being liquidated for pennies on the dollar with little hope for a less financially disastrous alternative. By entrusting control of their Bitcoin miners to Compass Mining and BitRiver, they’ve not only lost some or all of the money spent to originally purchase the machines, but they’ve also lost all future Bitcoin that they would have earned had their machines still been mining on the network for them.

Keep Your Bitcoin Close

I’m a firm believer that each of us needs to take control of our own destiny when it comes to being as successful as possible on the Bitcoin blockchain. There are certainly good people and businesses in the space who are trying to add value. But without a doubt, none of them have more incentive to protect your rights and your interests than you do.

There will always be risk in Bitcoin and life. So the decision likely comes down to who we trust more: ourselves or anyone else.

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Dear Readers,

If you’ve spent any time reading Western media’s analyses on Bitcoin, then you’ve probably noticed a common theme: the journalists and editors writing those analyses have no idea why Bitcoin is valuable.

To a certain degree, I can understand why Bitcoin’s true value proposition is difficult to grasp for a writer who has only spent a few minutes studying it in order to spit out their latest propaganda. I have spent my entire life living in the “West”, so I can say from my own experience that we Westerners live pretty sheltered lives. We have relatively stable currencies and financial systems that allow us to fairly easily earn, save, and invest. And the pseudo-democracies that lord over us have done a good job of convincing us that their financial largesse and their burdensome oversight and control are for our good.

In short, it’s difficult for people who mostly only experience so-called “First World problems” to understand many of the much more pressing issues that people in countries around the world experience daily. Nowhere has this been more apparent to me than when I recently read an article from an author who trivialized both the real-world issues, like financial inequality and exclusion, faced by a lot of people and the ability of Bitcoin to correct those issues by stating that all that is needed to ensure equal financial privilege and access globally is “a smart phone and links to simple financial apps”. In this discussion, I hope to elaborate on why that idea is pure nonsense.

Barriers To Financial Equality

Living Under Authoritarian Governments

If you live in a country with a government that at least pretends to protect your rights and freedoms, consider yourself lucky. There are billions of people around the world who live under authoritarian regimes that rule their lives with an iron fist. They don’t enjoy freedoms, like freedom of speech, that so many of us Westerners take for granted. And that means that their governments have little if anything that keeps them from censoring speech, beliefs, or actions that go against the governments’ prerogatives. Simply put, people in those countries could be kicked out of the financial system, or worse, from one minute to the next if their authoritarian government decides to kick them out. In this context, financial apps are part of the problem, not the solution.

By the way, some Western countries may not even be able to enjoy such freedom for much longer. Don’t believe me? Take a minute to remind yourself what happened to Canadians who protested government mandates that they disagreed with.

Living With Massively Compounding Inflation

Don’t get me wrong. I’m strongly against never-ending inflation of any level, and that’s why Bitcoin’s 21 million coin supply cap is so appealing to me. But having single-digit annual inflation, which is what the majority of Western society typically experiences, is nowhere near as bad as the double- or triple-digit inflation that many countries suffer through annually. If you live in one of those countries, it’s essentially impossible to save your way to financial success.

Financial apps will do little to solve peoples’ inflation woes. The financial systems in most countries require that people use whatever currency is considered legal tender. So if you live in a country with a weak currency, the financial apps, if there even are any, will almost assuredly require you to hold your savings in that same weak currency. And let’s not even get started on how horrible interest rates on savings are around the world.

Living Under The Weight Of Financial Sanctions

The reality is that most financial systems throughout the world are controlled by a handful of countries. And if your country’s government does something that the countries in power don’t like, they’ll do everything they can to force your government and you out of the financial system. Try and imagine the unfairness of living under an authoritarian government that you have no control over and being kicked out of the financial system because of that government’s real or imagined misdeeds.

Financial apps will do nothing to solve that problem. Most of the useful financial apps out there are based out of the countries that are imposing the sanctions. But even if they use local financial infrastructure, the sanctions will sever almost all ties between local and global financial systems. Financial sanctions result in a march towards insolvency for many people and businesses who suffer under them.

Bitcoin Is The Real Solution

Bitcoin is the real solution to the problems discussed above:

Bitcoin can be easily custodied and transferred, so authoritarian governments will have a hard time censoring Bitcoin transactions or forcing people off of the blockchain.

Bitcoin’s incentives structure ensures that removal of its supply cap is nearly impossible, meaning that inflation will be a thing of the past once the world moves onto a Bitcoin economy.

The open and censorship-resistant nature of Bitcoin makes enforcement of blockchain-level sanctions an impossible task. No one will be kicked off of the Bitcoin blockchain by a centralized government or corporation unless they allow themselves to be forced off.

Whether you live a privileged life in the Western world or not, it’s important to do your research so that you can fully comprehend what problems Bitcoin solves for people from all walks of life.

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Dear Readers,

The traditional financial system is broken. People around the world, living under all types of governments, work day in and day out only to struggle immensely to afford the same quality of life that their parents and grandparents were able to enjoy while expending much less effort. Sure, technologies have improved a lot. But the cost savings that are typically associated with technological advancement have been completely wiped away by the atrocity of government-sponsored inflation. It’s difficult to get ahead when you’re systematically robbed over the course of decades.

Even so, governments aren’t the only culprits behind the brokenness of the traditional financial system. Businesses are also often guilty of egregious offenses against society’s finances, although that behavior frequently isn’t readily apparent to onlookers. Such is the case with the defensive strategy Twitter has chosen to employ against a takeover attempt by billionaire Elon Musk.

A Poison Pill For Thee

It seems like Elon Musk is nearly legendary these days, at least in the eyes of many of his 82+ million followers on Twitter. Elon Musk is currently the world’s richest person and is CEO or co-founder of nearly half a dozen active technology companies, including Tesla Inc. On top of that, Elon Musk seemingly has the ability to move financial markets with his comments on social media and in other public forums, especially when it comes to cryptocurrencies. Veteran Bitcoiners will likely remember how the price of Bitcoin jumped around fifteen percent in mere minutes after Elon Musk changed his Twitter profile to “#Bitcoin”. Nor have we forgotten how his adoption of Bitcoin energy FUD in May of last year likely contributed to sending many new and institutional participants in the Bitcoin space scrambling for the exits.

Elon’s interests over the past several weeks appear to have shifted towards protecting free speech on the social media platform Twitter. In order to achieve that goal, he went so far as to buy over 9% of the company’s publicly-traded stocks and then submitted an offer to buy the entire company outright in order to take it private. Given what we’ve already discussed, this type of freewheeling behavior from Elon Musk is basically expected. Rather, it’s the response from Twitter’s Board of Directors that has me up in arms. The Board, in what they claim is an effort to rebuff Elon Musk’s acquisition of Twitter, announced that it has adopted a “Limited Duration Shareholder Rights Plan” with the following conditions:

Under the Rights Plan, the rights will become exercisable if an entity, person or group acquires beneficial ownership of 15% or more of Twitter's outstanding common stock in a transaction not approved by the Board. In the event that the rights become exercisable due to the triggering ownership threshold being crossed, each right will entitle its holder (other than the person, entity or group triggering the Rights Plan, whose rights will become void and will not be exercisable) to purchase, at the then-current exercise price, additional shares of common stock having a then-current market value of twice the exercise price of the right.

In simple terms, Twitter’s Board of Directors intends to dilute Elon Musk’s share of the company if he increases his ownership past fifteen percent. And the company will achieve that goal by giving everyone but Elon the option to purchase brand new shares of the company at a discounted price.

Whether or not you’re concerned by Elon Musk’s Twitter-denominated wealth being diluted against his will, you should be alarmed by the fact that it will also allow the wealth of everyday Twitter investors to be diluted into oblivion. How so? The Rights Plan put in place by Twitter’s board doesn’t just hand out additional shares for free to everyone but Elon Musk in direct proportion to the percentage of the company they owned previously. Rather, it incentivizes shareholders to purchase additional shares that didn’t exist before. Elon Musk’s shares will get diluted since the option to buy those additional shares intentionally isn’t available to him, but so will the shares of everyone who can’t afford to buy a sufficient quantity of the newly created Twitter shares to maintain the ownership percentage they had before.

No wonder this type of takeover defense put into place by Twitter’s Board of Directors is commonly referred to as a “Poison Pill”. It lays the groundwork for wealthy investors and investment companies to swoop in and buy Twitter shares on the cheap, while diluting the Twitter-based wealth of everyday investors who can’t afford to buy new shares while they try to combat the highest global inflation in decades that’s currently raging around the world.

The rich get richer and the poor get poorer.

Opt Out Through Bitcoin

This Twitter v. Elon Musk situation makes me an even bigger proponent of Bitcoin and the Bitcoin-based financial system that I believe will soon be a reality. Bitcoin’s hard supply limit of 21 million coins ensures that no one can swoop in and dilute your wealth, no matter the circumstances. As more and more people realize the innate advantages of an asset that cannot be diluted under any circumstances, they may quickly flee from the traditional financial system, which is designed to fleece them out of their money at every turn.

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Dear Readers,

I believe that Bitcoin is the most perfect monetary system that humanity has ever had. The Bitcoin blockchain is open to all and cannot be controlled by any group, corporation, or government as long as we, the rest of the network, refuse to allow it. And its monetary policy is rock solid, with only 21 million Bitcoin that will ever exist and those units being released through a mining process that anyone is free to join. Any other financial system, including those built on fiat, simply cannot compete.

That said, fiat financial systems are still trying to compete. Even though Bitcoin has been around for over a decade, most of the world’s population still uses fiat currencies for transacting and most of the world’s wealth is still denominated in fiat currencies.

Why is that? If Bitcoin is the most perfect system we’ve ever had, then why are people realizing it so slowly? In large part, it comes down to a very simple lie that has captured the minds of people around the world for decades:

The Lie: Governments Must Control The Currency For Economic Growth And Security

I recently had a conversation with an individual on social media who emphatically believed that fiat was necessary for the continued growth and security of the world’s economies, large and small. To paraphrase, his logic in support of his argument was as follows:

Central banks print money so commercial banks can lend money to companies and people.

Companies and people use the printed money to make investments and buy goods and services.

The revenue from those investments, goods, and services goes to companies.

Stock prices for those companies go up and employees have jobs.

He went on to tell me, without a hint of sarcasm, that he believes that economic activity could not exist without fiat systems controlled by central banks and governments.

That idea, albeit a pervasive lie espoused by entire schools of economic thought, is nonsense. It implies that economic activity, which in its simplest form is just the conversion of a person’s time into goods and services, did not exist until fiat currencies were invented around 1,000 years ago.

Fiat is simply money, though a poor example of it. Fiat exists simply to allow users to maintain an accounting of economic activity across markets as people convert their time into goods and services, but don’t feel like immediately trading the goods and services they created for the goods and services someone else just created.

That is the purpose of money after all. Money allows, or should allow, us to store our value across time, exchange our value for goods and services, and price the value created by others relative to our own. Those goals were accomplished historically by monies like shells, salt, and gold for thousands of years before fiat existed and will be accomplished by Bitcoin for many more years after fiat ceases to exist.

But fiat does not create economic activity. In fact, it steals the economic activity of billions of people through inflation in a process known as the Cantillon Effect. Fiat benefits a few people at the top, while everyone else suffers the consequences.

So if fiat is so terrible for their people, why do governments use it?

Walk A Mile In Their Shoes

Imagine for a moment that you, and perhaps a group of your compatriots or cronies, are now in control of your nation’s government. Among other things, you now have the ability to control your country’s money supply, which essentially means you have the ability to print money at will and steal the wealth accumulated by your citizenry.

Would you use that power to benefit yourself? Of course you would. The only question is how quickly you can do it.

But wouldn’t people stand up against being robbed?

Many wouldn’t. Many people would buy into the lie that your self-serving money printing is actually for their benefit. Maybe you would even buy into it yourself.

But SOME people wouldn’t buy that lie, right?

True. Some people would notice that everything is getting more expensive, including even their salary, but that they’re still getting poorer. And they would ask why they should use your disastrous currency at the expense of their financial future.

But you control the government, or if you live in one of the many pseudo-democracies around the world, you control the Congress. You make the laws. And when you make a law requiring that your fiat currency be used, anyone who doesn’t use it is breaking the law and goes to prison. Prison is a powerful deterrent for many people.

Even that wouldn’t work on some people though. There are those who would be willing to risk prison to get out from under your control. But in addition to controlling the government, you control the military. And militaries are powerful tools for quelling rebellion.

Wouldn’t companies resist though to protect their bottom line?

That’s even more unlikely. Why? Because companies are usually next in line to benefit after government leaders and their cronies. If they’re willing to fall in line, you would happily print money to lend to them at very low interest rates or even bail them out directly, on your citizens' dime of course, if economic conditions get tough for them.

And for those few companies who try to maintain some level of morality, you have tax, legal, and regulatory systems that can be leveraged to bully them into complying.

This Is The Reality…

Think the scenario above is too dark? That it could never happen to your country?

Ask yourself what will happen if you refuse to pay your taxes, regardless of whether you agree with what they’re being used for. Taxes have to be paid in whatever fiat currency your country uses after all.

Ask yourself whether the government bureaucrats that either you elected or, if you live under an authoritarian regime, replaced the last dictatorship have actually stopped stealing your economic activity through inflation.

Ask yourself who really paid the price for corporate bailouts over the years as recession after recession battered world economies. Did your suffering end as quickly though?

…But It Doesn’t Have To Be

Bitcoin is money that is resistant to both censorship and confiscation. No one can print more Bitcoin and devalue the Bitcoin you hold. And if you protect your Bitcoin, no one can forcibly take them away.

In a world where governments are unable to steal, by force or through inflation, from their citizens, they’ll have to actually serve their people rather than people being forced to serve them. That is the world that Bitcoin offers us.

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Roger was in disbelief. The community that had once revered his opinions so much that they called him “Bitcoin Jesus” had left him in its dust. His proselytizing hadn’t worked, and the market had chosen the Bitcoin he had abandoned.

He believed so strongly that Bitcoin needed to be usable in day-to-day transactions NOW, no matter the costs. So could the community be wrong? Or was it him who had messed up?

He’d know soon enough. The market had a way of figuring those things out.

The above account is a dramatization that is loosely based on reported events surrounding the Bitcoin Cash hard fork and its most well-known supporter, Roger Ver. As such, it should not be taken as factual.

Dear Readers,

In our last conversation, we focused on aspects of Bitcoin’s decentralization that get far less attention than they’re due: the lack of leaders on the blockchain and its open-source code. Both characteristics contribute to securing Bitcoin’s future by ensuring that users are always able to access Bitcoin however they choose, no matter what attackers may try.

To prove that point, we discussed the smear campaign that was recently launched by Greenpeace and the blockchain company Ripple against Bitcoin and its Proof of Work consensus mechanism. That campaign incorrectly asserted that the Bitcoin blockchain was controlled by a handful of miners, exchanges, and developers who could unilaterally change Bitcoin’s code if they chose.

Although that smear campaign is still playing itself out, I’m highly confident that history will show that the campaign and its backers will have had no ability to forcibly alter the Bitcoin blockchain. Why? Because others have been down that path before and they failed. As the saying goes, history may not repeat itself, but it often rhymes.

A Battle Over Blocksize

For a reminder that Bitcoin is controlled solely by its community of users, one has to look no further than the Bitcoin hard fork from which the Bitcoin Cash altcoin was born.

The Bitcoin whitepaper begins with the following description of the blockchain’s purpose:

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.

In reality, there are different ways that the idea of “electronic cash” can manifest itself, and a dispute on that topic within the Bitcoin community simmered over the course of a couple years leading up to late 2017. On one side were community members who staunchly supported the idea of small blocks and the decentralization they afforded, regardless of the resultant per-transaction cost or overall transaction throughput on the base-layer blockchain. On the other side were supporters of a proposal to increase the blockchain’s block size to lower transaction costs and increase transaction capacity on the base-layer blockchain, no matter the consequences of the subsequent centralization that would happen.

The vast majority of the Bitcoin community was in favor of keeping blocks small, which would ensure that the memory requirements to run the blockchain would remain lower and enable as many users as possible to operate miners and nodes. However, several key developers, large mining operations, and well-funded cryptocurrency exchanges supported the large-block proposal.

Does that sound familiar? Greenpeace and Chris Larsen of Ripple would have you believe that the big blockers were able to force everyone onto their desired code base against their will. But is that how history played out? Definitely not. When the big blockers tried to enforce their plans on the blockchain, the rest of the Bitcoin community simply opted out of using the offending code base. That split resulted in the big blockers creating an altcoin version of Bitcoin called Bitcoin Cash.

The intervening years have not been kind to Bitcoin Cash under various metrics when compared to Bitcoin. Bitcoin’s per coin value and market cap have soared to incredible heights, while Bitcoin Cash’s value has stagnated and even dropped considerably when inflation of fiat currencies is factored in. Similarly, websites dedicated to helping users explore each respective blockchain show massive differences in the amount of computing power and transactions processed, with Bitcoin solidly in the lead in both categories. These facts demonstrate the reality that the community made its choice on which blockchain codebase to use, regardless of what well-funded and supposedly powerful entities in the community demanded.

Do not allow yourself to fall victim to those who would have you believe that Bitcoin can be manipulated and controlled. Do your research diligently and I am confident that you will find that the Bitcoin revolution is open to all and controlled by no one.

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Dear Readers,

For a space that claims to focus on decentralization, there sure seem to be an inordinate number of leaders in crypto. Think about it: Ethereum has Vitalik Buterin. Cardano has Charles Hoskinson. Dogecoin has Elon Musk. Ripple has Chris Larsen. The list goes on.

To be clear, there’s nothing inherently wrong with a community or protocol that has leaders. After all, no one really complains about Elon Musk being the CEO of Tesla and SpaceEx. But we also don’t call those companies “decentralized”.

Bitcoin, on the other hand, exhibits true decentralization, especially in the category of leadership. There are no leaders. No person or group has the ability to unilaterally change or even majorly influence the code and the blockchain. The only individual(s) who ever came close to filling that role was Bitcoin’s pseudonymous creator, Satoshi Nakamoto, who hasn’t been heard from in over a decade.

Bitcoin truly is owned, operated, and controlled by each and every one of its users. All of us have an equal say in what happens on the network, from the smallest user to the largest corporation. But do you actually know why?

Stick To The Code

It’s common to talk about Bitcoin’s decentralization in terms of geographical distribution. After all, there are Bitcoin miners and node operators all over the world. A globally-distributed network is one that is nearly impossible to shut down, whether intentionally or unintentionally. This is one of several pillars of Bitcoin’s decentralization. However, there’s an exceptionally important piece of decentralization that gets brought up much more infrequently: Bitcoin’s open-source code.

The open-source nature of Bitcoin’s code has had several results, both for Bitcoin specifically and for the cryptocurrency space at large. It has contributed exponentially to the growth of Bitcoin’s geographical decentralization, since anyone at all can spin up the software for free. It has also contributed to the improvement of the code itself, because anyone can view the code, develop changes, and then propose them to the rest of the Bitcoin community for potential acceptance. And who can forget that the vast majority of cryptocurrencies and blockchains are based to a large degree on Bitcoin’s codebase?

Most important of all though, Bitcoin’s open-source nature allows any user to verify the code and even select the version of the code that they’d like to run. That’s right; no one will or even could force you to run a specific version of the Bitcoin code. If you don’t like a particular upgrade (or Bitcoin Improvement Proposal, as they’re commonly called), you can simply ignore it. Both your node and your Bitcoin holdings will still be accepted by the blockchain and community.

Most of us aren’t used to that level of freedom when it comes to the software we use. For example, if you hold off on upgrading your iPhone’s software for long enough, then eventually the apps you want to use will no longer be supported by your older iOS. Or if you leave a Google Chrome update sitting for long enough, the browser will eventually force an update through when you close and then re-open it.

In short, it’s rather common for software to be controlled by its developers. So it’s an anomaly that Bitcoin users aren’t controlled by the blockchain’s developers. But it’s an anomaly that makes all the difference.

Bitcoin Usage Cannot Be Controlled

If you’ve been staying up to date on news within the Bitcoin space, then you’ve likely heard of the disinformation campaign that was recently launched by the nonprofit Greenpeace and funded by Chris Larsen, the CEO of Ripple (i.e., the company behind the cryptocurrency XRP). In their campaign, Chris and Greenpeace adopt half-truths and outright lies about Bitcoin’s energy usage in order to influence public opinion against the Proof of Work algorithm on which Bitcoin’s entire value proposition irrefutably relies.

Likely one of the most insidious claims by the campaign is the following:

It’s a common misconception to think that miners, exchanges, and developers have the ability to force changes onto the rest of the network's users, but it’s simply not true. As we already discussed, Bitcoin’s open-source nature ensures that the version of the code desired most by the community is always publicly available. The most that miners, exchanges, developers, and others can do is exclude themselves from the network:

If miners choose to mine blocks on an alternate version of Bitcoin (like miners of Bitcoin Cash or Bitcoin Satoshi Vision do), other miners will simply step in for their own chance at earning valuable Bitcoin block rewards and transaction fees.

If exchanges choose to delist Bitcoin, users will simply flock to competitors that still list it or will transact peer-to-peer with other community members.

If developers propose code changes that the community doesn’t approve of (which happens all the time, by the way), users will simply vote against the proposals by not upgrading their nodes to the new codebase.

The truth is in the details. Bitcoin is resistant to any type of control or manipulation because users are always free to choose the version of the blockchain they care to run. No attacker, no matter how well-funded they may be, can alter or deny that reality.

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Dear Readers,

We know from prior conversations that Bitcoin is incredibly secure. It’s impenetrable. No one can access your Bitcoin without the private key. That level of certainty is a huge positive in the context of self-sovereignty. Since only you control access to your Bitcoin, only you control your financial future. But on the flipside, if you lose your private key, your financial future might be anything but assured.

When it comes to self-custodying one’s Bitcoin, likely the fear that drives the most people away from it is the possibility of losing one’s private key. Decades of trusting our money to banks, governments, and other intermediaries has made most of us balk at the idea of being completely responsible for protecting it ourselves. As a result, many people in the space have reverted to holding their Bitcoin in crypto banks, putting the burden of private key management in their hands and, often unwittingly, opening themselves up to a whole host of counterparty risks.

But self-custody doesn’t have to be scary and there are ways to minimize the risk of losing the ability to access your Bitcoin. Today we’ll talk about one of the most common ways to do it: multi-signature wallets.

Sign Here Please

If most of your Bitcoin transactions happen on a crypto-bank’s or exchange’s platforms, then you may not have much experience with signing your transactions before they’re confirmed. In fact, you may not have any idea what I’m talking about. After all, on the majority of those platforms, all you have to do is choose an amount, paste the receiver’s Bitcoin address, and then hit “send”. You never really see what’s going on in the background.

What you’re missing is one of the most important parts of the entire Bitcoin blockchain’s process: transaction signing. In order for the nodes and miners on the blockchain to accept any transaction as valid, it must be signed using the private key attached to the sender’s address. Otherwise, the participants on the blockchain have no way of knowing whether the sender owns the Bitcoin being sent and has the right to transmit them.

In case it’s not clear, that’s the real reason protecting your private key matters so much. If it gets lost, you have no way of signing your transactions and proving to the rest of the Bitcoin ecosystem that you’re the rightful owner of a certain Bitcoin address.

Single Sig Wallets

Most consumer-level Bitcoin wallets are single-signature, or single sig, meaning that only one signature from one private key is required to sign a Bitcoin transaction and have the network accept it as valid. This setup is relatively simple and that’s probably why most people use it. You only have to keep track of one private key, whether your wallet is paper-, software-, or hardware-based.

As usual though, that simplicity is a double-edged sword. True, you only have to worry about protecting one private key, but if it gets stolen, destroyed, or lost, you’re out of luck. Your Bitcoin are gone and you have no hope of recovering them. Again, that’s the fear that keeps so many people from self-custodying their Bitcoin. But it doesn’t have to be that way.

MultiSig Wallets

As you might imagine based on the name, a multi-signature, or multisig, wallet is one that requires several private keys in order to validly sign a transaction. But wait, is protecting multiple private keys simpler or safer than only having to protect one? It should be as long as your multisig is set up to only require that a quorum, or majority, of private keys be used to sign a transaction rather than every key. In other words, you can still sign transactions with a multisig even if you lose one of your private keys. You just have to make sure you don’t lose a majority of them.

The most common multisig wallets that you’ll come across are 2-of-3 or 3-of-5 configurations, where the first number represents how many private keys are required to sign a valid transaction and the second number represents the total number of private keys available for signing. Having the ability to sign a transaction without needing all of your private keys eliminates a single point of failure from your self-custody setup, which makes the whole process a lot less risky.

Multisig wallets also allow you to entrust one or more of your keys to other entities, which has a few different applications that are becoming more common:

Assisted multisig setups, in which a third-party specialist like Casa or Unchained Capital manages a key for you.

Escrow services, in which a buyer, seller, and escrow agent each control a key as part of a transaction in which Bitcoin is used in exchange for a good or service.

Trust management, in which keys are distributed among family members or other trusted individuals to manage shared assets.

Remember though, while such applications remove you as the single point of failure, you re-introduce a certain amount of counterparty risk anytime someone else controls one or more of your private keys.

Whether you personally hold all or just some of the private keys controlling your multisig wallet, you’re more likely to sleep soundly knowing that the chances of completely being locked out of your Bitcoin wealth, whether by loss, theft, damage, or censorship, are much lower than they would have been otherwise.

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Dear Readers,

If you’ve decided that entrusting your Bitcoin holdings to a third-party custodian isn’t worth all the risk of loss, censorship, and confiscation, then your path of discovery may lead you to wonder which self-custody setup is best to protect your Bitcoin. After all, self-custody is rather nuanced and there are many different ways to secure the keys to your Bitcoin kingdom.

My goal with today’s Letter is to ensure each of you understands the basics of different Bitcoin wallet types. It’s important to have a good jumping off point to determine the setup that will work best for your situation. Each wallet type has unique pros and cons, and I’m hopeful we can better understand each of them along the way.

A Refresher On Private Keys

Before we can truly appreciate how different wallets work, it’s helpful to remember what your Bitcoin wallet actually protects.

One of the most fundamental building blocks of the Bitcoin blockchain is public-key cryptography. Public-key cryptography helps to facilitate the transparent nature of Bitcoin transactions by associating holdings with specific public keys, often referred to as Bitcoin addresses, that are easily viewable on the blockchain. But it ensures the security of the same holdings through use of the private key indelibly linked to each public key. Anyone can view a public key, but only the person or entity who controls the linked private key can move or even claim to own the Bitcoin associated with a particular public key.

Simply put, a Bitcoin wallet protects the private key required to move your Bitcoin. So in a very real sense, the security of your Bitcoin holdings is extremely reliant on the security and functionality of your Bitcoin wallet. If your wallet malfunctions or gets lost, and you haven’t maintained some sort of backup like a seed phrase, you could very well never have access to your Bitcoin again.

The ABCs of Wallet Types

Perhaps you’re beginning to understand why securing your wallet and the private key it protects can have such a big impact on the safety of self-custodied Bitcoin. This is definitely not an area where you want to skimp on research and preparation.

To get you started, let’s look at several of the most common wallet types:

Paper Wallets

A paper wallet is exactly what it sounds like. With this setup, your private key is written out on a piece of paper, usually as a series of words known as a seed phrase or as a scannable barcode. As you can imagine, a piece of paper is impossible to hack and may also be innocuous enough to evade detection in cases of physical theft. They are also relatively easy to create since you need nothing more than a piece of paper and a writing utensil.

That simplicity is often a double-edged sword though. Pieces of paper are easy to lose and are susceptible to accidental destruction by fire, water, age, or a host of other elements. Many people have tried to mitigate those risks by printing their “paper” wallet on a more durable material, like wood or metal. But those bulkier materials are naturally more noticeable by someone who might be interested in running off with your private keys. So if you go the route of a paper wallet to secure your Bitcoin, you’ll need to decide what tradeoffs you’re willing to accept.

By the way, don’t save a copy in the cloud, your email inbox, or the notes of your internet-connected phone or computer. Doing so defeats the purpose of having a paper wallet by making the digitized version hackable through the internet.

Software Wallets

Software wallets are probably the most commonly used setup, if for no other reason than that there are so many options to choose from and people can set them up in just a few minutes on their computer or phone. In a nutshell, a software wallet is simply any software program that holds your private key. But they also typically come with a polished user interface to make viewing and moving your Bitcoin as simple as possible.

Software wallets suffer from some pretty severe drawbacks though, in my opinion:

They’re usually connected to the internet, meaning that your private key is accessible to any hacker smart enough to bypass the security of the app, program, or cloud where your private key is sitting.

Your private key is at the mercy of the developers in charge of programming and maintaining the wallet’s software. What if there’s a glitch? What if there’s an insider attack? What if the software company goes out of business or is shut down?

Software wallets are certainly different from setups with third-party custodians, but they do both seem to suffer from a similar amount of counterparty risk.

Hardware Wallet

Hardware wallets are often considered to be the most secure setup for self-custody. They are typically made from durable materials that are resistant to destruction or deterioration. They’re also built for one purpose, storing Bitcoin private keys, so there’s less risk of unrelated software causing a glitch or system failure, like can sometimes happen with a phone or computer.

Hardware wallets are not without risks however. Many of them are designed to resemble USB sticks and drives, making them noticeable targets for thieves. Similarly, their reliance on physical hardware makes them susceptible to degradation over time, as well as interception and compromise during shipping from the manufacturer to your location.

No Bitcoin wallet is 100% secure, but that doesn’t mean that they can’t be a vast improvement over custodial solutions offered by crypto companies around the world. After all, whose fingers would you rather have in your wallet, your own or someone else’s?

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Dear Readers,

In our last conversation, we spoke about how the rise of Bitcoin as money is happening at the same time as the demise of fiat currencies. Fiat currencies take users’ wealth, privacy, and sovereignty and give them to governments who lord over their citizens with an iron fist. Bitcoin, on the other hand, allows users to control their money now and maintain its value into the distant future, if not even longer. Or at least it does if holders choose to protect their Bitcoin themselves rather than trusting a third party like an exchange, bank, or other custodian.

Self-custody can seem rather daunting to a lot of people though. I get it. We’ve probably all heard the stories about people absentmindedly throwing away the private key protecting their Bitcoin stash or passing away without having told anyone how to access it. The thought of that happening to us can be terrifying.

It’s human nature to want things to be as easy as possible, and that’s by and large why the banking and finance industries have been so profitable over the course of decades. They offer to hold on to and protect our money so that we don’t have to. And that arrangement is all well and good…until it isn’t. History is unfortunately full of examples of third parties who failed to live up to their end of the bargain when it comes to protecting your assets as their own. Let’s take a look at a few of them to get a sense of why third-party custody of your Bitcoin is not worth the risk:

Hackers and Other Attackers

Hacks, social engineering, and insider theft seem to happen more and more as our world increasingly relies on digital networks and other technologies. There’s no reason to believe that won’t continue and even accelerate as we move onto digital-first assets like Bitcoin.

In fact, it’s already happened several times in the space. Perhaps the most notable Bitcoin hack in history was the attack on the Bitcoin exchange Mt. Gox, in which around 850,000 Bitcoin were stolen over the course of a few years. Imagine trusting your Bitcoin to a company that didn’t even know it was being slowly robbed for that long.

While a user self-custodying their Bitcoin could certainly fall victim to a hack or other attack, the chances of the average user getting hacked rather than a custodian are much lower for the simple fact that most sophisticated attackers will go where the money is. In other words, they’re much more incentivized to attack an exchange holding hundreds or thousands of Bitcoin than a single user who likely has a few million satoshis or less.

Your Money, Censored

If it seems like I’ve been talking about financial censorship a lot recently, that’s because it’s becoming a hugeproblemaround the world. There’s simply no way around it: your ability to access your money and other financial assets will always be at risk of being restricted as long as someone else is custodying it instead of you. Any rational company or individual in charge of protecting your money is going to prioritize their own wellbeing over the safety of your wealth if the government comes knocking and tells them to freeze your assets.

Don’t believe me? The events surrounding Bitcoin donations made a few weeks ago to participants in the “Freedom Convoy” protests in Canada provide a fitting example: The Canadian government moved quickly against the third parties in charge of distributing the donations and were able to seize a portion. But the government is having a much harder time seizing Bitcoin from the dozens of truckers who received donations in the days before the government made its move. Why? Because people will always work harder to protect their own interests than they will for someone else’s.

Large Scale Asset Forfeitures

If only asset seizures when the government thinks you did something wrong were the sole confiscation risk we had to worry about, right? Sadly, that’s not the case. Governments could, at any point, decide to make Bitcoin ownership illegal. Such a scenario is not without precedent. In fact, U.S. citizens have a number of similar restrictions with which to draw parallels:

Private ownership of gold was effectively banned between 1933 and 1974 as the U.S. government attempted, successfully I might add, to move the country away from a hard-money standard and onto the predecessor of the fiat system we all labor under today.

The majority of U.S. citizens today are not able to legally invest in a wide range of assets and asset classes due to accredited investor rules enforced by the U.S. Securities and Exchange Commission (SEC). Those rules essentially amount to nothing more than requiring individuals to have a specific net worth in order to participate.

If the government makes Bitcoin ownership illegal, the entire industry of Bitcoin companies and custodians will fall into line without hesitation. They’ll give up your Bitcoin in a heartbeat when their lives and livelihoods are on the line. Seizing self-custodied Bitcoin would likely be a different story however; the idea of government representatives going door-to-door seizing Bitcoin or throwing large numbers of citizens in prison would quickly have the country’s population up in arms.

Does self-custody have risks? Certainly. But is it worth it in light of the immense counterparty risk with third parties holding your Bitcoin? Overwhelmingly so, in my opinion.

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Dear Readers,

Over the past several decades, governments and institutions have increasingly taken control of money to the point that most people are unable to attain any degree of financial self-sovereignty. Many purchases are made using bank accounts and credit cards and the supply of all fiat currencies is tightly controlled by government leaders, who print new money and wreak inflationary havoc at will. Anyone who wants to take control of their own money is out of luck…

Or at least they were until the advent of Bitcoin. Bitcoin has value in and of itself because it’s not a government or bank debt. It’s just money. On top of that, Bitcoin doesn’t rely on any government or institution to run it. In fact, Bitcoin doesn’t care even if they don’t want it to run at all. Bitcoin is freedom money, open to everyone, all the time.

Fiat on the other hand is quite literally a liability of the government that issues it. The more debt that governments issue in the form of fiat currencies, the less the fiat that you already have is worth. And history has shown that governments will issue as much debt as they possibly can. The United States provides an apt example, having issued tens of trillions of dollars of new debt in just the past two decades:

It should come as no surprise then that Bitcoin usage is seeing explosive growth while the entire fiat system begins to crack under the weight of excess debt, rampant money printing, and runaway inflation. Bitcoin flourishes by providing its users with an open system in which each contribution is protected over the course of time by a hard supply cap and a decentralized, worldwide network of miners and nodes. Meanwhile, fiat currencies are on the decline because their victims (i.e., all of us) finally have an escape hatch from the tight-fisted authoritarian deception of politicians the world over.

Take Hold Of Unbannable Money

It seems that governments are beginning to see the writing on the wall and many of them have no intent of going quietly into the night. Some will follow the path of China, which has attempted, wholly unsuccessfully I might add, to eradicate Bitcoin usage by banning everything short of citizens holding onto the Bitcoin they already own. Others may instead try to emulate the United States, which has stopped short of banning Bitcoin outright, but seems to be on a path to regulating it as much as possible.

Bitcoin is unique though, in that it is entirely impossible to control. Governments can try to force corporate Bitcoin miners to block certain transactions, but can do nothing to ensure that small miners who slip under their radar won’t win a block and send those same transactions through. They can try and subvert the Bitcoin network through biased commentary about Bitcoin’s energy usage, but they can’t stop people from plugging their computers into the network using whatever energy source they want. They can confiscate Bitcoin held by crypto-banks and custodians, but they can’t confiscate self-custodied Bitcoin that the holder refuses to give up at all costs.

That last point is particularly important. I’m a firm believer that Bitcoin is safest when it’s custodied by its holder. No matter how convenient or rewarding crypto-banks may make their offerings seem, if you don’t control the keys to your Bitcoin, then your ownership of it continues for only as long as the crypto-bank, or the government regulating it, allows it. After all, if the government comes knocking and tells the people running the crypto-bank to give up your Bitcoin, do you think they’re going to protect your money over their business? They’ll give you and your Bitcoin up in a flash.

Self-custody may seem scary to some, but the learning curve is well worth it so that you can take complete control of your money. No force on earth can take your Bitcoin away from you if your private key is protected and known only to you.

I’d like to help those of you who are curious to learn more about the intricacies of self-custody. In the coming weeks, we’ll talk about the differences between single-sig and multi-sig configurations and do a deep dive into the strengths and weaknesses of the growing industry behind collaborative custody multi-sig wallets.

I’m looking forward to those discussions. If you have specific questions you hope I’ll address, feel free to let me know by sending me a DM on Twitter or in the comments:

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Dear Readers,

We spoke a couple weeks ago about a hypothetical government attack on Bitcoin written by someone with extensive experience in Bitcoin mining. He hypothesized whether governments could coopt sufficiently large portions of Bitcoin’s hashrate, in the form of industrial-size mining outfits, to drive useability and user trust on the network into the ground. My rebuttal of his article demonstrated that the Bitcoin blockchain is far more robust than we even realize, and I stand by my assessment that the Bitcoin blockchain is well-positioned to withstand coordinated government attacks on miners.

That discussion led me to muse on whether other blockchains, in particular those that don’t rely on the Proof of Work (PoW) consensus mechanism like Bitcoin does, are as resistant to government attacks against their own processing power.

What better place to start than by addressing the elephant in the room: Proof of Stake (PoS). Outsiders and altcoiners alike have attacked Bitcoin’s energy usage for years, and the European Union went so far as to try to ban PoW cryptocurrencies outright earlier this week. Those same critics have proposed that Bitcoin move to PoS in order to address what they believe is an unsustainable environmental footprint. Their chorus has only grown as developers on Ethereum, the second-largest cryptocurrency by market cap, have signaled their intent to eventually migrate off of PoW and onto PoS.

A Lot At Stake On PoS Blockchains

The PoW consensus mechanism works by enlisting computers to expend energy and computing resources in order to confirm transactions on the blockchain. In no small way, Bitcoin’s decentralization and security are directly influenced by the number of computers mining on the network. After all, the cost to take over the blockchain by gaining a majority of computing power rises as the number of benevolent miners grows.

PoS is a whole different ball game though. The ability to confirm (or deny) transactions on a PoS blockchain is directly tied to the amount of the native cryptocurrency people hold. Validators (i.e., PoS’ equivalent to POW’s miners) are not required to expend resources on an ongoing basis to pay for upkeep or energy like miners on PoW, meaning that they can maintain their percentage of the network’s processing power much more easily. In some cases, the size of one’s stake also corresponds directly to one’s ability to govern the blockchain. Tack on the reality that PoS staking rewards gradually shift the cryptocurrency’s supply to those who can afford to stake while diluting those who can’t, and we have what could be a glaring attack vector for malevolent, well-capitalized assailants.

This is where governments enter the picture. Governments have huge incentives to dislike and even actively work against cryptocurrencies and crypto-adjacent technologies, which threaten to remove them from the seat of power over economies they have enjoyed for decades. They are also extremely well-capitalized since they have the ability to tax their citizens or use the wealth of their citizens to subsidize government expenditures since they control inflationary fiat currencies.

Under that context, their subversion of a PoS blockchain might look something like this:

Identify the Chokepoints

Staking on a PoS blockchain requires that a user, at a minimum, has sufficient technical know-how to navigate the complexities of smart contracts and node operation, among other things. Add to that the fact that some blockchains require that a minimum amount of the cryptocurrency be staked in order to be a validator.

Take ETH 2.0 for example, where users are required to stake at least 32 ETH or they can’t be validators. At ETH’s all-time high of just under $5,000 USD, buying 32 ETH to become a validator all on your own would have set you back a cool $160,000.

Given the massive cost and demoralizing complexity, it should come as little surprise that most PoS stakers choose not to go it alone, instead entrusting their holdings to a staking pool operator for a small fee.

Tighten the Noose

Staking pool operators are a massive point-of-failure. The largest operators are almost always regulated entities like Coinbase and Binance, that only exist for as long as governments allow them to. And don’t be confused about where those companies’ loyalties lie. They will not stand up for your rights or your assets when the government comes knocking and puts their freedom and livelihoods on the line.

If governments want to attack staking, they’ll go after the pool operators with a vengeance. When they do, a huge portion of the supply staked on a PoS blockchain could go offline relatively quickly.

Go for the Kill

Of course, not everyone stakes with a pool operator, centralized or otherwise. There are plenty of people who operate as solo validators or in quasi-decentralized staking pools that are more resistant to government overreach. Stakers who are able to get their coins out of the centralized staking pools before the government launches its offensive would also probably bring their portion of the supply back online eventually.

It’s at this point that the government’s manipulation of PoS would go into overdrive. Governments would be able to acquire a large amount of the PoS cryptocurrency with relatively low effort, either by confiscating assets from the seized staking pools or buying them from scared users who are rushing to get out of the cryptocurrency as its price gets crushed under the onslaught.

At that point, it’s a simple matter for the government to start staking the massive percentage of the cryptocurrency’s supply it possesses, diluting remaining holders while also going after any surviving validators it can locate. Under such a scenario, whether it takes days, months, or years, the government will eventually have sufficient power as a validator to simply refuse to confirm any transactions it doesn’t approve of or even, for blockchains where governance is also tied to ownership of the PoS cryptocurrency, alter the codebase to reject other validators and users outright.

Don’t Sleep On PoS Vulnerabilities

There are a lot of risks in today’s world that we like to ignore under the assumption that they’ll never actually happen or impact us. Perhaps this will be one of them. Perhaps governments will falter before they can effectively carry out such an attack. Perhaps they’ll never care enough about PoS blockchains to even try. The future is full of possibilities.

One thing is certain though: if governments want to kill PoS, it’s a lot simpler for them to do it than most of us realize.

Do you disagree with my analysis or think there’s another twist to this attack vector that I haven’t considered? Let me know by sending me a DM on Twitter or in the comments:

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Dear Readers,

Our societies have arrived at the point over the past several decades where our lives are largely controlled by the whims of governments, some democratic, others tyrannical, or, in most cases, a combination of the two. Granted, we don’t see the government’s representatives hanging around at our bank, grocery store, or place of business too often. So it might be difficult for some of us to understand the amount of influence governments have on our day-to-day lives. But the government regulators and bureaucrats are always present in the background, mandating how the businesses we interact with can serve us and dictating which goods and services we can buy and sell.

We may not always be conscious of government oversight in our lives, but deep down most of us are aware that it’s there. It should come as little surprise then that countless individuals in the Bitcoin and Crypto communities have been anxiously awaiting an executive order from U.S. President Joe Biden regarding upcoming regulation of the industry. That executive order was leaked on Tuesday and then officially released on Wednesday.

The goals of the president’s executive order touch on several different aspects of Bitcoin and Crypto. I’ve heard varying opinions from pundits around the space and my goal with our discussion today is to cut through the noise and get at what I believe matters, which is the fact that Bitcoin already addresses (or at least can if the government steps aside and allows it to flourish) the U.S. administration’s stated goals:

We must protect consumers, investors, and businesses in the United States

It’s human nature to want to feel safe and protected. Governments have hacked that basic survival instinct in order to assert more control over citizen’s lives and to deploy social welfare systems to provide for society’s other basic needs. I’ll let each of you be the judge on governments’ success, but the state of the world these days makes me seriously question it.

Bitcoin provides protection to consumers, investors, and businesses by providing them with sound money that can be used with ease and without any interference. With Bitcoin, no one can confiscate your wealth if you don’t let them. Nor do Bitcoin users have to worry about inflation eating away at their ability to survive and thrive on their long-term savings.

Bitcoin provides users with an ability that governments cannot give and indeed do not want to give to their citizens: the ability to protect themselves.

We must protect United States and global financial stability and mitigate systemic risk

Our global financial system currently operates on top of a disjointed group of legacy and modern systems. Those systems are each controlled by a different government or corporation whose self-interested goals conflict with the self-interested goals of every other government and corporation that are part of the equation. Unfortunately for us, “protecting financial stability” means maintaining a status quo that benefits the few at the expense of everyone else.

Bitcoin certainly does promote financial stability through its sound money principles, but it does so in a way that is open and inclusive to all participants. No one entity can control the Bitcoin network. Instead each user on the network makes up an equal part of the system’s governance. All Bitcoin users have a vested interest in the network succeeding, because Bitcoin’s success ensures that their access to an open financial system can continue undisturbed.

We must mitigate the illicit finance and national security risks posed by misuse of digital assets

I have no issue with the goal of eliminating illicit finance and crime throughout the financial system. The problem comes with the fact that definitions of what is right and wrong in the world have largely migrated to the realm of opinion. Governments set themselves out as arbiters of truth, but the reality is that their “truth” is simply an opinion enforced by the might of the military and the court system. Case in point, when a hacker limits your ability to access your money, it’s a crime, but when the government blocks your money, it expects to be applauded.

So how does Bitcoin mitigate illicit finance? I propose that it does so primarily by making crime more transparent. Since Bitcoin cannot be created by the press of a button by central banks or through the convoluted gyrations of financial institutions, illicit activities will run out of funds much more quickly than they do when run on top of inflationary money. And Bitcoin’s public nature can make it easier for users to distinguish between network usage that creates true value and that which does not.

We must reinforce United States leadership in the global financial system

For decades, the U.S. government and, to a lesser degree, U.S. citizens have benefitted from the U.S. dollar’s status as the global reserve currency. Monetary seigniorage and the Cantillon effect are outside the scope of this discussion, but suffice it to say that the U.S. government’s ability to control the money used by most of the world allows it to absorb a significant amount of value created elsewhere that the U.S. had no involvement in creating.

Truth be told, I don’t believe that Bitcoin will reinforce the United States’ leadership in the global financial system. At least no more than any other country. The Bitcoin network is devoid of leadership roles and the benefits of the system are afforded to all participants equally.

If the United States has any interest in being a leader in the global financial system being built on Bitcoin, their only bet is on being one of the first countries to enter it and then leading other countries along their own path towards Bitcoin.

We must promote access to safe and affordable financial services

Even in modern times, when the traditional financial system has been vastly improved by new technologies, the financial system still excludes most of the world’s population and extracts significant tolls from those who are permitted to participate. Truthfully, no system in which a single entity or group of entities sit at the top exerting total control can ever be totally inclusive or economically efficient.

The Bitcoin network has already made huge strides in this area and is only restrained by the speed at which people around the world learn about it and opt into the system for themselves. Bitcoin excludes no one and has no gatekeepers. And the Bitcoin financial system is extremely economical by comparison. Technologies like the Lightning Network are making it possible to transfer value extremely economically without having to entrust one’s money to any financial institution.

We must support technological advances that promote responsible development and use of digital assets

In the interest of not repeating the same information I’ve already provided, I’ll cut right to the chase on this one: Bitcoin IS the responsible technological advancement that will allow citizens in the U.S. and around the world to flourish and take back the financial control that has for so long been withheld from them. I believe that there are few causes more noble than governments everywhere taking a step back and allowing their citizens to make their own informed decisions about Bitcoin.

In no small way, Bitcoin has the ability to ensure that our world reaches a place where people anywhere have the same chance as anyone else to be financially free and secure. That’s a goal that every government should support.

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Dear Readers,

The Proof-of-Work (PoW) consensus mechanism is one of many features that sets Bitcoin apart from any other settlement network that came before it. Through PoW, thousands of high-powered computers around the world convert electricity into processing power in order to help confirm Bitcoin transactions on the blockchain. In no small way, the Bitcoin blockchain would be doomed to fail if not for the breakthrough of PoW.

That said, PoW is not without its critics. The main critique for the last several years has centered on the misunderstood negative environmental impacts of Bitcoin mining. However, another common refrain from Bitcoin detractors has touched on the growing centralization of Bitcoin mining operations.

I recently read a piece (here) on the topic of mining centralization from Bob Burnett, a Bitcoin mining magnate and contributor to Bitcoin Magazine. In the article, Bob describes a so-called “nightmare scenario” that he believes presents a remote, but existential risk to the Bitcoin blockchain. To summarize the pertinent facts, the nightmare scenario consists of the following:

Hash power on the Bitcoin blockchain becomes so centralized, that ~85% or more is controlled by only a few dozen entities.

A “consortium of nation states coordinates a hostile shutdown” of the entities controlling the supermajority of the network hashing power.

Block confirmation times slow as a result, so much so that the average block time greatly surpasses the ten minute goal and the difficulty adjustment period lasts much longer than two weeks.

One can begin to understand the gravity of this hypothetical scenario, especially if we consider the possibility that the attackers could launch the same attack on the network over and over. Per Bob’s article, the primary impacts of the nightmare scenario are 1) slower block times leading to fewer transaction confirmations, and 2) a decline in the amount of new Bitcoin issued as a result of less frequent block rewards.

Counterpoints to the Nightmare Scenario

The article presents an intriguing dilemma and makes a solid case for more hobbyists and retail operators getting into mining and node operation. That said, I’m of the opinion that the nightmare scenario also heavily discounts factors that would mitigate the impact of such an attack on the Bitcoin blockchain:

Reduced Transaction Capacity

Even under normal operating conditions, Bitcoin’s layer-1 blockchain is not known for its high transaction throughput, confirming on average around 250,000 transactions per day. Under the conditions described in the nightmare scenario, the transaction throughput of the base layer blockchain would be decimated, and only a few thousand transactions per day would be confirmed.

While certainly detrimental, I believe that the impact would be less than it might initially appear. After all, a lot more than ~250,000 daily Bitcoin transactions happen already. The other transactions just aren’t publicly visible because they happen through other channels, like on crypto exchanges, within crypto banks, and on layer-2 solutions like the Lightning Network.

I believe that the amount of Bitcoin transactions that happen outside of the layer-1 blockchain is set to grow exponentially as hundreds of millions of new participants enter the ecosystem. Don’t get me wrong: I’m a huge proponent of self-custodying one’s Bitcoin and recent events have taught us that governments and financial institutions are happy to censor your money. Even so, the reality is that most people in today’s world, especially in developed economies, are still perfectly happy to entrust custody of their money to a third party.

While bad for censorship-resistance, off-chain transaction capacity significantly reduces the impact of limited transaction capacity resulting from the nightmare scenario.

Bitcoin Issuance Rate

Like all currencies to date, Bitcoin does incorporate an issuance mechanism that introduces new Bitcoin into circulation. However, unlike any other currency, Bitcoin’s total supply is capped and the cap can effectively never change or be removed.

Currently, 6.25 new Bitcoin are issued with each confirmed block of transactions. But in Bob’s words, the nightmare scenario would do the following to the Bitcoin issuance rate:

New bitcoin would be entering circulation at a snail’s pace because money supply increases are completely dependent on the mining of blocks.

He goes on to insinuate that the reduced amount of new Bitcoin in circulation would severely impact the functionality of the Bitcoin ecosystem. In other words, he seems to identify with the common misunderstanding that currency inflation is somehow necessary for economies to function properly.

The purpose of our discussion today is not to address the atrocity that is currency inflation. Suffice it to say that inflation is far from positive under any stretch of the imagination. Bitcoin is a godsend in that it completely does away with inflation once the supply cap is reached. At that point, the Bitcoin economy will continue to operate without error since Bitcoin are extremely subdivisible, allowing for infinitesimal transactions without requiring the plague of currency inflation.

The Whole Picture

It certainly is important that we each do our part to help avoid centralization of miners and nodes on the Bitcoin blockchain. Ultimately though, Bitcoin already includes robust incentives defending the network from a variety of attack vectors, and more improvements are being researched every day.

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Dear Readers,

If there’s one thing that can seem to be in short supply in cryptocurrency, it’s privacy. For starters, most cryptocurrencies run on top of public blockchains, which means transactions are permanently displayed for anyone at all to see.

That said, while privacy on a blockchain like Bitcoin’s may seem a bit more difficult, it’s definitely not impossible. For example, last week we talked about how not publicizing your Bitcoin activity and not reusing Bitcoin addresses are easy ways to protect your privacy.

Another privacy tool that is becoming much more common are cryptocurrency mixers, which are services that mix different streams of potentially identifiable cryptocurrency in order to improve anonymity. Bitcoin mixers, for example, work best when many different people all send similar amounts of BTC into the mix at the same time. While inputs and outputs can easily be seen on the blockchain, it’s extremely difficult to tell which mixed input and output are directly linked after they come out of a mixer.

But Can Mixers Be Demixed?

In an interesting turn of events, the Blockchain Analytics Firm Chainalysis claims to have identified the hacker behind the infamous ETH DAO attack by demixing transactions that were sent through the popular CoinJoin service from Wasabi Wallet:

When pressed to provide more information, Chainalysis was rather tight-lipped and provided no evidence to back up their claim or explanation of how the demixing was possible. But if they’re telling the truth, who can really blame them for not sharing their trade secrets? After all, privacy is important for everyone, even for a company whose main service is invading the privacy of others.

You may be wondering at this point whether this means that all Bitcoin mixers can be demixed. If yes, obviously that would be a huge blow to privacy on the Bitcoin blockchain. While no one knows for sure at this point, it seems likely that demixing happens as a result of unwise user behavior, such as address reuse, or because of coding errors with specific mixing services. It’s unlikely that the privacy of all mixers has been broken.

Are Bitcoin Mixers Illegal?

The legality of Bitcoin mixers varies from country to country, but it seems safe to say that most governments and financial institutions don’t like them very much. That shouldn’t come as a surprise honestly. Ultimately, governments use your information to control you and financial institutions use your information to profit off of you. They don’t care too much about your privacy if it limits their ability to accrue money and power.

In fact, governments and financial institutions will actually support limiting financial privacy in the name of eliminating money laundering and financial support for terrorism. Don’t get me wrong: I support the end of crime and terrorism. But do the ends justify the means? The vast majority of financial transactions in the world are completely legitimate, with only a very small amount being tied to criminal or terrorist purposes. Should we take away the privacy of the many in order to limit the actions of the few?

I believe wholeheartedly in everyone’s right to financial privacy. A person’s ability to transact with their own money shouldn’t be limited because of the illegitimate actions of a few bad actors, nor should it be limited because the government doesn’t approve of that person’s free speech. But unfortunately if our financial transactions aren’t private, someone can at some point censure us and limit our financial freedoms if they choose to do so.

So should mixing be illegal? I’m of the opinion that it should not be. After all, using a mixer is just an attempt to protect one’s privacy and privacy is not illegal (at least not yet and, hopefully, not ever). Sure, criminals and terrorists can use mixers to protect the privacy of their illicit deeds But remember, it’s their crimes that are illegal, not privacy itself. The more our governments blur the line between our right to privacy and their duty to fight crime, the more innocent people will suffer when they’re unduly deprived of their ability to safely spend their money how they see fit.

Whether or not Chainalysis can demix Bitcoin transactions, one thing is clear: your financial privacy is under assault in both the traditional and cryptocurrency industries. It’s up to you to decide what you’ll do about it.

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Dear Readers,

We live in unprecedented times. Earlier this month, we spoke about the fundraising platform GoFundMe getting mocked around the globe after it froze millions of dollars’ worth of donations for Canadian truckers protesting COVID-19 vaccine mandates put in place by their elected government. If you thought that was the end of the story, then you’ll likely be unpleasantly surprised to hear how the situation has escalated in the intervening weeks.

What started as a targeted response by the Canadian government has seemingly evolved into a full-fledged assault against the truckers, their families, and anyone around the country who supported them. If you think I’m exaggerating, I’m not. In a drastic turn of events, the Canadian government has for the first time in history activated the “Emergencies Act”, legislation enacted into law over two decades ago that grants the government far-reaching authority over Canadians, their property, and their ability to exercise their rights.

Shortly thereafter, the powers granted by the Emergencies Act were used to forcibly clear out and arrest protestors. But perhaps even more stunning was the use of the Emergencies Act to freeze financial services for people involved in the protest, including those who donated to the cause. Not just bank accounts either: credit cards, insurance policies, and brokerage accounts have also been locked in an attempt to coerce protesters and supporters into abiding by the government’s directives:

Whether or not you agree with the protests, the fact that a government can completely lock its own citizens out of the financial system should be alarming. After all, so much of what we do relies pretty heavily on financial institutions. Imagine paying for insurance on your house or car for years, and then the government forces the insurance company to drop your policy. Imagine trying to buy groceries, but your credit card has been cancelled against your wishes and your bank refuses to allow you to withdraw your cash. For most of us, our lives are so intertwined with the financial system, that being locked out if it could very nearly be a death sentence.

Custodians and Self Custody: One Of These Things Is Not Like The Other

I believe strongly that the main purpose of Bitcoin is to allow holders to take back their financial sovereignty, or in layman’s terms, their power over their own money. However, while Bitcoin can be extremely resistant to seizure, whether or not it actually is depends almost entirely on your choice of where and how to store your Bitcoin:

With a Custodian

When we hear the word “custodian”, we typically think of cryptocurrency exchanges, crypto banks, and other crypto companies. Those companies like to make us think our holdings are safe with them. Their websites are full of references to the “military-grade” security and insurance policies backing up the assets they custody. But they’re usually less willing to broadcast the hacks and inside jobs that result in massive losses for customers, or the fact that if a regulator comes knocking and demands your information and your assets, they will be forced to comply. Or I should say, most of them are unwilling to broadcast it:

Kudos to Kraken’s CEO, Jesse Powell, for telling the honest truth.

No matter how good the intentions of the company holding your Bitcoin are, there is no way to guarantee they won’t sell you out to save their skins. Your Bitcoin can be resistant to confiscation. But not when you entrust someone else with the private key controlling your Bitcoin.

In a Self-Custodied Wallet

People often laugh when they hear about someone hiding cash under their mattress or in their attic. But when it comes to self-custodying one’s Bitcoin, there’s actually a pretty strong parallel with that type of behavior. Self-custody is essentially a vote in favor of your ability to protect your own interests and a vote against someone else’s commitment to serve your interests over their own. After all, how many companies are going to risk being shut down and how many CEOs are going to risk going to prison to protect their customers’ rights to financial freedom? Not many.

Before you immediately rush out to buy a hardware wallet or set up a multisig configuration, it’s important to remember that even self-custodied assets aren’t completely safe from theft or confiscation if you don’t protect them. Just think of the couple accused of laundering Bitcoin stolen from Bitfinex who kept the associated private keys in the cloud where they could easily be confiscated by the Department of Justice. Their intentions were bad, and their self-custody solution was just as bad.

In other words, your Bitcoin are only as safe as you keep them. And if you don’t protect them, then your financial sovereignty is not much more assured than if you kept your Bitcoin on an exchange or in a crypto bank.

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Dear Readers,

In what many inside and outside the Bitcoin and Crypto space are considering a watershed moment, BlockFi, a crypto lending firm, has agreed to pay a $100 million fine to various regulators, including the U.S. Securities and Exchange Commission (SEC), and to stop offering its primary product, the BlockFi Interest Account, to new customers within the United States. People in favor of the development have espoused the belief that the settlement provides a significant amount of clarity for companies offering crypto banking services. Perhaps in their mind, clarity from a government regulator is its own reward, no matter the costs.

Setting aside the fact that the might of the SEC’s furor is no longer hanging over the head of BlockFi, its customers and its investors, it’s worth playing the devil’s advocate since it seems clear that this development is far from completely positive. In doing so, I hope that we can together pick apart a few pieces of the SEC’s argument as they established in their own press release:

Lending Products Are Securities?

For those who don’t know, the SEC’s primary role is that of regulating any asset available for sale or distribution to U.S. citizens that is or should be classified as a security, or investment contract. Most people in the U.S. typically don’t think of an interest account as an investment contract. After all, the majority of citizens can access an interest account relatively easily through their local bank or credit union. However, the SEC appears to be arguing quite profusely that it considers the BlockFi Interest Account and similar products from other crypto firms to be securities:

BlockFi agreed to…cease its unregistered offers and sales of the lending product, BlockFi Interest Accounts (BIAs), and attempt to bring its business within the Investment Company Act…[by registering] under the Securities Act of 1933 the offer and sale of a new lending product.

My intent here is not to argue whether or not the SEC has the right to define what is and isn’t a security. However, it should be easily apparent that the SEC is not applying its belief that lending products are securities uniformly across financial companies. Ultimately, a crypto interest account is nearly identical in form and function to the interest account one can open at a traditional bank. In both cases, an individual lends an asset, either fiat currency or cryptocurrency, to a depository institution that takes the lent assets and re-lends them to a mix of institutional and retail users. But in the case of crypto firms, they are now required to register their interest accounts as securities and be subject to a lot of extra regulation, while their counterparts in the traditional financial space don’t have the same obligation. In simple terms, the SEC has unduly burdened crypto firms with restrictions that it has shown no intent over the ninety years since it was established to impose against similarly structured companies in the traditional finance industry.

Counterarguments

I can imagine some observers maybe contemplating one or both of the following counterarguments:

Interest accounts at banks are FDIC-insured

Accounts at FDIC-compliant banks are typically insured up to a certain amount, usually $250,000 per person. However, deposits above the insured amount receive essentially no protection from the FDIC:

If a depositor has uninsured funds (i.e., funds above the insured limit), they may recover some portion of their uninsured funds from the proceeds from the sale of failed bank assets. However, it can take several years to sell off the assets of a failed bank. As assets are sold, depositors who had uninsured funds usually receive periodic payments (on a pro-rata "cents on the dollar" basis) on their remaining claim.

The question then becomes whether banks are required to register interest accounts as securities anytime the account holder’s balance exceeds the insured amount. If not, then it would be next to impossible to argue that crypto interest accounts are securities because they aren’t FDIC-insured.

The SEC’s press release specifically called BlockFi out for providing “a variable interest rate”

The thought process here could be that variable interest rates drive crypto interest accounts into the realm of “Profits Derived from Efforts of Others” as defined by the SEC’s main tool for identifying securities, the Howey test:

The main issue…under the Howey test is whether a purchaser has a reasonable expectation of profits (or other financial returns) derived from the efforts of others.

As we already discussed, BlockFi and other crypto firms generate funds with which to pay interest account holders by lending deposited assets to retail and institutional users. As a result, BlockFi’s ability to generate any interest rate is, for all intents and purposes, subject to a) market conditions and b) BlockFi’s efforts to locate and engage counterparties for its lending desk.

As I mentioned before, my intent isn’t to agree with or refute the SEC’s authority to enforce securities law. That said, it’s once again painfully obvious that the SEC is treating traditional banks one way and crypto banks another. For starters, the interest rates offered by traditional banks, pitifully low as they are, are also variable. Just look at the following disclaimer from JP Morgan Chase, the largest bank in the U.S., about the interest rates tied to its savings accounts:

It should also come as no surprise that the ability of traditional banks to pay interest is derived primarily from the banks’ ability to lend out depositors’ funds and generate yield.

Whether you are in support of or against the recent settlement between BlockFi and the SEC, it should be unsettling to say the least to see the blatant favoritism on display from a regulator whose stated goal is to “protect investors by enforcing our nation’s securities laws”. Such a goal can only be accomplished when the SEC fairly and uniformly enforces those laws against similar companies or companies with similar offerings, regardless of the industry in which those companies operate.

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Lonny was frantic. He was searching for a clue on his phone and in his email, but was coming up empty. Bitfinex customer support was no help either and the representative was basically ignoring him. His Bitcoin were missing and he had no idea why and no one to help him.

Granted, it was only about 20 Bitcoin. He was starting to hear chatter on Reddit about people who had lost a lost more. But he had put his life savings into Bitcoin, and he needed them back. Who had taken them? And how had they possibly managed to take Bitcoin from so many people at once? He may never know the truth.

The above account is a fictionalized dramatization that is loosely based on the reported events surrounding the Bitfinex hack of 2016. As such, it should not be taken as factual.

Dear Readers,

The Bitcoin blockchain is extremely secure. Tens of thousands of powerful machines are constantly working to protect the network from double spends and other attacks. Public-key cryptography ensures that illicitly moving funds from one Bitcoin wallet to another is essentially impossible unless the corresponding private key is obtained by a hacker. And the irreversibility of Bitcoin transactions ensures that no one can roll back your Bitcoin transfer after it has been confirmed on the blockchain.

However, Bitcoin’s robust security can at times be a double-edged sword, usually as a result of user error. For example, the private key protecting your Bitcoin is only as safe as you keep it. And if someone steals your private key and moves your Bitcoin out of your wallet, no force on earth can cancel the transaction and put them back.

History has provided a host of powerful examples on why protecting your Bitcoin is of paramount importance, and the Bitfinex hack in 2016 definitely qualifies. Users and outsiders alike were stunned when Bitfinex took down its website, halted trading and withdrawals, and announced that nearly 120,000 Bitcoin had been stolen directly from customer accounts. It was the largest Bitcoin theft since the Mt. Gox hack, and the community was experiencing severe déjà vu due to the similarities between the two events.

In an ironic twist of fate, Bitfinex had recently removed customers’ funds from pooled depositories into segregated multisig wallets in an attempt to prevent hacks like the one that happened shortly thereafter. But, as we already discussed, Bitcoin are only as safe as the holder keeps them, and Bitfinex’s configuration was apparently not up to the task.

What’s In A Multisig?

The vast majority of Bitcoin wallets are singlesig, meaning that only one private key is associated with and can sign transactions for each wallet. Multisig wallets though allow for multiple private keys to be associated with a single Bitcoin wallet, and a quorum of keys (for example, 2-of-3 or 3-of-5 private keys) is required in order to sign a transaction and send it across the blockchain. Multisig wallets are often considered safer than singlesig wallets because multisigs can eliminate a single point of failure. In other words, someone has to steal multiple keys from you instead of one in order to steal your Bitcoin. Your holdings are also better protected from total loss if you misplace a private key since other private keys are still available with which to sign a Bitcoin transaction.

In 2016, Bitfinex appears to have established multisig wallets for which the company held two of the three available private keys, while entrusting the third and final key to Bitgo, a company specializing in custody of digital assets. To Bitfinex’s credit, sources claimed that the company held one of the two private keys it custodied in cold storage. However, I find their choice to not allow customers to custody one of the private keys themselves (at least those who felt adept enough to do so) interesting to say the least, as it could have further decreased hackers’ ability to acquire a sufficient number of keys. Although that may not have made a difference in the 2016 hack since insiders claim that the keys in cold storage weren’t compromised during the hack, leading outsiders to speculate that the keys Bitfinex kept online were accessed and that Bitgo then used the keys it held to sign off on all the transactions the hackers initiated.

A Happy Ending?

Perhaps all is not lost for the customers affected by the Bitfinex hack. Early last week, the United States Department of Justice announced that around 80% of the Bitcoin stolen in the hack had been seized and a husband-wife duo was being charged with laundering the funds through a variety of transfers, coinjoins, asset purchases, and other means.

The married couple in question appears to have kept the private keys securing the stolen Bitcoin online in a cloud storage account. While their choice to keep the private keys online was almost assuredly crucial to the government’s ability to recover the stolen Bitcoin, it also serves as a reminder that those of us who haven’t obtained Bitcoin through illicit means should keep our private keys secured offline. After all, if the hackers can obtain Bitfinex’s online private keys, and the government can obtain the hackers’ online private keys, why should your private keys be safe if you choose to keep them online?

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Disclaimer: When not educating about Bitcoin online, I am an employee of KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization. My opinions are my own and I do not speak in any capacity as a representative of KPMG or its leadership.

Dear Readers,

Blockchain is without a doubt one of the most revolutionary technologies to come out of the current century, with blockchains around the world helping to move trillions of dollars’ worth of assets and boasting an ever-growing list of use cases. And why is blockchain such revolutionary tech? I believe it’s because it can allow large groups of people around the world to transfer money, information, and more without having to know or trust one another. Bitcoin is by far the largest use case for blockchain, and we’re just beginning to scratch the surface on all the businesses and technologies that can be built on top of it.

The simplest description of blockchain is that it is a ledger, or record, of every transfer that has occurred throughout the network’s history. Any participant is able to transact on top of the blockchain or verify prior transactions at any time. Ledgers, like the ones operated by your bank or broker, have been around for hundreds of years. But Bitcoin’s blockchain has taken the concept of a ledger and nearly perfected it by removing all centralized control from the system. The power of information is finally back in the hands of the people.

Given blockchain’s status as a ledger technology, it seems almost poetic to me that the Canadian member firm of KPMG, one of the largest accounting firms in the world, recently purchased an unknown quantity of Bitcoin and Ether for its treasury. After all, when most people think of accounting, they first think of two things: taxes and bookkeeping. And both services essentially boil down to creating a ledger of a person or company’s income and expenses. Is it any wonder then that a company whose bread and butter services revolve around ledgers would be interested in integrating near perfect ledger technology?

This is the part where I, as an accountant and KPMG employee, point out that accounting these days is so much more than just taxes and bookkeeping. But I digress.

Why Buy Bitcoin?

Unfortunately, I’m not privy to the inner workings of KPMG Canada’s decision, but we can make educated guesses using publicly available information to try and understand why KPMG purchased Bitcoin and why other public accounting firms may soon follow suit:

Put Skin In The Game

Perhaps the clearest insight into the decision comes from KPMG Canada’s Blockchain Co-Lead, Kunal Bhasin who said the following:

We believe in the long-term value of crypto assets. We’ve been advising a lot of our clients in terms of how they should be thinking about it. And this is just us putting our skin in the game.

In other words, KPMG has been building a number of blockchain-based services for its clients and the firm decided that if it was going to talk the talk, it needed to walk the walk by actually buying into a blockchain and getting firsthand experience with the technology at the institutional level.

Bitcoin Is Better Money

I could say a lot about why Bitcoin is better money than the Canadian Dollar, U.S. Dollar, or any other fiat currency in the world (and I have said a lot here and here). Suffice it to say that the main reason why Bitcoin is better money than fiat, or any other form of money through history for that matter, is because it can’t be controlled and it can’t be devalued through supply inflation. The first is important because history has taught us that when someone controls society’s money, that person or group uses their control to benefit themselves at the expense of everyone else. The second is important because it means that the purchasing power of your Bitcoin can’t be reduced by someone else creating more.

Blockchain Enables Better Accounting

Blockchain enables better accounting, in every sense of the word. On top of being a record of all transactions on the network, blockchains are also immutable, meaning that a record on the network can’t be changed without breaking the chain of blocks, which could be immediately flagged by any number of internal and external stakeholders. Contrast that with fiat currencies, where peer-to-peer transactions (i.e., transactions in cold, hard cash) usually don’t have a receipt or record at all, and where transactions through the financial system occur on opaque banking records that can be altered or removed at the whim of any institution or government involved in the process.

In summary, Bitcoin allows KPMG to take its accounting prowess to the next level. It comes as no surprise to me that KPMG Canada made the jump into Bitcoin and I fully expect many more accounting firms and institutions in general to make the jump themselves in the near future.

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Dear Readers,

Social media has been ablaze for the past several days as commentators around the world have seemingly rallied against what many consider to be a gross overreach of authority by GoFundMe, the self-proclaimed “#1 Fundraising Platform for Crowdfunding”. The story actually begins though several weeks ago, when a large group of cross-border truckers organized against a mandate proposed by the Canadian government that required them to submit to COVID-19 vaccination. As with most things related to COVID-19 these days, the movement quickly became politicized, with both supporters and detractors vying for global attention. When GoFundMe came under pressure on various fronts last week, the company not only paused a fundraiser dedicated to the trucker convoy, but also seized around $10 million Canadian dollars donated by tens of thousands of supporters, saying:

To ensure GoFundMe remains a trusted platform, we work with local authorities to ensure we have a detailed, factual understanding of events taking place on the ground. Following a review of relevant facts and multiple discussions with local law enforcement and city officials, this fundraiser is now in violation of our Terms of Service and has been removed from the platform.

Most of the money never made it to its destination, as if the donations never happened at all. Such a result should be largely familiar to us at this point. After all, the traditional financial system has been molded over decades to ensure that those in power have the ability to swoop in and halt the transmission of money to causes and organizations with which they don’t agree. Maintaining that ability is one of the primary reasons why governments and regulators have so thoroughly entrenched themselves in global financial systems. The ability to transact with money is humanity’s lifeblood, and governments want to be in a position to easily snuff it out when they feel it’s necessary.

For each of us though, perhaps the problem isn’t so much whose money has been seized in the past and for what reasons. The real problem is that it could happen to us. Our money could be seized at any point, whether we’re in the right or the wrong.

Bitcoin is Censorship-Resistant Money

A growing number of spectators on Twitter have begun to comment on the GoFundMe saga by implying that the situation would have played out very differently if donations had been made over the Bitcoin blockchain rather than in fiat on GoFundMe’s centralized service. If you think that they’re on to something, you’re absolutely right:

Bitcoin is Impartial

Governments will tell you that their ability to stranglehold the financial system is what helps keep “bad actors” out and the world safe. There’s just one problem: who are governments to decide between right and wrong and what can we do when we disagree with them? We can opt out of their system.

Bitcoin is impartial. The blockchain itself is just code. It executes, no matter who participates and what each individual user’s morals may be. On top of that, Bitcoin is used first and foremost by people whose primary goal is simply to have absolute, irrevocable control of their money. They have no interest in welcoming any central authority into the network to dictate how they can use their money.

Bitcoin is Irreversible

Money transmission in a centralized monetary network happens only with the blessing of the corporation or government overseeing the network. If they don’t like you, your beliefs, or how you’re spending your money, then they’ll reverse your transactions or refuse to process them in the first place. They’ll also likely kick you off the network. Maybe you’ll get your money back. Maybe you won’t.

No one controls the flow of value across the Bitcoin blockchain, other than senders and recipients themselves. What that means is that Bitcoin transactions are completely irreversible (unless a recipient chooses, of their own free will, to send the Bitcoin back).

Why does transaction irreversibility matter? Because when you and you alone can control the movement of your wealth, your financial security and self-sovereignty are assured. In other words, you are reliant on no one but yourself for your own financial well-being.

A (BTC) Lesson Learned

At least part of the Canadian trucker movement appears to have learned a lesson from entrusting their financial sovereignty to GoFundMe, since a separate fundraiser was subsequently launched on a non-custodial Bitcoin fundraising website on which the fundraisers could take direct and immediate custody of donations. Whether or not you agree with their beliefs, you can learn from their experience: entrusting your money and finances to centralized governments and centralized corporations only works up until the point where they no longer think you’re on their side.

I choose Bitcoin, where the network accepts me no matter what. What will you choose?

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Dear Readers,

In many ways, it seems like one of the primary stories of the 2020s will be governments either coming to terms with Bitcoin and Crypto or trying to ban them outright. We’ve certainly had strong examples of both recently:

El Salvador embraced Bitcoin back in the summer of 2021, rolling it out as legal tender around the country and then doubling down by buying dips, mining with geothermal energy from volcanoes, announcing a sovereign Bitcoin bond, and more.

China rebuffed Bitcoin and Crypto by banning any activity related to the industry, including trading, mining, or making payments with cryptocurrencies. Granted, China has imposed various bans in the past with limited success and the current ban may also fall by the wayside in the coming years.

But the process of reconciliation or aggression for most countries is still in the early stages, with many jumping from one approach to another quite rapidly. The country of India certainly seems to find itself in this group. The Reserve Bank of India rattled cryptocurrency markets worldwide late last year when it recommended that citizens be banned from interacting with all private cryptocurrencies. On the surface, that recommendation seemed to be an attempt to clear the way for the Central Bank to release its own CBDC (Central Bank Digital Currency), and the government still has plans to do just that in the coming months.

Bad news aside, their latest move may turn out to be a win overall, with India’s finance minister, Nirmala Sitharaman, having announced earlier this week that the government intends to begin taxing income on “virtual digital assets”, namely cryptocurrencies and NFTs (Non-Fungible Tokens), at a 30% rate. While many in the space chafe at such a hefty tax rate, others interpret the move as giving legitimacy to digital assets, since it’s highly uncommon for governments to tax illegal activities. In other words, most commentators now believe that the previously proposed cryptocurrency ban is off the table in India.

To Tax or Not to Tax

There are a variety of different viewpoints when it comes to taxation, and participants in the crypto space are likely to encounter all of them at some point. I’d like to share two of the most common mindsets that I’ve heard, and perhaps they’ll sound familiar to you or one of them will resonate with you:

Taxation is Theft

It has often been said that “time is money”. However, to a large degree the inverse is also true: money is stored time, in the sense that the majority of us acquire money by exchanging our time through jobs, entrepreneurship, and investing.

The idea that “taxation is theft” thus stems from the idea that governments extract the only finite resource we have, our time, and that they do it by forced taxation. In other words, if you don’t sacrifice part of your time to enrich the government by paying taxes, they’ll take your property and throw you in prison. For most people around the world, paying taxes isn’t a choice. It’s an ultimatum.

Taxation brings Benefits

A close acquaintance of mine once conveyed to me his belief that taxation is the cost we pay to receive services, like infrastructure, protection, and governance, from the government. On top of that, he opined that those of us who live in democracies have a hand, to some degree, in our own taxation, since we voted to elect many of the political leaders driving decisions related to taxation.

The reality is that any perceived benefits of government are up for debate. Each of us will have to make our own decision as to how much we value each of the “services” provided by our respective governments.

The Governments’ Case for Taxation

At least for certain digital assets, governments’ planned taxation is in line with what they extract for other similar assets:

Many crypto tokens are, for all intents and purposes, comparable to corporate stocks in that they monetize a company’s current and future earnings so that the company can raise funds from supporters on the open market. In fact, this was the primary reason that many regulators around the world reacted harshly to the Initial Coin Offering (ICO) craze that occurred in 2017 and 2018.

While digital art and in-game items are far from the only use case for NFTs, they are the biggest recipient of outsider attention these days. In their current form, they are extremely similar to assets regulators identify as “property”, like art and other collectibles. If you make money trading your NFTs, you can bet the government will want a cut.

Whether or not you support taxation by governments, it’s not likely to go away any time soon. India’s government will seek to collect the portion of your income from digital assets that it believes you owe, and other countries either already have or soon will follow suit.

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Dear Readers,

Bitcoin’s standing around the world has been methodically advancing over the course of the thirteen years since the blockchain’s genesis block was mined. At first, it was a fringe project championed only by libertarians, programmers, and cypherpunks. But in the present day, it has become a currency demanded by global citizens and supported by institutions and governments alike. Such monumental progress in such a short amount of time lends credence to some of the highest hopes from Bitcoiners around the world, namely that it could become the global reserve currency on top of which every financial system is based. Such a reality may now be even closer than we think:

From AZ to BTC

For over one hundred years, the U.S. dollar has reigned supreme as the only major currency accepted as legal tender across the United States. However, that may soon change for citizens living in the state of Arizona thanks to the introduction of a bill by a member of the state’s legislature that seeks to amend Arizona’s statutes to recognize Bitcoin as legal tender:

The bill is, of course, only in the proposal phase at this point, which means that it has a long way to go before a potential vote to enact it as law. Meanwhile, many opponents and other commentators are highly skeptical that the bill will muster sufficient support within the state’s legislature to pass. For example, a large number of critics and media outlets have adopted the belief that the United States Constitution forbids States from choosing their own legal tender. While I don’t put myself forward as a constitutional expert, a casual reading of the Constitution would seem to suggest that they may be right:

Section 10

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

Take this all with a grain of salt though. As called out in that section, the Constitution specifically names gold as acceptable legal tender, and yet U.S. President Franklin D. Roosevelt succeeded in forbidding citizens from holding gold coins and certificates for over forty years, starting in the 1930s. Additionally, the Constitution forbids States to use anything but gold and silver coins as legal tender, but the U.S. dollar, which is not backed by gold deposits as some people believe, is by far the most common currency used as legal tender throughout the States (meaning that the States’ use of the U.S. dollar, in an ironic twist, may be unconstitutional). Both examples serve to show that politicians of all levels are happy to ignore the Constitution as long as no one enforces it.

Why It Actually Matters

Perhaps 2022 won’t be the year that the State of Arizona adopts Bitcoin as legal tender. Regardless, this development is still rather significant for one simple reason: it shows that more and more people, even those in positions of power within governments, are beginning to acknowledge the immense value of Bitcoin as a currency. And Arizona isn’t the only state making waves in that regard:

Francis Suarez, the mayor of Miami, Florida, has received at least one of his paychecks entirely in Bitcoin and is attempting to make it possible for residents to pay taxes using Bitcoin.

Eric Adams, the mayor of New York City, responded by taking a paycheck of his own partially in Bitcoin and has expressed his intent to make New York City the country’s center of cryptocurrency innovation.

Greg Abbot, the governor of the State of Texas, is embracing Bitcoin miners as a way to shore up Texas’ struggling electrical grid and is a vocal proponent of Bitcoin in his public comments and on social media.

Cynthia Lummis, a senator from the State of Wyoming, is a long-time supporter of Bitcoin and has proposed or helped to advance various pieces of legislation in Congress that bolster Bitcoin usage throughout the country.

And this short list only includes the politicians who have been the most vocal in support of Bitcoin just over the last several months. If so many supporters can come out of the woodwork in such a short amount of time, what do the next ten years hold for Bitcoin, both in the United States and throughout the world?

I’m excited to find out.

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Dear Readers,

Earlier this week, we discussed a host of conspiracy theories released by the Bank of Russia. Debunking them together was satisfying to say the least. So much so that I couldn’t resist coming back to one more “gem” from the Bank’s declaration that put into focus the real reason why Russia’s Central Bank, or any Central Bank for that matter, would try to sow confusion around Bitcoin for citizens who may not know better:

In recent years, the Bank of Russia and many foreign central banks have been extensively deploying faster payments systems meeting individuals’ and companies’ needs in instantaneous settlements. Moreover, central banks, including the Bank of Russia, are developing central bank digital currencies (CBDC), that is, a new payment infrastructure which will enable people, businesses and the government to conduct instantaneous transactions with minimal fees. Hence, the benefits of cryptocurrencies which make them attractive as payment instrument for operations other than money laundering and other illicit activities, namely high speed, convenience, relative low cost, could be realized and are already being realized through creation and development of faster payments systems and by national digital currencies in the future.

In case you didn’t catch it, the endgame for the Bank of Russia is to convince Russian citizens to choose the country’s forthcoming CBDC over Bitcoin. Longtime participants in the space know that Bitcoin and CBDCs couldn’t be more different from one another. Bitcoin enables financial sovereignty and wealth preservation for all while CBDCs put financial exclusion and oversight by governments into hyperdrive. Regardless, there are two counterpoints to the Bank of Russia’s statement that we can’t afford to overlook:

1 - People Want More Than What The Bank Of Russia Has to Offer

To be fair, fiat currencies have a pretty good track record as mediums of exchange. After all, history has shown that governments are willing to go to war and even throw their own citizens in jail to promote the supremacy of their domestic currency of choice. So if people just wanted a good medium of exchange, and nothing else, then maybe fiat currencies would be good enough.

But people want more than an adequate medium of exchange. They want more than “instantaneous settlements”. People around the world want money that also stores value. In other words, people want money that will maintain its purchasing power as the years pass.

Fiat currencies are horrible stores of value. They lose purchasing power continuously. Don’t believe me? The U.S. dollar, quite possibly the strongest fiat currency in history, has lost over ninety-five percent of its purchasing power over the past one hundred years. Most other fiat currencies have fared far worse:

Loss of purchasing power by fiat currencies has become so normal that most people, especially in developed countries, don’t even notice it. The governments of the world have programmed their currencies to lose value and have succeeded in convincing millions of people that it’s acceptable and even necessary.

All this to say that it shouldn’t be surprising that the Bank of Russia only focused on the adequacy of its CBDC as a means of exchange, completely ignoring the fact that it fails miserably at storing value. Or that the Bank of Russia avoided making any mention of Bitcoin’s superior monetary policy and track record as a store of value. They hoped we would be oblivious of the truth. Thankfully, we know better than to trust them.

2 - People Already Have Access To “Instantaneous Transactions”

You’d be forgiven if you thought I was going to only talk about Bitcoin in this section. After all, Bitcoin offers final settlement on the layer-1 blockchain every ten minutes. And I can’t help but mention layer-2 solutions like the Lightning Network, which enables instant transfers of Bitcoin which are regularly settled on the base layer blockchain.

That said, we also already have “instantaneous transactions with minimal fees” on top of fiat rails. For example, many banking and finance apps from Venmo and Paypal to Alipay and Google Pay allow users to transfer cash around the world from one second to the next, often without having to pay any fees at all.

At this point, you’re probably itching to jump in and remind me that final settlement of transactions actually takes days or weeks when banks and fintechs are involved. You’re absolutely right and that’s one of many reasons why Bitcoin, which offers settlement that is both final and instantaneous, really shines in comparison to fiat currencies and technologies built on top of them.

My point is simply this: the Bank of Russia’s CBDC is looking to solve a problem that has already been solved, since cheap, quick transactions are already possible through a number of existing technologies.

Be On The Lookout

Central Banks really don’t like Bitcoin. They can sense their impending doom and we should expect them all to go down swinging, just like the Bank of Russia is in the process of doing. It won’t be the last Central Bank to attack Bitcoin. But each of us has the ability to see through their attacks and choose for ourselves whether to follow the status quo or enter a new Bitcoin standard.

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Dear Readers,

Governments are at it again, with Russia becoming the latest country to scare markets with talk of total bans against cryptocurrencies. More specifically, the Bank of Russia has moved against the industry as it chafes under its impending irrelevance since Bitcoin and related technologies are opening our eyes to the massive overreach by central banks around the world.

Veterans in the space can recall dozens of such bans over the years that have more or less failed while blockchain technologies have flourished. However, new participants are more likely to not know how to navigate what for them may be uncharted waters. As a result, I’m hopeful that we can together debunk many of the lies and half-truths put out by the conspiracy theorists at the Bank of Russia in the past few days:

Use in Illegal Activities

Owing to anonymity in transactions, money substitutes are extensively used for illegal activities.

There are actually two misconceptions contained in this quote, at least in the context of Bitcoin, and both are relatively easy to debunk:

Bitcoin transactions are anonymous.

Bitcoin transactions are pseudonymous, meaning that a user’s identity isn’t by default tied to their activity on the blockchain. However, all Bitcoin transactions on the layer-1 blockchain are publicly visible at all times. Meanwhile, governments, financial institutions, and blockchain intelligence companies are using KYC and other resources to tie users’ real world identities to their blockchain identities.

Bitcoin is extensively used for illegal activities.

This accusation stems primarily from cryptocurrencies’ associations with criminal enterprises like the Silk Road and so-called “get rich quick” schemes like scamcoins. The truth is however, that Bitcoin’s nature as a public blockchain makes it nearly impossible for illegal financial activities to be hidden from the prying eyes of regulators. This reality can be easily visualized by reviewing the percentage of cryptocurrency value transfers that are related to criminal activities:

The above chart comes courtesy of Chainalysis, a blockchain intelligence company

Central Bank Monetary Sovereignty

Cryptoization limits monetary policy sovereignty, which might force [sic] central bank to permanently maintain a higher key rate in order to contain inflation.

The lie here isn’t that Bitcoin will reduce the monetary sovereignty of central banks. Such a result is all but assured as citizens realize the astonishing benefits of a Bitcoin-based financial system. Rather, the lie is that quasi-omnipotent control of monetary systems by central banks is a good thing.

The truth is that the Bank of Russia, like many other central banks around the world, fears the loss of its ability to manipulate and control financial markets while accruing significant wealth to the rich and powerful among its ranks and benefactors. Meanwhile, the Bitcoin financial system remains a bastion of inclusion and self-sovereignty since anyone is free to participate at any time on equal footing with everyone else.

Proof of Work and the Environment

Cryptocurrency mining creates unproductive consumption of electric power, which threatens the power supply of residential buildings, social infrastructure and enterprises and the implementation of Russia’s environmental agenda.

Those who see the Bitcoin blockchain and the Proof of Work consensus mechanism that makes it possible as “unproductive” are either ignorantly or maliciously missing the point.

Michael Saylor, the CEO of MicroStrategy and someone who has spent an enormous amount of time thinking critically about Bitcoin’s true value proposition, sums it up rather succinctly:

Similarly, the idea that Bitcoin mining threatens power supplies for residential and commercial uses is a farce. Power consumption by such entities is relatively constant in the context of supply and demand, meaning that energy prices in areas where residences and businesses congregate (i.e., cities and towns) are some of the highest in any sector. The main profit differentiator for Bitcoin mining is the cost of electricity, meaning that Bitcoin miners are highly disincentivized to operate in areas where direct competition by residential and commercial energy consumers leads to exorbitant energy prices.

The fact is that Bitcoin mining is driving revolutionary development and investment in energy infrastructure throughout the world, but especially in places where such infrastructure is in short supply. Just ask the state of Texas, where the influx of Bitcoin miners is building out the capabilities of an energy grid that catastrophically failed as recently as last year resulting in dozens of deaths.

The Truth is Publicly Available

Central Banks and the government bureaucrats running them are highly incentivized to hate Bitcoin and influence public sentiment against it. After all, their stranglehold control over financial markets for the past few centuries has earned immense wealth for them at the expense of everyone else.

Regardless of their misaligned incentives and attacks, the Bitcoin blockchain continues to operate, block after block, bringing financial inclusion and sovereignty to anyone who chooses to use it.

Will you?

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Dear Readers,

Life in developed countries these days is largely dominated by the financial industry. Even in the United States, which typically falls behind its peers around the globe as far as the volume of digital payments is concerned, it’s rather uncommon to see a large amount of transactions happening with physical cash. We instead rely on an ever-increasing amount of banks and fintechs to help us conduct our daily business. And the reality is that we have little option but to use their services. Good luck trying to make a purchase on Amazon or Alibaba without a bank account or credit card.

One of the primary services offered by many companies in the financial industry is that of accepting customer deposits. While we traditionally think of deposits primarily in the context of generating interest, in today’s world of low-interest rates, that can seem far from reality. The truth is that the only worthwhile benefit received by most depositors relates to custody of their money. In other words, not having to secure or transport all of our money all the time is about as good as it gets.

That said, asset custody has a dark side: if someone else has your money, you’re at their mercy when you want to get it back. Hopefully most of us haven’t had much, if any, trouble over the years withdrawing our money, but there are plenty of examples of people who did:

The failure of the Lehman Brothers investment bank in 2008 resulted in tens of billions of U.S. dollars’ worth of losses for investors and creditors.

The Cypriot Financial Crisis of 2012-2013 resulted in portions of accounts with balances above €100,000 at several large banks in the country being seized.

Governments around the world freeze billions in assets belonging to criminals and innocent parties alike annually.

Long story short, the benefits offered by banks and fintechs can easily be outweighed in the event your access to your funds is lost or revoked.

Bitcoin to the Rescue

Bitcoin was actually created to resolve some of the issues highlighted above as vocalized in the following quote from its pseudonymous creator, Satoshi Nakamoto:

The root problem with conventional currency is all the trust that’s required to make it work…Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.

As a result, Bitcoin was originally created as a self-custodial asset, similar to cold hard cash. Anyone in the world can “be their own bank”, so to speak, and take advantage of the full capacities of the Bitcoin network without having to entrust their holdings to anyone. The majority of public cryptocurrencies have copied Bitcoin’s self-custody first approach on their respective blockchains, to the benefit of users the world over.

Enter the New (Crypto) Fintechs

That isn’t to say that Bitcoin and other cryptocurrencies can’t be custodied. In fact, it’s likely that most of us had our first experience with them in a custodial environment offered by cryptocurrency exchanges like Coinbase and Binance. As the industry has grown, the amount of money to be made by crypto-banks and other crypto companies has grown in tandem.

The benefits and drawbacks are largely the same when comparing custodial arrangements within the traditional and cryptocurrency spaces. Crypto companies can offer some level of security, convenience, or income to users, but also put users at risk of losing access to their funds for a variety of reasons. I personally believe that custody solutions in the cryptocurrency space are even riskier for individual users since there are limited regulations and insurance in place to deter bad actors and subsidize losses.

On top of that, it’s far more common for crypto companies to institute enterprise-wide limits on customers’ ability to access and withdraw their funds. Crypto.com, one of the largest cryptocurrency exchanges in the world by volume, provides a recent example, having suspended withdrawals for all customers earlier this week after reporting “unauthorized activity” for a handful of users:

While some users may take comfort in the company’s statement that “security comes first”, their characterization of a total lockdown of customers’ access to their own funds as only an “inconvenience” is alarming to say the least. While Crypto.com reinstated access after less than 24 hours, there are plenty of examples of companies, like the infamous Mt. Gox, that never reinstated access at all.

The moral of this story? If you choose to entrust your holdings to a crypto company, proceed at your own risk and never deposit more than you’re willing to lose.

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Dear Readers,

One of the most stunning parts of the Bitcoin phenomenon has been the cryptocurrency’s status as a “number go up” technology, which is a term coined by participants in the crypto space a few years ago. At its root “number go up”, or NgU for short, refers to the fact that Bitcoin’s value is pre-programmed to rise when compared to the value of any other currency, asset, good, or service for the simple fact that Bitcoin’s supply is capped while the supply of everything else is not. However, I also like to think about it in the context of the virtuous cycle behind Bitcoin’s price increases, which can be visualized in the following chart:

It’s likely that many of us were ourselves brought into Bitcoin when we caught wind of its previous massive gains in price, fell down the rabbit hole studying it, realized its awe-inspiring benefits and potential, and purchased our first sats (i.e., fractions of a Bitcoin). This is the beauty of Bitcoin’s NgU behavior and explains in part why Bitcoin’s price continues to increase so rapidly even after a decade of already astounding growth.

Many other cryptocurrencies have attempted to replicate Bitcoin’s NgU technology. The price increases of projects across the industry are a testament to their ability to develop and monetize a hype cycle as people pile in while trying to find the “next Bitcoin”. But while they can experience some measure of success in developing a following, they are completely unable to replicate Bitcoin’s immutable supply cap:

Knockoffs like Bitcoin Cash and Litecoin have theoretical supply caps, but their optimization for use as transactional currencies has left them in such a precarious state of centralization that their supply limit is only as concrete as the goodwill of the governing entities running the blockchains behind the scenes.

Self-proclaimed “Bitcoin competitors” like Ethereum are also not immune to changes in supply cap, especially when their replaceability is taken into account. For example, Ethereum’s goal of being a “world computer” opens it up to competition from any other blockchain that does the same things more efficiently, quickly, cheaply, or all of the above. This reality can easily be seen in the massive growth of “Ethereum killers” like Cardano and Solana that have cannibalized demand for the Ethereum blockchain.

Bitcoin is immune to supply cap changes because the blockchain is sufficiently decentralized to ward off attacks from any centralized assailant trying to alter the code for its own benefit. Likewise, Bitcoin lacks any true competitors because no other cryptocurrency successfully functions as a de facto store of value with the same level of network effect as Bitcoin.

Enter the Airdrop

In an attempt to further differentiate themselves from Bitcoin’s value proposition, a variety of cryptocurrencies and crypto projects have generated publicity within the crypto community through use of airdrops. An airdrop is simply a distribution of a brand new token to users of a particular blockchain or service.

The team behind an airdrop typically determines who receives the new tokens and how many tokens each user gets based on how often the user interacted with a particular service. For example, a recently airdropped token known as “WTF” determined each user’s earnings based on the number of transaction fees spent on the Ethereum blockchain over the years. The more you spent on transaction fees, the more “WTF” tokens were airdropped to your crypto wallet.

For all intents and purposes, a crypto airdrop is simply a giveaway in which more prolific users earn more of the giveaway’s rewards. While many airdropped tokens eventually incorporate utility or governance functions, the initial purpose of the airdrop is to be a publicity stunt.

WTF Happened With The “WTF” Token?

The goal of a token airdrop is that the airdrop goes off without a hitch, meaning that users receive their promised allotment of the token without any glitches and are able to quickly begin trading the token on open markets or benefit from any built-in utility.

The history of airdrops is unfortunately full of entries that didn’t go according to plan, and the aforementioned “WTF” airdrop may be the latest example. The team behind the airdrop made the interesting choice to add an insufficient amount of liquidity to the WTF/ETH trading pool on Uniswap, a decentralized cryptocurrency exchange of choice for many airdrop tokens. The liquidity mismatch on the platform led to a free-for-all between various trading bots battling over the limited liquidity, with one bot successfully draining the pool at the expense of user funds supporting all of the other bots. The result? The price of the token crashed from around $3 USD right after launch to just over $.05 each as of this writing, a loss of almost 99% of its value.

While most of the direct damage from the WTF chaos was experienced by the users behind the speculative trading bots, the airdrop demonstrates why many dedicated Bitcoiners have adopted a “Bitcoin-only” mindset when it comes to the purchase and use of cryptocurrencies and other digital assets.

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Dear Readers,

A lot has been said in recent years about regulation within the cryptocurrency space. Many participants, in particular institutional investors, welcome the idea of clarity from government bodies regarding the treatment of digital assets for tax and investment purposes. However, many of the original adherents to the space, cypherpunks and libertarians, believe in their own self-sovereignty and have little interest in welcoming governments or their regulators into the industry. Regardless of your own feelings on the topic, it is all but assured at this point that governments will attempt to regulate Bitcoin and Crypto as much as they can.

Perhaps the most pertinent regulatory question currently, at least in countries with developed investment markets, is whether regulators will define specific cryptocurrencies and other digital assets as “securities”. In those countries, an asset’s status as a security opens it up to an extensive amount of scrutiny and supervision, which can have significant impacts. If you don’t believe me, think back to what happened to the cryptocurrency XRP when Ripple, the company that created it, was sued by the United States Securities and Exchange Commission (SEC) for allegedly selling it as an unregistered security.

Founders and users in the United States have what regulators believe is a helpful tool in determining whether a digital asset should be classified as a security: the “Howey test”. The reality is that performing a Howey analysis is rather nuanced, and most of us likely aren’t lawyers. That said, there are several criteria that are commonly reviewed in determining the status of any asset or investment:

Is there an investment of money?

Is it a common enterprise?

Is there an expectation of profit?

Is said profit derived from the efforts of others?

The best way to familiarize oneself with the Howey test in the context of cryptocurrencies is to perform our own analysis, and we’ll attempt to do so here:

Bitcoin and the Howey Test

Many within the Bitcoin community believe wholeheartedly that Bitcoin is not a security. That opinion may even be shared by the SEC. After all, the previous Chairman of the organization, Jay Clayton, said as much a few years ago:

Cryptocurrencies: These are replacements for sovereign currencies, replace the dollar, the euro, the yen with Bitcoin. That type of currency is not a security.

That is welcome news to be sure. However, we can also prove it ourselves by looking at Bitcoin under the lens of the Howey test:

Is there an investment of money?

If it sounds like this provision casts an extremely wide net, you’re absolutely right. Bitcoin and all other digital assets likely fail this part of the Howey test, if for no other reason than that they are obtained in exchange for fiat, goods, services, and even other digital assets, all of which have some level of monetary value.

Is it a common enterprise?

All digital assets appear to fail this provision as well. To use the SEC’s own verbiage:

Based on our experiences to date, investments in digital assets have constituted investments in a common enterprise because the fortunes of digital asset purchasers have been linked to each other

In other words, Bitcoin likely qualifies as a common enterprise simply because its success or failure relies on the aggregated efforts and behavior of every hodler, miner, company, and other user in the world.

Is there an expectation of profit?

This can be a difficult provision to decipher since the majority of participants in the cryptocurrency space, including Bitcoin users, hope that the price of their cryptocurrency of choice will increase. However, the SEC again provides what could be a key determinant for this portion of the Howey test, at least as it applies to Bitcoin:

Price appreciation resulting solely from external market forces (such as general inflationary trends or the economy) impacting the supply and demand for an underlying asset generally is not considered ‘profit’ under the Howey test.

In other words, Bitcoin’s price appreciation as people come to realize its stellar qualities as a store of value does not by default count as profit.

Is said profit derived from the efforts of others?

As we just learned, Bitcoin’s price appreciation doesn’t typically fall into the category of profit. But on top of that, Bitcoin doesn’t produce any earnings or dividends in and of itself, like those produced by companies or by Proof of Stake cryptocurrencies. The mere act of holding Bitcoin doesn’t entitle anyone to earn additional Bitcoin on the layer-1 blockchain.

Regardless, we can still look at Bitcoin in the context of this question. The SEC typically defines “others” as “Active Participants” who provide “essential managerial efforts that affect the success of the enterprise”. Given the Bitcoin blockchain’s high level of decentralization, it is all but impossible to find anyone “managing” the network under any sense of the word. Bitcoin’s creator Satoshi Nakamoto disappeared years ago and hasn’t been heard from since. Developers work to upgrade the network, but any participant is free to ignore those upgrades and run an old copy of the blockchain software. Even miners and node operators, whose efforts are required to operate the blockchain, wouldn’t really fit the bill since any user at all can become a miner and node operator at any time.

Nothing To See Here

It seems relatively safe to say that, based on the SEC’s own guidance and statements from a prior head of the agency, Bitcoin will not be classified as a security in the United States any time soon, if ever. While that reality is sure to bring comfort to its many supporters, the fact remains that politicians the world over are working to bring Bitcoin within their regulatory frameworks. Whether that will be positive or negative for the space overall remains to be seen.

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Dear Readers,

When we were young, many of us had the opportunity to learn the basics of money. Start a good job or business. Don’t spend more than you make. Save your extra pennies. Even better, invest your extra money in stocks and bonds. Or at least we were told those were the basics of money…

The truth is that money is a lot harder than it should be. Most people spend their whole lives working for their money, but struggle to get their money to work for them. Want to grow your money without a lot of risk? Good luck when interest rates in real terms are low. Just want to keep the money you already have? Not likely thanks to the ever-pressing reality of inflation.

Regardless, we do our best with what we’re given. Trillions of dollars sit in bank accounts. And even more trillions are put into stock markets around the globe, since most of us have been taught that the best way to grow a nest egg is by investing in company stocks. If you’re lucky, the value of your stock holdings will go up. But at a minimum, a lot of people will get income through the payment of corporate dividends.

It’s All About The Dividends Baby

Most dividends historically have been paid in cash or stocks. But history is about to be made. A publicly-traded company on the NASDAQ stock exchange in the United States announced last week that it will be the first company in the world to offer investors the chance to receive their latest dividend directly in Bitcoin. The company, BTCS Inc., is a cryptocurrency miner that operates on several blockchains. In other words, it’s not too surprising that BTCS would be well-suited to offer some of the Bitcoin it mines directly to investors.

Perhaps you’re undecided as to whether a Bitcoin dividend is actually useful or desirable. But I believe there are several reasons why a Bitcoin dividend is worth far more than a cash or stock dividend and why we should hope that more companies choose the path of “Bividends” in the future:

Bitcoin is Anti-Dilutionary

The value of both cash and stocks are susceptible to being diluted without investors having any ability to limit the resulting impact to their wealth. The value of cash is primarily diluted through inflation, and fiat currencies around the world have lost most of their value to inflation over the past several decades. Stocks on the other hand are diluted when companies issue stock certificates that didn’t exist before so that they can sell them on the open market.

The value of Bitcoin cannot be diluted. There is no central government or corporation sitting at the center of the Bitcoin blockchain dictating how many Bitcoin will exist and when they’ll come into existence. As a result, if you receive a dividend in Bitcoin rather than cash or stocks, you can rest easy knowing that the value of your Bitcoin will never be diluted.

Bitcoin can be Easily Self-Custodied

Many of you will jump in immediately to remind me how easy it is to keep cash in your wallet or in your bank account. But putting your money in the bank is not self-custody in any sense of the word. Additionally, most people are unlikely to keep large amounts of cash lying around their home, meaning that it’s unlikely that any but the smallest of cash dividends will ever end up in our physical wallets.

Stocks are a whole other story. Have you ever seen your stock certificates? For most of us, the answer to that question is a resounding “No”. Stock certificates usually aren’t even printed anymore and, whether they’re physical or digital copies, they’re almost always held by a stock brokerage or other intermediary that facilitates settlement of stock trades.

It’s easy to take possession of your Bitcoin. Creating a Bitcoin wallet that only you control can be accomplished in minutes using any number of software or hardware setups that are available. And since Bitcoin is completely digital, you can receive any number of satoshis (i.e., fractions of a Bitcoin) without worrying about whether there’s space in your wallet.

Bitcoin is Uncensorable

One of the main powers enjoyed by governments around the world is complete control over their currencies and their economies. If you do something that the government doesn’t like, it can tell your bank and your stock brokerage to freeze your assets and your grocery store and landlord not to sell to you.

Bitcoin cannot be censored because the blockchain’s software doesn’t care who you are or what you do. It only cares that you abide by the rules set in code. As long as you follow those rules, transactions you send over the network will always go through and the network will always be available to you.

Bitcoin is Available 24/7

What would you do if your car broke down in the middle of the night and you needed several thousand dollars to get it fixed so you could return to the safety of your home? With cash or stocks, you’d simply be out of luck. Banks are only open during business hours and they limit the amount of cash you can withdraw at one time from an ATM, if there’s even one nearby. Stocks on the other hand are even more restrictive since they only trade when the market is open and take several days to actually settle.

The Bitcoin blockchain on the other hand is available worldwide, year-round, twenty-four hours a day, seven days a week. If you want to pay directly in Bitcoin, your transaction will go through at any time. Or if you prefer to pay in fiat, Bitcoin markets are always open for trading peer-to-peer or on cryptocurrency exchanges.

Long Live the Bividend

Bitcoin represents a paradigm shift in so many different facets of finance and money. Complete sovereignty over one’s wealth is once again possible after having been limited for centuries by governments and financial institutions. It is for the reasons above and many others that investors around the world would be lucky to receive dividends in the form of Bitcoin rather than in cash, stocks, or anything else.

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Dear Readers,

People want to build life-changing wealth. But the definition of “life-changing” is different from person to person. For some it can mean financial independence. For others it may mean attaining and maintaining a certain lifestyle. And for others still it may mean escaping debilitating poverty.

Whatever one’s idea of life-changing wealth may be, the primary way to achieve it has usually been through the production of goods or services that are highly desired by a large number of people. Stock markets around the globe are full of companies that produce millions or even billions in revenue by giving people what they want. And I’m sure we’ve all heard stories about small-time entrepreneurs who pulled themselves up by their bootstraps in the pursuit of their dreams. Feel-good stories like those lead many people to believe that the creation of wealth is just around the corner for those who are courageous enough to take their first step.

My intent in today’s issue is not to crush dreams, because it certainly is still possible for hard-working people to break the proverbial mold when the conditions are right. My goal in this discussion is to highlight another method of wealth creation that has subtly existed over the millennia but has gone into hyperdrive over the past several decades. A method of creating wealth that takes it from the productive members of society (i.e., most of us) and gives it to those who produce little, but who benefit by associating with the politicians who control economies and people. Today we’re talking about inflation and the Cantillon effect.

The Many Flavors of Inflation

Unfortunately, inflation is something that even more of us are familiar with than usual thanks to government spending associated with the COVID pandemic. Inflation is typically defined in several different ways, depending on who you ask:

An increase in the money supply

A decrease in purchasing power

An increase in prices of goods and services.

The truth is that inflation is all of the above. But most importantly, inflation is bad, at least for most people. When the supply of money goes up, the prices of goods, services, and assets will eventually increase as well. After all, bringing money into existence doesn’t automatically create more things that you can buy with it. Instead, increasing the money supply simply drives greater demand to consume the same supply of items that existed before. As economics tells us, when demand increases relative to supply, prices must go up. When prices go up, the real value of your money, or in other words, its purchasing power, goes down.

To the average person, it may seem like inflation impacts everyone rather equally. At the end of the day, if the cost of a loaf of bread or of a new car goes up by 10%, it goes up for everyone, right? Not exactly, because inflation doesn’t impact all goods and services by the same amount, nor does it impact them all at the same time. Inflation tends to permeate throughout an economy at different times for different goods, and scarce items like art and Bitcoin tend to increase in price much more than easy-to-produce items like the aforementioned loaf of bread. This staggered approach to inflation is what generates massive wealth for some by stealing wealth from everyone else.

The Cantillon Effect, aka Proximity to the Money Printer

In a perfect world, there would be no inflation of the money supply. But existing inflation could at least seem more fair if the increase in the money supply were evenly distributed among the population in direct proportion to the percentage of the money supply that each person owned before. In such a world, prices would still increase nominally, but real prices would more or less stay the same since no one's wealth was diluted.

Unfortunately, we don’t live in a world without inflation or even have fair inflation. New money isn’t evenly distributed to everyone. Instead, most of it is given to those who are closest to the “money printer”, or source of the new money. Since governments control the money printers, they are obviously the biggest beneficiaries. You don’t have to look much further than the massive salaries commanded by elected politicians, the opulence of government buildings, or the budgets directed towards militaries to see that. But it doesn’t stop there. New money goes next to the companies, organizations, and individuals with connections to those in power within the government; connections that they’ve often developed thanks to massive amounts of self-interested lobbying.

When bureaucrats and their well-connected cronies get “free” money, they don’t use it to buy bread. They use it to purchase luxury goods and society’s most productive resources, typically businesses that they purchase in the form of corporate stocks. Eventually the increase in the money supply trickles down to everyday participants in the form of wages. Those wage workers can then compete with one another for goods, services, and assets. Of course, by that point, all of the best items have already been purchased by those who were closest to the money printer. Everyone else is left with just the scraps. This accrual of wealth and productivity to the rich and powerful at the expense of the public is what’s known as the Cantillon effect.

Head for the Exit

If what I’ve described above seems terrible to you, you’re right. It’s human nature to use one’s position of power in self-serving ways. So it would be naive to assume that governments and corporations won’t use their power to benefit themselves, even when that behavior harms the rest of us.

The solution? Move to a system where no one has any power of which to take advantage. Bitcoin is that system. It’s open to everyone, has no money printer, and can’t be controlled by any centralized party.

I’ll see you there.

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Crypto Roundup 🤠

Corporate Bitcoin: BTCS Inc., a publicly-listed blockchain company, has announced the world’s first Bitcoin dividend through which investors will have the option to receive their dividend in Bitcoin instead of the U.S. dollar. Read more

Bitcoin Billionaires: Billionaire Thomas Peterffy has indicated that investors should put some of their portfolio in Bitcoin as protection against the possible demise of the U.S. dollar. Read more

Bitcoin Mining: Local and international miners are flocking to the Itaipú dam in Paraguay to take benefit from its cheap electricity cost for Bitcoin mining. Read more

Into the Twitterverse 🐥

Energy is humanity’s lifeblood, not our curse:

The process of de-dollarization has already started:

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Dear Readers,

Whether or not you believe it, our world revolves around money. Money is one of the most important inventions in human history and the quintessential example of money accomplishes, at a minimum, the following:

Allows us to transact with anyone in the world at any time for any good or service.

Allows markets to assign capital goods (i.e., resources) to the person or business that would most efficiently employ it for productive purposes.

Allows value (i.e., savings) to be transmitted across time without suffering any loss.

All money operates on top of networks. In ancient times, monetary networks were entirely composed of peer-to-peer transactions that used physical mediums like gold and silver. Networks like that persisted for thousands of years and are still part of today’s world to a small degree. However, as our world has digitized over the past several decades, the majority of money in existence has also gone digital. For example, many of you likely have a lot more money sitting in bank accounts and retirement accounts than you have in the wallet in your pocket or stuffed under the proverbial mattress. While certainly not superior in every way, digital monetary networks are by and large easier to use than their predecessors.

From an operational standpoint, tangible networks require very little trust compared to the digital networks of the past several decades (i.e., settlement networks from central banks and payment processors). The former required only that a payor trust the counterparty and for only as long as it took to hand over one’s money in exchange for a desired good or service. The latter on the other hand required the same trust just mentioned, but layered on top of it trust in every middleman involved in facilitating the transaction. Humans are fallible by nature, so it goes without saying that the fewer trusted parties involved in a transaction, the better. In fact, it’s for that very reason that the Bitcoin blockchain, a truly decentralized global settlement network, is gaining such prominence in today’s world.

Decentralization Is More Than Just Location And Ownership Of Mining Machines

When it comes to proof-of-work blockchains like Bitcoin, it’s common to hear people talk about decentralization in the following terms:

How spread out geographically miners on the network are in relation to one another.

How concentrated ownership of miners in terms of hash rate is from entity to entity.

Both metrics certainly are important in the context of preventing single points of failure caused by natural disasters or external attacks by governments, for example. Regardless, looking at miners, and nothing else, leaves out an important participant in the operation and decentralization of the blockchain: nodes. While nodes and miners have the same goal (i.e., maintaining the blockchain), they have different roles and both are required to ensure a fully-functional network:

Miners

As we know from a prior discussion, Bitcoin miners are powerful computers on the network that help secure it by batching transactions together and then submitting them for everyone else to check. People often think that miners validate transactions, but that is not entirely correct. After all, miners can submit false transactions to the rest of the network, and indeed such behavior is the basis for attacks on the blockchain like a double spend. As a result, it’s probably more appropriate to say that miners confirm transactions and then send the completed block onward for actual validation.

Nodes

The phrase “validating transactions” likely applies to nodes on the blockchain much more than it applies to miners. After transactions are broadcasted to the network and confirmed by the miners, nodes validate that all transactions in a proposed block conform to the rules of the blockchain, the most important of which is ensuring that the entity originating the transaction actually has sufficient Bitcoin to send.

It’s sometimes said that nodes are the most powerful participants on the Bitcoin blockchain and that’s likely because nodes have different incentives than miners. The only reward a node receives for its work is that the blockchain keeps moving forward according to plan. A node’s work is both altruistic, in that it benefits all participants by supporting the network, and self-serving, in that it protects the node operators’ own wealth stored on the network. Miners on the other hand receive block subsidies and transaction fees as supplementary rewards and are in direct competition with one another to earn them. As a result, miners might be incentivized to accept fake transactions that include high transaction fees or to sacrifice transaction accuracy for speed in creating a block.

In a nutshell, the security and functionality of the blockchain is dependent on miners defending the network and confirming transactions through the expenditure of their computing resources and on nodes validating that all transactions follow the rules established by the blockchain’s code. While both groups of participants usually have similar goals, separating their responsibilities and providing each group with different incentives helps to ensure that self-interested users are less able to take advantage of the network at the expense of everyone else.

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Crypto Roundup 🤠

Bitcoin America: More corporations and governments will offer employees the opportunity to receive paychecks in Bitcoin in 2022 as the “Great Resignation” drives innovation in hiring practices. Read more

Bitcoin Mining: Bitfarm, a giant Bitcoin mining company, has taken out a $100 million loan from Galaxy Digital that is backed by the miner’s own Bitcoin holdings. Read more

Bitcoin Beneficiaries: A charity in El Salvador has been collecting donations denominated in Bitcoin to provide free dental services to the poor and the elderly. Read more

Into the Twitterverse 🐥

The fiat system takes from the poor to give to the rich and powerful. Let’s relegate to the past and move to a Bitcoin system:

Bitcoin’s long-term performance has trended upwards:

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Dear Readers,

2021 is coming to a close. While every year in the Bitcoin space has its share of surprises and massive developments, 2021 did not disappoint in the least. From dizzying highs to worrisome lows, this year will likely be remembered as a key moment along the path to the hyperbitcoinization of the world. Before we close the door on 2021 and move into the future, let’s remember a few of the moments that changed Bitcoin forever:

The HiFi Crypto Letters and You

First and foremost, I’d like to take the opportunity to thank each of you for joining me on this journey of Bitcoin and Crypto discovery. I started 2021 with a passion for this industry and a desire to help more people benefit from the massive amount of positive change being driven by cryptocurrencies, Bitcoin in particular. When I published my first Letter in early January of this year, I had just a handful of readers. Since then, our ranks have grown to over 1,000 people receiving Bitcoin and Crypto knowledge directly in their inboxes, as well as several thousand other Readers around the internet.

I’m grateful for each one of you and the validation you’ve given me of my goal. Bitcoin and Crypto are on a path to change the world for the better. Together we can help pull back the curtain on these technologies and help others make their own informed choices on how they want to participate. I’m excited to move to part two of our journey together in just a few short hours.

2021: That’s A Wrap

Tesla: Bitcoin Bull or Bitcoin Bear?

2020 may have been the best year so far for adoption of Bitcoin by institutions, with purchases of Bitcoin by MicroStrategy and Square Inc. and pro-Bitcoin announcements from legendary investors like Paul Tudor Jones and Stanley Druckenmiller. That said, 2021 had plenty of developments of its own, and Tesla’s move into Bitcoin is proof of that.

Tesla’s eccentric CEO, Elon Musk, had been flirting with the idea of Bitcoin publicly for some time, and it was even rumored that he had met with Michael Saylor of MicroStrategy for tips on how to convert treasury funds into Bitcoin. Elon did not keep the Bitcoin community in anticipation for too long however, announcing in early February through a regulatory filing with the U.S. Securities and Exchange Commission (SEC) that Tesla had purchased over 1.5 billion dollars’ worth of Bitcoin for its treasury, boosting Bitcoin’s price and status to all-time highs.

While both Tesla and Elon have since backtracked their support of Bitcoin in a big way, with the former halting payments for vehicles in Bitcoin and the latter largely shunning Bitcoin in favor of dog-themed knockoffs, their conviction apparently remains. After all, Tesla still holds almost all of the Bitcoin from its original purchase, at least for now.

El Salvador Takes Bitcoin Sovereignty Into Its Own Hands

Governments around the world have had rather mixed approaches for handling Bitcoin and Crypto over the past decade. Some have outright banned them, others have taken a hands off approach, and others still have tacitly supported the space. But no country has taken such a strong position in favor of Bitcoin as that espoused by the government of El Salvador earlier this year.

The Bitcoin community received perhaps its biggest surprise yet when the Salvadoran president, Nayib Bukele, announced in early June that his country would soon vote on a law to make Bitcoin legal tender within its borders. The country did not disappoint, with the law passing shortly thereafter and being enacted in September. El Salvador has since continued its march towards Bitcoin sovereignty, purchasing over 1,000 Bitcoin for its national treasury over the past few months and announcing its intent to build a “Bitcoin City”.

China, Bitcoin, and Endless Déjà Vu

Newton’s third law states that every action has an equal and opposite reaction, and that certainly seems to have been the case for Bitcoin in 2021. Shortly after El Salvador’s passage of the Bitcoin law, the Chinese government moved forward with its threat to ban cryptocurrency mining within the country. The market’s reaction was swift with Bitcoin’s price taking a beating that lasted for months and with the Bitcoin hash rate, a metric almost synonymous in meaning with the network’s security, dropping by about half over the following weeks as miners fled the country in droves.

In truth, bad Bitcoin news from China was nothing new. The Chinese government had banned various aspects of participation in the Bitcoin space for its citizens over the years, and even did so again later this year when it banned cryptocurrency transactions of any kind. The long-term effects of China’s Bitcoin bans have yet to be seen. But if the aspirations of Bitcoiners that Bitcoin become the world’s reserve currency come true, China’s actions may severely hamper the advancement of its citizens within that new world order.

Bitcoin on Wall Street

Throughout most of Bitcoin’s history, the only way to really interact with Bitcoin was by buying it directly. Given its price growth over the past 12 years, that strategy certainly hasn’t failed its adherents. Regardless, a Bitcoin-based ETF has been the holy grail of investing for many, especially institutional-level investors who often have regulatory or internal policies preventing them from holding actual Bitcoin. While several other countries around the world, like Canada and Brazil, each had Bitcoin ETFs for much of the year, the U.S. and its global-level markets were conspicuously absent.

That all changed in October when the SEC, the regulatory body in charge of ETF approval in the U.S., allowed several Bitcoin Futures ETFs to launch on U.S. stock exchanges. As expected by many, the ETFs saw massive demand and drove Bitcoin prices close to all-time highs. While coveted spot ETFs, which allow ETF managers to directly hold Bitcoin for investors, have yet to see the light of day in the U.S., a lot of Bitcoiners hold out hope that 2022 will bring about further positive developments.

The Taproot Bitcoin Proposal

Bitcoin’s codebase is legendary and has been copied (and then altered) thousands of times in the creation of other cryptocurrencies. All the while, the Bitcoin network has grown to house millions of participants and hundreds of billions in wealth protected due to its world-renowned security, among other value propositions. That said, the network isn’t perfect, and does experience updates from time to time when Bitcoin users agree to adopt them.

The latest update, Taproot, was heralded for the massive increase in privacy and efficiency that it brought to Bitcoin transactions and to the network at large. While the blockchain still has a long way to go in both areas, Taproot was a massive step forward in ensuring that Bitcoin continues to be an open, secure way to protect and transfer one’s wealth without interference.

What’s Next For Bitcoin?

While it’s impossible to know definitively where Bitcoin and its community will end up in 2022, it seems likely that adoption will continue to increase as the world comes to terms with the Bitcoin phenomenon, and that governments will still seek to understand and control Bitcoin, even though they’re ultimately destined to fail on the latter point. If you subscribe to the beliefs of Bitcoin bulls like me, we may even be in store for a continuation of the Bitcoin bull run that has driven the market for the past year and a half. Only time will tell, but I invite you and your friends to continue on the journey with me.

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Crypto Roundup 🤠

Bitcoin Buildout: The Latin American country of Panama will soon be the beneficiary of 50 new Bitcoin ATMs that will be built in the country in 2022. Read more

Bitcoin Miners: Marathon Digital, a large Bitcoin miner in the United States, will continue its all in behavior towards Bitcoin with a nearly $1 billion purchase of Bitcoin mining machines to be delivered throughout 2022. Read more

Institutional Bitcoin: Software company MicroStrategy has purchased another 1,000+ Bitcoin over the last several weeks, bringing its total war chest to over 120,000 Bitcoin. Read more

Into the Twitterverse 🐥

So if governments print the money, and printing money is stealing, I suppose that makes governments….:

It really is that simple:

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Dear Readers,

The entirety of humanity’s history has been spent in a quest to improve lives and livelihoods through hard work and technological advancement. The vast majority of people over the millennia worked for years on end to provide for themselves and to build a better foundation for their children and subsequent descendants. Generation after generation built upon those foundations, and particularly resourceful individuals discovered new technologies and methodologies for completing their daily work. This continuous improvement, century after century, has brought us to the present day, in which hundreds of millions of people around the globe have obtained living conditions that our ancient ancestors could only dream about.

For the bulk of the last several thousand years, humanity was able to store excess productivity of prior work and prior generations using types of money that retained their value over long periods of time (aka, “hard” money), such as gold and silver. Since the supply of those preferred types of money tended to increase at a slower pace than almost all goods and services, the purchasing power of one’s money tended to increase when valued against those same goods and services. In other words, saving in and of itself was quite often sufficient to not only maintain wealth from year to year, but also build it outright.

In an unfortunate turn of events for humanity at large, money that excelled at storing value was replaced almost entirely by fiat currencies that are created and altered at will according to the desires of the political leaders of the day. Not one fiat currency in history has successfully maintained a lower inflation rate than store of value monies like gold over extended periods of time; in fact, the majority of fiat currencies throughout history have already failed as a result of their inflationary march towards worthlessness.

While the supply of goods and services tended to outpace the supply of hard money, the same cannot be said about fiat currencies, as their supply has significantly outpaced the growth in goods and services. For example, in the past twenty years, the gross domestic product (i.e., the total value of goods and services produced annually) of the U.S. has doubled while the supply of U.S. dollars has more than quadrupled:

The net result of monetary inflation exceeding the supply inflation of goods and services is that it’s no longer possible for most people to simply save their way to greater wealth. In reality, keeping your money under a mattress or holding it in a low-yield savings account is a surefire way to lose your wealth.

This reality has forced society to move further out on the risk curve in order to generate returns that exceed monetary inflation. Rather than simply holding onto money until future consumption arrives, people speculate on stocks, commodities, altcoins, and more in the hopes of retaining their wealth over time.

That ends now.

Bitcoin: A Return to Hard Money

The supply of fiat currencies inflates when governments print more money, digitally or on actual paper. The supply of stocks and altcoins inflates when corporations and developers decide to issue additional shares or tokens to fund growth or cover losses. And the supply of commodities, including even gold and silver to some degree, inflates whenever producers are incentivized to produce more.

The supply of Bitcoin doesn’t inflate. Bitcoin has a hard cap of 21 million, and no amount of posturing by politicians or manipulation attempted by centralized attackers can change that. For the first time in history, humanity has money for which total supply will never increase. Saving one’s way to generational wealth is back on the table and is even supercharged. After all, the supply of any good or service worth producing will always increase in relation to Bitcoin’s unchanging supply cap.

Given Bitcoin’s strength as a savings medium, it is very common to hear proponents recommend keeping one’s Bitcoin for significant amounts of time. Based on what we’ve discussed here, the logic certainly seems sound: why “cash out” your Bitcoin, which is guaranteed to increase in value compared to things you want to buy (all else equal), to fiat currencies, which have a track record of losing value that goes back centuries?

“HODL” Your Way to Victory

The will of true Bitcoiners to hold onto their Bitcoin is strong. In fact, it’s so strong that the community has developed a mantra to embody it: “HODL”.

While many with good intentions will tell you that HODL stands for “Hold On for Dear Life”, the term actually has its origin in a misspelling of the word “hold” on the Bitcointalk forum:

True HODLers are driven to keep their Bitcoin no matter how the price moves and no matter what bad news hits the press. While the term “HODL” itself has achieved meme status, the idea that it propagates is hard to dispute. Bitcoin’s price chart reveals that no person who bought Bitcoin and successfully HODLed it for over three years has ever lost money (even when denominated in fiat terms). How does one deny such a monumental performance?

The answer is simple: you don’t.

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Crypto Roundup 🤠

Bitcoin Christmas: The new Quarterback for the New England Patriots football team has decided to gift many of his teammates Bitcoin for Christmas. Read more

Bitcoin 2021 Recap: 2021 was a year full of developments for the Bitcoin network, from technical advancements through Taproot and the Lightning Network, to institutional and retail adoption, and more. Read more

Bitcoin Billionaires: Ricardo Salinas of Mexico has implored his social media followers not to invest in any fiat currency, but to instead buy Bitcoin. Read more

Into the Twitterverse 🐥

Bitcoin and “Crypto” are not the same:

Bitcoin allows users to take control away from corrupt and confusing banks:

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Something was wrong. Jeff was looking at a transaction that shouldn’t exist. In fact, based on everything he knew about Bitcoin, Jeff was looking at a transaction that COULDN’T exist. But there it was. Someone had managed to spend billions upon billions of bitcoin between wallets, even though only a few million bitcoin currently existed.

Something had to be done, and fast. The Bitcoin blockchain was just in its infancy. An experiment really, and if this error, this glitch in the code, wasn’t fixed soon, it would kill the Bitcoin experiment. But there was no IT team for Bitcoin. No, if this issue was going to be fixed, he and the ragtag group of developers on the Bitcoin forums would have to run with it and hope for the best.

The above account is a dramatization that is loosely based on the reported events surrounding the value overflow incident in 2010 that led to the temporary creation of 184 billion bitcoin. As such, it should not be taken as completely factual.

Dear Readers,

The valuation of financial instruments like securities, currencies, and commodities is next to impossible. Their value should be driven by a simple comparison of supply against demand. The problem is that their supply is constantly changing: governments print their currencies into oblivion, companies dilute existing securities through stock issuances, and more and more resources are constantly being pulled from the earth. Perhaps the worst part of all though is that outsiders, the primary drivers of demand for those financial instruments, have no way of knowing when the supply will change or by how much.

In a rather unfortunate twist, this same issue has come to plague much of the crypto space. Many crypto coins and tokens have no supply cap at all, and many that theoretically do have caps could easily lose them if the developers, stakers, miners, or DAOs in charge decided to alter the code base. Crypto is meant to be a paradigm shift compared to the traditional finance of the past several centuries, and perhaps it still can be. All is not lost. But as it stands now, there are many examples of crypto’s powerful elite getting rich at the expense of everyone else.

Bitcoin is meant to be the bastion of security & autonomy, not just within crypto, but generally in finance and throughout the world. After all, the code base is legendary, being the blockchain that started it all, and its immutable supply cap ensures that the accrued value of humanity’s aggregated efforts can never be stolen through inflation. Bitcoin users can rest assured knowing that their holdings are safe from government and corporate self-dealing.

But what if the supply cap were broken?

A World (Almost) Without Bitcoin

Such was temporarily the case early in Bitcoin’s history. In August of 2010, not much more than a year and a half after the blockchain’s genesis block, a transaction was processed on the blockchain in which two separate wallets each received over 92 BILLION bitcoin. An alarming development to be sure given that the max amount of bitcoin had been irrevocably set at 21 million. It was a glitch that could easily have ended Bitcoin as quickly as the protocol had started. The supply of legitimate bitcoin held by legitimate hodlers would have been dwarfed by the hodlings of a hacker. Users would lose faith in the promised features of the Bitcoin blockchain, and all bitcoin would be worthless.

Luckily, the problem was fixed relatively quickly. In a world where giants like Facebook and Amazon, with armies of developers and IT staff, can go down for an entire day or more, an obscure blockchain network with a decentralized group of freelance developers was able to overcome a zero-day vulnerability in its token supply in just five hours. The blockchain went through a soft fork that restarted the ledger from right before the “bad” transaction occurred and introduced an update to block the reappearance of the error that started it all: Integer Overflow.

Completely Over With the Bitcoin Overflow

Techopedia defines Integer Overflow as follows:

Integer overflow is the result of an attempt by a CPU to arithmetically generate a number larger than what can fit in the devoted memory storage space. Arithmetic operations always have the potential of returning unexpected values, which may cause an error that forces the whole program to shut down.

In the case of Bitcoin specifically, the original blockchain code didn’t include a directive for the network to automatically reject any block where the sum of the transaction was higher than allowed. In order to ensure that the glitch was never replicated, an updated version of the blockchain software was introduced that rejected any transaction with an integer overflow and, for good measure, any transaction at all that included more than 21 million bitcoin as an output.

Bitcoin: A Lesson In Resiliency

While Bitcoin’s technology is revolutionary, it is not perfect. The Bitcoin blockchain has undergone various fixes and improvements over its lifetime and continues to move forward, bringing in new participants and securing their wealth. Bitcoin is more than just the sum of its parts, and has thus far resisted any issue, within the code or not, that has tried to take the network down.

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Crypto Roundup 🤠

Bitcoin Sovereignty: Bitcoin, with monetary policy written unchangeably in code, is a vast improvement over fiat currencies that allow incumbent governments to leech off of their citizens. Read more

Bitcoin City, USA: The city of Abilene in Texas has announced that it will build a $2.4 billion dollar data center for Bitcoin mining and other projects in a venture with Taylor County and Lancium, an infrastructure company. Read more

Hyperbitcoinization: Jack Dorsey, CEO of Block, has indicated that he believes Bitcoin will replace the dollar as the world reserve currency. Read more

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There are unfortunately quite a number of outright scams in the “Crypto” world:

The level of hypocrisy is astounding:

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Dear Readers,

From humanity’s earliest days, life has been primarily spent in the pursuit of increased knowledge. For thousands of years, that pursuit was largely driven by the needs of survival: the development of tools for transportation, food production, medicine, war, and so much more has helped ensure the longevity and advancement of civilizations past and present. But given the massive technological advancements of the past several centuries, there are large groups of the earth’s population who these days are able to dedicate a portion of their lives to the pursuit of knowledge for purposes other than pure survival.

It’s relatively safe to assume that humanity wouldn’t have progressed much, if at all, if we hadn’t developed instruments to record knowledge and transfer it across space and time. After all, only so much knowledge can be passed down from generation to generation through word of mouth.

The evolution of technology to record and share knowledge itself has been rather remarkable. For millennia, information was recorded on paper and shared from person to person. The idea of tangible books made of paper and ink may seem completely foreign to some future generation, and even today is being replaced by a wide variety of digital mediums. But for the people of those foregone generations, books were a godsend helping them to acquire the knowledge they needed to mold their futures.

As time has passed though, societies have developed new methods to transmit and store information. Videos, podcasts, messaging, social media, memes, news outlets… the list goes on. And these days it seems like nearly all of that data lives on top of computers and servers, oftentimes in huge data centers and warehouses controlled by large corporations and governments. That setup has worked for many years and has allowed the sum of all human knowledge to coalesce on the internet, accessible to billions of people around the world at the push of a button.

While wildly successful at storing and transmitting information over space and time, the networks we’ve come to rely on since the dawn of the internet suffer from a major flaw: centralization. Over time, the largest corporations and the most powerful governments have come to control much of the physical and digital infrastructure housing humanity’s tools of knowledge. This centralization is the very antithesis of the open exchange of communication enabled by the internet and introduces various instabilities into the system:

Single Points of Failure

While books may seem old-fashioned to some, information availability was assured due to the necessity of printing hundreds or thousands of copies of the same book. If your copy was damaged or lost, you could still access the book’s information relatively easily if you could find someone nearby who also had a copy.

In contrast, today’s system allows us to access knowledge instantaneously and from almost anywhere, but we are wholly reliant on the continuity of internet service providers, server farm operators, and the like. If one of those intermediaries goes down, your access to the information you need could be cut off for as long as it takes them to bring their operations back online.

Censorship

The invention of the printing press centuries ago was heralded for making the dissemination of knowledge through books faster than ever. Beforehand, the majority of books were created by scribes and other officials, which introduced a high level of centralization into ancient information systems.

Centralization is a boon for censorship of information. Since the majority of humanity’s access to information in today’s world relies on a handful of large providers, it is easy for governments and other parties to limit the free exchange of information they don’t agree with by cutting it off straight at the source. Such a course of action directly limits humanity’s freedom to choose and is a gross infringement of our right to information.

Blockchain: Information Systems for the Digital Age

Thankfully, a new technology known as blockchain was introduced in 2008 that increases the dissemination of information and directly works to correct the issues brought on by single points of failure and censorship. Note that not all blockchains are created equally and I am a firm believer that the Proof of Work blockchain model espoused by Bitcoin represents the strongest improvement over the information systems that we’ve discussed thus far:

No Single Point of Failure

Nodes, miners, and participants on the Bitcoin blockchain are located all around the world and the vast majority hold a sufficiently detailed copy of the blockchain to enable it to operate without fail even if one or many members on the network go offline temporarily or permanently.

Censorship Resistance

Public blockchains have been a boon for the freedom of information. Since there is no gatekeeper or central government, anyone is able to participate in the network and no one has any more power or authority than anyone else. As such, any decision about the composition of the blockchain or of the information residing on it effectively has to be made by more than fifty percent of participants. Censorship of information is nearly impossible when consensus is achieved in such a manner.

While humanity’s pursuit of knowledge continues after thousands of years, it’s clear that our society has rejected the centralized information repositories that have limited information accessibility time and time again. Blockchain is one of the key tools in our arsenal to ensure that knowledge is always available to those who seek it.

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Hyperbitcoinization: The commitment of users around the world to leave the fiat system and bring their time and resources to the Bitcoin system will allow humanity to move away from the broken promises by governments. Read more

Bitcoin Celebrity: Gwyneth Paltrow has teamed up with Block’s Cash App to give away $500 thousand dollars’ worth of Bitcoin to her followers. Read more

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Dear Readers,

The arrival of Bitcoin has been revolutionary for society at large. On the whole, we’re moving to a place in which we can successfully take back the power and control that oppressive governments and businesses have held over us for centuries. It’s no exaggeration to say that the world will be completely different in fifty years as a direct result.

That said, not all developments within the space have been positive. Exchanges have been hacked, scamcoins have launched, and rugs have been pulled. As has happened time and time again throughout history, revolutionary technology that gives freedom to its users has been appropriated by those who would use it to profit at the expense of everyone else. For that reason above all others, it’s essential that new participants and veterans alike do their own research and protect themselves.

The newest scam in the “Crypto” has come on the heels of what is heralded by many participants as one of the most revolutionary blockchain technologies of all: NFTs, or non-fungible tokens. As we know from prior discussions, NFTs are cryptographically unique representations of physical (like real estate) and digital (like jpegs) assets on a blockchain. The popularity of NFTs, especially of the digital variety, has exploded during 2021, with popular NFT collections like Cryptopunks and the Bored Ape Yacht Club accumulating tens of millions of dollars’ worth of value in the minds of their supporters. But their growing popularity has a darker side as well:

NFTs: Beauty is in the Eye of the Behodler

It will probably come as no surprise to most readers that the majority of NFT trading volume occurs on top of exchanges tailor-made to service buyers and sellers of digital art. While bread and butter cryptocurrency exchanges like Coinbase are trying to break into the space with NFT exchanges of their own, NFT exchanges like Opensea and Rarible dominate daily trading volumes.

These exchanges have made the process of exchanging NFTs relatively simple. In fact, they’ve made the process so simple that some scammers have started selling their own NFTs to themselves at exorbitant prices in the hopes of manipulating demand for their NFT in two ways:

Raising an NFT Collection’s Average Price

In markets for fungible goods, or goods that are indistinguishable from one another, average price doesn’t really matter because the price is usually the same from unit to unit anyway. However, the opposite is true for rare, non-fungible goods like NFTs and art. For example, if the price of Van Gogh’s “Starry Night” doubles, it’s a safe bet that buyers will start to pay a premium on other Van Gogh pieces too.

That same buyer mentality can also apply to buyers of popular NFT collections. As a result, the ease of exchanging NFTs coupled with the anonymity of blockchain has given scammers the ability to gradually raise the average price of the collection their NFT belongs to by selling it to themselves over and over at higher prices until an unsuspecting buyer comes along and pays the inflated price for the scammer’s piece of the collection.

Selling an NFT at a “Loss”

I’d argue that this type of manipulation is the more harmful of the two. It works like this:

The impact of raising the average price of an NFT collection is diluted over all pieces of the collection. Meanwhile, creating fake price history for one’s own NFT is a very direct way to scam unsuspecting buyers out of their hard-earned assets when the “discount” they believe they’re receiving is the exact opposite.

The most extreme example of this behavior came courtesy of NFT Cryptopunk #9998, which sold for over $530 million back in October. It was a staggering sum since the average price for Cryptopunks at the time was a few hundred thousand dollars. In fact, it was the priciest art sale in history, surpassing the $450 million sale of Salvator Mundi by Leonardo Da Vinci in 2017. The public nature of blockchain worked against the scammer however, as sleuths in the space were quickly able to identify that a single entity appeared to own each of the wallets involved in the “purchase”.

How Do We Stop This Type Of Scammer?

In my opinion, there are two answers to the question at this point, and neither of them is palatable:

The first answer is that we can’t. Public blockchains are open to everyone and there’s no limit to the number of wallets that a single person can control. On top of that, a truly decentralized blockchain doesn’t care about the reasons behind a transaction. As long as transactions are valid and transaction fees are paid, scammers can perpetrate fake NFT sales as often as they’d like.

The second answer is that NFT sales can take place over highly centralized exchanges with robust KYC procedures and enforcement. Such a course of action would put the exchange operator in the position of limiting self-dealing transactions between the same user’s wallets. Of course, one of the main points of blockchain is to eliminate the need to rely on centralized organizations. So, in the long run, this option is far from desirable.

Perhaps the best thing we can do is to stay educated on the NFT space in general and the historical value of the NFT or collection in which we’re interested. And hope that scammers are dumb enough to leave traces of their scams easily visible on the blockchain of course.

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Crypto Roundup 🤠

Gift of Bitcoin: Cash App has begun to allow users to give Bitcoin to other users through their account by using a cash balance or a linked debit card. Read more

Bitcoin Venture: NYDIG, a Bitcoin-only startup, recently raised around $1 billion dollars in investment from a large group of venture capitalists at a valuation of over $7 billion. Read more

Homes for Bitcoin: Ledn, a Canadian crypto lender, is rolling out a mortgage service that will allow users to collateralize their Bitcoin against a house purchase. Read more

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Dear Readers,

“Decentralization” is all the rage these days and will likely go down as the biggest buzzword of the decade, and with good reason: centralized systems have extracted massive amounts of data and value from societies, and when they go down, the world notices. Who can forget when most of the U.S. government was shut down in late 2018 over a funding dispute between a handful of congressional leaders and the President? Certainly not the hundreds of thousands of government employees who went without paychecks for weeks on end. Even more recent examples are available, such as Facebook’s outage across its suite of apps in October of this year and the Amazon Web Services outage last week. Both outages resulted in billions of users and millions of businesses being unable to access the services on which they’ve come to rely.

Each of the above incidents demonstrates the primary weaknesses of centralized organizations. First and foremost, they are always controlled by small groups of people, politicians in the case of governments and executives in the case of corporations, who make decisions that impact billions of people who had no say in the matter. Secondly, they are reliant on single points of failure that all go down eventually and leave users high and dry. No wonder humanity is abandoning centralized structures as quickly as possible.

True decentralized networks show a lot of promise:

Power lies in the hands of users, not in a group of elites.

Single points of failure are eliminated and all participants directly support the network.

Access is open to all since no biased entity sits at the center of the network as a gatekeeper.

The internet and the Bitcoin blockchain are the two most prominent examples of truly decentralized networks, and they incorporate the above strengths to provide astounding value. The internet enables the free exchange of all human knowledge, while the Bitcoin blockchain enables the free exchange of money, the most influential invention in human history.

The quest for true decentralization isn’t easy though. Unfortunately, many who attempt to build decentralized networks fail outright or end up settling for hybrid models that don’t necessarily combine the best parts of decentralization and centralization. It’s this latter group that’s making a big splash in the crypto space recently, and not in a good way.

Decentralization is a State of Being, not a Destination

The appearance of decentralization can be almost as powerful as actual decentralization in today’s world, because truly decentralized networks are a relatively new phenomenon. In other words, it’s rather easy for newbies and veterans alike to get lost in the glamour of a self-proclaimed decentralized network without peeking behind the curtain to see who’s actually in charge.

As we learned a few weeks ago, a Decentralized Autonomous Organization is typically built to allow a group’s governance to be disseminated among all participants rather than hoarded by a select few at the top. But calling your organization a DAO does not make it decentralized.

Such is the case for the Index Cooperative DAO, a self-styled “digital asset manager” that creates baskets of cryptocurrencies as investment vehicles in a similar fashion to traditional asset managers that combine baskets of stocks to create indexes. The key difference for Index Coop, and likely the main reason it’s able to get away with calling itself a DAO, is that the structure of its investment vehicles is purportedly determined by members of the network who cast votes using the native $INDEX governance token. That would certainly seem to imply some level of decentralization.

Index Coop falls well short of true decentralization however, and it doesn’t take much digging to discover the truth either. It was revealed just last week that Index Coop underwent its second funding round of the year, bringing in over $2 million in investments by venture capitalist firms. But the intended use of the funds is perhaps the most telling. As reported by Decrypt.com:

[The DAO’s] core team tasked with daily operations…is around 100. The money raised will go toward expanding its full-time team and making certain the protocol remains financially stable.

And what does the full-time team do? Look no further than the front page of Index Coop’s website:

Alarms should be going off in your head right now. After all, true decentralized networks don’t have “core teams” who can hire employees and accept venture capital funds. Think about it: are there teams who hire employees for the internet or dictate who is allowed to develop on the Bitcoin blockchain? Indeed, there are not. Anyone who supports or builds on top of a truly decentralized network does so of their own accord without asking permission from anyone. The entire network then decides whether it values what has been created.

Simply put, the Index Cooperative DAO is decentralized in name only (DINO). While I believe that the governance model it and other similar organizations follow, that of disseminating at least some governance to end users, can certainly be an improvement over the centralized systems humanity has labored with for centuries, it is of utmost importance that participants in the crypto space aren’t put in a position to be confused by incorrect uses of key concepts like decentralization. The healthy growth of the space depends on a high level of clarity.

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Crypto Roundup 🤠

Bitcoin Uptrend: The level of Bitcoin adoption has steadily increased over the past several years and tens of millions of people are using and holding onto Bitcoin. Read more

Bitcoin Hodlers: While the Bitcoin price might be down, hodlers confidence is not and Bitcoin continue to be removed from exchanges at an astonishing pace. Read more

Hyperbitcoinization: Robinhood continues to move towards expanding the functionality of its Bitcoin offerings and may soon allow users to gift Bitcoin back and forth amongst themselves. Read more

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Dear Readers,

The concept of surveillance is certainly not one with which modern humanity is unfamiliar. We are bombarded almost weekly with stories of companies, government agencies, and other organizations whose systems were hacked or otherwise compromised, which led to the release of our personal information that we weren’t aware was being collected. If one thing is certain, it’s that a lot more of our private information is floating around on the internet and in corporate and government databases than we would like.

Under that lens, it’s interesting to consider the fact that one of blockchain’s greatest strengths is its status as a public ledger recording all of its users’ activity. On the one hand, blockchain ensures that societies aren’t required to put their trust in a single entity or group at the center of the network. But on the other hand, the public nature of blockchain requires that we put our trust in everyone.

Regardless, it should hardly come as a surprise that governments are very interested in the information contained on blockchains and in the surveillance that such information enables. Conspiracy theorists have speculated for a long time that government agencies may have been involved in the creation of cryptocurrencies like Bitcoin and Ethereum. And we know that governments around the world are working to roll out their own pseudo-cryptocurrencies, Central Bank Digital Currencies (CBDCs), to further their own monopolization of citizens’ finances and data. What we didn’t know, at least until recently, was how deep into blockchain surveillance states really are.

The CIA, CBDCs, and You

Case in point: During a CEO Summit hosted earlier this week by the Wall Street Journal, the Director of the United States Central Intelligence Agency (CIA) indicated that his agency has several ongoing projects related to providing “solid intelligence” on crypto to other sections of the U.S. government. If an agency in one country is exploring how cryptocurrency can be used by governments, we can rest assured that similar agencies in many other countries are doing the same rather than risk falling behind.

Although this development shouldn't be surprising to most people, it should definitely be terrifying. Why’s that? Because the Central Bank Digital Currencies I mentioned before will enable a level of government surveillance and control over citizens the likes of which the world has never seen.

Lest you accuse me of being an alarmist, consider the following quote from the Center for New American Security, a U.S.-based think tank, regarding the CBDC that China is already in the process of rolling out:

[China’s CBDC] is likely to be a boon for [the Chinese Communist Party’s (CCP)] surveillance in the economy and for government interference in the lives of Chinese citizens. Transactions will contain precise data about users and their financial activity, all easily accessible to the [central bank]. The central bank—as the registrar and verifier of the digital currency—will likely be able to cut off access to [CBDC] funds in order to punish or coerce any user. The CCP has already begun to increase its punitive powers within the central bank, running an internal team from the Central Commission for Discipline Inspection within the [central bank] that investigates graft. [The CBDC] would help the CCP solidify authoritarian control and crackdowns on dissident groups.

While the above quote implies that the Chinese government’s surveillance is currently targeting criminals and dissidents, there is nothing stopping it and other governments from using the control granted by CBDCs for all sorts of actions against their citizens. Let’s take a look at one example that will hit close to home for everyone:

Taxation Under a CBDC Model

There are a few different ways that CBDCs can operate, and it’s likely that CBDCs will vary, even if only slightly, from country to country. That said, many governments are leaning towards a model in which citizens will either have CBDC accounts directly with the country’s central bank or will have accounts inside the existing banking and financial systems with extremely tight oversight and regulation by government regulators. Either way, the government will have direct access to your money and your information.

It’s been said that nothing in life is certain, except death and taxes. In the case of taxation, citizens experience it daily:

Go to work? Pay income taxes.

Own a house? Pay property taxes.

Bought some food? Pay sales taxes.

Just died? Pay estate taxes.

Governments around the world have set up extensive networks for assessing and collecting taxes and entire agencies to ensure you pay your taxes or punish you if you don’t. Under a CBDC model, however, the bulk of that infrastructure may no longer be necessary.

Why not? To put it bluntly, if the government has full visibility into the money you receive and the money you spend, and has the ability to reach into your account and take out your money at will, then taxation will be a much simpler process for the government. It will no longer need your employer, your mortgage company, or the retailers you shop at to collect taxes. The long arm of the government will just dip straight into your account and will take what you owe.

Perhaps this amount of control and oversight by the government doesn’t leave you all that concerned. Or perhaps you even believe that government control and oversight are good. In that case, I suppose you might be alright as long as the government never makes a mistake or does anything you disagree with. But if that happens, you’re at the mercy of the government or the courts to claw back the money you think is owed to you.

What are the chances that governments will make mistakes?

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Dear Readers,

The digitization of our world is astounding. Over the past thirty years, communication, finance, education, governance, and more have increasingly shifted from physical to digital spaces. The internet has exploded as a result and the companies at the forefront of advancing humanity towards its digital future have been rewarded handsomely. Microsoft, Google, Apple, Amazon, and Facebook alone command nearly $10 trillion dollars’ worth of value and together capture the bulk of human interactions happening online.

Digital living has necessitated an ever-increasing number of online payments, and the online payments space is similarly dominated by a group of mammoth payment processors. Companies like Visa, PayPal, and Mastercard, while not exclusively tied to the digital world, nonetheless process the majority of payments on the internet, numbering in the hundreds of millions per day.

A digitally native world though calls for a digitally native payment method and Bitcoin has stepped in to fill the void. The Bitcoin blockchain, like the internet itself, runs on a decentralized worldwide network of computers. Its digital-first nature makes it the perfect payments companion for the digital world that lives on the internet.

That said, a large number of critics, both from within and outside the crypto space, attack Bitcoin for its perceived scalability shortcomings. After all, the Bitcoin blockchain is currently capable of performing only a few hundred thousand transactions daily on its base layer, far short of the hundreds of millions of transactions taking place globally on a daily basis.

Missing The Forest For The Trees

Many of these critics think themselves well-intentioned and have tried to create alternative cryptocurrencies, or altcoins, that offer much higher base-layer transaction capacity. However, their blind criticisms put them in the position of misunderstanding and missing out on Bitcoin’s true value proposition as a global settlement network.

Bitcoin is the most secure computer network in the world and is growing stronger every day. It has never succumbed to a successful protocol-level attack and developers and miners work day after day to improve the network and make it even more resistant to any type of failure. On top of that, Bitcoin is not reliant on any single entity for its functionality. No government or corporation needs to be consulted in order for Bitcoin to run its course, nor could they hinder the continual advancement of transactions on the Bitcoin blockchain even if they tried. Lastly, Bitcoin transactions settle after about ten minutes, which is exponentially faster than the days or weeks typically required in the traditional financial system, and anyone can participate in a transaction as long as they have access to their private keys and internet access.

These qualities do allow Bitcoin to function just fine as a payment processor for everyday transactions, but its strength lends itself to the settlement of much larger amounts of money and it is accomplishing that purpose quite well already:

The traditional financial system, with its armies of regulators, intermediaries, physical manifestations, and the like, simply can’t compete with Bitcoin’s blockchain on a value per fee basis. Similarly, blockchains tied to cryptocurrencies large and small are unable to offer the sheer amount of security and finality offered by the Bitcoin blockchain. Their computer networks are smaller, their consensus mechanisms are less robust, and the sizes of their network effects lend themselves less readily to assuring participants of each blockchain’s respective longevity.

So How Do We Scale Bitcoin?

The number of humanity’s daily transactions will continue to grow well into the future. While Bitcoin does represent the strongest monetary settlement network in history, scaling solutions will be necessary in order to ensure that the world’s transactions can live on top of the world’s blockchain. Thankfully, those scaling solutions are already in the early stages of development and implementation:

The Lightning Network

The Lightning Network is a layer-2 protocol that allows for near-instantaneous settlement and has no theoretical limit to the number of simultaneous transactions that can occur. Transaction fees on the Lightning Network are also dirt cheap, amounting to mere fractions of a penny, which has led to an increase in its use on crypto services, like those from Strike and Kraken, as well as in a host of business-to-consumer transactions.

The Lightning Network allows participants to establish “bidirectional payment channels” on the Bitcoin blockchain by sending initial amounts of Bitcoin into a multi-sig transaction, which can then be exchanged back and forth between the participants any number of times before the channel is closed and the final Bitcoin balances are broadcasted to the Bitcoin network. Additionally, participants who haven’t established a direct payment channel with one another are still able to transact if they have sufficient peers in common to find a path for the payment.

Given the immense strengths of the Lightning Network, tens of thousands of transactions are already being processed daily on the protocol and it is experiencing significant growth at a rapid pace.

Cryptocurrency Exchanges and Crypto Banks

In the traditional financial system, transferring money from one bank to another takes several days and a lot of leg work behind the closed doors of the banks. In a nutshell, banks work to reconcile whether the sender has sufficient money to settle the transfer. If yes, the money will eventually show up in the recipient’s bank account.

Bitcoin’s blockchain, on the other hand, is public by nature, meaning any entity is able to verify Bitcoin balances (or UTXOs, for the more technically inclined). And since transactions settle with finality every ten minutes, Bitcoin transactions, whether between large corporate entities or individual users, can be settled much more quickly than with traditional banks.

We are moving towards a world where a large number of Bitcoin transactions will happen in one of the following ways:

Between user accounts held at the same crypto institution, in which transactions essentially equate to balancing the institution’s ledgers instantaneously and with minimal cost.

Between user accounts held at different crypto institutions, in which user balances can be verified on the public blockchain and actual customer transfers can be settled in bulk by the institutions themselves on the base Bitcoin blockchain.

Both scenarios enable nearly limitless scalability of Bitcoin transactions, while taking full advantage of Bitcoin’s strengths as a global settlement network. In a nutshell, Bitcoin promises to be the most secure, scalable, decentralized network the world has ever seen.

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Crypto Company: The company formerly known as Facebook has indicated that it is opening up its advertisement platform more fully to crypto and blockchain companies. Read more

Bitcoin ETFs: Investing powerhouse Fidelity is about to launch a Bitcoin spot ETF in Canada, a move that some analysts believe casts further doubt on the SEC’s current position against spot ETFs in the U.S. Read more

Bitcoin Nation: The country of Chile is contemplating passage of a law that would recognize Bitcoin as a legal means of payment in the country and could pave the way to goods and services being priced in Bitcoin. Read more

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In case you were wondering what will eventually happen to gold and silver as a result of Bitcoin’s growth:

Bitcoin is hard money that allows corporations to more effectively save and use their cash flow:

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Dear Readers,

It is a common belief in democracies around the world that politicians are meant to serve their country and their constituents with little thought for themselves, their livelihoods, or their own proclivities. Citizens in democracies are commonly enabled to elect some politicians after all. If you believe in someone’s agenda and vote them into a position of power, shouldn’t you then have some expectation that they will use that power to represent and protect you and your family?

While there are certainly some politicians in the world who put their own interests aside in favor of their country and their constituents, we are bombarded with nearly constant examples of politicians who say one thing and do another, no matter the consequences. Who can forget when U.S. Senator Elizabeth Warren was caught flying to an event in a private plane after making environmentalism and the “Green New Deal” a chief cornerstone of her ideological platform? Another similar example came just last week when U.S. President Biden chose to blatantly ignore a store’s mask mandate, even after he and his administration have spent months begging all Americans, including those who are vaccinated against COVID-19, to wear masks in public spaces. Actions speak louder than words, and these actions show that many politicians prefer to serve their own interests at the expense of everyone else’s.

There is perhaps no greater example of political self-dealing than in financial markets. Day after day, politicians mortgage their respective countries’ financial futures for generations by taking out debts that they have no hope of paying off and by inflating away the value of citizens’ savings by expanding the money supply at an ever-quickening pace. Their ability to completely control the money supply and their desire to ingratiate themselves with citizens through easy money policies is a toxic combination. It should come as no surprise then that Bitcoin, which is wholly resistant to political machinations, has received vitriol from some of the most recognizable politicians around the world, even quite recently.

Bitcoin: A Political Pariah?

The most recent Bitcoin critic to come out of the political fold was none other than life-long politician Hilary Clinton. For those who don’t know, Hilary Clinton has had a significant impact on U.S. politics, from her roles as First Lady and Secretary of State, to her multiple failed presidential campaigns and her stranglehold influence on the U.S. Democratic Party. It seems safe to say that when Hilary speaks, millions listen.

Her comments came during an economic forum put on in Singapore by Bloomberg. She criticized Bitcoin and cryptocurrency as an attack on the sovereignty of the U.S. dollar as the world’s reserve currency and as being capable of destabilizing nations of all sizes. Her comments echo the sentiments of politicians around the world who in recent years have expressed severe concerns about the impact that “crypto” is having on their ability to control their constituencies and their financial markets.

There’s no sense in trying to argue with them in my opinion. Hilary, and those critics who came before her, are absolutely correct on both counts, at least as far as Bitcoin is concerned:

Bitcoin Will Be The World’s Next Reserve Currency

The U.S. dollar has been the world’s reserve currency for nearly a century and that status has afforded the United States an extensive amount of privilege and control over countries large and small. It is no secret, nor should it come as a surprise, that nation-states like China and the European Union would love for their own currencies to take the U.S. dollar’s place in the financial spotlight. Indeed, history has shown a preference for toppling reserve currencies every hundred years or so:

All of the global reserve currencies so far have been completely controlled by their issuing government. Bitcoin, on the other hand, is totally free from control by any government, corporation, or individual, no matter how much power such entities may have elsewhere in the world. No wonder politicians who are used to people hanging onto their every word and command fear Bitcoin so deeply.

Perhaps the most enticing feature that will drive Bitcoin’s candidacy as the world’s next reserve currency is the fact that its supply is completely locked at twenty-one million coins. No more will ever exist. Why does this matter? Because prior global reserve currencies typically have met their ends after questionable monetary policies enacted by their respective governments led to the collapse of the currencies through rampant inflation, and even hyper-inflation in some instances. Bitcoin is inflation-proof. In other words, it’s simply impossible that inflation could kill Bitcoin.

Bitcoin Will Destabilize Governments

Governments and the politicians running them would like you to believe that political instability is inherently a bad thing. After all, if they can convince you that the evil you know is better than the (supposed) evil you don’t know, you’re much less likely to rock the boat and try to change things. Corrupt governments stay in power by convincing citizens to accept the status quo.

So how will Bitcoin change that? Bitcoin takes control of money, one of the most powerful tools in humanity’s history, out of the hands of governments and puts it in the hands of the people. And people will be able to retain that power indefinitely. Self-custodied Bitcoin are extremely resistant to confiscation and the Bitcoin network, the strongest computer network in the world, has passed its entire existence without a successful protocol-level attack.

A government that can’t control its people’s money is a government that is controlled by its people rather than the other way around. In that sense, Bitcoin will help to destabilize the overbearing, nearly omnipotent governments that exist today and will replace them with governments that finally govern in the interest of their people.

Will Bitcoin lead to a better world? That certainly is the hope.

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Bitcoin ETFs: An Australian fund management company has launched an ETF that tracks companies who either drive 75%+ of their revenue from Bitcoin or hold 75%+ of their assets in Bitcoin. Read more

Mr. Bitcoin: Bitcoin proponent Jack Dorsey has stepped down from his role as CEO of Twitter, with many believing that he will use the extra time to focus on Bitcoin projects at his other company, Square. Read more

Bitcoin Corporations: Many multinational corporations are using cryptocurrencies to facilitate cross-border money transfers, with Bitcoin being the most commonly used. Read more

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Our monetary system doesn’t need to be fixed. It needs to be replaced:

We are still early to Bitcoin:

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Dear Readers,

Our world is in the midst of an extreme crisis: a debt crisis that threatens to wreak havoc on economies and standards of living around the globe. It’s estimated that the global debt level of governments, households, and corporations is nearly $300 trillion USD. For context, that’s much higher than the roughly $100 trillion in annual GDP, meaning that it would take humanity several years to generate enough cash flow to pay off the debt even if it were possible to completely dedicate GDP to servicing our debts for a few years.

Some observers may argue that certain types of debt, like mortgages on primary residences or student loans for higher education, are worth it. However, it’s hard to deny that the burden of debt humanity is living under is close to unbearable. Many countries, large and small, are struggling to balance budgets since interest payments on their debts take up an ever-increasing percentage of annual tax revenues.

The burden of government debt trickles down to everyday citizens as well. Rather than spending less than they take in and using the excess to pay down debt, governments instead resort to increasing taxes, reducing interest rates, inflating the money supply, or oftentimes a combination of all three. Each of those actions is harmful to workers, investors, and savers. But inflation is perhaps the most pernicious since it typically goes unnoticed by the average citizen. Inflation decreases citizens’ standard of living by reducing the purchasing power of their hard-earned money.

False Fiat Narratives: Government and the “Evil” of Deflation

Inflation has little to no benefits for the average person. Governments are the immediate benefactors since they use inflation to reduce the cost of their debts at your expense. State-sponsored economists would like people to believe that the “benefits” of inflation trickle down, but the reality is that almost all of the new money supply left over after governments have taken their enormous cut goes to the corporations they bail out year after year. Hardly any of it will ever arrive in the bank accounts and paychecks of everyday citizens, and whatever benefits they do receive are significantly outweighed by the massive costs of inflation that they paid to begin with.

Since inflation is so negative overall, governments have to work overtime to deceive their citizens about its true costs. Of course, it’s difficult to convince people that paying more in rent or for gas and food is a good thing. As a result, governments tend to focus their attention on trying to convince people that deflation rather than inflation is the true evil. Their arguments are unfortunately rather widespread. For example, Investopedia, a commonly used educational website for investing, economics, and finance, starts out an article about deflation as follows:

Typically, deflation is a sign of a weakening economy. Economists fear deflation because falling prices lead to lower consumer spending, which is a major component of economic growth. Companies respond to falling prices by slowing down their production, which leads to layoffs and salary reductions. This further lowers demand and prices.

Investopedia gets several things wrong. For starters, falling prices tend to lead to higher, not lower, consumer spending, at least for goods and services that are worth purchasing. Similarly, making a blanket statement about companies slowing down production when prices fall is extremely simplistic thinking. After all, the global economy and the supply chains supporting it are extremely interconnected. When prices fall as a result of deflationary pressures, they fall for most people. In other words, companies might be getting paid less for their outputs, but they’re also paying suppliers less for their inputs.

Bitcoin Fixes This

Two of the more common arguments critics use to attack deflationary currencies revolve around debts and salaries. Let’s look at both in the context of Bitcoin, the first perfectly deflationary currency to ever exist:

Debts Will Become More Expensive Over Time

The thought process here is that a deflationary currency will be overwhelmingly negative for debtors since the balance of their debt will become more expensive in real terms, and thus harder to pay off, over time. The fatal flaw of this argument is that it implies that all debts are worth taking on in the first place.

Having a deflationary currency like Bitcoin, which will always increase in value over the long-term since its supply stays the same while the supply of everything else increases, will not stop savers from making loans or debtors from taking them. After all, many debtors will find the increased cost of debt to still be acceptable if it puts a roof over their heads or improves their prospects through education. But a deflationary currency will make savers less likely to loan out their valuable holdings to governments who take advantage of them, corporations who don’t produce worthwhile goods and services, and other borrowers who don’t have the means to service their debts.

In a nutshell, a deflationary currency like Bitcoin trims out bad debt and turns the focus to good debt.

Workers Won’t Be Able To Accept Falling Wages

The thought process here is that a deflationary currency will cause workers to receive lower wages over the long-term. It’s certainly understandable that a lot of people believe this argument. After all, how would you feel if your boss came to you tomorrow and offered to pay you less money for the same amount of work? The fatal flaw of this argument is that it entirely ignores the real reason that wages would nominally decrease in the first place: since the purchasing power of deflationary money increases over time, companies can purchase more of their workers’ time and effort for the same amount of money.

Inflationary currencies have been with us for millennia. So the idea that our work might be compensated with less money while our actual purchasing power doesn’t change is completely foreign to us. Perpetual inflation has made us believe that prices and wages must always go up. But that will not always be the case. After a few decades on a deflationary, sound money system where prices and wages go down while the standard of living continues to go up will open our minds to the illusory wage gains of the current system.

With Bitcoin, those who earn the value of their money will retain it. And society will finally be able to enjoy the general decreases in prices that result from technological advancements and from increases in productivity that have been masked for decades by state-sponsored theft through inflation.

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Crypto Regulation: Binance’s CEO has indicated that he supports additional regulation of the cryptocurrency space in the interest of protecting users. Read more

Bitcoin Celebrity: Football superstar Odell Beckham Jr. has indicated that he will take his salary in Bitcoin through a partnership with Square’s CashApp. Read more

Crypto Corporations: Payments mega giant Stripe, which previously ended support for payments through Bitcoin, has indicated an openness to revisiting the possibility of supporting crypto payments on its infrastructure. Read more

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Who’s going to be next?

A lot of factors are conspiring to impact Bitcoin’s price in the long-term:

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Dear Readers,

The United States of America was originally founded upon the principles of democracy and self-governance. Its Founding Fathers believed first and foremost that citizens had a God-given right to life, liberty, and the pursuit of happiness. Maybe just as important though was their belief that people had the right to govern themselves and choose their own leaders. They formalized their beliefs in a series of documents, perhaps the most important of which was the U.S. Constitution, which defined exactly how the newly formed country was meant to be governed and which rights were eternally granted to its citizens.

The Founding Fathers had high hopes for the new country and for the Constitution that would preserve its structure. Unfortunately, it may be safe to say that their lofty goals have been diverted somewhat in the intervening centuries. Constitutional doctrine is debated daily in the halls of Congress and the Supreme Court, with the document’s meaning being repeatedly re-determined on the whims of the political pundits of the day. This shouldn’t come as too much of a surprise. The people tasked with protecting the Constitution are human after all and subject to their own imperfections. There was simply no better alternative at the time of the Constitution’s signing.

DAO: What’s In A Name?

Thankfully, times have changed. Technologies like the internet and social media have opened up the possibility of participation in governance and leadership to a much wider range of people. That said, those technologies to a large degree are still controlled by gatekeepers, both public (i.e., the government) and private (i.e., corporations). But blockchain may succeed where predecessor technologies have failed.

Blockchain in its purest form allows for financial and governance systems to operate in an entirely trustless manner. Participants are able to rely on underlying software code to execute orders without bias or interference. In other words, there is no need to trust a government organization, corporation, or anyone else to certify the system and its functionality. This openness and the technology enabling it have led to the ability to create decentralized systems where any number of people can participate in governance. And there may be no better example than Decentralized Autonomous Organizations (DAOs).

A variety of DAOs have been created over the years, allowing people to anonymously come together for a variety of reasons, such as investment management and currency creation. DAOs do not rely on centralized parties for governance and enforcement. They instead run on top of smart contracts that have the sole purpose of ensuring that the commonly defined goal is met. Each participant in a DAO typically receives a share of the organization’s governance responsibility commensurate with the level of investment sent into the smart contract, which helps ensure that decision-making is distributed and that any bad actor wishing to gain control of the DAO’s governance needs to spend considerable sums in order to achieve that goal.

It is important to mention of course that there are other ways to interfere with a DAO’s operation. For example, the very first DAO met an unfortunate end at the hands of a hacker or group of hackers who exploited a flaw in the coding of its underlying smart contract to steal millions of dollars’ worth of the Ethereum cryptocurrency. In spite of DAOs’ imperfections, it stands to reason that their open governance structure and the fact that they are easily deployed on top of worldwide blockchains will soon lead to an explosion in their use in various industries and communities.

A Meeting of DAOs and the Constitution

In a rather poetic turn of events, a DAO was recently formed by a large group of people whose goal was to obtain an original copy of the U.S. Constitution. That seems fitting since, had the technology existed at the time the Constitution was written, the Founding Fathers may have been inclined to use a DAO to guide the country’s governance. Such a course of action would have enabled democratic participation by all citizens, rather than subjugation to the Executive, Judicial, and Legislative branches that dominate the country’s governance structure today.

It’s been rumored that ConstitutionDAO’s formation was originally proposed as a joke, but a core team quickly solidified around the idea and tens of thousands of participants around the world came together to provide over 40 million dollars of funding for the purchase. In what could be considered proof of the superiority of decentralized governance over centralized structures, the DAO’s end goal was to make the acquired Constitution available to be viewed by the public for free rather than acquiring it as a tool for profit. Unfortunately for us all, ConstitutionDAO was unsuccessful in its quest and was outbid by the CEO of Citadel, Ken Griffin, who as recently as a few weeks ago came out as a staunch critic of Bitcoin and cryptocurrency.

It is not an exaggeration to say that blockchain technology is revolutionizing the world, and DAOs are enabling people to band together to make positive change like never before. It will be exciting to see the types of investments and improvements that will change the world thanks to the collaboration enabled by DAOs.

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Crypto Roundup 🤠

Bitcoin Standard: Bitcoin’s hard money properties promise to improve governments, free economies, and benefit individuals much more than the current fiat-based system. Read more

Bitcoin DeFi: Bitcoin’s focus on being sound money ensures that it has the greatest chance to create a long-lasting alternative financial system built in DeFi. Read more

Anti-Inflation: Bitcoin will usher in an age where all people are no longer subjected to loosely-controlled inflation that robs them of wealth and long-term security. Read more

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It’s nice to have allies in high places:

FUD is simply a tool of the government to delay the inevitable collapse of fiat and its replacement by Bitcoin:

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Dear Readers,

The history of our world is full of financial crises. A review of various powerful governments from the past, such as the Roman and British empires, reveals that their downfalls had just as much to do with economic and financial chaos as with anything else. But it’s definitely not necessary to look even that far into the past. The 20th and 21st centuries have seen a host of economic downturns, so much so that economists and analysts alike have baked into their financial models the expectation that a major slump will happen around every ten years.

That reality is concerning to say the least. The average life expectancy worldwide is over seventy years, which means that, on average, each of us will see around seven major financial downturns during our lifetimes. The very thought can be enough to make us want to pull our hair out in frustration.

Why is this our reality? What is driving our world economy from one major crisis to another before we’ve even had a chance to recover from the first? While it may be reductive to try and attribute the cause of financial crises to a single source, there certainly is one driver of financial ruin that has more impact than most: Fiat currency.

False Fiat Narratives: Governments and Inflation of the Money Supply

For many years, governments and their economists have been trying to convince their citizens that government spending is the only way for countries and economies to fight their way out of a financial crisis. The thinking goes that if governments increase their spending to fill in the gap in consumption left by businesses and consumers who are running out of money, then those same businesses will have cash to pay their expenses, including wages for their workers who can turn their compensation into additional consumption. The vision of a self-sustaining economy built on the back of the government’s budget can certainly seem like a convincing narrative. There’s just one problem: inflation is the problem, not the solution.

Hold it though. We were talking about government spending, not inflation. During a financial crisis, they are one in the same. History has taught us that governments run deficits in their budgets even during non-crisis times. In other words, governments have no savings with which they could fund extra spending during financial downturns. Nor are they able to fund such spending through additional taxes or the sale of government debt. After all, levying extra taxes on businesses and consumers during a financial crisis would lead to the very “cash crunch” that governments are trying to avoid. And businesses and consumers who can’t pay their own expenses certainly don’t have money to buy government bonds.

In no uncertain terms, inflation always results when excessive government spending happens during a financial crisis. No extra cash exists for governments to carry out that spending. So what do they do? They print more. Trillions more. And when governments print cash out of thin air, the cash sitting in your wallet, your bank account, or your investment portfolio is worth less. As your ability to buy goods and services that you need for survival and comfort decreases, you are forced to spend more and more of your existing and future net worth just to get by. Your ability to save for the future goes down, and your ability to weather financial crises by living off of your savings goes down with it. It’s a vicious financial cycle and it explains why our world moves from one financial crisis directly into the next: government spending exacerbates the current crisis and creates the next one.

As a result, the idea that government spending through monetary inflation can bail out a nation in crisis is paramount to giving an arsonist a torch and asking him to use it to put out the fire he started. It’s never going to work.

Bitcoin Fixes This

If the issue at hand is the nearly uncontrolled growth in the money supply, then there is no better solution than that offered by Bitcoin. Bitcoin is the hardest monetary asset in history. It’s hard cap of 21 million coins is widely known and firmly set in stone. No amount of government interference can change the Bitcoin supply cap.

People and businesses who save their wealth in Bitcoin can rest assured that the value of their holdings will never decrease as a result of someone counterfeiting Bitcoin (i.e., inflating the supply). As their confidence in the persistent value of their Bitcoin-denominated wealth grows, people’s desire and ability to save will grow in tandem. Hard times will still come. After all, pandemics, revolutions, natural disasters, and the like will continue to take their toll on humanity. But people will be able to weather those financial storms on the strength of their own saved resources, not on the pretended strength of their governments’ ability to spend.

Bitcoin offers the world a better way to live and a better way to save. Many will argue that governments will still have a place in a world in which Bitcoin is the global store of value and global currency. If that is true, then in such a world governments will no longer be judged by their ability to spend, but by their ability to serve their citizens.

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Bitcoin Nation: The President of El Salvador has indicated that more people in his country are using Bitcoin than are using banks. Read more

Institutional Bitcoin: Bitcoin adoption by major companies may lead to significant long-term growth, not just in price, but also in ease of use. Read more

Bitcoinlandia: Volunteers in the Democratic Republic of the Congo are teaching families how to use Bitcoin to improve their way of life and their standard of living. Read more

Into the Twitterverse 🐥

The government and government officials are supposed to serve the people, not the other way around:

You pay for government excess like stimulus checks everyday through inflation:

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Dear Readers,

The cryptocurrency market went through a monumental bull market in 2017 and 2018, primarily as a result of massive growth on the part of the two largest cryptocurrencies, Bitcoin and Ethereum. For Ethereum, it was a time where the blockchain’s use cases were being put to the test. As an example, many of the most well-known NFT projects, like CryptoPunks and CryptoKitties, were released during this time. But perhaps the biggest development of that bull market was the ICO craze.

ICOs, or initial coin offerings, often draw comparisons to initial public offerings (IPOs), and for good reason. After all, both offerings are primarily used by new and often small companies to draw in money from investors to fund product development, corporate growth, and ongoing operations. ICOs took in billions of dollars’ worth of investment before being more or less shut down by regulators in many countries (but that’s a story for another day).

ICOs were enabled by the easy creation of fungible tokens on the Ethereum blockchain, usually under the ERC-20 standard. Creating new cryptocurrencies had been relatively easy beforehand since many of the largest protocols, like Bitcoin, were open-source. But the introduction of the ERC-20 standard was gasoline on the proverbial fire. Anyone could quickly, easily, and cheaply create their own cryptocurrency. And thousands of people and companies have done just that since then. Some of those cryptocurrencies are still around these days. But many of them have come to rest in the trash heap of history. And if there’s one truth about crypto, it’s that history has a tendency to repeat itself.

CityCoin: Future Funding for Cities and Governments?

Case in point: the cryptocurrency market is currently in the midst of what is surely its largest bull market to date. Bitcoin, is regularly hitting all-time highs. Popular blockchain technologies like NFTs, DeFi, and DAOs are back in vogue. And new cryptocurrencies, some valuable and many not, are being created left and right. It’s into this atmosphere that a brand new type of cryptocurrency, one that promises that it will revolutionize government funding, makes its entrance: CityCoins.

The name is spot on of course since only cities, like Miami and New York City, are eligible to have a namesake coin created. But what exactly is a CityCoin and how does it work?

CityCoins are deployed on top of the Stacks blockchain, a layer-1 solution that piggybacks on top of the Bitcoin blockchain to improve both security and miner compensation. There are only two functioning CityCoins at this point, MiamiCoin and NYCCoin, but the non-profit organization behind the project has ambitions to create a CityCoin for many more major cities over the next few years.

CityCoins appear to have a rather limited value proposition currently. The project’s own website puts it best:

CityCoins offer people a way to support their city and grow its crypto treasury.

In other words, CityCoins are essentially a blockchain-based way to make donations to your own city or another city that you want to support. The project’s backers have shared long-term ambitions to enable other use cases such as lending, smart contracts, and more though.

How does it work?

In all honesty, the process of making donations to a city through CityCoins is rather convoluted:

A smart contract in a particular city’s name is created on the Stacks blockchain.

Once activated, anyone is able to mine the CityCoin by sending the Stacks blockchain’s native token, STX, to the smart contract.

30% of the STX donations are sent directly to a wallet reserved for the city itself. The city is able to cash out the donation for another cash or crypto at any time.

The remaining 70% of the STX tokens are sent to prior miners of the CityCoin who have chosen to “stack” their CityCoin, a similar process to staking on a Proof of Stake (PoS) chain, except without any benefit of protocol governance attached.

Why do I say it’s convoluted?

For starters, the stated goal of CityCoins is to provide direct funding for cities through cryptocurrency. And yet, the protocol only sends 30% of the donations to the city, while sending the rest back into the system, presumably to be used once again in the donation process. As a result, the whole process is rather circular and seems to primarily exist in order to convince users and observers that there is utility for CityCoins outside of making donations to the government (which there currently is not).

The project’s description of its own tokenomics seems to shed light on the value actually being created:

CityCoins will continue to grow over time as cities and their citizens see fit, bestowing reputational, identity, ownership, access control, and programmable utility on top of their fundamental economic functionality.

In case you didn’t catch it, several of the “benefits” derived by participation in a CityCoin’s ecosystem serve to further solidify the status of people who are wealthy enough to make significant donations to the city (aka, the city’s elite). In layman’s terms:

Reputational: Those who mine CityCoins will wield a reputation of directly supporting the city and city initiatives.

Identity: City supporters can be easily identified, both by the city government itself and by outsiders.

Access Control: The project states elsewhere that this means access to “digital or physical spaces”. In other words, CityCoin owners will essentially have a VIP pass to events and locations of the city’s choosing.

There are perhaps people who will argue that providing direct funding to cities is worthwhile. Whether or not you believe that, my point is simply that a convoluted, self-serving pseudo-blockchain process is far from the best way to support your city financially. But if it has to be on CityCoins, then I’d argue that the “mining” should be removed altogether. Instead, 100% of the donations should be sent straight to the city in exchange for minted, not mined, CityCoins. After all, gamification is not needed when the only point of the protocol is to send money to the government.

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Crypto Roundup 🤠

Corporate Bitcoin: AMC, one of the United States’ largest movie theater chains has indicated that it will allow moviegoers to purchase tickets using Bitcoin, Ethereum, Bitcoin Cash, and Litecoin. Read more

Bitcoin America: A recent survey indicates that upwards of 90% of Americans have at least some familiarity with Bitcoin and cryptocurrencies. Read more

Proof-of-Bitcoin: A Bitcoin proponent argue that, like Bitcoin, everything worthwhile in life comes to us, directly or indirectly, through a Proof-of-Work system. Read more

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Bitcoin is nearly perfect. But it still finds time to improve:

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Dear Readers,

Our world is constantly changing. Technology improves and people and companies develop new ways to interact with one another. Much of the change is positive and has led to a significant increase in wealth and major advances in the standard of living for people around the world. But change just for the sake of change doesn’t always lead to positive outcomes. It’s imperative that any major change be thoroughly vetted prior to implementation to ensure that participants have the greatest chance possible to weigh risks against benefits before putting their lives and livelihoods at risk.

Bitcoin clearly embodies that ethos. Bitcoin has seen several major upgrades over its lifetime, but those upgrades are often years apart and require a significant amount of back and forth between developers, miners, and users before being put into place. And why should it be any other way? After all, Bitcoin was designed to be digital money and currently fulfills that role for millions of people around the world. If your life savings are stored in Bitcoin, you’re going to want to make sure that proposed changes to the blockchain won’t result in the loss of your money.

Bitcoin’s last major upgrade occurred in 2017 and implemented SegWit, which had various benefits, perhaps the most well-known of which was a decrease in the amount of space needed per transaction within blocks of the blockchain. In the intervening years, the Bitcoin community has identified and agreed upon a brand-new set of improvements, collectively known as “Taproot”, that may very well be the most important upgrade to Bitcoin in its history.

Bitcoin Improvement Proposals to the Rescue

Long-time readers will remember when we spoke about Ethereum Improvement Proposals (EIPs) several months ago in the following terms:

Ethereum Improvement Proposals, or EIPs, allow developers and users on the blockchain to propose changes, receive feedback, and, if the network agrees, have them tested and then implemented to improve the functionality of the blockchain as a whole.

Many users may not know however that the EIP process is actually based on Bitcoin Improvement Proposals, or BIPs, that, as one might imagine, occur on the Bitcoin blockchain and predate EIPs by several years.

The Taproot upgrade that will take effect in just a few days includes three separate BIPs: BIP340, BIP341, and BIP342. Each provides unique benefits that build off of one another, so it will be helpful to review all the proposals one by one:

BIP340 (BIP-Schnorr)

Public key cryptography is one of several technologies that enable Bitcoin transactions to occur in a private, secure manner. Up to this point, Bitcoin has used the Elliptic Curve Digital Signature Algorithm (ECDSA) to prove Bitcoin ownership on the network without giving away private information or the Bitcoin themselves. ECDSA has worked just fine, but suffers from a few flaws because it treats multisig transactions (i.e., transactions that require more than one signature) differently than transactions that only require one signature to execute. In a nutshell, multisig transactions under ECDSA:

Are less private since multiple public addresses on the blockchain, and the fact that a relationship exists between those public addresses, are revealed.

Require more block space for each additional participant (i.e., signature) in the transaction.

BIP340 introduces Schnorr signatures, a similar application of public key cryptography to ECDSA (thus helping to facilitate backwards compatibility). However, Schnorr signatures excel where ECDSA fails: multiple public addresses and signatures on the same transaction can be aggregated into one single signature, vastly improving privacy for transactions with multiple signers and greatly reducing the amount of space needed by multisig transactions within a block on the blockchain.

BIP341 (BIP-Taproot)

When people think of smart contracts, they usually don’t think of Bitcoin, which is unfortunate because Bitcoin’s hard money characteristics enable developers to accrue and retain significant value from the applications they successfully deploy on the Bitcoin blockchain. BIP341 seeks to change the narrative.

This change is similar to what we saw with BIP340 (likely leading to their contemporaneous implementation) in that it also improves privacy and decreases block space requirements. Whereas BIP340 aggregated multiple signatures into one, BIP341 allows for more complex Bitcoin transactions, such as opening or closing a payment channel on the Lightning Network, to look the same as a simple everyday transaction (like sending Bitcoin from one wallet to another) to an outside observer.

BIP342 (BIP-Tapscript)

The final BIP included in the impending Taproot upgrade directly supports the other two, but has a different end goal. BIP342 increases efficiency on the blockchain by allowing signatures to be batched together for verification. Under the current code base, each signature has to be verified individually, which is more time- and energy-intensive than it would be otherwise.

Batching of various signatures for verification will enable a host of applications on Bitcoin smart contracts that are next to impossible currently. For example, Decentralized Autonomous Organizations (DAOs), which are commonly made up of hundreds or even thousands of separate users, will be able to execute signature verification almost as simply as if only a single user needed to be verified.

Bitcoin: Upgrades Done Right

The huge amount of value and the ever-expanding number of users on top of the Bitcoin blockchain requires that any changes to the underlying code be well thought out and thoroughly tested in advance of implementation. Critics and outsiders believe that Bitcoin’s slow review cycles are a bug, but they miss the fact that the thoroughness of Bitcoin’s improvement process ensures that the blockchain remains robust and functional as the years pass.

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Crypto Roundup 🤠

Bitcoin Hedging: Investors of all sizes are seeking out Bitcoin and other inflation hedges as inflation runs hotter and hotter as the months go by. Read more

Citizen Bitcoin: The Mayor of Miami has indicated that Bitcoin profits from the city’s own cryptocurrency, Miamicoin, will be shared with Miami citizens. Read more

Bitcoin Forecast: Several analysts and influencers have indicated that Bitcoin’s price dips are transitory and that it is well on its way to an all-time high at $75k. Read more

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A return to sound money is the only way for people and nations to save themselves:

Food for thought:

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Dear Readers,

The process of interpreting Bitcoin’s future price growth is, in many ways, enigmatic. People have tried and failed a lot over the years. Critics, of course, are the most representative group in this arena, having called Bitcoin worthless repeatedly while its price has skyrocketed instead. But even Bitcoin’s staunchest supporters find themselves at odds with one another when it comes to price predictions. If you spend enough time on Bitcoin Twitter for example, you’ll hear price predictions of $100k, $500k, $10 million, and everything in between.

Stock-to-Flow to the Rescue

While truly predicting the price is next to impossible, there is one pricing model that has fared better than most for several years: the Bitcoin S2F model.

Originally created by a pseudonymous financial analyst named “PlanB”, the model seeks to forecast Bitcoin’s long-term price growth by relying wholly on an analysis of Bitcoin’s stock-to-flow (S2F) characteristics.

Before we dive into the specifics of Bitcoin’s S2F, know that stock-to-flow is not new and has been used, directly or indirectly, for thousands of years to price goods and to determine the propensity of certain goods to be ideal stores of value. In simple terms, stock-to-flow analysis compares the existing supply of an item (i.e., its “stock”) to the yearly rate at which the item is created or produced (i.e., its “flow”). Let’s take a quick look at two items that exemplify the high and low ends of the stock-to-flow spectrum:

Gold

Gold is the obvious choice when it comes to high marks in a stock-to-flow analysis. The metal’s durability means that almost all of the gold ever mined in human history is still with us today in one form or another. In other words, gold’s stock is massive. Meanwhile, the process of mining new gold is rather expensive and time-consuming. Thus, the flow of new gold is relatively low when compared to the massive amount that has already been pulled out of the ground.

Fiat

Fiat’s stock-to-flow score is laughable next to gold’s. The stock of fiat currency is arguably quite large. For example, global wealth is denominated in fiat currencies and is estimated to be hundreds of trillions of dollars. That said, the digital age has made the process of creating new fiat instantaneous and costless. Take the COVID pandemic: over ¼ of U.S. dollars currently in existence (whether physical or digital) were created in the nearly 18 months since the pandemic started. And the governments of the world could easily “print” an infinite amount of their currencies overnight. From a stock-to-flow perspective, fiat is a perennial loser.

Bitcoin S2F Bucks The Trend

Gold is currently the most well-known winner when it comes to stock-to-flow analysis, but that will change due to one simple reason: Bitcoin’s total supply is fixed while gold’s is not. In a nutshell, this means that gold’s flow will presumably continue into eternity while Bitcoin’s flow will come to an abrupt halt once it arrives at twenty-one million. At that point, Bitcoin will essentially have a perfect stock-to-flow score.

We discussed earlier that stock-to-flow is often used to gauge whether a good can function as a high quality store of value. Is it any wonder then that Bitcoin is quickly outpacing gold as the preferred store of value for people, corporations, and governments? In this regard, the fact that stock-to-flow works as well as it does to predict Bitcoin’s price growth makes a lot of sense. After all, scarcity is its own reward when it comes to money.

What Else Drives Bitcoin’s Value?

There’s a common critique against the Bitcoin S2F model, and it’s that there are other factors driving Bitcoin’s value appreciation. In other words, critics seem to be mad that the model’s creator, PlanB, didn’t include an exhaustive look at EVERYTHING that impacts Bitcoin’s value. Let’s look at a couple of those factors here:

Adoption

This is naturally one of the most important factors because scarcity isn’t very valuable if nobody wants to buy the scarce item.

Over the last twelve years, Bitcoin has gone from being used by a few dozen cryptography fans on obscure chat forums to being used by tens of millions of people the world over. That exponential increase in demand to hold Bitcoin has driven its price from $0 to over $60,000 as of writing.

Decentralized

Remember how we talked about governments having a limitless ability to create their fiat currencies? That ability is enabled entirely by the fact that governments have absolute control over the currencies and, to a large degree, the economies that utilize them.

Bitcoin by comparison is free from interference by anyone. The past several years have shown that:

Governments cannot stop Bitcoin

Altcoins cannot stop Bitcoin

Corporations can only help Bitcoin

Bitcoin’s network entirely shuns overbearing overlords and is becoming larger, and thus more decentralized, every day.

Should you have a plan B?

Whether or not you believe in the value of Bitcoin’s S2F model, it can be a helpful way to quantify and understand how scarcity directly drives Bitcoin’s price appreciation. I encourage you to do your own research into the model and determine what impact, if any, it has on how you understand and interact with Bitcoin.

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Crypto Roundup 🤠

Bitcoin Mayor: Mayor Francis Suarez of Miami has indicated that he will take his next paycheck 100% in Bitcoin, doubling down on his public support of Bitcoin adoption. Read more

Bitcoin Banking: Commonwealth Bank of Australia, the largest in the country, has indicated that it will roll out Bitcoin and crypto trading to its customers through a partnership with the cryptocurrency exchange Gemini. Read more

Crypto Eats: The fast food chain Burger King has teamed up with the stock and crypto app Robinhood to offer free cryptocurrency rewards to customers. Read more

Into the Twitterverse 🐥

Most of the money printed last year by governments went to banks, corporations, and other entities who didn’t “need” it under any sense of the word:

Don’t be fooled. Governments don’t like Bitcoin because they can’t control it. And why should they? Look at what they’ve done to their own currencies.

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Mark couldn’t believe it. He had been busy for sure, and his attention wasn’t always completely devoted to managing his cryptocurrency exchange. But still, he didn’t understand how so many Bitcoin could have just vanished from the exchange’s wallets. Had an employee stolen them? Had a hacker slipped past the exchange’s security measures? Had they been sent to the wrong address?

He could feel the walls closing in around him. He had tried to delay the inevitable for a couple weeks in order to give him time to try and find the missing Bitcoin. But time was running out. Protesters were dogging his every move. The media and law enforcement were sniffing around. And the Bitcoin market was tanking on expectations that Mt. Gox was about to fall apart.

There was nothing left to be done. Nothing but come clean and hope that the world didn’t do its worst to him. At this point, he didn’t have anything else but hope.

The above account is a dramatization that is loosely based on reported events surrounding the Mt. Gox Bitcoin Exchange and its operator, Mark Karpelès. As such, it should not be taken as completely factual.

Bitcoin: A Beacon of Hope

Dear Readers,

One of Bitcoin’s greatest strengths is the fact that it can be transferred nearly instantaneously across the world without the need to go through an intermediary or get a regulator’s permission. Such a transfer of fiat wealth is simply impossible. Banks and other financial institutions handle fiat transfers every step of the way and do so only with the blessing of regulators in every country in which they operate.

Although Bitcoin doesn’t need intermediaries, the vast majority of Bitcoin transfers occur with the help of centralized parties anyway. Humans are creatures of habit after all and hundreds of years of interacting with intermediaries has made it difficult to transition to a place without them. As a result, centralized cryptocurrency exchanges are the main way that most retail and institutional users interact with Bitcoin.

Some will argue that cryptocurrency exchanges have many benefits. Users don’t need to manage, and potentially lose, their own private keys. They are able to access a huge pool of tradable currencies right from their phone or computer. And they have some sense of security that the person on the other end of their trade has been vetted by the exchange.

Whether or not you agree that those features are benefits, there are certainly plenty of shortfalls as well. Hacks are common in the industry and leave increasingly large numbers of victims in their wake. But perhaps none of them has had a bigger impact than that of Mt. Gox.

Mt. Gox: Building the World’s Bitcoin Exchange

The backstory of Mt. Gox is certainly more interesting than most. Originally setup as an online exchange for cards and accessories from the Magic: The Gathering game, the site intially found little success and sat basically unused for nearly four years. The site’s founder, Jed McCaleb, learned about Bitcoin in the summer of 2010 and decided to repurpose the Mt. Gox domain for use as a Bitcoin exchange. The site grew quickly, requiring more time than what McCaleb was willing to dedicate to it, and he decided in the spring of 2011 to sell it to a Frenchman named Mark Karpelès.

The site saw massive growth under Mark’s guidance. At one point, Mt. Gox was processing trades totaling over one hundred and fifty thousand Bitcoin per day and handled around seventy percent of Bitcoin’s global trading volume. Times were good for Mt. Gox and it’s estimated that the exchange raked in tens of thousands of Bitcoin as trading fees. But the good times would only last so long.

A Slippery Slope To Insolvency

When people think about Mt. Gox, they think about the massive hack that bankrupted the exchange and tanked the Bitcoin market. And that certainly is the biggest part of the story. After all, it was unprecedented at the time.

In early February 2014, Mt. Gox halted all Bitcoin withdrawals (supposedly temporarily) and indicated that it would use the time to perform technical reviews. Over the course of the next several weeks, the company tried to blame a variety of external factors for the halt, including an issue with transaction malleability that the company described as:

A bug in the bitcoin software [that] makes it possible for someone to use the bitcoin network to alter transaction details to make it seem like a sending of bitcoins to a bitcoin wallet did not occur when in fact it did occur.

However, no amount of posturing could change the truth: Mt. Gox had lost its customers’ Bitcoin…a lot of its customers’ Bitcoin. The company came clean at the end of February 2014 and divulged the loss of around 750,000 Bitcoin belonging to its customers and 100,000 of its own Bitcoin from theft over the course of several years.

Perhaps in the grand scheme of things, the Mt. Gox theft shouldn’t have been a big surprise. Due to the exchange’s size in the marketplace, it made quite the target. But more importantly, it wasn’t the first time that Mt. Gox had experienced security issues. In fact, in a single week in June 2011, Mt. Gox experienced three separate security incidents:

Mt. Gox reported the theft of 25,000 Bitcoin from hundreds of customer accounts.

Mt. Gox’s user database leaked and was listed for sale on the internet.

The price of Bitcoin crashed to $.01 each, only on Mt. Gox’s exchange, due to a number of fraudulent trades carried out by a hacker.

Mt. Gox’s history was fraught with security incidents and mismanagement of customer assets and information. Is it any wonder that the exchange eventually met its downfall?

Bitcoin: A Lesson In Resiliency

As could be expected after the world’s largest Bitcoin exchange imploded, the Bitcoin price experienced a significant amount of turbulence, dropping by around thirty-six percent between February and March of 2014. However, Bitcoin’s strength is not tied to any one exchange. Its value is not defined by the security of the companies that interact with it. Bitcoin’s monumental growth in price, utility, and user count since the Mt. Gox fiasco is a testament to its longevity and proof of its antifragility.

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Crypto Roundup 🤠

Bitcoin Billionaires: Apple co-founder Steve Wozniak claims that Bitcoin is “mathematical purity” and lauds its advantages over fiat currencies. Read more

Bitcoin America: Bitcoin mining is revitalizing the small town of Rockdale, Texas where two of the largest mining companies in the world have set up shop side by side. Read more

Crypto Revolution: Latinx communities are adopting Bitcoin and Crypto in a big way to help transfer money, store wealth, and much more. Read more

Into the Twitterverse 🐥

It can seem like credit cards are money, but they’re not. They’re just an incarnation of fiat currencies:

Maximalist or not, it’s hard to deny that the impact of Bitcoin on the world has been anything but monumental:

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Dear Readers,

We as humans have an innate desire to seek out and obtain items that we believe to be rare and worthwhile. Sometimes those items carry cultural significance, like gold and art. Yet, oftentimes the items we collect, like Pokemon cards and sports memorabilia, hold significance to much smaller groups of people.

Regardless of how refined your tastes may be, satisfying the itch to collect has become big business. In fact, it’s estimated that the collectibles market is worth nearly $400 billion USD. Add to that the explosion of popularity for digital collectibles like NFTs, and it’s not hard to imagine that the world will soon be spending hundreds of billions more.

We can gain an understanding of what’s driving our urge to collect scarce and valuable items by looking at it through the lens of basic human survival: Our civilizations have largely been populated for millennia by people who worked day in and day out just so that they could have a roof over their heads and food on their tables. It’s understandable then that those same workers would want to exchange any excess earnings or resources for a collectible or other good that would retain its value (i.e., purchasing power) over a long period of time.

Tom Brady and a One-of-a-Kind Ball

Let’s take a look at a recent example within the realm of professional sports. Sports of all varieties have been around for hundreds of years. For many fans around the world, sports have become practically a religion over the past several decades. That’s certainly true for American Football, where another iconic collectible was minted just the other day. The collectible in question came courtesy of legendary player Tom Brady who succeeded at his sport in a way that no player in history ever had: He completed the 600th touchdown pass of his (illustrious) career.

If you’re not a fan of American Football, then perhaps this news doesn’t mean that much to you. But to mega-fans of the sport who have money to spend, the ball that Tom Brady threw could easily become a key piece of a collection that would drive other fans wild. After all, no one has ever done what he did before. In short, that ball is one-of-a-kind. It’s so unique that experts in the football collectibles marketplace have estimated that the ball is worth nearly $600,000 USD. Quite an impressive price appreciation for something that was worth nearly nothing before the game.

One lucky fan almost walked away with the iconic piece of memorabilia too. In what has become rather a controversial move, one of Tom Brady’s teammates handed the ball to a random fan in the stadium, not realizing the importance of what he had given away until a few minutes later. Luckily for Tom Brady, the fan in question was convinced to give the ball back in exchange for a pair of signed uniforms, season tickets to the team’s games, a thousand dollars’ worth of items at the team’s own memorabilia store, and one Bitcoin.

Wait, why a Bitcoin?

Yes, you heard that right. The fan managed to walk away with an entire Bitcoin as part of the deal. Not a bad takeaway, although the fan certainly still got the short end of the stick since the ball is assumed to be worth far more than the one Bitcoin and gifts he received.

Actually, the fan technically didn’t receive the Bitcoin until a couple days after the game. As media outlets started posting about the raw deal he had received by trading a half-million dollar collectible for a couple thousand dollars worth of goods, Tom Brady took to social media to offer the Bitcoin in addition to the other items.

When it comes to Bitcoin, I don’t believe in coincidences. In other words, I believe that Tom Brady was very thoughtful in his decision to give Bitcoin in exchange for his one-of-a-kind football. After all, the main reason that both the ball and the Bitcoin are valuable is because of their innate scarcity. In other words, the ball is so valuable because it’s the only one in existence, and the Bitcoin is so valuable because it’s one of only twenty-one million that will ever exist.

It seems to me that Tom Brady understood that the fan in question had given up something that was only going to grow in value. What better way to compensate that fan than by offering him something like Bitcoin that is also expected to grow significantly in value?

All in all, I don’t actually think that the guy who gave back the ball is too bad off. He’d certainly be in a better position if he had received fair market value in Bitcoin for the ball (i.e., ten Bitcoin, currently valued at around $600,000). But I believe that the long-term prospects are far better for Bitcoin than for the Tom Brady football. If we think about it, there are probably only a few dozen fans in the world who want that ball and are also in a position to pay over half a million dollars to buy it. Meanwhile, Bitcoin’s total addressable market, or the total number of people who might want to ever buy Bitcoin, is eight billion and counting.

You do the math.

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Crypto Roundup 🤠

Bitcoin Nation: The government of the country of El Salvador has doubled down on its support of Bitcoin by buying an additional 420 Bitcoin. Read more

Miner Support: The Bitcoin hash rate, or amount of computing power supporting the network, has returned to the levels it was at prior to China’s mining ban earlier this year. Read more

Bitcoin University: The University of Pennsylvania’s Wharton School of Business will allow for payments in Bitcoin, Ethereum, and USDC through a partnership with Coinbase. Read more

Into the Twitterverse 🐥

No amount of taxation or inflation can fix the fact that governments around the world have a massive spending problem:

Limiting the amount of things we buy wastefully will lead to massive positive changes for the environment:

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Dear Readers,

In an interesting turn of events, retail mega giant Walmart has rolled out the ability for its customers to easily purchase Bitcoin as part of their shopping experience. Interesting, but unsurprising. Many of you will remember the following comment I made just a month ago while addressing the fake news surrounding Walmart’s supposed partnership with the Litecoin foundation:

While this week’s cryptocurrency announcement from Walmart turned out to be fake, a real announcement from the company regarding incorporating Bitcoin and cryptocurrency might be closer than we think.

Even I couldn’t have foreseen being proven right so soon thereafter though.

That said, Walmart’s acceptance of Bitcoin makes a lot of sense. People are clamoring for access to Bitcoin. The success of the new Bitcoin ETFs released last week is proof of that. And Walmart is aptly positioned to help fulfill that demand, with over 11,000 locations around the world, nearly 5,000 of which are in the United States. Walmart has turned up the dial on hyper-bitcoinization, and both it and its customers will reap the rewards.

Bitcoin + Coinstar

Lest anyone be confused, you won’t be able to buy real Bitcoin off of Walmart’s shelves. Ironically though, you can purchase a commemorative metal imitation Bitcoin on Walmart’s website and app.

In order to make in-store Bitcoin purchases a reality, Walmart has partnered with Coinstar, which has hosted its coin-cashing machines at Walmart locations for years, and Coinme, an upstart cryptocurrency exchange that claims to have the United States’ “largest cryptocurrency cash network”. Walmart is doing a test run with two hundred locations, but has plans to roll the service out to thousands more over the long-term.

The process for buying Bitcoin is relatively straightforward:

Customers can convert U.S. dollars at a participating Coinstar into a paper Bitcoin voucher.

Customers can then redeem their voucher for Bitcoin by setting up an account on Coinme’s app.

Granted, that ease of access does come with a price. Customers can expect to pay a 4% Bitcoin exchange fee and a 7% cash exchange fee. Plus, it’s rumored that Coinme is also charging a spread, meaning that the price you pay per Bitcoin may be slightly higher than what you’d find on premier crypto exchanges. At that fee level, it would likely be better for people to buy their Bitcoin on an exchange or mine it themselves.

Bitcoin ATMs are Big Business

Bitcoin ATMs, or BTMs as they are commonly called, have exploded in popularity over the past few years. For example, the number of machines available more than doubled in 2020 and is still growing at a similar pace in 2021. As mentioned before, it’s not hard to see why. People want access to Bitcoin, and some of them might be willing to pay higher fees at a BTM instead of buying their Bitcoin on a cryptocurrency exchange.

There may be another reason as well that people are using BTMs to buy their Bitcoin. Depending on the transaction size and the BTM operator, customers may get away with converting their cash into Bitcoin without having to complete KYC procedures or otherwise self-identify. That could be appealing to users who want to keep their activity out of the government’s watchful eye. However, that window is rapidly closing as regulators like the Financial Crimes Enforcement Network (FinCEN) in the United States are actively working to incorporate BTMs into their regulatory frameworks.

There is one key difference worth mentioning between Walmart’s Coinstar/Coinme BTMs and most others: customers usually scan a QR (Quick Response) code corresponding to their Bitcoin wallet address and the purchased coins are sent there rather than deposited onto an exchange like Coinme by default. Having the possibility to take direct possession of your purchased Bitcoin is preferable for many hodlers and it will be interesting to see whether Walmart alters its approach to be less restrictive over the long-term.

Bitcoin: This Is The Way

No matter your personal feelings about Bitcoin, its staying power is becoming more apparent with each passing day. Everyday investors are buying Bitcoin and then holding onto it for years in some cases. Hedge funds, banks, and corporations are actively trading it and, sometimes, keeping it on their balance sheets. And while some governments have embraced Bitcoin, like El Salvador with its Bitcoin law, other governments have seen the writing on the wall and are trying to stave off the eventual loss of their monetary hegemony by digitizing their fiat currencies.

Given the success of my last prediction, perhaps I’ll venture by making another one:

Walmart will not be the last company to embrace Bitcoin. Far from it. Companies will continue to flock to the flagship cryptocurrency and will stake out a small space of their own in Bitcoin’s growing network.

In fact, I’m confident that by the end of the current decade, there will be more people in the world who have heard of Bitcoin than who haven’t. While likely not all of them will have purchased or held onto Bitcoin, it’s certainly not hard to imagine that billions of them will.

Bitcoin is big. It’s going to get bigger.

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Crypto Roundup 🤠

Bitcoin Salaries: The idea of taking all or a portion of one’s wages in Bitcoin has hit the mainstream, with cities like Miami and companies like Twitter considering it. But what are the implications for the average worker? Read more

Corporate Crypto: MasterCard is doubling down on its support of Bitcoin and Cryptocurrency by allowing businesses and users to access digital wallets and earn crypto as rewards for purchases. Read more

Bitcoin Senator: Rand Paul, a Senator from the U.S. state of Kentucky, has openly wondered whether Bitcoin or another cryptocurrency could become the worlds reserve currency as people’s trust in governments is falling drastically. Read more

Into the Twitterverse 🐥

Inflation is bad, especially when it’s in someone else’s control, like a government or financial institution:

Bitcoin has a lot of value propositions. Combatting inflation is only one of them:

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Dear Readers,

From its earliest days, a variety of people (and their numbers are growing) have hitched their fortunes to that of Bitcoin by buying it and investing in businesses that deal in it. It would be hard to argue that it hasn’t been rewarding for those people. After all, Bitcoin’s value has exploded and the number of Bitcoin unicorns, or businesses with a market cap of over $1 billion USD, has risen proportionately.

For the average person however, one of the only ways to engage with Bitcoin for most of its existence has been buying it directly. Most people haven’t engaged with proxy funds like Grayscale’s Bitcoin Trust (GBTC) since it typically only trades at over the counter venues. Hedge funds, venture capitalists, and investment banks meanwhile are commonly the only groups who get access to early stage investment rounds at crypto companies. On the whole, investing in Bitcoin outside of direct purchases has been rather exclusionary. That has now changed and the market will never look back.

A Short History of Bitcoin ETFs in the U.S.

Tuesday was a historic day for Bitcoin and Bitcoin supporters as a Bitcoin Exchange Traded Fund (ETF) was finally approved to trade publicly in the United States. The ETF is managed by ProShares and trades on the New York Stock Exchange under the ticker BITO.

Bitcoin ETFs in the U.S. have been a long time coming. The Winklevoss twins, of Facebook fame, filed for the first ETF way back in 2013, but the offering was rejected by the U.S. Securities and Exchange Commission (SEC) because it felt that Bitcoin markets were susceptible to market manipulation. The regulator has taken a similar stance with all Bitcoin ETFs submitted since that time up until this week, and there have been many. The Winklevi and many other entities tried again in 2018, only to be turned down. And over a dozen Bitcoin ETFs have been filed since the start of the current bull market late last year. All of them but the one that launched this week are still sitting with the SEC for approval.

The beauty of an ETF is that it is open to investors of any size or sophistication. I remain a huge proponent of buying and hodling Bitcoin directly. That said, I freely admit that Bitcoin ETFs will help drive adoption for many people, companies, and investment funds that wouldn’t likely buy Bitcoin directly in the near future, or perhaps ever. Simply put, a lot of mom and pop investors probably believe custodying Bitcoin is more hassle than they’d like to take on. Similarly, a large number of companies and investment funds have very strict mandates that limit the types of assets in which they can invest. A Bitcoin ETF certainly fits the bill for many of those investors.

Futures vs. Spot ETFs

ETFs are securities that attempt to track the price of a specific commodity, asset, or index. While ETFs commonly track the chosen investment by purchasing it directly, that is far from the only way. A large number of proponents indeed hoped that the first Bitcoin ETF would buy and hold Bitcoin, which is colloquially called a “spot” ETF. However, it turns out that the SEC and its leader, Gary Gensler, nurtured a preference towards an ETF that dealt in Bitcoin futures contracts.

If you’re wondering what the difference is between the two ETF types, you’re probably not alone:

Spot ETF

As we discussed before, a spot ETF buys and sells Bitcoin directly rather than investing in any type of asset that could be considered a proxy to Bitcoin’s price, like Coinbase or MicroStrategy stock. Since a spot ETF deals with actual Bitcoin, it’s a safe bet that the ETF’s trading price would track the underlying price of Bitcoin rather closely.

Keep in mind however that ETF operators almost always charge fees to cover trading commissions, management costs, and the like. As a result, I’d expect the spot ETF’s price to trade at a slight discount to the actual Bitcoin price under normal market circumstances.

Futures ETF

The Bitcoin futures ETF that launched this week does not purchase Bitcoin directly. Instead, it deals primarily in futures contracts, which are agreements to buy and sell Bitcoin at a predetermined price in the future. While the price of Bitcoin futures contracts is certainly influenced day to day by the actual price of Bitcoin, they are not directly tied together. This means that the value of the futures ETF will likely vary quite frequently from the Bitcoin price quoted on crypto exchanges.

In fact, I expect that the value of ProShares’ Bitcoin ETF will lag the actual price of Bitcoin even more for one simple reason: they’ve chosen to invest over thirty percent of the ETF’s value in United States Treasury Bills, or T-Bills. In case you don’t know, T-Bills are considered extremely low risk, which means they have a very low return to match. Investors will be lucky if the return on the T-Bills keeps up with inflation. Given Bitcoin’s historical performance, over the long-term there’s a high likelihood that they will severely underperform the potential return of Bitcoin itself.

All in a Day’s Work

While it may not have been the exact ETF that many Bitcoiners hoped for, it certainly has been popular. The ETF saw massive volume on its first day as around $1 billion USD was traded back and forth over the less than twelve hours that trading was available.

Additionally, several more Bitcoin futures ETFs are expected to launch in the next few weeks. Their own performance remains to be seen, but it might not be too far off to assume that even greater trading volume is coming to Bitcoin ETFs in the near future.

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Crypto Roundup 🤠

Crypto Competition: Financial analysts have downgraded the investment rating of money-transfer giant Western Union due to competition from crypto-based platforms like Strike’s Bitcoin transfer service that runs on the Lightning Network. Read more

Backlash by Bitcoin: Billionaire Peter Thiel has indicated that Bitcoin’s astronomical price increases offer a stark condemnation by investors the world over against global politics, central banks, and government financial policies. Read more

Bitcoin Celebrities: Award-winning artist Mariah Carey has endorsed Bitcoin and revealed herself to be a hodler as part of a recent partnership with crypto exchange Gemini to help educate people about the benefits of cryptocurrencies. Read more

Into the Twitterverse 🐥

I’ve heard the second option referred to as the “Billionaire’s Approach”. You decide:

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Dear Readers,

A lot has been said over the past several months about the environmental impact of Bitcoin mining. Critics preach about how Bitcoin’s supposed carbon footprint will usher in the end of days, while supporters are equally outspoken about Bitcoin’s ability to revolutionize the energy sector. With so much noise, it can be difficult for the average Bitcoin participant to navigate the conversation.

To open-minded learners, the most recent development in this narrative is sure to be of interest: Greg Abbot, the Governor of the state of Texas, and Ted Cruz, the former presidential candidate and current Senator, have both come out solidly in favor of Bitcoin. On top of that, they both stated publicly that they believe that Bitcoin mining can save Texas’ struggling energy sector. For those who need a refresher, Texas’ energy grid failed miserably this past winter as record-breaking low temperatures decimated energy providers and contributed to the deaths of hundreds of citizens.

Critics have immediately sprung up in opposition, questioning how the addition of a large group of energy consumers to what is already an overworked energy system will lead to improvements. In simple terms, their complaint centers on their apparent misunderstanding of how supply and demand work.

Energy for Everyone

For a good or asset where supply is fixed, increased demand will always lead to increased prices. Bitcoin’s twenty-one million coin supply cap for example is often cited as one of the primary factors contributing to its meteoric price increase.

However, the supply of energy is not fixed. In fact, it’s widely known that the majority of energy produced in the world today gets wasted before anyone has a chance to use it. The sun is always shining, rivers are always running, and wind is always blowing somewhere, but it doesn’t all get captured as renewable energy. The fossil fuel industry is even worse at conserving energy with oil spills and the uncontrolled flaring of natural gas being just some of the direct contributors to both worldwide energy waste and environmental destruction.

Long story short, there is plenty of excess energy out there. All that’s lacking is an incentive that will induce someone to invest significant amounts of time and money to create infrastructure to capture it. Bitcoin mining is that incentive.

If They Come, You Will Build It

Consumer demand for energy is always changing. A pair of examples:

People want energy to heat their houses when the weather is cold or to cool them when it’s hot. But what about the many places and times in which the weather is temperate?

People typically travel a lot in the summertime, and much less during the wintertime. But what about when travel is halted for months on end due to a global pandemic?

The unpredictability of consumer demand for energy means that producers are constantly guessing how much energy to produce and how much infrastructure to build. And they often guess wrong, as seen in Texas last winter.

The energy demand of Bitcoin mining on the other hand is much more predictable. Granted, the number of miners does tend to dip during bear markets, but overall it has seen massive and rather consistent growth for years. Take a look at Bitcoin’s hash rate over the past few years for example. It has had many ups and downs, including a large dip after China’s recent ban on mining, but has maintained a general upwards trajectory:

Why does this matter in the context of increasing the supply of energy in Texas and elsewhere? Simply put, Bitcoin miners use a lot of energy. And they need to use it constantly in order to keep mining and stay profitable. For power companies, Bitcoin miners can be excellent customers.

Good business is all about building for your best customers. Power companies will have huge incentives to build out their infrastructure to keep up with the ever-growing demand from Bitcoin miners for energy. If they don’t, they risk losing them as customers to someone else who will make those investments.

Bitcoin to the Rescue

So how does increasing power supply for Bitcoin mining save people from a once-in-a-lifetime mega-winter event in Texas? To understand that, we have to remember that building out energy infrastructure is rather permanent. Nuclear power plants, wind farms, solar farms, and the like take years and large amounts of money to completely roll out. Once in place, they’re unlikely to be taken offline for quite some time. As a result, the incentives that Bitcoin mining provides will lead to an increased energy supply for the long-term.

In moments of crisis, Bitcoin miners can easily take their demand out of the equation. It’s as simple as turning off their machines. Critics have openly asked why miners would agree to do so since mining is so profitable. There are a lot of possible reasons, but I believe the following are the most likely:

Supply and Demand

Whether or not Bitcoin mining is profitable is almost always determined by the local cost of energy. In other words, Bitcoin mining is only profitable up to a certain energy price point. During a weather crisis, everyday consumers are likely to be willing to pay more to use energy to save their lives than what miners can pay to profitably mine Bitcoin.

Government Intervention

For better or for worse, it’s common knowledge that governments don’t care too much about corporate profitability when it comes to public policy. While blanket bans on mining are impossible to entirely enforce, we can expect governments to apply pressure against corporate Bitcoin miners in times of energy crisis.

Goodwill

Let’s face it: public relations is a key part of any company’s business strategy in this day and age. As a result, Bitcoin miners will be incentivized to turn off their machines when peoples’ lives are on the line. The PR headache from not doing so would likely be worse for business than temporarily turning them off.

Don’t Believe The Critics, Do Your Own Research

All Bitcoin critics are only focusing on what they see as negatives, and are completely ignoring any benefits. Do we want to limit revolutionary technology because of what a handful of naysayers who haven’t actually researched the topic say? We should know better than that.

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Crypto Roundup 🤠

Bitcoin on Wall Street: The first Bitcoin Futures ETF is expected to start trading tomorrow, opening up investment to a new set of people and companies. Read more

Corporate Crypto: Square’s CEO, Jack Dorsey, has indicated that the company may begin mining Bitcoin as the next step in the process of adopting it. Read more

Bitcoin America: An opinion piece argues that the dream of attaining generational wealth through home ownership has died, and is being replaced with an American dream based on Bitcoin. Read more

Into the Twitterverse 🐥

Bitcoin is open and inclusive. Traditional finance is closed and exclusionary:

Is calling Bitcoin an investment a misnomer? You decide for yourself:

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Dear Readers,

Our world is currently experiencing an interesting dichotomy when it comes to data and transparency. On the one hand, information has never been so accessible. Nearly five billion people actively use the internet to stay connected to social media, work, shopping, and much more. Our information, both public and private, is being catalogued by the companies and governments with which we interact, in many cases whether we want it to be collected or not.

However, our world is also one of intense secrecy in which the inner workings of governments and corporations are nearly impossible to uncover. Those in power have huge incentives to keep the public eye away from their dealings. After all, the easiest way to keep one’s power is to hide it, or at least hide the means that enable it.

Perhaps it came as a surprise then last week when a treasure trove of secretive financial information pertaining to some of the most powerful government and public figures was released. The “Pandora Papers”, as they were called by the media, certainly shed light on a lot of private details that the rich and powerful likely did not want to be made public.

A Pandora’s Box of Secrets

We all know that corruption happens. The Bernie Madoffs of the world have made sure of that. However, a lot of us commonly think of corruption as happening somewhere else, but never close to home. A government in another country is corrupt, but not our politicians. A company in another state is selling tainted products, but not the one down the street.

What the Pandora Papers have helped highlight however, is that corruption is not as far away as one might think. For example, years ago people commonly associated offshore and shadow banking with the financial institutions of places like Switzerland and the Bahamas. But current media reports identified the state of South Dakota as a leading offshore tax haven for foreign entities. Additionally, based on Hollywood portrayals, you might think that high flying real estate transactions happen only in places like Dubai or Hong Kong. In that case, you probably wouldn’t expect to find out that the King of Jordan owns at least fourteen different properties in the U.S. and U.K., including three in Malibu, California that collectively are worth tens of millions of dollars, while the country of Jordan itself relies on a significant amount of foreign aid for survival.

Perhaps the most unexpected part of the revelations within the Pandora Papers though, is the fact that most of the so-called corruption uncovered is actually completely legal: Politicians steer public funds and goods towards businesses owned by their family members. Corporations use the tax code to avoid large amounts of taxes put in place by their local governments. The super rich keep vast amounts of their fortunes out of the mind of the public through trusts and holding companies. And no one bats an eye.

Cryptocurrency Gets The Short End Of The Stick

Tell me if any of this sounds familiar:

“Cryptocurrencies are used for drug sales and ransomware.”

“Cryptocurrencies are used by tax evaders.”

“Cryptocurrencies are threatening the world’s financial stability.”

We’ve just discussed how the traditional financial system, with all its laws and regulations that are supposed to protect us, actually legalizes a significant amount of questionable behavior. And yet, it takes huge revelations like the Pandora Papers for people to actually pay attention. Meanwhile, cryptocurrency gets attacked for its supposed shortcomings on a daily basis.

There is a rather simple reason for this: The traditional system works very well for the rich and powerful as we addressed above. The financial system that lives on top of blockchains does not.

Why doesn’t cryptocurrency work as well to hide and facilitate corruption? Let’s take Bitcoin as an example:

Bitcoin Can’t Be Controlled

Bitcoin is an open system that is controlled by everyone and by no one. There is no company or government behind it, a point to which even a lot of cryptocurrencies can’t lay claim. Since Bitcoin isn’t controlled by any one entity, no one has the ability to work the Bitcoin system for their own gain at the expense of everyone else.

Bitcoin Is Transparent

For all the talk of “shadowy supercoders”, Bitcoin and blockchain remain the most transparent system ever devised by humanity. Any information sent on top of the blockchain is permanently recorded and publicly broadcasted. Nothing can be completely hidden.

Contrast that with government and corporate structures that are built to keep most information on a “need to know” basis.

Bitcoin Is Equal

Are you rich? poor? male? female? black? white? Good…Bitcoin is for you.

Bitcoin’s blockchain is software code. Its purpose is simply to transfer and retain information in a specific way and it works the same way for everyone and anyone. The traditional system may work better for people of means or people with power, but blockchain doesn’t care about any of that. That’s quite literally not part of the program.

Bitcoin Is Better

Only time will tell exactly how much better Bitcoin and blockchain are compared to the financial systems under which we’ve suffered for hundreds of years. But there’s no denying that they are better.

We are at the beginning of one of the most revolutionary periods in human history, in which people will have the opportunity to control their money rather than have it control them. Control their information rather than have it controlled by irresponsible 3rd parties. Control their lives rather than be controlled by “The Law”.

Are you ready?

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Crypto Roundup 🤠

Gold 2.0: Mega-bank JP Morgan Chase has indicated that investors are starting to see Bitcoin as a better hedge against inflation than gold. Read more

Crypto Contributions: El Salvador’s President has indicated that the country may use some excess cash it has thanks to rising Bitcoin prices to build a veterinary hospital. Read more

Bitcoin Equality: Bitcoin’s openness and inclusivity enables people of all colors and all walks of life to save and grow their wealth. Read more

Into the Twitterverse 🐥

Bitcoin and Ethereum have two very different designs and use cases.

Technology tends to improve drastically overtime.

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Dear Readers,

Bitcoin seems to be practically everywhere these days. Participants on social media share memes and swap stories of epic gains and losses. Banks, hedge funds, and more are reviewing it in boardrooms in hopes that they can use it to turn a handsome profit. And regulators around the world are attempting to find how they and their rules fit in the new paradigm brought about by Bitcoin and blockchain. Quite a showing for a technology that’s only been around for twelve years.

What’s driving these developments? Simply put, the exponential growth of Bitcoin from an obscure collectible worth basically nothing to an asset worth tens of thousands of dollars apiece. And what’s driving Bitcoin’s price growth? Nothing more or less than the desire of millions of people the world over to acquire and hold onto Bitcoin for months or years at a time.

For most people, the simplest way to obtain Bitcoin is by buying it on a cryptocurrency exchange. After all, exchanges literally make their money by making it as easy as possible for you to click the “buy” button. That said, I’d argue that buying through an exchange, while simple, is not the most productive way to acquire Bitcoin. Instead, I’d argue that the best way to get Bitcoin and also support the blockchain as much as possible is through mining.

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Why Mine Bitcoin You Ask?

Bitcoin in its true form cannot exist without mining because Bitcoin cannot exist outside of its blockchain…which requires mining to operate. Thus, while buying Bitcoin is certainly productive in that it supports Bitcoin’s growth and price, mining is more productive because it provides for Bitcoin’s continued existence.

As can be expected then, Bitcoin mining has been around as long as Bitcoin, with one caveat: you’d be right if you credit the publishing of Bitcoin’s whitepaper as its de facto origin. But remember that if Satoshi Nakamoto hadn’t mined the first block, with many people mining blocks alongside and afterward, it’s basically a given that we wouldn’t be sitting here today talking about Bitcoin.

In a nutshell, Bitcoin mining is the process of performing a complex mathematical calculation over and over again in order to find a specific number that has been randomly generated by the algorithm on which Bitcoin’s blockchain is built. While it’s technically possible for you and me (or at least for a great mathematician) to solve the aforementioned calculation, doing so by hand would be painstakingly slow and would severely limit the blockchain’s ability to grow. As a result, computers have been used to run the blockchain since day one.

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A Brief History of Bitcoin Miners

A lot has changed about the mining process since Satoshi mined the genesis block. Bitcoin was designed to maximize decentralization of the blockchain, meaning that Satoshi wanted it to be as easy as possible for as many people as possible to mine Bitcoin. With that in mind, it’s straightforward to understand why Bitcoin mining was originally performed using CPUs (Central Processing Units). All computers have CPUs, meaning anyone anywhere in the world can easily hook their computer to the Bitcoin network and start mining.

As we know, Bitcoin started out very small with just a handful of people mining on the network. Those first participants were in essence motivated solely by the desire to prove that the blockchain could work since Bitcoin had little or no monetary value at the time. However, as more people began to join the network and understand the innovation that is Bitcoin, the cryptocurrency started to acquire status as a collectible. This of course jump-started Bitcoin’s price appreciation, and the rest is history.

Bitcoin mining is not a participation sport, however, in the sense that you don’t get Bitcoin every time you mine on the network. As mentioned previously, mining Bitcoin comes down to having your computer guess a random number before anyone else’s. So your ability to successfully mine Bitcoin and mine them more frequently is essentially determined by the number of guesses that your computer can make compared to everyone else’s computers. With Bitcoin’s price appreciating over very short periods, you can imagine that it didn’t take long for people to start looking for ways to make their computers more powerful at mining.

CPUs have a lot of different functionality and are used to run most of the hundreds of different processes on your computer. In short, CPUs are good at a lot of things, but not really great at anything because they don’t need to be. By comparison, GPUs (Graphics Processing Units) have a much more specific set of use cases, like gaming for example, which requires extremely powerful processors in order to run and render the gaming software and its graphics. Coincidentally, this means that GPUs are also much more powerful when it comes to performing mathematical calculations like those required by the Bitcoin blockchain. The miners who first started using GPUs instead of CPUs to mine Bitcoin had a huge advantage over their peers. It didn’t take long for the rest of the market to make the switch to GPU mining.

As one can imagine, the gains realized by switching to GPUs made market participants wonder how much more efficient the mining process could become. While more specific in purpose than CPUs, GPUs and FPGAs (Field Programmable Gate Arrays), which are slightly faster than even GPUs, are multi-purpose and weren’t developed with Bitcoin mining in mind. As a result, some participants in the market set out to design a machine that’s sole purpose was to mine Bitcoin and do it well. ASICs, or Application-Specific Integrated Circuits, were born.

ASICs are powerful to say the least. It’s estimated that today’s ASICs are 100 billion times faster than the average CPU in 2009. They are also rather expensive, with the latest models often costing several thousand dollars apiece. Consequently, mining power on the network has tended to aggregate in the hands of corporations who are able to invest large sums of money to buy lots of ASICs and pay for electricity to power them. To a certain degree, there has been a tradeoff of reduced decentralization of mining capacity in exchange for much higher network security. That said, the Bitcoin blockchain’s code hasn’t changed much and anyone can still run it off of their computer’s CPU. There’s just an extremely small chance that they’ll successfully mine new Bitcoin for their efforts.

Crypto Roundup 🤠

Crypto Regulation: The Chairman of the Federal Reserve in the United States, Jerome Powell, indicated that the country’s central bank has no plans to ban Bitcoin. Read more

Bitcoin Mining: The country of El Salvador has successfully established Bitcoin mining operations powered by geothermal energy harnessed from one of the country’s many volcanoes. Read more

Crypto Made Easy: Physical cryptocurrency exchanges are opening up worldwide for people who are distrustful of online exchanges or not sure how to use them. Read more

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The struggle with inflation is real.

What’s that you say? The world’s largest social network has been down for hours? The world’s largest blockchain is doing just fine.

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Dear Readers,

It goes without saying at this point, but China is not a fan of Bitcoin.The country’s government has passed a variety of bans against the industry over the years, from bans on banks servicing crypto companies to bans on Bitcoin mining. However, no ban has been quite so expansive as China’s latest. Apparently the previous bans hadn’t worked out according to plan, so the government took the unprecedented step last week of completely outlawing all cryptocurrency transactions of any kind. Overkill? Definitely. Destined to succeed? Highly unlikely for reasons we’ll discuss later on.

In its latest ban, China has laid the FUD (Fear, Uncertainty, Doubt) on thick, citing the following reasons for why it felt the ban was necessary:

Bitcoin is not fiat currency

Bitcoin can be used for fraud and money laundering

Bitcoin mining uses a lot of energy

As we’ve discussed in other Letters, the above FUD is grossly exaggerated. But what China’s government hasn’t shared is the biggest reason of all why it doesn’t want Bitcoin to stick around: the leaders and their grip on the country’s social and economic ways of life are threatened by it.

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Bitcoin Gets The Tech Treatment

The truth is that the freedom epitomized by Bitcoin flies in the face of many “ideals” upheld by the Chinese government:

In all honesty, Bitcoin was unlikely to ever receive a hero’s welcome in China. Technologies that the Chinese government finds disruptive are often banned as soon as the government realizes that they can’t be controlled and that citizens want to use them. In the void left by these innovative technologies, a Chinese copycat springs up shortly after China’s ban against the U.S. version is put into place:

YouTube

China blocked access to YouTube in March 2009, after the Chinese government denounced a video showing Beijing security forces beating Tibetans.

Youku, a Chinese version of YouTube, announced a significant private equity funding round in December 2009.

Twitter

China blocked access to Twitter in June 2009, two days before the 20th anniversary of the devastating events of Tiananmen Square.

Weibo, a Chinese version of Twitter, was launched in August 2009.

Facebook

China blocked access to Facebook in July 2009 after the company refused to provide information on rioters who had supposedly used the social network to organize.

WeChat, a Chinese version of Facebook, officially launched in 2011.

Snapchat

China blocked access to the messaging app Snapchat in 2013 because the company did not store its data on Chinese users on servers located within China.

Snow, a South Korean version of Snapchat that is extremely popular in China, launched in September 2015.

As most people will agree, the above companies have all done pretty well for themselves even after being banned:

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Bitcoin Can’t Be Banned

Many within the Bitcoin space are actually cheering China’s latest ban because they feel it represents the end of China’s attacks impacting Bitcoin exchange rates. After all, it’s hard to imagine what more China could directly do to reduce demand from its citizens above the total ban it just put into place. While the end of market manipulation from China is certainly worth celebrating, it leaves a very important point out of the conversation: Bitcoin can’t be banned.

Let’s get the obvious counter against China’s bans out of the way. Similar moves against Facebook, Google, and the like haven’t been very successful. Each of those sites can easily be accessed within China by both citizens and foreigners through use of a VPN (Virtual Private Network) since that technology hides your location and IP address from internet service providers and anyone else (read: the Chinese government) trying to spy on you. Even so, each of those technologies can still be banned to a certain degree because users have to be routed to specific web domains that can be blacklisted and because data is hosted on centralized servers that can be blocked. Bitcoin, however, is different:

Decentralized

Bitcoin does not have a centralized network to attack. While Snapchat, Twitter, Facebook, and so on all control their own servers, no one person or entity controls all the nodes on the Bitcoin blockchain. The Bitcoin network consists of tens of thousands of nodes and miners spread out in every country on the planet. Even though China has spent eight years trying to ban Bitcoin, I have no doubt that there are still hundreds or even thousands of computers connected to the Bitcoin network from within China to this day.

Largely Independent of the Internet

The fact that Bitcoin can be operated without the internet is a feature that people don’t focus on enough (in my opinion). What do I mean? Well, you certainly need internet access to make a trade on the Binance or Coinbase cryptocurrency exchanges. But you don’t need internet access in order to transmit data to miners so that they'll confirm your transaction, since transactions can be broadcasted over satellite transmissions, SMS messages, and radio waves. And if your Bitcoin are already in your wallet, you don’t need an internet connection just to hodl them.

Remember, your Bitcoin holdings are simply a record on the blockchain. So even if you don’t have internet access in a given moment, your holdings are still recorded across the huge network of computers operating the blockchain.

(Motivated) People Will Find A Way

China’s ban will certainly impact the ability and desire of its citizens to interact with Bitcoin. After all, threats of jail time, beatings, or social ostracization are powerful deterrents for most people. But any person who is willing to risk it all in order to hold Bitcoin will find that there are many ways to do so, whether or not the Chinese government wants it.

Crypto Roundup 🤠

Bitcoin Billionaires: Orlando Bravo, the billionaire founder of the private equity firm Thoma Bravo, has indicated that he is extremely bullish on Bitcoin and owns some himself. Read more

User-Friendly Crypto: Affirm, the company that popularized “buy now, pay later” retail, has indicated that it is working on a feature to let users buy and sell cryptocurrencies directly from their savings account. Read More

Bitcoin Adoption: The Mayor of Cool Valley, Missouri has pledged to give every household in his town $1,000 worth of Bitcoin. Read more

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If its illegal for us, it should be illegal for governments.

Let’s call it what it is.

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It was amazing to him to think how far he and his underground marketplace had come in just a few years. Originally started in order to allow people to buy anything completely anonymously, in two years the site had grown from a handful of users to over 100,000. It was more than he could have ever hoped for and the success was empowering. It was the perfect way to express his libertarian ideals. After all, he thought, what government should have the right to dictate what people can do with their lives? Surely none.

Running the site had also been extremely lucrative. Even though he and his admins only charged a small commission on each sale, so much volume had gone through the site that they had already made millions. But it required almost all of his attention and the constant effort had begun to wear on him. He worried that he was getting sloppy with his efforts to stay ahead of the authorities who wanted to shut him down. Only time would tell if he would succeed in keeping the site and his involvement hidden, but he was in too deep to give up now.

The above account is a dramatization that is loosely based on reported events in the life of Ross William Ulbricht, convicted operator of the darknet marketplace known as “Silk Road”. As such, it should not be taken as completely factual.

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The Silk Road Made Anew

Dear Readers,

Silk Road was a darknet marketplace masterminded by Ross Ulbricht, who believed that people around the world should be able to freely buy and sell anything they wanted, whether or not the goods were in fact legal. While Silk Road did allow the sale of legal items, such as cigarettes, jewelry, and art, the bulk of transactions carried out on the site were for illegal goods and services. For example, it has been estimated that around 70% of the 10,000+ products listed for sale were drugs and drug paraphernalia.

Silk Road remained online and accessible for several years, even while authorities in the U.S. and elsewhere tried to shut it down, because of the technology it used in its operations. Silk Road was located on the dark web and ran on top of the Tor network, which meant that user traffic was sent through thousands of relays in order to conceal users’ locations and usage. On top of that, Silk Road transactions were carried out exclusively using Bitcoin, which as we know is relatively anonymous as long as its users don’t do anything that could be used to link their real-world identities to their wallet addresses on the Bitcoin blockchain.

However, try as they might, the admins and users of the site were not able to keep it away from the authorities indefinitely. The long arm of the law eventually reached Silk Road and it was taken offline in October 2013. The site’s creator, Ross Ulbricht, was similarly unable to escape detection. He was captured in a sting operation and was charged with money laundering and trafficking in narcotics, among other things. For his crimes, he was sentenced to life in prison with no possibility of parole.

Bitcoin’s First Real Test as a Medium of Exchange

Although Bitcoin’s association with a site famous for the drug trade and murders-for-hire was certainly less than ideal, Silk Road did offer an opportunity for the nascent cryptocurrency to prove its mettle as a medium of exchange. I’d argue that, in spite of it all, Bitcoin passed the test with flying colors, proving that it can indeed be used as a transactional currency (although hopefully most transactions now and in the future will remain on the legal side of things). In fact, Bitcoin has a variety of features that make it a perfect choice for transactions of all types:

Pseudonymous

Blockchain operates in a completely different manner than most of the networks that we interact with daily. Your bank, your employer, and even the companies that host your social media profiles require copious amounts of your private information in order for you to use their services. By comparison, blockchain has essentially no barriers and requires no identifying information in order to join the network. As a result, users are often referred to as operating “pseudonymously” on a blockchain, meaning that their real identity is not tied by default to their identity on the blockchain.

That said, most blockchains are not completely anonymous and there are a host of entities out there, such as the blockchain forensics company, CipherTrace, who make their mark on the space by identifying the users behind blockchain addresses. On top of that, governments around the world have already introduced regulations that would require cryptocurrency exchanges, crypto banks, and other participants to implement “Know Your Customer” (KYC) rules that would pull back the cover of pseudonymity that users typically enjoy.

Permissionless

Anyone in the world is free to use the Bitcoin blockchain at any time. There are no gatekeepers. Users don’t have to request permission from governments, financial institutions, and the like in order to access the blockchain and no one can kick you off if you do something that they don’t like.

In this regard, the choice to use Bitcoin for transactions on Silk Road ensured that users of the site would always have the ability to transfer their money. A similar site, known as “The Farmer’s Market”, used payment services like PayPal and Western Union to facilitate transactions. In addition to eliminating any semblance of anonymity (a key benefit of blockchain as we discussed above), the operators of those centralized services can easily step in at any time and block transactions, good or bad.

Low cost

Facilitating payments is big business and the costs to end users are substantial. Think about all the fees that your bank charges you for the privilege of using your money after you deposit it. Or the 3+% fees that credit card companies and payment processors charge in order to make spending your money easier. Those costs add up significantly and have quite an impact on the amount of money you get to keep for yourself.

Bitcoin completely removes the need for any transaction intermediary. Value is stored on the blockchain and is protected by a decentralized network of computers that charge relatively low fees in order to process transactions. As a result, users are able to keep much more of their money than they would by sending it over the legacy financial networks that we discussed above. And while it is true that transaction costs can sometimes spike during busy times on the blockchain, a variety of layer-2 solutions, like the Lightning Network, are already in development to make transactions even cheaper.

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Bitcoin Proves its Anti-Fragility Throughout Silk Road’s Downfall

Bitcoin has experienced quite a bit of FUD (Fear, Uncertainty, and Doubt) throughout its lifetime, and the immediate aftermath of Silk Road’s downfall certainly gives us a stark example. Many users of the cryptocurrency believed at the time that a significant amount of Bitcoin’s daily volume came from Silk Road and assumed that the cryptocurrency would see far less buyer demand after the site was shut down. As a result, Bitcoin’s price plummeted over the course of a few hours shortly after the news about Silk Road broke. However, as seen below, the price quickly recovered to prior levels over the next several days:

In the grand scheme of things, Bitcoin’s disassociation from usage on the Silk Road site has largely been for the best. A sizable number of participants then and now have been put off by the idea that the cryptocurrency was used to facilitate illicit trade. And Bitcoin is much less likely to receive the ire of government authorities and regulators when it isn’t used to clear the way for the crimes against which they’re fighting. But regardless of what Bitcoin has been used for, it has thus far stood the test of time and continued to thrive.

Crypto Roundup 🤠

User-Friendly Crypto: Coinbase, one of the world’s largest cryptocurrency exchanges, has indicated that it will soon allow users to direct deposit a portion of their paychecks into their crypto accounts. Read more

Crypto Adoption: 2.1 million citizens of El Salvador have started using the country’s primary wallet app within just a few weeks of it launching. Read more

Crypto Expansion: Yellow Card, a cryptocurrency exchange in Africa, is paving the way for users to use and save with crypto without needing to understand the inner workings of blockchain. Read more

Into the Twitterverse 🐥

Whether or not you believe in Bitcoin’s ethos or technology, have you reviewed if it would be good for your portfolio?

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Dear Readers,

The year was 2008 and the world was in the midst of the worst financial crisis it had seen in decades. Stock prices swung wildly from day to day. Millions of people lost their homes and their jobs. And companies of all sizes were failing left and right. But none of them were as big as Lehman Brothers.

Before filing for bankruptcy, Lehman Brothers was one of the largest investment banks in the United States and had several hundred billion dollars of assets. The bank had been in operation for over 150 years and had diversified its investments across a variety of markets and asset classes. That preparation however, failed in keeping Lehman Brothers afloat and its bankruptcy is believed to have played a significant role in what is now known as the Great Recession.

The financial disruption from the bank’s collapse was immediate. The Dow Jones, for example, saw what was then its largest one-day drop since the aftermath of the 9/11 attacks in the United States in 2001. And the effects rippled through the economy for months afterward.

The fallout from Lehman Brothers’ collapse also had a much less apparent effect: it was trumpeted by many as proof of the need for governments and markets to support companies that were deemed “too big to fail”, or in layman’s terms (pun intended), companies that were so interconnected with the markets that their failure would supposedly cause near irreparable damage to the rest of the global economic system.

Why do I bring up what by now in 2021 must seem like ancient history to many readers? Because history may be about to repeat itself.

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Evergrande: By Name But Not By Fortune

Tell me if this sounds familiar: a company with hundreds of billions in assets around the world, diversified across a variety of markets, and whose impending collapse comes during an ongoing financial crisis. If you say yes, you’d be right.

Evergrande is the second largest real estate property developer by sales in China and was the most valuable real estate company in the world just a few short years ago. Evergrande hasn’t just stuck to developing real estate though: it has invested significant amounts of money in unrelated companies like electric vehicles, a media company, banking and insurance products, and even a sports team.

The similarities between Evergrande and Lehman Brothers have caused many financial analysts and media pundits to openly wonder if the former will be characterized as “too big to fail” and eventually rescued financially by the Chinese government. As examples:

Over one million people have paid deposits to Evergrande on properties that the developer has yet to build. The loss of those deposits could have spillover effects if it causes those buyers to default on their own debts or if they have to liquidate stocks, cryptocurrencies, and other assets to recover financially.

Construction companies, design firms, raw materials suppliers, and other companies that do business with Evergrande have employees to pay and bills to service. Significant losses tied to Evergrande’s financial distress could push many of those companies to file for bankruptcy themselves.

The majority of Evergrande’s $300 billion dollars of debt is owed to several hundred banks and other financial institutions around the world. Evergrande’s default would ripple through these institutions’ balance sheets and may force them to lend less money.

Whether or not Evergrande is deemed “too big to fail”, its troubles are having and will continue to have significant impact on markets around the world.

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Bringing It Back To Crypto

So how is this relevant to cryptocurrency and blockchain? This is a crypto newsletter after all.

For starters, Evergrande is taking the brunt of the blame for roiling markets of all types, including cryptocurrency. Have you taken a look at crypto prices this week? They were red across the board as investors of all sizes decided to take some risk off the table and liquidate crypto assets. The dip comes even though the crypto sphere has seemingly avoided any major bad news of its own this week (at least until China decided to ban crypto again this morning). The pullback may even become self-fulfilling if prices remain low long enough to cause another death cross of market leader Bitcoin’s major moving averages.

Secondly, cryptocurrency markets themselves have recently come under fire as governments and financial institutions attempt to apply the “too big to fail” label to crypto and related technologies. These critics, of course, don't want to step in and save crypto markets during a crash. They just want cryptocurrencies to go away without causing them any more trouble.

Cryptocurrencies are certainly volatile and both their combined market cap and prevalence in society have grown exponentially over the past few years. However, it’s important to keep in mind who exactly is applying the “too big to fail” critique against crypto: governments, who are the biased, self-appointed arbiters of all that is “too big to fail”, and financial institutions, who are typically a root cause of major financial crises and stand to lose a lot as they get replaced by crypto, blockchain, and decentralized finance (DeFi).

Truthfully, the idea that something is “too big to fail” conflicts with the operation of free markets. After all, markets improve and get stronger as inefficient, bad companies fail and are replaced by better versions or by new technologies altogether.

Cryptocurrencies are no different. Hundreds have failed over the years, and many more will fail, leaving only the strongest and most useful. It is not up to governments or financial institutions to decide who the winners will be. It’s up to each participant, including all of you. Choose wisely.

Crypto Roundup 🤠

Crypto Vibes: A crypto expert has estimated that cryptocurrency and Bitcoin will be major players in the financial world by the end of the decade. Read more

Going Green: Financial services firm NYDIG has estimated that Bitcoin’s carbon emissions will top out at less than 1% of the global total by 2030, even if the cryptocurrency’s price outperforms significantly. Read more

Crypto Regulation: Investors, Analysts, and Companies are all pushing accounting standard setters to update rules on how cryptocurrencies and other digital assets are reflected on official company financial statements. Read more

Into the Twitterverse 🐥

A scammer by a different name is still a scammer. Don’t lose your money to banks.

It’s amazing to see how far Bitcoin has come in such a short time.

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Dear Readers,

Regulation is one of the biggest topics in cryptocurrency these days. Governments and regulators had for years ignored crypto and related industries. Perhaps they thought crypto would simply vanish into the ether as quickly as it had come. But the ongoing bull market has turned Bitcoin and other cryptocurrencies from fringe assets into a multi-trillion dollar asset class.

Regulators have chosen to no longer ignore crypto and this year has provided ample evidence of their about-face. China has been one of the largest antagonists towards the space, banning cryptocurrency mining outright earlier this year, which was a significant contributor to the long-term dip out of which the market is still digging itself. Not to be left in the dust by its rival in the East, the United States has shown quite an adversarial streak as well, with federal regulators threatening lawsuits against the cryptocurrency exchange Coinbase, and state regulators issuing injunctions against the crypto bank BlockFi. However, perhaps no company has seen more aggression from regulators around the world than Binance, the world’s largest cryptocurrency exchange.

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Binance: From Zero To Sixty

Binance was founded by Changpeng Zhao (also known as “CZ”), a Chinese-Canadian developer. CZ had significant experience in both traditional and crypto markets prior to founding Binance, having helped to develop blockchain.info and having served as CTO at OKCoin, a different cryptocurrency exchange. CZ serves as Binance’s CEO and is a vocal member of the cryptocurrency community, participating quite frequently in industry events and boasting several million followers across Twitter and other social media platforms.

By all accounts, Binance’s growth is astounding. The company was founded in 2017, but had already become the largest cryptocurrency exchange in the world by market cap by early January of the following year. Binance is also the largest exchange by daily trading volume, often boasting a billion dollars or more in daily settled value. Lastly, it’s estimated that more people actively use Binance’s services than even its next largest competitor, Coinbase.

Binance and a Labyrinth of Regulation

Binance’s size has done little to protect it from the advances of regulators around the world, and by many accounts has made it more of a target. Regulators expect to have a centralized organization with which to interact, and Binance has for years sought to become as decentralized as it can be while still operating as a global business. That reality, coupled with a fair amount of behavior that governments have found distasteful, has led Binance into murky waters in several of its largest areas of operations:

Japan

Japan’s Financial Services Agency issued a warning in late June 2021 that Binance was operating without permission in the country and had not registered to do business. The regulator had issued a nearly identical warning in early 2018.

Thailand

Thailand’s Securities and Exchange Commission filed a criminal complaint against Binance in early July 2021 asserting that the exchange had solicited Thai citizens to use its services even though it had not filed for appropriate licensing in the country.

United Kingdom

Britain’s Financial Conduct Authority indicated in late June 2021 that an affiliate of the cryptocurrency exchange, Binance Markets Ltd., was not permitted to operate in the U.K. and would require written approval from the regulator before being allowed to resume operations.

Germany

Germany’s Federal Financial Supervisory Authority stated in late April 2021 that it believed Binance was violating the country’s securities laws by offering tokenized stocks (for companies like Tesla and Apple, for example) on its exchange. Binance stopped offering the token service just a few months later.

The Netherlands

The Dutch central bank, De Nederlandsche Bank, stated in mid-August 2021 that it believes Binance is illegally offering custodial wallets and that it does not comply with the country’s Anti-Money Laundering and Anti-Terrorist Financing Act.

United States

The U.S. Commodity Futures Trading Commission (CFTC) announced a few days ago that it has launched an investigation into whether the exchange or its employees participated in insider trading to the detriment of customers. The Internal Revenue Service (IRS) also launched an investigation earlier in the year regarding potential money laundering through Binance.

The list of actions against Binance actually goes on, with other countries like Hong Kong, Malaysia, and Italy having also acted against the company.

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Regulation is a Mixed Bag

Regulators and their supporters will claim that the laws and standards that they help enforce are necessary to protect retail investors and public interests. Those claims certainly have some merit. After all, there are many examples of Ponzi schemes, hacks, and more that have been foiled by concerted efforts of regulators and law enforcement agencies over the decades.

That said, the core ethos of cryptocurrency and blockchain is based on an absolute level of decentralization in operation. The idea that a centralized entity, like a regulator, should have the ability to interject its own rules and enforcements onto a blockchain is in many respects antithetical to what the industry has and will continue to achieve.

This is not to say that cryptocurrency and blockchain eschew regulation. Quite the contrary actually. Decentralized blockchains are designed to be highly regulated, by software code on the base layer and by the worldwide network of machines and individuals participating in the blockchain and, as a result of that participation, in the blockchain’s governance. The reality is that cryptocurrency and blockchain don’t eschew regulation, just regulators.

Crypto Roundup 🤠

Remembering Greatness: A statue of the anonymous creator of Bitcoin, Satoshi Nakamoto, was unveiled several days ago in Budapest, the capital of the country of Hungary. Read more

Institutional Investment: A real estate company in New York City has agreed to sell a property in Manhattan for $29 million in Bitcoin. Read more

Crypto Regulation: The U.S. Treasury Department is rumored to be considering implementing penalties for any crypto company caught facilitating payments for ransom ware perpetrators. Read more

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New technologies replace old technologies all the time. Why would finance and money be any different?

There is a lot of hypocrisy among critics of Bitcoin and Cryptocurrency.

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Dear Readers,

Financial markets love big announcements. The stock market, as an example, rises and falls almost weekly as various government agencies announce fiscal policies and as large corporations announce earnings and forecasts. Cryptocurrency markets are just as susceptible to big announcements. Remember the twenty-plus percent gains seen within hours of Tesla making its large Bitcoin purchase publicly known? The crypto space saw a similar event earlier this week when news came out that Walmart had allegedly begun a partnership with the Litecoin foundation to incorporate payments that use the cryptocurrency at all of its stores.

It seemed believable to many. After all, rumors that the company was going crypto have been circulating for weeks after it was announced that Walmart is looking to hire a senior director with expertise in cryptocurrency and blockchain. On top of that, the press release was initially published on GlobeNewswire, one of the largest platforms used by corporations to make groundbreaking news public.

There were without a doubt several tells however that could have clued observers into the fact that the press release was a hoax. For starters, it referenced a non-authorized Walmart website. Plus, the news was never published on Walmart’s actual corporate website. Perhaps the most telling giveaway though was Walmart’s supposed first choice to use Litecoin of all cryptocurrencies for payments.

Litecoin certainly could be successful to some degree as a payment system. The cryptocurrency’s code is largely derived from that of Bitcoin with a few small tweaks: the maximum number of Litecoin is eighty-four million to Bitcoin’s twenty-one million and a block is confirmed every two and a half minutes compared to ten minutes on the Bitcoin blockchain. However, it lacks the same level of popularity as larger cryptocurrencies like Bitcoin and Ethereum. And it does not offer quick and inexpensive transactions like the cryptocurrency Nano or like the Lightning Network, a layer-2 solution on the Bitcoin blockchain. In short, Litecoin doesn’t seem to be the most likely choice as a payment method for the world’s largest retailer.

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Bitcoin: The Clear Choice

There are a variety of reasons why Tesla, MicroStrategy, Square, and others have all invested significant sums of money in Bitcoin for their balance sheets. And why hundreds of thousands of merchants around the globe accept Bitcoin payments for their goods and services. Bitcoin has the most liquid market as far as cryptocurrencies are concerned, meaning that a large corporation like Walmart could very easily move large sums of money into and out of the asset on a daily basis. Additionally, Bitcoin has the surest claim to being a high quality store of value among cryptocurrencies. Its total supply is capped at twenty-one million and it has a significant first mover advantage compared to copycat cryptocurrencies released afterwards with their own supply caps.

But how does this apply to Walmart? What benefits or use cases could the megastore realize by incorporating Bitcoin? I’d argue that there are several:

Bitcoin for Customers and Suppliers

Money is central to all businesses, but none (outside of financial institutions of course) use more of it than Walmart. Walmart has been the world’s biggest company by revenue since 2014 and saw nearly $560 billion dollars of total revenue in 2020. Not even the coronavirus pandemic and all its associated problems could slow down the Walmart money machine.

Since Walmart is the biggest company by revenue, it’s probably safe to say that Walmart is also one of the largest payers of credit card transaction fees, which commonly average two to three percent per transaction. Walmart could easily save billions of dollars a year by electing to allow customers to make purchases with Bitcoin instead of credit cards. And because Walmart is known for having “Always Low Prices”, the company could share those savings with its customers.

Hundreds of billions in revenue also requires hundreds of billions of dollars worth of goods with which to stock shelves. Walmart works with thousands of suppliers around the globe and transacts in dozens of fiat currencies. While the company likely pays less percentage-wise in exchange and bank fees to move money around the world than individuals do, significant savings and time could be saved by switching global payments off of the fiat system and onto the Bitcoin blockchain. Fiat-based global transfers can take several days or longer to complete, compared to about sixty minutes for Bitcoin transactions. And billions of dollars can be transferred over the blockchain for a few dollars or less.

Bitcoin for Treasury

Bitcoin as a reserve asset seems to be working. Just ask MicroStrategy, which to date has purchased billions of dollars worth of Bitcoin and converted almost all of the dollars sitting in its treasury into Bitcoin. MicroStrategy made this choice for one simple reason. In the words of the company’s CEO, Michael Saylor:

We just had the awful realization that we were sitting on top of a $500 million ice cube that’s melting.

For context, that quote comes from September of last year, months before the consumer price index, which is the U.S government’s official inflation gauge, hit over five percent per month.

Walmart is currently sitting on a veritable war chest of cash, with over $22 billion in its corporate treasury. While highly liquid, that cash is stored with financial institutions that are paying Walmart a tiny amount of interest, just like they pay you and me. Prices are going up, while the value of Walmart’s war chest is plummeting. Perhaps they should take a page out of MicroStrategy’s book after all.

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But How Could Walmart Incorporate Bitcoin Across Its Global Infrastructure?

As we’ve discussed, Walmart’s business has a lot of moving pieces. So you could be forgiven for thinking that incorporating Bitcoin across its global infrastructure would take a lot of work. That said, I see a couple of ways that Walmart could relatively easily and cheaply incorporate Bitcoin-based payments:

The Lightning Network

The Lightning Network works on top of the Bitcoin blockchain and enables thousands of transactions to be processed simultaneously, with each transaction costing users a fraction of a penny. Walmart could partner with a Lightning Network-based payment processor like Strike, which has already worked with the country of El Salvador to incorporate cheap Bitcoin transactions at the national level.

Walmart Pay & The Walmart Wallet

If you’ve used Walmart’s app recently, likely a given thanks to the explosion of touchless payments brought on by the coronavirus pandemic, you’ve noticed that Walmart has already incorporated a significant level of payment functionality:

If Walmart were hesitant to use a 3rd party provider to facilitate Bitcoin payments, I can envision the company expending time and resources to add cryptocurrency wallet functionality on top of the wallet infrastructure that already exists in its app.

Walmart & Bitcoin: A Match Made In The Future

I am a firm proponent of a future in which people, companies, and governments use Bitcoin on a daily basis. While this week’s cryptocurrency announcement from Walmart turned out to be fake, a real announcement from the company regarding incorporating Bitcoin and cryptocurrency might be closer than we think.

Crypto Roundup 🤠

Crypto Regulation: The Treasury Department and the Securities and Exchange Commission (SEC) in the U.S. are taking a close look at how to regulate stablecoins. Read more

Crypto Crimes: OpenSea, the largest NFT marketplace, was forced to admit that an employee used insider information to purchase popular NFTs before they were made publicly available and then sell them at a huge profit. Read more

Crypto Mining: China continues its actions against cryptocurrency mining by going after miners hiding their operations under the guise of being research centers and data centers. Read more

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Debt is driving people into the ground. Can Bitcoin help save them?

This advice applies to both traditional and crypto markets.

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Dear Readers,

Bitcoin, cryptocurrency, and blockchain have left an indelible mark on our world. From the recesses of a cypherpunk mailing list, these new technologies have exploded into humanity’s consciousness to change the way we think about information, finance, sovereignty, and much more.

Without a doubt, cryptocurrency and related technologies are becoming mainstream. Massive corporations have begun to buy cryptocurrencies in bulk. And even conventional companies are starting to get involved in the more unconventional parts of the market. Who could have imagined, for example, that Visa would purchase a popular NFT (“Non-Fungible Token”) from the “CryptoPunk” series?

Such is the world that we now live in and these developments lend further credence to the fact that cryptocurrency and blockchain are not going away. As a result, the announcement from the credit card giant Mastercard last week that it had agreed to purchase a blockchain intelligence company likely didn’t come as a huge surprise. Just business as usual as traditional finance and blockchain-based finance continue to bridge the gap that currently exists between them.

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Blockchain: Anonymous vs. Pseudonymous

Before we talk more about what that blockchain intelligence company, CipherTrace, is, let’s talk about the aspect of blockchain that gives it its reason for existing. The vast majority of public blockchains in the world today offer some level of pseudonymity, meaning that your identity on the blockchain is represented by a public address, which is typically a long series of alphanumeric characters. This is possible because public blockchains are permissionless. You don’t have to provide your personal information in order to use the blockchain, nor do you have to establish a username and password.

That said, your pseudonymous address on the blockchain can still be linked to your actual identity in a variety of ways. One of the most common ways is through “KYC” or “Know Your Customer” procedures implemented at cryptocurrency exchanges and other crypto companies that operate in a centralized manner. Essentially, those companies are almost always required by their local governments to collect a large amount of information from you when you try to open an account. And once you transfer your assets from an account with the centralized service into your cryptocurrency wallet, anyone on the outside looking in will have a strong reason to believe that they can tie your identity to that address. Even more so if you transfer assets to that address from accounts with multiple centralized companies that required KYC.

Let's now separate fact from fiction. It’s common to hear people refer to blockchain technology as anonymous, meaning that users could, if it were true, transact on a blockchain without anyone tracing the movement of their assets and without anyone being able to identify the user. But that is far from the truth for most cryptocurrencies as we explored above. As an example, CipherTrace claims to have developed the world’s “First Monero Tracing”, Monero being the most well-known cryptocurrency that may actually have a claim to some level of true anonymity. If CipherTrace’s claim is true, then who knows if complete privacy on blockchains even really exists anymore.

CipherTrace: Pulling Back the Shroud of Mystery

CipherTrace bills itself as the “world’s first blockchain forensics team” and lists its company missions as the following:

1-Protecting financial institutions from virtual asset laundering risks and crypto-related threats.

2-Growing the blockchain economy by making it safe for users and trusted by government.

The company has seen rapid growth since its founding in 2015, currently serving around one-hundred and fifty customers, including various government regulators and law enforcement agencies.

It probably shouldn’t come as a surprise that there are a large number of entities willing to pay CipherTrace for its services. After all, many governments around the world remain distrustful of cryptocurrency and blockchain. And the sector is rife with hacks that cost billions of dollars.

On top of all that, financial institutions in the United States and elsewhere are commonly subject to Anti-Money Laundering or “AML” requirements in order to comply with their local regulators. In layman’s terms, enforcing AML means that banks, exchanges, and other financial institutions have to follow a prescriptive set of actions to detect and prevent things like money laundering, terrorist financing, and market manipulation. The pseudonymous nature of blockchain transactions throws a wrench in the companies’ ability to follow AML guidelines. AML, in no small part, drives these companies’ desire to have CipherTrace pull back the shroud of mystery surrounding the identities of blockchain users.

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The Method Behind The Madness

In addition to identifying centralized companies that officials can subpoena in order to obtain KYC information, there are a variety of other methods that CipherTrace can and does use to identify pseudonymous blockchain users:

IP Address Correlation

This method allows investigators to review web traffic in order to try and identify a user’s IP address so that associated personal information can be connected to an address on the blockchain.

Geo-Identification

Your phone or computer often sends your location to websites as part of normal web browsing procedures, and websites don’t always have to ask for your permission first before accessing it. Your location can be tied to other identifiers to help investigators confirm who you are.

Pattern Analysis

This method seeks to help investigators identify users based on behaviors that are common across both traditional and blockchain transactions. For example, if someone buys a rare coffee blend from a foreign country on their credit card and then again using their cryptocurrency wallet, investigators can use that pattern to identify the person.

Your Blockchain Is Not Private

Cryptocurrency and blockchain offer a lot of benefits, but true privacy is unfortunately not one of them in most cases. For better or for worse, corporations and governments have a high likelihood of being able to trace your behaviors across both traditional and cryptocurrency marketplaces. And companies like CipherTrace and its competitors will continue to make strides in demystifying the blockchain for years to come.

Crypto Roundup 🤠

Crypto Regulation: Ukraine has become the latest country to shine a positive light on Cryptocurrency, nearly unanimously voting in parliament to legalize the digital assets. Read more

Institutional Investment: Cathie Wood’s Ark Invest has submitted a filing with the SEC for a new fund that would have the ability to invest directly in Canadian Bitcoin ETFs. Read more

Government Excess: Respondents to an inflation survey put out by the Federal Reserve Bank of New York expect prices and inflation to increase substantially for the next several years. Read more

Into the Twitterverse 🐥

Why shouldn’t society at large have the ability to access and move its money without providing an excessive amount of information to centralized 3rd parties?

Do you know the maximum amount of your government’s money that can be printed? Trick question, there is no max. But there is for Bitcoin:

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Dear Readers,

Cryptocurrency markets are nothing if not volatile and the events of the past several days have provided ample evidence of that volatility. Cryptocurrencies across the board had seen large gains over the past month since bottoming out during the latter half of July, with Bitcoin rising over 50% and smaller cryptocurrencies like Solana and Cardano rising over 700% and 200% respectively. That price performance however put on the brakes this Tuesday as prices tanked across the board, culminating in the loss of nearly half a trillion dollars of value in the cryptocurrency market.

While this week’s carnage was far from the largest we’ve seen in the cryptocurrency space, it provided a stark reminder of the risks inherent to investing in digital assets. It was also reminiscent of flash crashes seen in March 2020 when COVID concerns tanked assets in every market and in May 2021 when Elon Musk spoke out against Bitcoin’s supposed environmental impact. That said, it seems unlikely that concerns surrounding the COVID delta variant were the cause of the current flash crash, nor were there any bearish comments from regulators or investors on which participants could pin the blame. In fact, Tuesday was meant to be a day of celebration for many in the crypto community as a result of El Salvador successfully recognizing Bitcoin as legal tender within its borders. So what was it that caused cryptocurrencies to lose billions of dollars of value over the course of a few minutes?

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Leverage: A Little Money From Me, A Lot Of Money From You

Cryptocurrency analysts and experts have pinned the blame for the most recent flash crash on two factors: profit-taking and leverage. Both are almost always present in the market, but it’s not difficult to see how they could have combined to depress cryptocurrency prices. As we discussed before, digital assets saw massive price increases in a relatively short amount of time and not everyone is in the market for the long-term. Traders likely took significant profits in order to eliminate some of their own risk and profit-taking probably accelerated as prices began to tumble. As prices reached certain key levels, stop losses at derivatives exchanges and crypto banks kicked in to ensure that leveraged trades would be flushed out of the system, further exacerbating the carnage in a mad dash of participants trying to exit crypto trading positions.

Profit-taking is a natural part of any market and its impact on this week’s events is likely muted compared to leverage. But what is leverage and why did it have such an outsized impact on the cryptocurrency market as a whole?

In the simplest of terms, having leverage in financial markets simply means borrowing someone else’s money in order to invest. Leverage is also not exclusive to investing in stock, cryptocurrency, or foreign exchange markets. For example, many people around the world use banks’ money to buy a house. It is rather uncommon though to see homebuyers wiped out en masse as a result of leverage, which is a common occurrence in cryptocurrency markets, and that comes as a consequence of the amount of leverage used. Home loans rarely exceed the value of the home itself, whereas the leverage offered by cryptocurrency exchanges and other companies can often surpass the value of an investor’s collateral by a factor of 25, 50, 100, or more.

Leverage is attractive for investing because it can allow a small initial investment to see outsized gains when asset prices increase. As an example, an investor using 100-to-1 leverage can double their money if the asset’s price increases by a meager one percent. The same performance without leverage would of course require the asset’s price to double in order for the investor to double their money. And leverage can be relatively inexpensive since popular cryptocurrency exchanges like Kraken and FTX charge a fraction of a penny per day on each dollar borrowed.

Nevertheless, it is essential to remember that leverage is a double-edged sword that magnifies profits AND losses. If an asset’s price decreases, you run the risk of losing significant amounts of your own money since the same companies who happily help you leverage your investments are not going to put their money at risk. It was that behavior from investors and companies that played a large role in the most recent flash crash. When cryptocurrency prices began to plummet, traders and their leveraged investments were liquidated rather than put the companies’ assets at risk.

Cryptocurrency critics are quick to cite flash crashes and leverage as reasons why cryptocurrencies are overly risky, but it’s important to remember that leverage can have similar impacts in other markets:

The Great Recession of the late 2000s was caused in large part by decreasing prices of homes relative to the mortgages backing the properties. In other words, home buyers were overleveraged and many were wiped out by an inability to pay down their loans.

Bill Hwang, founder of Archegos Capital Management, lost around $20 billion dollars of his own money and billions more belonging to his lenders over the course of a week in March 2021.

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Why Does Leverage Seem To Have A Bigger Impact In Crypto Markets?

While leverage certainly impacts a wide range of financial markets, it does often seem that it makes more of a dent in cryptocurrency markets. In the grand scheme of things, that reality may simply come down to the size and maturity of cryptocurrency markets compared to other financial markets. For instance, the global real estate market is valued at nearly $300 trillion dollars while the global stock market is valued at over $100 trillion. The value of all cryptocurrencies by comparison tops out at less than $2 trillion dollars. As a result, when billions of dollars worth of leveraged positions get liquidated in cryptocurrency markets, it has a much larger impact than a similar level of liquidations would have within either the stock market or real estate market.

Investing in cryptocurrencies, with or without leverage, can be extremely rewarding. The immense wealth created by the cryptocurrency industry over the past decade is nearly unparalleled in human history. Be that as it may, the risks involved in cryptocurrency investing can be just as devastating to many participants. Each of us needs to do plenty of legwork before investing in a particular cryptocurrency or digital asset and ensure that we understand both the rewards and the risks. Our financial security could very well depend on it.

Crypto Roundup 🤠

Crypto Adoption: The central banks of Honduras and Guatemala are looking to get into digital currencies, especially in the form of a central bank digital currency. Read more

Investing Made Easier: Robinhood will soon introduce the ability for users to make recurring purchases of supported cryptocurrencies through its app. Read more

Crypto Regulation: In a surprising move, the U.S. Securities and Exchange Commission (SEC) is rumored to have threatened Coinbase with a lawsuit over its proposed “Lend” product. Read more

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The truth hurts, which is why politicians are incentivized to avoid it, lie about it, and pretend it doesn’t exist.

Bitcoin continues to advance in the minds of people, companies, and governments around the world.

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Dear Readers,

Human history has been defined by a large number of monumental developments. The wheel allowed civilization to transport goods and people across long distances. The printing press allowed knowledge to be recorded and widely disseminated. The automobile gave people more freedom and improved the reliability of travel. However, perhaps none of these developments, or the countless others we didn’t mention, have had a greater impact on society than money.

The importance of money cannot be overstated. Prior to the invention of money our world largely operated on a barter system, wherein individuals traded the goods and services they produced for one another directly rather than using a uniform medium of exchange. However, the barter system was wholly reliant on satisfying what is called the “coincidence of wants”. If I were a chicken farmer wanting to acquire some flour, I would have to hope that the people producing flour wanted to give it to me in exchange for my chickens. Sometimes bartering worked out, but oftentimes it did not.

The invention of money eliminated the “coincidence of wants” to a large degree. Money was established as a medium of exchange that all people were willing to utilize in order to buy and sell the goods and services that they produced. Almost everyone could be trusted to accept a society’s chosen money, improving the flow of large economies and allowing trade and civilization to flourish.

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The Primary Functions of Money

Money has taken a variety of forms over the millennia, and people have naturally gravitated towards monies that best fulfill the following three functions:

Store of Value: Goods and services can degrade in value over time as products rot and as the abilities of service providers decline. High quality money, on the other hand, has a strong ability to maintain its value over time. A monetary asset that performs well as a store of value allows holders to carry value forward in time to be used at a later date when it is more needed than at present. This benefit in many instances enables individuals and societies to wait to invest their money in resources and technologies that have a better chance of improving their standard of living. Monies that do not function well as stores of value, such as the German mark after World War I and the Zimbabwe dollar in the late 2000s, force holders to immediately spend their money on whatever goods they can get their hands on before their money’s value tanks.

Unit of Account: A high quality money allows goods and services to easily be priced and compared against one another across an entire society. Barter systems included units of account to some degree, but you can imagine that it would be difficult for a chicken farmer and flour miller to price their own goods against one another over time as the supply and demand of each fluctuated, not to mention against the thousands of other goods and services typically available in an economy. Money as a unit of account allows all goods and services to be priced in the same denominations and enables producers and purchasers to track value across the entire economy.

Medium of Exchange: As mentioned above, a good money is something that appeals to a large number of people, whether locally or across large regions. If no one wants to accept the money that I’m using, then I’m back to having to solve the problems associated with the “coincidence of wants”. I have to find someone who wants my money or else find someone who’s willing to trade directly for the goods or services I provide. However, if my money is widely accepted as a medium of exchange, then I can be highly confident that I can acquire the goods and services I need without too much difficulty.

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Bitcoin: One Money to Rule Them All

Money has seen quite an evolution over time. Originally, objects like cows and shells were used as money because they were often widely available and had a lot of value across societies. Precious metals served as money for centuries, including in today’s world to a certain degree, because they were durable and could be used in a variety of ways. Fiat money like dollars, euros, and rupees, next came into vogue because of the powerful governments enforcing the use of their money within societies. There are a variety of qualities that make good money and have helped to guide the evolution of money over time. We’ll review each of those qualities in the context of humanity’s best money to date: Bitcoin.

Durability

An asset’s durability speaks to its ability to retain its form and function over time. Shells can get crushed or otherwise damaged. Paper can tear or get so dirty as to make it impossible to use. Precious metals like gold are extremely durable which contributed to their use as money for much longer than many other forms.

Bitcoin exhibits a high amount of durability due to its digital nature, which means it is impossible for it to rust, tear, or become damaged. And its blockchain runs on top of thousands of computers around the globe, meaning it is extremely robust and resistant to any form of tampering.

Portability

Money is more useful as it becomes easier to carry around, especially in large quantities. Shells are typically small and large amounts can be transported with relative ease. Cows and precious metals on the other hand are rather heavy and making a large purchase denominated in either would require a lot of effort to get them to and from a marketplace.

Bitcoin is extremely portable, again due to its digital nature. In fact, any amount of Bitcoin can be secured in a single cryptocurrency wallet, meaning that all one needs in order to access large quantities of Bitcoin is the corresponding private key recorded on a flash drive, on a piece of paper, or in the holder’s mind.

Divisibility

Divisibility of money allows for more precise quantities of a good or service to be acquired. Many forms of historical money were rather difficult to divide into portions without also negatively impacting their durability. Fiat money, however, is typically seen as being highly divisible, such as exchanging a $100 bill for 100 $1 bills or exchanging a $1 bill for 100 pennies.

Bitcoin again excels in this area since each Bitcoin is divisible into 100 million “satoshis” on the layer-1 blockchain. Many layer-2 services, like the Lightning Network, and crypto companies allow for even smaller denominations to be recorded in their own native ledgers.

Fungibility

A monetary asset that has units that can easily be exchanged one with another without losing value is said to be fungible. Trading an ounce of silver for another is typically seen as highly fungible as long as it hasn’t been used as plating on top of a less valuable metal. Fiat currency is also commonly recognized as having a high degree of fungibility, although governments and citizens have to be on the lookout for counterfeit bills and coins.

All Bitcoin are highly fungible and can easily be exchanged one with another without any risk of counterfeiting or tampering. After all, the simplest way to think about Bitcoin is that it is simply a series of entries on its blockchain, which is a digital ledger.

Money will continue to evolve as it always has, and Bitcoin may not always retain its position on top. That said, Bitcoin exhibits many of the most important qualities of good money and is certain to enable societies and economies that use it to flourish and grow more than ever.

Crypto Roundup 🤠

Crypto Regulation: The U.S. Securities and Exchange Commission (SEC) is rumored to be looking to bring an investigation against the developer of the popular Uniswap DeFi protocol. Read more

To The Moon: A senior strategist at Bloomberg has said that Bitcoin is marching towards $100,000 USD and eventual status as a global reserve currency that complements the U.S. dollar. Read more

Sovereign Interest: El Salvador has announced the purchase of several hundred Bitcoin in preparation for the cryptocurrency to be recognized as legal tender. Read more

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Many of us underestimate the profound impact Bitcoin and crypto can have on people’s financial lives:

Bitcoin enables millions of people to transfer their money more freely:

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Dear Readers,

Bitcoin has the ability to revolutionize finance around the world. Individuals and companies who transact in Bitcoin are not reliant on a bank, government, or other “trusted” third party to certify the value of the money being transferred or grant the user permission to access their wealth. Instead, Bitcoin users are able to transfer their wealth anywhere in the world at any time without needing to seek anyone’s approval and without any risk of the transaction being frozen or denied. As a result, Bitcoin is often referred to as equitable in the sense that all participants in the network are equal in power and privilege to everyone else.

Although Bitcoin has the ability to transfer large amounts of wealth relatively quickly, its blockchain is subject to certain limitations. For example, a block of transactions is confirmed on the blockchain on average every ten minutes. And until a transaction is confirmed, there is still a risk that the transferred Bitcoin might not arrive as expected. Additionally, Bitcoin’s software code only allows a certain amount of transactions to be included in each block. It’s estimated that the Bitcoin blockchain is capable of processing seven transactions per second on average, far less than the thousands of transactions occurring around the world every second.

As a result of the aforementioned limitations, Bitcoin transactions can at times become rather costly, especially when demand to use the blockchain is high. Critics of Bitcoin often throw Bitcoin’s limited transaction input around as a factor that would prohibit the cryptocurrency from ever becoming widely used or from becoming a global currency. While the base software code of Bitcoin as I’ve described is unlikely to change anytime soon, there are various technologies that are being developed to increase the scalability and usability of the Bitcoin blockchain. One of the most promising technologies is the Lightning Network.

The Many Flavors of the Lightning Network

The Lightning Network was originally created by two developers, Thaddeus Dryja and Joseph Poon, who published their initial whitepaper describing the technology in February 2015. However, since that time the Lightning Network has gone through various iterations and there are currently a variety of entities developing the software protocol. We’ll review a few of the most well-known together:

Lightning Labs

Lightning Labs was founded in 2016 with the goal of enabling users “to send and receive money more efficiently than ever before.” They have built several products on top of the Lightning Network protocol, including a liquidity pool to increase the amount of Bitcoin that can flow through the protocol, a terminal that helps users maintain their payment channels on the protocol open indefinitely, a light client allowing wallets to verify transactions on the protocol with less impact to full nodes, and more.

Blockstream

The company Blockstream is not exclusively focused on developing the Lightning Network and has a variety of products including colocation services for Bitcoin mining, Bitcoin nodes validating transactions on the blockchain from space, a Bitcoin wallet, and others. However, they are also a major contributor to an implementation of the Lightning Network known as “c-lightning”, which Blockstream bills as a “lightweight high performance implementation that’s fast to compile and easy to set up.”

ACINQ

ACINQ was founded in 2014 in France, which means it predates the release of the Lightning Network whitepaper. Since pivoting to development on the Lightning Network protocol, ACINQ has developed its own version of a Bitcoin wallet and runs the self-proclaimed “largest Lightning node on [the] mainnet”.

How Does the Lightning Network Work?

The Lightning Network works by establishing what are called “bidirectional payment channels” between two participants on the main Bitcoin blockchain. A channel is established when each participant sends an initial amount of Bitcoin into a multi-signature transaction on the blockchain. Because the transaction is multi-signature, each participant is required to sign off on any changes to the original allocation of Bitcoin sent in by each party. However, any amount of Bitcoin transactions can be executed between the two parties before the channel is closed and the final balances are broadcast to the Bitcoin blockchain. As a result, network fees can be significantly reduced by moving the bulk of transactions off of the layer-1 blockchain and onto the layer-2 Lightning Network protocol.

An example of how the Lightning Network works in practice may be helpful. In this example, let’s assume that Bill and Susie transact with each other frequently and want to set up a payment channel to reduce the amount of fees they pay to transact on the Bitcoin blockchain. They each transfer ten Bitcoin into the channel and then perform the following transactions on the Lightning Network protocol:

Bill transfers four Bitcoin to Susie.

Bill transfers one Bitcoin to Susie.

Susie transfers two Bitcoin to Bill.

Bill transfers five Bitcoin to Susie.

Susie transfers one Bitcoin to Bill.

At the end of these transactions, Bill is left with a balance of three Bitcoin and Susie is left with a balance of seventeen Bitcoin. Rather than broadcast each individual transaction to the Bitcoin blockchain, when Bill and Susie are ready to close their payment channel they simply broadcast the final Bitcoin balances. The Lightning Network allows them to save on network fees, and final resolution on the Bitcoin blockchain allows them to take advantage of the blockchain’s security.

As a side note, the Lightning Network also allows for transactions to take place between participants who have not established a payment channel directly with one another as long as each participant has sufficient peers in common to find a path for the payment and assuming that each participant along the payment’s path has sufficient liquidity to execute the transaction:

If Bill wants to transfer one Bitcoin to Rita, he isn’t required to open a payment channel with her. Let’s assume that Susie has a channel open with Zhang who has a channel open with Rita. So,

Bill sends 1 BTC to Susie → Susie sends 1 BTC to Zhang → Zhang sends 1 BTC to Rita

What Does the Lightning Network Actually Improve?

The Lightning Network is able to offer a variety of benefits just like or on top of those already offered by the Bitcoin blockchain:

Decentralized

Like the Bitcoin blockchain on which it is built, the Lightning Network is decentralized and does not mandate the participation of “trusted” third parties or the use of custodial depository solutions.

Scalable

As discussed previously, the Bitcoin blockchain’s transaction throughput is limited to about seven transactions per second. The Lightning Network on the other hand has no hard limit on the number of transactions that can be performed and, in theory, is able to transact nearly an infinite amount of times per second depending on the number and power of nodes on the Lightning Network.

Privacy

Transactions on the Bitcoin blockchain are pseudonymous, but there are a variety of firms who make money by snooping around the blockchain and tying real world identities to Bitcoin addresses. Since individual transactions within a Lightning Network payment channel are not broadcast to the Bitcoin blockchain, those details are private and known only to the participants.

Instant

Blocks on the Bitcoin blockchain take ten minutes on average to be confirmed, and transactions are widely regarded as irreversible after six block confirmations. Transactions on the Lightning Network by comparison do not require block confirmations and can be executed nearly instantaneously.

Micropayments

Fees paid to nodes on the Lightning Network are often non-existent or commonly denominated in millisatoshis (msats), which are even smaller units than satoshis, the smallest unit of Bitcoin on the layer-1 blockchain. Because fees on the Lightning Network are so small, micropayments of even a single satoshi can be sent between transacting parties.

Lightning In a Bottle

The Lightning Network and other innovations like it make using Bitcoin as a medium of exchange a reality, which is one of the key requirements of any money. The more usable Bitcoin becomes, the more users will gravitate to it over inferior forms of money like fiat currency and precious metals. Bitcoin will continue its march to monetary supremacy.

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Crypto Roundup 🤠

Institutional Investment: Hedge funds are beginning to take the dive into cryptocurrency investing and expect to accelerate investment in the space throughout the rest of the year. Read more

Crypto Accessibility: El Salvador’s congress approves a $150 million fund to facilitate conversions between Bitcoin and the U.S. dollar as the country prepares to make Bitcoin legal tend next week. Read more

Government Regulation: Banks in India are finally beginning to relax restrictions against servicing cryptocurrency users after the Supreme Court struck down negative regulation from the Reserve Bank of India. Read more

Into the Twitterverse 🐥

We all trade our time for money. Are we trading it for money that keeps its value over time?

Bitcoin has many of the same attributes that has made gold appealing to investors for millennia. On top of that it’s more portable, easier to protect, and can easily be verified from anywhere thanks to blockchain.

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Dear Readers,

The advent of Bitcoin was revolutionary for two primary reasons. Firstly, Bitcoin represents a medium of exchange, unit of account, and store of value that is completely outside the control of any one entity and is, consequently, open and accessible to all. Secondly, Bitcoin is built on a technology, blockchain, that has completely changed the way that humanity goes about storing and transferring information. As a result of those unique properties, Bitcoin has spawned an army of copycat cryptocurrencies, and has launched a multi-trillion dollar industry around itself.

There are plenty of Bitcoin critics in the world these days, but they’re typically much less antagonistic towards blockchain technology, and society as a whole seems rather open to accepting it. In fact, to a large degree, blockchain technology has found favor with many of the companies and governments that it was built to replace. Companies around the world are studying blockchain in the context of supply chain management, protection of personal information, provision of social services, and much more. And governments are experimenting with blockchain technology in an attempt to improve the functionality of their national currencies, which is leading to a new form for their old money: Central Bank Digital Currencies (CBDCs).

What is a Central Bank Digital Currency?

The fiat currencies that we use today, like the U.S. dollar and the Indian rupee, are already digital to a large degree. We make purchases using credit and debit cards. We transfer money through banks or through payment companies like PayPal. We buy houses and cars with banks’ money by signing our names on a dotted line. However, today’s digital money relies on a disjointed group of transaction ledgers maintained by a disconnected network of financial providers and is overseen by a diverse group of government regulators.

CBDCs, at least those that operate on true blockchain technology, may provide a smoother way for governments to operate their national money. A blockchain in its purest form represents a single ledger of all transactions occurring in a network. The ledger itself is typically not maintained by any one entity, but is commonly shared with many or all participants using the network.

While it is unlikely that a CBDC running on top of a blockchain would be openly shared with all participants, it does seem feasible that the governments of the world might choose to share the ledger with regulated entities supporting the national financial infrastructure. Under such a model, everyday citizens like you and me wouldn’t have or control a copy of the ledger, but perhaps our banks, credit card processors, and other financial companies would.

Around the World with CBDCs

Although Bitcoin and blockchain have been around for over twelve years at this point, the vast majority of countries have only just begun to experiment with blockchain technology in the context of CBDCs. That said, there are several countries which have already made some progress on their homegrown CBDCs, including developments in countries that may be closer to home for many of us:

China

The Chinese government has been a fierce opponent of cryptocurrencies, going as far as outright banning its banks from servicing crypto companies or handling crypto transactions and banning Bitcoin miners from operating legally within the country. The country’s acceptance of blockchain technology by comparison, has been just as strong as its rejection of cryptocurrency.

China has experienced significant progress with its domestic CBDC and began testing it in certain parts of the country months ago. The People’s Bank of China (i.e., the country’s central bank) recently released a whitepaper describing the CBDC and it is estimated that millions of Chinese citizens are already using the digital currency in their daily lives.

United States

The United States’ central bank, the Federal Reserve, has taken tentative steps towards researching CBDCs, including the following listed on its official website:

The Federal Reserve System is focused on better understanding the underlying technologies and their potentials, as well as policy issues associated with a CBDC. In addition to projects underway at the Board and the Federal Reserve Bank of Boston, the Federal Reserve is collaborating internationally in groups such as the Bank for International Settlements' CBDC coalition.

While many experts believe that the U.S. dollar’s status as the world’s reserve currency may be severely at risk if the United States does not develop a CBDC, the Federal Reserve has stated that no final decision has been made as to whether a domestic CBDC will actually be released.

India

India’s central bank, the Reserve Bank of India, is also considering the launch of its own CBDC, although the project is still in the idea phase rather than actively ready to be rolled out. One of the central bank’s top officials has indicated that the goal of India’s eventual CBDC is to lower the reliance on physical cash, enable easier and less costly international transfers, and insulate people from the volatility that often is experienced by “private” cryptocurrencies like Bitcoin and Ethereum.

Cryptocurrencies vs. CBDCs

To a small degree, CBDCs may seem similar to everyday cryptocurrencies. After all, many CBDCs will run on top of a form of blockchain, just like most cryptocurrencies do. And the governments of the world certainly hope we’ll think of CBDCs as an improvement over cryptocurrency. Many of them are actively trying to convince their citizens that cryptocurrencies will no longer be useful once CBDCs exist. Comments of that nature are far from the truth and ignore several key differences between CBDCs and Bitcoin:

Decentralized

The Bitcoin blockchain is decentralized, meaning that anyone in the world can download the blockchain software and ledger at any time and join the network. Contrast that openness with the closed-off nature of CBDCs: CBDCs will be controlled by central banks with an iron fist and any non-government entity that may have some level of influence within a CBDC’s network is sure to be heavily regulated.

Permissionless

The Bitcoin blockchain has a very simple purpose, which is to execute the code on which they were written. The transfer of information across the blockchain happens no matter who you are as long as you initiate a transaction in accordance with the rules established by the software’s code.

By comparison, governments will have absolute ability to decide who can use the CBDC. Many people may believe that such control is good in the context of limiting criminals' ability to access the financial system. But it could, in essence, also extend at some point to anyone at all who doesn’t conform completely to the government’s will.

Privacy

There’s a common misconception that Bitcoin is anonymous and that there’s no way to identify people using the blockchain. In reality, Bitcoin is pseudonymous, meaning that people’s identities are obscured through use of blockchain addresses rather than names or other identifiers. However, it is still possible to tie a real-world identity to a blockchain address, and the implementation of “Know Your Customer” procedures at exchanges and other companies within the cryptocurrency sphere has the express purpose of enabling governments to identify blockchain users.

CBDCs on the other hand get rid of anonymity from the onset. In the same vein as having to provide your personal information to the government on a tax return or to an institution in order to open a bank account, citizens will be required to share that information in order to open up a CBDC account or wallet. And since governments will have complete visibility into all transactions occurring on the CBDC’s blockchain, they will have a full record of everything you do with your money. In an attempt to assuage citizens’ privacy concerns, many governments have promised some level of selective transaction privacy. Citizens should not be lulled into a false sense of security by those false promises: CBDC transactions will only remain private until the government doesn’t want them to be private anymore.

Do Your Due Diligence

CBDCs, in one form or another, are certain to become a part of our everyday lives, and likely sooner than we think. While they may have some advantages over the physical and digital forms of cash we have today, they are not without their drawbacks. The responsibility to understand CBDCs and distinguish them from Bitcoin falls on all of us. In no small way, our financial future and self-sovereignty may depend on it.

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Crypto Roundup 🤠

Self-Sovereignty: Women around the world are using cryptocurrency and blockchain to circumvent legacy financial systems that are biased against them. Read more

Crypto Hacks: DeFi protocol “Cream Finance” is the latest to suffer a hack, which resulted in the loss of around $25 million worth of crypto. Read more

Crypto Accessibility: Square is solidifying plans to create a Decentralized Exchange (DEX) to help more users enter the Bitcoin ecosystem. Read more

Into the Twitterverse 🐥

This comment has been true so far throughout Bitcoin’s history. Will Bitcoin continue to perform well? Only time will tell:

Fiat money grants huge amounts of power to governments and financial institutions. Bitcoin helps take that power back:

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Dear Readers,

The world we live in today is highly financialized. Banks and fintechs permeate almost every aspect of our lives, from the payment services we use to buy our groceries to the loans we take out for our business, homes, cars, and more. Our reliance on financial services and the companies that offer them has become so complete that even industries that typically don’t deal in finance, like social media, are beginning to incorporate financial offerings into their products. Do you remember Facebook’s bid in mid-2019 to issue its own stablecoin to its nearly three billion users? If it were to succeed at a future point, Facebook would easily become the largest financial services company in the world overnight.

The majority of banks, investment firms, and insurance companies that we build our financial relationships with have had decades, if not longer, to perfect their craft. It’s rather surprising then that they’re all so bad at it. Users and account holders are charged exorbitantly high fees and receive extremely low returns for their money. Let’s not forget as well that banks and hedge funds, among others, contributed to leading the world into one of the worst recessions in history over a decade ago. While these companies surely shoulder the bulk of the blame for their poor performance, it’s not all their fault. After all, most of their customer-facing products and services are over-regulated to the point of stifling innovation and they run on top of legacy systems, like the Automated Clearing House Network, that are decades old.

Out of the ashes of the aforementioned Great Recession arose a brand new financial system. Bitcoin, blockchain, and cryptocurrency provide a better way for individuals and companies to protect their earnings and conduct their financial business. As a result, an entirely new group of companies, products, and services are being built. There is no doubt that they won’t all make the cut. Most new companies fail within their first several years and that will certainly be the case with crypto companies and protocols. However, those who come out on top will have the opportunity to completely revolutionize the way humanity interacts with its money and the services built with it.

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Crypto Banks: One Foot in Both Worlds

While the world is trying to work out the kinks with DeFi and other parts of the new financial order, there are a growing number of companies who are happy to straddle the line between the old and new. The most prominent of these companies are known as crypto banks, and that couldn’t be a more appropriate name for them considering their service offerings are largely identical to those of traditional banks. The obvious difference of course is that they cater more to crypto users than to fiat users.

Regardless of the similarities, crypto banking is becoming big business and the companies operating within the space are experiencing a massive amount of growth:

In the grand scheme of things, this shouldn’t come as a surprise to us. Cryptocurrency and blockchain currently operate in a regulatory gray area, meaning that accessibility to the crypto banks’ services is often much greater for the average user than to those of traditional financial companies. Additionally, crypto banks are incurring massive amounts of acquisition and retention costs for their customers, as evidenced by the fact that most of them continued to pay 5-10% interest on deposits even during the recent bearish downturn in the cryptocurrency market.

Crypto-Collateralized Loans vs. Traditional Loans

While interest-bearing deposit accounts are the primary service offered by most crypto banks, the companies do spend a significant amount of effort trying to differentiate themselves from their traditional counterparts in another category: loan servicing. To illustrate this difference, let’s take a brief look at what the loan process looks like in the United States:

A borrower approaches a bank or other financial institution, likely one with which the borrower has already established a relationship, to open a credit card or take out a loan for a large purchase. The borrower comes prepared with a large amount of personal information such as their social security number, birth date, personal identification card, recent pay stubs….the list goes on. The financial institution performs a credit check and background check on the borrower to determine their ability to repay and their trustworthiness to receive the financial service. If the borrower passes those checks, they finally sign a mountain of paperwork and agree to pay an often massive interest rate, commensurate with the type of loan or financial service for which they have applied. If the whole process seems burdensome and overdone, you’re not wrong. What matters when taking a loan out with a traditional financial institution is trust and your trustworthiness is represented by a credit score and by the exorbitant amount of personal information you are required to provide.

The process of taking out a loan from a crypto bank is very different because, like with blockchain, the whole process relies very little on trust. A borrower’s ability to repay is determined by nothing more than their ability to post a sufficient amount of collateral to back the requested loan. In fact, within certain DeFi protocols, borrowers are not even required to provide any personal identifying information before taking out a loan.

Collateralized loans should not be wholly unfamiliar to us. After all, mortgages are collateralized by the houses purchased and car loans are collateralized by the cars. A loan with a company or protocol sitting on top of a blockchain requires a digital form of collateral though, and that is where cryptocurrency as collateral enters the picture. In order to take out the loan, borrowers are typically required to deposit their cryptocurrency assets into a crypto bank’s wallets or into a lending protocol’s loan pools.

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Loans Collateralized With Crypto Are Not All They Appear To Be

Crypto-collateralized loans are advertised as an improvement over traditional loans, and in some regards they are. However, there are less visible costs to taking out a crypto-collateralized loan that are almost never advertised. One of the biggest is that assets used as collateral do not earn interest. Since the loans are almost always required to be over-collateralized (referred to as “Loan to Value” or “LTV” in crypto parlance), lost interest can add up significantly over the loan’s lifetime. Let’s take a look at a pair of examples:

BlockFi

The lowest loan interest rate offered by BlockFi is advertised as 4.5%. While some borrowers will likely be subject to higher rates, we’ll use 4.5% for simplicity’s sake. As seen in the image above, this loan by BlockFi requires a Loan to Value of 50%, meaning that the borrower has to deposit collateral worth twice as much as the value of the loan. So a $10,000 loan will require $20,000 worth of Bitcoin backing it. Since BlockFi offers a 4% interest rate on Bitcoin deposits, let’s do a quick back of the envelope calculation to calculate the true annual cost of this hypothetical loan:

Base Interest Paid: 4.5% x $10,000 = $450

Interest Lost on Collateral: 4% x $20,000 = $800

Total Loan Cost: $1,250 or 12.5%

Abra

The lowest loan interest rate offered by Abra is advertised as 0%, which surely appeals to a lot of potential borrowers. Again, Abra offers other rates with different LTVs, but we’ll use 0% to keep it simple. This offering from Abra comes with a Loan to Value requirement of 10%, meaning that the borrower has to deposit collateral worth TEN TIMES the value of their loan. The same $10,000 loan we looked at before would require $100,000 worth of Bitcoin backing it. Since Abra offers a 3.15% interest rate on Bitcoin deposits, let’s do another back of the envelope calculation for this loan’s real annual cost:

Base Interest Paid: 0% x $10,000 = $0

Interest Lost on Collateral: 3.15% x $100,000 = $3,150

Total Loan Cost: $3,150 or 31.5%

The above examples don’t account for all costs associated with taking out a crypto loan, such as origination fees or lost collateral if the crypto bank gets hacked or goes under. They also don't account for the fluctuating value of cryptocurrency and associated interest earned. However, even without the whole picture, the true cost of crypto-collateralized loans is much greater than what crypto banks would like us to believe.

While crypto-collateralized loans can be useful in certain situations, like when a user can’t get a loan through the legacy financial system, they come with significant costs and risks, many of which are unknown to the average user. Anyone interested in potentially taking out a loan from their crypto bank should certainly weigh both the positives and negatives before moving forward. Not doing so could end up costing you a lot more than you ever realized.

Crypto Roundup 🤠

Crypto Accessibility: Citibank, one of the largest banks in the U.S., is making tentative plans to open up Bitcoin futures trading for a subset of its wealthiest clients. Read more

Institutional Investment: The Grayscale Bitcoin Trust (GBTC), a proxy investment tool for Bitcoin, concluded its final share unlocking for 2021, ending associated bearish FUD for the year. Read more

Crypto Bets: Venture Capitalist Bill Gurley indicated that he has taken a personal position in Ethereum after being “swayed by the arguments of the [crypto’s] crowd.” Read more

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Government excess is staggering. Every dollar, rupee, euro, or other fiat printed out of thin air devalues the fiat in your wallet and bank account:

Imagine not having the freedom to spend and invest your money how you want:

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Dear Readers,

It has been said at various points over the past year that institutional interest and investment in Bitcoin has been one of the primary drivers of the ongoing bull market. The law of supply and demand certainly supports that thesis. Bitcoin’s supply increases at a steady rate and the maximum supply of 21 million coins is known. While not all cryptocurrencies have a hard supply cap like Bitcoin, the open nature of blockchain means that investors can typically get an understanding of the high-level crypto supply on the market. As a result, cryptocurrency prices are overwhelmingly driven by demand rather than by supply.

Institutions can be a source of massive demand given the immense amount of cash that many of them have sitting in their treasuries. For example, the five largest companies in just the United States collectively have nearly $650 billion U.S. dollars’ worth of cash and equivalents sitting on their balance sheets:

Retail investment has certainly contributed to the growth of cryptocurrency over the past decade. But that contribution in monetary terms could easily be dwarfed if companies around the globe began to put even small percentages (e.g., 5 - 10%) of the cash on their balance sheets into cryptocurrency.

It is for this very reason that many investors within the space have become extremely bullish on its long-term growth prospects. They believe that cryptocurrency usage is about to reach critical mass, leading a large number of companies, big and small, to allocate resources and capital to the industry, driving prices of cryptocurrencies and crypto assets to the moon. As we’ll see below, it would be hard to argue that they’re wrong.

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Institutional Investment: All In On Crypto?

If you spend at least a couple minutes each week reading crypto news, then you’ll probably agree with me when I say that it seems like a new institutional crypto investment is announced every few days. That said, there have been several institutional investments that have gone above and beyond the norm in terms of their positive impact on cryptocurrency prices and development. And yes, these investments primarily dealt in Bitcoin since most public institutional investment thus far has gone towards the king cryptocurrency:

MicroStrategy

MicroStrategy was not the first company to openly endorse purchasing Bitcoin for its balance sheet, but it may go down in history as the most influential company to do so. The business intelligence firm made waves in August 2020 by announcing a purchase of over 20,000 Bitcoin for around $250 million USD and confirmed the company’s intent to keep purchasing Bitcoin as its primary treasury asset. The company has followed through on that commitment and owns over 105,000 Bitcoin as of June 2021.

Square

It’s no secret that Jack Dorsey, the CEO of both Square and Twitter, is a stalwart proponent of Bitcoin:

It should come as no surprise then that Square, which already enables cryptocurrency trading through its Cash App, purchased over 4,700 Bitcoin in October 2020 and then followed it up with an additional purchase of over 3,300 Bitcoin in February of this year. Square is not content to just own Bitcoin and has already expressed an intent to try and improve accessibility to the space through the creation of its own hardware wallet.

Tesla

Even your uncle who lives under a rock probably heard about Tesla’s massive Bitcoin purchase in early February 2021. After all, the cryptocurrency’s price skyrocketed by about 20% within twenty-four hours of the purchase becoming publicly known. Tesla followed the purchase up several weeks later with an announcement that the company would accept Bitcoin as payment for its vehicles. However, Tesla’s CEO, Elon Musk, appears to have been misinformed about the true environmental impact of Bitcoin mining and did an about face on accepting Bitcoin payments shortly thereafter. Musk has claimed though that Tesla still holds the majority of the Bitcoin it originally purchased.

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Coinbase: “Lead by Example”

The latest institution to make waves by way of announcing an investment in cryptocurrency is Coinbase. Coinbase is one of the oldest and most well-known cryptocurrency exchanges in the world, boasting over 56 million users worldwide. As part of their recent public filings with the U.S. Securities and Exchange Commission (SEC), Coinbase had revealed large crypto holdings of their own in addition to holdings the company custodies for its customers. However, in an attempt to “double down” on its usage and support of cryptocurrency, the company recently announced the following:

We have committed to invest $500 million of our cash and cash equivalents into a diverse portfolio of crypto assets. Going forward, we will also allocate 10% of quarterly net income into this same portfolio. This means we will become the first publicly traded company to hold Ethereum, Proof of Stake assets, DeFi tokens, and many other crypto assets supported for trading on our platform, in addition to Bitcoin, on our balance sheet.

Coinbase’s decision to invest a significant portion of their free cash in cryptocurrency assets makes a lot of sense. After all, Coinbase is a cryptocurrency exchange, meaning that cryptocurrency drives its bread and butter product offering. However, there are a pair of potential benefits that Coinbase could see by increasing the amount of crypto it keeps on hand:

In addition to facilitating cryptocurrency trades, Coinbase custodies a large amount of cryptocurrency, both for investors using its trading service and for institutions that want to have a qualified custodian hold their assets in cold storage. There have not been many large scale hacks against Exchange cold wallets, but hacks do happen elsewhere in the space. Due to the rapid growth in crypto asset values and the risks inherent to holding them, it has been extremely difficult for crypto companies to acquire sufficient insurance to protect their assets under management. Coinbase’s decision to acquire large amounts of cryptocurrency for its own use may be an attempt to increase its ability to self-insure against loss of customers’ assets, especially since the company explicitly stated that its allocation “will be driven by our aggregate custodial crypto balances.” In other words, Coinbase will seek to match its own investments to that of its customers, likely on a percentage basis.

Cryptocurrency prices are well-known for their volatility. As we discussed above, this volatility is driven much more by changes in demand than by changes in supply. In order to increase liquidity and thus help smooth out price volatility, Coinbase may decide to use its own resources as a market maker. Granted, Coinbase’s announcement does state that its own crypto purchases will take place away from the exchange in order to avoid conflicts of interest. However, crypto regulations aren’t currently well established in most countries. If Coinbase can get away with market making on its own exchange while turning a profit, the company may find that opportunity too golden to pass up. Additionally, the announcement did not explicitly say that the company couldn’t use its assets as a market maker on another CeFi or DeFi platform.

The reasons for purchasing cryptocurrency are many and they commonly vary between retail and institutional investors. However, regardless of the reasons that drive an institution to buy cryptocurrency, it seems likely that the trend will continue and accelerate. Cryptocurrency represents a new digital frontier and our world and the companies in it are increasingly looking to digitize. Seems like a veritable match made in heaven, wouldn’t you say?

Crypto Roundup 🤠

Decentralized Money: Citizens of Afghanistan are using Bitcoin and Cryptocurrency to navigate and survive cash shortages, inflation, and the Taliban coup. Read more

Institutional Investment: Neuberger Berman, a $400 billion asset manager, has approved Bitcoin futures purchases of nearly $10 million dollars through its commodities fund. Read more

Crypto Accessibility: PayPal, the fintech giant, will start allowing users in the United Kingdom (UK) to start buying, selling, and holding cryptocurrency this week. Read more

Into the Twitterverse 🐥

Bitcoin has a lot of different use cases and many have yet to be discovered:

An increase in Bitcoin’s hash rate often signals that miners are bullish about its prospects:

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For the Last Time

Bitcoin had come a long way already since they first shared it on an obscure cypherpunk mailing list a few years before. They had high hopes at the time that the community would be receptive to the technology that they believed would galvanize the world into taking power back from oppressive governments and institutions in every country. But they hadn’t imagined that the uptake would be so immediate. In only a few years, Bitcoin had gone from an unknown technology championed by a few proselytes to a tool used by tens of thousands of people and protecting millions of U.S. dollars worth of value.

In fact, Bitcoin had grown so quickly that they knew it was time for them to take a step back. The network could only grow so far while under their influence, or anyone’s influence for that matter. In order for Bitcoin to reach its full potential, Satoshi Nakamoto, the moniker by which they were known to the world, would need to be retired. They felt comfortable knowing that developers and users around the world were already picking up the slack left behind when they had quit the forums several months before. And they knew that the members of the community were in good hands …. Their own hands. They signed off and never looked back.

The above account is a fictionalized dramatization of what may have happened when the person or persons known as Satoshi Nakamoto left the Bitcoin space back in Spring 2011. It is not factual and should not be taken as such.

Satoshi Nakamoto: Legend in the Making

Dear Readers,

Satoshi Nakamoto is the pseudonym used by the person or persons who created Bitcoin by publishing the cryptocurrency’s whitepaper on a cryptography forum in late 2008 and, shortly thereafter, sharing the initial version of the software code that would launch Bitcoin and its blockchain into existence.

While a significant amount of time has been spent trying to ascertain Satoshi’s true identity, the world is perhaps no closer to discovering it than when Satoshi was actively in communication with the Bitcoin community over a decade ago. Many individuals have come forward to identify themselves as Satoshi, likely in an attempt to acquire the treasure trove of Bitcoin that Satoshi is rumored to hodl (over 1 million is the most common guess) or in order to boost their own reputation by connecting it to that of the reclusive genius or geniuses who released what has become the most revolutionary technology of the 21st century.

Although Satoshi almost always self-identified as a single person in messages and emails over the years, many experts within the space believe that Satoshi Nakamoto was likely given voice and life by a group of people rather than any one individual. These experts cite the sophistication of Bitcoin’s software code as evidence that it was created and reviewed by a team of individuals. Regardless of Satoshi’s true identity, it goes without saying that the mark left on the world by that individual or group has changed the world in many ways for the better.

Bitcoin: The Early Days

Satoshi’s role in the early days of Bitcoin was to provide support to the fledgling cryptocurrency and its blockchain. Satoshi registered the project’s namesake domain (i.e., bitcoin.org), published the Bitcoin whitepaper, mined the genesis block, participated in the first transaction on the network, and much more. Perhaps the most common roles Satoshi was called to fill were that of troubleshooter and subject matter expert. For the entirety of Satoshi’s time participating in the network, veterans and newbies alike could reach out to ask for help deciphering and running the blockchain’s code or to receive explanations on why Bitcoin would revolutionize the world. Satoshi’s profile on just the bitcointalk.org forum shows how frequently the founder took time to build on the project’s growth and success:

However, Satoshi’s participation in the network’s progress and development gradually began to slow as Bitcoin grew and as additional competent developers, like Hal Finney and Gavin Andresen, joined and started to take more of an active role within the community and within development of the Bitcoin code itself. When Satoshi felt that Bitcoin was in good hands, s/he/they disappeared just as quickly as they had come.

Satoshi’s Departure Proves that Bitcoin is Anti-Fragile

It’s common knowledge that investments in new companies and ideas are often just as much investments in the creator or creators as they are investments in the companies or ideas themselves. After all, who can imagine Facebook or Amazon coming as far as they have if not for the constant shepherding of those companies over many years by their creators, Mark Zuckerberg and Jeff Bezos. And surely many people will remember the fears associated with Apple’s future around the time that it’s charismatic founder, Steve Jobs, died in late 2011. Each of those companies has stood the test of time thus far. But it’s safe to say that each would be different (or in the case of Apple, is different) if their founders had called it quits and abandoned them.

That has not been the case with Bitcoin. Bitcoin’s software code remains largely unchanged since Satoshi originally released the first version over twelve years ago. And Bitcoin continues to meet the expectations that Satoshi so frequently communicated through messages to early proponents and developers. Bitcoin has grown to become arguably one of the largest monetary networks in the world. Millions of people in dozens of countries use Bitcoin daily to send and save money, all without the interference of any middleman, company, or government. And hordes of Bitcoin proselytes share Bitcoin with everyone who will listen in order to bring the revolution to new people.

Bitcoin Eschews Leadership and Interference

In reality, Satoshi’s departure from Bitcoin was probably the best thing for it. As we’ve experienced with Elon Musk over the course of 2021, idols within the Bitcoin space are lauded when they support the network and demonized when they turn against it. Overall, the main contribution from such participants is that they distract from the fundamentals and progress of the network itself without providing much else.

Had Satoshi remained an active participant in Bitcoin’s journey, it’s likely that many adherents to the space would have come to revere the pseudonymous creator rather than focusing on Bitcoin itself. Satoshi’s every word would be dissected for its positive or negative sentiment and markets would react accordingly. With Satoshi in the picture, Bitcoin would have forever been stuck in the shadow of its creator, unable to establish itself as a decentralized network open to all and indebted to none.

Satoshi’s identity may someday be discovered. After all, it’s one of the most intriguing secrets to date given Bitcoin’s widespread impact on people and the world. However, it is my opinion that the world is better off leaving Satoshi’s identity unknown, just as s/he/they intended.

Bitcoin is not defined by its creator. Bitcoin stands on its own and becomes stronger with each passing day and with each shock, such as the departure of its creator, that it withstands. Bitcoin is antifragile.

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Dear readers,

The rise of cryptocurrency and blockchain over the past decade has been nothing short of spectacular. From humble beginnings on a cypherpunk mailing list, Bitcoin led the way, showing millions of users around the world that value could be transferred digitally anywhere at any time without needing the permission of a bank, government, or anyone else. Bitcoin’s success has spawned a worldwide movement. But, perhaps unsurprisingly, it has also spawned an army of alternative cryptocurrencies. After all, its software code has been open-source from day one, meaning that anyone in the world can access and tweak the code to make their own cryptocurrency.

Ethereum has been by far the most successful alternative cryptocurrency and has become a movement of its own. Ethereum is popular for a variety of reasons, such as being the main blockchain for using Decentralized Finance and Non-Fungible Tokens. However, one of Ethereum’s earliest achievements was introducing the ability to easily and cheaply create and release ERC-20 tokens, alternative cryptocurrencies in their own right. ERC-20 cryptocurrencies have the benefit of running on top of the Ethereum blockchain, meaning that issuers of the tokens receive all the benefits of the Ethereum blockchain and don’t have to build a blockchain of their own.

Thanks to the open-source nature of Bitcoin and to the ERC-20 token standard, creating a cryptocurrency has never been easier. As a result, there are thousands of different cryptocurrencies currently in existence. Many of them have exciting use cases that are already changing the world for the better such as wealth preservation, information and identity management, self-sovereignty, and more. However, if you spend enough time in the cryptosphere, you’ll also come to realize that not all cryptocurrencies fulfill what any society might commonly recognize as a “worthwhile” purpose and that others are downright malevolent. The worst of these have been given a name to match the gravity of their crimes: scamcoins.

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Scamcoins: Digital Snake Oil

Cryptocurrencies have been wildly successful, but they are still very new and remain a novelty for most people. While there are plenty of people, including yours truly, who are attempting to make crypto education widely available to the masses, it can still be rather difficult for new entrants to know exactly where to go to learn the basics. As can be expected under such circumstances, the financial fortunes created by cryptocurrency have attracted a wide range of individuals who want to game the system for their own benefit while taking advantage of others. This is where scamcoins enter the picture.

A scamcoin is a fake cryptocurrency with the sole purpose of making money for its creator while stealing money from its investors and supporters. There have likely been hundreds of scamcoins over the years, but thankfully the vast majority have not been successful in defrauding a significant number of people. That said, there have been several scamcoins that have left their (negative) mark on cryptocurrency in general and on the specific people who had the misfortune of investing in them. Let’s take a look at a few of them together:

Bitconnect

One of the earliest high-visibility scamcoins was Bitconnect. Bitconnect functioned as a ponzi scheme, a common method for deploying scamcoins as we’ll see. It saw early success due to the promise that investors could receive significant returns, sometimes as high as 1% per day, by entrusting assets to the platform. The platform’s native token, the Bitconnect Coin (BCC), benefitted from the platform’s early accomplishments, rising from an ICO price of $.17 U.S. dollars (USD) to an all-time high of around $463. However, the platform quickly shuttered its services and became insolvent after several government regulators around the world issued cease and desist orders, among other regulatory actions.

PlusToken

Similar to Bitconnect, PlusToken also operated as a ponzi scheme promising massive returns to users of its cryptocurrency wallet. While it mainly attracted investors in China and South Korea, it saw a massive influx of investment nonetheless and is estimated to have taken in around $3 billion USD worth of Bitcoin and other cryptocurrencies. Over the past several years, dozens of individuals related to the ponzi scheme have been arrested and several received jail time as a result of their involvement.

Pincoin/iFan

Both Pincoin and iFan were released by the same “developers” during the height of the ICO (Initial Coin Offering) fever in early 2018. The cryptocurrencies were supposed to be a lynchpin in an online collaborative platform that would offer decentralized hedge funds, peer-to-peer marketplaces, social media services, and more. Tens of thousands of investors were lured in by the proposed offerings and by the mouthwatering 40+% monthly returns that would supposedly be generated. However, a few months after the project’s ICO, the individuals behind the scam ran off with investors’ money, over $600 million USD worth based on cryptocurrency prices at the time.

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A Scamcoin by Any Other Name

You’d be forgiven for thinking that scamcoins are a thing of the past. After all, cryptocurrency companies are going public at an astonishing rate and regulators around the world are taking a serious look at cryptocurrency and making decisions on how to regulate the space. Even so, a significant amount of exuberance remains within the space and there are certainly still people looking to take advantage of it for their own gain at the expense of others.

In that vein, I’d like to review a subset of cryptocurrencies that are based on Dogecoin, one of the more popular cryptocurrencies to come out of the ongoing bull market. These Dogecoin clones may or may not turn out to be scamcoins, but they do seem to be taking advantage, perhaps maliciously, of people’s desire to find an asset that can replicate Dogecoin’s price performance from the past few years.

Before we jump into discussing Dogecoin knockoffs, let’s do a quick primer on the original. Dogecoin was released in December 2013 by two developers, Billy Markus and Jackson Palmer, as a joke version of Bitcoin. For those who don’t know, Dogecoin received its name from the popular Doge meme based on the Shiba Inu dog breed.

Now, Dogecoin itself likely couldn’t be classified as a scamcoin. Both of its founders left the cryptocurrency without making significant amounts of money. The cryptocurrency doesn’t offer any built-in investment returns (outside of mining the cryptocurrency) or any services supposedly built on top of it like the scamcoins we reviewed earlier. In fact, the biggest complaint people usually levy against Dogecoin is that it doesn’t seem to have much of a purpose at all outside of being used for speculation. However, whether you’re a fan of Dogecoin or not, it does have a certain amount of staying power, having risen to a market capitalization of around $85 billion USD earlier this year.

Dogecoin’s success coupled with the fact that it commonly appeals to mostly novice participants in the cryptocurrency space has generated a whole host of lookalike coins. Only time will tell whether Dogecoin’s army of knockoffs are truly scamcoins or not. Some may turn out to have legitimate use cases, or at least may have been created by developers who were truly trying to create new memecoins like Dogecoin rather than trying to defraud investors. However, the sheer amount of nearly identical cryptocurrencies to Dogecoin certainly doesn’t instill a lot of confidence in their prospects. Here are just a few for your reference:

I commonly tell readers and others with whom I discuss cryptocurrency and blockchain to do a significant amount of research before investing in any cryptocurrency. This is doubly true for any project that’s primary claim to fame is being a copy of a successful cryptocurrency that came before it. One of cryptocurrency’s biggest benefits is that it is open to anyone to use (or abuse) without needing to ask for permission. That said, I recommend that you familiarize yourself with the project’s goals, its community, and its developers before taking any serious dive into the cryptocurrencies shown above or other Dogecoin clones.

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Dear Readers,

Various areas of “Crypto” have exploded in popularity over the past several years, and Decentralized Finance (DeFi) has certainly seen its fair share of that growth: the total amount of money sitting in DeFi applications has ballooned from less than $1 billion U.S. dollars in May 2020 to around $80 billion as of this writing.

As DeFi has grown, so too have the risks associated with using it. Whether from flaws in the protocols’ software or exit scams perpetrated by the entities to which we entrust our Bitcoin, losses have mounted for users across the DeFi landscape.

Perhaps the most common risk to DeFi protocols and their users is that of external hacks. CipherTrace, a leading blockchain analytics company, estimates that over $350 million USD worth of assets were stolen from DeFi during just the first seven months of 2021. That number was quickly dwarfed earlier this week by a single hack perpetrated against an up and coming protocol in the space: PolyNetwork.

PolyNetwork: Building the Next Generation Internet

The PolyNetwork protocol was created in late summer of 2020 in response to the growing number of blockchains. The development team behind the project wanted to increase the interoperability of blockchains so that information and digital assets could more easily flow from network to network, even between those as different from one another as Bitcoin, Ethereum, and the Binance Smart Chain. In a sense, they believed that the value and useability of all blockchains would be improved by removing the barriers between them.

PolyNetwork has grown rather rapidly in the year since its launch and was at one time home to around one billion U.S. dollars’ worth of cryptocurrency. However, the protocol’s assets under management (AUM) was more than cut in half the morning of August 10th when a hacker or group of hackers stole more than $600 million USD of cryptocurrencies in a single attack:

SlowMist, an organization focused on blockchain security, indicated that the hack likely occurred due to a vulnerability in the smart contract used by PolyNetwork for cross-chain asset transfers. Essentially, the hackers were able to substitute their own wallet addresses in place of the addresses normally used by the smart contract. The hacker replicated the attack across the blockchains for Polygon, Ethereum, and the Binance Smart Chain to steal Ether, Binance Coin, USD Coin, Shiba Inu, Uniswap, and several other cryptocurrencies. All in all, tens of thousands of PolyNetwork users were directly impacted by the loss of funds from the protocol.

DeFi-ing the Trend: A Happy Ending for PolyNetwork?

Hacks in any industry typically do not have happy endings and it is rather uncommon for stolen funds to be recovered. DeFi is no different and stolen funds commonly disappear into the ether (often quite literally since many of the largest DeFi protocols run on top of the Ethereum blockchain).

Blockchain does however incorporate a rather difficult hurdle for hackers to overcome, and that is the fact that blockchain transactions are often public. Even the most inexperienced participant can use a blockchain explorer to follow transactions, good or bad, from address to address. As a result, it’s common for hackers to have trouble laundering stolen funds and they often remain unmoved and inaccessible within the hackers’ wallets indefinitely.

Such seems to have been the case for the PolyNetwork hackers. The addresses they used to collect their ill-gotten gains were quickly identified and the development team behind the protocol reached out to large entities like Tether and Binance to request their assistance flagging and blocking the stolen funds. On top of that, SlowMist indicated that their security team had identified the hackers’ email, IP address, and other identifiers that, if correct, would allow authorities to rather easily locate and apprehend the hackers.

These developments seem to have impacted the hackers’ desire to keep the stolen funds, as they began returning the funds to the PolyNetwork protocol within about a day of the hack:

In follow-up communications after the attack, the hackers indicated that they always intended to return the funds and that they were only attempting to bring attention to a flaw in the protocol’s smart contracts before a bad actor actually stole the funds. Whether or not that is true remains to be seen, but in all honesty the hackers would certainly stand to benefit from people assuming that they were white hats trying to bolster DeFi security rather than thieves out for their own gain.

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