S2FX! Could BTC Really go to $288K? Bitcoin Tech Talk Issue #186
One very strange phenomenon in economics is the one of Veblen goods. These are goods whose demand goes up when the price goes up. Normally, price has to go down in order for demand to go up. One of the intriguing examples of Veblen goods might be monetary mediums, such as Bitcoin. It is in this context that the feature article for today adds to the development of an economic theory around Bitcoin.
Specifically, we may be learning more about economics through the stock-to-flow model. The intriguing new article from PlanB analyzes Bitcoin from a different perspective, that of phase transitions. As the stock-to-flow reduces Bitcoin seems to cluster around a new usage, which PlanB calls a “phase transition”, like ice/water/steam.
As saifedean writes in this tweet, what we normally call Veblen goods may just be the market finding new uses for the good. That is essentially the evidence that we get in PlanB’s article and his idea of phase transitions.
This brings up the possibility that the next price rise won’t happen until the phase transition is ready. That is, the stock-to-flow ratio at a particular number creates some demand for Bitcoin for one set of uses and that at another number creates other demand. What we don’t know are the demands at various ratios, though if gold is anything to go by, there’s some market demand at that particular stock-to-flow ratio.
What all this means is that the timing of the next price rise is not certain. It may be shorter than the previous halvenings if there’s significant demand for a 50 s2f asset or that it may be longer if there’s significant demand only for a 100 s2f asset. In other words, the we don’t know where the next phase transition is. Still, this is excellent data to do more research on.
Bitcoin
Amiti Utarwar has been publishing some really informative comics to explain Bitcoin in a fun way. The latest is on the mempool. In it, she explains what an orphan transaction is, what child-pays-for-parent (CPFP) is and the various conditions of what’s allowed and not allowed in a mempool. It’s an excellent explainer and I look forward to more of them.
There are some issues with PSBTs (Partially Signed Bitcoin Transactions) in the sense that they’re fairly large and transferring them into an air-gapped wallet (like ColdCard) can be problematic. Using some sort of USB key or SD card has the potential to infect the air-gapped hardware, and QR codes don’t transmit enough data to make PSBTs work. Christopher Allen has created an issue on his Blockchain Commons Github repository to work through all of the possible ways to solve this. Animated QR codes would indeed be interesting as a way to transmit a large amount of data.
Blockstream has a new release of Esplora, their Bitcoin block explorer. As this is an open source project, it’s a great way to be able to not just run your own node, but also query against your own node instead of relying on third parties that may be logging your information. One of the more exciting updates is the ability to use Esplora as the back-end to c-lightning. There are more stats about Liquid as well.
Glassnode Insights has a bunch of metrics related to Bitcoin holding which are analyzed nicely in this article. The metrics seem to show that a lot more people have been biased toward holding coins themselves the last couple of months. This is not surprising given the spike of interest since the March 12th drop. This seems to bode well for Bitcoin price going into the halving in about a week.
Lightning
lnd-0.10 has been released. Among other things, you can now send multi-path payments (using capacity from multiple channels you have open), PSBT support (allowing funding LN channels from hardware wallets), and allows for safer channel closes with Anchor Commitments (allowing fees to be bumped by either party). There’s also a host of other developer improvements and bug fixes which are detailed here.
c-lightning-0.8.2 has also been released. One feature is large channels, which is affectionately called Wumbo (from a SpongeBob episode referenced in the screenshot above). They have tentative support for key-send (sending money without an invoice), but for receiving only. There’s also the integration with esplora as mentioned above. All the details are in this post. Lightning continues to rapidly advance in maturity and features, perhaps just in time for the halving!
Economics, Engineering, Etc.
Parker Lewis continues his series Gradually, then Suddenly with Bitcoin is Common Sense. He makes the argument that experts in particular have been conditioned to see money as only coming from a central bank. He rightly points out that to anyone not conditioned in Keynesian brainwashing easily sees through the farce and sees that a fixed limit hard money like Bitcoin makes infinitely more sense than fiat money.
Jameson Lopp has written on Bitcoin memes. He makes the interesting connection that money itself is a sort of a meme, or metaphysical information transfer. The variety of references he cites and the oldness of some of these memes reflects his status as a true Bitcoin OG. The whole idea that memes have sociological power is not really understood by anybody, but nevertheless known to work. I hope as memes continue to show their power that more research will be done in this direction.
Dergigi has written a letter to his precoiner friends and family. The article sums up Bitcoin’s value proposition very well, but more importantly, it’s a call to action to start stacking sats immediately as a hedge. It’s well written and a good resource to send to people who are asking questions about the insane money printing going on.
Barry Silbert’s Grayscale investments apparently has been buying 50% of all new ETH coming into existence. As the article rightly points out, this may be a way to increase its stake in preparation for proof-of-stake in the future. It also shows that ETH ownership probably isn’t that diversified and its price is probably more fragile than people realize.
Podcasts, etc.
Last week’s show was on how security is difficult. I also did a readthrough of A Cypherpunk Manifesto.
My books are available if you want something to read if you’re still quarantined.
Fiat delenda est.