Mental Shift after Breaking $20k. Bitcoin Tech Talk #219

We broke past $20,000 this week and everyone is celebrating! Not only did we get to an all-time high, but we raced past $24,000, which even a few years ago seemed very far off. The fact that we passed through $21k, $22k and $23k without so much as a bathroom break points to the fact that those numbers didn’t have the psychological significance that $20,000 has. In other words, we have had a relatively easy time of it since $20k broke.

This is not very different than previous all-time highs when breaking the previous all-time high from more than 6 months ago would trigger a nice bull run. Usually, each one was marked by an order of magnitude increase, topping out at a then-crazy valuation. What’s different this time is that there’s expectation. Perhaps it’s due to planB’s s2f/s2fx model, but whatever the reason, the market is expecting the crazy valuations instead of thinking that things are overheated. $100 BTC looked crazy in 2012. $1000 BTC looked crazy for most of 2013. $10000 BTC looked crazy in 2016. $100,000 BTC just doesn’t seem that crazy in 2020.

The market, in other words, has higher expectations this time and $100k BTC seems to be on the low end of predictions. Has there ever been this many believers? This many holders?

What seems to have happened in 2020 is that the collective Bitcoin holder resolve has stiffened considerably. Much like a really good sports team, there’s an expectation by holders that they’re going to win and win big. All the weak hands that wanted one-time 2x-4x gains are long gone and unlikely to come back except as hardened holders. The weak have been culled and Bitcoiners are ready for the next challenge.

In a sense this is what is needed for Bitcoin to get to the next level. Bitcoin needs strong holders because the temptation to sell is ever-present. By having a 3-year bear market, the holders are not weak hands that want to break even, they want to break the entire system. In other words, they ain’t sellin’ and that means there’s little supply and clear air up ahead.

Bitcoin

Ruben Somsen has a new proposal on Spacechains. This is an update to the one-way perpetual peg idea and relies on Blind Merge Mining. Essentially, the native token of a Spacechain would be burned Bitcoins. It’s an update to the sidechain idea without the possibility of the coins coming back to Bitcoin. The use cases that Ruben mentions in the presentation are decentralized services, such as a decentralized DNS and colored coins. I can see it being a good way to do decentralized identity/PGP replacement as well. It’s an interesting way to add decentralization to a project through Bitcoin’s decentralization, and any honest blockchain project should be using this instead of scammy tokens.

Andrew Chow has proposed some upgrades to PSBT that are not backwards compatible. The main reason is to make PSBT more compatible with timelocked transactions. This includes locktimes at the transaction level and various unlocking mechanisms at the input level. The idea is that PSBT will be able to sign lightning funding transactions and so on. I would love to see this modified to have a testnet flag as well.

Pieter Wuille has proposed a different bech32 system for Segwit v1 (aka Taproot). He and Greg Maxwell apparently spent a considerable amount of CPU time to figure out the optimal constant to get the maximal error correction. The writeup is worth reading about how they did the research.

Lina Seiche has a nice profile of Core contributor Gloria Zhao. The interesting part for me is how her mentality has changed. She had offers from Facebook, Google, etc, which she calls “fiat.” The profile is interesting for a variety of reasons, about the path she took and the breaks that she got along the way to get her to the position she is at now, contributing to Core with a fellowship at Brink. Aspiring core developers would do well to study what she did.

Lightning

Kraken has announced Lightning integration. The actual integration will be implemented in 2021, but the move shows their priorities and will be received positively. Unlike, say, Coinbase or Binance, they’re actively supporting the Bitcoin ecosystem and making the exchange better for Bitcoiners. Altcoins have been the profitable move for most exchanges, but this shows that this next bull run may not be all about alts. Differentiation in Bitcoin is going to be important for the new mass of people coming in.

River Financial now has an education section on Lightning. This is another company that sees the value of appealing to Bitcoin-only holders. I suspect this means they will do more things with Lightning. For example, how nice would a messaging app that’s e2e encrypted integrated with a phone Lightning node be? There would be some trust to River, but it would make Lightning that much more useful.

Lightning Labs has an excellent newsletter to keep up with all of the interesting developments. The newsletter is published monthly and they have updates from all the major projects in the space.

Economics, Engineering, Etc.

Parker Lewis continues his Gradually then Suddenly series with Bitcoin is the Great Definancialization. This has been published as part of Bitcoin Times Edition 3. The main insight here is that the current system requires everyone to be perpetual risk-takers and Bitcoin changes the equation. The risk-taking management is a large part of what the “financial services” industry is, so making that much less prominent in today’s economy would be a huge boon for productivity.

Sylvain Saurel has made a list of the Ten Bitcoin Commandments. As you can see above, these are very practical things for new Bitcoiners to remember. As people get into Bitcoin, keep information like this, that’s understandable and easily actionable in mind so you can point them to the right path.

Pierre Rochard has a legislative proposal for the US government to the Bitcoins they seize. Don’t sit on something like this. This could be a huge hedge for the US government in a post-dollar world and may make the transition to a Bitcoin standard a lot less violent.

FinCen has proposed a new rule regarding “non-custodial” wallets. Apparently, the new rule only applies to amounts greater than $3000/day. This is probably aimed at richer people to prevent tax dodging or something similar. There’s at least 15 days of public comment, and possibly more hurdles before a rule like this can be adopted, but it should be resisted as passing it will invite more regulation.

Micro Strategies has been in Bitcoin news for the past 8 months and Hanson Birringer has compiled all that they’ve been doing. What’s crazy about the report is that the Bitcoin profits in just the last 6 months is roughly equivalent to decades of profits. There will be many CFOs that will read this and at least a few will start loading up. Which, is happening already as one fund this week announced they bought Bitcoin. Make that two.

Another week, another DeFi hack.

Podcasts

My podcast this week was with Vijay Boyapati about Libertarianism. We talked about their his work for Ron Paul and what soured him toward politics. His passion for liberty is obvious and his thoughts on the crossover between libertarian thinking and Bitcoin were inghtful.

I was on Tone’s show to talk about Bitcoin breaking $20k.

My new book making the moral argument for Bitcoin from a Christian perspective is out! My friend and NFL Left Tackle Russell Okung wrote the forward. I was with 5 of my co-authors on the Noded podcast.

My other books are here.

Fiat delenda est.