Bailouts and Zombie Companies. Bitcoin Tech Talk Issue #196
It’s not a secret that the last few months have been a difficult time for many businesses. As many of them were leveraged up to their eyeballs in debt, it’s not a surprise that any disruption to their business would cause the proverbial fall in the house of cards. As the perception was that the cause of their demise would be government policies like stay-at-home orders, governments around the world have loaned or granted lots of money to such businesses as to avoid blame.
Politically, however, it would be problematic to designate some industries as deserving while others not, so governments instead decided to give pretty much anyone who applied money to sustain them through this crisis, whether they needed it or not. In a sense, this is a Faustian bargain, as the loans or grants are paid for with more regulation and stricter controls. It’s not hard to imagine, for example, that governments will be demanding consumer data in return.
Instead of the weaker companies going bankrupt and dying out, we have instead a lot of zombie companies, or companies that are the living dead. Such companies have the life sucked out of them and are really only going through the motions of a real company, but provide little in the way of goods and services the public actually wants. Instead, they serve their master, the one who keeps them alive through loans and grants: government.
In a sense, this is creating a whole economy of dependent semi-socialized businesses that are suckling at the government teet. Sadly, such dependence has only been increasing over the last 50 years.
Just look at the list of PPP loan recipients for the Cryptocurrency industry. The vast majority are altcoins or companies that are heavily based in altcoins. Despite the insane amount of money raised by a lot of these companies in ICOs and whatnot, it looks like they couldn’t resist that free government cash. Imagine the next time the US government asks, say, Binance to freeze a particular account because it’s linked to Wikileaks. I can’t imagine that defiance of such an order would go over well with a morally indignant regulatory body that will remind them of the bailouts they received.
Ultimately, the many different altcoin projects that received government money can be considered to be compromised. We always knew that their single points of failure would be susceptible to government pressure. I didn’t imagine that they would voluntarily end up under the shackles of government control, but here we are.
Bitcoin
Kraken has published a supply-chain attack on the Ledger Nano X. Essentially, the firmware can be rewritten to trick the user into signing a bad transaction. This attack can be mitigated with a firmware update as outlined in the Ledger Security bulletin.
Speaking of hardware wallets, CoboVault has a post on how they’re open-sourcing a lot of the work they’re doing. They are an alternative to Ledger in that they also use a secure element. They also released a security audit from a third party of their hardware, which apparently is a first in the industry. I’m hopeful that this sort of thing becomes standard as the hardware wallet industry matures.
Incidentally, BitBox02 has published a guide to using the hardware wallet with Electrum. Note that this particular hardware wallet does not have a secure element. That said, there’s a lot more hardware wallets now than, say 3 years ago, and that’s a good thing as discerning users will demand better and better features.
There’s a nice transcript of all the shortcomings of CoinSwaps discussed at the London Bitcoin Devs group. The main objection here is that unlike a CoinJoin, CoinSwapped UTXOs have a specific taint to them that get transferred atomically. That is, you may get some blacklisted UTXO in a swap that potentially has less value. This depends on the level of blacklisting and how chain analysis companies will determine them, but it is a good discussion to read through.
Kingdom Trust has a new product that allows you to put Bitcoin into your IRA account, while holding your own keys! The tax advantages of IRAs are obvious and the ability to hold your own keys definitely make the option attractive for long-term holders.
There’s been a bit of controversy around marketing around Bitcoin, which is summarized in this post. Essentially, Dan Held has been an advocate of using growth hacks for Bitcoin while some in the community find that sort of thing unethical. Time will tell whether such efforts are effective for Bitcoin growth.
Lightning
Bluewallet has a new way to fund lightning channels with vouchers! This is a bit like Strike in the sense that it’s a path for fiat money to be converted into lightning, allowing merchants to avoid having to deal with the fiat money path. This one feels a bit different, though, given you have to buy the voucher first. In a sense, the use case is a bit more like gift cards, which are used all over the world for internet payments for people who don’t have credit cards. It would be interesting to see if Bluewallet can make this a viable business.
Boltz has a nice new innovation in Channel Creation Swaps. It’s a bit like Breez in that there’s inbound liquidity provided for you by the company, but a little different in that it’s as trustless as a submarine swap. In other words, existing channels can be used to fund your lightning wallet if you run out using a path to Boltz.
Economics, Engineering, Etc
Techcabal has published an interesting look into how Bitcoin is being used for remittances in Africa. As the cost of remittances between African countries tend to be very high, the use of Bitcoin here makes a lot of sense. The article notes how users don’t even have to be aware that Bitcoin is being used.
Derek Hsue has a look at Tether and where it’s being used. Tether has tripled in market cap over the past year and has become popular in large part due to the liquidity crunch around the world. There seem to be other more esoteric uses, which Derek details, including lending and usage in DeFi products. I have some serious reservations about using such a centralized product in such sketchy zero-sum derivative games which characterize so many such uses. This is especially concerning from a regulatory standpoint as USDC, for example, has frozen some funds at the request of regulatory authorities.
Ethereum 2.0 apparently can’t even meet its first milestone. This is an ambitious project to essentially rewrite Ethereum over a period of 10 years and much like the Proof of Stake transition promised back in 2014, it looks to be delayed to oblivion. The Reddit AMA reveals that they’re complicating the heck out of Ethereum 2.0, so I suspect that it’ll not only be delayed a bunch, but also be very vulnerable to bugs which will inevitably end in financial loss and/or blockchain rollbacks, even more so than Ethereum 1.0.
Podcasts
I was on the Keiser Report discussing monetary independence, the unfairness of the current system, Segwit2x and the debt-based system that we’re living in.
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Fiat delenda est.