The Fed has been printing a lot of money since the world-wide pandemic started. On February 3, 2020, the M2 money stock was at $15.4T. As of June 18, 2020, it stands at $18.2T, an increase of 18% in just a few months. The money printing is done through loans, either to the government or to banks, many of them investment banks, which means that the debt level, and monetary supply increases with each loan made.
This has meant that the US government has been able to be very generous the past few months, giving loans to banks for bonds that have no liquidity, $1200 checks to tax payors, grants to various businesses. As the well of funds seems infinite, the natural question to ask is: If the government can print the money, why are we paying taxes at all?
Indeed, this is a question that leads to learning about how fiat money works. Fiat money printing means debt. Lots of debt. So much debt that any business that doesn’t leverage up to their eyeballs will lose during booms because they won’t be able to compete with businesses that do. This is at the heart of why it’s been so difficult to expand the money supply enough to satisfy the demand for the dollar around the world. Everyone is already maximally levered up, so to get them to lever up even more is impossible. Besides, they’ve lost a lot of business and they’re having trouble paying back what they already owe.
This is why everyone’s so fragile. Everyone from banks, to businesses, to workers, to consumers is levered up. Any disruption causes systemic risk because the debt needs to be repaid in order for the system to continue working. Unpaid debt is monetary contraction.
In response to the credit crunch, the Fed is now set to buy a lot of corporate bonds and is considering lending money to non-profits. This is essentially nationalizing a lot of corporations and non-profits. What’s particularly puzzling is what collateral non-profits can put up. Perhaps donor pledges? Regardless, the amount of money printing here is insane and gives a great contrast to Bitcoin’s unchanging monetary policy.
In a provocative talk, Adam Gibson describes Schnorr signatures as “unfairly linear”. Be warned, this is a technical talk about what Schnorr and ECDSA actually are and how they are used. The main benefit explained is the aggregatability of Schnorr signatures which give it that “unfairly linear” quality.
We have a new protocol in BIP85 which allows mnemonic word generation from a master seed. That is, a single mnemonic can produce additional mnemonics for use in all sorts of other wallets, such as hardware wallets. It’s a very clever way to create a situation where a single backup suffices for lots of different wallets and I hope this is the way to use a lot of wallets going forward. It’s currently quite annoying to have to backup a new seed for each new wallet and this would solve that.
Lawrence Nahum of Blockstream has published a thorough listing of Electrum backends. If you run Electrum and want to connect to your own server, this is a comprehensive list of software you can use to make that a reality. As many Electrum users still end up trusting a third party to provide them with the blockchain data, this is an important upgrade many users can make.
BitMex has published an analysis of the different ASIC manufacturers. The main conclusion is what we’ve all suspected, that Bitmain has lost a lot of market share and technology lead in the last 18 months. Other conclusions include lots of consolidations, not just in manufacturing but in pools, that there will be a lot more geographic distribution and that the actual machines will have a longer shelf life than they do currently.
Rene Pickhardt has disclosed a security vulnerability on the lightning-dev mailing list. Essentially, there’s a way to open channels in such a way so that the attacker can cause the channel partner to lose money, though the attacker doesn’t necessarily gain the money.
Electrum 4.0 is slated to support Lightning! There’s no release candidate yet nor even a beta, but given that the last version, 3.3.8, is almost a year old, they’re due for an update. It looks from the github repository that they’ve been hard at work to get Lightning ready. It should be interesting to see how it works with Electrum Personal Server and how the Lightning aspect will interact.
Economics, Engineering, Etc.
Bitmain continues its drama, this time with Jihan Wu possibly going to jail! The list of things Micree Zhan (the cofounder of Bitmain with Jihan Wu) is accusing Jihan Wu of are pretty serious. This includes fake shareholder meetings, theft of a business license, hiding of important documents, and embezzlement. If true, this would mean some jail time for Jihan Wu and possibly some liquidation of the vast stash of BCH that Bitmain owns. It’s sad to see what was such a professional company come to such a crashing halt like this, but in a sense they had it coming after trying to take over the Bitcoin network.
WizSec has published a thorough analysis of the stolen funds from Mt. Gox, specifically with respect to an address claimed to be owned by CSW in his civil case. By claiming this specific address, it seems CSW has inadvertently claimed responsibility for the Mt. Gox hack! The analysis is useful for understanding how chainanalysis works, even if you don’t care at all about CSW’s latest drama.
Bancor apparently had to hack its own smart contract because of a critical flaw. This, despite having done a security audit, conducted by Kanso Labs. The flaw allows anyone to transfer money out of the DeFi contract without any authorization. What’s striking about this particular flaw is how big the bug was. Smart contracts are difficult to secure, but this is the equivalent of putting “Rob me” sign in front of an open safe in the middle of a public place. The fact that an audit didn’t catch something so simple tells me that either they didn’t do a very good job or the audit was security theater.
I went on Tone Vays show to talk about the weird ETH fees, Tether expansion and more. I had an interview with Shahan, talking about everything from why certain people hate Bitcoin no matter the evidence and my origin story with regard to Bitcoin.
Fiat delenda est.