PayPal and Bitcoin, a history. Bitcoin Tech Talk Issue #194

PayPal has been, for many, the money of the internet since its inception in the 90’s. The product was revolutionary in allowing individuals to send money over the internet to other individuals and the people that created the company would become legendary founders of other silicon valley companies.

The problem with PayPal, from the very start, was its having to conform to the regulatory environment around money. As anyone dealing with financial transactions can tell you, there’s a giant cost to complying with regulations. As a result, the company had to be very aggressive with prosecuting anything that looked like fraud and the stories around how users got screwed by PayPal are legendary (see next cartoon). It’s profitable to be in the middle of every transaction, but it’s not great for the user.

PayPal and Bitcoin have had an interesting relationship. Back in 2010, there were users trying to sell Bitcoin for USD using PayPal. PayPal quickly shut that down. PayPal was also inadvertently the reason that Bitcoin got on the map. Again in 2010, PayPal froze the Wikileaks donations account, due to pressure from the US government. As a result, Wikileaks had to find an alternate way to fund itself and found Bitcoin. Those early donations to Wikileaks still funds it to this day.

10 years later, it’s all come full circle. PayPal is getting into the Bitcoin exchange game. This is a development that was all too predictable given Venmo competitor CashApp’s success. Peer-to-peer payments is not an easy thing to monetize and this looks like the most straightforward path to making money off the many users already using Venmo. This positions PayPal to eventually settle in BTC instead of USD for certain types of transactions. This may be very useful in hard-to-navigate regulatory environments where PayPal still doesn’t have a presence.

This bodes well for Bitcoin and possibly PayPal as there’s a path for their profitability post hyperbitcoinization.

Bitcoin

A new paper brings up some security concerns about HTLCs (hashed timelock contracts), which are the basis of Lightning and many others. This is an interesting attack, but as pseudonymous developer ZmnSCPxj points out, the main assumption in the paper, that miners are not short-sighted, renders the game-theoretical attack invalid. Still, it’s an interesting analysis and worth considering.

BTCPayServer has released a new version with some interesting features. These include notifications of various events (like payments), the ability to do pull payments (allowing your counterparty to take payment at their convenience) and an automatic refund mechanism. This last feature is in stark contrast to BitPay, which failed miserably in imposing BIP70 (which includes refunds) on the community. The difference is largely due to the fact that BTCPayServer is open source and BitPay is a for-profit company. Thankfully, the advantage BitPay has is nullified somewhat by companies like Kraken supporting BTCPay.

Speaking of BTCPayServer, Venezuela is taking Bitcoin payments for passport applications using BTCPayServer. This is particularly interesting given that BTCPayServer is being used by HRF to subvert governments like Venezuela. The fact that such adversarial organizations use the same software speaks to how powerful Bitcoin is.

A nice site for newbies is out called bitcoinlessons.org. This is an app on iOS and Android to give short, bite-sized lessons on Bitcoin. 11 lessons cover everything from what money is to how Bitcoin is different. This is an excellent resource for your nocoiner/precoiner friends.

Bitcoin UX is getting some attention with Square Crypto taking the lead. Designers can apply for grants with Square to help make Bitcoin’s UX much better. Dan Held was in a long conversation with Peter McCormack on this very topic. UX in Bitcoin definitely has a long way to go and progress in this area definitely deserves some consideration.

Lightning

damnkewl has a written an instructive post on hooking up LND to Dojo to make your Lightning Channels more anonymous. The guide is thorough and connects everything through TOR. The idea is great, though the setup looks a little too involved for newbies. That said, if you want private lightning channels (that is, not trusting anyone), this is what you’ll have to do.

A new paper and blog post describe something called a flood and loot attack on the Lightning Network. The attack forces many channels to close at once, “flooding” the blockchain with lots of transactions, making it easier to cheat. It’s not an easy attack, though, given the number of nodes that the attacker has to set up. That said, the mitigations from the paper suggest that lowering the number of HTLCs in play and earlier closure of channels would be helpful. I suspect that some miners may end up prioritizing justice transactions if they could be easily identified and split some of the profit with the victim if an attack like this becomes popular.

Economics, Engineering, Etc

Will Binns, longtime contributor to bitcoin.org has now been removed by Cobra-Bitcoin. He’s responded with his side of the story. Binns has been a solid contributor to the documentation on bitcoin.org and it’s strange to see him treated this way, given that he was being considered for the role of managing bitcoin.org upon Cobra’s retirement later this year.

There’s an interesting site listing how many coins of one network are being represented in another. For example, BTC on the Ethereum network, LTC on the Binance network and so on. Not surprisingly, BTC is the most popular asset being cross-listed and the Bitcoin network does not list any other coin. This goes to show that Bitcoin is the asset that matters to every other coin, but not vice versa.

Telegram is finally done with their token TON. The post comes off as very self-serving and argues that the token holders would have had shares in a “gold mine”. It looks like the US DOJ stepped in to sue on behalf of the US shareholders and that, unfortunately will be the lesson learned by everyone, not that ICOs are useless cash grabs.

Podcasts

I did a talk for ChainTalkTV on how Bitcoin changes incentives.

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Fiat delenda est