Bitcoin Briefly is Back
Newsletter #27: 2024-03-30 - 2024-04-05
It’s min a while since newsletter 26, hasn’t it? Bitcoin is up over 8x since then and it’s also April 5th - Satoshi’s 49th birthday and the anniversary of Executive Order 6102, which banned Americans from owning gold.
Here’s what I’ve seen in Bitcoin this week. Today’s newsletter starts with scaling debates, then dives into other updates. My opinions are in italics.
DM me your thoughts & feedback.
Scaling
Stop prematurely optimizing scaling solutions?
Craigraw voiced concerns around prioritizing scaling solutions too quickly and how it can erode self sovereignty (eg. self custody; permissionless access). “We have this overwhelming demand in the bitcoin community that we must scale. But I’m not sure that that is the overwhelming need.” Craig believes we should focus less on mass adoption (eg. Shared UTXOs via Covenants) & more on privacy (eg. Cross Input Signature Aggregation CISA). Max Tannahill adds: “At what cost to Bitcoin are the current pursuits towards shared UTXO ownership, custody and federated models?”
There’s been some follow-on discussion around
Shared UTXOs: Vortex, Hugo / Hugo, Alex Berge, Alex Gladstein, Brandon Black - Rearden, Salvatore Ingala, Peter Todd, ZmnSCPxj jxPCSnmZ
Covenants: Jeremy Rubin
CISA: Olaoluwa, Rearden, Alex Gladstein, Ben Carman, PolyD
But let’s zoom out - what are we prioritizing in Bitcoin and is there demand for it beyond developers and VC narratives? Why are people in such a hurry to push changes? Even though “upgrades” have good intent, they often invite unintended consequences, especially when we rush and forget to zoom out. Unless there’s a critical bug that needs a fix ASAP, we should move slowly. Beware those who demand urgency; there are likely conflicts of interest. Bitcoin is here to stay for a long time - don’t rush it unnecessarily.
Watch: Michael Saylor - The moral hazards of introducing changes to Bitcoin's base layer
Are self-sovereign UTXOs for everyone?
Wave believes the statement, “not everyone is going to custody their bitcoin,” is a statist trope. Alex B laughed at the notion that everyone will become a “Sovereign Individual,” noting that (1) self custody is not a right, (2) Bitcoin will create another elite, and (3) the poor can use gold if they want self custody. Noosphere888 added that the book mentions only 100 million sovereign individuals, not billions, and Francis Pouliot agreed that only “the ones eager to bear the weight of responsibility are able to do so”. Optimistically, Michaël Roerade mentioned this elite won’t be able to use the Cantillon Effect (the uneven effect of inflation) to drain value from the masses.
Not everyone wants to self custody. Cypherpunks like Eric Voskuil and Vlad Costea voice valid concerns around the shifting culture of Bitcoin from (1) an accessible “F the state" medium of exchange to (2) the elite’s store of value that only a minority can self-custody… but this happens when you “cross the chasm”. Seems like some of the early Bitcoiners are upset Bitcoin is going mainstream (hipster maximalism) and you can see the BCH crowd entering the conversation. “The big blockers are back already and trying a round two. This time apparently with Bitcoin Core in support.” - Luke Dashjr.
Watch: Samson Mow - How much Bitcoin should people have?
Should we filter transactions?
AJ Towns previously suggested that Core might prioritize IBD improvements (eg. utreexo) if the UTXO set surpasses 20GB. Asanoha criticized ordinals' impact on the UTXO set (10GB), stating it already hinders Initial Block Download (IBD), node running on Raspberry Pi 4s, and undermines decentralization. This reignited debate.
The pro-filter faction argues that Bitcoin should maintain its focus as a monetary network, rather than a non-monetary one (eg. inscriptions/ordinals). Non-monetary TXs exploit SegWit and Taproot quirks to cheaply store arbitrary data, which has led to an increase in network congestion, fees, and the UTXO set, hurting decentralization. The pro-filter group references email spam, which is valid according to email protocols, but harm the user experience. They advocate for node-level TX filtering (using a fork of Bitcoin Core called Bitcoin Knots), criticizing Core developers for inaction and cite how devs addressed similar challenges in the past. However, they acknowledge that filters only mitigate, not eradicate, spam as these TXs still adhere to consensus rules and can bypass filters directly through miners. Still, they reject a passive stance, as they believe this empowers spammers, and instead highlight the importance of node runners' role, like in the blocksize war.
On the other hand, the anti-filter crowd claims that all TXs that pay network fees and adhere to consensus rules are valid and should not be censored. They worry that if one type of TX gets filtered, it’s a slippery slope - what will get filtered next? Additionally, if filtering nodes show an inaccurate state of the network, the network will begin to exclude these nodes to meet user and miner needs, undermining decentralization too. They also believe that the increase in network fees is important to the long term security and mining of Bitcoin, as the block subsidy continues to halve.
FWIW: The cost of a new node might be the best metric for decentralization and I’ve found that node hardware is 13% cheaper now vs. in 2021.
Mining
🐜 Mononaut noticed that a bunch of pools (AntPool, Binance Pool, Braiins Pool, BTC.com, Poolin, Ultimus Pool) accelerated Bitmap ordinal inscriptions out of band, all apparently participating in Bitmain’s AntPool transaction accelerator for extra revenue. He found they share the same custodian (believed to be Cobo) for their mining rewards - this single entity controls these pools’ coinbase rewards (combined, they represent >33% of Bitcoin’s hash rate) and also looks to be actively sifting out “rare sats” for additional income. As Mechanic (GrassFedBitcoin) summarized, these pools are in cahoots when it comes to template construction (ie. choosing which TXs to include into a block) and also payout to the same custodian. Shinobi added that we should hold off on any proposals that might introduce more complex MEV. Lisa Neigut also added that fixing mining incentives is her top priority RE: infrastructure.
💸 Someone paid $389 to move $1.94. No, it wasn’t a fat finger mistake. Mechanic argues that if a miner can make money outside of typical Bitcoin TXs, then miner behaviors and incentives aren’t as clearcut. “It turns out there are instances when economic rationality works *against* the interests of the wider network.”
🤝 Steve Barbour questions whether pools that accept out of band payments share revenue with miners fairly as a fixed % of gross revenue (hint: they don’t). He goes on to say that mining pools that accept OOB payments (1) lose plausible deniability for enabling black market trade and (2) operate as a money services business.
🤝 Marathon acquired a 200 MW facility. Their Slipstream product (submit non-standard TXs directly to MARA’s pool) currently charges 2.5x regular mempool rates.
🤑 Someone paid 10,000 sat/vbyte (over $1,000 fee for a single transaction) to claim a 5-letter BRC20 ticker. Get ready for this kind of insanity for the halving block.
⛏️ HashLabs is offering $0.054/kWh hosting at an Ethiopian hydropower plant and expanding into Finland for $0.069/kWh, using ASIC waste heat to heat a city.
🔎 Eric Wilson reviews the Whatsminer M60 vs Antminer S21 in parts one and two.
Markets
📈 Bitcoin ETFs traded $111 B in March, with net inflows of roughly 66,000 BTC. The ETFs now hold 4% of the total supply. James Seyffart also thinks “we are likely through the Gemini/Genesis selling due to the Genesis bankruptcy for $GBTC shares.”
💵 Tether bought 8,888 bitcoin ($627 million) in Q1 2024, increasing its total holdings to about 75,354 BTC ($5.2 billion). They’ve been accumulating every quarter since September 2022. With the latest Q1 purchase, Tether has now become the seventh-largest holder of bitcoin from its previous rank of 11 earlier this year.
🤓 Hedge fund manager & Mets owner Steve Cohen says he owns some BTC.
🇩🇪 $900 B German asset manager DWS launched a BTC exchange-traded commodity.
Projects
💻 Now that the Craig Wright lawsuits are over, is Wladimir van der Laan making a return to Bitcoin Core (which also released v26.1)?
⚡️ Coinbase is finally going to adopt Lightning with the help of Lightspark, David Marcus’ company.
👥 Mutiny Wallet released an update that integrates more deeply with Nostr and fedimints (which just launched v0.3.0), creating a more social payments experience.
🔏 Looks like usage of Discreet Log Contracts (DLCs) is growing, according to the 2 main projects using them: Atomic Finance and 10101.
Nation States
❌ Antoine Poinsot points out that if a nation state solo-mined with 1-10% of the hashrate, raspberry pi nodes would take 1.5hrs to validate a malicious block.
®️ Argentina’s Comisión Nacional de Valores (like their SEC) announced a mandatory Registry of Virtual Asset Service Providers.
🇧🇹 Bhutan, which started accumulating BTC around $5000, is increasing its mining capacity from 100 to 600 MW.
🇺🇸 Reminder that the US government still has more BTC than Microstrategy.
Not Covered
Lucky Ocean; Fedimint/eCash vs. Sidechains/Liquid; Big Blocker nuance, Bolt12 support; non-drivechain tech; Amboss Reflex LN OFAC; RE: LN haters; pedantic Eric Voskuil vs. Adam Back; Tether $100k to BTCPayServer; Tim Draper 95% L; 2-bedroom NYC apartment 50k BTC $3.5 B L