14 years ago today, Satoshi Nakamoto created the first block in the Bitcoin blockchain. Whether consciously or not, that move kickstarted an entire movement; one that keeps on breathing and expanding these many years afterwards. The singularity of Nakamoto’s creation has been put on display countless times since the Genesis block was mined, and today, more than ever, its purpose is becoming more clear and, fortunately or not, needed.
Engraved in the Genesis block is Bitcoin’s raison d’être.
“Chancellor on brink of the second bailout for banks.” A simple but powerful message. The engraving in and of itself serves as an anchor to the physical world, an atestment to Bitcoin’s birthdate –– or, at least, that it couldn’t have possibly been created before Jan 3, 2009, the date the cover was published. But more importantly, and more philosophically, the message establishes a sort of manifesto, from the start. It makes it clear that the system being ignited by that very block takes a stand against the central bank policies enabled by a culture of easy money. Bitcoin, instead, would seek to restore accountability and antifragility through a monetary system based on sound money; one that can’t be debased or controlled, manipulated or manufactured to benefit a lucky few. Bitcoin would seek to level the playing field, ensuring property rights to millions worldwide, equally and irrespective of their status, race, religious beliefs, gender or nationality.
The fundamental properties of Bitcoin would enable such dream to come true. Powered by a distributed network of nodes, each running the protocol’s software and as such enforcing its rules, Bitcoin would be able to let individuals take up the reins of their financials –– once and for all. As the days and years went by, however, more and more Bitcoin-related activity began drifting to centralized institutions, initially for buying and selling, later for custody, and nowadays for a plethora of services unimaginable in the days of Nakamoto. While such a move enabled a greater participation by people around the world, the initial ideals of Bitcoin have started being neglected. After all, true peer-to-peer electronic cash can’t be actualized in a custodial model where the movement of funds is but an update on a centralized database. Instead, that reality more closely resembles the old, traditional financial system Nakamoto sought to fight in the first place –– one that makes it impossible for people to be sovereign as they can’t be the master of their finances.
While there are multiple requirements for Bitcoin holders to break free of the established system’s reality, this article focuses on a keystone aspect that shares the holiday with Bitcoin’s birthday. Proof of Keys Day, also celebrated on January 3, was started by infamous Trace Mayer, who rallied people to withdraw their bitcoin en masse from centralized exchanges and custodians. The reason? Only by withdrawing their BTC can people ensure companies of the burgeoning industry aren’t taking part on old and established vices like fractional reserve banking. Moreover, only with bitcoin in their possession –– held by a wallet to which they control the keys –– can people be free to do as they please with their BTC. There are many different ways to do self-custody, and while it can be daunting at first, it’s a necessary step to take the leap from the old to the new system.
The “keys” discussed here are the private keys for a given Bitcoin wallet. They can be thought of as the wallet’s actual key in that it “unlocks” the wallet and the bitcoin held in it for spending. Without the keys, no bitcoin can be spent. This is because when a Bitcoin transaction is being formed, the sender “locks” the bitcoin with information about the receiver. Thanks to asymmetric cryptography, this transacting dynamic ensures that only the entity that received the bitcoin can spend it next. And this spending is made possible by the receiver’s private keys. So as long as the receiver takes good care of their private keys, only they will ever be able to spend their bitcoin –– no matter what a government, institution or agency thinks or does about that.
By holding bitcoin in a wallet you create, you ensure that only you can move the bitcoin held in that wallet. When a third party custodian holds your bitcoin for you, they create a wallet for you and tell you the address so you can deposit, but ultimately they control that wallet’s private keys and more often that not that is an information you can’t access. As such, there is a need for permission to be asked to move your bitcoin. While such an ask is automated, it is still necessary so you can move your funds. Often, this takes the form of a “withdrawal request” you issue to your exchange. Proof of Keys Day aims to raise people’s awareness to this fact and entice them to take control of their finances once and for all, making the leap from the traditional financial system to the new, decentralized, Bitcoin-based one. As the saying goes, Not your keys, not your bitcoin!
Start your self-custody journey:
Find out how to withdraw from the exchange you use here.
Quick and easy step-by-step guide for small amounts of bitcoin here.
Twitter thread with links to tutorials of different levels of self-custody, from beginner to advanced here.
But, on the other hand, we should also remember that governments were initially against voice over internet protocol (VoIP) technologies (e.g., Skype, etc.), and nowadays they use VoIP. It’ll be similar with bitcoin, where some countries adopt it as legal tender, hold bitcoin in reserves, provide Bitcoin services for citizens and encourage bitcoin investors and entrepreneurs.
2023 will mostly be about trials and rhetoric, in preparation for future CBDC rollouts. Governments can especially force people into CBDCs in countries with large welfare states, with the understanding being, “If you want your welfare check, you’ll take it as a CBDC.” Just like Darth Vader in “Star Wars,” it’ll be a case of, “Pray I do not alter the deal any further.”
Once upon a time, CBDCs might have been seen as a “conspiracy theory” but by now they are clearly coming as a threat to financial freedom and privacy. Sadly, most people will not see the threat until it is too late and CBDCs are upon them — but it is also the pain of CBDCs that will push more people into using Bitcoin and the Lightning Network.
Maxis Being Minted And Resurgence In Self-Custody Interest
Bitcoin Maximalists are being minted as casual “crypto” fans get rekt on platforms such as Celsius, BlockFi, FTX, Voyager, Vauld, etc. So, in some ways, it’s very cyclical, the 2014 to 2015 bear cycle followed after the collapse of Mt. Gox, and during the 2018 to 2019 bear cycle, we saw the breakdown of QuadrigaCX — so we’re just going through another round of people having to learn the hard way.
For 2023, we will see a stronger self-custody culture given the pain of 2022 is more recent. This is not to preclude future cycles and waves of new adoption with people coming in who are not as careful. Yield and shitcoin scams will be back in another form sooner or later, but it will be a new round of people who succumb to them.
We are seeing more rounds of content and webinars that relate to self custody. For example, with Swan Bitcoin I hosted some self custody 101 webinars (which will be ongoing), and these webinars had some of the highest interest and registrations of any Swan webinars ever offered. Offering an easy auto-withdrawal feature or being 100% non-custodial will be an important feature for Bitcoin on-ramps in 2023.
“Miniscript is a language for writing (a subset of) Bitcoin Scripts in a structured way, enabling analysis, composition, generic signing and more.”
For those who are unfamiliar, Miniscript is a way to more easily express different scripts or spending conditions for bitcoin. This could be built into different wallets in ways that enable easier cross-hardware and -software compatibility.
You might first think, “Why should I care?” and, at the start, you’d be right to ask that. But over time, this will enable more sophisticated self custody, enterprise or even inheritance planning scenarios. Want to have a three-of-three multisig setup that degrades down to a two-of-three multisig setup after 90 days? Or have different “back out” conditions that exist for a business context? Miniscript makes it easier to do these things, and to let people use their existing software or hardware for this purpose. To be clear, some of this is already possible with Bitcoin script today, but Miniscript makes it more technically feasible or easier to achieve in practice.
It will take time for these solutions to be built out, but the functionality does seem promising. Businesses and enterprise customers may be particularly interested in this because it could make their self-custody practices more practical for employees and key holders to execute.
Currently, there is Liana (by the same team behind Revault), and Ledger, which has announced Miniscript support in its hardware, and Specter DIY had already enabled support in 2021! Rob Hamilton has also spoken about Miniscript uses in the world of insurance here. I anticipate more support coming in 2023.
This could help push the use of bitcoin into self-custodial directions, and away from the “old model” of financial services where you have to place more trust in government, banks and fiat financial institutions to honor their word or not debase your wealth.
Lightning First
It’s time to bring about a Lightning-first model for two types of bitcoin transactions: low-value transactions and in-person commerce. We saw the mempoolfullRBF debate blow up toward the end of 2022, but the real answer for most of us is to promote and use Lightning first, where possible.
As a quick anecdote, I recall talking with Giacomo Zucco who was explaining his experience in El Salvador of paying with bitcoin at a supermarket. Unfortunately, the Chivo terminal at that time defaulted to Bitcoin on-chain, and as he paid on-chain, the people in the line behind him had to wait for confirmation, which was very awkward. Contrast this with a Lightning-first experience which could look more like this:
We should show people the best of Bitcoin and for in-person, lower-value commerce, we should go for Lightning first. I believe we’ll start to see this being driven and encouraged by more Bitcoiners and local communities in 2023.
Expansion Of Bitcoin-Only Communities And Events
We will see more events and small-sized conferences in different countries around the world. Contrary to some who believe there are too many Bitcoin conferences, the issue is more one of assuming that you must attend them all!
You should instead attend the events and conferences that align with your interests and/or geography. Having more conferences is a good thing, so long as they are done in a low-cost, effective way. For example, the Bitcoin bush bash is a model that we may see replicated around the world — free to attend, held in a hall or other free/cheap area, no recordings, smaller-size gathering that is hosted somewhere that is cost effective.
By lowering the expectations about things that typically cost a lot more money (e.g., fancy, professionalized operations, live streaming, lots of international speakers), Bitcoiners can grow their local scenes and meetups. This is not to detract from the larger Bitcoin events and conferences, as they also play a key role — but I see a “middle ground” that can be taken up by low cost, local events.
Overall Sentiment
Without having a crystal ball for 2023, I believe bitcoin’s fiat price will remain in a mostly sideways trend. Forget what the bull-hopium people are posting and talking about, they are usually chasing engagement or getting too caught up in their own echo chambers. It takes time for the cycle to bottom out.
But let’s look on the bright side, it’s a great time for stacking sats and building something. Remember, in prior cycles, it wasn’t so clear that “Bitcoin would come back,” whereas now, the world is slowly realizing that Bitcoin is here to stay.
This is a guest post by Stephan Livera. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is an opinion editorial by Ray Youssef, a founder and CEO of Paxful and a founder of the Built With Bitcoin Foundation.
Bitcoin has had a defining year in 2022 and, as I look back, I couldn’t be more excited for 2023. We’re at a turning point. It is clear that Bitcoin is starting to cut the dead weight of speculation. All eyes are on us and it’s our responsibility to educate people and governments about why Bitcoin has real-life use cases that will allow money to flow freely and include billions more into the global economy. I’m ready to onboard the next billion Bitcoiners.
Here are my 2022 takeaways and predictions for 2023:
The Global South Will Continue To Lead Bitcoin Adoption
This trip reenergized my hope for the future. Even in a bear market, trade volume in Africa continues to press forward. Looking at our volume on Paxful, we predict further increases in both Ghana and Nigeria for 2023. Why? We’re still seeing growth in Africa because of the necessity for Bitcoin on the continent — it offers a cheaper and more efficient solution for people to send money back home, make payments and preserve their wealth. And that does not go away because of market conditions. I expect Africa to continue to lead the way heading into the next year.
The Divide Between Bitcoin And The Rest Will Grow
Bitcoin is backed by human work and has proven its utility beyond the West’s obsession with speculation. It has the ability to bank the unbanked and finally shift the tides of economic apartheid — Bitcoin’s impact cannot be overstated. The bulk of “cryptos” are for wild speculation and investing, relying on the morals of these shady authorities.
As we’ve seen with FTX, people’s life savings can be demolished when there is only a single point of failure. This narrative is the same game the banks have been running for centuries. I’m not buying it. Next year, we will see more Bitcoin-only companies and conferences as the Bitcoin community works to clean up the mess of misinformation caused by these bad actors.
Governments Need A Rethink
Smart regulation fosters safety, but poor- or overregulation stifles innovation and growth. We need to strike a balance and that comes with education. My hope for next year is that more Bitcoin companies come together to share why Bitcoin cannot and should not be regulated as you would, for example, stocks or wheat futures.
It’s our responsibility to also advocate for transparency — like requiring companies to share their proof of reserves. Without this, we’re going to see more far-reaching regulation like the Digital Asset Anti-Money Laundering Act, which pegs more consumer surveillance as the savior and touts Western Union as an example to lead the industry. We know how that narrative will play out…
‘Not Your Keys, Not Your Coins’ Will Get Louder
The trust of the people was tested this year and I don’t blame them for shying away. Life savings were destroyed because of despicable morals and we need to earn back that trust. This is why I advocate for decentralization and for users to self custody their savings.
Using a non-custodial wallet means that users are their own banks, managing their own money and controlling the future of their own finances. In 2023, we’ll see more of a narrative and product push around self custody. I am already doing my part to amplify this message, including sharing a step-by-step process on how to self custody your bitcoin.
Bear Markets Will Build A Stronger Industry
I am a natural builder and I have gone back to my roots this year. I’ve come to realize that we are not building products for how people live their daily lives in the Global South. There is too much focus on the unrealistic dream of minting millionaires and not enough around the pain points that keeps billions of people enclosed in economic apartheid. Next year, you will see more products that cater to the true needs of everyday people and offer them solutions for remittance, payments, e-commerce, wealth preservation and basic communication.
Bitcoiners, 2023 is looking brighter than ever. This is the way!
This is a guest post by Ray Youssef. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
Let me tell you a story about what happens when you, and others, leave your bitcoin on exchanges. You might be surprised to hear what that means for your holdings. It might sound a lot like your own.
Let’s call our character Bill. Bill has been cautiously watching bitcoin for years, hearing about it in passing and reading a few articles. After inadvertently saving a lot of cash due to lockdowns, he decided to dive into bitcoin at last. A friend told him to check out Coinbase, Binance or another popular and “trusted” exchange in order to buy his first chunk of bitcoin.
So, Bill created an account and uploaded his face, ID, social security number, address and every other relevant detail about his life until he finally reached the “Buy Bitcoin” screen. He picked up a fraction of a bitcoin, but after all that trouble, he thought to himself:
“I don’t need to learn all these complicated technical details about hardware wallets and self custody — I just want my bitcoin safe.”
Bill reviewed the exchange’s website and decided that the security experts at the exchange, with their wiz-bang cold storage and state-of-the-art encryption, would be better at securing his bitcoin than he himself would be.
Bill was very pleased with himself after making that decision — not only did this exchange make investing in bitcoin simple, it gave him peace of mind knowing that someone else was responsible for keeping his assets safe from any kind of theft or malicious activity. After all, why should he have to worry about such things when there were professionals available who could handle them instead?
Bill has since become quite comfortable with the idea of trusting exchanges with his bitcoin — his coins are now safe from his own mistakes!
When Trust Disappears: The Fall Of FTX
When Bill turned on the news one morning and found out that the massive crypto exchange FTX had just paused withdrawals and seemed to “accidentally” lose $10 billion, roughly a third of its market cap, he was shocked.
How could a firm with its logo on the side of a major sports stadium and a CEO who appeared on CNBC, Bloomberg and in front of the U.S. Congress(!) to talk about digital assets and regulation have lost — or likely stolen — so much from right under everyone’s nose?
Now Bill was stuck between a rock and a hard place. He was suspicious of his own exchange, but setting up his own hardware wallet seemed so difficult and scary. It would require him to invest in a physical device, acquire the necessary knowledge to secure it properly and keep track of his seed phrase backup. Even if he figured out the basics, there was still the risk of misplacing his device or improperly storing his backup and losing access to his bitcoin.
FTX was shocking, but surely Bill’s exchange would never conduct itself the same way. People would see it before it was coming, and he’d have time to get out, right?
Reasons To Take Your Bitcoin Off Exchanges
It’s clear that trusting your bitcoin to an exchange brings with it the risk that you’ll log in one morning to find that your bitcoin just isn’t there. If you hold your bitcoin yourself using a hardware wallet, this can’t happen.
However, there’s another big reason it’s important to take your bitcoin off exchanges: the bitcoin price.
How could self custody affect bitcoin’s price? Everything in economics says that buying and selling affect the market price for a good, not who holds it. However, self custody is very important to price — and it has to do with something I’ll call “paper BTC.”
Introducing The Next Big Thing: Paper BTC
Let’s look at how an exchange works by considering a hypothetical exchange called ExchangeCorp, owned and operated by a jolly entrepreneur named Bernie. ExchangeCorp built an uncomplicated way to buy bitcoin, and hired a team of security experts to make sure hackers are kept at bay. Over time and through great marketing campaigns, ExchangeCorp built trust with traders and investors, drawing many in to store their bitcoin on the exchange.
When users keep their bitcoin with ExchangeCorp, the CEO Bernie and his team maintain control over those coins. Customers simply have a claim on their coins: they can log in and see their balance as well as request to withdraw their coins. However, if Bernie wants to transfer those coins owed to his customers to other Bitcoin addresses, he’s technically able to do so without any customer’s permission.
When Bernie kicks up his feet and looks at the balances in ExchangeCorp’s vault, he’s pleased to see tens of thousands of bitcoin that his customers have deposited sitting pretty. Since ExchangeCorp is doing well, more bitcoin are always coming in than going out.
So Bernie gets a wise idea. He could lend out some of those customer coins, earn some interest, and get the coins back without anyone noticing. He would get richer, and the risk of enough ExchangeCorp customers asking for withdrawals at one time to draw its vault’s massive balance down to zero is miniscule. So Bernie loans out thousands of coins here and there to hedge funds and businesses.
Now there’s another set of claims to consider. Customers have a claim on their bitcoin at ExchangeCorp, but ExchangeCorp no longer has the actual bitcoin — they only have a claim on the coin they lent out. What customers now have is a claim on Paper BTC held by ExchangeCorp, with the real bitcoin in the hands of borrowers.
This is where things get weird. All of ExchangeCorp’s customers still think they have a direct claim on real bitcoin held safely by ExchangeCorp. However, that real bitcoin is in fact in the hands of those who borrowed from ExchangeCorp, and those entities are selling it out in the market.
What happens when ExchangeCorp lends out a large quantity of the bitcoin its customers deposited? A lot of extra bitcoin starts to float around in the market, because investors who think they’re holding actual bitcoin are only holding paper BTC. All of that extra supply of bitcoin in the market absorbs buy pressure, which suppresses the price of bitcoin.
Let’s look at simple supply and demand here:
When paper BTC comes into the market, because market participants are unaware that this new supply is not real bitcoin, it has the same effect as increasing the supply of real bitcoin — until the fraud is uncovered.
Does this hypothetical story sound anything like the recent news around FTX?
The Paper BTC At The Center Of The FTX Fraud
The story of ExchangeCorp and Bernie is exactly the story of FTX and its founder Sam Bankman-Fried, with some save-the-world complexes, study drugs and polyamorous orgies redacted.
By lending out customer funds, FTX essentially inflated the supply of bitcoin by taking advantage of the trust users placed in FTX to safeguard their funds. FTX created tons of paper BTC.
Just how much paper BTC might FTX have created? We cannot be sure of the exact amounts given its absolutely horrid bookkeeping, but the estimate below suggests FTX had 80,000 paper BTC on its books — bitcoin owed to customers that is not backed by real bitcoin.
That would represent a staggering 24% of the roughly 330,000 new bitcoin that were created over the past year through the predictable mining issuance process. That is a ton of extra bitcoin entering the market that nobody — aside from a small group of insiders at FTX — knew about!
It’s impossible to tell where the price would have gone without that extra bitcoin supply entering the market, but we can be almost certain that the price would have climbed higher than it did in 2021.
While the FTX collapse is recent and still unfolding, history has a few cautionary tales to tell about the dangers of paper assets and price manipulation. The story of gold’s failure to resist centralized capture, for instance, can tell us where Bitcoin is headed if we continue to trust exchanges and third parties to hold our bitcoin for us.
The Fall Of Gold
Gold was once used in daily transactions — it takes no more than a visit to a museum of ancient history to see the collections of old gold coins once circulating in local markets. The traditional view of the demise of gold as a transactional currency was that it became too cumbersome or too valuable to continue to function well as a means to buy groceries and beer.
However, this story omits a few key components that only reveal themselves when we trace the evolution that societies took from gold coins to paper bills and digital bank accounts.
Centuries ago, banks started taking customer’s gold in exchange for bank notes — giving customers a measure of security for their gold and a more convenient means of transacting. However, entrusting a bank with your precious metal meant the bank was able to lend it out or make bad investments without the depositor’s consent. When a bank was caught between bad loans and a high rate of depositor withdrawals, they had to declare bankruptcy and shut down — leaving many depositors penniless, holding paper claims on gold now worth nothing at all.
Then central banks came along to “fix” the problem of bankrupt banks leaving depositors penniless. Central banks held gold for people and commercial banks, giving them banknotes from the central bank as receipts for their gold. By 1960, central bank official holdings accounted for about 50% of all aboveground gold stocks, with their banknotes circulating freely. Commercial banks and individuals didn’t mind, since each note was convertible to a set weight of gold by the central bank that issued it.
Notice the note in the upper left? This $5 Federal Reserve note — also known as a $5 bill — is redeemable in gold. Source
This would have worked well, except that central banks — especially the Federal Reserve in the U.S. — started creating more bills than they had gold to back. Creating more bills than the Fed had gold to back was essentially creating paper gold, since each bill was a claim on gold. Doing this in secret meant the Fed was manipulating the price of gold, given the extra circulating supply which the market was not aware of. When many depositors of gold at the Federal Reserve — like the French government — started questioning the Fed’s gold holdings and creating the threat of a run on gold in the U.S., the U.S. government had to intervene.
In 1971, this came to a head with the Nixon shock. One night, President Nixon announced the U.S. would temporarily stop allowing depositors to trade in their Federal Reserve notes for the gold they promised.
This temporary halt in withdrawals was never lifted. Since all currencies were connected to gold through the U.S. dollar under the Bretton Woods agreement, the Nixon Shock meant that the entire world went off the gold standard at once. All currencies were now just pieces of paper, instead of notes giving the holder a claim on a quantity of gold.
This was only achievable because gold, over time, was deposited into commercial banks and then to central banks. Once central banks held most of the gold, they could manipulate the price of gold and remove it entirely from daily commerce. Everyday people chose the convenience of paper notes over the security of holding gold, and paid the price.
Instead of a neutral money backed by a precious metal that is difficult to dig up and impossible to synthesize, currencies became easy to print and thus highly politicized. Keeping the dollar at the top of the food chain no longer required restraint and good stewardship to ensure its backing in gold. Instead, it required military expeditions and strong policing to ensure global governments and citizens continued to use the dollar to transact.
A return to gold at this point would be impractical — the world’s commercial networks span too great a distance with transactions happening at too high a speed. With paper currency and eventually digital banking systems, what we gained in speed and convenience we lost in soundness and neutrality. We lost our savings, our social cohesion and our political institutions as a result.
Preventing Bitcoin’s Fall
Taking your bitcoin off of your exchange is not just good practice for your own security, it’s protecting the price of your bitcoin as well. Our freedoms depend on individuals having control over their own wealth. When we entrust our wealth to companies or states, we go down the path we witnessed with gold.
Thanks to bitcoin’s divisibility and digital nature, it overcomes the hurdles that held gold back from supporting our modern, interconnected economy. Bitcoin can support a global marketplace, but it will only get there if we each hold our own bitcoin.
Don’t let the banksters and bureaucrats manipulate the price of your bitcoin: take it off the exchange and get it on your own hardware wallet.
This is a guest post by Captain Sidd. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is an opinion editorial by Thibaud Marechal, builder of Knox bitcoin custody provider.
There has been a lot of coverage around the FTX catastrophic failure, with current developments and warning signs from the past. Will this have an influence on bitcoin in the coming years? I don’t care about shitcoin casinos, as most of them will probably be regulated as securities exchanges or shut down due to outright fraud or insolvencies. This is almost a done deal. But what about bitcoin?
Let’s play and game and speculate on the effect FTX will have on the future of bitcoin.
Bitcoin usage is going to split — gradually then suddenly. It’s been in the works since the genesis block was produced on January 3, 2009. There will be two ways to use bitcoin: as a black market good or as paper bitcoin on regulated exchanges. This future has almost always been true, but the distinction will become more clear-cut soon enough. What do I mean by that?
Regulators are going to regulate; that’s what they do. Bitcoin cannot be regulated, but custodial ramps such as exchanges, brokers and lenders can and they will be attacked. Self-custody is most likely going to be regulated out of the market for most buyers. It will become very hard to buy bitcoin and take full custody of it on these venues — maybe even close to impossible. This date is coming soon.
Quick, anon! You still have time before the on-ramps are closed, but how much? Three years or six months? The timeline is unclear. It will soon be impossible to buy bitcoin on an exchange and move that bitcoin into self-custody where you hold your own keys. Most custodial entities — which are trusted third parties — will be prevented from allowing users to withdraw under the disguise of regulatory compliance and consumer protection. You will buy paper bitcoin, aka fake bitcoin: These are IOUs to get artificial exposure to the price of bitcoin. You will not be able to claim that IOU and redeem it. Want to hold that bitcoin with keys that you control? Forget it, because it will be very hard. Few exchanges will allow users to self-custody and fewer will fight for the right of financial sovereignty. All they will do is sell paper bitcoin or stop operations for most businesses.
On one end, people will buy bitcoin IOUs on custodial entities giving up full KYC (know-your-customer) details, automated tax reporting and zero privacy. Bitcoin is going to be used as the underlying asset to the global financial surveillance network, the likes of which we have not yet seen. Regulated companies will form a network of compliance on top of Bitcoin and prevent you from holding what could have been truly yours. Perhaps they will even wrap it into a central bank digital currency (CBDC) to protect you against the volatility of bitcoin. You will buy paper bitcoin and you will be happy.
On the other end, bitcoin will flourish as the tool that it always ought to be: black market money. This will be the beginning of a new era for Bitcoiners who have zero fiat, i.e., the Bitcoiners who run full nodes, have full privacy and pay peer-to-peer for stuff with their hard-earned sats. CoinJoins will be the norm for most users to only share what they want with whom they want in order to protect their personal information from being surveilled by chain analysis companies. Some will call it a circular economy, others will call it the black market. It will operate 100% on webs of trust. Bitcoin will be bought without KYC between peers, using cash or bank wires when possible. It’ll be a small breath of fresh air in the era of digital surveillance and it will last until the rest of the fake Bitcoin network, choked by regulation, ultimately collapses under its own weight due to massive amounts of fractional reserves. Bitcoin will have succeeded in freeing itself from any state intervention and financial parasites, but that road will be long and sinuous.
Until then, the bitcoin price could be severely suppressed for many years and self-custody may be demonized, with hefty fines and government-sponsored intimidations similar to Executive Order 6102. Are you ready, anon? Don’t miss out. This is your chance to redeem yourself and choose what’s right for you and your family. Until then: tick tock, next block.
This is a guest post by Thibaud Marechal. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is an opinion editorial by Mickey Koss, a West Point graduate with a degree in economics. He spent four years in the infantry before transitioning to the Finance Corps.
When one of the Bitcoin Magazine editors reached out to ask what I thought the FTX collapse meant for bitcoin, my first instinct was simply, “Tick-tock next block.”
But after some reflection I think it’s hard to cover this scenario in a one dimensional view.
For whatever reason, my mind immediately went to an old Clint Eastwood movie, “The Good, The Bad And The Ugly,” which conveniently creates the perfect framing for my thoughts on this still-unraveling predicament.
The Good
If there’s one good thing to come of this scenario, it’s the knowledge that centralized exchanges may not actually be your friend after all. Discussions with (relatively) normal people about self-custody inevitably conclude in the expression of fear that they don’t trust themselves to hold their own keys. As Caitlin Long points out below, a big exchange may not be all that great at it either.
Evidently the masses are catching on. Two days ago, cryptocurrency news firm CoinTelegraph reported that $3 billion worth of bitcoin left exchanges in the week preceding the publication of that on 13 November 2022. If you understand Bitcoin, you likely realize that this is pretty significant news and may be one of the best, if not only, good outcomes from this whole debacle.
Price suppression via “paper bitcoin” has long been a point of discussion in certain Bitcoin circles. The more people who take self-custody, the more people who not only reduce their counterparty risk of losing their bitcoin, but also reduce the capacity for exchanges to issue paper bitcoin IOUs.
Warren Buffet said, “It’s only when the tide goes out, you learn who’s swimming naked.” Self custody allows you to simply sit back and enjoy the show so to speak.
The Bad
Senator Elizabeth Warren, among others, are already calling for “a major crypto bill.” With the collapse of an offshore, unregulated altcoin casino, politicians now have a galvanizing moment they can leverage to get some things done.
“Sen. Elizabeth Warren (D-Mass.) said Tuesday that a digital currency bill must be ‘comprehensive,’ covering consumer protections, anti-money laundering rules and climate safeguards for crypto mining.”
Senators Cynthia Lummis and Kirsten Gillibrand posit that the lack of action on crypto legislation over the past years and months have put the U.S. at a regulatory disadvantage.
Ironically, one of the crypto bills under consideration was written with the help of FTX.
“The bill — introduced by Senate Agriculture Chair Debbie Stabenow (D-Mich.) and Sen. John Boozman (R-Ark.) — is facing scrutiny in the wake of the FTX collapse because the company was a major lobbying force behind the legislation. SEC Chair Gary Gensler has said the proposal is ‘too light-touch.’“
While U.S. regulation would provide some potentially much-needed clarity for institutions, a rushed package to address an emergent situation may result in an end product that is less than optimal for the markets writ large. My hope is that legislative gridlock will help to slow the process down to facilitate a more deliberate and thoroughly considered piece of legislation.
The Ugly
BBC News reported on the day of this writing that over a million people and businesses are now owed money by FTX. With the declaration of bankruptcy, it is unclear who will get paid back, if anybody, and just how much money they will actually get back.
While it’s easy to criticize cryptocurrency token gamblers and day traders for not taking possession of their coins, the picture is more complex than that. I have friends and family who were concerned with self custody and held their assets at BlockFi. Their coins are now frozen in limbo, unsure when they will be able to withdraw — if ever.
The fallout from FTX is still unraveling and I’m sure there will be a lot more collateral damage unveiled in the coming weeks.
Stay Humble And Stack Sats
While it’s easy and potentially therapeutic to dunk on the unethical and potentially illegal activity from FTX and SBF, I would urge Bitcoiners to stay humble.
It’s situations like this that breed the next generation of self-custody bitcoin maxis. We need to take this opportunity to lead and to teach.
As I’ve written already in past pieces, I narrowly avoided losing everything to the Celsius collapse earlier this year, just months before I started writing for Bitcoin Magazine. Sometimes we just don’t know what we don’t know. Help them see the light.
This is a guest post by Mickey Koss. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
This is an opinion editorial by Heather Everdeen, a mother, Bitcoiner and lifelong learner.
Dear Friends and Family,
The thing I want you to understand about FTX is that these are fiat problems, not Bitcoin problems. Bitcoin is unaffected aside from its fiat currency exchange rate. The bitcoin price is impacted because of all the pressure on these exchanges and funds to sell their assets. Bitcoin is one of the most liquid assets there is; it’s easy to sell immediately when you have to. There is still a new block approximately every 10 minutes. Bitcoin keeps running, unaffected.
FTX was all about money, money laundering(?), power, corruption, trying to get U.S. regulation that benefits only those closest to the money printer. All while everyday people were chasing more empty fiat gains.
We cannot create a better world until we quit chasing gains based on dollars and start saving and planning for our future instead. I don’t know about you, but I want to build a better world to leave my children and grandchildren in the future. I am not OK leaving it to them like this.
All of these exchanges are houses of cards. Many more will collapse. While there will be more cryptocurrency exchanges, I’m really talking about all things fiat: banks and hedge funds, pensions, 401(k) plans, fiat companies, etc. I have no crystal ball, but I have seen the future. If I trust that vision, bitcoin wins. I believe it. We’ll see.
I’ve also spent the last five years and thousands of hours — probably over 10,000 hours now — studying money, the financial system, trading, currencies, the Federal Reserve, central banking, cryptocurrency, Bitcoin and better economics than the ones we’re taught in school — Keynes was horrible.
Though it may be annoying, I talk about it so much because I see what is happening and I want to help my friends and family. Our money and financial system was set up to be complex and confusing on purpose. They don’t want people to understand it, because if they did, they’d revolt. This is why the little guy gets scammed all the time. It was designed this way.
This monetary system is not sustainable and will fail. We will see it happen in our lifetime. It is happening right now.
There is another way: buy, hold and use your own bitcoin. Be your own bank. No middlemen, just you and your own money. Use the system that was designed to free people and not the one designed to enslave people. My “vote” is with my money. I vote to rid myself of these fiat chains and low-vibrational systems and be a free, sovereign being. I use bitcoin.
You should too.
This is a guest post by Heather Everdeen. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is a transcribed excerpt of the “Bitcoin Magazine Podcast,” hosted by P and Q. In this episode, they are joined by Obi Nwosu to talk about the difference between Fedimint and Fedi and how Chaumian Mints can be used to onboard millions of people onto bitcoin.
Q: How did the idea of Fedi — what inspired you and the team to say, “Hey, this is the problem. How are we gonna solve it? And then this is how we’re gonna solve it.”
Obi Nwosu: There’s Fedimint and then there’s Fedi. So Fedimint is this open-source protocol, a bit like the way Bitcoin is a protocol for the store or value. Lightning is a protocol for the transfer of that bitcoin around at a low cost at high speed, and also increased privacy as a side effect. Well, Fedimint is a protocol for storing that value, custodying that value with incredible privacy in a way where you are using your community to have each other’s back effectively. They work really well together. Effectively, they’re both Layer 2. When your money’s at rest, you store it in Fedimint, and when your money’s on the move, you use Lightning. But the money is bitcoin underneath both of those.
That’s the Fedimint protocol.
That actually had its roots — well actually, if you go way back 39 years we have Chaumian ecash and then 13 years or so ago with the invention of Bitcoin and then four or five years ago with Blockstream’s popularization of federation technology used for Liquid. When those things were combined, a number of incredible cypherpunks and cryptographers found we can combine these things together and take Chaumian ecash — invented by David Lee Chaum in 1983, which was considered catnip for cryptographers, some of the best form of privacy technology out there — combine it with the best form of money, bitcoin, which for the first time multiple people could hold, and federations allowed you to sort of federate this Chaumian Mint with bitcoin as the backing money as opposed to U.S. dollars which was David Chaum’s original attempt.
Work started three or four years ago and there were a number of projects running in parallel, but my now co-founder Eric Sirion was working on one called Fedimint. About two or so years ago, Blockstream saw it, got really excited about it, started sponsoring him, and about a year ago, I saw it when I was — and I didn’t mention this, I ran the U.K.’s longest-running bitcoin exchange. At one point I had 70% market share of the U.K., did the whole New York Stock Exchange gavel. And we were the first regulated exchange in Gibraltar, all that sort of stuff. But that’s the past now. But while selling that company, I was looking for a way of getting people off exchanges because I was getting increasingly concerned that there would be liquidity begets liquidity, and there’s gonna be increasing centralization around exchanges.
I could see this sort of Orwellian future where there’s half a dozen exchanges, each with a billion users with full visibility, just as bad as having CBDCs (central bank digital currencies) by countries because this is where we’re gonna end up if we just carry on the way we’re going. So we needed an alternative to custody on exchange.
Now, the obvious alternative is first-party custody, i.e., do-it-yourself custody, but if you just look at the numbers and if you look at the attitude of the people that we realize that with the best will in the world, you’re gonna get 5% of people, maybe 10% [doing] self custody, but that still leaves 90-95% trapped in these exchanges.
So I was looking for a solution to get people off exchanges. I was at Hackers Congress last year. I bumped into Eric. We had a conversation. I suggested some of my ideas. He politely told me why they wouldn’t work and then I asked him what he was working on. He told me about Fedimint and he saw it as this incredible privacy technology, which it is, but with my exchange-operator hat on, I realized that this was actually a solution to getting people off exchanges — if architected correctly. That’s where I started getting involved, I started cheerleading it and I talked about it at Bitcoin Miami. That led to Alex Gladstein asking me to go to Oslo Freedom Forum to talk about it more.
I then met some of the bravest men and women I’ve ever had the opportunity to meet, who are human rights defenders and activists from around the world. You may have met, like if you get to Ghana, hope you were there, you’ll see Farida Nabourema from Togo, for example, Fadi Elsalameen from Palestine, Roya Mahboob from Afghanistan, who created the first Afghanistan all women’s robotics team when women weren’t allowed to study and so on and so forth, and the list goes on. They were all realizing that the problems and the challenges they were having around the world, whether it was Latin America, Africa, or post-Soviet regions of the world, although they seemed very different, and the authoritarian regimes that they were battling against, seemed very diverse, they all had a common thread: Those groups used weaponized money and through high/hyper levels of inflation and many other mechanisms. They realized that if they wanted to push back against these forces, they needed to be able to control their own money. So they weren’t Bitcoiners, but they came to Bitcoin because they needed to solve problems, but they were running into scaling issues.
They wanted to roll these out to millions of people at rapid scale in multiple of these regions. And what I realized there was that only Fedimint could do that. This was in May. It went from, Fedimint is an incredible, open-source protocol that we were supporting and letting organically grow, but I came back on June 1, talked to — and now the co-founders have grown to myself, Eric and Justin Moon, another incredible soul. I explained what I’d seen and observed and who I talked to, and we all agreed that we need to accelerate this. And so Fedi was born. Fedi’s objective is to take Fedimint as the base protocol and to accelerate the adoption of bitcoin to billions of users over the coming years because we cannot wait. We have a technology that allows for the rapid rollout of bitcoin with incredible levels of privacy, high levels of safety and direct integration with Lightning. So why are we waiting? There’s no reason why. And that’s where Fedi’s journey started.
