Another week, another altcoin suffers from a security vulnerability and loses a ton of money.
I put articles like this in the Quick Hits section because there are so many of them and I’ve commented on their stupidity way too many times to count. I’m honestly sick of saying how much of a scam these things are, whether through malice or incompetence. I am making an exception to this one, though, because it’s by Erik Voorhees, a complex character whom I view as a tragic antihero in the story of Bitcoin.
Voorhees, before being the altcoin promoter that he’s become, started as something of a Bitcoin maximalist. You can see this in a post from 7 years ago that he wrote on Reddit. To whit:
Altcoins are the penny stocks of the Bitcoin world, and perhaps their greatest virtue is that they distract the most superficial speculators away from Bitcoin itself. Should they exist? Yes. I'm glad people experiment in every way with this technology. But don't let speculative experiments at the margin distract from the most mind-blowingly awesome monetary system mankind has ever seen - Bitcoin proper.
Such was his attitude until 2015 when he had a good idea for a business: a way to exchange different altcoins without taking custody, Shapeshift. I have to admit, the idea was good.
Unfortunately, the company he founded has been bad for Erik as he has become an altcoin apologist since then. As Upton Sinclaire has said, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” This is even true when said man clearly understood something before the current job.
His actions since then have been downhill and honestly terrible for Bitcoin. He supported the 2x agreement in 2017 and tried to strongarm the entire community into accepting it. He claimed to represent the users because he was CEO of a business, when users clearly felt differently. Though I admired his desire to keep his word to the people he made promises to, he made promises that he had no business making. He wasn’t the Bitcoin community and he knew it, but acted as if he was anyway.
Unlike Wences Cesares and Bobby Lee who have since apologized for their role in 2x, Erik continues to not apologize for his actions and acts as a spurned lover, criticizing Bitcoin and particularly the community that rejected his antics at every turn since then.
Which brings us to ThorChain, a baby of his that he wrote about in April of this year. In it he claimed that “Incompetence was a large part of these early failures.” The early failures here refer to exchanges like Mt. Gox which went bankrupt in 2014. Of course, looking at the millions lost in the ThorChain security incident makes him look dumb, but he should have known better. The ThorChain incident wasn’t even the first hack of an exchange he was in charge of. He had another well-publicized one in 2016.
In other words, Erik Voorhees is a prideful man. He refuses to see that the stuff he’s been working on really only encourages speculation and doesn’t do anything for civilization. To be fair, this requires a fair bit of self-reflection, which, unfortunately, Erik seems either not to do or do very poorly. Witness his “response” to the criticism of ThorChain and particularly how centralized it is:
He’s bringing up a completely irrelevant incident from 2010 as his “defense.” He won’t take responsibility for the security incident, he won’t admit that he screwed up. The man does not seem to know how to admit he was wrong about anything and that’s the tragedy of his character.
The sad thing is I really like Erik. I’ve known him since 2014 and have met him many times. He cares deeply about liberty and really believes he’s bringing a more free society about. He’s also sent his engineers to take my course and I’ve even sent him some of my books. Yet bad money corrupts good character. Bad money in this case are all the altcoins he’s been promoting. His vicious hatred of Bitcoin, particularly the Bitcoin community, is clear evidence of that.
If you’re wondering what’s next for Taproot, Michael Folkson has a reading list for what the Core devs are looking at to prepare. There’s going to be a core dev meeting to discuss what the ecosystem support will look like and how to support developers implementing it going forward. There’s a meeting scheduled for July 20 which is available in the reading list for developers who are implementing Taproot features or for anyone curious. The meeting will be streamed live on Youtube.
Matt Bell has an interesting proposal for a proof-of-stake sidechain. The idea is that merge-mined sidechains such as the Drivechains proposal (BIP300) require additional validation by miners and tax every node, but with something like proof-of-stake, the responsibility for returning Bitcoin from the sidechain back to the mainchain goes to a federation. Apparently, there are mitigations even when 2/3rds of the federation is malicious. The federation is reminiscent of the Liquid sidechain, but a bit more formal and with better-defined emergency protocols.
Minimint is an experimental Chaumian cash based on Bitcoin. Chaumian cash has strong privacy properties and spends very much like cash, based on public key cryptography. This would be another type of layer-2 solution where a central entity would be a sort of bank that can redeem the Chaumian cash for Bitcoin at any time. The main advantage is that despite being centralized, the central entity does *not* know who’s spending to whom. I’m not sure if this is a tradeoff that the market necessarily wants (custody risk in exchange for privacy), but it’s a very interesting project worth keeping an eye on.
SuredBits has released a DLC wallet and oracle app. DLCs have a straightforward trust model based on the oracle, so this is an excellent step towards building interesting services on Bitcoin. Unlike “DeFi” which has all sorts of hidden risks that are undisclosed by all the stakeholders marketing them, DLCs make it clear who you have to trust and are much more transparent in what’s actually happening. Of course, the liquidity in this market is non-existent at the moment, and there’s going to be slow growth given that there are limitations, but this looks like the kind of project that can matter in the long run.
A new paper has a nice optimization for reliable and cheap payment flows. Rene Pickhardt is one of the authors of the paper and is well-known on the Lightning mailing list. Most software today uses a very basic and simple routing algorithm that doesn’t use some of the features available on the network like multi-path-payments. This sort of research is necessary to make the lightning network run better and an essential part of upgrading the infrastructure.
Jeff Wilser writes a nice overview what’s going on the Lightning network and the layer 3 stuff that’s coming. Of particular interest is impervious AI, which is the infrastructure for layer 3. Messages, VPNs and much more can be achieved on that platform, which will essentially make every Lightning node a server as well as a client. The dream of a decentralized internet seems to be building before our very eyes!
Roy Scheinfeld of Breez features Victoria Kayak out of Canada, who’s using Lightning for their business. The article is good to understand the profile of businesses that start taking Bitcoin seriously. As the Lightning Network grows and gets optimized, it is people like these that Bitcoin will ultimately help.
Economics, Engineering, Etc.
I expanded on an article I wrote for this newsletter a while back in The Triumph of Post-Modern Investing. The article is aimed at a Christian audience, but the essential argument is that “number go up” is not enough reason to invest in something. Investments need some rational basis in order for civilization to benefit and currently, we’re in a post-modern investing mentality where completely useless stuff like Dogecoin are being pumped. My hope is that Bitcoin brings back rationality to the markets because irrationality is literally de-civilizing.
Jack Dorsey is making DeFi on Bitcoin happen. Note that the article says DeFi, but the actual quote is about decentralized financial services. Actual ones can be on Bitcoin, but on other platforms, they cannot because they’re centralized. I respect Jack in that he’s one of those guys that puts his money where his mouth is but I do worry that such organizations can become single points of failure.
In case you doubt that inflation hurts the poorest in the world first, check out this story. North Koreans are seeing very clearly in the black markets that goods are soaring in price. As these black markets are not regulated and prices are free to float, this is probably the best indication of the costs involved and essentially shows that the money printing causes prices to go up. I suspect we’ll see a lot more of this creeping upwards from the third world to the first.
The digital Euro looks like is in the works. To be fair, this is an investigation into whether a CBDC makes sense and will be studied for 24 months, which in Bitcoin time is like 10 years, but that’s the speed at which governments work. I share Ammar Naseer’s prediction that there will be a rise and then fall of CBDCs.
Tomer Strolight frames Bitcoin as a test. In my experience this is very much true. People who can think outside the box and reason from first principles generally have a favorable view of Bitcoin whereas those that are hypnotized and stuck in conventional wisdom do not. It’s only pain that seems to get people out of such hypnosis, but given how much people have been made to bear the past 18 months, it’s red-pilled a whole lot more people.
Chris Wood argues that Blockchain games are snakeoil and destined to fail.
Some people in the EU want to ban proof-of-work. Good luck with that.
The state department will pay for tips in “crypto.”
ETH 2.0 is delayed again.
Another week, another “decentralized” altcoin is shown to be completely centralized.
I will be at The Bitcoin Standard conference on August 12-14 in Ensenada, Mexico, BitBlockBoom in Dallas on August 26-29 and Token 2049 in London, England on October 8-9.
The Programming Blockchain seminar is in Mexico on August 10-11. This is a 2-day seminar for programmers to learn about Bitcoin. You can apply here. I also have a few scholarships available for those that can’t afford it.
On this week’s Bitcoin Fixes This, I talked to Lauren Sieckmann about the fiat mentality, how it changes with Bitcoin and getting involved in the Bitcoin community. I read through last week’s newsletter which you can find here.
I was on Tone’s show to talk about various altcoin hacks, CBDCs and much more.
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.