Moral Hazards of Centralized Leadership. Bitcoin Tech Talk #256

I left my church about a year ago in large part because of their promotion of some doctrine that I disagreed with. I recently met with some people that also left that church and found out that the elders of the church reversed course and no longer were supporting that doctrine. The catch is, they never announced this to the church and essentially washed their hands of the whole thing. On one hand, I’m glad, because that particular piece of doctrine was clearly wrong and I want my friends that remain there to do well. In another sense, though, I’m angry because they won’t admit their mistakes.

This is, unfortunately, the norm today because everyone in any leadership capacity is afraid of looking weak. Admitting mistakes is a good way to give ammunition to your opponents, and as a result, the truth becomes a casualty to political expediency. At heart, this is the problem with almost every centralized institution, that the leaders care more about power than they do about the good of the people they supposedly lead.

This is most obvious in large organizations like governments. Entire bureaucracies are set up and defended in order to “not look weak.” The Department of Education, the Department of Energy and the Transportation Security Administration are just a few of the many mistakes that our leaders refuse to own up to. What’s worse, once such bureaucracies get entrenched, they have their own momentum in the form of rent-seeking dependents which keep them going despite their clear lack of value. Unless large financial pressure is brought to bear and sometimes not even then, the organizations rot from the center. And indeed, because of the ability of government to print money, this rot is particularly bad.

I know that you, dear reader, know this. Big organizations have lots of rent-seekers, corruption and theft, what else is new? Isn’t politics a part of normal, everyday life? I’m writing this because the problem isn’t politics, per se. Politics is an emergent property of something else, namely that of “public” property. Whenever there is ownership “shared” we get struggles for power, ladder climbing and all the intrigue that is associated with politics.

Even in small organizations, decision-making generally centralizes around a few people. Those few people, whom we call leaders, may be part-owners, but also get to make decisions on behalf of the entire community. And this is where we get moral hazards since the leaders can benefit themselves at the cost of the community. The benefits don’t have to be that great and the cost paid can be pretty dear. Case in point from earlier, leaders often keep stupid programs going because they don’t want to admit to mistakes.

This is how we got to where we are with the current financial system. The whole system is chock full of moral hazards and leadership positions, therefore, become very profitable. Unsurprisingly, this results in giant wealth inequality which leaders blame on everything other than their own decisions and the public is deceived via propaganda.

The reason centralized systems have such high failure rates is because people are not saints. Too many leaders take advantage of moral hazards and don’t even blink twice. Some would say that this is the explicit goal of most leaders. Decentralized systems are more moral specifically because it takes away the moral hazards of leadership positions.

Bitcoin

For potential Bitcoin Core contributors, @josibake has written up a testing guide for the 0.22.0 release. This is a great way to get started on testing a Bitcoin Core release candidate and a good exercise in getting to know a lot of the functionality that Bitcoin has. The guide covers connecting to TOR, using the HWI and much more. Highly recommended for those that want to learn some of the interesting, newer features of Bitcoin Core.

Jeremy Rubin explains a bug he found and put in a PR for. The post explains what NOP op codes are, how CSV was previously a NOP and how that wasn’t handled properly in the mempool code. As there are bits from the sequence field of transaction inputs that are not currently used, there is potential for them to mean something later. His pull request is essentially fixing this.

Braidpool is a potential peer-to-peer mining protocol to displace the largely unused P2Pool protocol. The concept is intriguing in that it’s using lightning channels to do the actual payout. The actual protocol uses a Directed Acyclical Graph (DAG) to figure out the shares that each participant found and use that to compute the percentage of the reward. It’s an intriguing method as most pools are based on trust relationships between the mining equipment owner and pool operator.

Congrats to Marco Falke on becoming the core contributor with the most commits! He’s been a maintainer for about 5 years now and he’s as tireless as they come.

I recently discovered a whole newsletter dedicated to Bitcoin privacy that publishes once a month. Many of the topics have been covered in this newsletter, but some have not. I would encourage any privacy advocate to subscribe to that one as well.

Lightning

Lisa Neigut details what a potential miner attack on Lightning would require. Her article starts by describing what miner extractable value (MEV) is. This is mostly a term from Ethereum as miners there are able to reorganize the Ethereum blockchain for profit. Lisa asks the same question for Bitcoin miners and whether reorganization would ever be a profitable proposition given the economics of lightning channel closes. Her conclusion is that the information necessary to profitably reorg the Bitcoin blockchain is rather hard to come by, and is normally only valid for channels opened by the miners themselves.

Twitter seems to be beta testing Lightning tipping. This was popular about two years ago with tippin.me, but that app seems to mostly have stopped. Native tipping functionality would be very interesting as it would provide natural Sybil-resistance. My tweets are bombarded by obvious scammers and anything to prevent those would be very welcome. Something like a 100 sats/reply or quote retweet that gets refunded if I don’t block them would be ideal. I really hope this happens.

Thundercloud is a way to host a lightning node cheaply on the cloud. This is not a turn-key service, but is reasonably easy to get everything going. It is somewhat subject to the whims of your cloud provider and cloud is really just a synonym for someone else’s computer, anyway. Regardless, for digital nomads that want to experiment with lightning, this may be a good option.

Lightning Network has its own jobs board. I’m struck by how many roles are available and not just developer jobs. There are tons of different types of roles and it’s very clear this is a growing industry. Just looking at the amount of stories that are LN related in the past month or so, there is significant traction and a bright future ahead.

Fold is planning to pay out all their rewards using lightning starting in 2022. This is probably a way for them to reduce fees while also making for a better user experience. Fold is one of the more popular Bitcoin products out there and it doesn’t surprise me that they’re getting into the Lightning game. Now if only they’d allow deposits to their debit card using Lightning…

Economics, Engineering, Etc.

Zack Voell explains why ASIC machines are starting to go up in price again. As Zack explains, the prices correlate with Bitcoin price pretty well, but the main reason seems to be that a lot of Chinese miners who have been kicked out of China are sitting on their ASICs instead of flooding the market. They are hoping either for hosting facilities to materialize outside of China or for the price to keep going up so they can slowly liquidate their machines without suffering a big loss. I find their optimism both bullish and worrisome. It’s possible that their competitors may dump a bunch of coins on the market in order to get them to capitulate and sell.

This is a really interesting story of how Bitcoin and Tether are affecting Lebanon. As the economy there has collapsed, Tether has become the go-to remittance option for a lot of people there. Given that it’s pegged to the dollar and that the dollar is the currency most desired by most people in the world, this makes sense. I suspect that this is the pattern that we’ll see is that most will start with some dollar stable coin and pivot to Bitcoin once they get used to it.

Congressional Candidate Aarika Rhodes (D) makes the case for better financial education and better Bitcoin support. Her candidacy is particularly interesting because she’s running against Brad Sherman from CA-30, who is a well-known advocate of the dollar hegemony and a huge Bitcoin opponent. For Bitcoiners this will be a highly anticipated race as her winning will send a big message to everyone in Congress that Bitcoin is not to be trifled with.

Peter Hanley has written one of the most intriguing articles on the origin of money I’ve seen. He argues that rendered animal fats were used as money because of their clear utility in pre-historic times. One of the consequences would be human greed at work essentially hunting large animals to extinction because of their high fat content. Given that many peoples of various regions are very much cognizant of hunting too much, this thesis makes a lot of sense. Worth reading for those that like pondering monetary history.

Jerry Feng has an entertaining article on why everything of value is really energy of one type or another. I really enjoyed the framing which was about preserving value over time. He connects some technological advances such as salted meat, refrigeration, oil and so on to show why Bitcoin has significant value. Good article to reflect on.

Brahm Cohen’s invention, proof-of-space-and-time seems to be a flop. His coin Chia has dropped almost 90% against Bitcoin and many of the miners are selling their SSDs as the linked story shows. Much like Grin and other MimbleWimble coins, VCs seem particularly susceptible to innovative-sounding coins with a technical founder. I don’t think they’ve realized that it’s really all a marketing game to retail and tech has nothing to do with it.

Quick Hits

Vast is the first US Bank to offer Bitcoin buying and custody.

IMF thinks Bitcoin is a bad idea.

A NYT reporter made an altcoin called Idiot Coin and… yea, it mooned.

Another week, another DeFi “hack” and government regulation action against an altcoin.

Another year, another Chinese “crackdown” on Bitcoin.

Events

There’s an online Christian conference that I have recorded a video for called Faith Driven Investor Conference that’s on September 8-9. I will be in Miami for the Oslo Freedom Forum October 3-6 and in Atlanta for TabConf on November 4-5. Unfortunately, I had to cancel the event in the UK as there’s a 10 day quarantine required.

The Programming Blockchain seminar is in Atlanta, GA on November 2-3. 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 Doug Stuart about Christianity and Libertarianism. We talked about why Christians should consider libertarianism and how it fits with Bitcoin.

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

I talked about the new book with Invest Smarter, Mission Bitcoin and Charles Moscowitz:

My other books are here.

Unchained Capital is a sponsor of this newsletter. I am a proud advisor and 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.