Bitcoin Builds Civilization. Bitcoin Tech Talk #270

I was watching a documentary a while back about bears and how they all wait for the salmon run to feed themselves. There’s plenty of abundance when the fish are running, but before that period is a long time of scarcity. Fish are hard to find, so bears have a couple of different strategies to eat the fish.

The first strategy is what you would expect. The bear works hard to capture the fish in the water. This is difficult because there aren’t that many fish in that environment and they are harder to catch. The other strategy is more nefarious. The bear waits for another bear using the first strategy to catch the fish and then immediately attacks the first bear and takes away the fish. They typically sit idly on shore and just wait for the first one to do the work. As soon as the first bear catches the fish, the second bear takes the proceeds of the first bear’s hard work. The law of the wild is that might makes right, and the stronger bears just don’t have to work as hard because they have the power to overwhelm the weaker bears.

This strikes us as patently unfair because it is. We feel it in our bones that the first bear deserves the fruits of its labor and not the second bear who sometimes only needs to threaten to get the fish. There are the producers and the thieves.

We may think that humans are more sophisticated, but we’re really not. The same separation between stealing and producing exists, just better hidden. The obvious thieves are ones that commit burglary, larceny, or armed robbery. The less obvious thieves are those that tax transactions. These are people that don’t add value but capture some of it, or what we call rent-seekers.

Rent seekers are everywhere in our economy and they are the equivalent of the bears sitting on shore waiting for the the producers to produce something so they can get a cut. They don’t want all of our fish, just a percentage and in return they promise not to get us fired, or put us in prison. The sad thing is that rent-seekers are typically completely unaware of their rent-seeking. Much as the bear has no qualms about taking fish from another bear that worked hard, rent-seekers typically don’t think very much about what value they’re adding, merely that they are capturing some value.

The sad thing is that fiat money makes rent-seeking incredibly easy. Value can be stolen without the property actually moving. It’s obvious to the first bear that the second bear stole the fish from it. It’s not at all obvious to us that we are being stolen from when money is being printed. It seems that our bigger brains require more complex rationalizations.

This is where Bitcoin shines, because it is an unseizable, hard money. Unlike fish or gold, it cannot be physically taken away without the holder’s consent. Unlike USD, it also cannot be inflated away. Bitcoin, in other words, is anti-rent-seeking money.

This is no small feat. In any society where there’s a lot of theft, civilization tends to decline or not sprout at all. The most backward places tend to also be the ones highest in theft, whether illegal (robbery) or legal (rent-seeking). This is ultimately why having a tool like Bitcoin that allows people to produce and keep the fruits of their labor is so important. It builds civilization where there is none and prevents decline.

In other words, Bitcoin builds civilization.

Bitcoin

Jeremy Rubin explains what payment pools are, how they’re now available using Taproot and how Sapio helps it have more features. The idea of a payment pool is that a single UTXO on chain can represent a lot of users’ funds. In a sense, this is done already as exchanges have giant UTXOs that represent potentially hundreds of thousands of users’ funds. The difference in a payment pool is that users don’t have to trust a third party and this requires some sort of covenant on-chain. As Jeremy explains, you can do this with OP_CTV. AJ Towns’s OP_TLUV and OP_VALUE would do something similar as Taproot is well-suited for payment pools.

Script Wiz is a web-based script debugger for tracking what the stack is at any point in the execution. This is great for developers trying to work out the script and how it executes. The tool supports both Segwit v0 and v1 (Taproot) and can also do Liquid scripts as well. For trickier scripts, this is a nice web alternative to using something from the command-line.

Trezor now has Taproot support. As far as I can tell, only the single-sig Taproot from BIP86 is supported and none of the more interesting features like multisig is yet there. It also looks like you need to upgrade everything, including the firmware on your Trezor devices and even the default wallet software is being deprecated. They also seem to be spending an inordinate amount of time on altcoins, which is quite disheartening.

Lightning

Lightning Labs has started the bLIP repository for lightning improvement proposals. The process looks like it’s similar to the BIP process for Bitcoin proper, but improved somewhat, including developers from a lot of different Lightning implementations. Having industry standards will be very important for lightning to grow and as we’ve seen with BIPs, having one doesn’t guarantee anything, but it does give engineers everywhere something to code against.

Voltage has announced a Flow dashboard. This is software to manage your lightning node. The dashboard has a direct interface to the Lightning Pool service, allowing you to buy inbound liquidity. The whole thing is based on the Flow API, but has a nice interface for those that aren’t programmers. As lightning becomes a bigger part of the ecosystem, it will be interesting to see how many people will be able to find the right formula to make the most money routing as a node.

Jeremy Rubin posts about using Sapio (enabled by OP_CTV) to create non-interactive channel opens in Lightning. Much like the other story, this one is part of his Advent series. This is an excellent post that describes what channels are and how it’s currently interactive, requiring multiple rounds of communication, but how with OP_CTV, you can make a non-interactive channel and the recipient isn’t required to keep the public key online. I hadn’t realized this was possible, and it’s certainly a huge step forward for lightning. I’m not clear though, on whether this requires OP_CTV specifically or whether this is possible with other covenant proposals.

BitWage now supports salary payments in Lightning! The payment looks a bit like a publicity stunt more than a strategy, but payroll processing is a bit of a mess all over the world as so much of it is regulated. There’s probably some margin to be made by using Lightning instead of the traditional banking infrastructure and it’ll be interesting to see if companies like BitWage can take advantage.

Economics, Engineering, Etc.

Robert Breedlove argues that money is best when it mimics the qualities of time. Specifically, he argues that money, like time, should be immutable, impartial and irreproducible. The current fiat system is certainly opposite of all those things and it’s an interesting comparison, particularly since he’s been arguing that money is time and time is money. Metaphysically, the more qualities they share, the better they will represent each other.

Consumer really is a derogatory term. This is a thought that I’ve had also, as consumer only focuses on one side of the equation. Everything consumed must be produced first. As the article points out, focusing on the consuming side puts people in a lower, subservient position to the producer, which in a fiat system is purported to be those that are in charge.

Grayscale surveyed Americans and found that 26% now own Bitcoin in some form. A couple of caveats about the survey. These were households with at least $10,000 in investable income and all were between 25-64. Still, this is an astounding statistic and one that government officials will need to take into account. What’s more, 77% said that they would invest in Bitcoin if an ETF existed, and given that the survey was conducted in August and two Bitcoin ETFs launched in October, I suspect the percentage in that particular demographic is probably higher now.

Hash rate is at an all time high again. The long winter of hash rate is finally over as the miners kicked out of China seem to have relocated elsewhere and the supply of new miners finally kicking into gear. This was inevitable as it’s been insanely profitable to mine for the duration of the low hash rate season. Perhaps the large profit margins have put more sell-side pressure on Bitcoin, which may explain the current price-levels.

Sam Callahan of Swan shows why a dollar-cost-averaging strategy works so well for most people. He names this strategy the “Bitcoin Savings Plan” and shows that historically, it’s done very well. As he points out, the mental relief of not having to time the market is definitely worthwhile as is the lack of regret. I know people who did this back in 2015 and 2016 and they are very happy now.

Quick Hits

If you want real anonymity on the internet, here’s a nice guide.

No more Tor in Russia.

Level39 explains how Ethereum’s difficulty bomb is coercive.

Another week, another altcoin get DDoSed and proves its insane fragility.

Another week, another altcoin recognizes there are tons of rent-seekers. And another.

Events

I am planning to be in London for Advancing Bitcoin March 3-4, but there is some possibility I won’t be able to get into the UK. I am also going to be at Bitcoin 2022 in Miami April 6-8.

I’ll also be doing the Programming Blockchain seminars in London March 1-2 (subject to being able to get into the UK) and Miami April 4-5.

Podcasts, Etc.

On this week’s Bitcoin Fixes This, I talked to Saifedean Ammous about his new book The Fiat Standard. Find out how fiat money came to be, the difference between money and credit and why he thinks Bitcoin and the dollar can coexist.

I read through last week’s newsletter which you can find here.

I talked to Robert Breedlove some more on the What is Money show about democracy and public property and a lot of other stuff.

I talked about the new book on Author Cast.:

My other books are here. There is another book that I’ll be launching a Kickstarter on, which is titled “Bitcoin and the American Dream.” Stay tuned for it.

Unchained Capital is a sponsor of this newsletter. I am an advisor and proud to be a part of a company that’s enhancing security for Bitcoin holders. If you need multisig, collaborative custody or bitcoin native financial services, learn more here.

Fiat delenda est.