The Fight for Bitcoin Privacy Has Truly Begun

This article is featured in Bitcoin Magazine's "The Privacy Issue". Subscribe to receive your copy.

First they ignore you, then they laugh at you, then they fight you, then you win.

The quote—commonly misattributed to Mahatma Gandhi—has been overused to the point of exhaustion in the Bitcoin space, typically invoking the suggestion that the laughing stage is over. In most of these cases, the insinuation that the fighting stage has begun was overblown, however; perhaps inspired by little more than a comment from some politician or finance professional.

But on April 24 of this year, the quote finally rang true.

On that day, the US Department of Justice (DoJ), via the District Court of the Southern District of New York, announced the indictment of Samourai Wallet co-founders Keonne Rodriguez and William Hill. Rodriguez, Samourai Wallet’s CEO who pseudonymously operated the @SamouraiWallet handle on Twitter/X, was arrested early that morning in his home state of Pennsylvania. Hill (AKA TDev, or @SamouraiDev on Twitter), meanwhile, was arrested in Lisbon, Portugal, where he resided; at the time of writing this article, the DoJ intends to extradite him to the US.

Both of them are accused of running an unlicensed money transmitter, and earning millions of dollars in fees doing so. For this, Rodriguez and Hill each face a maximum prison sentence of five years.

On top of that, the duo was charged with money laundering as well. According to the DoJ, Samourai Wallet was used to launder over $100 million dollars of crime proceeds from dark net markets, fraudulent schemes and other illicit activities. This could add a whopping maximum 20 years to their sentence.

Samourai Wallet’s web servers and domain (samourai.io) were also seized, rendering the wallet largely unusable. (Though users could still recover their bitcoin through other wallets, using their backup seeds.)

Around the same time as the Samourai Wallet developers’ arrests, the FBI issued a public warning to cryptocurrency users, stating that they may lose their funds due to criminal seizures if they don’t move their holdings to regulated entities. Although Samourai Wallet was not mentioned by the agency, the timing of the note suggests the warning was no coincidence.

Together, it seemed to represent a step change for Bitcoin and Bitcoin development.

Click here to subscribe and receive your copy of "The Privacy Issue". 

Bitcoin Privacy

Bitcoin comes from a long tradition of privacy activism. In a world where money is increasingly going digital, Cypherpunks have since the 1990s attempted to create a form of electronic cash in order to prevent an Orwellian future where every transaction can be monitored and potentially censored. Similarly, Douglas Jackson around the turn of the millennium offered a gold-backed digital payment system with privacy features called eGold, which eventually had to shut down operations because Jackson did not register his company as a money transmitter.

eGold required a money transmitter license because it held gold in reserve on behalf of its users, but it has since then generally been assumed that creators of non-custodial wallet software did not qualify as money transmitters. As long as developers never took control of user funds themselves, they did not need to register with the United States Department of the Treasury's Financial Crimes Enforcement Network (FinCEN), and therefore also wouldn’t need to apply anti-money laundering (AML) and Know Your Customer (KYC) checks on their users— or so it was thought.

Crucially, this assumption was in large part based on guidance from FinCEN itself, published in 2013.

By extension, many presumed that developers wouldn’t be held accountable for how their software is used. If non-custodial Bitcoin wallets are used to launder money, those engaged in the activity itself would be breaking the law, but it was generally not believed to be the responsibility of the creators of these wallets to prevent this from happening in the first place.

Samourai Wallet was, indeed, a non-custodial wallet. Users stored their own private keys in their wallet software, so Rodriguez or Hill at no point controlled these bitcoin. By default, the Samourai Wallet application did communicate with a central server to send and receive transactions, but even this could be sidestepped by connecting to the Samourai Dojo: a personal, internet-connected device that embedded a Bitcoin node.

Importantly, Samourai Wallet was marketed as a privacy wallet, and its main privacy feature—Whirlpool—did fully depend on the Samourai server. Specifically, Samourai Wallet users could, coordinated through this central server, collaborate to make CoinJoin transactions. In groups of five, users would contribute an equal amount of bitcoin (for example 0.01 BTC) to a transaction, which sent back the same amount to each of them.

Because there is no way to link specific transaction inputs to specific transaction outputs, this essentially “mixed” their coins. Blockchain analysts would be unable to trace back the history of these coins, except to the extent that they’d know they must have come from one of these five inputs. Furthermore, Whirlpool users could opt to automatically repeat such mixes, even further obfuscating their transaction history.

In addition, Samourai Wallet offered a service called Ricochet. This enabled users to send bitcoin to newly generated addresses they controlled themselves multiple times, somewhat frustrating blockchain analysis as well. (Although this is possible with any Bitcoin wallet, Samourai Wallet automated the process.)

The allegation, as put forth by the DoJ, is that these tools were, indeed, used to launder money. What’s more, the federal department argues that the Samourai Wallet co-founders intended this to be the case. This accusation is largely based on public as well as private communication about their service, including some statements by Rodriguez and Hill on Twitter and in their pitch decks intended for investors, which mentioned that individuals who engaged in “illicit activity” on “restricted” or “dark/grey” markets would be among their user base.

Whether these statements truly indicate that Rodriguez and Hill intended their software to be used for illicit purposes—as opposed to it just being “tough marketing talk” from developers who ultimately wanted to offer financial privacy tools—will have to be proven in court.

And perhaps more importantly, the Samourai Wallet arrests challenge the long-standing assumption that developers don’t have to register as money transmitters and perform the associated AML and KYC checks.

Though, this assumption had already been put to question in a different corner of the cryptocurrency space…

Tornado Cash

In August 2022, the US Treasury’s Office of Foreign Assets Control (OFAC) added Tornado Cash, a smart contract on the Ethereum blockchain, to its OFAC list. It made interacting with the smart contract illegal under US law.

Later that same month, Alexey Pertsev was arrested by the Dutch police. In the years prior, Pertsev had, along with Roman Storm and Roman Semenov, founded and operated software development company PepperSec. Key to their efforts had been the development of Tornado Cash as well as supporting infrastructure.

As a smart contract, Tornado Cash technically functions autonomously. Although Pertsev helped develop the tool, it exists across thousands of Ethereum nodes around the world. After it was released, Pertsev had no way to control how it was used, or who used it. Anyone could send an amount of ETH to the smart contract, which—utilizing a cryptographic trick called zero-knowledge proofs—enabled them to withdraw that same amount from the smart contract, but to a different account. Here, too, there was no way to link the ETH going into Tornado Cash to the ETH going out, thus the smart contract essentially functioned as a “mixing” service.

To make this feature effective, PepperSec also developed supporting infrastructure, which in part relied on relayers: basically, Ethereum users could be tasked with paying the Tornado Cash fee, for which they in turn were rewarded TORN tokens. This aspect of the design—the relayers and the TORN tokens—centered around a different smart contract on the Ethereum blockchain, which technically was implemented as a decentralized autonomous organization (DAO).

In addition to that, PepperSec operated a service that offered an easily accessible graphical user interface (GUI) for the smart contract and its surrounding infrastructure.

Importantly, Tornado Cash as well as the supporting infrastructure was all non-custodial software. Pertsev, Storm and Semenov developed code, but they at no point controlled any of the ETH going into the smart contract. Although they couldn’t control how Tornado Cash could be used, it’s less obvious to what extent the same was true for the supporting infrastructure. (Like many things Ethereum, claims of “decentralization” were at least in part grounded in marketing more so than in technical reality.)

In either case, for the Dutch prosecutor, the fact that Pertsev and his colleagues never took custody of any ETH did not make much of a difference. In her view, PepperSec was de facto ran as a business, which—albeit indirectly through the TORN token—earned an income from Tornado Cash and the supporting infrastructure. She argued this made Pertsev responsible for how Tornado Cash was used, and by whom.

In particular, she pointed out, Tornado Cash had been used to launder well over a billion US dollars, for example by North Korean state-funded hackers known as the Lazarus Group. Pertsev knowingly facilitated this kind of activity through the software he developed, she argued, and did nothing to prevent it. He had to be held accountable.

And as it would soon turn out, it wasn’t just the Dutch prosecutor who held this belief. About a year after Pertsev’s arrest in the Netherlands, his PepperSec co-founders Storm and Semenov were indicted in the United States, with the former (who resided in the US) arrested. (Semenov does not live in the United States; at the time of writing this article his whereabouts are unknown, but he is likely in a country without an extradition treaty with the US.)

Much like Pertsev, both of them are charged with money laundering, as well as running an unlicensed money transmitter business and sanctions violations. Storm will stand trial in New York this September.

Chilling Effect

The various arrests quickly appeared to have a chilling effect on other Bitcoin developers.

Even before Pertsev’s arrest, Bitcoin privacy wallet Wasabi Wallet—Samourai Wallet’s main competitor—in March of 2022 decided to implement AML checks in their mixing software, and reject coins that were suspected to have been used for illicit activity. (Although Wasabi Wallet, like Tornado Cash and Samourai Wallet, was fully non-custodial, the company behind the wallet—zkSNACKs—coordinated CoinJoin mixes through a central server.)

This new policy was harshly criticized by—among others—the Samourai Wallet team and other privacy focused bitcoiners. Rodriguez and Hill loudly and proudly proclaimed that their mixing service was open for business to anyone, and on social media adopted a much more adversarial attitude towards regulators and their KYC/AML regime. Indeed, it was exactly this attitude that may have gotten them in legal trouble.

More recently, the Samourai Wallet arrests moved other Bitcoin developers to take additional precautions as well. Just one day after the indictment, Sparrow Wallet, which had been compatible with Samourai Wallet’s Whirlpool, for example released a new version of its software that disabled this feature. Shortly after, development company ACINQ announced that its Phoenix Wallet (a Lightning wallet) would be removed from US app stores, citing on Twitter that “[r]ecent announcements from US authorities cast a doubt on whether self-custodial wallet providers, Lightning service providers, or even Lightning nodes could be considered Money Services Businesses and be regulated as such.”

And in what was arguably the biggest setback for privacy in Bitcoin’s short history, Wasabi Wallet soon after announced to discontinue its mixing service altogether. With Whirlpool already down, the other major CoinJoin coordinator would seize operations per June 1st of this year.

The First Verdict

Just weeks after the Samourai Wallet developers’ arrest and the events that unfolded immediately after, on May 14th of this year, it was time for Pertsev’s sentencing.

In the courthouse of ’s Hertogenbosch, a small city about an hour south of Amsterdam, the Tornado Cash developer received the bad news. The panel of judges essentially agreed with the prosecutor on all counts, and in some ways went even further than the prosecutor was willing to go. The judges ruled that Pertsev was fully responsible for how the smart contract was used; the fact that some of the code that PepperSec produced was “unstoppable”, was not considered a valid excuse.

“Tornado Cash functions in the way the defendant and its co-founders developed Tornado Cash,” they stated. “So the operation is completely their responsibility.”

Pertsev was sentenced to 64 months in Dutch prison— though he did file for appeal, which at the time of writing is pending.

The next Tornado Cash court case will take place in New York, where Pertsev’s PepperSec co-founder Storm will stand trial. While the Dutch verdict should technically not affect the outcome of the American proceedings, the case and sentencing in the Netherlands might offer an indication of what can be expected: the Dutch prosecutors shared many of their files with their American colleagues.

Meanwhile, the first hearing for Samourai Wallet’s Rodriguez took place in New York last May as well. He will be awaiting the full trial on home arrest in Pennsylvania.

Still, despite these significant setbacks for Bitcoin privacy, the prospects of bitcoin mixing are not altogether dead. Most obviously, all American trials are yet to take place. (And even if Rodriguez, Hill and/or Storm are found guilty, they, too, can appeal to higher courts.) Meanwhile, JoinMarket—a tool that lets users create CoinJoin transactions without a central coordinator—continues operations uninterrupted. And while Wasabi Wallet has taken its central coordinator offline, the wallet itself will still be maintained.

What’s more, alternative Wasabi Wallet coordinators have already started offering their services: while not operated by zkSNACKs, this enables users of the wallet to create CoinJoin transactions between them in much the same way. Because such coordinators can even be operated anonymously over Tor, future prosecution of such services may be even harder as well— regardless of the outcome of the upcoming trials.

The fighting stage, indeed, has begun— and the fight is far from over. Whether the adage will ring true, and the winning stage follows next, remains to be seen.

via bitcoinmagazine.com

The Impact of Institutional Investors on Bitcoin

For years, Bitcoin enthusiasts have been expecting a significant change in the value due to the involvement of institutional investors. The concept was simple: as companies and large financial entities invest in Bitcoin, the market would experience explosive growth and a sustained period of rising prices. However, the actual outcome has been more complex. Although institutions have indeed invested substantial capital in Bitcoin, the anticipated ‘supercycle’ has not unfolded as predicted.

Institutional Accumulation

Institutional participation in Bitcoin has significantly increased in recent years, marked by substantial purchases from large companies and the introduction of Bitcoin Exchange-Traded Funds (ETFs) earlier this year.

Figure 1: Bitcoin company treasury holdings. Access Live Chart 🔍

Leading this movement is MicroStrategy, which alone holds over 1% of the total Bitcoin supply. Following MicroStrategy, other prominent players include Marathon Digital, Galaxy Digital, and even Tesla, with significant holdings also found in Canadian firms such as Hut 8 and Hive, as well as international companies like Nexon in Japan and Phoenix Digital Assets in the UK; all of which can be tracked via the new Treasury data charts available on site.

Figure 2: Detailed analysis of BTC treasuries for publicly traded companies. Access Live Chart 🔍

In total, these companies hold over 340,000 bitcoin. However, the real game-changer has been the introduction of Bitcoin ETFs. Since their inception, these financial instruments have attracted billions of dollars in investments, resulting in the accumulation of over 91,000 bitcoin in just a few months. Together, private companies and ETFs control around 1.24 million bitcoin, representing about 6.29% of all circulating bitcoin.

A Look at Bitcoin's Recent Price Movements

To understand the potential future impact of institutional investment, we can look at recent Bitcoin price movements since the approval of Bitcoin ETFs in January. At the time, Bitcoin was trading at around $46,000. Although the price dipped shortly after, a classic "buy the rumor, sell the news" scenario, the market quickly recovered, and within two months, Bitcoin's price had surged by approximately 60%.

Figure 3: Bitcoin price action following the ETF approvals. Access Live Chart 🔍

This increase correlates with institutional investors' accumulation of Bitcoin through ETFs. If this pattern continues and institutions keep buying at the current or increased pace, we could witness a sustained bullish momentum in Bitcoin prices. The key factor here is the assumption that these institutional players are long-term holders, unlikely to sell off their assets anytime soon. This ongoing accumulation would reduce the liquid supply of Bitcoin, requiring less capital inflow to drive prices even higher.

The Money Multiplier Effect: Amplifying the Impact

The accumulation of assets by institutional players is significant. Its potential impact on the market is even more profound when you consider the money multiplier effect. The principle is straightforward: when a large portion of an asset's supply is removed from active circulation, such as the nearly 75% of supply that hasn’t moved in at least six months as outlined by the HODL Waves, the price of the remaining circulating supply can be more volatile. Each dollar invested has a magnified impact on the overall market cap.

Figure 4: Bitcoin HODL waves outlining the illiquidity of BTC. Access Live Chart 🔍

For Bitcoin, with roughly 25% of its supply being liquid and actively traded, the money multiplier effect can be particularly potent. If we assume this illiquidity results in a $1 market inflow increase in the market cap by $4 (4x money multiplier), institutional ownership of 6.29% of all bitcoin could effectively influence around 25% of the circulating supply.

If institutions were to begin offloading their holdings, the market would likely experience a significant downturn. Especially as this would likely trigger retail holders to begin offloading their bitcoin too. Conversely, if these institutions continue to buy, the BTC price could surge dramatically, particularly if they maintain their positions as long-term holders. This dynamic underscores the double-edged nature of institutional involvement in Bitcoin, as it slowly then suddenly possesses a greater influence on the asset.

Conclusion

Institutional investment in Bitcoin has both positive and negative aspects. It brings legitimacy and capital that could drive Bitcoin prices to new heights, especially if these entities are committed long term. However, the concentration of Bitcoin in the hands of a few institutions could lead to heightened volatility and significant downside risk if these players decide to exit their positions.

For a more in-depth look into this topic, check out a recent YouTube video here:

via bitcoinmagazine.com

BlackRock's Bitcoin ETF Saw Outflow For the First Time Since May

BlackRock's spot Bitcoin exchange-traded fund (ETF), the iShares Bitcoin Trust, experienced an outflow of $13.5 million on Thursday. This was IBIT's first outflow since May 1st. Thursday's outflow was the second ever for the iShares Bitcoin Trust since its launch in January. The ETF has seen consistent inflows almost daily, cementing itself as a dominant Bitcoin investment product.

Prior to Thursday's $13.5 million outflow, the last time the fund saw withdrawals was May 1st when $37 million was pulled out. That coincided with Bitcoin hitting a local low of $56,000.

The outflow comes as spot Bitcoin ETFs recorded a third straight day of withdrawals totalling $71.8 million on Thursday. Competing Bitcoin ETFs from Grayscale, Fidelity, Valkyrie and Bitwise also posted outflows ranging from $8 million to $31 million.

Meanwhile, ARK's Bitcoin ETF saw an inflow of $5.3 million, bucking the negative trend. The mixed flows highlight diverse investor outlooks amid Bitcoin's stagnation under $60,000. BlackRock's IBIT seeing an outflow for the first time in months is a notable development. It might indicate that the bottom is in like the last time, or this might be the start of more outflows. 

Nonetheless, BlackRock's Bitcoin ETF has still attracted a staggering over $20 billion in net inflows over its lifetime. It remains the dominant spot Bitcoin fund with over 350,000 BTC under management, making it one of the largest institutional Bitcoin holders.

via bitcoinmagazine.com

Solo Bitcoin Miner Earns $199,098 After Successfully Mining Block

A solo Bitcoin miner has made headlines by successfully mining block number 858,978 on the Bitcoin blockchain, earning a reward of 3.275 BTC, valued at $199,098 at the time. The block, mined earlier today, contained 2,391 transactions, according to blockchain data.

JUST IN: A solo miner just mined a block worth 3.275 #Bitcoin worth $199,098.

LEGEND 🤯 pic.twitter.com/rqscP29dud

— Bitcoin Magazine (@BitcoinMagazine) August 29, 2024

Bitcoin mining is the process through which new bitcoins are introduced into circulation. It typically involves using powerful computers to solve complex mathematical problems, which verify and add transactions to the blockchain. In return, miners are rewarded with newly minted bitcoins, known as the block subsidy, along with transaction fees paid by users.

The miner’s accomplishment is significant, given the increasingly competitive landscape of Bitcoin mining, where large mining pools usually dominate. Solo miners face the challenge of competing against large, resource-rich mining pools; however, although rare, the rewards can be substantial, as demonstrated by this and many previous solo miners' successes.

"Congratulations to miner 36AisvWi1UiwLTeTZxLzindAkorqeUc3tT for solving the 291st solo block on solo.ckpool.org!" said Solo CK administrator, Dr. Con Kolivas. "This hefty miner with 38PH would solve a block on average once every ~4 months."

The achievement by this solo miner also serves as a reminder of the decentralized nature of Bitcoin, where anyone with the right resources can contribute to and benefit from the network.

via bitcoinmagazine.com

Proton Wallet Review: A Bitcoin Software Wallet That Simplifies Transactions

Proton, the Swiss company behind ProtonMail and ProtonVPN, has released a beta version of the newest offering in its suite of products that help to preserve online privacy — Proton Wallet.

The wallet is great for those looking to send bitcoin on-chain with relative ease, but it leaves some to be desired for more advanced users or for those who want to make smaller payments quickly and cheaply.

Pros And Cons

Proton Wallet’s standout feature is that it allows you to send bitcoin using nothing more than a recipient’s email address, which doesn’t have to be a ProtonMail address. The non-custodial bitcoin-only wallet is also free to use and has an easy-to-navigate user interface (UI).

However, it lacks in that it only allows users to make transactions on the Bitcoin base chain — not over Lightning — which can take upwards of hours to settle, and it doesn't allow users to manage their UTXOs or adjust fees. Plus, it’s a software wallet and cannot be disconnected from the internet like a hardware wallet, which increases the risk of the wallet’s private keys being compromised.

Getting Started With Proton Wallet

To use the beta version of the product, you need an invitation either from the company or another user. The wallet is currently available via web browser and as an Android app and takes 5 to 10 minutes to set up and begin using.

Once you’ve received an email invitation to use the wallet, you can click on the “Start using Proton Wallet” link in the invitation email to get started setting it up. (Email addresses have been blacked out below and throughout this review to preserve privacy.)

Invitation email for Proton Wallet

You’ll be taken to a “wallet setup” page where you’ll simply click a button to get started with Proton Wallet. You won’t be prompted to write down the 12-word seed phrase as you set up the wallet, which was a nice touch by Proton to help users to more simply get started using the wallet. You can write down the seed phrase later if you please, though.

Wallet setup

As you set up the wallet, Proton makes it clear that your Proton Wallet is a non-custodial Bitcoin wallet, which means that managing the wallet is your responsibility and your responsibility alone.

Warning message

The home screen of the wallet is straightforward and incredibly easy to navigate. It’s as pared down so as to include little more than the basics you need to send, receive and buy bitcoin.

Home screen

Depositing Bitcoin In Proton Wallet

To begin using the wallet, you’ll first have to deposit some bitcoin. You can deposit bitcoin from another wallet you manage. To do so, you’ll need to copy the bitcoin address by clicking on the “Receive” button on the home screen and then clicking the “Copy Bitcoin address” button in the window that pops up on the right of the screen.

Receiving bitcoin

You’ll copy that address into the proper field from the wallet you're sending it from. It’s good practice to double check that the address you’ve pasted matches the address you’ve copied.

Sending bitcoin from an exchange

The bitcoin won’t appear in your Proton Wallet balance immediately. It usually takes at least a few minutes for the transactions to process, as this depends on how long it takes for block confirmations to occur. Some transactions can take much longer — upwards of hours.

You can see that the funds are on their way, though, in the “Transactions” section of the home screen. You’ll continue to see an “In progress” notification until the necessary amount of block confirmations has occurred.

"In progress" notification

Buying Bitcoin With Proton Wallet

If you don’t have any bitcoin to send to your Proton Wallet, you can also use the wallet to buy some. This process is relatively straightforward.

You can click the “Buy” button on the home screen and you’ll be taken to a page that serves as an interface for crypto asset service providers Ramp and Banxa.

Selecting your location

Complete the fields for how much bitcoin you want to purchase, choose whether you want to use Banxa or Ramp and select your payment method.

Selecting your payment method

Instructions from this point vary depending on the payment method you choose.

Sending Bitcoin With Proton Wallet

You can send bitcoin as simply as clicking the “Send” button on the home screen and then inputting either a bitcoin address or an email address. Note that your recipient doesn’t need a ProtonMail address.

I used an email address to send some bitcoin.

Sending bitcoin with an email address

Next, you’ll be taken to an “Amount” page, where you’ll input the amount of bitcoin you’d like to send, denominated either in either a fiat currency or sats.

Selecting the US dollar amount of bitcoin to send

On the “Review” page, you can leave a message for the recipient. It’s optional to do so.

On this page, you’ll also be presented with the total amount of your transaction, including the network fee, which is non-configurable (you can’t pay higher fees for faster transfers as you can with many other wallets).

You won’t be presented with the option to select UTXOs to spend, an option that a desktop Bitcoin wallet like Sparrow provides you with.

If you’re comfortable with the amount you want to send and the fee, you can click the “Confirm and send” button.

Reviewing transaction details

You’ll be able to see whether or not your transaction has cleared by looking at the “Transactions” section.

In my case, the recipient was notified that the bitcoin was on the way before the transaction received the required number of confirmations on the blockchain.

Transaction details appear at the bottom of the home screen

This particular transaction took over an hour to complete.

Securing Your Proton Wallet

Proton Wallet lets you secure and back up your wallet in different ways.

The first level of security for the wallet is the password you use to log in to it, which you create when you set up the wallet.

Proton Wallet lets you add a second level of security by offering two-factor authentication (2FA).

To set this up, you can click on the “Secure your wallet” tab in the top right hand corner of the home screen. You’ll then be presented with the option to set up 2FA for your wallet.

Securing your wallet

If you want to add 2FA protection to your account, you can click the “Set up 2FA to secure your account” button. When you do so, you’ll be taken to a page on which you can toggle a switch to set up 2FA for the account. If you choose to do this, toggle the “Authenticator app” switch and follow the subsequent instructions.

Enabling 2FA

Backing Up Your Proton Wallet

Proton Wallet allows you to back up your wallet’s seed phrase whenever you’d like. To do so, you can click on “Backup this wallet’s seed phrase” on the home screen.

You’ll then be taken to a screen that explains what a seed phrase is and why it’s important to safely back it up. Click the “View wallet seed phrase” button to view the seed phrase for your wallet.

It’s best practice to store your seed phrase offline (e.g., written on a piece of paper or imprinted on steel) so that it can’t be compromised.

Obtaining your seed phrase

Discover and Customer Service

Proton Wallet has a substantial “Discover” section in which you can learn more about everything from what Bitcoin is to Proton Wallet’s security model.

The "Discover" section

Proton also makes it relatively easy for you to get in touch with customer service staff, though, response times are currently unknown.

Contacting customer service

Conclusion

Proton Wallet is a good Bitcoin wallet for beginners, especially those looking to send bitcoin with relative ease, using nothing more than an email address.

The pros of this non-custodial wallet are that it’s free to use, easy to set up and secure. It’s also bitcoin only and open-source.

However, one notable con of the wallet is that it only allows you to transact on the bitcoin base chain, which means your transactions may incur high fees and take over an hour to fully process. For this reason, you wouldn’t want to use Proton Wallet if you're looking to make cheap, fast micropayments — the types of transactions you can make over Lightning.

Another drawback of the wallet is that it doesn’t permit you to manage UTXOs or select transaction speed and fees. And it’s a software wallet, which means it’s less secure than a hardware wallet in certain regards.

With that said, if you’re new to Bitcoin and already familiar with the interfaces for Proton products, then this wallet may be a good option for you.

via bitcoinmagazine.com

Leading Bitcoin Miner GDA Plans Mining Expansion to 400 MV Leveraging Renewables

Genesis Digital Assets (GDA), one of the world's largest Bitcoin mining companies, has announced plans to expand its recently launched Texas data centre to 400 megawatts. The ambitious phase two scaling highlights GDA's commitment to Texas as a mining hub, leveraging the state's renewable energy and pro-innovation policies.

GDA's Rowdy Data Center in Vernon is currently operational at 60 MW, supported by the Oklaunion Substation. The site benefits from substantial local wind power and is located near Vernon city in Wilbarger County.

The data centre utilizes grid power with renewable energy sources for its operations. "GDA's business is a natural fit for the Oklaunion Power Station," said Tom Walker, Chairman of OPS Board. "This project clearly demonstrates that Bitcoin mining creates entirely new dynamics for the energy industry."

The Rowdy Data Center repurposes the retired Oklaunion Power Station, bringing back dozens of jobs lost when the plant closed in 2020. So far, GDA's operations have generated 12 permanent and 150 construction jobs.

"Texas has emerged as a leading hub for local support and renewable energy sources, and the Rowdy data centre is a particularly important location for our operations," said GDA CEO Andrey Kim.

The company aims to bolster the Bitcoin network's robustness and security by scaling and innovating mining infrastructure and utilizing renewable energy sources.

via bitcoinmagazine.com

F%$K Bad Research

This article is featured in Bitcoin Magazine’s “The Halving Issue”. Click here to get your copy. It is also report #1 of the "FUD Fighters" series powered by HIVE Digital Technologies LTD.

F%$K Bad Research: I spent over a month analyzing a bitcoin mining study and all I got was this trauma response.

“We must confess that our adversaries have a marked advantage over us in the discussion. In very few words they can announce a half-truth; and in order to demonstrate that it is incomplete, we are obliged to have recourse to long and dry dissertations.” — Frédéric Bastiat, Economic Sophisms, First Series (1845)

“The amount of energy needed to refute bullshit is an order of magnitude bigger than that needed to produce it.” — Williamson (2016) on Brandolini’s Law

For too long, the world has had to endure the fallout of subpar academic research on bitcoin mining’s energy use and environmental impact. The outcome of this bullshit research has been shocking news headlines that have turned some well-meaning people into angry politicians and deranged activists. So that you never have to endure the brutality of one of these sloppy papers, I’ve sacrificed my soul to the bitcoin mining gods and performed a full-scale analysis of a study from the United Nations University, published recently in the American Geophysical Union’s Earth’s Future. Only the bravest and hardest of all bitcoin autists may proceed to the following paragraphs, the rest of you can go back to watching the price chart.

Your soft baby ears might have screamed with shock at the strong proclamation in my lede that the biggest and squeakiest research on bitcoin mining is bullshit. If you’ve ever read Jonathan Koomey’s 2018 blog post on the Digiconomist–also known as Alex deVries, or his 2019 Coincenter report, or Lei et al. 2021, or Sai and Vranken 2023, or Masanet et al. 2021, or… Well, the point is that there’s thousands of words already written that have shown that bitcoin mining energy modeling is in a state of crisis and that this is not isolated to bitcoin! It’s a struggle that data center energy studies have faced for decades. People like Jonathan Koomey, Eric Masanet, Arman Shehabi, and those nice guys Sai and Vranken (sorry, we’re not yet on a first-name basis) have written enough pages that could probably cover the walls of at least one men’s bathroom at every bitcoin conference that’s happened last year, that show this to be true.

My holy altar, which I keep in my bedroom closet, is a hand-carved, elegant yet ascetic shrine to Koomey, Masanet, and Shehabi for the decades of work they’ve done to improve data center energy modeling. These sifus of computing have made it all very clear to me: if you don’t have bottom-up data and you rely on historical trends while ignoring IT device energy efficiency trends and what drives demand, then your research is bullshit. And so, with one broad yet very surgical stroke, I swipe left on Mora et al. (2018), deVries (2018, 2019, 2020, 2021, 2022, and 2023), Stoll et al. (2019), Gallersdorfer et al. (2020), Chamanara et al. (2023), and all the others that are mentioned in Sai and Vranken’s comprehensive review of the literature. World, let these burn in one violent yet metaphorically majestic mega-fire somewhere off the coast of the Pacific Northwest. Reporters, and policymakers, please, I implore you to stop listening to Earthjustice, Sierra Club, and Greenpeace for they know not what they do. Absolve them of their sins, for they are but sheep. Amen.

Now that I’ve set the mood for you, my pious reader, I will now tell you a story about a recent bitcoin energy study. I pray to the bitcoin gods that this will be the last one I ever write, and the last one you’ll ever need to read, but my feeling is that the gods are punishing gods and will not have mercy on my soul–even in a bull market. One deep breath (cue Heath Ledger’s Joker) and Here… We… Go.

On a somewhat bearish October afternoon, I got tagged on Twitter/X on a post about a new bitcoin energy use study from some authors affiliated with the United Nations University (Chamanara et al., 2023). Little did I know that this study would trigger my autism so hard that I would descend into my own kind of drug-induced-gonzo-fear-and-loathing-in-vegas state, and hyper-focus on this study for the next four weeks. While I am probably exaggerating about the heavy drug use, my recollection of this time is very much a techno-colored, toxic relationship-level fever dream. Do you remember Frank from the critically acclaimed 2001 film, Donnie Darko? Yeah, he was there, too.

As I started taking notes on the paper, I realized that Chamanara et al.’s study was really confusing. The paper was perplexing because it's a poorly designed study that bases its raison d’etre entirely on de Vries and Mora et al. It uses the Cambridge Center for Alternative Finance (CCAF) Cambridge Bitcoin Energy Consumption Index (CBECI) data without acknowledging the limitations of the model (see Lei et al. 2021 and Sai and Vranken 2023 for an in-depth analysis of the issues with CBECI’s modeling). It conflates its results from the 2020-2021 period with the state of bitcoin mining in 2022 and 2023. The authors also relied on some environmental footprint methodology that would make you think it was actually possible for you to shrink or grow a reservoir depending on how hard you Netflix and chill. Really, this is what Obringer et al. (2020) inferentially conclude is possible and the UN study cites Obringer as one of its methodological foundations. By the way, Koomey and Masanet did not like Obringer et al.’s methodology, either. I’ll light another soy-based candle at the altar in their honor.

Here’s a more clearly stated enumeration of the crux of the problem with Chamanara et al. (and by the way, their corresponding author never responded to my email asking for their data so I could, you know, verify, not trust. 🥴):

The authors conflated electricity use across multiple years, overreaching on what the results could reveal based on their methods.

The authors used historical trends to make present and future recommendations despite extensive peer-reviewed literature clearly showing that this leads to overestimates and exaggerated claims.

The paper promises an energy calculation that will reveal bitcoin’s true energy use and environmental impact. They use two sets of data from CBECI: i) total monthly energy consumption and ii) average hashrate share for the top ten countries where bitcoin mining is operated. Keep in mind that CBECI relies on IP addresses that are tracked at several mining pools. CBECI-affiliated mining pools represent an average of 34.8% of the total network hashrate. So, the data used likely have fairly wide uncertainty bars.

After about an hour or so of Troy Cross talking me off a rather impressive, art deco and weather-worn ledge that’s probably seen a few Great Gatsby flappers jump–a result of feeling an overwhelming sense of terror after my exasperated self realized that no amount of cognitive behavioral therapy would get me through this study–I determined the equation that the authors used to calculate the energy use shares for each of the top ten countries with the most share of hashrate (based on the IP address estimates) had to be the following:

Don’t let the math scare you. Here’s an example of how this equation works. Let’s say China has a shared share for January 2020 of 75%. Then, let’s also say that the total energy consumption for January 2020 was 10 TWh (these are made-up numbers for simplicity’s sake). Then, for one month, we’d find that China used 7.5 TWh of energy. Now, save that number in your memory palace and do the same operation for February 2020. Next, add the energy use for January to the energy use found for February. Do this for each subsequent month until you’ve added up all 12 months. You now have CBECI’s China’s annual energy consumption for 2020.

Before I show the table with my results, let me explain another caveat to the UN study. This study uses an older version of CBECI data. To be fair to the authors, they submitted their paper for review before CBECI updated their machine efficiency calculations. However, this means that Chamanara et al.’s results are not even close to realistic because we now believe that CBECI’s older model was overestimating energy use. Moreover, to do this comparison, I was limited to data through August 31, 2023, because CBECI switched to the new model for the rest of 2023. To get this older data, CCAF was generous and shared it with me upon request.

Country	2020 Energy Consumption (TWh)	2021 Energy Consumption (TWh)	2020 + 2021 Energy Consumption (TWh)	Chamanara et al.'s 2020 + 2021 Energy Consumption (TWh)	Percent Change Between 2020 + 2021 Calculations (%)
Mainland China	44.45	32.89	77.34	73.48	5.25
United States	4.65	25.20	29.85	32.89	-9.24
Kazakhstan	3.18	12.06	15.24	15.94	-4.39
Russia	4.71	7.59	12.29	12.28	0.081
Malaysia	3.31	4.13	7.44	7.29	2.06
Canada	0.80	5.25	6.05	6.62	-8.61
Iran	2.33	3.06	5.39	5.13	4.82
Germany	0.67	3.31	3.98	4.18	-4.78
Ireland	0.62	2.69	3.31	3.43	-3.50
Singapore	0.31	1.13	1.43	1.56	-0.083
Other (Excluding Singapore)	3.69	6.73	10.42	10.63	-1.98
Total	68.72	104.04	172.76	173.42	-0.38

Another tricky thing about this study is that they combined the energy use for both 2020 and 2021 into one number. This was really tricky because if you look at their figures, you’ll notice that the biggest text states, “Total: 173.42 TWh”. It’s also slightly confusing because the figure caption states, “2020-2021”, which for many people would be interpreted as a period of 12 months, not 24 months. Well, whatever. I broke them up into their individual years so everyone could see the steps that were taken to get to these numbers.

Look at the far right column with the header, “Percent Change Between 2020 + 2021 Calculations (%)”. I calculated the percent change between my calculations and Chamanara et al.’s. This is rather curious, isn’t it? Based on my conversations with the researchers at CCAF, the numbers should be identical. Maybe the changelog doesn’t reflect a smaller change somewhere, but our numbers are slightly different nonetheless. China has a greater share and the United States has a smaller share in the data that CCAF shared with me compared to the UN study. Despite this, the totals are fairly close. So, let’s give the authors the benefit of the doubt and say that they did a reasonable job calculating the energy share, given the limitations of the CBECI model. Please bear in mind that noting that their calculation was reasonable doesn’t mean that it’s reasonable to use these historical estimates to make claims about the present and future and direct policy. It isn’t.

One evening while working by candlelight, I glanced to my left and saw Frank’s stabbing, black pupils (the Donnie Darko character I mentioned earlier) staring at me like two pieces of Stronghold waste coal, fixed in a quiet bed of pearly sand. He was reminding me that this report was still not finished and something about time travel. I grabbed my extra-soft curls (I switched to bar shampoo, it’s a godsend for frizz) and yanked as hard as I could. Willie Nelson’s 1974 Austin City Limits pilot episode blasting on my cheap-ass Chinese knock-off monitor’s mono speakers was moving through my ears like heroin through Lou Reed’s 4-lanes wide network of veins. Begrudgingly, I accepted my fate. I needed to go deeper down this rabbit hole. I needed to do a deeper analysis of the 2020 and 2021 CBECI data to show how important it is to do an annual analysis and not blur the years into one calculation. Realizing I was out of my hard liquor of choice, a splash of sherry in a Shirley Temple (shaken, not stirred), I grabbed a bottle of bootleg antiseptic that I got during the pandemic lockdown and chugged.

I flipped through my notes. I have lots of notes because I’m a serious person. What about the mining map issues? Can we do this through an analysis of the two separate years? What was happening for each of the ten countries? Does that tell us anything about where hashrate went after the China ban? What about the Kazakhstan crackdown? That’s post-2021, but the UN study acts like it never happened when they’re talking about the current mining distribution…

Not to the authors’ credit, they failed to mention to the peer-reviewers and to their readers that the mining map data only goes through January 2022. So, even though they talk about bitcoin mining’s energy mix as if it represents the present, they are completely wrong. Their analysis only captures historical trends, not the present and definitely not the future.

See this multi-colored plot of CBECI's estimated daily energy use (TWh) from January 2020 through August 31, 2023? At this macro scale, we see plenty of variability. But also it’s apparent just from inspection that each year is different from the next in terms of variability and energy use. There are a number of possible reasons for the cause of variability at this scale. Some possible influences on energy use could be bitcoin price, difficulty adjustment, and machine efficiency. More macroscale influences could be as a result of regulation, such as the Chinese bitcoin mining ban that occurred in 2021. Many of the Chinese miners fled the country for other parts of the world, Kazakhstan and the United States are two countries where hashrate found refuge. In fact, the power of the Texas mining scene really came to be at this unprecedented moment in hashrate history.

Look at the histograms for 2020 (top left), 2021 (top right), 2022 (bottom left), and 2023 (bottom right). It’s obvious that for each year, the estimated annualized energy consumption data shows different distributions. Even though we do see some possible distribution patterns, we have to be careful not to take this as a pattern that happens every four-year cycle. We need more data to be sure. For now, what we can say is that some years in our analysis show a bimodal distribution while other years show a kind of skewed distribution. The main point here is to show that the statistics for energy use for each of these four years are different, and distinctly so for the two years that were used in Chamanara et al.’s analysis.

In the UN study, the authors wrote that bitcoin mining exceeded 100 TWh per year in 2021 and 2022. However, if we look at the histograms of the daily estimated annualized energy consumption, we can see that daily estimates vary quite a bit, and even in 2022 there were many days where the estimated energy consumption was below 100 TWh. We’re not denying that the final estimates were over 100 TWh in the older estimated data for these years. Instead, we’re showing that because bitcoin mining’s energy use is not constant from day to day or even minute-to-minute, it’s worth doing a deeper analysis to understand the origin of this variability and how it might affect energy use over time. Lastly, it’s worth noting that the updated data now estimates the annual energy use to be 89 TWh for 2021 and 95.53 TWh for 2022.

One last comment, Miller et al. 2022 showed that operations (specifically buildings) with high variability in energy use over time are generally not suitable for emission studies that use averaged annual emission factors. Yet, that’s what Chamanara et al. chose to do, and what so many of these bullshit models tend to do. A good portion of bitcoin mining doesn’t operate like a constant load, Bitcoin mining can be highly flexible in response to many factors from grid stability to price to regulation. It’s about time that researchers started thinking about bitcoin mining from this understanding. Had the authors spent even a modest amount of time reading previously published literature, rather than operating in a silo like Sai and Vranken noted in their review paper, they might have at least addressed this limitation in their study.

—

So, I’ve never been to a honky tonk joint before. At least not until I found myself in a taxi cab with several other conferencegoers at the North American Blockchain Summit. Fort Worth, Texas, is exactly what you’d imagine. Cowboy boots, gallon-sized cowboy hats, Wrangler blue jeans, and cowboys, cowboys, cowboys everywhere you looked through the main drag. On a brisk Friday night, Fort Worth seemed frozen in time, people actually walked around at night. The stores looked like the kind of mom-and-pop shops you’d see on an episode of The Twilight Zone. I felt completely disoriented.

My companions convinced me that I should learn how to two-step. Me, your standard California girl, whose physics advisor once told her that while you can take the girl out of California, you can’t take California out of the girl, should two-step?! I didn’t know a two-step from an electric slide and the only country I remember experiencing was a Garth Brooks commercial I saw once on television when I was a child. He was really popular in the nineties. That’s about as much country as this bitcoin mining researcher gets. The place was filled with kitschy gift shops and bright lights everywhere radiating from neon signs. At the center of the main room, a bartender wearing a black diamond studded belt with a white leather gun holster and lined with evenly spaced silver bullets. Who the hell knows what kind of gun he was packing, but it did remind me of the guns in the 1986 film, Three Amigos.

It was here, against the backdrop of what sounded like a country band that wasn’t entirely sure that it was country, that I watched the Texas Blockchain Council’s Lee Bratcher address a ball with the kind of trigonometric grace that you could only find at the end of a cue and land that billiard in a tattered, leather pocket for what seemed like the hundredth time that night. The smooth clank of billiard against billiard awoke something inside me. I realized that I was not yet out of the rabbit hole that Frank sent me down. I remembered somewhere scribbled in my notes that I had not plotted the hashrate share over time for the countries mentioned in the UN study. So, at half past three in the morning, I threw my head back to take a swig of some club soda and bumped it against the wall of the photo booth where nuclear families could pose with a mechanical bull, and fell unconscious.

Three hours later, I was back in my hotel room. Thankfully, someone placed some worthless fiat in my hand, loaded me into a cab, and had the driver take me back to the non-smoking room I checked into at the very center of the decay of twenty-first-century business travel, the Marriott Hotel. Fuzzy-brained and bleary-eyed, I let the blinding, dangerously blue light from my computer screen wash over my tired face and increase my chances of developing macular degeneration. I continued my analysis.

What follows are a series of plots of CBECI mining map data from January 2020 through January 2022. Unsurprisingly, Chamanara et al. focus attention on China’s contribution to energy use, and subsequently to its associated environmental footprint. China’s monthly hashrate peaked at over 70 percent of the network’s total hashrate in 2020. In July 2021, that hashrate share crashed to zero until it recovered to about 20 percent of the share at the end of 2021. We don’t know where it stands today, but industry insiders tell me it’s likely still hovering around this number, which means that in absolute terms, the hashrate is still growing there despite the ban.

Russia, also unsurprisingly, gets discussed as well. Yet, based on the CBECI mining map data from January 2020 through January 2022, it’s hard to argue that Russia was an immediate off-taker of exiled hashrate. There’s certainly an immediate spike, but is this real or just miners using VPN to hide their mining operation? By the end of 2021, the Russian hashrate declined to below 5 percent of the hashrate and in absolute terms, declined from a brief peak of over 13 EH/s to a bit over 8 EH/s. When looking at the total year’s worth of CBECI estimated energy use for Russia, we do see that Russia did hold a significant portion of hashrate, it’s just not clear that when working with such a limited set of data, we can make any reasonable claims about the present contribution to hashrate and environment footprint for the network.

The most controversial discussion in Chamanara et al. deals with Kazakhstan’s share of energy use and environmental footprint. Obviously, the CBECI mining map data shows that there was a significant increase in hashrate share both in relative and absolute terms. It also appears that this trend started before the China ban was implemented, but certainly appears to rapidly increase just before and after the ban was implemented. However, we do see a sharp decline from December 2021 to January 2022. Was this an early signal that the government crackdown was coming in Kazakhstan?

In their analysis, Chamanara et al. ignored the recent Kazakhstan crackdown, where the government imposed an energy tax and mining licenses on the industry, effectively pushing hashrate out of the country. The authors overemphasized Kazakhstan as a current major contributor to bitcoin’s energy use and thus environmental footprint. If the authors had stayed within the limits of their methods and results, then noting the contribution of Kazakhstan’s hashrate share to the environmental footprint for the combined years of 2020 and 2021 would have been reasonable. Instead, not only do they ignore the government crackdown in 2022, but they also claim that Kazakhstan's hashrate share increased by 34% based on 2023 CBECI numbers. CBECI’s data has not been updated since January 2022 and CCAF researchers are currently waiting for data from the mining pools that will allow them to update the mining map.

I know I’ve shown you, my faithful reader, a lot of data, but go ahead and have another shot of the hardest liquor you have in your cabinet, and let’s take a look at one more figure. This one represents the United States hashrate share in the older CBECI mining map data. The trend we see for the United States is also similar for Canada, Singapore, and what CBECI Calls “Other countries”, which represent the countries that did not make the top ten list for hashrate share. There’s a clear signal that reflects what we know to be true. The United States took a significant portion of Chinese hashrate and this hashrate share grew rapidly in 2021. While we know that the CBECI mining map data is limited to less than a majority of the network hashrate, I do think that their share is at least somewhat representative of the network’s geographic distribution. Hashrate geographic distribution seems to be heavily shaped by macro trends. While electricity prices matter, government stability and friendly laws play an important role. Chamanara et al. should have done this kind of analysis to help inform their discussion. If they had, they might have realized that the network is responding to external pressures at varying times and geographic scales. We need more data before we can make strong policy recommendations when it comes to the effects of bitcoin’s energy use.

—

At this point, I was no longer sure if I was a bitcoin researcher or an NPC, lost in a game where the only points tallied were for the intensity of self-loathing I was feeling for agreeing to this undertaking. At the same time, I could smell the end of this analysis was near and that, with enough somatic therapy and EMDR, I might actually remember who I used to be before I got dragged into this mess. Just two days prior, Frank and I had a falling out over whether Courier New was still the best font for displaying mathematical equations. I was alone in this rabbit hole now. I dug my fingers into the dirt walls surrounding me and slowly clawed my way back to sanity.

Upon exiting the hole, I grabbed my laptop and decided it was time to address the study’s environmental footprint methodology, wrap up this puppy, and put a bow on it. Chamanara et al. claimed that they followed the methods used by Ristic et al. (2019) and Obringer et al. (2020). There are a few reasons why their environmental footprint approach is flawed. First, the footprint factors are typically used for assessing the environmental footprint of energy generation. In Ristic et al., the authors developed a metric called the Relative Aggregated Factor that incorporated these factors. This metric allowed them to evaluate the placement of new electricity generators like nuclear or offshore wind. The idea behind this approach was to be mindful that while carbon dioxide emissions from fossil fuels were the main driver for developing energy transition goals, we should also avoid replacing fossil fuel generation with generation that could create environmental problems in different ways.

Second, Obringer et al. used many of the factors listed in Ristic et al. and combined them with network transmission factors from Aslan et al. (2018). This was a bad move because Koomey is a co-author on this paper, so it shouldn’t be surprising that in 2021, Koomey co-authored a commentary alongside Masanet where they called out Obringer et al. In Koomey and Masanet, 2021, the authors chided the assumption that short-term changes in demand would lead to immediate and proportional changes in electricity use. This critique could also be applied to Chamanara et al., which looked at a period when bitcoin was experiencing a run-up to an all-time high in price during a unique economic environment (low interest rates, COVID stimulus checks, and lockdowns). Koomey and Masanet made it clear in their commentary that ignoring the non-proportionality between energy and data flows in network equipment can yield inflated environmental-impact results.

More importantly, we have yet to characterize what this relationship looks like for bitcoin mining. Demand for traditional data centers is defined by the number of compute instances needed. What is the equivalent for bitcoin mining when we know that the block size is unchanging and the block pace is adjusted every two weeks to keep an average 10-minute spacing between each block? This deserves more attention.

Either way, Chamanara et al. did not seem to be aware of the criticisms of Obringer et al.’s approach. This is really problematic because as mentioned at the start of this screed, Koomey and Masanet laid the groundwork for data center energy research. They should have known not to apply these methods to bitcoin mining because while the industry has differences from a traditional data center, it’s still a type of data center. There’s a lot that bitcoin mining researchers can take from the torrent of data center literature. It’s disappointing and exhausting to see papers published that ignore this reality.

What more can I say other than this shit has to stop. Brandolini’s Law is real. The bullshit asymmetry is real. I really want this new halving cycle to be the one where I no longer have to address bad research. While I was writing this report, Alex de Vries published a new bullshit paper on bitcoin mining’s “water footprint”. I haven’t read it yet. I’m not sure that I will. But if I do, I promise that I will not write over 10,000 words on it. I’ve stated my case and made my peace with this genre of academic publishing. It was a fun ride, but I think it’s time to practice some self-care, treat myself to several evenings of healthy binge-watching, and dream of the ineffable.

—

If you enjoyed this article, please visit btcpolicy.org where you can read the full 10,000-word technical analysis of the Chamanara et al. (2023) study.

This is a guest post by Margot Paez. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

via bitcoinmagazine.com

The Other Satoshis: Bitcoin's Most Important Early Contributors

This article is featured in Bitcoin Magazine’s “The Halving Issue”. Click here to get your copy.

If, in 2021, the identity of Satoshi Nakamoto remains a mystery, so too does the two-year period from 2008 to 2010 when Bitcoin’s creator served as the project’s principal developer and leader.

Yet, far from a lifeless period of project development, during those years Nakamoto worked with dozens if not hundreds of Bitcoin users, all of whom contributed to the effort in different ways, establishing websites, engaging in commerce and evangelizing for his invention.

Still, some users naturally emerged as more distinguished contributors.

Whether it was by helping establish core elements of the Bitcoin philosophy or articulating its value propositions in new and novel ways, a meritocracy developed as quickly as the market, with some contributors earning outsized accolades from their peers.

With that in mind, this list aims to identify the contributors who most helped to define and shape Bitcoin and its early years, identifying their specific efforts and spotlighting their relevant work.

Martti Malmi (@Sirius)

Satoshi’s initial assistant, Martti Malmi, demonstrated a commitment to Bitcoin at a time when few were willing to see value in an internet currency that lacked even an exchange rate.

A university student in May 2009, Malmi contributed most directly to Bitcoin.org and the Bitcoin Wiki, where he helped make the websites look more comprehensive and professional. (He was less kind to euros he used at the time, writing “Bitcoin.org” on any bills he encountered.)

Malmi also added an early Austrian perspective to conversations around Bitcoin, dismissing complaints about gold as “old Keynesian arguments” and noting that the precious metal was “unmatched” by any paper money in the stability it offered over time.

In his entrepreneurial efforts, Malmi was less successful, his early bitcoin exchange service, BitcoinExchange.com, struggling to get off the ground in 2010.

Yet, he’d arguably make his biggest mark evangelizing for Bitcoin, creating a Facebook page (“Say no to central banking — use Bitcoin, the revolutionary P2P currency!” it read) and leading the first major effort to get Bitcoin publicity.

Theymos

One of Bitcoin’s most influential thinkers, Theymos never contributed code to the Bitcoin project directly but worked for years as a central moderator for its major forums.

A keen student of the codebase, his influence was apparent from the project’s earliest days when on the Bitcoin.org forums or IRC Theymos could be counted on to define how the protocol worked, his understanding sometimes even surpassing that of other avid coders.

What’s clear is that, after discovering Bitcoin in February 2010, Theymos went to work auditing the code, as his posts show an intricate understanding of not just the basic concepts, but even the more obscure commands Satoshi added to the codebase at launch.

However, it’s Theymos’ contributions to project philosophy that perhaps stand out the most. The first to point out directly that changes to the code could result in issues impacting the rights of users, it’s clear Theymos thought deeply about the implications of Bitcoin’s design.

For instance, he was at the forefront of arguing users could leverage their ability to fork the code if they ever disagreed with project leadership, an argument he’d push to its limits when he’d attempt to overturn a code change enacted by Satoshi.

The fact that, when looking back at this disagreement, many would side with Theymos’ view on the matter is all the more evidence that his early thinking has endured.

Hal Finney (@Hal)

A storied cypherpunk, Hal Finney tragically only contributed code briefly at the earliest days of Bitcoin and was absent for much of 2009 and 2010 as he struggled to regain his health.

Still, Finney’s influence today rings far and wide, most notably for the enduring optimism with which he approached the project.

Among his sparse blog posts are some of the most widely quoted moments from the project’s history, including his initial calculations on how, if successful, bitcoin could someday be worth millions should it grow to denominate global economic exchange.

Elsewhere, Finney has even been credited with his own branch of philosophy on how Bitcoin might scale, the term “Finnian view” coming to denote his belief that second-layer networks, as well as bitcoin banks, would help solve the technology’s struggles to accommodate demand.

Finney, who passed away in 2014 at 58, was also the recipient of the first-ever bitcoin transaction, and the only person known to have transacted directly with Satoshi Nakamoto.

NewLibertyStandard

What is bitcoin worth? If it’s a question many have asked, NewLibertyStandard was the first to provide a response.

Indeed, the first-ever quoted price for bitcoin was given by NewLibertyStandard on October 5, 2009, when they posted a daily exchange rate of 1,303 BTC per U.S. dollar. The calculation was made by factoring the cost of the electricity used to mine newly minted bitcoin and lauded by Satoshi as a helpful step in pricing the cryptocurrency.

Not just the creator of the earliest bitcoin exchange, NewLibertyStandard proposed using the Thai baht symbol to represent Bitcoin and suggested “BTC” as its three-letter currency code.

Despite his outsized contributions to the bitcoin economy, however, NewLibertyStandard could also wax philosophical. As an example, they were an early advocate for the idea that Bitcoin might enable individuals to peacefully exit their government currencies.

Gavin Andresen

Andresen may not have been the father of Bitcoin, but in many ways, he raised the kid.

An Australian-born Silicon Valley expat best known for creating a standard for 3D graphics in his younger days (VRML), Andresen had an established career in software prior to coding on Bitcoin, which included time spent at computer manufacturer Silicon Graphics.

His rise up the ranks of the Bitcoin meritocracy would be swift. Not only did he give away over 1,000 bitcoin free of charge to new users, but he quickly became Satoshi’s most active contributor, gaining access to update the code directly by late 2010.

Indeed, it would be Andresen who would “step up” in Satoshi’s absence, leading a charge to push new developers to get involved in the project and shouldering the weight of the press and media that descended during Bitcoin’s first rise to the fringes of the tech mainstream in 2011.

Often now critiqued for his role in stoking later frictions in the project, it’s easy to overlook the fact that Andresen was also one of Bitcoin’s most eloquent early spokespeople, his arguments for it as a “just plain better money” finding ears when bitcoin was a “drug currency” to most.

Laszlo Hanyecz (laszlo)

Best known as the man who spent thousands of bitcoin on pizza, Laszlo Hanyecz was a Florida-based coder who first translated Bitcoin (then available only for Windows) into MacOS.

Joining the project in April 2010, Hanyecz quickly announced an interest in running Bitcoin on his iPhone, but it would be his May 2010 decision to pay 10,000 BTC to anyone who would buy him pizza that would mark his most significant contribution.

At the time, Bitcoin had an established price (less than a penny), and bitcoin had been bought and sold, but no real-world product had ever been purchased with the fledgling currency.

Hanyecz’s time with the project would be brief, however. He stopped contributing in August 2010 but has resurfaced from time to time for interviews, most recently in 2009 for the news show “60 Minutes” where he discussed his bitcoin pizza purchase.

Artforz

A largely unknown figure, Artforz is nonetheless credited with notable engineering contributions, as they are thought to be the first Bitcoin user to mine with more powerful GPUs (in the process starting the global mining arms race that continues to this day).

Though Artforz denied making up 25% of the early network’s hash rate as accused, it was a rumor during his day, one they eventually had to address directly on the forums.

Still, if Artforz did mine an outsized number of early blocks, he showed himself to be an altruistic steward of the network, identifying a bug in one case that, if exploited, would have allowed him to spend bitcoin from other wallets he didn’t own, reporting it directly to Satoshi.

Artforz could also explain and defend Bitcoin with the best of them.

When presented with the idea users might never know the true identity of Satoshi Nakamoto, Artforz settled the conversation succinctly, stating simply: “Let the idea speak for itself.”

Jeff Garzik (jgarzik)

A seasoned Linux open-source contributor by the time he found Bitcoin in 2010, Garzik is known for helping shape project strategy under Andresen, the developer he mentored and encouraged to step up in the wake of Satoshi’s absence.

Yet, Garzik was an active contributor in the days of Satoshi as well, and he remains the author of some of the era’s more often-cited Bitcoin forum posts. Controversially, this includes the first proposal to raise the “block size limit,” first added by Nakamoto, as well as another, more influential proposal to remove subsidies for free transactions.

Later conflicts aside, a review of Garzik’s posts shows what made him such a strong advocate for Bitcoin, one who was revered for thoughtful articulations on how the early network worked.

In one memorable line, Garzik said: “The effort to raise the transaction rate limit is the same as the effort to change the fundamental nature of bitcoins: convince the vast majority to upgrade.”

Ironically, it would be his efforts to lead such a charge that would mark the end of his time with the Bitcoin project nearly a decade later.

Amir Taaki (genjix)

A former poker professional and open-source video game designer, Amir Taaki was little more than 20 years old when he stumbled on Bitcoin in late 2010.

Though it wouldn’t be until 2014 that he graced the pages of Forbes and Wired on the strength of his preference for Bitcoin as a way to fight the establishment, Taaki showed the flashes of what would make him such a polarizing (and popular) figure even in the days of Satoshi.

First and foremost, he’d attempt to get the organizations he most admired into Bitcoin — organizations like Anonymous and WikiLeaks.

As he went about coding what would be the first-ever alternative implementation (libbitcoin), Taaki would find time to build a coalition to convince WikiLeaks to accept bitcoin, a decision that would eventually put him at odds with Satoshi who protested the move.

“Sorry for trying to do something,” he would state in response to later criticism.

His early forum posts showcase how and why Taaki would emerge as such a lightning rod, his responses equal parts combative, illuminating and pulsing with intensity.

Kiba

Likely the least well-known name on this list, Kiba isn’t exactly an industry name.

That said, they are responsible for helping shape something that continues to this day, the legacy of Satoshi Nakamoto. As a string of Twitter, IRC and BitcoinTalk posts from 2010 to 2011 show, Kiba was the first to play around with the idea of Satoshi’s identity, or in his own words, to try “damn hard to make the mystery of Satoshi a meme.”

These efforts mostly took the form of sketches of Bitcoin’s creator, in which Kiba depicted him as everything from a Japanese warrior to a woman in a series he called “The Mysteries of Satoshi Nakamoto.” (His Bitcoin art, sadly, is lost to link rot.)

But while he could be playful, it’s clear Kiba knew Bitcoin users were in charge, dropping early quotes that would be sure to kill on Twitter even today. “Satoshi’s invention is useless without us using it,” he wrote in October 2010.

When Satoshi finally left the project, it was Kiba who declared what appears to be the first Bitcoin holiday, canonizing April 28, 2011, as “Satoshi Disappear Day,” writing:

“I propose we make a Bitcoin holiday in honor of our legendary anonymous founder and to observe the fact that the bitcoin community will be just fine after the inventor of bitcoin left.”

Today, Bitcoin Magazine carries on that tradition. 

via bitcoinmagazine.com

Bitcoin ETFs Saw the Largest Outflow in Over Three Weeks

U.S. spot Bitcoin exchange-traded funds (ETFs) recorded $127 million in net outflows on Tuesday, marking the largest single-day withdrawal since Aug. 6. The outflow ended an eight-day streak of positive inflows totalling $756 million.

On Tuesday, the Bitcoin ETF offering from Ark Invest saw the biggest outflow, at $102 million. Grayscale's Bitcoin Trust and Bitwise's Bitcoin ETF also posted net outflows of $18 million and $7 million, respectively.

BlackRock's Bitcoin ETF saw no inflows after a $224 million inflow on Monday, its largest in over a month, while Fidelity's and other Bitcoin ETFs also saw no changes in inflows or outflows.

The largest contributor to yesterday's outflows seems to have been investors' profit-taking after Bitcoin surged past $60,000 early this week. Since then, Bitcoin has pulled back around 10% below $60,000 upon this news.

The ETF outflows came as leading financial institutions expanded their bitcoin product offerings. On Tuesday, CME Group launched a new Bitcoin futures contract aimed at retail traders. Nasdaq also filed for regulatory approval of Bitcoin index options.

The ongoing development of regulated Bitcoin investment vehicles highlights increasing mainstream demand. While spot Bitcoin ETFs saw outflows this week, the overall trajectory points to growing institutional adoption.

via bitcoinmagazine.com

A Manual Guide to Killing Bitcoin: The Eternal Return

This article is featured in Bitcoin Magazine’s “The Halving Issue”. Click here to get your copy.

Every morning at 6am, in Punxsutawney, Pennsylvania, the cynic weatherman Phil Connors wakes up to experience the same day over and over and over again. Stuck in a time loop, Connors tries everything to get his life back to normal – he gets stabbed, shot, burned, frozen and electrocuted, only to wake up again the next day as if nothing had happened. Connors quickly comes to the only plausible conclusion: he must be a god.

Thinking ourselves to be undefeatable has never been a particularly smart strategy, in times of war or otherwise. If we believe in cosmology, from Nietzsche to Hinduism, time is a loop, and there is a finite realm of possibilities which infinitely repeat – the only thing that we can really do is change how we react. Unless we learn from our mistakes, we are doomed to experience the same things over and over again.

Though often priding ourselves in exceptional intellect – I’ve found Bitcoin early, I must be very smart – it seems that learning from mistakes comes hard even for the most seasoned ‘Bitcoin advocates’. Public discourse seems to have shifted from the discussion of technological challenges and limitations to Deutsche Bank afterwork chats – Anything is possible, we’ll just need returns to remain on track.

When Bitcoin was first discussed in German Parliament back in 2014, ‘experts’ highlighted the ease with which bitcoin payments could be deanonymized via network analysis, speaking to the risks of widespread bitcoin adoption to lead towards total financial surveillance. Today, ten years later, as Bitcoin has returned to German parliament, ‘experts’ have been exchanged for influencers proposing Bitcoin as CBDC alternatives. Current ‘Bitcoin political debates’ cannot help but remind us of Bart Simpson running in circles banging a pan on his head.

As we continue to close in on the opportunist’s echo chamber, we have successfully swapped academic debate for cheerleading squads. Things will go great so long as you’re willing to take your tits out. ‘We’re winning!’ has long become the prevalent meme – Between ETF approvals, stablecoin issuances, and possible nation state adoption we are so confident in Bitcoin’s success that we seem incapable of realizing that this is precisely how you lose. Arrogance comes before most declines, and its exploitation has always been by design. By sowing manic delusions of invincibility, even the most trained commander will lead their sheep to slaughter.

Groundhog Day

A long long time ago, in a galaxy far away, we plugged our computers into landlines to access the three great W’s. For anyone who didn’t live alone, this practice was often doomed to reap a fair amount of havoc – Get off the computer, mom is waiting for a phone call.

So we can all agree that that sucked. But, due to a lack of technological advancements and accessibility to communicate wirelessly across distances (think of your favorite mesh network here), it was the most convenient option we had. The only problem: it led to a monopoly on web access points lying with telecommunications providers. Fast forward 20 years, and we now know that telecom providers monitor, analyze, and report anything that we do on the internet to government authorities under the guise of national security. A technology thought invincible for the liberation of the people quickly turned into its biggest enemy.

Now we can’t really talk about the success (and downfall) of peer-to-peer technologies without talking about Linkin Park. Linkin Park’s music, then still Hybrid Theory, circulated widely on the first P2P music file sharing network Napster. Downloaded from other people’s computers, accessing Linkin Park’s music was completely free. Their first studio album, Hybrid Theory, yet remains one of the top five most sold records in the world with 15 Million copies sold in the first three weeks alone.

Napster was a real world internet revolution – And the music industry was furious. As people happily infected their devices with potential computer AIDS, bands, rappers, and singer songwriters like the Arctic Monkeys, Dispatch or EMINEM were building fanbases even before breaking their first big record releases, and the musical establishment wasn’t having it. When Metallica sued the P2P platform for copyright infringement, clearly unhappy that their cult status and its consequential returns felt threatened, peer-to-peer music file sharing did not exactly die, but was quickly incorporated into more corporate friendly formats – from buying music via iTunes to music streaming via Spotify.

While it seemed unimaginable to put a technology like Napster back into the box, convenience, again, became king. Today, the majority of listeners do not own the music that they listen to, but subscribe to corporate databases of which neither artists, labels nor producers profit. Instead, the big winner of the music file sharing industry again turned out to be surveillance. Just last week, when Spotify updated its cookie policy, a push notification let EU users know which 695 data brokers would gain access to their information. Downloading files like ClapYourHandsSayYeah.mp3.exe (RIP) clearly was risky business, but the risks of surveillance capitalism reach much farther than a trashed computer.

In essence, the same thing happened to search engines. Going online in the early days of the world wide web was like getting dropped off in the middle of Yellow Stone national park without a map. There were thousands of places to go, but you needed to know where they were. With comprehensive link collections, platforms like Yahoo, AskJeeves or Google offered tremendous value to those less versed in their way around the WWW. Instead of asking your peers where something cool on the internet was, you simply asked Google. But, with moving away from word-of–mouth formats, we ended up with what has today been termed the great enshittification. The first few links are paid affiliate sites, and the ones after that are those who figured out how to efficiently play Google’s SEO formats, of course all packed and tailored to your supposed needs. Today, Google is one of the most valuable surveillance companies in the world. A software meant to aid in the liberalization of free information essentially became a tool for censorship.

Again and again, thinking that ‘technology has won’ only exacerbated its demise. We choose what is comfortable now only to stab ourselves in the back down the road. And before you know it – BING! It’s the whistling belly button at the high school talent show as the weatherman strikes again. To put it bluntly: we’re fucking up.

It’s the Filters, Stupid

In today’s pop-culture Bitcoin discourse, ignorance runs rampant. Lightning works until it doesn’t, let’s spend millions to put the Dollar on Bitcoin; It’s called priorities babe, look it up.

When Ordinals hit Bitcoin – think of them what you will – we suddenly realized that we were in trouble. In the global south, people quickly became unable to transact non-custodially. All the people you’ve told to DCA suddenly saw themselves facing exorbitant transaction fees, unable to move their funds. For those valuing their privacy even for smaller spends, participating in coinjoin rounds turned prohibitively expensive. No matter where we look, we still have a scaling problem. This problem does not exist because of Ordinals. It exists because we were so convinced of winning that we lost track of keeping our ignorance in check.

Over the past four years, the majority was more concerned with furthering its own narrative – everything is awesome and Bitcoin is the bestest currency on earth – than facing uncomfortable truths. We then proceeded to respond with an exorbitant amount of shortsightedness: it’s the filters, stupid.

Filtering out Ordinals transactions is a short term solution for a long term problem. Sure, blocking arbitrary data on the blockchain will necessarily drive fees down, but if global Bitcoin adoption is what you want, you’re not doing yourself any favors by proposing selective solutions to systemic issues. The thing is that being angry at JPEGs is easy. Taking on problems that challenge the ‘greatness of Bitcoin’, which some appear to have turned into their whole personality, is not. For every tweet that claims for Bitcoin to bring world peace – clearly by pure magic, or what the Wall Street losers turned Bitcoin economists call some backwards form of game theory – a little of the system dies.

We do not need your hopium; We need real world solutions to real world problems. That includes laying down the crack pipe and talking about the uncomfortable stuff: we are not winning – we are doing the opposite, because our ‘long time preference’ reaches about as far as our investment portfolios. You can kill Bitcoin. And it’s easier than you’d think.

Embrace, Extend, Extinguish

Over the past few years, debates around Bitcoin ‘winning’ looked pretty much the same. Senators are embracing Bitcoin: see, we are winning. BlackRock is embracing Bitcoin: see, we are winning. First they ignore you, then they laugh at you, then they realize that all you want is a pat on the back before the policeman comes to take your toys away. The laughing hasn’t stopped, it just happens behind your back.

The most plausible death of Bitcoin would happen less in name than in its total incorporation, at a point where the technology is simply not yet ready for ‘mass adoption’ – just like we have killed all peer-to-peer technologies that came before it. The death of Bitcoin is not the death of the tech, but the death of its usability.

At the center of the death of Bitcoin, at least in essence, continues to stand the scaling debate. When Gigablocks were first proposed, it seemed fairly obvious that a blockchain that takes 10 years to sync will lack in decentralization. In came the Lightning Network, which seemed to solve all of our issues: Scaling off-chain, securing on-chain. Smart. Except that we can only fit around 5000 channel opening and closing transactions inside of a block – hardly enough to let 8 Billion people use Bitcoin non-custodially.

Unfortunately, that didn't stop influencers – or really anyone - from proclaiming their Hail Mary of desperation; Scaling Bitcoin obviously is a problem for future me. Too high was the thrill of finally being able to sit at the corporate dinner table and smug the obligatory 'I told you so'. Putting non-believers into their place simply had to come first; if Bitcoin doesn't exist to feed our fragile egos and pump up our sad little bank accounts, what really was the point? Freedom, Carajo! Welcome to your involuntary conversion at the church of satoshi's witnesses, where we drop speeches on saving the world from tyranny more often than Biden changes his diapers.

So here we are. Six years after we bought our first stickers at the Blockstream store – the only thing you were able to buy when the first Lightning implementations launched, besides beer – and we're still scrambling. Instead of fostering broad discussions around covenant proposals, which do come with real trade-offs and risks, we are busy labeling anyone not willing to ossify a spook, while ossification at this point in Bitcoin will certainly be the surest way to kill it.

Sometime in the near future, we'll wish ourselves back to a time of a few hundred vBytes in fees. By then, we will have no choice but to use Bitcoin custodially. Say goodbye to freedom money: Bitcoin as we know it will be dead, unless we stop making the same mistakes. 

via bitcoinmagazine.com