Cryptocurrencies

[changegonnacome]

One of the nations most knowledgeable securities judges in NY has just taken apart the Torres ruling in a separate case brought to him…..not sure Cointelegraph will be reporting on this.....and it solves the transaction by transaction howey test approach Torres took

 

 

 

Edited August 1, 2023 by changegonnacome

[changegonnacome]

More here in the same vein:

 

 

[rkbabang]

36 minutes ago, Paarslaars said:

I have been getting more interested in this topic, started with the Softwar book recommended but is there also a more general introductory book you guys could recommend? The Bitcoin standard?

 

I want to do more research before I decide to make this a part of my portfolio.

 

Yes, I would recommend “The Bitcoin Standard” as the place to start.  “The Fiat Standard” is also excellent as it contrasts Bitcoin with what we have now.  After that if you want a more technical book about the mechanics of it “Mastering Bitcoin: Programming the Open Blockchain” by Andreas Antonopoulos is excellent, but maybe more technical than you need.

 

 

[Paarslaars]

31 minutes ago, rkbabang said:

Yes, I would recommend “The Bitcoin Standard” as the place to start.  “The Fiat Standard” is also excellent as it contrasts Bitcoin with what we have now.  After that if you want a more technical book about the mechanics of it “Mastering Bitcoin: Programming the Open Blockchain” by Andreas Antonopoulos is excellent, but maybe more technical than you need.

 

 

Thanks!

 

I'm an engineer so I enjoy the more technical stuff.  

[ValueArb]

I have always thought that the most ludicrous misunderstanding of crypto is that it's anonymous when every single transaction is easily traceable. We may not know who owns a wallet, but we know all of it's transactions. This is why its reasonable to think that Satoshi Nakamoto is dead or has lost his private key, given his wallet has not been used in over a decade. And why scammers who steal billions in BTC end up getting arrested years later without having spent more than a tiny fraction of their haul since any transaction will be quickly flagged as from the stolen BTC.

 

But I'm pleased to find out today that I'm wrong, not for its utility in committing crimes which I have no interest in committing, but because its something I've been thinking about a lot for years. I'd like to use this technique not for crypto but for another application I've been wanting to implement for a long time that requires this type of anonymity algorithm. Turns out there is an algorithm called Ring Signatures that can be used to obfuscate the actual account in a transaction. Essentially the transaction can only be attributed to a specific group of accounts, not a single account. So if implemented cleverly by a currency (both in maximizing obfuscation as well as minimizing computational requirements) no one will be able to trace transactions.

 

And of course after finding this algorithm a simple search demonstrates Monero implemented Ring Signatures about 4 years ago. I can't speak to how well they implemented it, but now I know why they make their anonymity claims.

 

https://www.getmonero.org/resources/moneropedia/ringsignatures.html

[jfan]

On 8/1/2023 at 7:10 AM, Paarslaars said:

I have been getting more interested in this topic, started with the Softwar book recommended but is there also a more general introductory book you guys could recommend? The Bitcoin standard?

 

I want to do more research before I decide to make this a part of my portfolio.

 

Lyn Alden and Horizon Kinetic Papers are great primers as well. 

[jfan]

On 7/27/2023 at 9:45 PM, Castanza said:

Softwar_A Novel Theory on Power Projection.pdf 5.91 MB · 17 downloads

 

 

I skipped to section 5 first. His thesis is a bit wordy and quite repetitive in sections but has interesting ideas.

 

These are a few concepts that I thought were useful.

 

1) Power projection theory

    - physical vs abstract power projection techniques

    - benefit to cost ratio as an indicator for outside attacks on owned resources

    - resources divided by the use of physical power trends toward decentralization

 

2) A Planetary computer coupled to proof-of-work protocol to convey a purely digital abstraction of real electrical power spent. This could be used as a non-kinetic technique to project "physical power" in cyberspace. Allowing individuals/communities/nation states to secure a section of the cyberspace/data resources as their own.

 

3) Gabriel's horn - finite volume with infinite surface area as applied to proof-of-work tokens such as bitcoin (fixed supply with infinite electrical power/user representation). 

 

 

 

[rkbabang]

1 hour ago, jfan said:

Lyn Alden and Horizon Kinetic Papers are great primers as well. 

 

Could you give us a little more info on the above?  I'm not familiar with either Lyn Alden or the Horizon Kinetic Papers. It looks like Lyn Alden has a bunch of YouTube videos, are there any in particular I should start with?  And I didn't find anything very interesting in the first few links of a google search for "Horizon Kinetic Papers".

 

[jfan]

9 hours ago, rkbabang said:

 

Could you give us a little more info on the above?  I'm not familiar with either Lyn Alden or the Horizon Kinetic Papers. It looks like Lyn Alden has a bunch of YouTube videos, are there any in particular I should start with?  And I didn't find anything very interesting in the first few links of a google search for "Horizon Kinetic Papers".

 

What is Money, Anyway? - Lyn Alden ** This is a decent write-up

 

Bitcoin's Energy Usage Isn't a Problem. Here's Why. - Lyn Alden

 

An Economic Analysis of Ethereum - Lyn Alden

 

Proof-of-Stake and Stablecoins: A Blockchain Centralization Dilemma - Lyn Alden

 

Article Archives - Lyn Alden

- This link has a bunch of her articles on various subjects including write-ups on digital assets

 

Library | Horizon Kinetics ** they have a bunch of articles written on the subject over the years

 

Consensus Mining and Seigniorage Corporation 

- This is Stahl's bitcoin mining operations. They have a bunch of articles about mining economics here. They are planning to bring this operation public on OTC markets in 2024.

 

 

[rkbabang]

10 hours ago, jfan said:

What is Money, Anyway? - Lyn Alden ** This is a decent write-up

 

Bitcoin's Energy Usage Isn't a Problem. Here's Why. - Lyn Alden

 

An Economic Analysis of Ethereum - Lyn Alden

 

Proof-of-Stake and Stablecoins: A Blockchain Centralization Dilemma - Lyn Alden

 

Article Archives - Lyn Alden

- This link has a bunch of her articles on various subjects including write-ups on digital assets

 

Library | Horizon Kinetics ** they have a bunch of articles written on the subject over the years

 

Consensus Mining and Seigniorage Corporation 

- This is Stahl's bitcoin mining operations. They have a bunch of articles about mining economics here. They are planning to bring this operation public on OTC markets in 2024.

 

 

 

Thanks!   Much appreciated.

[jfan]

Couple of interesting resources

 

Lex Friedman Podcast with Yuval Noah Harari July 17 2023

 

24:00 - Money is the most successful story told. 

25:00 - Cryptocurrency - Bitcoin story around the math

1:33:00 - Too much focus on power structure (struggle for power between parties) leads one to see that fighting is the only solution vs stories (which guide the underlying power structures) can sometimes be changed by conversations. (this in contrast to softwar's power projection theory)

 

The Price of Time by Ed Chancellor is a good book on the history of interest across various civilization across time. Worth reading to see how governments have a tendency to manipulate them over time (often forcing them below 3% - which usually leads to troubles and bubbles) vs market-based pricing of interest rates. 

Edited August 13, 2023 by jfan

[Dave86ch]

Bullish on Bitcoin, it's important to maintain a healthy discussion by pointing out the weaknesses of the thesis.

 

 

[Dave86ch]

I also created an AI mind map on the kmpg esg researchmon Bitcoin

 

I updated my Bitcoin diary as well.

 

https://dscompounding.com/2022/12/16/bitcoin-diary/

 

 

 

 

 

[Luca]

28 minutes ago, Dave86ch said:

I also created an AI mind map on the kmpg esg researchmon Bitcoin

 

I updated my Bitcoin diary as well.

 

https://dscompounding.com/2022/12/16/bitcoin-diary/

 

 

 

 

 

First, Historically, currencies were created by states and not by the people, so bringing currency back into "private hands" is not accurate. Second, how would that look like in scenarios like the pandemic or during a financial crisis with Bitcoin? Will people who did not save enough bitcoin to make it without a job for 2 years just become homeless? 

 

I mean, everything you post regarding bitcoin looks interesting, but do you yourself understand it? The blog consist of some anecdotes that sound smart but to me that was the essence of the bubble, sounded smart and interesting, but nobody really understood it themselves. 

 

Why are central bankers "scammers"? 

Why should we implement bitcoin as our currency?

 

Could you maybe write your thesis down in a precise summary instead of an interesting quote here or there? 

I believe the subscribers of your blog would appreciate it too. 

 

I would like to understand more about it. 

 

Thanks!

 

Cheers. 

[changegonnacome]

25 minutes ago, Luca said:

Second, how would that look like in scenarios like the pandemic or during a financial crisis with Bitcoin?

 

This is one of my favourite thought experiments - for the bitcoin maxi maxis...who think that it might replace sovereign currency one day.......fine.....lets say it does.....we have ultra hard money (21m bitcoins), not controlled by a central authority.........and then a pandemic comes......the monetary largesse that occured in 2020/2021 stabilized a very difficult situation....it worked because it WAS centralized (Jay Powell/Jannet Yellen open the flood gates) and it worked to stablize things because it was FIAT money (we just printed more).

 

There is not 'perfect' monetary system...always trade-offs in complex systems......the one we have is the least worst

[TwoCitiesCapital]

32 minutes ago, Luca said:

First, Historically, currencies were created by states and not by the people, so bringing currency back into "private hands" is not accurate. Second, how would that look like in scenarios like the pandemic or during a financial crisis with Bitcoin? Will people who did not save enough bitcoin to make it without a job for 2 years just become homeless? 

 

I mean, everything you post regarding bitcoin looks interesting, but do you yourself understand it? The blog consist of some anecdotes that sound smart but to me that was the essence of the bubble, sounded smart and interesting, but nobody really understood it themselves. 

 

Why are central bankers "scammers"? 

Why should we implement bitcoin as our currency?

 

Could you maybe write your thesis down in a precise summary instead of an interesting quote here or there? 

I believe the subscribers of your blog would appreciate it too. 

 

I would like to understand more about it. 

 

Thanks!

 

Cheers. 

 

Plenty of observations in history of private currencies, but they were generally minted by private banks and not individuals. 

[Luca]

1 minute ago, changegonnacome said:

 

This is one of my favourite thought experiments - for the bitcoin maxi maxis...who think that it might replace sovereign currency one day.......fine.....lets say it does.....we have ultra hard money (21m bitcoins), not controlled by a central authority.........and then a pandemic comes......the monetary largesse that occured in 2020/2021 stabilized a very difficult situation....it worked because it WAS centralized (Jay Powell/Jannet Yellen open the flood gates) and it worked to stablize things because it was FIAT money (we just printed more).

 

There is not 'perfect' monetary system...always trade-offs in complex systems......the one we have is the least worst

Exactly, theoretically the government could save up bitcoins to give out to the ones affected, or borrow them from another country but It's hard for me to see how 0 government control is beneficial. 

[TwoCitiesCapital]

52 minutes ago, Luca said:

Exactly, theoretically the government could save up bitcoins to give out to the ones affected, or borrow them from another country but It's hard for me to see how 0 government control is beneficial. 

 I dunno. This seems to ignore the negatives of government policy being a large factor in the malinvestment/leveraged talking that requires govt bailouts in the first place 

 

Perhaps Covid is one example of a positive while the Tech Bubble, 2008, and the double-dip inside of the Great Depression are examples of the negatives. 

 

I think I'd be open to LESS government intervention...

[Luca]

46 minutes ago, TwoCitiesCapital said:

 I dunno. This seems to ignore the negatives of government policy being a large factor in the malinvestment/leveraged talking that requires govt bailouts in the first place 

 

Perhaps Covid is one example of a positive while the Tech Bubble, 2008, and the double-dip inside of the Great Depression are examples of the negatives. 

 

I think I'd be open to LESS government intervention...

That is true, a government has the ability to ruin the currency. But with bitcoin or crypto there is also no control. I think the government control is still preferable but maybe @Dave86ch can prove me wrong. 

[rkbabang]

14 minutes ago, Luca said:

That is true, a government has the ability to ruin the currency. But with bitcoin or crypto there is also no control. I think the government control is still preferable but maybe @Dave86ch can prove me wrong. 

 

 

I have no idea if @Dave86ch can prove you wrong, but I am 100% certain that time will.

 

[Luca]

11 minutes ago, rkbabang said:

 

 

I have no idea if @Dave86ch can prove you wrong, but I am 100% certain that time will.

 

There are very stable currencies like the swiss frank, they also have a decent government. Then we have zimbabwe with 65% annual inflation for more than a decade. So there we have one factor made clear: Smart state. 

 

@Dave86ch How will this function with bitcoin globally if humanity continues to grow. Lets say we will have 20b people population by 2060, we made Mars habitable too. Now the currency couldnt grow with the population, how does that play out with bitcoin? 

 

 

Our analysis shows that the volume of transactions carried out using cryptocurrencies is still insignificant compared to those carried out using official currencies. This implies that, at least for the moment, cryptocurrencies are not real contenders to replace official currencies.

 

However, cryptocurrencies do have interesting characteristics that make them attractive in ways other currencies are not. They are truly global in nature and easily accessible to potential users. The US dollar and possibly the euro are global currencies, but might not always be as readily available (for instance, if a government wants to restrict their use in its jurisdiction). Also, the fact that they are not backed by a government protects them from political influence and the threat of manipulation.

 

Our second issue is how cryptocurrencies might alter the nature of monetary policy and its application. The management of traditional money by monetary policy authorities (ie central banks) is partly automatic (or at least rules-based) and partly discretionary. A cryptocurrency’s protocol is operated by a predefined algorithm, making its management fully automatic. It is currently difficult to imagine how algorithms could be fully effective in dealing with complex decisions in an uncertain world. More importantly however, the lack of a real person behind the automatic decision-making implies that such algorithms could not be held to account. This is an important shortcoming because the value of a currency is a crucial component of a society’s ability to prosper and therefore decision making in relation to that currency is a power that should be carefully monitored. Monetary policymakers who are granted that power are part of the package of national policies that are subject to monitoring and review. Monetary policymakers can ultimately be dismissed if deemed necessary

 

 

Edited August 15, 2023 by Luca

[Luca]

 From a monetary policy perspective, a global cryptocurrency area is unlikely to be an optimal currency area, as this would lead to an inability to adjust exchange rates within the ‘area’. The result would thus be a crypto-monetary policy (ie its supply protocol) that would be consistently too tight and too accommodative for different countries at different times.

 

Other major risks that could undermine trust in cryptocurrencies could arise from market concentration (which could lead to the falsification of the ledger and to ‘double spend’ issues), from the manipulation of the value of the currency via insider trading and from the reliance on unregulated intermediaries necessary to use cryptocurrencies.

 

For what its worth, some thoughts regarding crypto. Its a very complex topic. 

PC-10_2018_2.pdf

[rkbabang]

Bitcoin can be divided into 100,000,000 units (commonly called "satoshis" or sats).  I have no doubt if more decimal places were needed that would be a non-controversial fork to make.   Yes, this makes BTC forever a deflationary currency and this will change the way things work in the stock, bond, money markets.  Money will be more expensive than it is now as the average person can just hold onto their Bitcoin and realize a return on their real spending power rather than invest.  Eventually the real value of Bitcoin will grow every year at about the rate of economic growth in the economy.

 

[jfan]

@Luca

 

Jason Lowery describes the digitization of crypto-mining energy spent via its proof-of-work algorithm into bitcoin is analogous to the mathematical phenomenon known as Gabriel's horn. This is where the volume of the horn trends to a fixed value as the horn gets longer but the surface area of the horn continues to grow without a definitive end value. 

 

He has a nice diagram in his thesis describing how this physical world (real energy spent) transfer into the digital world (as represented by the bitcoins in circulation).

 

The way I understand how this works is this:

 

   Imagine if you own the only bitcoin miner in the world. It costs you a certain amount of electrical costs to mine bitcoins (ie receive block rewards). You keep all your BTC mined. If say @Dave86ch gets a miner too and starts mining as well. The total energy spent by the both of you is now greater but your proportion of total energy used is reduced by 50%. If say @rkbabang gets a miner, then both of you will have a smaller proportion of energy spent. As more miners join the party, the 3 of you will get a smaller and smaller proportion of energy spent (ie hash rate). This is similar to when companies issue more shares and existing shareholders get their ownership diluted in the physical world.

 

   However, the total new energy (ie $ spent on electricity) spent by the 3 of you and everyone else is divided by the total number of new BTC mined (the marginal BTC minted) in the digital world. And because each BTC in the existing supply is fungible, this marginal production cost represents the "fair value" of BTC at that moment in time. The new successful miners will not likely part with their BTC unless it is well above the cost of their production. This drives the "rational" selling price upward. And lucky for you, the BTC that you originally mined at a much lower cost, gets the benefit of value appreciation from the new BTC mined by anyone else. 

 

   So despite the dilution of your electrical energy spent (ie $ of electricity used, hash rate), the value of the BTC that you earned earlier does not get diluted and in fact increases over time. With an eventual asymptote of 21 million caused by the BTC reward halving cycles ~ every 4 years, the increasing difficulty adjustment built into the proof-of-work protocol, it will likely cause more and more electrical energy needed to mine the next set of marginal BTC rewards. 

 

   This increasing energy spent has no specific upper limit (which is analogous to the infinite surface area of Gabriel's horn) but will trend towards a finite BTC supply (which is analogous to the finite volume of Gabriel's horn).  So if people have now colonized our entire solar system and are mining BTC, this energy expenditure can still be represented by the fixed number of BTC.

 

   The above scenario describes the situation if everyone that mines, holds onto their BTC and does not transact with it. If people start transacting with BTC, there exists a transaction fee which currently is about 2% of the block reward. If we leave aside why someone would want to transact in BTC, is the network capable of handling 8 billion people? 16 billion? 32 billion?. Because the block sizes are small, only so many transactions by individuals can be processed at any point in time. The average is 10 minutes now but it can be longer if the transaction fee that you are offering as an incentive to miners for confirming your BTC transaction is too low as you compete with others to get into a block. So with more and more people transacting at the base layer, the fees will move up as well. 

 

    At some point in time, the transaction fee will be greater than the actual satoshis/BTC being transacted. Which means that at some point in time, people will have increasing difficulty transacting at the base layer (due to competition for a block). This deliberate block size limit was placed to allow the smallest memory needed for the nodes in the system to store the blockchain ledger itself (to maximize decentralization) Therefore, although the # of BTC transacted in a block doesn't have an upper limit (Gabriel's horn's surface area), there is a limit on the # of individuals obtaining a block. This is where Layer 2 pooling of small transactions can take place and be confirmed later at the base layer in a single large transaction. (I'm not an expert with respect to the Lightning network, but this is my basic understanding of its purpose)

 

   Hopefully this answers a bit of your question about scaling as humanity grows and its adoption increases.

 

   Summary:

1) No upper limit on price (aka marginal cost of production/fair value)

2) No upper limit on the # of BTC transacted in each block

3) Therefore, scalable despite a fixed limit on the total # of BTC in circulation

 

 

8 hours ago, Luca said:

 How will this function with bitcoin globally if humanity continues to grow. Lets say we will have 20b people population by 2060, we made Mars habitable too. Now the currency couldnt grow with the population, how does that play out with bitcoin? 

 

[Dave86ch]

 

On 8/15/2023 at 2:27 PM, Luca said:

First, Historically, currencies were created by states and not by the people, so bringing currency back into "private hands" is not accurate. Second, how would that look like in scenarios like the pandemic or during a financial crisis with Bitcoin? Will people who did not save enough bitcoin to make it without a job for 2 years just become homeless? 

 

I mean, everything you post regarding bitcoin looks interesting, but do you yourself understand it? The blog consist of some anecdotes that sound smart but to me that was the essence of the bubble, sounded smart and interesting, but nobody really understood it themselves. 

 

Why are central bankers "scammers"? 

Why should we implement bitcoin as our currency?

 

Could you maybe write your thesis down in a precise summary instead of an interesting quote here or there? 

I believe the subscribers of your blog would appreciate it too. 

 

I would like to understand more about it. 

 

Thanks!

 

Cheers. 

 

The diary has the precise goal of sharing perspectives and research from other people.

Here, you can find some of my thoughts on the matter.

https://dscompounding.com/2023/04/24/compound-your-energy/

Technically, I run a full Bitcoin node, and I'm setting up a Lightning node to allow my AI agent to start interacting with a native digital currency. I'm trying to dig into the opcode. I already have a good understanding of Solidity, but I feel that proof of work is a more powerful concept. I'm working to acquire more technical skills to truly implement Bitcoin in some learning projects.

As humans, we started with bartering, using the resources we had produced. Our species literally began by using our own production as a means of payment.

 

 

Over time, and Rome is a good example, governments debased the currency, manipulating what represents the production energy input.

 

Which in turn creates instability in maintaining the security of the empire's boundaries and generates internal conflicts.

 

 

 

 

This is usually the consequence: a return to a hard form of money, which preserves the energy input of production due to its scarcity. (It's a cycle, source: Ray Dalio)

 

This topic has many perspectives; it's a multidisciplinary exercise, and there are no definitive answers because, at the end of the day, it depends on an illusion of value.

 

Energy, on the other hand, is not an illusion. Creating a hard money from energy and placing it in the digital realm makes total sense to me, especially given that a currency tied to energy helps unlock sources of energy that are currently untapped (like for istance metab combustion or El Salvador Volcano, Tibet mining).

 

In the meantime, MicroStrategy is acting as a gateway for institutions, providing access to Bitcoin by issuing shares and buying it.

The fact that MSTR is outperforming Bitcoin could be a positive sign in this regard.

Edited August 17, 2023 by Dave86ch