Taking the Long View on Bitcoin. Bitcoin Tech Talk Issue #197
It’s funny how a few weeks of stable Bitcoin prices have brought in the brigade of people complaining about how “boring” Bitcoin is. These are usually the same people that talk about how volatile Bitcoin is during times when it goes down and how Bitcoin is a bubble during times when it goes up. With some people, they will use any excuse to hate on Bitcoin.
It’s useful to reflect on where Bitcoin is during times like these as it’s very tempting to do something foolish, like invest in the latest hard-to-understand DeFi product or nonsensical professor coin. Bitcoin has come a long way since its inception 11.5 years ago. In that time, Bitcoin has gone from nothing to being the 35th largest currency by market cap in the world.
In the past 5 years, countries like Turkey, Egypt, Croatia, Vietnam and Sri Lanka have increased their fiat currency supply by more than 100%, effectively halving the stored value of everyone unfortunate enough to keep the money in their currency. Even more stable countries like the US and South Korea have expanded by 53% and 44% respectively.
By comparison, Bitcoin has expanded by 27%. The next 5 years will be less than 7%. Bitcoin already is a much harder money than fiat currency and it will get even harder in the future. It is this property that causes more demand and ultimately, a higher price. In other words, the long term view is bullish and knowing that helps us to avoid the temptation of risky short-term yield.
Bitcoin
Taproot is back on everyone’s radar after a couple of very good Reddit posts. The first is the activation path to Taproot, which describes the history of soft fork activation, the difference between BIP8 and BIP9 and the current proposed path of “Modern Softfork Activation” which consists of doing a 12-month BIP9, then 6 months of discussion followed by a 24-month BIP8. So while Taproot could be activated relatively quickly (a minimum of 2 months after release), it could potentially also take something like 3.5 years.
The second post is about why Taproot is beneficial. For single-key users, Taproot does no harm, for multisig users, Taproot is beneficial (that is, cheaper), blocks will be slightly smaller as a result and for any more complicated security setups (say a multisig backup), Taproot is a giant win. Furthermore, once Taproot is activated, we can have as a next soft fork something like cross-input signature aggregation which would economically incentivize coinjoins, further anonymizing Bitcoin.
Gloria Zhao has published a great piece on the Bitcoin network topology. In it, she describes the difference between fully validating nodes, archiving nodes, mining nodes and light clients. She also explains the connections between them and the network communications between them and the full map of the network and how it all works. For anyone curious about the actual network piece of the Bitcoin network, this is a must-read.
Shinobi has published an assessment of address reuse using Samurai Wallet’s Whirlpool. Samurai has responded with its own assessment. Essentially, the two seem to agree that the address reuse in the coinjoin was limited, but still very undesirable. Samurai are taking steps to make it more difficult for users to reuse addresses.
Lightning
Zap has secured a $3.5M round, which they’ll use to expand their operations. If you want to work on the lightning network, they’re hiring and they have a really cool product, Strike, which I think will make waves.
Economics, Engineering, Etc.
Clark Moody analyzes 10 years of Bitcoin Market data. He’s been collecting data for many years and gives a pretty nice bird’s eye view of what this industry has been through. His dashboard remains second to none for its completeness in all things Bitcoin price related.
As suspected, Ethereum is extremely easy to de-anonymize according to a new paper from the Institute of Computer Science and Control. This isn’t a surprise since Ethereum uses an accounts based system which makes any anonymizing very cumbersome and links very easy to analyze. The paper has several pretty straightforward de-anonymization techniques which make identifying the identity of Ethereum balances pretty easy.
Twitter was hacked this week, apparently through an employee posting credentials in an internal slack channel. The result was a lot of high profile accounts which were taken over and posted a simple scheme where users were promised returns if they sent money to a Bitcoin address. Twitter has posted a report of the security breach where they revealed that 8 accounts had their entire DM history downloaded by the hackers.
A couple of bills before congress are scary for the prospect of privacy. The first is a bill essentially requiring a backdoor key to any encrypted messaging. The second is a bill to make corporations liable for what their customers do if they don’t provide a backdoor key. Both are targeting centralized platforms as they seek to put pressure on the tech companies themselves. This has been a tried and true strategy for lawmakers, but the advent of things like the Lightning Network and end-to-end encrypted peer-to-peer communication between nodes should have an obvious audience should these bills go through.
IOTA continues to make a convincing case for not rolling your own crypto. Previously, their hash function, Curl, was proved to be broken by researchers at MIT. This time, their new hash function, Kerl (what an original name!) was found to have trivial hash collisions. This is also the coin that has had multiple stoppages because the centralized coordinator was down or being investigated for a hack.
Podcasts
I started a new podcast series called “Bitcoin Fixes This” and my first interview was with Stephan Livera about the nature of work. I have ones coming up with Alex Gladstein, Parker Lewis and Saifedean Ammous among others.
I was on Tone’s show to discuss bailouts for crypto companies, Ethereum 2.0 being delayed and ADA’s ridiculous assertion that it’s more decentralized than Bitcoin. I did another show with Tone Vays on Taproot, Twitter hack and many other things.
Finally, I did an interview with CoinMarketCap, which was published on their blog. In it, I talked about how Bitcoin is more money and less technology, my regrets about altcoins and blockchain projects and advice for developers getting into this space.
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Fiat delenda est.