Inflation is Here. Bitcoin Tech Talk #245

The past year has seen a lot of monetary expansion. Not only were there stimulous checks, but also all sorts of forgiveable loans, generous unemployment and bailouts of all types, ostensibly to keep the economy going. Yet despite what seemed like desperate economic circumstances, help wanted signs are everywhere, nobody can seem to hire enough people and there are shortages everywhere you look.

In other words, inflation is here and even the government is having to acknowledge the increase in prices. To be sure, asset inflation has been obvious since early last year when stock prices kept going up despite the economy coming to a grinding halt due to shutdowns. Real estate prices have been particularly inflationary with shortages showing up in many markets and buyers having to put in bids way above asking just to be considered.

Yet it’s now trickling down to stuff like cars and food. We’ve seen meat prices almost double in the past year and used cars are up 30% from the year before. The government has been trying to blame everything but monetary expansion, including manufacturers that didn’t adequately prepare, and hoarders of various stripes, but inflation is always and everywhere a monetary phenomenon.

At some point, there is going to be a reckoning. What’s strange about the current state of the world is that very few people seem to be preparing to handle the reckoning. Everyone seems to be going along and riding the wave of money printing without much thought to the future.

It is in this context that the current mini-bear market in Bitcoin makes little sense. There’s more reason than ever to buy Bitcoin, yet the price continues to sag. What looks to be the best vehicle to hedge against inflation languishes because… energy FUD? China? Elon? There’s wool pulled over the collective eyes of people that really ought to know better.

But then again, this sort of lull is normal for any emerging consensus. A lot of people haven’t suffered enough to be desperate enough to really have learned their lessons. There’s simply too much free money going around for people to take inflation seriously.

Yet the time is coming when inflation is really going to hit home and a lot more people are going to suffer. And that will be the time for Bitcoin. It just sucks that it will take suffering for people to really learn.

Bitcoin

Fake Ledger devices are getting mailed out to the people whose address info was leaked by Ledger. If you receive an unsolicited Ledger device, please be aware that any Bitcoin put on them will likely be stolen in short order. The devices are clearly compromised and an attempt at stealing Bitcoin. Hackers are putting more money and time into these types of hacks and this is why it’s very important to get devices straight from the manufacturer.

Casa has an update to its covenant product that makes inheritance easier. The approach is different than their previous multisig setup in that a designated beneficiary gets control of the Bitcoin after your death. For some, this is likely to make the process simpler, though it does open up the possibility of getting screwed out of your funds should things go wrong. That said, this is a more natural method of estate planning than a multisig scheme, which is by nature somewhat adversarial.

Michael Flaxman has a proposal for blind xpubs. The idea is to have a multisig setup where one party holds a key without knowing exactly where it is. The ostensible idea is to hide the amount being stored from the holder of the key until the moment when their key is needed. As the example makes clear, it could be a 2-of-3 where the third key is kept by someone who’s technically competant but does not have the path as to be able to know how much is being secured, nor the other keys involved. It’s reminiscent of a blind oracle type setup and one worth looking at.

There’s a repository of interesting problems in Bitcoin to research. These include various open lightning questions and possible attacks that haven’t found a good mitigation. For academics, this is a gold mine of possible topics to write papers on that have real world consequences.

Lightning

Bitstamp has integrated Zebedee. Zebedee is an interesting partner in that they’re focused almost exclusively on Lightning payments in gaming. E-sports is growing like crazy all over the world and lightning introduces new mechanics to gaming that seem very promising. Bitstamp is going a bit outside their comfort zone in integrating this as they’re known to be an exchange, but this very well may be an area to grow towards.

Lightning Labs’ newsletter talks about Lightning ubiquity in Miami. Not only did we see people on stage use Lightning to transfer money instantly, but we saw all sorts of vendors integrate lightning for all sorts of things, like the e-sports tournament mentioned above. The conference really seems to have shown Lightning’s true capabilities and adoption seems to have really turned the corner. Anecdotally, I’ve noticed a lot more demand for lightning payments as the casual way for people to pay Bitcoin.

Thomas M reports that Lightning Capacity has hit all-time highs. Nodes are double the number of what they were a year ago and the number of channels are up more than 50%. There’s 60% more BTC locked up in Lightning as the El Salvador news looks to super-charge the next wave of adoption.

Economics, Engineering, Etc.

Zach Voell has an excellent summary of Bitcoin mining in Iran. It’s surprising that almost 4% of all Bitcoin hash rate currently resides in that country. Yet in a sense, necessity may be the mother of invention here as they continue to suffer heavily from international sanctions.

Seb Bunney explains how the current system of dollars is very deceitful. The article is more about the current fiat-induced inflationary system and its harmful effects in the entire economy. The malinvestment inherent to inflation is explored and the harm to innovation as well. The case for Bitcoin in this context is much easier to see and is therefore a good way to introduce people to the harm of the current system to introduce them to Bitcoin.

Allen Farrington reflects on Miami. The post reflects on quite a bit, but the main thing I got out of it is that Bitcoiners care. They care about stuff and ultimately that’s what makes them different. He argues that this is ultimately why Bitcoiners will win. I can’t say I disagree with him. In a world where you have passionate go-getters versus apathetic rent seekers, guess who has an insurmountable advantage?

Inflation continues unabated. What’s crazy is that the CPI is a heavily manipulated metric and it’s so out-of-whack that they can’t seem to fudge the numbers enough to bring it to heel! The hedonic adjustments, apparently, don’t have enough wiggle room for the inflation that we’re experiencing. The reality of the price increases are simply too big to be papered over and we’re likely to see high inflation numbers for quite some time.

Nick Gillespie sat down with Cynthia Lummis to talk why she’s all in on Bitcoin. She makes the case that Bitcoin is an alternative to USD. I was impressed with her defense of Bitcoin from a libertarian perspective. Her perspective on the Digital Yuan in particular was on point. For me, this interview showed how much of a champion of libertarian values she is.

Quick Hits

Another week, another DeFi disaster.

Kal Kassa argues that Bitcoin and Ethiopia are inevitable.

Wall St. Journal surprisingly does a decent job talking about what El Salvador means.

Mining equipment continues its flow from China to the US.

Michael Saylor bets even more on BTC.

Events

I will be at The Bitcoin Standard conference on August 12-14 in Mexico and BitBlockBoom in Dallas on August 26-29.

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.

Podcasts, Etc.

On this week’s Bitcoin Fixes This, I talked to Alice Marie Johnson about criminal justice reform. We talked about non-violent crime, mandatory minimums, Ross Ulbricht and malicious prosecution.

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

Lastly, I was on Blunt Force Truth and Kingdom REI to talk about the new book:

My other books are here.

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

Fiat delenda est.