Killing DINOs. Bitcoin Tech Talk #283
All things Russian are getting banned these days. Coinbase banned 25,000 Russian accounts. OpenSea and Metamask deleted the accounts of Russians. Investors of NFTs and Ethereum are wondering, wait, how are they able to do that? Aren’t they decentralized?
Decentralization is a word that’s thrown around and sprinkled on projects the way “world famous” is thrown on products. Much like “world famous” french fries aren’t really famous around the world, “decentralized” altcoins aren’t really decentralized.
Decentralized really doesn’t mean much in the context that altcoin projects use them. They define it as some vague ideal that’s good in some way, but don’t tell you exactly what it is because they know they don’t qualify. Put simply, decentralization is something without a center. That is, there’s no single place where the whole system can be shut down. In technical parlance, we say that a decentralized system has no single point of failure. This may seem a simple concept, and it is, but is wickedly difficult to achieve.
Almost everything in society today is centralized. Google, for example, would stop running completely if the corporation was taken over through eminent domain by the government and shut down. Spotify, similarly, would shut down if their servers were taken offline by their data hosting provider. Decentralized means that there is no place like this in the whole system. As you might expect, it’s very difficult to achieve. The internet is a good example. You can’t shut down the entire internet by shutting down a single place. Bitcoin, too, is decentralized, but every altcoin is not.
Centralization does not mean it’s evil or bad. It just has different properties than something decentralized. The main benefit is that centralized things can be very efficient (altcoins clearly are not, though). One of the drawbacks is that there is significant uncertainty about its future. Centralization means that the rules are subject to change. Somebody in charge can change everything to your detriment. Google might make gmail a paid product at any time, for example, and you would have little to no recourse. This makes planning anything for the long term with centralized services risky, like marrying a Kardashian.
Decentralization means that the rules changes require consensus. Everybody has to agree to changes in the system. That makes planning around decentralization much easier because there’s a lot more certainty. If you own 1 BTC now, it will be 1/21,000,000 of the total supply forever. Bitcoin has credible scarcity going forward because Bitcoin users don’t have to trust anyone in order to believe this is true. They can verify this is true constantly by running software.
Centralized systems require a different trust model completely. They require trust in a person or entity to make good on their promises. There is no verification, there’s just trust placed in a relationship. This generally works well in the market if there’s a contract of some kind. If I pay Google for an upgraded gmail service, they can’t simply delete my account without breach of contract. I can sue in the court of law because I have rights. But in a protocol like Ethereum, there is no contract and there are no user rights. The promises are made without any punishment mechanism for unfulfillment. Altcoins have taken advantage of this fact to not deliver on any of their promises. You know what that’s called: a scam!
Some altcoins rug-pull, others have developers that get lazy or burn out, still others have irreconcilable differences and split. There are lots of ways in which altcoins break, but the main thing to notice is that they break and break often. This is because centralized things are very fragile. There are a hundred ways in which it can break and only a few ways it stays intact. Decentralized things have the opposite property. There are many ways to stay intact and only a few ways in which it can break. Centralized things have a huge attack surface, decentralized things generally have a much smaller attack surface.
Which brings us back to altcoins. Why are they thriving? They are thriving because they are getting around regulatory limitations that protect consumers. There are lots of laws which prevent scams from thriving. Altcoins are able to get around them by being decentralized in name only (DINO). They claim decentralization so they can get around regulation which would otherwise cover them. Scams have existed forever, but they’re not so bold as to advertise everywhere. Altcoins can run their scams by being able to claim that there’s nobody in charge.
But of course, there are people in charge, and it’s as easy as finding the creator. And regulators are no longer buying this lie. OpenSea and Metamask are showing that they are centralized and must comply with regulation. It’s only a matter of time before Ethereum will be made to comply. The attack surface of these centralized entities is huge and regulation will extract their pound of flesh eventually. They can only thrive so long as regulators don’t go after them and users don’t wise up. At least one of those will happen, which is why they’re doomed.
Jameson Lopp has an article on the performance of Bitcoin Core software over the years. The results are what you would expect. Newer software does better than older software in verification times as measured by how many minutes it takes to sync. What’s fairly remarkable is how consistent the improvements have been. There are more stats and interesting observations, particularly around Segwit usage. Segwit spends are now around 80% of each block, which shows how economic incentives are working. Remember all the doom and gloom from 2017 by the BCashers? I think it’s time to crow a little, though they’re about as irrelevant as Professor Bitcorn at this point.
Block has released more details on their open-source Bitcoin hardware wallet. The wallet will apparently use a fingerprint instead of a pin pad to unlock the device. This is the first of its kind and their logic is that it will give users peace of mind knowing how forgetful people can be about pins. The lack of a screen is concerning, however, given that there’s no easy way to confirm what transaction is being signed. I would pay for some sort of video output to confirm what’s being spent. Blind signing is a huge attack surface, like an old Facebook account with too many pictures from college.
There’s an interesting proposal called ordinal numbers for Bitcoin. The idea is that each sat can be numbered in a clever way to provide a way to tag each sat and track it according to certain rules. The idea is similar to colored coins and the idea is that things like NFTs, stable coins and other assets can be tracked using Bitcoin’s blockchain. The idea is well intentioned, but having gotten my start as a colored coins developer, this is, I think, misguided. I see no reason to pollute Bitcoin with scammy things like this and as we’ve seen in altcoins, technical capability means nothing and marketing means everything. This is why I don’t think stuff like DriveChains or X on Bitcoin work because they fundamentally mistake where the value really comes from (hint: it’s not the technology!)
Florencia Ravenna of Muun explains submarine swaps. The post goes through how HTLCs work on the Lightning Network and how it can be used for on-chain payments. The post goes through how on-chain payments can be unlocked through a hash reveal, which in turn means that a Lightning payment can be exchanged for an unrelated UTXO unlock, making for a submarine swap. Submarine Swaps are useful for lightning payments for people who don’t have a lightning wallet and particularly for having unrelated UTXOs for lightning payments, defeating chain analysis. Submarine swaps are woefully underused in my opinion, and development and use will increase like email during the development of the internet.
Zebedee has a curated list of places to spend BTC using Lightning. Many of these use gift cards, so in a sense, you can shop for almost anything. The most convenient things to buy using Lightning tend to be privacy-related products like a degoogled phone or VPN services. I would love to see more services that do package drops at Amazon locker or similar in exchange for sats to really serve this community of privacy-minded folks. The growth in Lightning seems to be privacy related and it’s primed to take on the privacy altcoins. Given how centralized the privacy altcoins are and how they use their own token, LN should crush them in the coming years the way the iPhone destroyed Nokia phones.
It’s SXSW week and PlebLab has a Lightning hackathon going! The event took place at Bitcoin Commons in Unchained Capital’s new offices and they are building away. If you are in town for SXSW, this is a good place to hang out for the week to recover from the barf-inducing promotion of NFTs at the main event. Lightning continues its organic growth even as the artificial growth of NFTs and DeFi and whatever other stupid marketing buzzwords wane.
Economics, Engineering, Etc.
Lyn Alden has a great long-read on what money is. Much like Vijay Boyapati’s article The Bullish Case for Bitcoin, the article goes through the various definitions of money, history of money and much, much more. The unfortunate reality of current society is that few people really think about the form of money and are only concerned with earning and spending it. As inflation prints at 7.9% and higher, more of the public wants to learn about monetary history and articles like this are a great way to introduce Bitcoin. Using current concerns to show Bitcoin’s benefits is a great strategy for convincing friends and relatives.
CoinShares has released the definitive study on the energy impact of Bitcoin mining. The report points out that the amount of carbon emissions from Bitcoin mining is a tiny fraction of general emissions and is completely offset by the effect on oil and gas flaring. This is a case where logic is all on Bitcoin’s side, yet the narrative of ESG continues to make the issue radioactive for a lot of Democrats, particularly on the left. The logic and truth of the argument doesn’t seem to matter for a certain segment of the left. The only way they’ll learn is to punish them, in the same way a bully needs to be punched back to learn not to bully.
The White House issued an executive order around digital assets. Executive orders are as unconstitutional as establishing a king, but the order, on the whole, isn’t nearly as bad as it could have been. The main points of concern are hints at a regulatory body, some sort of ban list of addresses and a CBDC. All of these require some congressional action to really implement, so this is more a position paper from the White House than a true executive order (damn you 6102!) What’s clear is the White House felt the need to address the issue, and no wonder since tens of millions of US voters have some exposure to digital assets.
Robert Breedlove has an interesting take on the etymology of the word God. He argues that it comes from the idea of free exchange, which has roots deep in reality. There is something fundamentally true about free will and how suppression thereof has led to complete and utter disaster. The bigger questions about human relationships needing a strong basis in free will and not some subtle form of slavery is one of the main reasons why fiat money doesn’t work well.
The FBI says 52 different US critical infrastructure networks have been breached by ransomware. There are two ways to look at this story, one as how Bitcoin enables criminals to extort industry and the other as how Bitcoin ultimately hardens the security of everything on the internet. I tend to see it more as the latter and while ransomware attacks suck, they do expose flaws which are hardened significantly. I imagine critical infrastructure has gotten way better security as a result of these incidents. Just like Windows 95 being so vulnerable to viruses led to much more secure operating systems, ransomware is likely to lead to much more secure networks.
Jameson shows how much of a disaster BSV is now.
Wall Street Journal chronicles a secret surveillance program in the US.
A paper tries to quantify the economic value added to Bitcoin by an adult website.
Another week, another huge flaw in an altcoin’s half-baked idea. And another.
I will be at the Thank God for Bitcoin 2022 conference in Miami April 6 and Bitcoin 2022 in Miami April 7-8. Oslo Freedom Forum in Oslo, Norway May 23-25.
I’ll be doing the Programming Blockchain seminars in Miami April 4-5.
On this week’s Bitcoin Fixes This, I talked to Scott Horton about the history of Ukraine. It was one of the longest podcasts I’ve ever had, but totally worth it because he describes all that happened since the fall of communism to get to the place we are now.
I read through last week’s newsletter which you can find here. I talked about the Thank God for Bitcoin 2022 conference on Swan Signal.
Here is the latest book which is out now!
My other books are here and here.
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Fiat delenda est.
Thanks Jimmy for the insightful issue✌🏼