Socratic Seminar 13

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Announcements

• Respect People’s Privacy
• Interaction And Asking Questions Are Encouraged
• Chatham House Rules
• Apply For A Bitcoin Job
• Join Our Telegram Group
• Follow Us On Twitter (@HonoluluBitcoin)
• Donate Sats
• 1st Coinkite Giveaway Tonight

Bitcoin KPIs

• Clark Moody's Bitcoin Dashboard

Market/Adoption

• Three Charged In First Ever Cryptocurrency Insider Trading Tipping Scheme

  • Former Coinbase Manager "Ishan Wahi" Arrested For Insider Trading
  • SEC Will Need to Prove Tokens Are Securities In Coinbase Insider-Trading Case
  • First insider trading case against NFTs happened last month
  • Ishan knew of Coinbase listing announcements ahead of time and told his brother and friend what to buy early, so they could dump after the announcement pump.
  • U.S. Attorney Damian Williams said, "...fraud is fraud is fraud, whether it occurs on the blockchain or on Wall Street. And the Southern District of New York will continue to be relentless in bringing fraudsters to justice, wherever we may find them."
  • The defendants made illegal trades in at least 25 different crypto assets and realized ill-gotten gains totaling approximately $1.5 million (across 14 different Coinbase listing announcements).
  • All 3 defendants looking at a maximum sentence of 20 years from wire fraud.
  • They were using "anonymous Ethereum blockchain wallets".

• Elon Musk's Tesla Sold 75% of Its Bitcoin

  • Bitcoin recovers after falling on news Tesla sold 75% of its holdings
    • On earnings call, Musk said the primary reason for the sale was uncertainty about lockdowns due to COVID-19 in China, which have created production challenges for the company.
    • Elon Musk: "It was important for us to maximize our cash position. We are certainly open to increasing our bitcoin holdings in future, so this should not be taken as some verdict on bitcoin. It's just that we were concerned about overall liquidity for the company."
    • Didn't sell any Dogecoin
  • Tesla held about 42K BTC at the start of Q2 (bought at an average price of ~$29K) but sold $936M worth of it by the end of the quarter.
  • This is more than a year after Tesla initially announced buying $1.5B worth of BTC for the balance sheet (February 8, 2021).

• June CPI Inflation Data Sets 40-Year High Of 9.1% As Bitcoin Dips

  • Last month, CPI data broke a then 40-year high of 8.6%
  • Largest price increases occurring in the energy sector, seeing fuel and oil rising almost 100%. Double-digit percentage price increases in other categories, like food and transportation.
  • Everything is getting more expensive.
  • As the business owner continues to struggle in finding a fairly priced supply, the consumer pays expeditious demands to business owners.

• Bitcoin Leaving Exchanges Hits An All-Time High

  • In bitcoin terms, June was the largest month of net withdrawals from known exchanges/custodians
    • Peak 30-day net change of about 152K BTC leaving exchanges during the 30 days that proceeded June 26
    • End-of-month net total of BTC leaving exchanges in June was about 123K BTC
  • In dollar terms, April & September 2021 and April 2022 all had larger amounts of net outflows.
  • Chain analysis is all about probabilities/estimations - can't be certain about who owns various addresses.
  • Could the exposure of counterparty risk in the crypto industry over the past few months be accelerating this trend?

• DeFi-nitely Reckless

  • Not "DeFi" directly - these are centralized financial companies making reckless investments into DeFi protocols, like Terra/LUNA.
  • Voyager Digital Files For Chapter 11 Bankruptcy
    • Voyager filed on July 6, 2022.
    • On June 22, 2022, they had already announced having large exposure to the (now-insolvent) 3AC via unsecured loans.
    • On July 28, 2022, the FDIC and Federal Reserve issued a letter demanding Voyager stop making false/misleading representations of deposit insurance status.
      • Certain Voyager affiliates have made various statements online suggesting that customers would receive FDIC insurance coverage for funds held on the platform.
      • FDIC: "Voyager is not itself insured by the FDIC... so customers who invested through its cryptocurrency platform would not receive insurance coverage in the event of Voyager's failure."
  • Celsius Files For Chapter 11 Bankruptcy With Over $1 Billion Hole In Balance Sheet
    • Bloomberg: Celsius Files for Bankruptcy After Freezing Withdrawals
      • The platform was holding about $4.3B of assets against $5.5B of liabilities as of mid-July, according to court papers (~$1.2B hole in balance sheet)
      • Under its terms of service, treatment of its customers’ digital assets in case of insolvency is “unsettled” and “not guaranteed” - customers might be unsecured creditors.
    • Examples of reckless behavior:
      • They were engaging in collateralized lending with customer deposits to invest in mining operations (through a $750M credit line).
      • They were speculating on futures contracts with customer funds.
      • They lost private keys to 35K ETH.
      • They just had a 3rd-party data breach of client email addresses
  • Three Arrows Capital Founders Speak Out After Company Implosion and Radio Silence
    • Su Zhu and Kyle Davies claim most losses were due to their trades involving Grayscale Bitcoin Trust (GBTC), Terra’s Luna (LUNA), and terraUSD (UST) tokens.
    • It is estimated that 3AC still owes about $3.5B to 27 different companies
      • Includes $2.3B to digital currency lender Genesis Global Trading
    • Ripple effects of 3AC default has revealed how ill-prepared many lenders were for negative market conditions.

Technology

• Gloria Zhao Becomes First Female Bitcoin Core Maintainer; Pieter Wuille Steps Down

  • Bitcoin Core maintainers have commit permissions to the repository and are responsible for merging contributions from other developers onto the codebase.
  • She got a pull request merged that added her PGP key fingerprint into the trusted keys file.
  • Pieter Wuille stepped down from the role by removing his PGP keys from the trusted keys files in another PR.
  • Pieter says he will continue to contribute to and review code for Bitcoin projects he is involved with.

• Fedi: Wallet Powered By Fedimint

  • Pen-And-Paper Chaumian Mints
  • Fedimint Is A Protocol Based On Federated Chaumian Mints/Banks
    • Basic idea: User gives the mint some amount of an asset, and the mint in turn blind signs an equivalent number of IOUs. User can exchange IOUs for goods/products or redeem them with the mint for the underlying asset (BTC in this case).
    • Blind signatures mean that when a mint encounters one of its own signatures on an IOU, it can't determine to whom that specific IOU was issued - helps preserve privacy of people exchanging these IOUs amongst themselves.
    • Chaumian mints haven't caught on in part because they're single points of failure & trust that are easily prone to regulations or other attacks.
    • Bitcoin is the first asset in history that can truly be held in a federated manner, enabling trust/risk in a mint to be distributed among different (potentially anonymous) peers.
    • Any group can spin up their own federation and issue e-cash IOUs with varying management/programmatic tradeoffs.
    • Mints can be interoperable with one another via the Lightning Network:
      • E-cash IOUs can be redeemed at the mint, converted to bitcoin on the Lightning Network, transferred to an entirely different mint, and reissued as new e-cash IOUs.
      • In theory, this can be done programmatically in a matter of seconds .
  • Fedi is a company building a wallet that makes it easy to use the Fedimint protocol
  • They want to provide an easier way to onboard billions of people to Bitcoin that skips over traditional custodial institutions.
  • Federated mints have better tradeoffs than custodial solutions, but full self-custody of base-layer Bitcoin should always be preferable.
  • Federated mints can be flexibly designed, but Fedi initially wants to target local communities, especially in developing countries.

• Tether, Bitfinex And Hypercore Launch Holepunch, A Platform For Building Fully Encrypted Peer-To-Peer Applications

  • Hypercore a P2P data network protocol built on signed, append-only logs - works similarly to a blockchain, but without the consensus algorithm (and thus no need for a global ledger state to be kept by all nodes).
    • Hypercore: "...for normal apps, it's often much more efficient to use a bunch of smaller data structures, only storing local data."
  • Holepunch makes Hypercore more accessible by abstracting away low-level technical details
    • It leverages BitTorrent-like computer networking infrastructure to directly connect peers together.
    • It re-implemented low-level networking protocols to independently select the best technology for highly-scalable data streams
  • Keet: First App Built With Holepunch Offering P2P Video Chat
    • Unstoppable communication - video, chat, and Bitcoin LN payments (on the roadmap)
    • It benefits from the increased performance/scalability and improved latency/privacy enabled by Holepunch - allows for distributed apps that are much more efficient than a blockchain.
    • Keet is part of a growing trend to offer decentralized, P2P applications without the blockchain hype (e.g., Jack Dorsey's "Web5" is another example, but Keet's team thinks that Holepunch offers a more flexible solution)
  • Tether also supports Synonym (led by John Carvalho) - similar goals, but Tether considers them complementary products for building the decentralized web.

• Magic Internet Money Book Leverages Mash Wallet For Pay-As-You-Go Lightning Integration

  • Mash's product allows easier integration with Lightning Network-related services (donate-as-you-go, tips/boosts, etc.)
  • Mash web wallet is custodial - easy to use for day-to-day transactions, but don't store large balances
  • Can top up LN wallet and then buy specific chapters of the digital book - allows users to try it out without purchasing the entire thing

• Blockstream Announces Draft BIP For Non-Interactive Half-Aggregation Of BIP 340 Schnorr Signatures

- Blockstream released an early draft BIP (Bitcoin Improvement Proposal) for non-interactive half-aggregation of BIP 340 Schnorr signatures.
- It allows multiple Schnorr signatures to be aggregated into a single, smaller signature off chain by a third party without any involvement from the actual signers.
- Several examples of potential applications/benefits:
- Off-chain networks could transmit aggregated signatures with lower bandwidth requirements.
- Bitcoin script opcodes requiring multiple signatures could take a single half-aggregate signature instead.
- Transactions could have a single half-aggregate signature instead of one signature per input.
- Half-aggregation may actually be preferable to full-aggregation in many cases because half-aggregation is simpler, and full-aggregation requires interaction among signers.
- The draft specification only covers the cryptographic scheme and does not prescribe a particular application
- This would be the first BIP with a formal specification, which reduces ambiguity in how particular operations might be interpreted or behave when implemented - better security assurances via formal proofs.

• TAPSIGNER Integration Is Live Within Nunchuk Mobile App

- Nunchuk specializes in collaborative multisig - making it easy for multiple people to hold different keys in a quorum and interact as necessary to sign/broadcast transactions (i.e., easier multisig where participants are geographically distributed).
- Nunchuk mobile users can now sign collaborative Bitcoin transactions by tapping an NFC card to a phone.
- TAPSIGNER is available for purchase on the Coinkite website.

- It's intended to be a signing device that favors convenience over security - decent tradeoff for part of a multisig quorum.

• Controversy Around BlueWallet's Push Notifications Feature Allowing Addresses/TXIDs To Be Leaked

- People initially thought that BlueWallet was inadvertently leaking user addresses/TXIDs, even if they had push notifications disabled - this doesn't seem to be the case.
- Push notifications are disabled by default, and users can choose to run their own monitoring server (FOSS software GroundControl) if they want notifications without relying on BlueWallet.
- From @nvcoelho: "The data used in this feature is all public addresses. No xpubs are monitored."

Mining

• Bitcoin Mining Council's Q2 Survey Confirms Improvements In Sustainable Power Mix And Technological Efficiency

  • The BMC's latest voluntary survey collected data from over 50% of the global Bitcoin network's hashrate, representing 107.7 exahash (EH), as of June 30, 2022.
  • Survey participants are currently utilizing electricity with a 66.8% sustainable power mix.
  • It's estimated that ~60% of global hashrate is derived from sustainable electricity (~6% year-over-year increase).
  • As of Q2 2022, Bitcoin hashrate increased by 137% year-over-year while energy usage only increased 63%.
  • It's hard to accurately define what energy sources are truly "sustainable".
  • Where's Elon Musk? When Tesla stopped accepting bitcoin payments due to energy concerns last year, they said they'd resume accepting BTC once there was confirmation that ~50% of mining came from renewable sources and would continue trending in that direction.

• Public Miners Start Selling Bitcoin Treasuries

  • On July 5, 2022, Core Scientific (third-largest publicly traded bitcoin miner) announced selling 78.6% of its bitcoin holdings (7202 BTC)
  • Bitfarms sold over 3000 BTC at the end of June
  • Riot Blockchain produced 421 BTC and sold 300 BTC in June
  • Previous bear market miner capitulation periods saw hash rate drawdowns of over 25% from previous highs.
    • Currently, hashrate is only down ~13% from ATH - more pain could be on the way.

• Three Downward Difficulty Adjustments In A Row

  • Hashrate & Difficulty - mempool.space
  • The last 3 difficulty adjustments were -2.35%, -1.41%, and -5.01%, respectively.
  • Four of the last five difficulty epochs have had negative adjustments.
  • The next adjustment is currently estimated to go up ~4% (still about a week away).
  • Downward BTC price pressure has pushed the hashprice down with it to a low of $0.08 TH/day in mid July.
    • Hashprice is the market value assigned per unit of hashing power. Hashprice is measured by dollars per terahash per second per day ($/TH/s/d).
  • Many miners are turning unprofitable due to consecutive months of high energy costs and low bitcoin price - those that can't stomach the loss are having to sell assets.
  • The price for ASICs as measured in dollars per terahash has been absolutely cratering, reaching levels not seen since late 2020.
    • Miners are having to sell their machines to cover expenses and debt obligations.
    • Currently, tens of thousands of ASICs are sitting in warehouses, not plugged in.
    • This ASIC firesale presents an incredible opportunity for anyone in the mining industry with significant capital and the ability to execute - resources are transitioning from poorly managed businesses to more resilient miners.

Coinkite Giveaway #1

• "Guess the Nonce" Google Form

  • Submit guesses ahead of time (only if you plan on attending the meetup)!
  • A specific block will be chosen at the meetup and its nonce will be compared to all submissions - closest guess wins
  • Video Explaining What A Nonce Is In Relation To Bitcoin Mining
    • A "nonce" is a "number used only once".
    • Miners are continuously hashing block data when trying to "win" the block lottery. The nonce is an extra field that can be repeatedly modified to produce entirely new hashes without changing the actual transaction data in the block.
    • Miners keep changing the nonce to generate new hashes, ultimately trying to get close enough to the difficulty target.

Optional Topics

• Senate Bill To Exempt Tax On Small Bitcoin Transactions
• Twitter Vulnerability Exposed Emails And Phone Numbers From 5.4 Million Accounts, Which Are Being Sold Online
  • Official Twitter announcement from 2022-08-05
• The Nostr Protocol
  • Joinstr: Coinjoin Implementation Using Nostr Protocol
  • Bullrun: An Open Protocol For P2P Services Powered By Bitcoin & Nostr
• pLN: New Wallet Project That Aims To Make Private Lightning Network Payments Easy
• Robinhood Enables Bitcoin Transfers
• El Salvador Buys The Dip, Adds 80 BTC To Treasury
• OpenNode Partners With Lemon Cash To Enable Bitcoin Lightning Payments
• MicroStrategy Purchased An Additional 480 Bitcoin
• Nubank, Brazil's Largest Bank, Brings Bitcoin Purchases To ~54 Million Customers
• ZEBEDEE Raises $35 Million For Bitcoin Gaming
  • Doesn't operate in HI

Obsidian Note Links

• Three Charged In First Ever Cryptocurrency Insider Trading Tipping
• Elon Musk's Tesla Sold 75% of Its Bitcoin
• Bitcoin recovers after falling on news Tesla sold 75% of its holdings
• Inflation Sets New 40-Year High of 9.1%, Bitcoin Fights To Hold $19,000
• Half-Aggregation of BIP 340 Signatures
• Q2 Bitcoin Mining Council Survey Confirms Year on Year Improvements in Sustainable Power Mix and Technological Efficiency
• Public Miners Start Selling Bitcoin Treasuries
• Marty's Bent (Issue 1240) - Another downward difficulty adjustment is on the way