Bitcoin Tech Talk #297
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What I've been working on
Startups are Cantillon Winners - My article for Bitcoin Magazine this week was about startups and how they benefit from money printing. They are fiat companies that persist on debt and it’s crazy how much they live on perception. As we go towards a Bitcoin standard, startups will not be able to do irrational things like lose money for many years. Clearing out their wastefulness would be a good thing.
Christians and Inflation - I wrote an article for the Christian Post about how to Biblically think about investing. The main idea is to show Christians how investing is more or less forced in a fiat monetary system because of the rampant money printing/stealth robbery/inflation.
Scott Melker Show - I explained how the narrative this time around is the same as in 2018. All the DeFi tokens are just badly leveraged positions that are getting wrecked right now. Every bear market more people become Bitcoin Maximalists. Survivor bias means anyone who’s been in this a while will be maximalists or scammers, no in between.
What I'm up to
Chattanooga Bitcoin Meetup - I am pleased to be the headline speaker for the very first Chattanooga Bitcoin Meetup! I’m very excited to be in this growing city and checking out the scene. Tennessee seems very closely aligned with Texas and I look forward to the visit!
De-googling - I’m now setting up a NextCloud instance on my home server to host all my photos, documents, contacts and such. The next thing will be to set up a mail server and have all my gmail forwarded and have my own domain. It’s a bit slow going, but necessary if I want to have a robust online presence. If you have mail server suggestions, particularly one that can easily run on docker, please email me.
Wanting - I finished this book this past week. It’s a nice summary of Girardian ideas and does a good job relating them to present day. The main thing I got out of it is that the scapegoat mechanism is currently a bit broken. Thinking about desire as a social status mechanism explains a lot about altcoins.
Tweet of the Week
What I’m Shilling
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Bitcoin
RIDDLE - waxwing has an interesting proposal for using ring signatures to prove that you have some amount of funds without giving up privacy. The main idea in the proposal is to grab a bunch of taproot UTXOs that are at least some amount and at least some number of blocks old and create a ring signature which proves that one of those UTXOs belong to you. This would be useful for sites that don’t want to get sybil attacked without costing the user much without compromising privacy. This is a next level proof-of-funds login.
Self-Custody - Given all the turmoil and insolvency rumors, this is probably a good time to look at self-custody if you don’t already. This post from Casa goes into the benefits of self-custody and why it’s a good idea. Basically, it’s the reason that we’re seeing everywhere, which is that these custodians rehypothecate, fractionally reserve and become insolvent on large moves in the market. Self custody is a big part of holding and the post explains why.
Hertzbleed - Apparently, this class of side-channel attack on x86 processors. According to midmagic, this does *not* affect Bitcoin. This is because libsecp256k1 has a blinding operation which should make all operations more or less random, making timing attacks very difficult. Pieter Wuille’s response is worth noting, as he thinks it’s still possible to use Hertzbleed, but incredibly unlikely. In the meantime, it’s worth blinding before every call to libsecp256k1 to prevent this attack.
Lightning
Bolt Explorer - A search engine for lightning nodes with relevant stats. For lightning route operators, this seems like a pretty solid tool to figure out some network graphs and become the bridge that the network requires. This is free right now, but I imagine this is ripe for charging some sats to query. Clearly, there is useful information here and there’s a clear monetization opportunity.
Buying vs. Donating - fiatjaf makes the case that with lightning, buying should be the normal transaction, not free-and-hope-for-donation. The donation model only exists because micropayments were so difficult. When you make micropayments easier, donation really shouldn’t be necessary. I think he’s right, though it’ll take a while (think years) before people are deprogrammed to think this way.
Purse.io adds LN - Talk about capitulation. This is a company that was dying for bigger blocks in 2017, even going so far as making the extension blocks proposal which never took. They are still salty about that as you can read in the announcement. They were also 2x supporters and funded by BCash’s Roger Ver. Yet despite that, they are going full speed ahead with Lightning. It probably helps that their altcoin project they were working on has cratered 93% from its high.
Economics, Engineering, Etc.
All Fall Down - Nic Carter and Allen Farrington go over what happened with LUNA. The post-mortem is instructive in how the creators essentially ignored all the incentive problems of the protocol. The main message is that the people running this were reckless as were most of the investors. As they rightly concluded “You cannot design your way out of financial absurdity.” All of these protocols are financially absurd, and if we’re honest, much of fiat monetary system is as well, which is where they learned it from.
NYDFS Stablecoin Guidance - The NY department of Financial Services has released guidance on stablecoins, essentially regulating them. This essentially puts more clamps down on the issuers, making them a little more bank-like. Stablecoins are fast becoming something like more convenient 24/7 banks which anyone in the world can get accounts on. It’s still centralized, but the value prop, especially against normal fiat banks is undeniable. That said, regulations like this will likely push them more in a bank-like direction, which means more regulation and restrictions, eventually adding KYC, AML and other heavy burdens that cause so much consternation.
NYDIG report - They talk about how stressed DeFi is becoming and interestingly, how miners are starting to sell. I suspect that the miner capitulation is a good indicator of what’s happening since mining has been so profitable for so long. The marginal players being forced to sell indicate that they weren’t very profitable in the first place. The cleansing we’re seeing in altcoin markets need to happen in mining as well.
Celsius and 3ac - These high flyers are now almost certainly insolvent. I would normally reserve this for the quick hits section, but they’re really part of an overall cleansing that’s happening in the space. In that sense this is really the beginning of something that we’ve been waiting for, which is the unwinding of the contagion that’s been building up the last few years through “DeFi.” I’m sure some will survive, but the ones that took out leverage really need to be destroyed. Unfortunately, this will likely invite a lot of regulation into the space, but in a sense, that was inevitable.
Quick Hits
Coinbase Layoffs - They are reducing their staff by 18%. Winter is here.
Altcoins vs Bitcoin - Look at how altcoins do vs. Bitcoin over the long term.
Stablecoin analysis - There’s some contagion to Tether from Celsius and USDC is getting more popular.
300,000 tons of gold in Uganda - These are estimates based on surveys done in the country. The world supply of gold is roughly 200,000 tons, so this would obviously inflate the supply quite a bit.
Myrkman Capital Letter - Macro headwinds point to Fed intervention by fall.
Fiat delenda est.