6102 Bitcoin is a pseudonymous bitcoiner known for his contributions with various Bitcoin resources and how to sites, and infographics. He joins me for a discussion about bitcoin privacy, why he does this under a pseudonym, contributing in the Bitcoin space, Blockstream’s Liquid network and more.
6102 Bitcoin links:
- Twitter: @6102bitcoin
- Website: 6102bitcoin.com
- Bitcoin taint infographic
- Sven article Stop Calling for a Free Market in Money
Stephan Livera links:
- Show notes and website
- Subscribe on YouTube: @stephanlivera
- Follow me on twitter @stephanlivera
- Subscribe to the podcast
- Patreon @stephanlivera
SL: Why 6102 as your name? Tell us about the executive order and why you chose this
Executive Order 6102 was a presidential directive which forbade the hoarding of gold in the United States – citizens were instructed to deliver their gold to the Federal Reserve within a month of the signing of the order in April 1933. Violating the order carried a punishment of 10 years in prison, a $10,000 fine or both. The $10,000 fine is equivalent to almost $200,000 today due inflation of the US Dollar.
This won’t be anything new for the people who have heard about this before, but for those listeners who are hearing about this for the first time I think it will be quite surprising. Less than 100 years ago, in the United States of America, it was ILLEGAL to hoard gold. it was ILLEGAL to have a shiny rock in your home. I find that fact astonishing.
To me, executive order 6102 clearly marks the start of the end of the dollar as the global reserve currency, and maybe even the end of fiat. With the signing of executive order 6102 and the seizing of this physical gold it was clear that fiat money had failed to compete in a free market against gold. Coercion was required to force people to abandon good money (gold) in favour of bad money (fiat).
Historically fiat money has been backed by gold – you could take a $1 bill to a bank and redeem it for physical gold equal to the amount written on the promissory note. Interestingly many people still mistakenly believe that this is how fiat money works today, which is unsurprising given that many fiat currencies carry misinformation, for example the British £10 Sterling Note carries a message, signed by the governor of the Bank of England which states “I promise to pay the bearer on demand the sum of 10 pounds”. Originally this meant that you could exchange the note for 10 pounds weight of gold.
The adoption of gold certificates or gold IOU’s was quite natural and occurred voluntarily because banks had a good track record of honouring the claims, and physical gold was, and remains, inconvenient for a number of reasons. That said, physical gold remained superior for many people for long term savings and they held gold either on property they owned or in bank deposit boxes.
In the great depression the Federal Reserve was required to have 40% gold backing. This limited the amount of credit creation that was possible, and this was thought at the time (and in many Keynesian circles today) to have been stalling recovery in two ways, firstly because the government couldn’t create credit and effectively print its way out of trouble, like we are seeing now. The second reason is that people were storing value in gold rather than investing into companies, which in turn was restricting economic growth and suppressing employment rates. By banning the, “hoarding” of gold, the Government could kill two birds with one stone, they could increase the money supply and force investment into productive goods.
I mentioned earlier that executive order 6102 marked the failure of fiat because coercion was required to persuade gold holders to sell for fiat. But it was also a clear demonstration of a serious weakness of gold. There are obvious disadvantages of gold compared to bitcoin;
- It is hard to split into small units
- It is hard for the layman to verify it’s authenticity
- It is physical, heavy and requires significant logistical work to transport long distance
But at the time of executive order 6102 its biggest weakness was made clear – that through a combination of the aforementioned weaknesses it is unsuitable for widespread use under a hostile regulatory regime. Good money should be useful despite it’s use being outlawed. Gold is not. Sven Schnieders has written a great article called Stop Calling for a Free market in Money
The name 6102 reminds me that it is critical to ensure that bitcoin becomes useable even in a hostile environment. Bitcoin has properties which I believe can make coercion ineffective, and therefore a repeat of executive order 6102 with bitcoin unlikely.
SL: Were you already into Austrian economics and libertarianism before bitcoin?
Until I discovered bitcoin I had no idea that Austrian economics existed. The study of money & markets always seemed like a waste of time to me prior to discovering bitcoin, having watched the global financial system edge close collapse in 2008 it seemed to me that economists were generally an obstacle to progress. It was refreshing to discover Austrian economics through bitcoin, and realise that economics is a fascinating field when you start from the correct axioms and build up from there in a pregeological manner. Fundamentally, Austrian economics is about people and how they act. I think anyone who thinks poorly of economics has simply not encountered Austrian economics.
Similarly, I only understood libertarianism after discovering bitcoin. Previously I believed that individuals acting in their own best interest was a long winded way of describing someone as selfish. I thought that if everyone acted in this self interested manner there would be significantly more hardship in the world than if everyone worked together for a collective goal, for the collective good. In discovering bitcoin I interacted with a vast range of individuals with experiences and opinions vastly different to my own. This eventually led to the realisation that no collective goal can ever exist because there is no universal moral code, no universal agreement between what is good and what is bad. That coordinating a group of people to act against their own self interest requires a violation of their liberty which cannot be justified. That the best outcome is reached where individuals are free to take actions to satisfy their own needs, provided they do not impede on the ability of others to do the same. That an individual knows what they need better than any authority or bureaucracy ever could.
Libertarianism also opened my eyes to the fact that it is logically inconsistent to seize private property through the use of force, even if the intention is to then distribute that property to other people. Bitcoin makes this ideology practically meaningful, because public key cryptography gives the individual a huge defensive advantage against an attacker.
SL: Tell us about your different projects and why you started them:
I make educational material to help people better understand bitcoin & use bitcoin in more secure and private ways. I do this to aid with my own understanding, to help other people fast track their learning and ultimately to make bitcoin harder to 6102. I have a number of projects which I try to juggle which are listed on my website 6102bitcoin.com/projects.
In January 2019 I built a bitcoin-only.com to list projects that exclusively support bitcoin. Since then the project has grown significantly and now tracks a wide range of bitcoin tools, products, events, meetups, wallets, hardware, podcasts, stores, conferences, and more.
People submit suggestions for projects to add and I evaluate whether the project is actually bitcoin-only. This has worked very well and there are now 16 contributors. Some people take submissions and turn them into pull requests so that I can quickly merge the branch which speeds up everything significantly. Shout out to pardus79 for their help in this regard – I don’t know who they are, but they appeared one day and made a pull request which closed an issue, and have been helping ever since.
The project is open-source and licensed under the MIT License meaning anyone is free to fork the project and make their own version. Some people fork the project for translations or to create their own self hosted version to share with friends and family which is great because they can then easily push useful changes upstream to the bitcoin-only repository.
Another key project is Bitcoin-Intro.com which is a simple on boarding guide which newcomers can work through to develop their understanding of bitcoin whilst discovering how easy it is to use.
It is founded on a number of guiding principles. First is that starting simply and improving is better than than not starting at all. Often I find that people are reluctant to start because they have information overload, each time they are about to use a tool they hear that there is some additional thing to consider from a security / privacy perspective – this frequently means that people don’t bother and just leave their bitcoin on an exchange. The idea behind bitcoin-intro.com is that it guides you step by step, starting simple so that you actually do start.
The second principle is that it’s more engaging to use tools before reading a detailed explanation. Often bitcoin guides give a detailed explanation of what bitcoin is and why is is needed before people even have an opportunity to just try it out. With bitcoin-intro.com you are encouraged to get a wallet and get some bitcoin first, so you can see the magic. Then, once you have been hooked in we point you to some excellent resources to learn why bitcoin is useful (‘Why Bitcoin’ by Wiz, ‘The Bullish Case for Bitcoin’ by Vijay Boyapati & ‘Why Bitcoin Matters’ by Aleks Svetski). Then, having used bitcoin and started to understand why bitcoin is useful we finally get into what bitcoin is with the superb 800 word intro by Greg Walker amongst other things.
I won’t go through the full guide but to summarise, you are then guided through improving your seed backups, running a node, attending a meetup, improving your privacy and using lightning.
The third principle is to always keep full control of your bitcoin (use non-custodial tools). New users won’t understand the extreme ownership which bitcoin enables, so I think it’s important to show them this from the outset rather than on boarding into a custodial solution which misses the point of bitcoin (elimination of trusted third parties).
The final principle is to stay focused and avoid scams (use bitcoin-only tools & services). Again, new users won’t understand why bitcoin is so unique and may fall for the altcoin narratives if exposed to them before they have a deep understanding of bitcoin. The easiest way to avoid this is to simply point them to bitcoin-only tools so that they don’t get exposed to the altcoin side of things. An alternate approach could be to link to a robust explanation as to why newcomers should ignore altcoins – if anyone has a suggestion please make a pull request.
I think it’s incredibly important to help people improve their privacy when using bitcoin, it benefits everyone if a significant proportion of bitcoin use is private. Conversely, it would affect everyone negatively if the vast majority of bitcoin use was not private, because it would be far easier to 6012.
I think that the easiest thing that people can do to improve their privacy is look to avoid address reuse, avoid posting transaction information publicly & to switch to a bitcoin wallet that prioritises privacy over convenience.
Avoiding address reuse is an absolute no-brainer. It costs nothing to generate new addresses and makes a huge difference to your privacy. The good news is that almost all wallets will generate a new address each time you hit receive, so in normal use people probably won’t accidentally re-use addresses. The one time where people do re-use addresses frequently is in receiving donations, for example by putting an address in their twitter bio or on their website. These people should research paynyms / set up a btcpayserver donations page.
CoinJoin is a powerful tool which bitcoin privacy enthusiasts have been working to make mainstream for some time now. The three implementations are JoinMarket, Wasabi and Whirlpool. I have done some work to help users understand both Wasabi & Whirlpool as well as catalogue all other CoinJoin work that has been done over the years in the form of a Research Repository on my github.
Timing analysis was something that I noticed no wallets had considered so I made a python script which takes signed transactions and broadcasts them at random times. Information can be found on txCast.org
All things bitcoin privacy related can be found on btcprivacy.org, which hopefully will be expanded in the near future.
SL: What are your favourite Privacy tools?
Within bitcoin I am a big supporter of the Samourai Wallet stack. I use Samourai Wallet on my Android phone, connected via tor to my Ronin Dojo Full Node which lets me use send and receive bitcoin with confidence. There are a number of innovative privacy features which make using bitcoin in a private manner a slick and pretty seamless experience.
I think that Whirlpool is a great innovation which lets Samourai Wallet users CoinJoin with ease. It’s important that users run their own node which is made easy by the Ronin DOJO project, and I think its important that users are encouraged down this path.
JoinMarket is, by all accounts, a superb project which uses a market based approach to drive the fees down really low. Chris Belcher & Adam Gibson have quietly been building this powerful tool, but because it has historically been more difficult to setup than the aforementioned projects it hasn’t seen widespread adoption. My mission for this year is to get to grips with JoinMaket.
More generally I think Tor & Linux are privacy tools which everyone should lean to use.
Connecting directly to a tor hidden service provides a reasonable level of network level anonymity and using the web browser is incredibly easy – There are some occasions, for example if you need to use a block explorer, where I think everyone should be encouraged to use Tor, even if they don’t use it for anything else.
Linux is vital if you are interested in remaining private online. If you use OSx or Windows then there is a significant data leak and you are far more susceptible to common malware.
SL What’s your view on bitcoin blockchain ‘taint’ ? Does it exist and in what sense does it exist?
Bitcoin UTXOs are sometimes described as ‘Tainted’, for example if they are the known proceeds of a crime. But what does this practically mean for a bitcoin user? Should they be concerned about inadvertently accepting ‘Tainted’ bitcoin? I don’t think so – taint can’t be objectively measured and it is completely subjective, it relies upon heuristics which are becoming increasingly invalidated. Taint is not an intrinsic property of a utxo (unlike, for example, the value of the utxo in satoshis), it is an extrinsic property imposed on the utxo by the analyst. Nevertheless, some businesses attempt to try and track taint in a desperate and misguided effort to be seen to be taking steps to comply with regulations. I have produced infographics to explain why none of these methods are viable, which you can find on my website or in the shownotes. The key thing to realise is that exchanges are only using these models because chain analysis companies present them as an easy way to avoid regulatory issues and overstate their usefulness in order to generate sales.
SL: What are your thoughts on the hopes for the non-KYC bitcoin economy?
Bitcoin is a tool. Being technologists or economists we can easily forget this. Bitcoin is not in itself going to change the world, it is the people using bitcoin who will change the world.
Originally bitcoin was promoted as a way of transferring value in a trustless manner, and the scarcity was a useful extra feature which lets us experiment with the first example of a truly limited money supply. It seems that increasingly people are only interested in the potential for bitcoin to increase in value relative to the dollar which it was designed to obviate. This ignores that fact that for the buying power of bitcoin to be important you need to actually eventually exchange it for goods or services. Or, if you intend to pass the bitcoin on to your children, that they will have to exchange it for goods and services. As a result of this Number Go Up obsession there has been an explosion of on-ramps which, in requiring KYC, are antithetical to bitcoin. Those who insist that in order to acquire $5 worth of bitcoin you must submit photos of yourself and your passport to a trusted third party are, in an ideological sense, diametrically opposed to the ideology of the cypherpunks who created bitcoin.
KYC Creep has infected bitcoin businesses because of a fundamental misunderstanding of what bitcoin is. Bitcoin is a database, whey you buy bitcoin you are just paying for a change to be made to the database. This can’t be legally regulated in America without violation of the first amendment as Beautyon has pointed out time and time again. In any free country there is some protection of free speech, and bitcoin, being text, is simply speech. I am hopeful that eventually anti-bitcoin regulations will be challenged in court, and it will be clear that the emperor has no clothes. I am hopeful that companies and individuals who have spent years designing complicated regulations and selling methods of meeting them will be cast out and finally bitcoin businesses will have the courage to reject the mischaracterization of bitcoin as money. Bitcoin, being a database should be no more regulated than an equivalent system using excel or mySQL, like in-game currency. Regardless, just like strong encryption, which faced significant legal resistance in the USA, bitcoin is unstoppable and can and will be used regardless of the law.
Let me quote a section of The Soverign Individual, a book written 43 years ago, in 1977!
“You need merely lodge your transactions in cyberspace. This will, of course, be illedal in many jurisdictions. But old laws seldom can resist new technology. In the 1980s, it was illegal in the United States to send a fax massage. The U.S. Post Office considered faxes to be firt-class mail, over which the U.S. Post Office claimed an ancient monopoly. … Billions of fax messages later, it is unclear whether anyone ever complied with that law. … Widespread adoption of public-key/private key encryption technologies will soon allow many economic activities to be completed anywhere you please.”
Bitcoin users have a choice. They can either opt for the convenience of buying/selling bitcoin via a KYC’d exchange, potentially putting themselves at risk of extortion and theft or they can support those companies / individuals who are challenging the status quo by offering an alternate and legal method of acquiring bitcoin without using the legacy rails. The simplest such method is doing work and getting paid directly in bitcoin.
My hope is that people become more aware of the options available and support those businesses and individuals who are challenging the assumption that bitcoin sales need to be KYC’d. For example, bitcoin voucher companies like Azteco or FastBitcoins offer a way to buy bitcoin without any KYC information, within certain limits. The other option is BISQ which connects individual buyers and sellers via a decentralised p2p platform which uses tor to maintain network level privacy. To reiterate, in many countries these methods are completely legal and are actually not significantly less convenient than KYC’d exchanges – I encourage listeners to look into these projects.
Governments around the world will eventually realise the potential income from a hands off regulatory regime combined with competitive income tax for bitcoin businesses, so though the current KYC issues limit bitcoin adoption in some locations (for example New York) other locations are unaffected.
Another thing to note here is that KYC is a security risk. If you give your personal data to a company to verify your identity there is a real risk that this data could be leaked or sold following a hack of the company. A recent example of this is BlockFi who were hacked leading to physical addresses of their users being accessed. To date they have failed to make a public announcement about this and some users have reported that they have heard nothing from the company directly. It is highly likely that the hacker will sell this data to criminals and that we will eventually have a reports from BlockFi customers of receiving blackmail or even being victims of theft. Once this kind of information is leaked it is impossible to get back, for many users of this service it may even be worth moving house – especially given that account activity was leaked. This is the hidden side of KYC that is rarely considered by a newcomer buying their first coins for example. Submitting this information does increase the risk that one day you will be the victim of theft.
To summarise, KYC creep developed due to a misunderstand of what bitcoin is and has been exacerbated by regulatory capture. New companies and services are appearing which challenge the status quo, and allow people to use bitcoin properly.
SL: Do you see it like we will have two parallel sides of bitcoin, the ‘regulatory compliant Bitcoin’ side and the grey market bitcoin side?
Bitcoin as a protocol is completely unaware and unaffected by regulation. If individual countries misunderstand bitcoin and legislate that all bitcoin sales must be KYC’d then those countries will fade into insignificance regarding bitcoin. Similarly, if companies misunderstand regulations and overzealously require users to submit KYC documentation for all purchases/sales then they will eventually lose business to those companies that understand, test and change the limits of regulations. Bitcoin is a global system, and each country has autonomy to create unique rules and regulations. As some countries tighten regulation, others will loosen regulation in order to entice bitcoin companies.
I don’t think the distinction between ‘compliant bitcoin’ and ‘grey market bitcoin’ is useful or a good message to be promoting. Do people talk about the dollar having a grey market side and a compliment side? No – A dollar in the hands of a criminal can be exchanged for white market goods, and within a day be cashed in a bank. Similarly, cash withdrawn by a seemingly law abiding citizen can be in the hands of a criminal within minutes. There exists a white market, black market and grey market, but the dollars used are interchangeable.
At what point does bitcoin used for black market activity become acceptable to a regulated entity? Suppose a regulated entity were to take a whitelist approach, that is they only let you deposit a utxo if they can fully trace back the coins origin to another regulated entity. This would make it impossible for the users of this regulated entity to receive bitcoin from anyone without first checking that these coins could be fully traced.
Quickly it becomes apparent that such an approach will hinder the ability of both the regulated entity and the users to engage in economic activity. Everyone would be anxious to accept bitcoin, because they would be at risk of corrupting their whole stash.
Unbanked individuals will be on-boarded onto bitcoin over the coming years and they will want to buy products and services from around the world – a user of the whitelist system would be unable to accept payment from these individuals who have no bank account, no passport, no driving license. Clearly any users who engage in such a whitelisting system will loose out economically to users of entities which take a more sensible hands off approach.
It is tempting to then propose a less extreme form of regulatory compliance, somewhere between a hands off approach and full whitelisting only. This middle ground does not exist – it is an illusion. If the compliant world is willing to accept a coin which may, or may not, be linked to crime then the criminal simply has to manage their coins to ensure that they pass this test.
For example, suppose there is ambiguity in the flow of value in a bitcoin transaction, with some inputs being from known entities and others from unknown entities. A middle ground approach may assign an equal risk score to each output, effectively diluting the degree of ‘taint’ which the analyst has assigned to the coin. In this case a criminal must simply partake in a number of these transactions consecutively in order to reduce the ‘degree of taint’ of their coins below that required to be deemed compliant.
As such, there is no meaningful middle ground approach between a complete hands off approach and a whitelisting approach. The idea that such a middle ground exists is primarily due to PR by surveillance companies who profit from selling their black box ‘Middleground’ services to exchanges. In some jurisdictions these surveillance companies have influenced the writing of the laws to mandate the use of their technology as was seen in New York with the BitLicense. In other jurisdictions they simply mislead exchanges and other entities into believing that their tools are required to meet the legal requirements, though this is not the case.
A quick aside – people often think that the unbanked refers to people in non-western countries, but there are, according to 37 million unbanked adults in Europe & 8.4 million unbanked households in the USA.
SL: Do you recommend that others follow your path and use a pseudonym and go only by that nym?
I recommend people try using a nym at least for a while. You are forced to build your network from scratch, without the benefit of being able to leverage your social network. This forces you to refine your arguments and contribute something meaningful to be noticed. I am pleasantly surprised at the level of trust I have been able to establish with true name bitcoiners. I would have thought that many people would reluctant to share thoughts and opinions in confidence with someone who’s name is a number, but in fact that doesn’t seem to be the case.
Using a NYM is liberating, you are able to express yourself freely, and it often seems that people are more receptive to some ideas when they come from a NYM. I encourage everyone to read the book TRUE NAMES by Vernor Vinge, an early cypherpunk book which explores the idea of using NYM’s and the dangers of revealing your True Name.
I think that satoshi releasing bitcoin under a NYM was a powerful statement – that he remains unknown is a testament to the degree of privacy which can still be achieved.
SL: Thoughts on attending local meet ups – being able to learn quickly and share ideas, make contacts, vs opsec and privacy risk?
Meetups are great for many reasons, but I remind people to carefully consider their actions at meetups, particularly amongst people they have only met a few times. The bitcoin VR meetup is great for this reason although obviously is doesn’t beat meatspace in terms of the personal connections you can form.
It is obviously possible to attend a meetup without revealing your nym, but you should take care to use a burner / secondary phone & think before you speak. If I met someone in meatspace who knew me under my nym it would likely be challenging to avoid telling them – It would feel like a violation of their trust if they knew me as 6102bitcoin and as [REDACTED] but did not know that we are one and the same. I imagine it would be hard to tell them some time after having become acquainted – I would love to hear from people who have had this experience and can share their thoughts from either perspective, please drop me a DM.
Generally, I suppose attending a bitcoin meetup may increase your chance of being put under targeted digital surveillance, but I think that unless you are very careful online a sophisticated government could identify you as a bitcoin user. You only have to make one mistake, download one block over clearnet, and they know. That said, in an authoritarian country I would be very cautious about attending a widely advertised meetup – it could be a honeypot.
For most people, think a more realistic risk is that you are identified as a bitcoin user by a thief attending the meetup, or someone who is willing to sell information to a thief. For this reason I think that it is critical that you never discuss your bitcoin security setup at a meetup.
Check out bitcoin-only.com/#meetups to see if there is a meetup in your city. If you run a bitcoin meetup which isn’t listed please raise an issue on github – send me a DM if you need help doing this.
SL: Do you think there are bigger govt attacks on bitcoin coming? Or do you think that bitcoin eventually builds up enough of a ‘bitcoin electorate’ to make it less politically palatable to attack?
I agree that it is possible for a sufficient bitcoin electorate to dissuade politicians from attacking bitcoin, but I think its even more likely that bitcoin businesses will make it known to governments that any efforts to over regulate will result in an immediate relocation to international waters. As mentioned previously, some countries will structure regulation to be very light regarding bitcoin, to attract bitcoin companies and the tax revenue they bring, from around the world. The switching cost will be negligible and the process will be completed within hours without the need for physical contract signing or a physical headquarters. This will place pressure on governments around the world to tread very lightly.
Some governments will undoubtedly try and regulate against bitcoin or worse, attempt to confiscate bitcoin from their citizens. I don’t imagine that these regulations or attempts at seizure would be particularly effective for a number of reasons. Firstly, bitcoin can move at the speed of light (with a 10 minute lag). Regulations take time to develop and in most countries a vote would be needed to confiscate bitcoin. Before the vote even takes place most owners of bitcoin would have transferred ownership outside the country, beyond regulatory reach. Secondly, Bitcoin can be controlled my numerous parties who operate under different regulations making such confiscation unworkable. Finally, bitcoin can be hidden in plain sight and owners can build plausible deniability into the scheme used to hold bitcoin.
I expect the tools to enable shared ownership of bitcoin to develop to the point that they are very user friendly and secure long before any western country attempts such a feat. It may well be that the development and widespread use of these tools dissuades a government from even attempting to seize bitcoin – so these tools can’t be developed soon enough.
SL: You’ve commented about Blockstream Liquid and L-BTC being an IOU, what risks do you see if L-BTC is used by retail users? Is it mainly the risk of having your peg-out denied and govt (or other) permissioning entering the system that way?
Liquid is a complex IOU that you buy with bitcoin. Liquid Bitcoin tokens aka L-BTC are tokens on an a network managed by a consortium thus you have no guarantee that bitcoin you peg into liquid will be available for you to peg out in the future. Effectively you send your bitcoin to a group of companies in the hope that you’ll get it back. As such, L-BTC is not bitcoin, it’s an IOU. The risk is that retail users get on boarded into Liquid, mistakenly think that they own bitcoin and do not take steps to take self custody of bitcoin in the future. The peg-out could be denied or the consortium could go rogue and steal the bitcoin (due to pressure from governments) or get hacked and have the bitcoin stolen from the consortium. The consortium uses hardware secure modules to try and limit the risk of theft, but as more bitcoin gets pegged into liquid the cost, and therefore the sophistication of an attack can increase and still be wildly profitable.
All that said, I think that liquid and private banking systems in general will become increasingly common in the future – Many people will use them, especially once it becomes economically infeasible to regularly make small transactions on chain.
My main concern is that liquid provides a new attach vector against bitcoin in general. Currently, if a single exchange gets hacked and looses a significant amount of bitcoin to a thief, there is no chance that an economic majority would support a fork to roll back the transaction in which the coins were stolen. We saw the massive pushback on social media when Binance was hacked and CZ commented that they considered trying a roll back. The social media reaction is not particularly meaningful, it is the economic supermajority which matters. In this case, with one exchange being hacked, the large players had no interest in helping binance. If anything, all the other exchanges would be against such a move because they are in competition with binance.
With liquid however, you have a huge list of companies who are locking an increasing about of bitcoin into the pool of bitcoin belonging to the federation. Over time, there could well be a significant fraction of the ‘voting’ weight which would support a roll back in the scenario where a 2/3rds majority of the Hardware Security Modules are hacked and the federation bitcoin is withdrawn to a previously compromised exchange cold address and then either burned or send to a hackers address.
If every exchange was at risk of financial collapse due to the hack then they would all be ideologically aligned and the push for a roll back would be immense. They could make it hard or slow to access the coins on the original chain in the case of a fork, making it difficult for those holding coins on an exchange to sell the fork coin. They could allow buying and withdrawing of the fork coin to increase it’s price. They could bribe miners to switch to mine their chain, or to perform re-org attacks on the original chain.
The percentage of bitcoin users weighted by their economic activity who are actively engaged with running their own node and enforcing the network rules has only been decreasing over time since bitcoins inception. There are huge players who hold vast sums of bitcoin who are completely detached from the nuance of forks and consensus wars, and I expect the amount of bitcoin held by such entities to continue to grow. As such, the fraction of the economic activity that would actively resist a hostile fork like this is likely reducing, making such an attack increasingly viable.
Another element to this is that any government interested in damaging bitcoin would identify this as a possible route to weakening bitcoin – they would support such a fork with whatever means they could, including huge financial support for the new coin (making mining the new coin increasingly profitable), seizing mining equipment where possible either overtly or covertly, in order to attack the original chain and perform large and repeated deep reorgs which disrupt economic activity.
For these reasons I think that Liquid could pose a significant new attack vector to bitcoin if it continues to grow and expand across bitcoin exchanges and services.
SL: Why is it important for people to self-custody their Bitcoin?
Unless you self custody bitcoin you don’t actually have any bitcoin, you have an IOU for bitcoin. The number shown on an exchange under labelled bitcoin balance is the amount of bitcoin the exchange owes you. This is painfully obvious for individuals who had bitcoin deposited on Mt. Gox – when the exchange was hacked they were unable to withdraw their bitcoin, that is to say, they were unable to exchange their exchange IOU for bitcoin.
Self custody brings a number of significant benefits; for one you don’t need to rely on a third party – you can do whatever you want with your bitcoin including spending and securing it however you want.
Secondly, you can verify that you have actually received bitcoin by running your own node. If your node shows that you have received bitcoin then you know that it will be there when you need it, whereas if you are trusting someone else to tell you whether you have received bitcoin then you might be in for a surprise when you try and spend that bitcoin.
SL: What are your thoughts on bitcoin citadels? Are they necessary and how will they take shape?
I love the idea that there will be actual bitcoin citadels – walled towns where all commerce is denominated in bitcoin – but hopefully enough people will adopt bitcoin to make this unnecessary.
Governments will realise the huge economic boom that will inevitably follow the globe-trotting bitcoin rich. I expect small countries with pragmatic governments to compete to make an attractive place for the bitcoin rich to live, for example by having no capital gains tax and a high degree of personal freedom.
It could be that entire countries become bitcoin citadels in this manner – or I suppose you could have individual states in America which take a more favourable approach.
SL: Closing thoughts and tips for the listeners?
Historians generally deem the Western Roman Empire to have fallen with the deposition of Romulus Augustulus in the year 476, but the Roman Senate which was established in the first days of the city of Rome continued to exist, almost powerless, for another century. It is very hard for most people to acknowledge that the world they inhabit today is significantly and meaningfully different to the world they were born into, and yet if you take the time to look you can see the cracks. In my opinion it is highly likely that the collapse of the welfare state has already begun – Bitcoin is a tool which can help you survive and hopefully thrive over the coming decades.
- If you don’t know where to start go to bitcoin-intro.com
- If you want to learn more about bitcoin privacy go to btcprivacy.org
- If you want to attend a meetup look at bitcoin-only.com/#meetups
You can find me on twitter @6102bitcoin, if you have any questions my DM’s are open
Bitcoin is not going to change the world by itself – but if enough people start using it, we just might.
Interesting take. Of course the opposite is true with regard to the dollar and fiat currencies. Gold is limited; you can’t just make more. Which means wealth is limited. Fiat currencies and modern monetary policy allow for wealth to expand indefinitely. All value is fiction whether it’s a shiney rock that is only good for electronics and roof flashing or fiat money.