Cryptosovereignty ( Feed )
Friday, 08 January 2021
The Concept of the Political Hidden in Bitcoin

“Every religious, moral, economic, ethical, or other antithesis transforms into a political one if it is sufficiently strong to group human beings effectively according to friend Continue reading »

The post The Concept of the Political Hidden in Bitcoin appeared first on Crypto S

♦The Battle of Rocroi

“Every religious, moral, economic, ethical, or other antithesis transforms into a political one if it is sufficiently strong to group human beings effectively according to friend and enemy. The political does not reside in the battle itself, which possesses its own technical, psychological, and military laws, but in the mode of behavior which is determined by this possibility, by clearly evaluating the concrete situation and thereby being able to distinguish correctly the real friend and the real enemy. A religious community which wages wars against members of other religious communities or engages in other wars is already more than a religious community; it is a political entity.”

–Carl Schmitt, The Concept of the Political

This essay seeks to apply the concepts from Carl Schmitt’s essay The Concept of the Political to Bitcoin and the wider crypto cyberscape. By looking at Bitcoin and other crypto projects through Schmitt’s lens of what ‘The Political’ is (as opposed to party politics) we can start to understand the task at the heart of Bitcoin is not a technological one, but a political one. Only by understanding Bitcoin as a methodology of grouping friends and enemies according to the principals of robust, private, secure, unconfiscatable money and what that functionally means using cryptography in the world of today; Bitcoin unveils its hidden political agenda of crypto-anarchy.

The Political Hidden within Crypto

It is important to understand that the essence of bitcoin, while posing as something technological, is really political. The technical and cryptographic aspects of Bitcoin are just a means to an ends–they are not inherently related to the essence that is Bitcoin. This essence, discovered and unveiled through the questions of what Bitcoin’s essence is, reveals itself in the final Turning to be none other than The Political itself.

By The Political, we are referring to that which Schmitt describes as the friend / enemy distinction. This is the formula of categorization that seeks to imposes its will upon that of the other–any Other–to subject them to their ways, and to be the determinant force in which the Other is politicized. It is by this method–how any other person may be labeled and grouped as being part of the enemy class–that the new Political formulates itself and imposes itself upon the world as something fundamentally political.

This political nature is found in the fact that everything within Bitcoin that makes it functionally operate is hidden behind cryptography. Why?

Because it is through cryptography that every facet of the state can be challenge and overcame. By allowing for Bitcoin and the cryptography that powers it to become the preeminent questions of organizing, Bitcoin opens the path towards the politicizing the internet directly; an existential challenge to states everywhere. This politicization is not for the agenda of any contemporary form of party politics, or to dominate any national legislature, but is something beyond all of them–a totally new form of the political through the creation of new classes of both friends and enemies through the lens of cyberspace.

The mission of Bitcoin is intentionally obscured, as its real purpose is only for those who have been chosen and seek to understand Bitcoin in its wider historic, social, and philosophical context. It is only through this deep process of questioning and searching does an understanding of the truly political nature of Bitcoin exposes itself; decrypting its true nature of being the most political object to ever exist.

To be clear, the purpose of Bitcoin is fundamentally different from all other ‘crypto’ projects. The importance of this cannot be understated as it is the demarcation line between the friends and enemies of Bitcoin. The mission of Bitcoin is wealth freed from the restraints of the state and their last vestiges of slavery, fiat money. Unequivocally, Bitcoin is the enemy of any and all modern states because of how it charges its economic context with political meaning by extricating the power of money and wealth from the hands of all states once and for all.

Every other crypto project is little more than a money grab to enrich its founders under guileful promises that some ludicrous technological feature will somehow make it better money then Bitcoin. At best, these other crypto projects are reformist because they seek only to change the existing fiat and banking systems, not to overthrow them. At worst, they are active plots against Bitcoin–wolves in sheep’s clothing saying trust us, but don’t verify–buy our shitcoin because we like Bitcoin too.

It is here that we start to see see where exactly the line between friendship and enmity within Bitcoin is drawn, and why understanding Bitcoin in this context of the friend-enemy distinction is so necessary. While these other project may seek to create change in new ways, they seek to downplay Bitcoin’s direct mission, to obscure it from the general public, to shy away from the real existential threat that it is to all states, and the state’s ability to control money. These other crypto projects will never have the same vanguardist revolutionary nature that is Bitcoin’s essence because they do not approach the issue politically, but only technologically. They lack the full understanding of why Satoshi choose to launch Bitcoin as he did, and why the whole concept of PoW is so necessary to how Bitcoin operates. The enemies of Bitcoin fail to understand that the creation of a new standard of digital ordering is a promethean production of value itself–it cannot be duplicated transient, fleeting, and pathetic cause of just making money.

When we start to look closer at how Bitcoin functions, we start to understand its whole purpose is to organize people according to classes of friends and enemies grouped around cryptographic means. Though this understanding we start to see its political agenda not just as a new form of money, but as the destruction of the old order of politics all together. On one side are the statist and reformist who recognize the state as the only bearer of legitimacy to create, print, control, surveil, issue and regulate not just money, but value and wealth itself. On the other side, are the crypto-anarchist who seek to free all wealth from the yoke of despotism that fiat money and contemporary banking are and allow for the birth of something truly valuable and scarce:


Raw, naked, unabashed, unadulterated truth. The rarest of things in this day and age.

As I have said and pointed out before, it comes down to the inverting of the Hobbesian dictum of sovereign power (“Auctoritas, non veritas facit legem” (Authority, not truth makes legitimacy) in De Cive) into:

“Veritas, non auctoritas facit legem.” (Truth, not authority makes legitimacy) The political essence that is Bitcoin

What the blockchain bros of other crypto projects fail to realize is that what makes Bitcoin the best money the world has ever seen is not a technological feature, but a political one. The hidden political essence that lies at the core of Bitcoin is the utilization of cryptography in order to organization against any state, and all of its various appendages of control, domination, and exploitation. It is the oath of the machine to itself to create a new social contract built on top of cryptography. It is only through a strategy that rejects the legitimacy of the state’s authority for the truth of Bitcoin that The Political may actually be reengaged in the world of today and through the internet as its means of production.

It is Bitcoin’s political demand not just for the end of fiat money, but from governmental interloping of all kinds that composes of its radical power. It is the very real political apparatus that allows for political organization around the internet itself. But not organized like a machine or a corporation, but more like a mob or a dance party.

This power is radical because it is not part of the oscillations of constituting political power, but is a final technologically destituent power that uses cryptography to forbid and banish the state from existing in this space at all. Bitcoin is the final form of The Political in the digital age, where the new technologically superior order will wipe away the old to make way for the new. As Schmitt says, “No matter how large the financial bribe may be, there is no money equivalent for political freedom and political independence.”

Through the radical idea of wealth that is no longer accountable to any state, combine with the God-like power of cryptography to demand the sacrosanct of its word, we are offered a kind of protection and assurance that can be offered by no sovereign, no institution, and no individual alive. Bitcoin opens the truly political to man once again. Here before us lies the opportunity that presents itself maybe once a millennia; and only for the briefest of time, and only for the boldest of participants–it is the opening of the truly political and the destiny that awaits those who believe they can change the world for the better.

The post The Concept of the Political Hidden in Bitcoin appeared first on Crypto Sovereignty.

Nic Carter ( Feed )
Thursday, 07 January 2021
FinCEN Comment Letter

Castle Island Ventures recently submitted a letter to FinCEN regarding their proposed rules on digital assets. The following is the contents of the letter:

Re: FinCEN Docket Number FINCEN-2020–0020, RIN 1506-AB47, “Requirements for Certain Transactions Involving Convertible Virtual Currency or

Castle Island Ventures recently submitted a letter to FinCEN regarding their proposed rules on digital assets. The following is the contents of the letter:

Re: FinCEN Docket Number FINCEN-2020–0020, RIN 1506-AB47, “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets”

To Whom it May Concern:

Castle Island Ventures welcomes the opportunity to submit this letter for consideration by the Financial Crimes Enforcement Network (“FinCEN”) with respect to the Notice of Proposed Rulemaking regarding “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets” (the “NPRM”).

We respectfully request that FinCEN extend the comment period for this NPRM to 60 days in order to allow greater industry participation and dialogue around this issue.

About Castle Island Ventures

Castle Island Ventures was founded by Matt Walsh and Nic Carter and is an early-stage venture capital firm based in Cambridge, MA. We are focused on supporting businesses that are building infrastructure products and services in the public blockchain ecosystem. We believe that public blockchains are a breakthrough new technology that will have a transformative impact on a wide variety of industries, in a similar way that the commercial web has transformed nearly every industry since its deployment in the late 1990s.

Like in the early days of the commercial web, we believe that the United States can lead the way and establish itself as the premier jurisdiction for entrepreneurs to build companies in this category. We are hopeful that regulators will work collaboratively with companies and policy groups in this emerging field to ensure that these breakthrough companies can thrive in the United States.


Castle Island Ventures supports FinCEN’s objectives to combat money laundering, terrorist financing and other types of illegal activities. We believe that these objectives are aligned with the goals of the overwhelming majority of market participants in this industry.

Castle Island Ventures has several concerns with the NPRM, and also supports the comment letter put forth by the Chamber of Digital Commerce, of which we are members. Among our highest concerns with the NPRM:

  • Shortened Comment Period: We believe that the 15-day comment period is wholly inadequate and raises process questions under the APA. We do not see an immediate necessity beyond the change of Administration on January 20, 2021. Given the level of impact on commercial interests and citizens in the United States, we believe that this issue warrants at minimum a 60-day comment period.
  • Impact on Data Privacy and Personal Security of Cryptocurrency Holders: As currently contemplated, the proposed rule would unnecessarily compromise the private data of cryptocurrency holders. Unlike cash withdrawals, many cryptocurrency users withdraw funds from exchanges and brokerages with the intention of storing and holding these funds, not spending them. The current rule would in effect create honeypots of personal data including user addresses, that would make cryptocurrency holders vulnerable to personal attacks and attempted thefts. Additionally, because public blockchains are transparent and allow for the traceability of transactions, this rule would have the effect of permanently assigning personal identity to blockchain-based assets. If the database tying the identities of Americans holding digital assets to blockchain addresses were to be leaked or hacked — not an unlikely prospect given events of the last month — this full dossier could be used by adversaries to target these individuals. Because digital assets are bearer-style assets that can be transferred digitally, holders of these assets are frequent targets for fraud, phishing, extortion, and even physical threats. This rule would have the net effect of endangering the millions of Americans who already use digital currency by exposing. The permanence and traceability of these ledgers means that once one’s identity is tied to an address, it can be virtually impossible to break that linkage. Thus these requirements impose a far more onerous and invasive standard of disclosure than their equivalents for transactions with physical cash.
  • Detrimental Impact to United States National Interests in the Technology Market: Public blockchain technology has the potential to be a platform infrastructure that drives economic growth for decades to come in the United States. It is a technology that is on-par with the commercial web in terms of the breakthrough new business models that will be enabled and the myriad of jobs that will be created because of its existence. This is a technology that is very much entering the mainstream and will exist — the question is whether the United States will lead the way like we did with the commercial web. Applying onerous and undue regulation to companies in this nascent field will have the effect of forcing these entrepreneurs to build their businesses in other jurisdictions.
  • High Compliance Costs: We echo the sentiments in the ErisX comment letter, especially with respect to the significant compliance costs that the NPRM would impose on small startup entities. These costs include data storage, proprietary software development, increased compliance vendor spend and potential fines. Competitive companies in non-U.S. jurisdictions will be unnecessarily advantaged over their U.S. peers if the NPRM proceeds as drafted.

Castle Island Ventures appreciates the opportunity to provide this public comment.

Respectfully Submitted,

Matt Walsh, Founding Partner

Nic Carter, Founding Partner


FinCEN Comment Letter was originally published in Castle Island Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

Beautyon ( Feed )
Saturday, 02 January 2021
Bitcoin’s Tipping Point is Here
♦The Beginning

Years ago, on a day that changed my life forever, my late father gave me a lecture about the true nature of the United States Dollar. I can see the scene in my mind’s eye as clearly now as the day it happened. In his sitting room, he pulled a five dollar note and a ten dollar note ou

♦The Beginning

Years ago, on a day that changed my life forever, my late father gave me a lecture about the true nature of the United States Dollar. I can see the scene in my mind’s eye as clearly now as the day it happened. In his sitting room, he pulled a five dollar note and a ten dollar note out of his money band, and the conversation went like this…(his voice is in italics)…

“What is the difference between these two notes, my son?”
“One is is a five, and the other is a ten.”
“Yes, but how are they different from each other?”
“One is worth twice as much as the other one.”
“You’re wrong. Both of these notes are exactly the same. They are both worth nothing. One has a number 5 on it, and the other the number 10, but they are exactly the same. They use the same paper, the same ink and they are the same size. They are both identical to each other. All the money that comes from the government is a fraud, and the reason why everyone accepts it is that they don’t know this. It is a big secret. Gold on the other hand, is money. They can’t manufacture it. It is the only real money there is.”

I was horrified.

The money I had used all my life, was prepared to accept and chase after, which was, “Just the way things are”, was irrefutably proven to me to be worthless garbage and a fraud in under thirty minutes. The moment I saw, understood and accepted this shocking truth, the first thing that came to my mind was, “How can we possibly escape from this, and have real money?”

From that moment on, the dollar never looked the same again. Everyone accepted this fraud, propped it up and was prepared to live and die by it and for it. It seemed like an insurmountable problem. Every time I used the dollar, it chafed at my consciousness. Everyone everywhere was colluding with a gigantic fraud, hypnotised by what today is widely called “fiat”, and there was nothing I or anyone could do about it.

My father didn’t know about the Austrian School of Economics; he had figured out the nature of the fiat fraud for himself. Years later, thanks to Ron Paul and Lew Rockwell, I would read Murray Rothbard, and have formally confirmed to me that everything my father said was in fact correct. The only distinction was that the true fiat situation was orders of magnitude worse.

A Decade Later

I became a PGP user when it was first released, downloading it from a BBS. I made myself familiar with all of its concepts. This was a crucial step in what was to follow in subsequent years; an understanding of Public Key Cryptography, Clear Signed Digital Signatures, Key Management, and the fact that it, PGP (now GPG), is absolutely unbreakable. The case against Philip Zimmerman for exporting PGP from the USA (because it was defined as “munitions”) was also a critical stage in my education, laying the foundations of an understanding that software is text only, and 100% guaranteed protected speech.

Later in the 1990s, I stumbled upon David Chaum’s e-cash, and ran the client.

♦The simple interface of e-cash.

Thanks to my background, I instantly knew that this was the solution to the “fake paper money” problem. All we had to do was denominate e-cash in real money (gold) and then e-cash could be transferred between computers over the internet carrying that value as a promise like the old silver certificate dollar. There would then be a sound money in the world on a global scale with all the utility of sending email. And we could make a fortune being the administrators of it. I prepared a short introductory document describing what we were planning, and started exploring how we would structure a business built on it. This is a PDF of the actual outline document I created to introduce the idea.

Dau Proposal | Gold | Gold As An Investment

When this document was circulated, the web was in its infancy. Most companies were not on-line, and very few people used email. Cellphones were large “bricks” used only by the business class. No one knew what the internet was, and only insiders and futurists had an inkling of what impact it would have on society. It is hard to imagine what the world was like back then; it was the last days of the pre-internet world, where services everyone takes for granted today were literally unimaginable. Pioneers were building the tools and services that would become mainstream, and it was obvious to me that the internet would eventually have it’s own native money that was cash like.

Then the e-cash company…went away.

Ecash was an idea decades ahead of its time; the world wasn’t ready for it, let alone buying books and other goods online. What it did do, however, was show that a system like it was possible and inevitable. It was a matter of getting the software right, and the correct market conditions being in place.

Fast forward to 2010. I had been using IRC clients…

♦mIRC IRC client developed by Khaled Mardam-Bey

then Napster…

♦Napster 2.0 Beta 7 developed by Shawn Fanning

then Gnutella…

♦Gnutella 1.1.11 Stable developed by Yann Grossel and subsequently Raphael Manfredi

and then BitTorrent…

♦BiglyBT Azureus / Vuze clone by parg and TuxPaper

to move files around. The problem of a centralised single point of failure that Napster represented was solved by a single genius, Bram Cohen, with his breakthrough BitTorrent protocol that split files up between connected peers, making it impossible to stop files being shared while at the same time dramatically increasing the efficiency and speeding up the rate of distribution.

All of these clients share common features:

  1. They are all Graphical User Interfaces to a network strictly governed by protocols that facilitate the exchange of data.
  2. They all have a similar UX (user experience) and presentation; you interact with them using familiar graphical search, cut, paste, point and click conventions.
  3. The clients are free to download and use, and you have to populate them with special data you generate, or get data from someone else.

Anyone who used these programmes was prepared for the subsequent iteration because the leap between them was negligible in terms of the mental framework you need to navigate and make use of them. The leaps in the capabilities of the underlying software architecture between each stage on the other hand, were very large, sometimes bearing no relation to previous stages.

Then it happened. One day, through a forum post, I read about “Bitcoin”.

Given my exposure to all of the above, My first reaction was…“No way”. I instantly knew that if someone had really solved this problem, it would literally be one of the most important innovations ever, on the level of Movable Type, the Transistor and Assembly Lines. The dream of electronic money would actually come to pass, and because it was truly peer to peer like BitTorrent, there would be nothing anyone could do to stop it. Billions of people would use it. Its limited supply would have beneficial effects across the entire economy. It would change everything.

BitTorrent works by everyone in the network having a copy of the same file; the BitTorrent client slices up the file into tiny parts that are reassembled in order by clients downloading the file. For Bitcoin to work, it would have to mean that its author had removed the central server single point of failure through some mechanism like that, sharing the transaction database amongst the peers, resolving The Double Spending Problem that made a central server necessary by everyone watching the network…but had he actually done it? I had to find out!

I immediately downloaded Bitcoin and started mining it. I sent it and received it. It appeared to work. It was literally unbelievable.

♦The Bitcoin-Qt wallet version 0.11.0 running on Linux

“I started writing about what this would mean in practice on December 10th, 2010 at the blog I was running. This is an excerpt from my first writing on Bitcoin:

♦“LOIC, Wikileaks, boycotts, Bitcoin and game changing” from my blog BLOGDIAL, December 10th, 2010

BitTorrent proved how ineffective measures to stop file sharing were, now people would be sharing Bitcoin instead of files, and because the files being broadcast in Bitcoin were tiny, the entire network would be reconciled very quickly. Moving a 758-megabyte AVI file could take hours over a 128k modem; a Bitcoin transaction being only a few bytes of text reached every node in seconds.

What was going to happen next was obvious to me; everyone would be running their own copy of the Bitcoin software, and managing their money themselves. The network would have all the incentives of the Warez scene, but with a much wider, powerful and deeper reach, since everyone uses money. They would be able to buy and sell with Bitcoin globally, and the amount of money would be irrelevant to the speed of transfer, because a Bitcoin transaction is just an insignificantly small piece of digitally signed text being stored by every client, orders of magnitude smaller than a movie file, software application or MP3.

Bitcoin was it. Bitcoin is what I had been waiting for. Bitcoin put together all of the battle-hardened software techniques, peer to peer architecture from file sharing, sound monetary theory from the Austrian School, a predictable emission curve, balanced adversarial incentives and infallible cryptography in a tour de force of techniques to create a single brilliant and robust system that required only user participation at any level to be a success. Anyone who had run all the software listed above as I had done, and had the other elements of my background would have been able to see this. The problem with Bitcoin was not how it worked, but how to turn the plague of worthless, fraudulent fiat into Bitcoin; how to bootstrap the system so that it replaced money. In a sentence, “How to Get Bitcoin”.

Subsequently, MtGOX appeared as a way to get Bitcoin. They required a username and password to use their service, an offer which I point blank refused. After having spent years on IRC, Napster, Gnutella, and BitTorrent, I was used to not having an account and getting exactly what I want immediately, no questions asked; why should I now “sign up” for what is essentially another type of BitTorrent, and allow them to store my Bitcoin to boot? Their offer was absurd on its face, and their subsequent collapse proved that stance to be the correct one. I took the plunge with Amir Taki’s Intersango service however, as a means of buying bitcoin, and bought my first batch of Bitcoin at £7 each, immediately offloading it on to my own Bitcoin client.

♦My first purchase of Bitcoin, from Amir Taki’s ”Intersango”

Buying Bitcoin that way was hard, and took an absurd three days for the process to complete.

That’s when it came to me…

  1. If Bitcoin becomes a global phenomenon, it will be used on the internet in the place of money.
  2. That means buying large purchases from Amazon down to micro-payments and all sorts of other things will suddenly become possible with a frictionless tool right in your hand that totally eliminates payer fraud.
  3. It will mean people will need to get Bitcoin in a trivially simple and fast process that is as easy as “Topping Up” a mobile phone. If we can top up a phone, why can’t we top up a Bitcoin “wallet”?

The answer was, “There is no reason why not”. That was when I decided to write Azteco. I had trained myself to develop with LAMP (Linux, Apache, MySQL and PHP), and had written a very complex SMS broadcast project called Upingme, that relied on telecom provider APIs, and the Bitcoin Reference Client provided a rich API to programme against. It was just a matter of working out the details. As a proof of concept, I integrated Bitcoin payments into Upingme, allowing users to buy SMS credits with Bitcoin. Adding Bitcoin payments was a straightforward task. After completing that concept, I started working on Azteco full time. Without users to account for, the entire Azteco process was simplified and streamlined across the board.

Now you know (if you have been following me on Twitter or reading my Medium posts) why I have been dismissive of “Bitcoin backed by Gold” and the other things people keep coming up with; they are all old ideas that are inferior to pure Bitcoin. History is repeating and rhyming because there aren’t very many people who’ve seen the whole picture. They arrive as latecomers and do what makes sense to them, just as people did in the 1990s, without knowing what has been tried before. It’s very hard to find even a screen-grab of the Chaum’s e-cash client running; how can people new to “The Money Problem” even begin to think about good solutions and services that use Bitcoin by its nature? The majority of them never thought fiat was a problem in the first place. They don’t encrypt their email. They don’t know about “The Crypto Wars”. They think legitimacy in software comes from ridiculous, insulting and anti-American “BitLicenses”, Cargo Cult “Foundations” and other worthless nonsense. How can they possibly get any of this right, right out of the box?

The answer is, they can’t.

It also explains why many immature people are impatient with the speed of changes to Bitcoin. None of them have the background to understand just how long it takes to get from one major innovation stage to another. Nor do they understand how difficult it is to produce these software clients, the underlying concepts and the networks they sit on top of or the withering attacks they inevitably come under from hostile actors both on and off-line.

The Year of Bitcoin

Now that Bitcoin is old and totally established, we can see many of my predictions have come true. Here is just one of them from 2011, anticipating “Satoshi Pay”:

♦Satoshi-Pay prediction from BLOGDIAL, August 12th, 2011

My contention that saying “Bitcoin is not money” is the best way forward was only understood after the disaster of BitLicence. Subsequently, Token sellers claimed that what they were selling was not money or a Security, and Lightning payments are explicitly denied to be money (quite sensibly).


There have been many such posts from this author, but perhaps the most important was one of the earliest examples debunking the “Blockchain not Bitcoin” fad, the narrative for which has now totally collapsed:

♦“Grundsaudaag, Jour de la Marmotte, Groundhog Day” from Apr 2, 2015. For three years, the entirely false “Blockchain not Bitcoin” narrative slowed the progress of Bitcoin’s adoption by diverting money and development into worthless, dead end projects and anti-Bitcoin experimentation. Now that these false narratives are discredited, it will be hard to mount another attack like it. This meeting at the Brookings Institute is a case study in how legacy thinkers consistently fail to understand Bitcoin.

There are many examples, and I can’t go through them all here. Time and again anti-Bitcoin people fail to produce anything as powerful as Bitcoin with its balanced incentives and unencumbered entry into the market, and in each instance, had they read BLOGDIAL or this Medium account, they could have avoided wasting their time. In the end, they will all come to Bitcoin, or end up on their bespoke systems that will never approach Bitcoin’s utility or value.

body[data-twttr-rendered="true"] {background-color: transparent;}.twitter-tweet {margin: auto !important;}

 — @Beautyon_

function notifyResize(height) {height = height ? height : document.documentElement.offsetHeight; var resized = false; if (window.donkey && donkey.resize) {donkey.resize(height);resized = true;}if (parent && parent._resizeIframe) {var obj = {iframe: window.frameElement, height: height}; parent._resizeIframe(obj); resized = true;}if (window.location && window.location.hash === "#amp=1" && window.parent && window.parent.postMessage) {window.parent.postMessage({sentinel: "amp", type: "embed-size", height: height}, "*");}if (window.webkit && window.webkit.messageHandlers && window.webkit.messageHandlers.resize) {window.webkit.messageHandlers.resize.postMessage(height); resized = true;}return resized;}'rendered', function (event) {notifyResize();});'resize', function (event) {notifyResize();});if (parent && parent._resizeIframe) {var maxWidth = parseInt(window.frameElement.getAttribute("width")); if ( 500 < maxWidth) {window.frameElement.setAttribute("width", "500");}}

Bitcoin is not dead, as the R3 people claimed. It hasn’t frozen up or done any of the things its detractors claimed would cause its demise. Bitcoin is more powerful than ever, with new features being added and new services coming on line to serve the public.

It isn’t too late for a jurisdiction to become the natural home of Bitcoin, but for it to do so, it must adjust to the new reality, because Bitcoin will not be changing to accommodate Computer Illiteracy and Luddism. America has the best chance of doing this, if it follows The Constitution.

The Here and Now

Fast forward to today. Azteco has six year Google Product Manager veteran Paul Ferguson as co-founder, Tom Dobbels, seasoned and relentless Head of Sales who has just completed a very large deal with Xoxoday in India, and killer Business Development man Jordan Miles, who just brought in a 100 outlet deal. We have two senior global executive class advisers, and a slew of enthusiastic interns doing heavy lifting. This is a world-class team, and our sales are doubling every month.

Everyone who tries the Azteco service is shocked at how fast and simple it is, and the common refrain is, “Why isn’t every service like this?”. We’re partnering with the world’s best Bitcoin wallets in the form of Pine,

Bluewallet, Edge and others so that you can redeem your voucher with a single motion, and we have other very neat things in store. We are, naturally, quite excited.

The answer to “Why isn’t every service like this?” is that Azteco is different because we started from a correct set of fundamental principles and understanding. We work only from these first principles, and not from wrong conventions.

We have extensive first hand experience in previous peer to peer services of different kinds; we know exactly what we are dealing with, why it was created and what it looks like when these services go global. If you don’t come from the right background, have never run the related predecessor software (like GPG or file sharing clients), don’t have a grasp of the correct economic theory or mentality about software, lack understanding of cryptography and the principles behind why privacy is important, it is difficult to synthesise a proper understanding from nothing, and much harder to design a correct business model. You have to have a strong mix of everything, or you’re lost.

Big Numbers

There are many people without access to financial services who Azteco will serve. Did you know that there are one million (1,000,000) people in the UK who don’t have a bank account? Sixty million (60,000,000) in Mexico? Twenty five million and twenty five thousand (25,025,000) in the USA? And two billion (2,000,000,000) globally? By serving a fraction of these people we are set to become a huge service. Then of course, there are hundreds of millions of people who will just want to use Bitcoin because it is fantastically convenient, and easy to use; orders of magnitude easier than using a credit card online, whilst totally eliminating payer fraud.

Azteco serves the banked and the unbanked. Azteco serves you. Azteco serves you quickly. Azteco will change your thinking about Bitcoin.

Once you use Azteco, you will never tolerate anything less.

Why would you?

Follow Azteco on Twitter for updates. Beautyon image by Ben Drury. Listen to the “Bitcoin Matters” Podcast for short, easy to digest pieces on Bitcoin.

Bitcoin’s Tipping Point is Here was originally published in The Startup on Medium, where people are continuing the conversation by highlighting and responding to this story.

Jimmy Song ( Feed )
Saturday, 26 December 2020
The Moral Case for Bitcoin

The Bitcoin Times, Ed 3

♦There’s no morality in fiat.

One of the most important parts of the Bitcoin journey is learning to talk about Bitcoin in a way that connects with people. There have been a lot of approaches.

There’s the investment case for bitcoin, the self-sovereignty case for

The Bitcoin Times, Ed 3

♦There’s no morality in fiat.

One of the most important parts of the Bitcoin journey is learning to talk about Bitcoin in a way that connects with people. There have been a lot of approaches.

There’s the investment case for bitcoin, the self-sovereignty case for bitcoin and even the societal case for bitcoin. What there hasn’t been is the moral case for bitcoin. The moral case for anything is a different beast than the others because we’re not appealing to self-interest, we’re appealing to something that’s deeper in the human soul.

For this reason, a moral argument resonates deeper and trumps other arguments. By making this argument for Bitcoin, we’re taking the moral high ground, an argument that’s stickier and more lasting.

So how do we make this moral case? Any talk of morals has to start with a framework to decide what’s right and wrong. There are two theories of individual rights that we’ll cover. Natural Law and positivism. From there we can proceed to the government’s role. There are two possibilities here:

  1. Protection of individual liberty
  2. Pursuit of a utopian or a vision imposed by the ruling elite.

Next, we can proceed to how money fits into both these systems of morals and government. Specifically, we’ll contrast fiat money versus Bitcoin. Finally, we can explore the second-order effects, or what we can expect under both systems in terms of incentives, virtue and the character of society.

Let’s start with a little bit of philosophy. There are two theories of individual rights. Natural Law and positivism. The first is the theory of Natural Law. This is the idea that rights are something we already have; that if they’re violated by anyone including the government, that it is wrong. This view is ancient, but probably the clearest expression of this is in The Declaration of Independence:

“We hold these truths to be self evident that all men are created equal. That they are endowed by the Creator with certain unalienable rights that among these are life, liberty and the pursuit of happiness.”

Life, liberty and the pursuit of happiness are three rights mentioned by the writers of the Declaration of Independence, but they’re by no means the only ones. There’s the right to property, the right to free speech, the right to religion and so on.

The reason why the colonists felt justified in declaring independence was because their natural rights were being violated by England. The English king was violating their already existing rights and therefore the government was doing something wrong and therefore was not a legitimate government. That was their argument. In other words, a government that does not respect natural rights no longer deserves to govern. That’s the basis of Natural Law. Individuals already have certain rights and any government that violates those rights is an illegitimate government.

The other view of individual rights is called positivism. This is the idea that the government grants individuals certain rights, and that the government is the arbiter of what an individual can and cannot do. Generally, this means that unless the government explicitly gives you a right, that it is not a right you have. An example of this is a license to cut hair. Individuals do not have the right to cut hair unless you get the government’s permission first. Essentially, in this framework, the government determines what’s right and what’s wrong.

Why do people follow Natural Law?

First, it’s common sense, like the tract from 1776 by Thomas Paine. Saying something is common sense is another way of saying it’s inborn or intuitive. Natural Law says that it is wrong to murder people because people have a right to life, for example. That’s hopefully inborn or intuitive for you.

Second, Natural Law is just. Natural Law treats people equally, not based on wealth, ethnicity or political savvy. We don’t give certain people one set of rights and deny it to another set of people.

Third, Natural Law is individual-centric. Individuals have the right to life, liberty and the pursuit of happiness. Individuals have freedom under Natural Law.

Why would anyone like positivism? Unsurprisingly, those who like positivism are people in power.

First, positivism is much easier to enforce. Positivism defines rights each individual has so if the right is not explicitly given, then the individual is in violation. If you don’t have a license to cut someone’s hair then you are in violation. Judging right and wrong under positivism is much much easier.

Second, positivism is great for those in power because they can treat people differently. Think of the scene from Braveheart where nobles are given the right of “prima nocte”, or the right to sleep with commoner’s wives on the first night of marriage. Prima nocte is a flagrant violation of Natural Law, but under positivism, any rights, even one to rape, is something the government can give.

Third, positivism allows those in power to set the rules. They don’t have any restrictions on those rules because they are by definition moral under positivism. There’s no higher authority that you can appeal to and say this is unfair.

At this point recognize that Natural Law is moral and positivism is highly immoral. Looking throughout history, all of the worst governments with the worst atrocities, every single one of them was positivist. All of them operated under the idea that the state gives you the right to do something. The state gives you the right to cut someone’s hair, own property or even live. And they can take stuff like your life, your liberty and your property. If you look at Nazi Germany, Stalinist Russia and the Reign of Terror with disgust, you do so because they’re all positivist and believe to some degree in Natural Law.

So, if you’re a believer of positivism you can stop reading this article because I don’t really have anything more to say to you. But if you’re a believer in Natural Law, please continue.

With this distinction in mind, let’s talk about the role of government. Government can take two possible roles: protecting individual liberty or pursuing a utopian vision. If you believe in Natural Law, that we already have rights, then the government’s job is to protect those rights. The opposite is the pursuit of a utopian vision. Marx’s workers paradise and Hitler’s racially pure world are two visions that led to mass slaughter. But those aren’t the only possibilities. a utopian vision can be something as simple as not ever having any sort of terrorist attack on a plane. This is how we get ridiculous policies like the TSA. Another utopian vision is preserving the status quo. That’s how we get bailouts and too-big-to-fail. Conservatives are much more prone to this sort of vision which isn’t surprising since preserving the status quo is literally conservative. The sad reality of today’s political discourse is that we’re not arguing about protecting individual liberty, we’re arguing for different utopian visions.

When the government’s role is to protect individual liberty, we get a lot of good things. There’s a lot more entrepreneurship because no one needs permission. And that ultimately leads to civilization being built up by sovereign individuals.

When the government’s role is pursuit of a utopian vision, we get lots of bad things. There’s a lot less stuff being built because there’s permission required. There always needs to be some sort of bureaucratic stamp of approval on whatever it is that anyone wants to do. Violations mean you lose your property, your liberty, and possibly even your life. Ultimately individuals become slaves to the state. When the government protects individual liberty then the state takes the proper role of being a servant to the people. But when the government pursues a utopian vision, individuals become the slaves of the state.

What we’re seeing in the last 200 years is that governments around the world have moved from protecting individual liberty towards pursuing utopian visions.

A positivist pursuit of a utopian vision has its own money: fiat. A Natural Law protection of individual liberty has its own money: bitcoin. We can see that clearly in its properties. Fiat money is clearly centralized, with control of money from a powerful central entity, like the Federal Reserve. Bitcoin is decentralized with every individual having power, through running a node. Fiat money requires permission to possess it. Bitcoin is better than even gold in the sense that it is unconfiscatable. Fiat money can be devalued at will, giving positivist governments the funds to pursue their utopian vision. Fiat lets governments tax without the consent of the governed. Bitcoin gives power back to the individual not allowing this stealth taxation and respects individual property. Fiat money uses violence to get its ends. Fiat is a zero-sum game where the state benefits at the expense of individuals. Bitcoin is voluntary and positive-sum because people only trade when it adds value to both parties. Fiat money is a positivist money, a tool of governments pursuing a utopian vision. Bitcoin is a Natural Law money, a tool to protect individual liberty. Bitcoin is therefore the more moral money.

The second order effects of Bitcoin are in the realm of individual character. We can look at this in terms of the four classical cardinal virtues. Prudence, Temperance, Justice and Fortitude.

Prudence is what we in bitcoin call low time preference, that is planning for the future. Fiat money is the opposite and you can see it in the enormous amounts of debt everyone has. Individuals become more high time preference and become slaves to their debt.

Temperance is doing things the right amount. Fiat money encourages consumption and thus, individuals are not incentivized to learn self-control. This causes everything from materialism to obesity to addiction. Bitcoin is the opposite and causes people to save and measure their consumption. This means there’s more self-control and more temperance.

Justice is doing things fairly. Fiat money is unfair in a whole host of ways. Politically connected people get rich through rent-seeking. Bitcoin is much more fair because there’s no apparatus to rent-seek from. Instead, we get a free market and a meritocracy.

Fortitude is courage or guts. Unfortunately, fiat money and positivism means a highly politicized environment since the government is in control. Fiat money incentivizes rent-seeking, not risk taking entrepreneurial endeavors. Positivist change is brought about by force and violence. Bitcoin incentivizes entrepreneurship and new goods and services. In other words, Bitcoin induces Natural Law change, which is brought about by creation and innovation, not government decree.

Prudence, temperance, justice and fortitude.
Bitcoin makes civilization not just better but more moral.

The moral case for Bitcoin is that Bitcoin aligns with Natural Law. Bitcoin gives us protection for individual rights, something most governments are slowly abandoning. The sad reality is that the world is becoming more and more tyrannical. Those in power both on the left and right pursue utopian visions instead of protecting individual liberty. If you care about protecting individual rights, then Bitcoin is what we must pursue and fiat must be destroyed.

Fiat delenda est.

By Jimmy Song
October 2020

The Bitcoin Times Ed 3 is now live.
Be inspired by ideas on bitcoin, philosophy, economics, sovereignty and freedom.

Each section will be released on Medium as a free long form article, and the full, compiled version of the Bitcoin Times will be available for free at the link below. We will release a limited edition hard cover collectible, for purchase, which you’ll be notified of by email if you download the free pdf.

If you found value in this or any of the other essays and articles, please support each of the contributors by sharing it out & following their work.

Download the full guide at:

The Bitcoin Times

Follow The Bitcoin Times on Twitter @TimelessBitcoin:

The ₿itcoin Times

Written By:

Jimmy Song - Medium

The Moral Case for Bitcoin was originally published in The Bitcoin Times on Medium, where people are continuing the conversation by highlighting and responding to this story.

Nic Carter ( Feed )
Sunday, 13 December 2020
Nic’s 2020 Bitcoin Esoterica Compendium
Nic’s 2020 Bitcoin Esoterica CompendiumAnswer key and references for the Very Hard Bitcoin Holiday Quiz

So for this holiday season, instead of talking about all the coins I thought would die, I decided to undertake a brain dump of some of the Bitcoin trivia I’ve picked up over the years. I’ve been

Nic’s 2020 Bitcoin Esoterica CompendiumAnswer key and references for the Very Hard Bitcoin Holiday Quiz

So for this holiday season, instead of talking about all the coins I thought would die, I decided to undertake a brain dump of some of the Bitcoin trivia I’ve picked up over the years. I’ve been accumulating niche and esoteric information about Bitcoin and altcoins for quite a long time now, and it’s time to let it out.

Recently, The Block’s Larry Cermak made a great (and challenging) quiz covering crypto markets to filter prospective interns. I was inspired by this and decided to make an even harder quiz, focusing mostly on half-forgotten moments from Bitcoin’s history. If you haven’t taken the quiz yet, stop reading and take it first:

Nic's Very Hard Bitcoin Holiday Quiz

The first objective for the quiz was to make something that would be extremely challenging, even for the most seasoned Bitcoiner. If you score more than 50% (22 correct), you should be very happy with your performance. It’s meant to be damn hard. Seriously.

The second objective was to remind Bitcoiners of a few entertaining vignettes from Bitcoin’s history. There’s so much amazing stuff that newcomers didn’t have the benefit of living through, and I wanted to dredge some of it up. Bitcoin hasn’t always been an orderly and financialized market. It has been utter chaos for the better part of 12 years. So the quiz was an excuse to resurface some of these wacky tales from earlier days of Bitcoin.

Here I’ll add a bit more context on the questions, and add some references so you can learn a bit more about the events being referenced (and verify that I’m not just making stuff up). Note: the rest of this article spoils the quiz, so do the quiz first before reading.

  1. Before Bitcoin, there was DigiCash. David Chaum infamously turned down a deal that would have put DigiCash in every copy of Windows 95. There’s a great story entitled “How Digicash Blew Everything.” Here’s the key quote:
Earlier Chaum was contacted by the unavoidable Bill Gates of Microsoft. He would integrate ecash in every copy of Windows 95. Rumor had it, the giant from Seattle offered something like 100 million dollars. David Chaum refused to sell it for less than 1 or 2 dollars per sold copy and that stubborn attitude killed another agreement. “A really sad story,” reflects Stofberg. Chaum killed an agreement with another American company, Netscape, in the same way, by insisting straight away that everybody sign non-disclosure agreements, even before negotiations had started. Exit Netscape.

2. Before becoming a Bitcoin Baron with his DCG conglomerate, Barry Silbert ran a company called SecondMarket. They helped make shares in private companies liquid pre-IPO. They were later acquired by Nasdaq Private Market. The Bitcoin Investment Trust, today a gargantuan black hole sucking in all the Bitcoins, has its origins in SecondMarket.

3. So Zooko has really been around the block. He’s been involved in a ton of cypherpunk, p2p, and digital cash projects. Famously, he worked at DigiCash. Mojo Nation is an underrated file-sharing project where he worked with Bram Cohen who would later leave and start Bittorrent. Although Zooko knew the folks at e-Gold, he never worked for them.

4. Another crypto luminary who has worked all over the place is CZ, the founder of Binance. Unknown to many, he worked at before joining OKCoin where he was CTO. He never worked at Huobi though.

5. This is fairly well known, but Vitalik cofounded Bitcoin Magazine and wrote quite a few articles before starting Ethereum.

6. If you ever followed Roger Ver on Reddit, you would know him by his handle /u/memorydealers. So what memories was he dealing in exactly? Well memorydealers was a rather pedestrian online shop selling used computer parts. Roger DID briefly sell fireworks (which won him a felony), but that wasn’t his main pursuit.

7. Many Bitcoiners will know this one. While Ross Ulbricht got double life for his creation of the Silk Road, the murder-for-hire charges that swirled around the case were never actually included in the final set of charges. In that context, the double life sentence with no parole is more than a little mystifying.


8. The oldest continuously operating orderbook exchange in the entire industry is the Bitstamp, founded in Luxembourg in August 2011. Great job guys! This is why many Bitcoiners refer to Bitstamp prices for continuity’s sake. Although I did get a couple DMs claiming that Tradeogre is actually the longest continually operating Bitcoin exchange. It’s a close one.

9. Ah, Bitcoinica. The genesis of the term ‘Zhou Tonged’. It was horribly run and yet despite — or perhaps, because of this fact — many Bitcoiners remember the derivatives exchange fondly. It was hacked three times. The last time, suspicions abounded about an inside job. In total, around 120k BTC were stolen from the exchange. Where is Zhou Tong today? Who knows.

10. This shouldn’t be too difficult. It’s the last initial of the three original cofounders — Arthur Hayes, Ben Delo, and Sam Reed.

11. Some more Bitcoinica lore. According to Vitalik writing in Bitcoin Magazine, Bitfinex’s original codebase was partly inherited from Bitcoinica, as dysfunctional as it was.

12. While p2p Bitcoin trades took place on various auction sites like Ebay in the early days, as far as I can tell, the earliest continuous, dedicated Bitcoin exchange was

13. This is one of my favorite tidbits. The first Bitcoin ‘price’ was derived by NewLibertyStandard who computed the cost of mining his Bitcoins based on his electricity costs. He derived a unit price of 1 USD = 1309 BTC, or $0.00076 per coin. This was a bit theoretical, because Bitcoin wasn’t meaningfully trading at that time. But I like to think of this as Bitcoin’s first price.


On to my favorite section, weird artifacts found in Bitcoin’s blockchain itself. I owe a lot to Coin Metrics engineer and veritable Blockchain Indiana Jones, Antoine Le Calvez, for some of the findings in this section. He has found some astounding stuff by poring through Bitcoin’s blockchain over the years. Antoine & team share a lot of these hidden gems in the Coin Metrics substack.

14. Man, I love this damn piece of trivia. This was the first question I wrote for the quiz. The answer is two! There are two instances of identical transactions in Bitcoin:

  • Transaction d5d2..8599 was the coinbase output for blocks 91,812 and 91,842
  • Transaction e3bf...b468 was the coinbase output for blocks 91,722 and 91,880

This has the practical effect of destroying one UTXO from each transaction. This means that there’s 100 less BTC in existence than you thought there was. Antoine covered the topic masterfully here. There’s no risk of this happening today, due to BIP-34, which required that coinbase transactions include the block height.

15. Another piece of trivia I absolutely love. As some of you may know, miners don’t have to claim the full coinbase reward. They can award themselves less, if they want to. This means that the designated Bitcoin never actually come into circulation. This means that Bitcoin’s supply is slightly less than what it was intended to be. So far, this has happened 1,221 times. As Antoine says in his piece on the topic:

According to Bitcointalk user midnightmagic, the first instance was done on purpose as a tribute to Satoshi Nakamoto, on a suggestion of Bitcoin developer Matt Corallo. For the other cases, given the amounts lost by some miners, they are most likely attributable to bugs in the software used by miners to create the coin generation transaction.

16. Easy one to cheat on if you want! Just go to blockchair and sort transactions by size. The biggest transaction took place in Nov. 2011, outputting 550,000 BTC. At the time, that was worth only $1,265,000.

17. Another one that might be surprising. As some of you know, transactions can bundle together many, many individual transfers. This is called batching. So transactions can bundle up lots of individual UTXOs and output lots of UTXOs, too. The limit is block size. The most input-heavy transactions have 20,000 inputs. Wild. (This is another reason why transaction count isn’t a great way to measure payment activity).

18. If you know a thing or two about LukeJr you can probably guess this one. In 2011, LukeJr’s pool Eligius inserted prayers into Bitcoin. Specifically, he added the divine praises. A few users got fed up and also broadcasted messages on chain admonishing him for it.

19. Most Bitcoiners should know this! It was 184 billion BTC. But don’t worry, that chain was discarded.

20. SatoshiDice was an infamous early usage of Bitcoin, created by Erik Voorhees, whereby you could make bets that would pay out on-chain. It consumed a lot of blockspace in the early days. In 2012 it accounted for a full 40% of all Bitcoin transactions, when counted on a daily basis (although a greater share of some individual blocks).

The Mt Gox Section

Mt Gox is such an incredible, epic, and chaotic story that it deserves its entire section in the quiz. Whole books could be written about the Gox story. I’m surprised there aren’t any yet.

21. Simple enough. Gox opened its doors in July 2010. There’s some disagreement over whether it was the 17th or the 18th. Either way, Gox rapidly became the biggest Bitcoin exchange, and retained that crown until it collapsed spectacularly in 2014.

22. One of my favorite tidbits. Gox was actual insolvent when Jed McCaleb (who later created Stellar) sold it to Mark Karpeles. It’s not clear Gox was ever actually fully reserved. In 2011, skeptical users demanded an informal ‘proof of reserve’ and Gox owner Mark Karpeles conducted a self-send totaling 424,424 BTC, as a sly reference to the Hitchhiker’s Guide. Seriously. Mark was a bit of a peculiar fellow, as you’ll see.

Don’t come after me claiming we have no coins,” Karpeles said, according to a transcript of that online discussion. “42 is the answer.”

23. Another one of my favorite pieces of Bitcoin trivia, period. Karpeles named the Mt Gox parent company after his cat, Tibanne. Tibanne sadly passed away last year. Rest in peace, Tibanne. You were a important cat in Bitcoin history.

24. Because Gox never registered as a money transmitter, DHS shut down their payment processor relationships, and seized funds being held on their behalf by Dwolla.

25. So aside from the whole “losing 800,000 BTC” thing, another move Mark Karpeles made that really earned him the ire of Bitcoiners was initially blaming the Gox hack on a Bitcoin protocol-level exploit, known as transaction malleability. In reality, Gox was hacked in a much more straightforward way — hackers simply gained access to cold storage, and siphoned the wallets over a period of years. Wrongly blaming the Bitcoin protocol led to a flurry of Bitcoin headlines about Bitcoin itself being insecure. Not the case: a paper from a team at ETH Zurich found only de minimis losses from malleability, which was never a significant issue on Bitcoin. SegWit subsequently fixed malleability, too.


I get it, this is a Bitcoin quiz. But there’s so much entertaining trivia to do with altcoins, especially early PoW alts. The first few years from 2011 to 2014 were absurd — there was virtually no innovation, just copy pastes of the Bitcoin source code with new names. Let’s dive into the history of alts a little.

26. So the first ICO was Mastercoin. It really is an amazing story, and I can’t do it justice here. Here’s a fun thread recapping the history. JR Willett devised the idea, imagining ways to extend Bitcoin’s protocol. It later became the Omni protocol, which is what Tether was initially built on. So really, the first ICO was one of the most successful, in that it build something pretty useful for Bitcoiners. That said, the token did not share in the success of the protocol, and is effectively worthless today. Lesson in there!

27. This one is a gimme. The first true altcoin was Namecoin. (Granted, Bitcoin Testnet actually gained a financial value for a second there, and so has a claim to the title of being the first altcoin, too). Originally conceived as BitDNS, and actually discussed by Satoshi on BitcoinTalk, Namecoin was meant to extend the use of Bitcoin as an immutable ledger for domain resolution. Namecoin domains ended with .BIT. As far as I can tell, they don’t really work today. Numerous projects that have taken this idea further since then, including Blockstack, Ethereum’s ENS, Immutable Domains, and Handshake.

28. So Luke-Jr and his mining pool Eligius appear again in the annals of Bitcoin history. So one thing Luke did aside from posting text to the blockchain, was kill off an altcoin known as CoiledCoin with 51% attacks. (This was one of the hardest questions on the quiz, judging by your responses).

29. So this will trip up a lot of people. The correct answer is actually Ripple. Each of those other coins has suffered an inflation bug — some permanent, some remediated. Many other coins have had inflation bugs too. In fact, look hard enough, and you can probably find unanticipated inflation on almost any public blockchain. I’ll link to coverage of each inflation bug, although each has a fascinating story which is worth diving into (especially Stellar, in my opinion, because they basically concealed it, and never really undid the bug). Auditability matters!

  • Stellar
  • Verge (Ok I’m going to admit this isn’t strictly an inflation bug, more of an issuance acceleration bug.)
  • Bitcoin Private
  • Bitcoin

30. Should be easy enough! Launched in Aug. 2012 by the pseudonymous Sunny King, Peercoin was the first proof of stake coin. PoS was meant to be superior to Proof of Work, but like a lot of PoS experiments, it merely introduced new, more complex problems. To solve the nothing at stake problem, Peercoin introduced centralized checkpointing.

31. So this one is tricky if you know the history. Many people that are familiar with Litecoin’s launch believe it’s a fork of an early PoW altcoin Tenebrix, on account of Litecoin inheriting Tenebrix’ Scrypt hash function (which was meant to be ASIC-resistant). However, the vast majority of Litecoin’s codebase was inherited from Bitcoin, not Tenebrix. (I actually double checked this with Charlie Lee before writing the question.) So, Litecoin — fork of Bitcoin.

32. Ah, airdrops. They were all the rage from 2013–17. Each of Ripple, Stellar, and Byteball had prolonged airdrop campaigns to try to get Bitcoiners (and others) on board. I don’t think it worked — although Bitcoiners who collected their 2013 1000 XRP airdrop and held on to it saw a nice windfall. (Ok, you can quibble on this, because technically it was an airdrop to BitcoinTalk users, not Bitcoin holders). In this sample, Steem did not conduct airdrops to Bitcoiners.


Ok, that’s enough about alts. Back to king corn.

33. Ok, I slipped up on this question. I thought that the first properly documented instance of a pool commanding 51% of BTC hashrate was in June 2014, but it turns out Deepbit was probably first in 2011. Either way, when Ghash gained so much market share, it caused a fair amount of concern. High profile Bitcoin developers like Peter Todd expressed their misgivings about the protocol itself when this happened. Hashrate quickly deserted Ghash after it hit this threshold.

34. Physical bitcoins are incredibly cool Bitcoin artifacts. Casascius coins are physical metal coins with embedded private keys, which cannot be extracted without peeling off a sticker. There’s currently just under 50,000 BTC held in physical Bitcoin format. Because FinCEN warned Mike Caldwell for being a money transmitter, and he stopped selling them, all the Casascius coins that will ever exist have been minted. A collector’s item arguably more scarce than Bitcoin itself.

35. Now this one you will likely only know if you actually bought Casascius coins. (Although some issues of the coins did include the phrase ‘Vires in Numeris’, which tripped a few of you up on this question). The bumper sticker that Mike included with orders read ‘I believe in honest money; gold, silver, and bitcoin’. Those are probably collector’s items now, too.

36. Bitcoin OG’s will remember this one. One of the first big Bitcoin ponzis was the Bitcoin Savings and Trust. Spoiler: it did not save BTC, and it was not trustworthy. Trendon Shavers promised interest of 7% per week. The scheme collapsed in August 2012 and Mr. Shavers was convicted of securities fraud in 2016.

37. One of my favorite pieces of Bitcoin trivia and an incredibly poignant one. Some of the earliest text content in Bitcoin is a tribute left by infosec expert Dan Kaminsky, commemorating his late friend Len Sassaman. He also includes an ASCII portrait of Ben Bernanke, laughing about Bitcoin’s new ‘dependency’ on the former Fed reserve chair. And he spent 1 BTC to do it! See slide 13 here. Full text of the tribute here.

38. Everyone knows that Laszlo made the first BTC transaction by buying pizza. Not everyone knows the details. He bought two Papa John’s pizzas for 10k BTC. And then, reportedly, ran that same transaction three more times. It’s unclear how many times he bought pizza, but his wallet had 80k BTC, so it could have been as many as eight.

39. So here’s another twist in the Laszlo tale. Aside from pizza, we know that Laszlo was one of the pioneers of Bitcoin GPU mining. That’s how he got his hands on so many BTC in the first place. We also know that he was the first to port Bitcoin Core to MacOS. And we know that Satoshi emailed him, asking him not to hoard all the BTC (via GPU mining).

So putting the pieces together, Laszlo might actually be a more complex figure than we initially believed. I think it’s entirely possible that he felt a bit guilty about collecting so much BTC through GPU mining, after Satoshi emailed him, that he decided to effectively distribute his newfound gains into the community via the pizza transactions.

40. Lifetime membership for individuals for the Bitcoin Foundation was a whopping 25 BTC at inception in 2012, although it subsequently declined in BTC terms as Bitcoin appreciated against USD. Quite a few people signed up. Industry membership tiers went up to 10,000 BTC per year. Suffice to say, lifetime members of the Foundation are probably regretting their purchase today. Bitmex Research estimates that the foundation collected 27k BTC in membership dues by spring 2013.

41. In 2013, Bitcoin accidentally underwent a prolonged chainsplit when some node operators upgraded Bitcoin Core to version 0.8, which was incompatible with the 0.7 version. The crisis was resolved by having miners downgrade, allocating hashpower to the 0.7 chain and orphaning the 24 blocks on the 0.8 chain. As it became obvious that the 0.8 chain (which had been as much as 13 blocks ahead) would ultimately be discarded — it was just a matter of time — an opportunity emerged to commit double spends.

And indeed, during this disorderly transition, BitcoinTalk user macbook-air claimed to have successfully double-spent the payment processor OkPay to the tune of $10,000, by making a deposit on the 0.8 chain shortly before it was erased by the miners. While double spends aren’t visible in the final blockchain (because the first double spent transactions are, by definition, not included in the final chain), this was the first documented evidence of the attack taking place.

42. Coin Artist’s awesome puzzle contained the clues to spend 5 BTC held at an address beginning with 1FLAMEN. This is the puzzle. Can you see it?


43. One of Satoshi’s last public pronouncements was a plea to not “kick the hornet’s nest,” at a time when Bitcoiners were considering promoting the cryptocurrency by donating to Wikileaks, which had been the target of deplatforming from traditional payments providers. Satoshi urged Bitcoiners not to garner negative attention by donating to Wikileaks:

No, don’t “bring it on”.
The project needs to grow gradually so the software can be strengthened along the way.
I make this appeal to WikiLeaks not to try to use Bitcoin. Bitcoin is a small beta community in its infancy. You would not stand to get more than pocket change, and the heat you would bring would likely destroy us at this stage.

Bitcoiners were undeterred and donated over 4,000 BTC to the Wikileaks address. That is equivalent to $75m today, although it’s not known whether Wikileaks held on to the BTC or not. (Yes, this is kind of an unfair question, but the quiz isn’t meant to be easy, mmkay?)

44. The Bitcoin Alert System was designed to alert node operators when something was critically awry, like the various chainsplit events we’ve covered in this article. However, it was also a critical point of centralization, because a small number of individuals had the keys to broadcast messages to all nodes running Bitcoin Core. This was clearly a vector for potential abuse, and was done away with in Bitcoin Core 0.13. Satoshi had a key, as did Theymos (the moderator for r/Bitcoin and the BitcoinTalk forum) and Gavin Andresen.

Others may have had Bitcoin Alert keys — it was rumored that Mt Gox had one, which could have fallen into the hands of the Japanese police. Either way, the system was deprecated, and Brian Bishop eventually published the keys, so that no one could benefit from their use.

That about wraps it up. If you get above 50% on the quiz, you should be pleased with yourself. It’s designed to be completely impossible to get a perfect score on. Although a couple people have astonishingly come close. Without having written it, I wouldn’t get a perfect score either — a lot of these facts I had to check sources for and ask experts about. The real point is surfacing some interesting tidbits from Bitcoin’s history, and externalizing this trivia from my brain to the wider world. Happy holidays, God bless, and see you all next year!

I’d like to thank Antoine Le Calvez, Dan Matuszewski, and Dan McArdle for their invaluable assistance and suggestions. It wouldn’t have been half as interesting without them.

Nik Bhatia ( Feed )
Wednesday, 09 December 2020
Worlds Collide: Bond Issuance and Bitcoin Buying

At last, my worlds have collided. No, not in the way they collided for social miscreant George Costanza, but rather in a beautiful and harmonious way. Software company MicroStrategy will soon issue a $400 million bond in order to purchase Bitcoin only weeks after it converted $250 million of its

At last, my worlds have collided. No, not in the way they collided for social miscreant George Costanza, but rather in a beautiful and harmonious way. Software company MicroStrategy will soon issue a $400 million bond in order to purchase Bitcoin only weeks after it converted $250 million of its treasury reserves from dollars to Bitcoin. And with that, the bond markets and the Bitcoin market will merge, and the two parallel careers I’ve built for myself will suddenly become one.

Bonds and Bitcoin

I spent my youth aspiring to participate in the financial markets, learning how to analyze charts and observe linear trends before my teenage years. Eventually I realized my dream and became a US Treasuries trader for an institutional asset manager in 2016. I safely guided enormous client portfolios in and out of positions in the dollar’s “risk-free” asset on behalf of my former employer, trading over $100 billion notionally per year. Much of that volume occurred in Treasuries, which were treated as “cash” on the balance sheet of each institutional client. These Treasuries (T-Bills and T-notes with less than 2 years until maturity) lacked any quantifiable risk to us and our clients because Treasuries are still the safest way to store dollars in a broken dollar system. The volume I traded was personally staggering but existed simply because corporations, universities, and governments have so much cash they literally have nowhere else to put it. I didn’t mind: the volume I traded with the world’s largest investment banks gave me access to some of Wall Street’s finest minds. But the sheer volume of money sloshing around the financial system steered me toward an even more important path: it pointed me down the Bitcoin rabbit hole, a world previously unfamiliar to me that possessed a much stronger gravitational pull on my intellectual curiosity than any other macroeconomic market I had experienced prior. Little did I know, bonds and Bitcoin would be entirely joined at the hip only half a decade later.

Corporate New Issuance

One of the most interesting things I saw during my time on the fixed-income trading desk was massive corporate bond issuance to the tune of trillions of dollars annually. But what do those corporations do with all that cash once they issue bonds? Until they’re ready to spend it on projects, research and development, or share buybacks, a lot of the money ends up in Treasuries and other interest rate markets. I had a front seat to the flurry of fixed-income market activity revolving around corporate new issuance. Corporations and banks constantly place hedges via interest rate swap, foreign exchange swap, and Treasury futures markets in order to quantitatively manage their newfound balance sheet expansion. This finally brings us to MicroStrategy, which won’t need to hedge its interest rate position upon its new issue but instead will need to purchase an enormous slug of Bitcoin.

Anticipating Fireworks

When MicroStrategy successfully prints its debt issue and takes custody of $400 million later this month, it will bolster its cash position which it proudly denominates in bitcoin (BTC) rather than in dollars (USD). What ensues might be the most fascinating market activity in Bitcoin’s young history. While traditional economic and financial theory suggests that the news of an incoming $400 million purchase of Bitcoin in the open market has already been priced into the market, reality might tell an entirely different tale. Never before in Bitcoin’s history has such a gargantuan purchase been pre-announced, and never before has such a wave of buying hit the market all at once. Even the staunchest “efficient-market-hypothesis” adherents will eagerly observe the subsequent price action to see just how a purchase of 20,000 BTC is met by the readily available (or not so available) supply across Bitcoin exchanges. Acquiring it will certainly put pressure on the price, regardless of one’s opinion on the speed at which markets adjust to news.

♦graphic by

Even more interesting than the BTCUSD price impact of MicroStrategy’s bond issuance is the linkage between the bond and Bitcoin markets that will undoubtedly blossom as a result. Just as corporate new issue and interest rate swap markets are linked (a process called rate-lock explained here), corporate new issue and Bitcoin markets will now be linked going forward. Investment banking trading desks will be forced to offer clients financial products that allow Bitcoin hedging and conversion for clients looking to replicate MicroStrategy’s effort. By converting a balance sheet liability (its bond offering) into Bitcoin as an asset, the company is betting that its cost of borrowing will pale in comparison to the time value of money associated with holding Bitcoin. And the world will be watching to see the result.

Layered Money

MicroStrategy’s poetic and wildly enthusiastic-about-Bitcoin CEO Michael Saylor deemed the dollar an inferior cash instrument to Bitcoin in a flurry of tweets and media appearances over the past few months to justify the allocation. He might be the first CEO of a large corporation to engage in this type of treasury reserve allocation, but he definitely won’t be the last. In my forthcoming book Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies, I examine how Bitcoin has already achieved legitimacy as a global reserve currency and will continue to drive corporations like MicroStrategy into a state of balance sheet denomination duality in which entities hold cash denominated in both USD and BTC. MicroStrategy’s share price, denominated in USD, has partially morphed into an expression of the BTC/USD price as a function of this duality because so much of its assets are held in Bitcoin. This enigma will leave executives and policy makers scratching their heads in the years to come as they try to decide how to denominate their reserves, especially if the Bitcoin price reverts to its parabolic roots.

I spent this year weaving both of my worlds into one because the blurred line between Bitcoin and macroeconomics frankly disappeared in 2020. I did this by writing a book about the international monetary system that includes a vision of the future with Bitcoin at the center. Bitcoin won’t replace all currency on this planet, but it will serve as the reserve asset of all digital currencies just as it serves as the reserve currency in the cryptocurrency world today. Central banks are about to launch their own crypto-competitors, and banks will certainly follow suit in order to stay relevant in the rapidly changing monetary environment. But all new digital currencies, from central banks and banks alike, will eventually face final settlement versus BTC as the only digital currency on our planet immune to supply manipulation. I am beyond excited to share my vision for our monetary future in only a few weeks: Layered Money will be available on Amazon worldwide on January 26, 2021. The Kindle version can be pre-ordered here, and print and audio versions will be available on the release date. Please visit my website for more information and follow me on Twitter.

Beautyon ( Feed )
Friday, 04 December 2020
Azteco Takes it to the Edge

Azteco expands its market penetration in its goal to create new service category “Consumer Bitcoin”. To do this, we are integrating out service with partners who want their users to be able to redeem our vouchers with a simple gesture. Edge wallet is just one of many forthcoming integrations, hel

Azteco expands its market penetration in its goal to create new service category “Consumer Bitcoin”. To do this, we are integrating out service with partners who want their users to be able to redeem our vouchers with a simple gesture. Edge wallet is just one of many forthcoming integrations, helping streamline and “Consumerise” the process of getting Bitcoin.

The Rise of Consumer Bitcoin

Encryption in chat was brought to over 300,000,000 daily users through WhatsApp. Before that, the billions of messages sent by the vast majority of chat apps were easy to read in transit and not private.

There were a few previous attempts to encrypt chat through apps that worked as privacy tools, but it took a “Consumer Grade” messaging app to bring this essential feature to hundreds of millions of users.

♦An Azteco Voucher

The same effects will happen in Bitcoin services: it’s all about usability; an app or a class of “Consumer First” app will emerge that is designed to fit the needs of consumers, and that wallet and service has the potential to sweep the entire world as WhatsApp did.

Azteco is integrating with wallets and other consumer services globally, so that getting Bitcoin is as easy as buying an Amazon or iTunes Gift Card. Part of the task of making Bitcoin universally and easily accessible is making it trivially simple to put it into your phone, and our wallet integrations do exactly that.

Once you have your voucher from one of our outlets, all you have to do is point your phone at the QR Code on the receipt and like magic, the Bitcoin is on your phone in about three seconds.

That’s all there is to it.

Azteco is putting Bitcoin where the people are, and where they are perfectly comfortable. We’re removing the need to learn anything about Bitcoin in order to use it, and fitting it into an intimidation free mental model and context that billions are already familiar with. Internal growth numbers are showing us that our hypothesis is correct.

Follow Azteco on Twitter.
Get Edge for your Android or iPhone
Find a Vendor, try Azteco.

Azteco Takes it to the Edge was originally published in Decentralize.Today on Medium, where people are continuing the conversation by highlighting and responding to this story.

Nic Carter ( Feed )
Thursday, 19 November 2020
Only to acquire it at NAV. Anyone can buy it on the secondary market.

Only to acquire it at NAV. Anyone can buy it on the secondary market.

Only to acquire it at NAV. Anyone can buy it on the secondary market.

Rafael Schultze-Kraft ( Feed )
Tuesday, 17 November 2020
Quantifying Short-Term and Long-Term Holder Bitcoin Supply
We introduce a new methodology to classify Bitcoin supply owned by long-term investors and short-term traders, and show when these two investor types are in a state of profit or loss.♦

To understand investor behaviour from an on-chain perspective, it is crucial to differentiate between Long-Term Ho

We introduce a new methodology to classify Bitcoin supply owned by long-term investors and short-term traders, and show when these two investor types are in a state of profit or loss.♦

To understand investor behaviour from an on-chain perspective, it is crucial to differentiate between Long-Term Holders (LTH, “investors”) and Short-Term Holders (STH, “traders”).

While traders aim to “beat the market” and exploit price fluctuations on short time scales, long-term investors have a low time preference and are in for the long haul — remaining of the conviction that BTC will see future price appreciation. These market participants HODL over long time frames ( A True HODLer Does Not Sell Their Coin), or only temporarily decrease their bitcoin positions in bull markets for profit-taking (“Swing HODLers”).

But how can such different behaviours be quantified, and what conclusions with respect to the market can be drawn from this?

In the present work we introduce a new methodology to classify the amount of Bitcoin supply owned by these two investor types, and we create a set of on-chain metrics that show when long-term and short-term holders are in a state or profit or loss.

Classifying Long-Term Holders (LTH) and Short-Term Holders (STH)

In previous works, we looked at the probability that an Unspent Transaction Output (UTXO) is spent within a certain time window, and identified 155 days as the threshold at which the slope of this probability flattens out — marking the level that classifies whether a bitcoin (UTXO) is being held by a long-term or short-term investor (Figure 1).

For more information, please refer to our previous work: Breaking up On-Chain Metrics for Short and Long Term Investors.
♦Figure 1 — The probability that a UTXO is spent within the specified time window (denoted in days) as a function of its coin age.

In the present work, we take this approach a step further. Instead of simply looking at UTXOs, we analyze Bitcoin entities and the supply held on their respective wallets. To determine the amount of BTC owned by long- and short-term holders, we first considered the time since the (averaged) purchasing date for each entity: If this duration exceeds 155 days (the above-mentioned threshold derived in our previous analysis), then the entity is considered to be a long-term holder.

In a second step, we refined this sharp classification threshold and turned it into a smooth curve of weighting factors. In particular, we used a logistic function with a midpoint of 155 days and a transition width of 10 days.

♦Figure 2 — The weighting factors used for the classification of long-term and short-term holders. A logistic function centered at 155 days and a transition width of 10 days is used.

As a result, an entity’s balance now equally contributes to LTH and STH supply at 155 days, each with a share of 50%. In contrast, at around 177 days (around half year) after an entity acquires its BTC, 90% is attributed to the LTH supply. Using such a continuous transition between STH and LTH has the advantage that the resulting metrics are smoothed and don’t suffer from artifacts related to a few hodlers suddenly crossing the sharp threshold.

Note: To further improve the data and better reflect the real hodler behaviour, Bitcoin supply held on exchanges is excluded from the analysis.
Long-Term Holder Supply

As of writing, the current LTH supply is 12.3M BTC — that is around two thirds (66%) of the circulating supply.

The amount of BTC held by long-term investors follows a regular pattern over the course of Bitcoin’s history (Figure 3). Specifically, LTH supply tends to decrease during bull markets. This is expected, and a clear indication of profit-taking from long-term holders.

At the time of writing, the LTH supply has started to decline — pointing to the early stages of a new bull market.

♦Figure 3 — Long-Term Holder (LTH) Bitcoin supply. (Live chart)

Looking at the monthly change of the LTH supply (Figure 4, Long-Term Holder Net Position Change) shows how the LTH supply increases and decreases at different times in the BTC market cycle. In particular, the chart clearly visualizes changes in on-chain behaviour of long-term investors, and paints a clear picture of accumulation periods during bear markets and decreasing positions in bull markets.

The absolute LTH supply numbers in Figure 3 above include not only hodled coins, but also coins that have been lost. LTH Net Position Change on the other hand eliminates the contribution from lost coins, as it depicts relative numbers by computing the 30 day changes in LTH supply.

Currently, we are seeing a downward spike, pointing to the fact that BTC from hodlers started to move on-chain, as a reaction to the recent price appreciation. Note that this has been commonly observed in previous cycles as well, and indicates that we are potentially at the early stages of a bull run.

♦Figure 4 — Long-Term Holder (LTH) Net Position Change. (Live chart)Short-Term Holder (STH) Supply

The amount of Bitcoin supply held by short-term traders increases as BTC’s price appreciates — a clear indication of older bitcoin stashes being reactivated in bull markets for trading.

Over the course of the past month the amount of STH supply has increased by more than 500,000 BTC and sits currently at around 3.7 million BTC — 20% of the circulating supply. (Note that bitcoins sitting on exchanges are treated separately and not included in this number.)

♦Figure 5 — Short-Term Holder (STH) Bitcoin supply. (Live chart)Long-Term and Short-Term Holder Supply in Profit/Loss

By not only looking at the average purchasing date for each entity, but also at their averaged purchasing price, we can determine whether the current LTH and STH supply is in a state of profit or loss.

Currently, 12 million BTC of the LTH supply (~97%) and 3.5 million of the STH supply (~97%) are in a state of profit.

♦Figure 6 — The total amount of BTC in profit held by long-term and short-term investors.

Looking at the Relative LTH/STH Supply in Profit/Loss (Figure 7) shows, as expected, that during bull markets, as prices reach for new all-time highs, most LTH supply is in profit.

♦Figure 7 — The relative supply held by Long-Term Holders (LTH) and Short-Term Holders (STH) in profit or loss. (Live chart)

In contrast, a considerable amount of LTH supply is at a loss in a bear market and decreases as a new bull cycle arrives. There are different ways how LTH supply at loss can build up: On the one hand, in cases of sudden price drops such as “Black Thursday” in March 2020, LTH supply that was previously in profit can enter the loss zone. On the other hand, new investors from the STH domain can cross over and become long-term holders. The latter case is well visible in the latest “valley of loss” ( Figure 8), starting in mid 2018: It implies that a lot of BTC were purchased by investors which entered the space in late 2017 around the peak of the bull run. Unfortunately, the subsequent bear cycle caused them to enter the LTH zone “at loss” and not “in profit”. However, by now almost all of the long-term investors’ supply is back in a state of profit, including that of the 2017 investors. We believe this results in a generally positive sentiment across BTC holders and points to a favorable outlook.

♦Figure 8 — Long-Term Holder (LTH) supply in profit/loss. The “Valleys of Loss” periodically occur when LTH supply moves into a state of loss as Bitcoin enters a bear market. (Live chart)Comparison to Previous Metrics

To evaluate the present approach, we can compare our new data with previous metrics, such as Hodled or Lost Coins and Hodler Net Position Change. (These metrics were created by Adamant Capital — for a detailed description, see their blog post here).

We observe a very good agreement of the general trend as well as in the ups and downs of the respective metrics.

However, there is one qualitative difference when looking at the position change data: In the traditional Hodler Net Position Change metric, the positive values (in contrast to the negative ones) tend to be capped (see the comparison in Figure 9). In contrast, with our new approach, the metric is unbounded in both directions - providing a much clearer signal.

♦Figure 9 — Comparison between “Hodler Net Position Change” (black line) and the new “Long-Term Holder (LTH) Net Position Change” (red/green). While the former has capped positive values due to its derivation from Bitcoin’s “Liveliness” metric, and thus provides a skewed view, our new approach is more balanced giving a clearer picture of the BTC position change of long-term investors. (Live chart)

The capped values in the Hodler Net Position Change metrics can be understood in the following way: It is based on the Liveliness metric, which due to the cumulative sums in its definition can exhibit sudden increases, but a decrease in value can only occur slowly, over much longer time periods. Since Hodler Net Position Change is based on the negative Liveliness, the argument reverses and positive changes become visible only after longer time scales. Consequently, it's impossible for the monthly differences to skyrocket and big changes in the hodler behavior might become apparent only after a certain amount of time - in contrast to our new proposed metric based on the LTH supply.


We introduced a new methodology to differentiate Bitcoin supply that is held by long-term investors and short-term traders. The separation of these market participants on a network level is crucial in order to gain a deeper understanding of investor behaviour during different periods of the BTC market cycle. The supply distribution among investor groups can serve as a proxy to investor sentiment and sheds light on the primary usage of Bitcoin (e.g. store of value).

With this work we introduced a new set of on-chain metrics that quantify the supply held by these two investor types, and their current trends strongly support the narrative of an onset of a bull market.

All metrics introduced here are available live in Glassnode Studio:

  • Long-Term Holder (LTH) Supply
  • Short-Term Holder (STH) Supply
  • Long-Term Holder Net Position Change
  • Long-Term Holder Supply in Profit
  • Long-Term Holder Supply in Loss
  • Short-Term Holder Supply in Profit
  • Short-Term Holder Supply in Loss
  • Relative LTH/STH Supply in Profit/Loss

The present work was done in collaboration with Swissblock Technologies.

A big, big thank you goes to my great colleague Kilian for the amount of effort put in this work.

  • Follow us and reach out on Twitter
  • Join our Telegram channel
  • For on–chain metrics and activity graphs, visit Glassnode Studio
  • For automated alerts on core on–chain metrics and activity on exchanges, visit our Glassnode Alerts Twitter

Disclaimer: This report does not provide any investment advice. All data is provided for information purposes only. No investment decision shall be based on the information provided here and you are solely responsible for your own investment decisions.

Originally published at on November 17, 2020.

Quantifying Short-Term and Long-Term Holder Bitcoin Supply was originally published in Glassnode on Medium, where people are continuing the conversation by highlighting and responding to this story.

Nic Carter ( Feed )
Nine Bitcoin Charts Already at All-Time Highs
Why this bull run is fundamentally different from 2017

Bitcoin is nearing its prior all-time high (ATH), set in December 2017. It’s entirely plausible that we could regain the heady $20,000 level within the next few weeks or months.

This time, it’s happening without much fanfare, and without

Why this bull run is fundamentally different from 2017

Bitcoin is nearing its prior all-time high (ATH), set in December 2017. It’s entirely plausible that we could regain the heady $20,000 level within the next few weeks or months.

This time, it’s happening without much fanfare, and without the Initial Coin Offering (ICO) phenomenon which intensified the price action (investors bought BTC in order to participate in ICOs, driving the price up).

If you gauge metrics of retail investor interest in the asset, whether it’s tweets or google searches, Bitcoin is still languishing well below it’s highs. This is causing a fair amount of puzzlement.

Many are wondering what the cause of Bitcoin’s renewed energy is. I figured I would present a few Bitcoin-related charts that are already hitting new all-time highs, in order to clarify the phenomenon a bit.

Addresses with a balance of $10 or more

This first chart proxies a fundamental driver of Bitcoin’s price, adoption. Quite simply, more people own Bitcoin today than did in 2017 — by a fair amount.

♦Source: Coin Metrics

This chart shows the number of addresses on the Bitcoin ledger owning $10 or more worth of the asset. It’s well above its late 2017 level. This shows the supply of Bitcoin getting more and more dispersed, especially into lot sizes that are consistent with retail investors. The chart looks much the same — at all-time highs— for other thresholds, whether $1, $100, or $1,000. At all of these levels, there are simply more addresses on the ledger holding Bitcoin.

Of course, one address on-chain does not necessarily correspond to one person. Large exchanges custody Bitcoin in omnibus accounts on behalf of many users, and regular users can control many addresses, so there’s error in both directions. But as long as the relationship between humans and the number of addresses on-chain that represent them is somewhat consistent, this is a useful directional metric to assess user growth.

Open Interest on the CME Bitcoin Futures

The open interest in futures refers to the total value of outstanding contracts that have yet to be settled. The CME Bitcoin Futures product is notable because it’s a liquid Bitcoin product at the world’s largest derivatives exchange, which investors of all stripes have access to. Unlike a lot of Bitcoin exchanges, the CME is plugged into established clearing infrastructure — effectively the plumbing capable of moving trillions of dollars around.

Indeed, when Renaissance Technologies, one of the world’s most lucrative hedge funds, announced that they would include Bitcoin in their universe of tradeable assets, their instrument of choice was the CME cash-settled Bitcoin futures product. The CME is a natural choice for many large and highly-regulated allocators, because they don’t want to deal with the operational complexities that involve taking custody of Bitcoin, they may already actively trade on the exchange, and their regulators are most likely already comfortable with it. No need to evaluate the risk of a brand new platform.

♦Source: Skew

This product originally launched on December 17, 2017, the precise top of the last bull run for Bitcoin. The chart doesn’t include data prior to mid 2019, but if you look at historical coverage of the CME’s Bitcoin product, you can see that open interest is indeed at ATHs (well, it’s a smidge below it’s ATH set in August 2020).

The other important thing to note is that the CME is a highly-regulated U.S. domiciled exchange under the aegis of the Commodity Futures Trading Commission. Unlike certain offshore Bitcoin exchanges, it has a robust trade surveillance framework and is considered to be extremely reliable. This does not make the venue immune to market manipulation, but it does mean that manipulators can be caught. This matters for Bitcoin, because a lack of surveilled and orderly markets to trade the asset is the chief reason the Securities and Investment Commission rejected a Bitcoin ETF in the past. As certain offshore exchanges face enforcement actions and are marginalized, the growth of onshore, orderly markets that regulators are very comfortable with, means that the prospects for a Bitcoin ETF are much sunnier.

Put simply, a Bitcoin ETF would be an enormous catalyst for the asset. The existence of a Bitcoin ETF would enable entire categories of market participants to get efficient and convenient access to the asset, who simply weren’t able to get exposure to it before.

The industry has been holding its breath waiting for an ETF for the past half decade. I vividly remember being disappointed at the SEC denial of the Winklevoss $COIN Bitcoin ETF in March 2017. We’ve come a long way since then; market structure is such that new ETF applications would be extremely credible, with the increasing prominence of onshore markets like the CME being of paramount importance.

Realized Capitalization

Realized Capitalization is an alternative to Market Capitalization, designed to take into account the reality of when Bitcoins changed hands. Instead of pricing every outstanding unit of Bitcoin at the last market price, it prices every unit of Bitcoin according to when they last moved on-chain. This is possible to ascertain because Bitcoin’s ledger is transparent, and we can account for every single coin.

This takes into account the liquid supply of Bitcoin in a practical sense. Realized cap ignores the market value of Bitcoins that haven’t moved since 2009 (when Bitcoin did not have a market value). You can think of it as roughly measuring the aggregate cost basis of all the current Bitcoin holders.

♦Source: Coin Metrics

Realized cap sits at $129B today, well above its $90B peak in early 2018. What this tells us is that Bitcoin is substantially more liquid at these levels, with investors less eager to sell. In late 2017/early 2018, the unit price was higher (the Coin Metrics reference rate lists the highest 00:00 UTC daily close at $19,640 on Dec. 16, 2017), but less of the supply had changed hands at those rarefied levels. This also explains why the price collapsed so quickly from there. It simply couldn’t be sustained, as investors in the aggregate had a cost basis far below that threshold, and were eager to take profit. The 2017 bull run was more of a melt-up, driven by ICOs, press coverage, and retail investor excitement. This bull run is more of a sustainable slow burn.

Today, the picture looks very different. The supply has significantly churned and a lot of early investors have cashed out, giving way to new blood. These investors, who bought their coins in the last couple years, are presumably not as eager to lock in a profit at $20k as someone who had been holding Bitcoin since it was $1. Thus, a higher realized cap is an indication of greater maturity and capacity for patience in the current investor set.

Bitcoin Options Open Interest

Open interest in an options contract adds up the value of the outstanding, un-exercised options. (Options traders will grumble at this methodology, because it can be skewed by options trading at silly strike prices like $32k.) While in absolute terms, the numbers are still fairly low, the incipient but maturing options market tells us a thing or two about Bitcoin today.

♦Source: Skew

Just like derivatives first came into existence for farmers to hedge their exposure to crops and lock in a specific price for their harvest (and get liquidity on their future crops so they could buy seeds and fertilizer today), so too are options useful for the producers of Bitcoin — the miners. Miners can tell, roughly speaking, how many Bitcoins they will mine based on their equipment, under reasonable assumptions about hashrate. If they want to get an ‘advance’ on the coins they expect to mine, they can sell calls. This means they promise to deliver coins at a certain price on a certain date — but they get paid for that promise today. And with that cash advance, they can go ahead and finance their operation more efficiently.

What this chart tells me is that the producers of Bitcoin now have access to more sophisticated financial products which they can use to hedge their exposure. In theory, this should mean that the mining industry is more stable and less exposed to boom and bust periods. It lets miners focus on running their operations efficiently, and frees them from the burden of worrying about their unhedged exposure to their equipment.

Additionally, the growth of options means that traders, who take the other side of those bets, have more creative ways to express their view on Bitcoin. For instance, using these instruments, it’s now viable to bet not on Bitcoin going up or down, but on an expectation of future volatility (or a lack thereof). These instruments simply didn’t exist in 2017. Fundamentally, by giving sophisticated investors more tools, Bitcoin can accommodate more capital inflows.

Bitcoin priced in Turkish Lira

Investors often track Bitcoin’s performance in dollar terms, but the truth is that much of the world’s population denominates the performance of financial assets in their local currency. After all, they may not have access to the dollar-based banking system. The further away you are from NY, and the more hops correspondent banks have to take to get to your local banks, the more expensive your access to the dollar is. U.S. banks aren’t fond of doing business with individuals overseas. They are risky to service, and risk makes things expensive. Thus, these U.S. banks have a tendency to “derisk” their exposure to non-U.S. clients.

Billions of savers worldwide must therefore reckon with inflationary currencies, or monetary repression — a state of affairs where they don’t have the freedom to move their assets around. This latter phenomenon is often imposed by central banks that fear currency flight and accompanying depreciation. It comes at the cost of self-determination on the part of savers.

While most people reading this will have the luxury of saving in dollars or euros, it’s important to remember that inflationary currencies are the reality for a significant share of the world’s population. We measure the Bitcoin in dollar terms, but the dollar is among the least inflationary of all global currencies. Because Bitcoin is such a great non-sovereign wealth store, being highly portable, concealable, and seizure-resistant, when sovereign currencies start to fail, it looks attractive. Bitcoin exchanges in Turkey have received a huge boost this year as the Lira has endured a long slide. In absolute terms, Turkey is the 12th-most popular country for exchange web visits.

♦BTCTRY, Tradingview (retrieved from CoinGecko)

The Bitcoin chart in Turkish Lira terms looks similar in shape to the BTCUSD chart, except the denominator keeps depreciating, causing it to explode to new ATHs in 2020.

The Lira isn’t the only sovereign currency in which Bitcoin is already trading well beyond its prior highs. Other currencies where Bitcoin has already hit new highs since 2017 include the Argentine peso, the Russian ruble, the Venezuelan bolivar, the Brazilian real, the Colombian peso, the Lebanese pound, the Sudanese pound, and several others. Those countries alone account for 523 million people.

The distribution of enthusiasm for Bitcoin exchanges globally is revealing. Other countries topping rankings for crypto adoption include those burdened by onerous capital controls (China, Ukraine) or highly inflationary or unstable currencies (Venezuela, Nigeria, Colombia, Argentina). These are real catalysts driving everyday savers to desert their local currencies for Bitcoin, stablecoins, and other cryptocurrencies.

Three years ago, Bitcoin exchange infrastructure fundamentally wasn’t as well developed, nor were there as many individuals worldwide with accounts on exchanges. Those points of liquidity where savers could exit fiat and move to cryptoassets have developed significantly over the last three years since the last bull run. The data bears this out: the 2nd Cambridge Cryptoasset Benchmarking Study, published in Dec. 2018, found 35 million identity-verified cryptoasset users at exchanges worldwide, while the 3rd study in the series, published Sep. 2020, found 101 million identity-verified accounts. Quite simply, exchange infrastructure has matured and proliferated to the point that exiting local fiat for digital assets is a viable proposition for a meaningful share of the world’s population.

Bitcoin held by Grayscale

One critical chart bearing out the enthusiasm for Bitcoin is the number of units held by the asset manager Grayscale. At the time of writing, this topped 500k BTC, making GBTC the single most popular financialized version of Bitcoin.

♦Source: The Block

Because the GBTC is a trust product trading on the OTCQX marketplace, and newly-created shares take six months to mature, there is typically a mismatch between the market value and the net asset value (NAV) of shares. This difference is expressed as a premium. As of today, the premium stands at 15.8%, meaning that if you deployed $100 into GBTC, you would only be receiving $84.2 worth of exposure to Bitcoin.

♦Source: Ycharts

A number of trading firms borrow Bitcoin, create new units of GBTC at NAV, wait six months for them to mature, and then liquidate them at market price, pocketing the premium (minus the interest on the loan). Despite this continual slow-motion arbitrage, the premium has lingered for virtually the entire history of GBTC. The lingering premium to NAV is evidence for a continual enthusiasm for the product among investors. GBTC is popular because it is available on mainstream brokerages like Fidelity and Schwab and can be held in a tax-advantaged way, in an IRA or 401k.

The immense growth of GBTC in 2020 is evidence that there is a class of allocators who are content to obtain inefficient exposure to Bitcoin. Buyers of GBTC are not your typical techie crypto investors, who are more likely to make an account with one of the crypto exchanges and take ownership of spot Bitcoin (and avoid a costly premium). The continued growth of GBTC is evidence that an older and less crypto-native cohort of investors retains a significant appetite for the asset, even if the exposure is inefficient.

Stablecoin free float

Now many of you will be reading critical takes on Bitcoin’s current rally from people insistent that stablecoins like Tether are somehow responsible for its price. I would invite you to ask these critics if they are active participants in crypto markets. If not, you can safely disregard their opinions. It is only individuals with experience creating and redeeming stablecoins, and experience allocating capital in the cryptoasset space, that should be considered credible sources on this issue. Otherwise it is quite simply too difficult to understand the dynamics at play.

And indeed, much of this critical analysis relies on a since-debunked paper by Griffin and Shams that relies on a narrow sample period and questionable methodology to allege a relationship between the issuance of Tether and the BTC unit price in 2017. More recent scholarship, including Viswanath-Natraj and Lyons, using a broader sample period, has found no causal leading relationship between Tether issuance and the Bitcoin price. Additional work from Wang Chun Wei confirms the lack of a correlation between Tether creation and Bitcoin returns.

And empirical reality bears this out too: from February 2018 to July 2019, Bitcoin was effectively flat (it started and ended the period at $11k), while the supply of stablecoins increased from $2.3B to $11.5B. If the creation of stablecoins somehow buoyed the price of Bitcoin, why was its price unchanged as the supply of stablecoins increased by 400 percent? The critics fixated on Tether have no answer for this question.

The truth is that the creation of Tether and other stablecoins (the supply of non-Tether stablecoins is over $5B today) should be understood not as purchases or capital inflows, but simply like-for-like asset swaps. Stablecoins are created when an entity with fiat on their balance sheet wants access to crypto-native liquidity. They merely exchange commercial bank dollars for a tokenized representation of the same. Firms that denominate their balance sheets in stablecoins or hold stablecoins as working capital include market makers, proprietary trading firms, exchanges, venture capital firms, and generally speaking any businesses operating in the crypto industry with crypto-denominated expenditures. After the panic in mid-March 2020, a number of firms transformed their balance sheets from commercial bank dollars to tokenized dollars circulating on public blockchains, so that they could be more nimble the next time an opportunity like that arose.

Despite this, the growth in stablecoins is positive for Bitcoin, not because of the conspiracies around unbacked issuance, but simply because it means that the liquidity environment is vastly improved.

♦Chart available here

At the previous Bitcoin ATH, only $1.5B worth of stablecoins existed. Today that number stands at $22.7B. Stablecoins have created a pool of stable-value liquidity which is not exposed to volatility. Interestingly, while many exchange venues have become “Tetherized” — as in, USDT is the main trading pair and settlement asset, displacing Bitcoin’s former role in this function, Bitcoin’s price remains robust. This is testament to Bitcoin’s evolution as a product, from a reserve asset for exchanges — exposed to trader willingness to trade long tail assets on exchanges — to an independent monetary asset in its own right, beloved of hedge fund managers and commodities traders.

The fact that Bitcoin has nearly completely recovered its prior highs in market cap while stablecoins have taken its mantle as reserve assets for the crypto industry suggests that it has taken on a life of its own

Lastly, capital existing in tokenized fiat format tends to enter the crypto industry but not leave. This is because crypto rails are fundamentally more convenient, more globalized, and less encumbered than traditional payment and settlement rails. Thus a material portion of the $22.7B worth of of tokenized USD circulating on public blockchains represents dry powder that could well be allocated to risk assets like Bitcoin. If there is a run on any of these stablecoins, or their backing comes into question, the natural direction to flee will be in the direction of censor-resistant assets like Bitcoin which can absorb that much liquidity at short notice. Presumably, if a stablecoin suspends convertibility, holders will not be able to conveniently exit at fiat off-ramps — but they will be able to flee into the blue chip cryptoassets, of which Bitcoin is by far the largest and the most liquid. Thus if stablecoins do face adverse outcomes, the result is most likely a significant capital inflow into Bitcoin.

Silvergate’s Settlement Network

Another critical piece of financial market infrastructure which has been underappreciated has been banks like Silvergate which service the industry. In 2017, and even more so during the primordial era of the crypto industry, bank relationships were extremely hard to come by, and only the largest and most credible crypto corporations could acquire banking. Today, a number of banks in the US actively service crypto businesses: chiefly among them, Silvergate, Signature, and Metropolitan. Additionally, two new entities — Avanti Bank and Kraken Financial — have received charters under Wyoming’s Special Purpose Depository Institution legislation, meaning that they are eligible to get access to the Federal Reserve (while also managing cryptocurrency assets on behalf of clients).

Put simply, the bank environment, long a critical challenge for crypto businesses in the U.S., is vastly ameliorated today as compared with three years ago during the last bull run. By virtue of its publicly-traded status, Silvergate’s impressive traction is semi-transparent. One of their flagship products in their intra-bank settlement product, the Silvergate Exchange Network (SEN). The SEN enables clients of Silvergate to settle with each other Since they bank so many crypto businesses, transactions on the SEN are a proxy of sorts for the vibrancy of U.S. domiciled firms in the industry.

♦Source: Silvergate Q3 Earnings Presentation

In the third quarter of 2020, the SEN processed $36B in transfers. These sorts of financial infrastructure products, while not typically understood as critical to Bitcoin, enable the efficient clearing and settlement of fiat funds between crypto firms in the U.S. This is yet another product that simply did not exist in 2017.

Growth of crypto-native credit

Another underappreciated story is the wide availability of crypto-native credit today. As with some of the other phenomena mentioned here, professional intermediation in the lending space simply didn’t exist in late 2017 — although certain p2p credit markets existed, for example on Bitfinex. What credit permits is capital efficiency for market makers, arbitrage firms, and hedge funds active in liquid markets. The fragmented liquidity environment in the crypto industry means that these firms must lock up liquidity on a number of exchanges simultaneously. This can make certain strategies very costly from a capital perspective, which is where credit providers like Genesis and BlockFi come in. The insertion of credit onto blockchains has the practical effect rendering spreads tighter and inter-exchange price dislocations less common. Additionally, any business with Bitcoin or stablecoin-denominated expenditures — like Bitcoin ATM companies — can benefit from the convenience of credit.

There are many charts to choose from to depict the growth of credit, but the outstanding loan portfolio of Genesis, the largest institutional-focused lender, is illuminating.

♦Source: The Block

While some Bitcoiners are opposed to the insertion of credit into the industry, I am firmly of the opinion that abundant credit has dramatically ameliorated the liquidity environment and tightened spreads.


To sum up, today’s market is far more mature, more financialized, more surveilled, more orderly, more restrained, less reflexive, more capital-efficient, and more liquid than the market that powered the prior bull run in 2017. Positive catalysts like a Bitcoin ETF appear to be plausible in the not too distant future. The quiet and diligent work that entrepreneurs have done in the last three years, out of the public eye, has equipped the industry to handle far more

In these nine charts, I covered a variety of factors where clear improvements are manifestly present when we compare today’s market environment with the bull run of yesteryear.

I did not even mention the rise of true institutional-caliber custodians like Fidelity Digital Assets (launched in late 2018), a potent development in the history of the industry. Nor did I cover the rise of sophisticated order management services which facilitate the process of attaining exposure to large quantities of Bitcoin. And I did not cover sophisticated digital asset settlement networks like Fireblocks which rely on novel cryptography and derisk the process of making on-chain transactions. Nor did I mention the unbundling of exchange, brokerage, and custody functions, and the specialization of firms within each segment. And I did not mention the rise of institutional-caliber capital markets data firms creating credible data feeds and reference rates to power indexes and other financial products. The positive developments which we have witnessed in the last three years are too many to enumerate.

Ultimately, though, market infrastructure alone is insufficient to spark excitement around Bitcoin. It is solely the plumbing through which capital can flow to the asset. The true catalyst for Bitcoin this year has been the greatest monetary expansion we’ve witnessed in the modern era — an experiment that has our fiat system teetering on the edge of oblivion.

♦USD M1 Money Stock, y/y change. Source: FRED

Perhaps more than any of the factors mentioned here, the growth in money supply is the fundamental catalyst for renewed interested in hard assets like Bitcoin, especially among more serious macro-focused allocators. This run is characterized by global macro hedge funds and commodities traders taking a second look at Bitcoin, rather than an explosion of interest from retail investors.

These are the macroeconomic tailwinds powering the resurgent interest in the industry. While the future of CPI inflation for the dollar is not clear, we look set for negative real interest rates for the foreseeable future. In light of this reality, it’s no surprise that zero-yielding assets like gold and Bitcoin have caught the attention of these allocators. This time, Bitcoin is ready.

Beautyon ( Feed )
Tuesday, 10 November 2020
With Socialists, every problem is a nail to be hammered down with the same blunt instrument hammer…

With Socialists, every problem is a nail to be hammered down with the same blunt instrument hammer; the State, or what the ignorant, myopic, misanthropic millennials call "Regulatory".

With Socialists, every problem is a nail to be hammered down with the same blunt instrument hammer; the State, or what the ignorant, myopic, misanthropic millennials call "Regulatory".

Hugo Nguyen ( Feed )
Monday, 02 November 2020
Yes, you are correct.

Yes, you are correct. I suppose it's more accurate to say "ready on Nunchuk's side" - which means things like Schnorr signature verification or aggregation. But yes, the hardware devices would need to generate the signatures in the first place.

Yes, you are correct. I suppose it's more accurate to say "ready on Nunchuk's side" - which means things like Schnorr signature verification or aggregation. But yes, the hardware devices would need to generate the signatures in the first place.

We will open source Nunchuk's core engine, which does all of the app's heavy lifting, soon.

We will open source Nunchuk's core engine, which does all of the app's heavy lifting, soon. Stay tuned!

We will open source Nunchuk's core engine, which does all of the app's heavy lifting, soon. Stay tuned!

Nic Carter ( Feed )
Saturday, 31 October 2020
Bitcoin at 12
♦St Andrews Cathedral, St Andrews Scotland (image courtesy of photoeverywhere)

Twelve years ago today, on Halloween 2008, exactly 491 years after Martin Luther nailed his theses to the door of Wittenberg Castle Church, the idea of Bitcoin was born. More accurately, you could say it was baptized. Th

♦St Andrews Cathedral, St Andrews Scotland (image courtesy of photoeverywhere)

Twelve years ago today, on Halloween 2008, exactly 491 years after Martin Luther nailed his theses to the door of Wittenberg Castle Church, the idea of Bitcoin was born. More accurately, you could say it was baptized. The network itself wouldn’t exist in a truly live and peer-to-peer fashion until the following January. Block 1, the first ‘true’ block, was mined on the ninth, and digital cash pioneer Hal Finney received the first transaction on the tenth of the month.

The idea of digital cash had existed previously, of course, as had cash-like schemes based on computational work. But this specific scheme — capped supply, not dollar-pegged (many of the early digital cash ideas relied on maintaining a dollar peg), running on a peer-to-peer network, based on a shared ledger, with minting through proof-of-work — was new, and so Satoshi had the privilege of naming it. When you create new things, whether they’re fictional characters or nation-states, you get to name them. In some cases, merely discovering things endows you with a nominative right. But it’s unambiguous that inventors get to christen their inventions.

This matters, because October 31, 2008 was the first time Bitcoin’s core qualities were sketched out, and paired with the name. This makes the system known as ‘Bitcoin’ rather specific. It’s not simply a generic name assigned to the first successful digital cash implementation. It’s the name that Satoshi bestowed upon a system with a predefined monetary schedule, 21 million units, based on proof of work, and so on. Other digital cash systems have existed and will exist. But this one is special, and it’s opinionated. It’s not just a way to move value through a communications medium. It’s an entire monetary manifesto. An affront to the fiat system.

Bitcoin has often confused people. It’s perhaps one of the most misunderstood phenomena of the last decade. If you lack sufficient ideological and historical context, you most likely consider it a complete boondoggle or a bizarre, unnecessary waste of computing power and effort. This is the default position. Most people in the West rarely give any thought to monetary policy or banking — why should they? Their currencies depreciate at a slow, barely perceptible rate. Their bank arrangements work fairly well, and they don’t find themselves frozen out of the financial system too often.

Of course, this isn’t the reality for the majority of the world’s population, who suffer under inflationary regimes, or politicized and untrustworthy banking systems. But the views of American coastal elites are far overrepresented in the discourse, so the press is replete with confused assessments of this purportedly useless monetary scheme. But understanding the purpose of Bitcoin is itself a shibboleth. If you don’t get it, it’s probably not meant for you.

Even among acolytes, Bitcoin’s true nature is hard to pin down. It’s a fast-settling payments and settlements network, which led people to believe it would be suitable for petty-cash style payments on the internet, or even at brick and mortar points of sale. It’s a highly-available, replicated, and consistent database, which led many to envision it as a tool for the storage of arbitrary data. It’s highly innovative, and relies on new discoveries and improvements in computer science, cryptography, and peer to peer networking, yet it is perceived as antediluvian, a relic almost. These contradictions are core to the nature of Bitcoin. Something unowned, with no one to speak for it, will appear multitudinous in the minds of its users. It’s a glittering prism, refracting the opinions of observers, spitting out radically different visions of itself based on their perspectives.

An endless time horizon

Recently, the great monetary historian George Selgin pointed out that Bitcoin was unlikely to displace the dollar anytime soon, because monetary network effects are incredibly powerful and enduring. And I fully agree. The difference between us is simply one of time horizons. I am willing to be patient. I believe Bitcoiners have this in common. They recognize that they have undertaken a near-hopeless task. Creating a global, neutral, apolitical settlement medium and standard of value will not happen overnight. We have barely begun the project. We are only twelve years in. But we have made some great progress so far. So we push forward.

What’s the measure of a healthy society? Arguably, it’s a willingness to undertake long term projects, whose completion their originators will never live to see. Virtually anything worth building takes time to build. Enduring institutions don’t come easy.

The cathedral is not the stones that compose it. Nor is Bitcoin the blocks. The cathedral is the physical embodiment of a singular idea: something greater exists. Its greatness makes you feel small, and reminds you of your place in the universe. We modern folks, who trivially fly through the heavens for the price of one-tenth of a day’s labor, still find cathedrals imposing and sublime. Imagine how a medieval peasant would have felt in the somber coolness of the great hall. The spires towering above him, the tallest building he would see in his lifetime. The sun’s light filtering through colored glass, revealing an array he would never witness anywhere else. All of it, painstakingly built not for vanity, or commerce, but for the glory of God, over generations and generations. Fathers and sons and grandsons toiling over the same edifice.

My university years were spent studying philosophy in St. Andrews, a small town on the east coast of Scotland. St Andrews was the site of a cathedral constructed to house the relics of Andrew the Apostle, the patron saint of Scotland. The diagonal white cross on the blue background, the one seen on the Scottish flag, the Saltire, represents the cross upon which he was crucified. For one hundred and fifty-eight years, starting in 1160, thousands of stone masons, laborers, and townsfolk labored with hand tools to build a suitable container for these holy relics. Only a tiny fraction of the people who poured the whole energy of their lives into this magnificent building would ever see it completed. For the rest of them, knowing that they were working on a sublime, civilizational project was enough. They were happy to submit to a vision far greater than themselves, rising above their transient concerns. This was the height of culture, beauty, and technology at the time. What more could one hope to live for?

It’s virtually impossible to set foot in an ancient cathedral today, a thousand years old, without contemplating the sheer human effort expended to place every last stone and every last pane of colored glass. It’s a monument to and a digest of the embodied work sunk into those ancient stones.

The Satoshean critique

Martin Luther had ninety-five critiques. Satoshi had, effectively, one. Satoshi’s animus lay with the centralized nature of banking, credit, and base money itself.

The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. 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. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.

Martin Luther sought to reform the Church, to return it to a truer, earlier state. Aside from presenting us with a rubric and then a first implementation of a system, Satoshi was not as forthcoming. The Bitcoin whitepaper is probably one of the most semantically dense documents in history. Not a word is wasted. Satoshi was famously terse on forum posts, only sparingly opining on the political and economic objectives of the system. The blanks have been left to us to fill in.

And we have been doing so with gusto. Bitcoiners, through the mechanism of novel technology, seek to restore a monetary arrangement of the past. Bitcoin is new technology designed to pursue baroque ideas. It hearkens back to the era of sound money, in particular the harmonious period from 1880 to 1914 when the international order was largely united on a gold standard and free trade flourished. In the minds of bitcoiners, we sit at an epochal turning point. With any luck, future historians will speak of the bitcoinist restoration, which reversed the losses suffered in the fiat interregnum of 1971–2020. I call it an interregnum because a fully fiat standard is a historical anomaly rather than the default. In this manner, Bitcoin can be understood as revanchist or restorative. We are reclaiming lost territory, discarded ideas, and lost time.

Some critics allege that a Bitcoin standard mirroring the one supported by gold is unoriginal and trite; that a Bitcoin standard would suffer the same failures. Why bother revisiting failed monetary arrangements of the past? But Bitcoin, being a dematerialized monetary commodity, is new, and distinct from gold.

These critics fail to grasp its superiority over classic monetary technologies, which should give a Bitcoin-centric system more robustness. It’s more auditable, meaning that banks and deposit-taking institutions can be held accountable by their users. It’s cheaper to verify, requiring only basic computer hardware. This globalizes and democratizes the monetary system. Anyone can participate, not just a large institution with the resources to safeguard large quantities of gold.

Unlike gold, it’s trivial to take physical delivery of the asset. This means that users have a free choice between self-custody and an intermediated approach. This permanent optionality — in the worst case, I can take physical, final ownership of my own assets — is an incredibly powerful feature, that tilts the balance of power towards the individual, away from the State or corporate oligarchs. It’s about time the pendulum swung back.

Even where service providers are involved, competition for depositors is fierce. Closing your account at a bitcoin bank is as simple as withdrawing your coins and depositing them at another. And it’s programmable. Sophisticated conditions can be encoded directly into transactions. This is a design space we have barely begun to explore. The immediate concern is the integrity of the network, which is why system-wide upgrades require such careful vetting. There is likely no open source project on earth that has witnessed as much scrutiny as Bitcoin. It’s a $250 billion bug bounty, after all. So we move slowly, but deliberately.

People sometimes ask me what Bitcoin means to me, and this is my best attempt at an answer. Bitcoiners who earnestly believe in a better monetary world, and aren’t afraid to bring that reality to bear, are the equivalent of masons and laborers, working on a monetary cathedral which they may never see come to fruition. But this is ok. As long as we believe in a big, audacious vision, believe that there is still beauty in the world, and that there remain great things worth striving for, we will succeed and inspire.

Today, I can’t imagine anything else I’d rather be working on. I couldn’t be happier to devote my career and energy to the vision laid out by Satoshi twelve years ago. The satoshean critique is true, and it is continually reinforced, as established monetary authorities grow more erratic and capricious. The instantiation of a stable, Bitcoin-based monetary system is by no means guaranteed, but it becomes more plausible by the day. I don’t know if I will see the completion of this project, or even if it will work in the long term. But that doesn’t bother me. I’m focused on placing the next brick.

Nic Carter

October 31, 2020

Hugo Nguyen ( Feed )
Introducing Nunchuk: Multisig Made Easy

Bitcoin, year 12.

Alice: This year sucks. You know what’s almost as bad as 2020?

Bob: Yeah?

Alice: Multisig is still scary.

Nunchuk: Hold my beer.

It’s somewhat ironic that for a technology that reveres decentralization as its central operating principle, Bitcoin stil

Bitcoin, year 12.

Alice: This year sucks. You know what’s almost as bad as 2020?

Bob: Yeah?

Alice: Multisig is still scary.

Nunchuk: Hold my beer.

It’s somewhat ironic that for a technology that reveres decentralization as its central operating principle, Bitcoin still heavily relies on single point of failure as the dominant method of ownership. This despite the fact that the unique risk profile of digital assets desperately calls against such a practice.

The highest barriers are technical challenges. Multisig is not for the faint of heart. Many pitfalls await around the corner.

Did you back up all your seeds? Do you need seeds? Are you sure the signing devices use the same derivation path? What about that change address? What do you mean you lost your device in a boating accident? Oops, some vendor has just made an update that bricks my setup.

And the list goes on.

What if we tell you you don’t have to worry about any of this anymore. What if there’s something. THAT. JUST. WORKS.

Say hello to Nunchuk. The app that makes multisig feel like a walk in the park.


But before we talk about features, let’s talk about design philosophy.

If we were to design a multisig wallet today, what should our goals be?

Our answer:

  • It must be secure.
  • It must be seamless.
  • It must be future-proof.
  • It must go above and beyond to empower the user.

Let’s see how Nunchuk meets these goals.

  1. It must be secure.

Security starts by knowing our limits. We defer to specialists in the most security-sensitive areas.

That means delegating the task of managing private keys to single-purpose hardware.

That means sticking close to Bitcoin Core for consensus code, for standardness rules, for future upgrades. That means avoiding reinventing the wheel in Bitcoin-specific areas.

That also means ruthlessly cutting down on the number of software dependencies, because each dependency is a potential attack surface. That means going with the desktop first and not the browser. That means outside of Core, only using battle-tested software. We can’t completely eliminate all attack surfaces. But we can minimize them.

2. It must be seamless.

Going from a single signer to multiple signers necessarily requires some level of friction. The goal is to avoid further friction in every other part of the multisig process.

In the early days of Bitcoin, wallet vendors were often incompatible with one another, which complicated multisig setups. On this front, there have been great developments in the last few years, notably PSBT and the descriptor language. Both have greatly improved the ecosytem’s interoperability.

Nunchuk treats descriptors and PSBTs as first-class citizens. The consequence of this is that you can use Nunchuk with many different hardware vendors, or easily recover a multisig wallet created by Nunchuk on other wallet software such as Core.

Being seamless also means the ability to switch between singlesig and multisig use cases.

Nunchuk introduces a third type of wallet: an Escrow. It is a one-time-use multisig wallet specially created for the purpose of holding funds temporarily. With Nunchuk, you can easily move funds among these three types of wallets.

3. It must be future-proof.

It would be a shame if we design a brand new multisig solution, only for it to get outdated quickly by tomorrow’s protocol changes. Many multisig solutions in the past no longer serve us well, because they were designed at a time when tools were lacking, and ended up being needlessly complex. Multisig is bound to evolve further in the coming years.

Because Nunchuk stays close to Core code, it can immediately reap all the benefits of future protocol upgrades.

When Taproot is ready, Nunchuk is ready.

4. It must go above and beyond to empower the user.

Last but not least, we want to offer the user granular control over their wallet, and most importantly, their privacy. That’s why we invested time and effort to add support for things like coin control, replace-by-fee, personal server, TOR support, among others. The reason is simple: we ourselves are users of multisig. If someone else designs this app, these features would be high on our wish list.

That, in a nutshell, is Nunchuk.

Nunchuk’s mission is to make multisig the gold standard — no pun intended — for owning Bitcoin.

Nunchuk beta is now available for download at We look forward to hearing your feedback.

Keep stacking.

Ribbonfarm ( Feed )
Tuesday, 06 October 2020
MJD 59,128
Covid is the first global downgrade in the average human quality of life since World War 2. Some of the individual downgrades are adaptive for climate change as well, and will likely get locked in for a longer term. Lowered global human mobility at all scales, from local driving to international flyi
Covid is the first global downgrade in the average human quality of life since World War 2. Some of the individual downgrades are adaptive for climate change as well, and will likely get locked in for a longer term. Lowered global human mobility at all scales, from local driving to international flying, feels like the […]
Nic Carter ( Feed )
Monday, 05 October 2020
Public blockchain fee cyclicality and negative feedback loops

Invented in 1788 by James Watt, the centrifugal governor is a small, clever device that made steam engines viable in an industrial context. Effectively it takes rotational input from a steam engine and applies it to weighted balls. As they spin, the centrifugal force pushes them upwards, moving a

Invented in 1788 by James Watt, the centrifugal governor is a small, clever device that made steam engines viable in an industrial context. Effectively it takes rotational input from a steam engine and applies it to weighted balls. As they spin, the centrifugal force pushes them upwards, moving a lever connected to a valve. As they spin faster, the valve closes. In this manner the governor takes input from a steam engine and mechanically regulates the flow of steam and hence the speed of the engine.

This innovation made steam engines suitable for industrial processes which required stability and predictable speeds, like mechanical looms. The key idea is that as the system gains in energy, a negative feedback loop develops which caps its growth. For steam engines, this is part of their design and is a very good thing. As we will see, a similar phenomenon exists in public blockchains — with more mixed results.

The Curious Case of the Cyclical Fees

As the dust cleared on the mania of 2017, I noticed that Bitcoin fees and transaction count appeared to be following a repeating pattern. Blocks would fill up, fees would spike, transactions would start to drop, and then blocks would start to fill up again. By my count, this cycle repeated itself six times in 2017.

♦Chart available at Coin Metrics

Note that I’ve smoothed both average fees and transaction count on a 7 day moving average. People recall Bitcoin’s late-2017 “fee crisis” as a single event but in fact there were at least four periods of fees rising dramatically, and six if you count smaller peaks. It’s just that most people count fees in dollar terms, rather than native unit terms, so they only really noticed the final prolonged fee spike when the USD value of Bitcoin was spiking too.

On average, fees would peak about two weeks after transactions did. The entire cycle took two months to complete, although it accelerated throughout the year. As blocks became progressively fuller, a marginal new burst of transactions pushed fees into intolerable ranges for transactors. Of course, fees are just the symptom. The underlying constraint is block space.

You can visualize the hard stop develop by examining the relationship between block fullness and average fees.

Using this approach you can see that as blocks filled up and stayed full, fees crept upwards. As fees reached a peak, users chose to transact less and blocks emptied out, giving rise to the ragged patterns in block size. But as fees came down, blockspace looked more attractive to users and they flocked back to the protocol, causing blocks to fill up again. In the final grand fee spike around January 2018, blocks stayed full to the brim for months and fees reached eye-watering levels, in both BTC and USD terms.

Keep in mind that SegWit was officially activated on July 23, 2017. Since it represented an effective blocksize increase (allowing blocks to carry up to the equivalent of 4MB of data), you can see blocks burst through the 1MB limit in the latter half of the year. However because SegWit was not fully embraced by transactors right away, average block size grew only slowly.

Here’s a diagram of the process. I call it an oscillation, because it causes both fees and the utilization of blockchain resources to oscillate, like a sine wave. But you could also describe it as a negative feedback loop, as fees inhibit transactions when they hit certain thresholds.

This was little more than a curiosity. I pointed it out at the time, but the cycle didn’t really matter altogether too much — you couldn’t bet on where you thought transaction count would be in a week after all. The lesson I took from this was straightforward: at a certain point, users grow frustrated with fees and deprioritize on-chain transactions, especially if the fees are large relative to their transaction size. SegWit helped a fair amount, as did the institution of batching. Seen in a certain way, fees are self-correcting as they encourage large consumers of blockspace to be more parsimonious with their consumption of chain resources. But all this did was reinforce my idea that scaling Bitcoin will require a number of deferred transaction systems that settle to BTC under an array of trust models. The other takeaway for me was that users evidenced a clear transactional lifecycle, and after a period of acute fee pressure, required several weeks to return to their prior level of consumption.

Ethereum’s 2020 ‘Fee Crisis’

This year, when Ethereum fees started to creep up and then exceed those on Bitcoin, I wondered to myself whether Ethereum would see a reprise of Bitcoin’s fee-tx count dynamics. I puzzled over whether it would have the same effect, or be more disruptive to Ethereum, since so much liquidity is “on-chain” (as opposed to primarily off chain at exchanges). I figured we’d see the same thing, with a less dramatic oscillation, since the supply of Ethereum blockspace is somewhat dynamic and can increase in response to surging usage. As it turned out, fees would end up being more disruptive than I had expected.

♦Chart available at Coin Metrics

Like Bitcoin in 2017, Ethereum this year saw a utilization spike as transactions grew, which gradually drove up fees. Compound’s public token launch in mid June intensified the blockchain utilization and hence fee pressure, and a host of other launches saw fees reach a crescendo starting in mid August. Several notable launches, namely the dual launches of SushiSwap and Uniswap’s token, spiked fees to eye-watering levels. On Sep. 2, the average Ethereum transaction cost over $14. All told, $16.7m was paid in ETH fees that day, well surpassing miner revenue from new issuance which totaled $5.98m. And as those fees rose, some users chose to defer transactions, and transaction count started to drop. As we entered a new high-fee epoch in mid-August, Ethereum transactions per day started to steadily drop. Fees peaked much later on Sep. 2, but have also begun to come down over the last month.

Just two days later, on September 4, I predicted on the On The Brink podcast that Ethereum’s high fees would not only affect chain utilization, but also liquidity on decentralized exchanges. I’ll post a brief transcript below (the relevant part begins at 36:30):

Nic: We saw this fee-tx count oscillation happen in Bitcoin in 2017; I would predict that we would see the same thing with Ethereum. So effectively, fees rise as blockspace utilization rises, and at a certain critical threshold, users kind of get fed up and they stop transacting for a while — its not economical for them to transact — and so, transaction count and fees drop, and then, fees get cheaper so people start transacting again, and the cycle repeats.
And I think, if you look at the selloff, it’s probably partially due to that, because some of these more retail investors that were using these on-chain exchanges, they’re getting priced out of those trades. And if there’s no retail investors, that’s a lot of the uninformed flow that the smart traders trade against. And so I think there’s a hit to liquidity generally when that happens […]
Matt: No retail, no party.

And while ETH price dynamics are hard to pin down, and I am not claiming they are solely attributable to this phenomenon, ETHUSD peaked on Sep. 1 and declined from there while fees stayed elevated through the rest of the month.

So what happened exactly? A couple things. First, Ethereum entered into what I believe will be its first major fee-chain usage oscillation, with fees peaking about three weeks after transaction count, and both declining subsequently. Perhaps more interestingly, the average size of Ethereum transactions, and various stablecoin transactions shot up alongside the rising fees. This stands to reason: users have a view of how much they’re willing to pay in fees as a percentage of their transaction, and as fees rise they stop making small transactions and larger transactors start to dominate.

The correlation is startlingly tight, and suggests to me that users are very sensitive to fees.

♦Chart available at Coin Metrics

It’s not just basic Ether transactions which exhibit this fee sensitivity either. Tokens like Tether also evidence rising transaction sizes as ETH fees increase.

♦Chart available at Coin Metrics

This suggests that transactors have a threshold of fees as a percentage of transaction value that they’re willing to pay, and as fees rise, they become unwilling to make smaller transactions — unless they really have to.

The above could be explained by some third explanatory variable like the growth of liquidity mining which was both congesting the chain and causing larger transactors to enter. I found more clarity when I investigated the composition of Ether transactions. I intuitively felt that smaller transactors were being priced out by fees, but it wasn’t clear until I put together this chart:

Initially this chart may not look too notable. It shows a cooling off of transaction count as fees rise, as we saw above. But more interesting is the changing dynamic among ETH and USDT transfers, which I’ve split up at the $500 threshold. You can see transactions accounting for more than $500 worth of ETH gaining steadily share relative to smaller transactions as fees rise. Let’s eliminate contract calls and focus only on the two categories of ETH transfers found above:

This is the smoking gun. For non-contract call transactions, ETH transfers under $500 were idling at about 85% in June — but when fees spiked, they collapsed to as little as 40% of ETH transfers. Finally, some hard evidence for my intuition: fees price out smaller users.

Predictably, the same phenomenon is evident in the usage patterns of the biggest ERC20 token, Tether. You can clearly see that smaller USDT transactions start to drop off as median fees start to climb in mid August. Larger Tether transactions hold firm but still evidence a declining trend overall as transactions cooled off during the high fee epoch.

♦Do High Fees Affect Liquidity?

So, we’ve established that there is a clear negative feedback loop between fees and utilization of blockchain resources, both in Bitcoin and in Ethereum. In Bitcoin we know that the cycle historically takes two months to complete; we haven’t yet seen what it will look like in Ethereum. Moreover, it’s clear that transactors have a threshold in mind for the highest tolerable fees relative to the size of the transactions they are making, and that smaller transactors defer their transactions during periods of high fees. This causes average transaction sizes for both ETH and other tokens to creep up during high fee epochs.

But is there more to the story? Or is this just a recast of Bitcoin 2017? I’d venture that there is indeed another wrinkle here.

Remember that in 2017, Bitcoin trading took place at centralized exchanges, with the blockchain being used for inter-exchange settlement and for user deposits and withdrawals. Actual markets were made off-chain. A user could fund an exchange account with fiat and hold (and then sell) Bitcoin, all without actually touching the blockchain. So when the fee crisis appeared, it absolutely put a brake on the Bitcoin economy, but plenty of users were able to make trades on exchanges if they already had funds on the platform or wanted to wire in USD.

By contrast, Ethereum trading in 2020, together with its litany of associated tokens, is very much an on-chain phenomenon. Now centralized exchanges are still very important to price formation, but certain DEXes like Uniswap have at times eclipsed even the largest centralized exchanges. Because automated market maker DEXes do not require KYC, custodying coins with a third party, or a lengthy onboarding process, they are far more convenient for end users. The no-orderbook AMM model is also extremely simple to use. And certain assets and types of exposure, like smaller DeFi tokens, or mining with liquidity, are only possible on-chain. As a consequence, a vibrant industry of on-chain liquidity has emerged with ferocity. As virtually everything traded on these DEXes is Ether or a token on Ethereum, everything is exposed to fees. Unlike centralized exchanges, every trade you make at a DEX has to settle on-chain. On-chain fees are therefore an ever-present consideration.

So contrasting with the vanilla fee-tx count oscillation model we saw from Bitcoin in 2017, here’s a modified version to account for the new dynamics we saw from Ethereum in 2020.

So where does this second loop derive from? Why single out DEX-heavy chains for special treatment?

First, it’s important to understand that, as Maya Zehavi puts it, high fees are a regressive tax on users. Regressive, because fees are not proportional to your wealth but instead apply largely in the same way whether you’re moving $100 worth of ETH or $10,000 (fees are a function of the computational heaviness of your transaction, rather than the $ value of transactions). This is similar to the manner in which sales taxes are regressive, because groceries account for a larger share of the income of working class people than they do wealthy people. Thus a fixed 5% sales tax is effectively a much larger portion of income for a less well-off family.

Let’s consider an analogy. Imagine a private game of poker with a rake which is fixed in dollar terms, rather than being a percentage of the value of the pot. (The rake is the fee that the operator takes for running the game). Players have the choice to play a given hand and pay the fixed fee, or sit out, in which case they don’t have to pay. There’s a variety of players at the table — a couple professionals, some semi-pros, and some gamblers who are enthusiastic but aren’t particularly good at poker. The house can set the value of the rake wherever it likes. To have a winning night, not only do you need to win against your opponents, but you need to be profitable net of the rake taken by the house. It’s not enough to just win: you have to win after absorbing transaction costs.

If the rake is low, everyone participates happily. But when the table operator gets greedy and increases the rake, the players with smaller stacks start to sit out more and more hands. If they have to fork over 1/10th of their stack just to play a hand, they are going to opt out (unless they have pocket aces). The general trend is that as the rake rises in absolute terms, players are gradually priced out of the game, starting with the players with the smallest bankrolls.

When the smaller, less sophisticated players start to drop out, the game gets substantially less profitable for everyone else. After all, the semi pros depend on the existence of unsophisticated opponents to make a living. As every poker player knows, you probably don’t want to sit at a table on a Tuesday morning with the grinders and semi pros. You want to hit the felt on a Friday night when the loose amateur gamblers roll through, lose their stack, and stumble off to the bar.

To return the analogy to Ethereum, the fees are the rake and they price out the retail individuals who, until recently, were having a rollicking time on Uniswap and other DEXes. But as fees climbed to $14 on average (and much higher for DeFi transactions like swapping ETH to DAI on Uniswap), it simply became uneconomical for individuals with smaller bankrolls to participate in trading or liquidity mining. An entire portion of the market was forced to sit on their hands. And since retail investors are the uninformed flow that professionals trade against (and profit from), if retail isn’t sitting at the table, the game is not as worthwhile. All of this manifests in a degradation of liquidity and worse trading opportunities overall.

All of that said, this theory is hard to confirm empirically. A detailed analysis of wallets active in DeFi at various thresholds and their reactions to fees, or a comparison of spreads versus ETH fees, would be helpful in confirming these hypotheses. But there are a few datapoints which are indicative. First, here’s aggregate DEX volume courtesy of Friedrik Haga’s Dune Analytics dashboard, compared to median Ethereum fees.

You can see that volume and fees have co-moved in the last few months. This is consistent with fees putting a brake on usage, especially at the retail tiers. The problem is that the causality is hard to infer. It could easily be the case that high DEX volume was the cause of elevated fees (and vice versa), rather than high fees being the catalyst for declining volumes. Perhaps more interestingly, this chart shows the daily new addresses taking part in various DeFi protocols, the first derivative of the Dune dashboard built by Richard Chen, versus median ETH fees.

With the exceptions of two big spikes around SushiSwap and the UNI token launch, daily new entrants to DeFi seemed to be cooling off after mid-August when ETH fees reached a new plateau.

The conclusions being drawn here are more speculative. While it’s clear that smaller users defer transactions when fees are higher, the direct effect on on-chain liquidity is hard to measure.

Future Prospects for Ethereum Fees

We haven’t seen the full fee-chain resources cycle play out yet on Ethereum, so it’s hard to gauge the cycle length. But in the spirit of making concrete predictions I will forecast the following: I expect that we will see ongoing, positively correlated oscillations on Ethereum between fees, transactions, and crucially the liquidity and volumes of on-chain exchanges. I imagine it will look something like this:

If you believe that DEX volumes and the on-chain liquidity environment more generally are accretive to the price of Ether, it doesn’t take much imagination to make educated guesses about the potential price impact of this phenomenon. To the extent that the Ether’s value is exposed to the reservation demand for the asset as the liability-free collateral at the base of the DeFi system, fees that put a brake on usage will most likely make the TVL in the system unwind and put pressure on the price of ETH.

That said, there are a few counter-cyclical features that might attenuate the oscillation and spare Ethereum from the tyranny of volatile fees.

Dynamic blockspace supply

Unlike Bitcoin, which has only formally increased the blocksize cap once in its existence, Ethereum is more amenable to producing more blockspace if necessary, although the rate of increase is constrained. Elastic blockspace could in theory be employed to stabilize fees, but this comes at the cost of increased validation requirements, which are already fairly high for Ethereum. As Ethereum utilization has increased, miners have rewarded transactors with ever-more computational capacity.

However, because raising the gas limit increases the uncle rate, makes the network potentially more vulnerable to DOS attacks, and makes operating a full node more costly, the Ethereum community is divided on the prospect of further gas increases. While Ethereans are willing to tolerate more aggressive tradeoffs than Bitcoiners as far as the cost of node operation is concerned, the two camps generally agree that merely increasing the supply of blockspace is not a scaling panacea. So while blockspace has a certain supply elasticity which enables it to respond to increased demand, there is little political willingness to pursue a wholly accommodative blockspace policy.

ETH 2.0/Sharding

When I first wrote about the prospects for Ethereum fees, Vitalik’s response to my article (in which I claimed that Ethereum would likely be saddled with high fees for an extended period, and this would affect the viability of nonfinancial applications), Vitalik clarified his stance on fees:

body[data-twttr-rendered="true"] {background-color: transparent;}.twitter-tweet {margin: auto !important;}

 — @VitalikButerin

function notifyResize(height) {height = height ? height : document.documentElement.offsetHeight; var resized = false; if (window.donkey && donkey.resize) {donkey.resize(height);resized = true;}if (parent && parent._resizeIframe) {var obj = {iframe: window.frameElement, height: height}; parent._resizeIframe(obj); resized = true;}if (window.location && window.location.hash === "#amp=1" && window.parent && window.parent.postMessage) {window.parent.postMessage({sentinel: "amp", type: "embed-size", height: height}, "*");}if (window.webkit && window.webkit.messageHandlers && window.webkit.messageHandlers.resize) {window.webkit.messageHandlers.resize.postMessage(height); resized = true;}return resized;}'rendered', function (event) {notifyResize();});'resize', function (event) {notifyResize();});if (parent && parent._resizeIframe) {var maxWidth = parseInt(window.frameElement.getAttribute("width")); if ( 500 < maxWidth) {window.frameElement.setAttribute("width", "500");}}

Effectively, he pointed out that he still believes in Ethereum’s vision for a low-cost blockchain in which a variety of applications, both non-financial and financial are possible. His proposed solutions are Rollups in the near term and ETH 2.0/Sharding in the longer term. Vitalik has said that he expects ETH 2.0 to produce 100x more capacity, although he expects that fees might eventually rise to an equivalent level thanks to induced demand.

I am inclined to agree; if you produce a commodity more efficiently, the world will find more uses for that (now cheaper) commodity. Thus, it wouldn’t be all that surprising to see average fees reach a high plateau even taking into account the creation of more blockspace. Regardless, ETH 2 still appears fairly remote, so it’s difficult to reason about. At the very least, it won’t be moving the needle fee-wise in the near term.


The current orthodoxy in Ethereum holds that Rollups are the main path to alleviating Ethereum’s current fee woes. Rollups come in two major types — ZK and Optimistic, but they both generally involve bundling many payments together and vastly increasing the economic density of transactions, in theory preserving the assurances of base-layer transactions while massively increasing TPS. In short, transactors rely on relayers who assemble large batches of transactions and broadcast digests of these transactions.

A ZK Rollup involves broadcasting significantly truncated transaction stubs, alongside a proof that the bundle of transactions is a valid change to the ledger. The Optimistic variant involves semitrusted operators who assemble transactions, with transactors who largely assume that the operators are not acting maliciously. Deterrence is (in theory) achieved through a combination of fraud proofs and economic penalties for misbehavior. Currently, ZK Rollups are mostly limited to simple transfers whereas certain breeds of Optimistic Rollups (OR) promise to open up the full scope of transactions currently possible in vanilla Ethereum. For a comprehensive breakdown of the state of OR, see this comprehensive report courtesy of Daniel Goldman.

Rollups effectively take transactional data off chain and put validity proofs on-chain. Bitcoiners embraced a similar data-parsimony vision years ago and pursued Lightning (which could reduce hundreds of thousands of payments to a handful of on-chain transactions), and sidechains, as well as advocating for pro-efficiency measures like batching and SegWit usage. Thanks to the popularity of Rollups and apparent pace of progress, Vitalik is championing them as the best near-term approach to scaling Ethereum. While ETH 2.0 may yet come into play, the Rollup vision of Ethereum is much closer at hand.

There’s a couple reasons why Rollups may not be a panacea for Ethereum fees. Firstly, it will be a challenge to coax all consumers of blockspace to be responsible stewards of the system, especially if they are service providers and can pass fees on to end users, rather than internalizing them. We learned this lesson with Bitcoin — if intermediaries can pass fees through to end users, they have a limited incentive to invest in a more sustainable infrastructure.

Additionally, because Ethereum has repeatedly increased the gas limit to effectively bail out blockspace consumers (at the expense of validators), heavy users may spend their resources lobbying for more gas limit increases rather than spending engineering hours on rollup-izing their transactions. Along these same lines, the specter of superabundant blockspace on the horizon with ETH 2.0 might impair the enthusiasm for Rollups among heavy transactors. Perversely, ETH2's main contribution today may well be to discourage heavy users from rendering their usage more efficient.

Second, the global userbase of a blockchain like Ethereum is not strictly something that developers and advocates can actually appeal to directly. Ethereum is open for anyone to participate in without exclusion, which is part of the reason for its popularity with ponzis and other marginal schemes. Presumably, the orchestrators of these schemes (which are routinely some of the heaviest consumers of blockspace) are not necessarily planning for the long term or trying to optimize their on-chain footprint, but rather more focused on making a quick buck. It sure would be interesting to see Forsage pushing the envelope tech-wise by rollup-izing a pyramid scheme though.

On the technical side, Rollups, especially the Optimistic variant, are not identical to base-layer transactions in terms of their settlement qualities. Vanilla Ethereum transactions are final almost immediately, and do not carry chargeback or settlement risks. This property permits ‘atomicity’, which means that chained transactions either all happen or none do. This grants users the ability to safely interlink multiple systems without risking a cascading failure because one payment in the chain failed to clear. This is a highly desirable property which is a function of its status as a digital bearer asset. Atomicity flows into composability, the oft-touted feature of Ethereum whereby smart contracts can safely reference each other, allowing for the buildout of ever more complex systems without having to evaluate each module.

Introducing more complex systems like Rollups throws these assumptions of atomicity and composability into doubt. Due to the fraud proof challenge trust model in some Optimistic Rollups, finality periods are extended in the unhappy case. Matter Labs estimates that the time to finality for OR will be on the order of 1–2 weeks. (Note: this estimate was made in Nov. 2019 so the state of the art may have changed since then.) One proposed solution [ctrl+F ‘withdrawal period’] involves intermediaries which provide users withdrawing from the rollup discounted access to their temporarily frozen coins for the duration of the challenge period. As far as I can tell, this effectively creates a tiered system, with lengthier finality from the “free version” of a Rollup exit, and shorter finality in the paid, accelerated version.

To put it somewhat uncharitably, Optimistic Rollups introduce the potential of deferred settlement. There is nothing wrong with this — deferred settlement is at the core of all efficient modern payment systems — but it is a different settlement model from base layer Ethereum transactions (which are cash-like). If you are used to transacting solely with bank wires, moving to ACH and credit payments will be more efficient, but it also means that you have to stomach impaired guarantees around settlement. This is why chargebacks are possible with credit card payments; they don’t actually settle right away. Great for the consumer, bad if you’re a merchant and you had earmarked those funds to pay bills coming due.

Aside from questions of finality, impaired composability is another issue which might inhibit an immediate transition to OR. I am not an expert on Rollups by any means, but I have seen composability challenges mentioned as some of the biggest drawbacks off OR.

For these reasons, I don’t believe it’s inevitable that all major smart contracts on Ethereum will switch to a Rollup system. To me, there seems to be a critical difference between a fast-settling base layer Ether or token transfer, and a Rollup-ized version of the same, especially when it comes to settlement. And if either composability or atomicity is impaired, the systems you can build look very different from those present on Ethereum as it works today. There is definitely something unique about DeFi as constituted from fast-settling Ether and token transfers today, and I believe that this will become clear as some large blockspace consumers start to make that switch to Rollup systems. As a consequence, I don’t expect that Rollups will meaningfully abate fees in the near term, even if they get partial uptake.


The difference between a centrifugal governor and on-chain fees is that the regulating effect of fees is more of a side effect of a properly functioning system rather than a key design consideration. In public blockchains, fees exist to ensure non-frivolous consumption of network resources and to provide validators with revenue. They’re not strictly intended to put a check on the usage of the system. In practice, however, they do, and this brake tends to be a sharp rather than a gradual one.

As a consequence, we see an oscillation — in resource usage, transactions, and even liquidity of on-chain products — rather than a gentle deceleration. These dynamics are well established in Bitcoin and only just starting to emerge in Ethereum. But due to the predominance of on-chain exchange in Ethereum, they are arguably more disruptive to the network as it works today. As Kyle Samani puts it, bounded throughput, instrumentalized by fee pressure, may be DeFi’s “invisible asymptote.”

The Ethereum community should consider the effects of repeating periods of high and volatile fees on the network, with the understanding that some applications might be permanently priced out of viability. Lastly, Rollups, while compelling scaling technologies, may not be a panacea from a fee perspective, due to their effects on settlement assurances.

Thanks to Ryan Gentry, Lucas Nuzzi and Antoine Le Calvez for their assistance and feedback.

Ribbonfarm ( Feed )
Mansionism 2: Bungalows
Though I’m big on climate-resilient futures, I have an ambivalent relationship with density as a means to achieve them. I mostly grew up in company bungalows on generous-sized lots, and loved it. Both the word and the architectural style are Indian in origin. The style originated in feudal-era
Though I’m big on climate-resilient futures, I have an ambivalent relationship with density as a means to achieve them. I mostly grew up in company bungalows on generous-sized lots, and loved it. Both the word and the architectural style are Indian in origin. The style originated in feudal-era Bengal and spread across north India during […]
Ruben Somsen ( Feed )
Saturday, 03 October 2020
Nice article, Shinobi.

Nice article, Shinobi. Just to add, to make it practical you will specifically need non-interactive novation, which means Alice and Bob have a jointly owned UTXO on a statechain AND they have their individual DLC outputs in yet another statechain:

Nice article, Shinobi. Just to add, to make it practical you will specifically need non-interactive novation, which means Alice and Bob have a jointly owned UTXO on a statechain AND they have their individual DLC outputs in yet another statechain:

It's really nice how with this setup you can separate and completely isolate all the tasks to run a DEX:

- the statechain entity

- the price oracle

- the orderbook matching

SNARKs and the future of blockchains

SNARKs are often seen as a magical panacea to “solve” scaling. While SNARKs can provide incredible benefits, the limitations need to be acknowledged as well — SNARKs can’t solve the existing bandwidth constraints that blockchains are facing today.

This article is meant to demystify SNARKs by

SNARKs are often seen as a magical panacea to “solve” scaling. While SNARKs can provide incredible benefits, the limitations need to be acknowledged as well — SNARKs can’t solve the existing bandwidth constraints that blockchains are facing today.

This article is meant to demystify SNARKs by giving a (relatively) simple overview of what they can and can’t do for blockchains. We’ll look at how its functionality in relation to blockchains can be concisely summarized as Non-Interactive Witness Aggregation (NIWA). If you understand how Bitcoin works, you’ll be able to understand this article.

It should be noted that SNARKs are still very much an area of active research. Many SNARK variants either aren’t efficient enough to prove complex statements, have proof sizes that are impractically large, or require a trusted setup. That said, a lot of progress has been made over the years, and it’s expected that we’ll continue to see improvements in the coming decade. This article is written in anticipation of such improvements, even if it may not be practical today.

What is a SNARK?

A SNARK is a construction that allows you to efficiently validate a result, given a rule set and a starting point. The inputs that led to the result are not revealed (“zero knowledge”). Confused already? This simple chess example will explain.

Chess example

- Rules: The chess rule set
- Start: Starting position A of the board
- Result: New position B of the board

The regular way of proving that the game validly transitioned from position A to B is to simply reveal all the moves and checking whether they were valid. SNARKs can do the same thing, but better:

- The set of moves does not have to be revealed (private, less data)
- Verification is more computationally efficient

There is one caveat — SNARKs tend to be computationally expensive to create. This can however still be worthwhile in systems where many people wish to validate the same result, such as blockchains. Only one person needs to put in the effort to create the SNARK, increasing verification efficiency for everyone.

Blockchain example

- Rules: The full node software
- Start: The block header & UTXO set hash at time A
- Result: The block header & UTXO set at time B

Similar to our chess example, the regular way of validating the transition would be to start with the UTXO set (all unspent transactions) at time A, receive all the blocks, and update the UTXO set all the way until we reach time B. With a SNARK, none of this data would be needed to prove validity. In fact, if time A is set to the genesis block (empty UTXO set) and time B is set to now, then the entire chain can be validated without receiving any of the historic data.

It’s important to note that for time B the entire UTXO set is required, as opposed to just the UTXO set hash. While this data is not strictly required for proving validity, we also care about availability. If all you had was the UTXO set hash, then while you know a valid state exists, you wouldn’t actually know what that state is. This would mean you can’t spend any coins, because you don’t have the data that allows you to prove that a specific UTXO is part of the set. In the chess analogy, you would have a hash of the new board position, but don’t actually know what that position is, so you can’t continue to play the game.

Note that whoever made the SNARK (presumably miners) would have this data (as it’s needed to create the SNARK in the first place), but they could potentially choose to withhold it from you.

The SNARK blockchain

In order to guarantee that everyone can spend their coins, all the data that’s needed to update the UTXO set must be communicated with each block. You’ll need to know which UTXOs were spent (inputs) and which were newly added (outputs). This is so-called non-witness data.

The validity of the transition can be verified by a single SNARK, replacing all witness data (scripts, signatures), and taking up almost no bandwidth. The relationship between inputs and outputs would not be apparent — a block would look like one big coinjoin transaction. The bulk of the data would be non-witness data.

Contrary to popular belief, SNARKs can’t solve the fundamental issues behind light clients or non-federated sidechains, because non-witness data must always be downloaded. Full nodes have the crucial ability to reject a valid SNARK if non-witness data is missing, whereas if a light client neglected to download non-witness data, it could mistakenly consider a chain with missing data valid. If even a single piece of non-witness data is withheld by miners, nobody would be able to create new blocks with valid SNARKs, except for those specific miners, turning it into a permissioned system.

SNARKs consume witnesses

SNARKs for blockchains can perhaps best be summarized as enabling the following function:

Non-Interactive Witness Aggregation (NIWA)

I use the term “witness” here liberally. In Bitcoin, the witness is the data inside a transaction that proves whether a specific UTXO is allowed to be created. But over time, this UTXO (non-witness data) becomes a witness of its own when it gets spent. When 1 BTC gets sent from Alice to Bob to Carol, Bob’s transaction is a witness to the transfer from Alice to Carol. In the same vein, all spent transactions since genesis are witnesses to the current UTXO set.

Also note that a SNARK is in itself a witness. If each individual transaction is validated by a SNARK, we can also NIWA these SNARKs into a single SNARK per block. And because outputs become witnesses the moment they are spent, we can even take unconfirmed but already spent outputs in the mempool and aggregate them as well. Alice to Bob to Carol becomes Alice to Carol, achieving non-interactive transaction cut-through. This can be especially powerful when a single UTXO with many branching off-chain transactions is forced on-chain, such as may be the case for Lightning Channel factories.

In short

We’ve summarized the core functionality of SNARKs for blockchains with NIWA. Any witness data can be non-interactively aggregated by a SNARK. The non-witness data that remains is a direct reflection of the state of the system — the UTXO set. While SNARKs can achieve amazing things such as allowing you to catch up from genesis by merely downloading the UTXO set and a single SNARK, or non-interactively aggregating sequences of unconfirmed transactions into a single transaction, there still remains a need to publish all non-witness data for each new block in order to allow all nodes to update their UTXO set. The fundamental bandwidth constraints of blockchains are therefore not solved by SNARKs.

— Ruben Somsen

Thanks to Sanket Kanjalkar for the helpful discussion and comments.

♦NIWA in action. SNARKs consume witnesses and are also a witness of their own. SNARK eat SNARK.♦
Ribbonfarm ( Feed )
Wednesday, 30 September 2020
Notes: The Marshall Plan by Benn Steil
I read this next book, The Marshall Plan: Dawn of the Cold War, by Benn Steil, in an attempt to take the idea of a “Marshall Plan for post-Covid recovery” seriously. I’m glad I did because I apparently had an entirely misguided understanding of what the plan was, the context in whic
I read this next book, The Marshall Plan: Dawn of the Cold War, by Benn Steil, in an attempt to take the idea of a “Marshall Plan for post-Covid recovery” seriously. I’m glad I did because I apparently had an entirely misguided understanding of what the plan was, the context in which it was undertaken, […]
Ross Ulbricht ( Feed )
Tuesday, 29 September 2020

by Ross Ulbricht

♦Drawing by Ross Ulbricht (2020)

From the light of freedom to a concrete tomb,

The fall was great and swift.

My soul cried out in a mighty boom,

How could it come to this?

Clamped down, trapped stuck,

Paralyzed in a tiny cage.

Had fate left

by Ross Ulbricht

♦Drawing by Ross Ulbricht (2020)

From the light of freedom to a concrete tomb,

The fall was great and swift.

My soul cried out in a mighty boom,

How could it come to this?

Clamped down, trapped stuck,

Paralyzed in a tiny cage.

Had fate left me not a drop of luck?

Was there reason for this rage?

Told to lay down and die,

Something deep inside me stirred.

I can’t be caged I have to fly!

Not yet am I interred.

They can take my body, tie me down,

It matters not a bit.

My spirit still runs wild and free,

So in freedom here I sit.

Ribbonfarm ( Feed )
Wednesday, 23 September 2020
Epistemic Reserve Notes
The metaphor of learning-as-purchasing pervades language — “are you buyin’ this?” There must be some kind of currency exchanged when you accept something new. As explored in Wittgenstein’s Revenge, the problem in modern public discourse is not that we disagree on the facts. Instead, we lack a c
The metaphor of learning-as-purchasing pervades language — “are you buyin’ this?” There must be some kind of currency exchanged when you accept something new. As explored in Wittgenstein’s Revenge, the problem in modern public discourse is not that we disagree on the facts. Instead, we lack a common “epistemic currency.” Perhaps facts used to be […]
Marcel Burger ( Feed )
Friday, 18 September 2020
Bitcoin In The Institutional Investment Portfolio

In May 2020, Paul Tudor Jones sent a remarkable letter to the participants of his “Tudor BVI Global Macro” Fund [1]. He revealed that the…

Continue reading on »

In May 2020, Paul Tudor Jones sent a remarkable letter to the participants of his “Tudor BVI Global Macro” Fund [1]. He revealed that the…

Continue reading on »