Long Bitcoin, Short "the System." Bitcoin Tech Talk Issue #202

Back in 2014, I spoke at my first conference. It was a small libertarian conference in Austin and I was asked to talk about Bitcoin on a panel. Wanting to get an idea of where the audience was, I asked the audience, “how many of you have heard of Bitcoin?” About 80% of the hands went up. I then asked the audience, “how many of you own Bitcoin?” Surprisingly, 50% of the hands stayed raised. What was crazy to me was that the vast majority of people I talked to in everyday life hadn’t even heard of Bitcoin back then. To be talking to an audience where 50% owned Bitcoin, at a conference that wasn’t Bitcoin-focused was astonishing. What was it about libertarians that caused them to not just learn about Bitcoin but to buy it?

Bitcoin and libertarianism have run together for a long time. Starting in 2010 when Wikileaks started taking Bitcoin donations to 2012 and 2016 where libertarian presidential candidates started taking donations, Bitcoin has been a popular topic in libertarian circles in a way that it hasn’t in the mainstream.

Part of the reason is obvious. Libertarians in general are obsessed with monetary policy and thinking about money naturally leads to discovering Bitcoin. Yet Bitcoin has a technical component, which should lead a lot of technical people into Bitcoin, but many technical people have simply dismissed and continue to dismiss Bitcoin in ways that libertarians have not.

What is it that leads libertarians to get the value of Bitcoin so much faster than people with other beliefs? This article lays out exactly why smart yuppies are dismissing Bitcoin. The author is an MBA student who has wrestled with why his classmates won’t even consider Bitcoin. The conclusion he’s come to is that people who trust the system and have high IQs, that is, the “elite” people “in the know” are unable to see Bitcoin’s value proposition because of where their other beliefs are.

Libertarians are people that want to verify things for themselves and Bitcoin very much is a money that you can verify for yourself. The correllary to this insight is that as the trust in the current system erodes, we can expect Bitcoin to get more popular. If there’s anything that the previous 5 months have shown, it’s that the trust in the system is eroding and unsurprisingly, that has corresponded to a rise in price of Bitcoin.

Being long Bitcoin, in other words, is more or less being short trust in the system to fix itself.

Bitcoin

Jeremy Rubin has a well-written post on the mempool and how he thinks it should be rearchitected. As Jeremy points out, the mempool is the gate keeper to transactions getting on the network and the way fees are generally calculated and thus deserves more optimization than it currently has. The main tension here is making sure that managing the mempool doesn’t exhaust system resources in a typical node and allowing for usability. There are some excellent ideas for improving both the testing and implementation of the mempool and I encourage those who want to improve Bitcoin to work on and/or support this endeavor.

Mark Erhardt has an excellent post on how a 2-of-3 pay-to-taproot script is constructed. This is an excellent overview of how taproot scripts look and work and how much of a savings each taproot script can create. Though the progress of Taproot is slow, this is an excellent way to learn how Taproot works and how it will help.

Samurai Wallet has disclosed a couple of Wasabi vulnerabilities. Essentially, the coinjoin mixing for Wasabi cancels itself out if done consecutively. There are some assumptions in the coinjoin code that unfortunately make mixing vulnerable to disclosure. The disclosure seems to have suffered a bit from the tensions between the two companies which has been ongoing for some time. That said, the competition between them seems to have created better products for both of them, which isn’t a bad thing.

Lightning

Strike has an intriguing new cash back program. They’re taking the credit card processing fees and giving a portion back to the user, not unlike a lot of credit card ponits programs, except they’re doing so with cash. The incentives are more on the spending Bitcoin via lightning side, but this may lead consumers to keep their money in BTC and spend as needed this way to earn cash back.

Lightning Labs has released 0.11, which includes Wumbo channels! Lightning channels have been limited as a result of the software being alpha. It seems the engineers at Lightning Labs felt confident enough in its security to enable larger channels. This is great news for Lightning as bigger channels will allow for more liquidity and better routing.

Advancing Bitcoin has published a list of Lightning 2020 updates. These include a lot of the stuff I’ve been covering in this newsletter like invoice-less payments, Multi-path Payments, Wumbo, Lightning Loop and much more. Development on Bitcoin can seem slow at times, but looking at a list like this gives context to just how much continues to progress on a daily basis.

Economics, Engineering, Etc.

Coinmonks has an intriguing article on the parallels between Balinese Cockfighting and Bitcoin. Cockfighting may look like a primitive and senseless activity to promote gambling, but when you look beneath the surface, it’s a deeply significant cultural activity that preserves values. I’m not sure I buy the parallel, but the point that it’s easy for outsiders to dismiss Bitcoin due to its dark market reputation has the ring of truth.

MicroStrategy isn’t the only company keeping its reserves in Bitcoin. Tahini’s Restaurants is also keeping its savings in Bitcoin. Depending on these companies’ experiences, it will soon become irresponsible to not consider using BTC for savings for businesses.

Jordan Tuwiner has created a new way to look at Bitcoin dominance. This metric takes out ICOs, stablecoins and proof-of-stake tokens from the dominance index. The rationale is that all of those coins are completely centralized and don’t compete with Bitcoin. Currently, this dominance index is 79% vs the normally calculated 59%.

It looks like MetaMask, a popular wallet for Ethereum, is changing its license terms. They seem tired of not making money off of their creation and have resorted to IP laws to rent-seek. The sad reality of these altcoins is that developers really only participate becauseof the rent-seeking opportunities.

The BCH split is getting a little more complicated. In fact, the situation is downright confusing. Not only is there a Bitcoin Cat proposal from ViaBTC, but there’s also the fact that BitcoinABC has added a developer subsidy of 8% into their code base. Neither seem to be going over very well with the BCH community as people like Roger Ver seem to be promoting Dash as the alternative to these forks of BCH. The developers don’t seem to be getting along as this tweet from BCH developer Chris Pacia shows.

Podcasts

My podcast this week was with Max Keiser and Stacy Herbert. We talked about how the media has become more entertainment than news and how Bitcoin is becoming a safe-haven asset.

I went on Tone’s show to talk Warren Buffet, USPS and Taproot. I did a Q&A show for LVL, answering questions about their monthly subscription trading model.

Finally, I’ll be in Dallas for Bit Block Boom on August 29th. Use code “jimmysong” for a 30% discount.

Fiat delenda est.