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The Long and Winding Story of Silk Road, Bitcoin’s Earliest Major Application

This article originally appeared in Bitcoin Magazine‘s 10th anniversary print edition.

Silk Road, the online marketplace named for the historic network of trade routes established during the Han Dynasty, went live in February 2011. Its domain was accessible only on the so-called “dark web” via the encrypted and anonymous network software Tor. This eBay for the internet’s underworld was the first of its kind: a clandestine marketplace for the buying and selling of (mostly) illicit substances with bitcoin. 

It put bitcoin in the hands of countless new users, demonstrated firsthand what could really be possible with decentralized currency and served as Bitcoin’s first significant use case.

For many in the Bitcoin space, Silk Road has become a touchstone for Bitcoin’s utility and its role as a foil to the mainstream economic system. And, adding to this symbolism, its founder, Ross Ulbricht, was arrested and the site was shut down by federal authorities less than three years after it launched. In 2015, Ulbricht was sentenced to double life in prison plus 40 years without the possibility of parole for money laundering, computer hacking, conspiracy to traffic fraudulent identity documents and conspiracy to traffic narcotics by means of the internet. 

Four years later, the facts around Ulbricht’s arrest and conviction are still fuzzy. While the case may be closed, the true identity of Dread Pirate Roberts (DPR) — the handle for Silk Road’s infamous operator and the root of many accusations against Ulbricht during his trial — is anything but resolved. Ulbricht has said that he sold the site before DPR took the helm, and his legal defense and one former Silk Road employee have said that multiple people had access to the account. But the prosecution hoisted the legal blame for all of DPR’s online activities on Ulbricht. 

This intractability of online identities has been a major source of contention in the saga of Silk Road. And the unresolved tension is a major reason why, despite its short-lived history and the punishment of its founder, the legacy of Silk Road is as central to the story of Bitcoin as ever.

The Beginning

Ulbricht has claimed that when he started working on Silk Road in 2010, it was never his intention to enable the creation of the black market it would become. The recent Penn State University graduate had just earned his master’s in science and was struggling to make an impact with his entrepreneurial efforts. The used-book startup he joined with his friend Donny Palmertree, Good Wagon Books, was going belly-up when he left it to work on Silk Road full-time.

In a court letter during his sentencing, Ulbricht wrote that he built the marketplace because “people should have the right to buy and sell whatever they wanted so long as they weren’t hurting anyone else.” That the website became a hub for drug trafficking was an unintended (and regretful) consequence, he insisted.

“Silk Road was supposed to be about giving people the freedom to make their own choices, to pursue their own happiness, however they individually saw fit. What it turned into was, in part, a convenient way for people to satisfy their drug addictions. I do not and never have advocated the abuse of drugs.”

If he had been more “mature,” the court letter goes on, he would have “done things differently.” In a twisted sort of way, Ulbricht’s ostensible regret and his eventual arrest can be seen as a measure of the site’s success. 

For an anarchic market, Silk Road was fastidiously curated. Ulbricht created escrow accounts for transactions, drugs had product descriptions and pictures like you’d find on other online marketplaces, and sellers and their wares even had review sections. It also had a strict set of rules regulating what could and couldn’t be sold; child porn, weapons and anything that could be used to inflict harm on others were strictly prohibited. 

What started as Ulbricht selling his own homegrown psychedelic mushrooms to kickstart the marketplace swelled to 10,000 accounts in 2012 and, eventually, 1 million at its peak. Before its closure, analysts estimated that it attracted anywhere from $15 million to $45 million annually in black-market business. As the site swelled in popularity, Ulbricht kept a full-time staff and paid $50,000 a month for security.

Silk Road Rising

Silk Road’s fame had escaped the confines of its underground coterie and was creeping into the lens of pop culture’s scandalous gaze when a June 2011 profile of the marketplace by Gawker brought it into the limelight. This was good for business, as account registration surged. But it also meant Silk Road was increasingly on the government’s radar, with Washington, D.C., mainstays like New York Senator Charles Schumer calling for its demise.

A young Ulbricht, showered with success but under mounting stress, was in the hot seat.

“I was mentally taxed and now I felt extremely vulnerable and scared,” he wrote in a 2011 journal entry. 

Ulbricht needed help then more than ever. He employed more staff and started taking cues from a mentor and confidant named Variety Jones (aka “Cimon,” following a pseudonym change). For instance, Jones identified a security vulnerability in the site’s bitcoin wallet.

In late 2011, Ulbricht allegedly told a programming friend that he was the man behind Silk Road. Around the same time, he may have also revealed his involvement to a romantic interest.

When Jones found out that these two people might know Ulbricht’s connection to the site, he encouraged Ulbricht to change Silk Road’s administrator account handle to Dread Pirate Roberts — a pseudonym that would become significant during Ulbricht’s trial.

“You need to change your name from Admin to Dread Pirate Roberts,” Jones told Ulbricht in a January 2012 chat. “Clear your old trail — to be honest, as tight as you play things, you are the weak link from those two prev[ious] contacts.”

The moniker Dread Pirate Roberts comes from a fictional character in “The Princess Bride” whose generation-transcending persona is adopted time and time again by ever-new personalities. The symbolism and function, Jones implied, would be perfect for Ulbricht’s role as Silk Road’s figurehead: It would obscure ownership under the guise of multiple operators. 

“And over the years, a new one would take the name, and the old one would retire … start the legend now,” Jones coaxed in a chat. “DPR by its very nature indicates a rotating command. We’ll play that.” 

Ulbricht changed his admin profile some weeks after the January 2012 conversation. 

The notion that DPR was multiple people became a pillar of Ulbricht’s defense during his trial, since the chain of events that followed could never be definitively tied solely to him. 

Cocaine, Undercover Cops and Bounties

By 2013, the site’s success was reaching critical mass and the person acting as DPR was faced with critical ultimatums.

When a Silk Road administrator, Curtis Clark Green, was arrested for cocaine possession, undercover agents got their hands on the first human link to the site. The head of the task force that arrested Green, Carl Force, took over Green’s account, used the pseudonym “Nob” to speak with DPR via Silk Road’s private chat and used Green as an informant. 

Masquerading as a member of a drug cartel, Nob told DPR that he had mucked up a cocaine sale by accidentally sending it to Green. Nob asked Dread Pirate Roberts if he needed help rectifying the situation with Green. Though DPR was hesitant at first, he eventually took Nob up on the offer, first by asking him to rough Green up so he’d cough up the funds he stole, then by ordering his assassination. Agent Force, still posing as Nob, faked a torture scene in a Salt Lake Marriott to forge Green’s death. The price tag for the job was $80,000 in bitcoin.

Business at Silk Road cracked on as usual, but Dread Pirate Roberts would allegedly resort to assassination bounties five more times during Silk Road’s dwindling lifetime, all of which turned out to be faked. None of the targets were ever assassinated, and it is now believed that Dread Pirate Roberts was set up. 

Ulbricht himself was never charged for the second set of ordered assassinations, and his indictment for ordering Green’s assassination, which was filed in Maryland, was dismissed in July 2018 for prejudice. Despite lingering questions about who was using the DPR handle and when, the prosecution was permitted to use evidence of Green’s staged assassination in Ulbricht’s trial for operating Silk Road, though the court never charged him for it.

On October 2, 2013, FBI agents arrested Ulbricht in the science-fiction section of a San Francisco library. Distracted by two agents who faked a lovers’ quarrel, Ulbricht took his eyes off his work long enough for another agent to grab his laptop. With sleight of hand and the insertion of a USB drive, law enforcement officials now had access to Silk Road’s treasure trove of secrets.

The jig was up. Ulbricht was whisked away to New York for a nearly year-long trial, which ended in the double life sentence plus 40 years that he is currently serving.

Silk Road’s Legacy And The Free Ross Campaign

“The government did not produce a single witness to testify firsthand that Ulbricht authored any of the communications attributed to DPR. It was all digital, created and transmitted on an anonymous, untraceable internet network.” — Joshua Dratel, criminal defense attorney

Ulbricht’s legal defense appealed his case in 2016 on the grounds that prosecutors withheld evidence of malfeasance on behalf of agents involved in the case and that Ulbricht received an unreasonably harsh sentence (one more heavy-handed than what El Chapo received, for instance). A judge denied this appeal in 2017, and a writ of certiorari petitioned to the U.S. Supreme Court was shot down in 2018 as well.

Since her son’s arrest, Lyn Ulbricht has actively crusaded to ease his sentence. The Free Ross campaign she started online has received over 170,000 signatures in favor of his release or a reduced sentence. Lyn Ulbricht and her son’s defenders believe that, more than his receiving a draconian punishment, Ulbricht was a scapegoat, sacrificed on the altar of the U.S. justice system to prove a point.

Ulbricht was framed, they say, by others who had taken on the Dread Pirate Roberts name and were operating the DPR account. 

“Our position, as it has always been, is that Ross is not DPR who is participating in those chats,”  Ulbricht’s legal representation told “Wired” in April 2015.

Even with some proof pointing toward Ulbricht operating the Dread Pirate Roberts handle at some point in time, disputes still loom as to whether or not he was the only person behind the account. Green, for instance, once said on a podcast that there “absolutely” were multiple individuals who had access to the username.

“I was DPR once,” he said. “So if I was, who else was?”

In addition, his defenders also argue that the conditions for Ulbricht’s arrest violated the Fourth Amendment of the U.S. Constitution, that agents tampered with or mishandled evidence on Ulbricht’s laptop following his arrest and that the jury was never given all of the information it needed in order to reach a fair verdict. For example, the defense attempted to call Bitcoin expert Andreas Antonopoulos and computer networking and internet security expert Steven Bellovin as expert witnesses, but they were prevented from testifying.

We’ll likely never know when Ulbricht was and was not at the helm of the Dread Pirate Roberts account. But at the very least, the Dread Pirate Roberts pseudonym functioned exactly as Variety Jones envisioned: After Silk Road went down, plenty of successors rose from its ashes, and its legacy has remained firmly entrenched.

And Ulbricht’s arrest has proven to be a rallying cry. Soon afterward, another Dread Pirate Roberts launched Silk Road 2.0 with the help of two original Silk Road admins, Inigo and Libertas. That site fell prey to law enforcement in 2014, and Silk Road 3.0 stepped into its place until that, too, went offline in 2017. Other similar sites, such as Wall Street Market, AlphaBay, Dream Market and Hansa, would either succumb to law enforcement or shut down operations to avoid the same fate as their predecessors.

Even with its progenitor in jail, the online underground market model that Ulbricht initiated persists. When one goes down, another (and another and another) takes its place, as one would expect in a free market. Lyn Ulbricht told “Bitcoin Magazine” that this free market is precisely what her son envisioned, emboldened by the libertarian philosophy that willed it into existence, and has always been central to the cryptocurrency it leveraged.

“I think Ross’s motivation in creating Silk Road was to provide a truly free market that was private and used bitcoin, as he saw the potential for monetary freedom that bitcoin provided,” she said. “Even the sentencing judge said she knew he created the site for philosophical reasons. She just wasn’t convinced he had given up that philosophy and felt justified in condemning him to die in prison for it.”

The post The Long and Winding Story of Silk Road, Bitcoin’s Earliest Major Application appeared first on Bitcoin Magazine.

Source: Bitcoin magazine

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Zero Interest, Limitless Repo and QE4: The Federal Reserve’s Market Operations Explained

“Gradually and then suddenly.”


–Ernest Hemingway

“Your ATMs are safe, your cash is safe. There’s enough cash in the financial system and there is an infinite amount of cash in the Federal Reserve.”


–Neel Kashkari, President of the Central Bank of Minneapolis

The Federal Reserve’s market activity is reaching a fever pitch.

In response to a market bloodletting that seems to precipitate new record losses every day, the Federal Reserve has responded to a somewhat unprecedented crisis with its most thorough market interventions since 2008. 

Liquidity is drying up in the financial system, the economy is shutting down as COVID-19 arrests the global populace and the Fed’s only response at this point has been to pump cash into the system by buying up assets directly from banks and the Treasury, and lowering interest rates and reserve requirements to zero percent. If this fails to ballast the economy, negative interest rates may entrench themselves into our financial system (they’ve already arrived for Treasury Bonds).

The Federal Reserve’s market operations are ramping up by the day, and it’s using more tools simultaneously to “fix” markets than ever before. So what are these tools and how is the Fed using them? Where is this money coming from and where is it going?

Let’s get up to speed.

Started From the Repo; Now We’re Here

Despite some headlines and talking points that this crisis precipitated from the COVID-19 pandemic, the fact is, U.S. financial markets were suffering ailments of their own before this virus gripped the international stage.

They came in the form of repurchasing agreements, or repos for short. As I reported in September 2019, the Federal Reserve began open repo operations in response to rising interest rates in the overnight lending market; interest rates soared from the Fed’s target rate of 2 percent to as high as 10 percent.

Why did the rate rise above the Fed’s suggested, and usually closely followed, rate? Simple answer: There was a cash crunch and banks were reluctant to lend cash. The repo market finances short-term loans, with the maturity usually lasting a day, a week or two, or no longer than a month. Banks make these intraday loans to each other to cover their reserve requirements set by the Federal Reserve at the end of each business day. The Fed stepped in because banks weren’t lending to each other, so the banks with too little cash in the vaults didn’t have enough to cover their debts and obligations.

Cue the market operations that began in September and which continued until 2020, only to be revived by a new round of repo recently. From September 2019 to the end of 2020, the Fed financed $500 billion in repo operations. By March 12, 2020, the Fed announced it would conduct $1.5 trillion in repo. On March 20, 2020, it announced it would be offering $1 trillion in daily repo loans until the end of the month. That’s a trillion with 12 zeros, every day. 

Now, this doesn’t mean that banks will be borrowing $1 trillion every day. But this limit is so large as to basically guarantee unfettered liquidity. 

In my September coverage, I rhetorically asked if a limit exists. The Fed is showing us very clearly that one does not exist.

QE4: Zero Rates, Zero Reserves, Zero F***s

Repos are loans. The money that the Fed lends out in open repo operations, theoretically, is paid back under the agreed timeframe and banks must issue collateral to receive these loans. If the banks don’t pay back the loan, then the Fed keeps the collateral.

Since repos are basically loans and trillions of dollars in repos take place regularly in the bank-to-bank lending market, some would say the Fed’s operations represent business as usual, don’t have an outsized impact and aren’t the same as printing money.

Then there’s the counterargument that these repos are basically subsidies reserved for a financial elite. And, of course, even if the money is loaned and paid back, the cash has to come from somewhere. This is why you might hear folks call repo operations “QE-lite,” because the Fed has to purchase cash from the Treasury by purchasing bonds to finance the operations.

But QE-lite was not enough, apparently, so the Fed is going whole hog with QE4: its fourth quantitative easing action since 2008.

Quantitative easing, or QE, is the process by which a central bank prints new currency by expanding its balance sheet. In the U.S., the Fed prints cash and buys bonds from financial institutions to drive interest rates down. When you hear someone rave about the Fed printing money, this is what they mean.

The intended effect is to ease lending and boost spending. When the Federal Reserve prints fresh cash, it then buys up bonds and securities from banks and financial institutions for low rates to flood the system with liquidity. In 2008, this was done with 0.25 percent interest rates, which only rose to 2.5 percent again by 2018, in just enough time for it to come tumbling down again.

QE is the means by which the Fed controls this interest rate. Banks don’t have to comply with the Fed’s target rate (aka the fund rate), but why wouldn’t they? The Fed is guaranteeing cash at a certain interest rate, so Wall Street follows the lead and adjusts their own accordingly.

In this latest installment of QE, the Fed dropped the fund rate between 0 and 0.25 percent. In its announcement on March 15, 2020, the Fed promised $700 billion in fresh capital. On March 23, the Federal Reserve Open Market Committee (one of the Fed’s primary bodies that oversees market operations) announced that it would be opening the floodgates for ceaseless QE: 

“The Federal Reserve will continue to purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions,” according to a press release at the time.

Once again, it’s clear that a limit does not exist. On top of this, the Fed also announced that it is indefinitely dropping reserve requirements to zero. This was in a bid to, as ever, stimulate spending and lending. Banks already held fractions of their deposits on hand; now they are required to hold nothing at all, and this coincides with shrinking daily withdrawal limits at major U.S. banks.

The Endgame Is the Endgame

Proponents of QE will tell you that the system works; after all, it revived the economy after ’08, right? Look at how much the stock market boomed!

Indeed, and look, too, at the result: the worst Black Monday since 1987 and the U.S.’s major indices had three years of gains wiped out in a matter of weeks. This is the Ron Paul argument: that the Fed’s interventions are creating massive debt bubbles that precipitate ever-increasing disasters every decade or so. Ironically, the Fed was created to mitigate panics, but the anti-Fed argument, at least, has it that the Fed is creating more havoc than it resolves. 

But even if you don’t buy that argument, it’s hard to side with the argument that QE creates salubrious or, at best, null effects. The usual, state-friendly talking point is as follows: Banks will buy the bonds back from the Fed when they reach maturity, and the Fed will either destroy this cash to annul the value created on the original loan or keep it for a rainy day. It all works out in the wash, so best not to worry, so to speak.

There’s a lot of “stuff” in the wash, though, and it’s becoming harder to keep track of all the debt and make sure everything is laundered properly. Indeed, the problem with QE is the unwinding phase — that is, ticking interest rates up slowly, easing the purchases of Treasury bonds until the Fed stops printing more money and buying these assets.

We saw this in action recently as the Fed’s balance sheet began to shrink in late 2017. It didn’t drop much — it went from the $4.5 trillion range in 2017 to below $3.8 trillion in August 2019 — this after it ripped from under $1 trillion in 2008 to the highs it set as a result of the Fed’s aggressive monetary policy following the Great Recession.

The Fed balance sheet is just that — a balance sheet that lists total assets under management. Like all modern banks, this includes debt. So you can partly look at the Fed’s balance sheet as one big obligation: It has ballooned in recent years because of unfettered QE. And it’s growing exponentially still. Currently, the Fed’s balance sheet is over $4.6 trillion, and when we see the dust settle from current market operations, we may see it touch $10 trillion.

The Federal Reserve is dropping rates to zero and offering trillions in liquidity to the U.S. financial system. What is the Fed doing, and how does it work?
Total Assets Under The Federal Reserve’s Management: Source

The unwinding that is meant to “reset” markets to pre-QE intervention is a fantasy. The weight of debt and obligations is simply too much; the market cannot return to equilibrium before the Fed has to rush to the rescue and provide easy liquidity once again. 

With a fiscal stimulus promising checks to every American and bailouts to businesses all across the spectrum, the Federal Reserve will be working overtime for the foreseeable future. For now, the important thing to note is that central bank intervention is just beginning. The market was weak before COVID-19 compromised it further, and we likely won’t see the full economic impact of the virus for a few months as the ripples of layoffs and supply shocks rock the global economy. 

The Fed will continue to print, governments will bail out businesses, and central banks around the world will inch their systems closer to modern monetary theory (but more on that later).

We are witnessing a paradigm shift in centrally planned governments; specifically, the groundwork that is being laid today will shape how governments and their monetary arms interact with a country’s populace and its economy. The trend is leaning toward strong interventionism and unrestrained control, especially in regards to managing money.

After all, the limit doesn’t exist. They’ve told us this themselves on national TV more than once, and I think the reality is finally setting in for the average citizen: just look at how popular the “Money printer go brrr” has become. 

This is not by accident. Indeed, “money printer has gone brrr” for quite some time and will continue to go “brr” for some time more. Now, though, taxpayers are starting to hear it, some for the first time. 

The louder it gets, the more they will question what it is and how it works.

The post Zero Interest, Limitless Repo and QE4: The Federal Reserve’s Market Operations Explained appeared first on Bitcoin Magazine.

Source: Bitcoin magazine

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The Bitcoin Mixing Case at the Center of the Fight for Transaction Privacy

A court case is underway in the United States that could become a watermark decision for Bitcoin transaction privacy and compliance law. 

Larry Harmon of Ohio — who, incidentally, owns the Coin Ninja media site — was recently charged and arrested for money laundering some 350,000 bitcoin (roughly $300 million at the time of the indictment) through his custodial mixing service, Helix. Harmon’s service catered to dark web market participants, particularly sellers, and he associated this service with Grams, his dark web search engine. Authorities may have sniffed Harmon out following the forced closure of AlphaBay in July 2017. At the time, AlphaBay was one of the most popular black markets on the web and the source of Harmon’s business.

“The sole purpose of Harmon’s operation was to conceal criminal transactions from law enforcement on the Darknet, and because of our growing expertise in this area, he could not make good on that promise,” Don Fort, the chief of the IRS Criminal Investigation unit, said in a press release. “Working in tandem with other sites, he sought to be the ‘go-to’ money launderer on the Darknet, but our investigators once again played the role of criminal disrupters, unraveling the interlinked web from one tentacle to another.”

Mix at Your Own Risk 

Harmon’s legal defense is staking the claim that this case, ultimately, is an affront to online privacy. At its core, this case is about bitcoin’s fungibility — or whether or not each coin is indistinguishable from another. Bitcoin’s lack of fungibility from a technical perspective is a bedrock of the ongoing privacy debate surrounding the cryptocurrency.

For Harmon’s case, the issue of legal fungibility is coming to the fore.

“The District Judge (after a pretty substantial fight) overruled the Magistrate Judge and granted Larry release on bond conditions. So, it’s a glimmer of hope for the Harmon family — but the Government has seized all their properties and assets so they still need all the financial support the bitcoin community can muster. If the Government’s theory of the case is successful, it is the beginning of the end of cryptocurrency fungibility. The Government has made it clear that they conflate privacy with illegality,” Harmon’s attorney, Charles Flood, told us.

The problem is, there’s not much conflating that needs to be done in Harmon’s case. His mixer — which required its users to relinquish their private keys so funds could be shuffled — was used with the explicit purpose of obfuscating illicit funds. Thus, honest, privacy-savvy Bitcoin users should have nothing to worry about legally, so long as they have nothing to hide, Jesse Spiro, head of policy at Chainalysis, told Bitcoin Magazine.

But to Flood’s point, if an honest Bitcoiner winds up with coins that were involved in mixing illicit funds, those bitcoin could be tainted. Fungibility, then, could be very much at legal risk with this case — especially considering the compliance trend has prioritized marking such “dirty” coins.

“Honest, privacy-focused users shouldn’t have a problem because this shows law enforcement is focused on individuals who are using mixers to cover up criminal activity,” Spiro said. “The risk is that with mixers, honest people may unknowingly mix their funds with illicit funds, which may raise flags across the ecosystem considering the increase in compliance controls. Most of our customers consider mixers to be high risk, and as a result if they see their clients using them, it will trigger increased scrutiny and compliance measures.”

Compliance Ramped Up

Consequently, these “compliance controls” and “compliance measures” take root in Chainalysis’s own software and other blockchain analytics companies like it. These companies sell transaction querying software to exchanges, regulators and other officials with the ostensible aim of keeping tabs on illegal activity. 

But Spiro’s comment betrays the consequence of this surveillance: Honest users can get caught in the crossfire. 

That is precisely the worry at Samourai Wallet, according to their representative, who sees the case as an affront to online privacy and, depending on the outcome, an excuse to ramp up efforts.

“Regardless of the outcome of the investigation, the pro-compliance trends within the industry are very concerning,” they told Bitcoin Magazine. “The compliance companies have recently solidified their place and authority in the space and appear to be driving pro-KYC compliance policies and narratives. We expect this trend to continue but encourage users to push back by never opting into custodial or KYC services.”

Another wallet that provides CoinJoin services, Wasabi, declined to provide comment on the case.

The anonymous Samourai representative believes this case won’t impact the wallet’s functions, which include a noncustodial CoinJoining service called Whirlpool. Helix was a custodial service (Harmon had to procure private keys from users in order to mix their funds), so his hustle has been treated under the law as a money transmitter. Samourai, on the other hand, “never takes possession of the coins and is not subject to the money transmitter issues that are being applied to Helix,” the representative said. 

“Where Helix took possession of the coins on behalf of users, Whirlpool is merely a protocol that allows for the exchange of information between users, with the end user always retaining possession of their coins,” they continued. They also said that the team has not seen a trend of third parties targeting mixed transactions, [nor have they] received reports of flagged Whirlpool deposits into centralized exchanges.

To break this down further: With Helix, the funds are simply “mixed” and each user receives someone else’s coins in the process; with CoinJoins, each user batches his/her own bitcoin into a transaction with many other participants and, at the end, receives the same bitcoin back after it has been obfuscated using the service. 

Still, technicalities aside, Spiro is not convinced that this argument would hold up in a court of law. The U.S. Treasury’s criminal task force, the Financial Crimes Enforcement Network (FinCEN), wouldn’t discriminate between custodial services like Helix and noncustodial services like Samourai or Wasabi. If your software has run-ins with illegal activity, you could be subject to enforcement, Spiro put it.

“FinCEN doesn’t make a distinction between something like Helix or something like Wasabi or CoinJoin, and this could be seen as a warning shot to all mixers & tumblers. It means that 1) they need to register with FinCEN, and 2) if they can’t keep bad actors from exploiting their services, they will be subject to law enforcement action,” he told Bitcoin Magazine.

This may be frustrating to Bitcoiners who understand that the CoinJoin services Samourai and Wasabi provide are — in the words of Samourai’s representative — “a fundamentally different proposition than what Helix was offering.” 

Same Song, Different Dance?

Still, it remains to be seen whether or not this argument would hold up in court. With the  creeping hands of compliance slowly closing over the cryptocurrency industry, though, transaction privacy is becoming increasingly compromised at the hands of authority and legacy financial regulations. Chainalysis’s software is becoming more sophisticated as well; as Spiro put it, it’s “very possible,” if “fairly labor intensive, to deanonymize coins that have been cleaned through a wallet like Wasabi or Samourai.” With enforcement ramping up and transaction analysis tools finding their way into the hands of exchanges and regulators, the war on Bitcoin transaction privacy is likely just beginning. 

It will be fought in the courts, and we won’t know the ramifications for sure until more legal action takes place. After all, this is the first case in which a custodial/centralized mixer has been implicated in illegal activity as a money services business (FinCEn made it clear this would be the case in May of 2019).

The next question, then, is this: Will the “good guys” like Samourai and Wasabi be in hot water as regulators pay more acute attention? Spiro says it’s hard to say, but as the question looms, he believes more regulation will come to address it down the road.

“We anticipate further regulation will be introduced that will limit the viability and accessibility of those services to the ecosystem, regardless of whether they are custodial, centralized services or not. It’s hard to speculate what would happen if the operators of decentralized services were brought to court.”

The post The Bitcoin Mixing Case at the Center of the Fight for Transaction Privacy appeared first on Bitcoin Magazine.

Source: Bitcoin magazine

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The History and Symbolism Behind Bitcoin’s Logo

Most of you reading this have only ever known Bitcoin by its current logo: that white, double-striped “B” superimposed on an orange circle. 

Orange coin has become an internationally-recognizable symbol, but Bitcoin didn’t come with this branding out of the box. As with almost every aspect of Bitcoin, Satoshi Nakamoto created a rudimentary logo in the protean days of the decentralized currency and the community iterated on it until this one stuck. 

You truly old-school Bitcoin Maximalists will remember the evolutions in this design. And you also might recognize some of the mathematical symbolism that underpins Bitcoin’s logo. 

For those of you who don’t, here’s a little history lesson and crash course on the design choice behind Bitcoin’s iconic emblem.

The Evolution of Bitcoin’s Logo 

Bitcoin Core originally featured Bitcoin’s first-ever logo created by Satoshi: a gold coin with the initials “BC” inscribed on it. The nod to gold here shouldn’t be overlooked (especially considering that some people think the digital gold comparison is some crazy notion cooked up by Bitcoin extremists — when, in reality, Satoshi himself was thinking of Bitcoin in this way from the start).

OGs typically took to the logo well, though one or another would occasionally make suggestions to alter it on Bitcointalk. One of these suggestions involved using the Thai baht currency symbol (฿) and designating the initials “BTC” as the official currency code.

The latter caught on more easily than the former. Using the Thai baht did prove to be a convenient stopgap before something else came along, though some insisted that using it “would cause confusion.”

But, it could have very well inspired Satoshi to added the dollar-stripes to Bitcoin’s design that make it so distinguishable today. On February 24, 2010, he introduced a new logo. It resembled the gold coin he had started with, but now the symbol inscribed in the middle had two vertical strokes and, unlike the Thai baht, these strokes did not cut clean through the B — they only stuck out of its top and bottom and did not cross through the middle of the letter.

Reactions on Bitcointalk were mixed. Some felt it was still too similar to the baht, while others thought it was too dull.

“Is this the ‘official’ logo?” one observer asked. “I understand how difficult it can be to make something truly professional when you don’t have the skills (which I don’t) or the software (which I also don’t) so I’m not trying to be rude, but wouldn’t it be better if we adopted something…better? I really am not trying to be mean.”

Official or not, this served as the predominant logo until the end of 2010, when a pseudonymous commentator named bitboy dropped their first message into Bitcointalk. Humbly, the user announced that they had just wanted to “drop by to say hi and to share with you some of the graphics I have done.” 

These graphics were free to download and placed in the public domain. Bitboy utilized the “B” symbol Satoshi had refined but rendered it in white and placed it on a flat, bright orange circle, tilting the symbol so that it leaned to its right.

“Best Bitcoin logos I’ve seen so far!” one user commented. This was the general consensus, evidenced by the fact that bitboy’s designs would become Bitcoin’s defacto branding for the next decade.

Method to the Madness

Indeed, the logo bitboy cooked up has become iconic. Even people who know nothing about bitcoin may recognize it as Bitcoin’s universal symbol. And, like the technology it represents, it was created pseudonymously without hope of profit.

One user commented in the thread about using the Thai baht as Bitcoin’s symbol that “we should let [Bitcoin’s logo] evolve organically, like a word in a language, and not worry too much about it at the early stage.” 

November of 2010 was still a relatively early moment for bitboy to introduce what has become the official logo, but this user also got their wish: The logo did evolve organically.

And it was also imbued with its own intelligent design. Every aspect of the Bitcoin logo has mathematical rationale behind it; every corner was architected as much for practicality and form as it was for symbology and aesthetics.

These rationale are painstakingly documented (as well as the specific instructions on how to make a perfect BTC logo from scratch) in this Medium post. The author, Phil Wilson, had helped design both the second logo that Satoshi introduced in February 2010 and the orange one that we know today.

And the one we know today is riddled with symbols. 

For example, the number eight pops up multiple times in the dimensions and geometry of Bitcoin’s design (e.g., the B is rotated clockwise 13.88 degrees — more on this later). Per the internet language 1337, an eight resembles a B, which is short for “Block,” according to Wilson. Many of the patterns that went into creating the Bitcoin logo’s design, like the circles that eventually made up the B, contain the number eight. The dimensions of other shapes (like the rectangles in the design) had a length of 12.5 (or, one-eighth of 100, thus representing eight yet again). 

Since eight is B, which stands for block in this symbology, each new pattern is like adding a new block to the logo. Everytime a shape is resized (as they were multiple times throughout the design process) this reflects the changing data size of each new block.

The trebuchet font that’s used in the logo was inspired by the trebuchet catapult which was a favorite weapon of Wilson’s in the “Age of Empires” computer game. By using the vertical strokes from the dollar sign in the Bitcoin design, Wilson wanted to give the impression that “those lines are not actually from the Bitcoin symbol, but from the $ symbol that’s been ‘Stamped’ into the ground by Bitcoin” — an indication of Bitcoin’s monetary dominance.

The coin was colored orange for a practical as well as aesthetic purpose. In the words of Wilson, it had to be a color that could be printed/replicated “on both websites and print media” and one that would “stand out against all [other currency/payment options].”

 The circle was chosen because, well, a coin makes sense — and a circle is “warm and friendly” and “continuous, endless, forever — just like Bitcoin.”

Now, for the question that most new people probably ask: Why is the “B” tilted to the right? Well, there’s an explanation for that, too, and rather than butcher it, here it is straight from Wilson’s keyboard:

“14° came about by adding an infinite number of B’s together by dividing the previous value by 10. 12.5 + 1.25 + 0.125 + 0.0125 + 0.00125 + 0.000125 + 0.0000125 + 0.00000125 + 0.000000125 + 0.0000000125 + 0.00000000125 + 0.000000000125 … This comes to about 13.888 repeating. When using a drawing program that rounds the rotation angle to the closest full percent, the angle becomes 14°. The angle represents the blockchain progressing into the future forever.”

And, finally, the logo for the internet’s native currency wouldn’t be complete without a reference to The Hitchhiker’s Guide to the Galaxy. In the logo, the orange circle is scaled to 525 percent to give it a precise diameter. Why is that? Naturally, because “525% is 12.5 x 42,” according to Wilson; in other words, it is one-eigth of 100 times 42, which, according to the book, is the secret to the universe.

And why is the secret to the universe included in Bitcoin’s design? 

“This technology is supposed to be the answer to the ultimate question of life, the universe, and everything,” Wilson explained.

Or, put less hyperbolically: Orange coin good.

The post The History and Symbolism Behind Bitcoin’s Logo appeared first on Bitcoin Magazine.

Source: Bitcoin magazine

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Crypto News Updates

From ISP to P2P: How Mesh Networks Take Bitcoin off the Grid

“What happens if the internet goes down?”

You’ve heard it, I’ve heard it — we’ve all heard the refrain. It’s a favorite of FUDster journalists like Frances Coppola and David Gerard, and they treat it like the ultimate trump card when debating Bitcoin’s value.

Correct! If the internet goes down across the globe, Bitcoin would be in trouble. But so would the global banking sector, the healthcare industry, the food industry and basically the entire fabric of our hyper-connected existence. If the internet is kaput, then you should probably be worried about stocking supplies and ammo, because it’s going to get wild.

But what if I told you that, in the event of a mass internet outage, there’s a good chance that Bitcoin would survive? That chance is real and growing thanks to the promise of mesh networks.

Put simply, mesh nets are networks of peer-connected nodes that offer “offline” connectivity by means of radio signals. Depending on the bandwidth of the network, you could do things like send a bitcoin transaction or download the Bitcoin blockchain. 

When coupled with something like the Blockstream satellite network, which broadcasts the Bitcoin blockchain’s data across much of the surface area of the globe, you could architect a nearly foolproof, decentralized infrastructure that could be used as a makeshift web in case the actual internet goes down.

The goTenna team may come to mind when you think of mesh networks. So, too, might Locha Mesh, an open-source mesh network project kickstarted by Randy Brito, the philanthropic entrepreneur behind the non-profit Bitcoin Venezuela

For this week’s issue on the use of Bitcoin through dissident technology, we talked to Brito and Blockstream developer Grubles about the promise of mesh networks. Grubles has published demonstrations on how you can use mesh networks in conjunction with Blockstream’s satellite to send transactions and messages on Bitcoin offline. The satellite is a boon to the mesh network use case here because, as Grubles put it, “The coverage area is enormous. We can practically blanket an entire continent with Bitcoin data with just one of the satellites in the Blockstream Satellite network.”

Our Q&A with the pair below covers the what, why and how of mesh networks, along with what situations they can ameliorate and what conditions need to be met before they can bring offline Bitcoin access to the masses. 

An Intro to Mesh Networks

Bitcoin Magazine: For those who might be unfamiliar, what are the benefits of mesh networks? 

Grubles: In a traditional network, like the one you likely use today at home or at work, you’re connected to an ISP [internet service provider] which is typically controlled by a for-profit corporation. Your ISP then has its own providers which it connects to, also owned by for-profit corporations. Sometimes these corporations are pressured by governments to filter, or otherwise censor, information on their networks. 

A mesh network is, at the most basic level, a peer-to-peer network. Peers in the network provide connectivity to other peers they are connected to, and the peers of their peers gain connectivity, and so on. The result is a network without a central entity, and if you visually graph the layout of the network, it resembles a mesh, rather than a hub-and-spoke-like traditional network where everyone is eventually connected to a central ISP. 

BM: How are they good for Bitcoin?

Grubles: How mesh networks tie into Bitcoin is pretty straightforward. Currently, there is a reliance on the traditional ISP-controlled networks. Not just for Bitcoin but for most things on the internet. If a network is controlled by a central entity, it can be easily shut down or censored. A mesh network is resistant to parts of the network going offline, so peers can route their data around the parts that have gone offline. This kind of resilience is important for a system like Bitcoin because it means that transactions can keep flowing and miners can keep producing blocks. If you’re a merchant or a miner and your ISP decides to shut off your connection, you’re kind of screwed.

BM: To you, which is the more important side effect of mesh networks: the privacy they provide or the benefit of not having to rely on the internet?

Grubles: Different people will have different answers for this but, for me, it’s the added redundancy and the breaking free of the reliance on traditional ISPs. Privacy is important, but if you have a network which provides privacy but is bottlenecked by a central entity, then the central entity can just be pressured to shut the network down altogether. If we focus on building out mesh infrastructure first, we can always overlay something like Tor on top or bake privacy into the mesh protocol itself. 

BM: On that note, what are some of the pitfalls of mesh networks? Where are the weak points?

Brito: For using Bitcoin via mesh networks, the amount of data that needs to be transmitted could be its weakness. If you are in the Locha Mesh but you don’t have an internet connection or a satellite dish, you will need to get the latest Bitcoin block data from a peer in the mesh and the number of hops you may need to do and bandwidth will be key for you to accomplish this. If there isn’t anyone offering you this service, you would be isolated from the Bitcoin network itself. 

Fortunately, the Bitcoin community doesn’t stop innovating in the network side of Bitcoin, so improvements like Erlay, FIBRE and more will make transmitting Bitcoin’s block data over the mesh achievable. You will still be able to pretty easily use your Electrum wallet within the Locha Mesh as far as you can reach an Electrum server that serves you with your wallet’s latest balance updates, or you could make offline signed bitcoin transactions, reach a push-tx gateway and then receive a message when your transaction has been added to a block.

BM: Do you have anything to add to that, Grubles? And do you think that mesh networks will enjoy greater development and adoption, or do you think they will always be a fringe interest?

Grubles: Mesh tech is still in its early stages. Setting up most mesh technologies requires some technical proficiency, so the vast majority of people will have a hard time getting connected. This means the total size of a mesh network will be relatively small to begin with. Once it’s easier for the average person to get set up and connected to a mesh, then I think it will really start to take off. 

I think mesh networking is one of those things that you don’t really care about until you actually need it. But I think that as the internet and communications become more and more of a necessity in our lives, there will be more awareness for mesh networking as a side effect.

BM: Randy, you’ve been working on Locha Mesh specifically with your home country of Venezuela in mind. What needs to be done for something like Locha Mesh to be adopted in parts of the world that need it most?

Randy Brito: The decentralized nature and censorship resistance of the Locha Mesh are very important, but without a way to incentivize people to offer these services of Bitcoin’s blocks data and latest bitcoin transactions, Electrum servers, Lightning Network watchtowers, offline push-tx services and gateways, all within the mesh, the Locha Mesh would be limited to mainly messaging and would need people to have their Locha Mesh nodes always online with the only incentive … being able to send messages within the mesh. 

To solve the incentivization problem, we’ve been thinking from the start on how users will be using the Lightning Network to pay for these services, and we’ll continue researching any available options to make this possible. One of the other methods we are currently looking at, with the support of other members of the community, is, for example, the use of Monero’s new RPC-Pay feature. We’ll continue researching this matter and welcome anyone who would like to suggest or test their incentivization ideas for Bitcoin and the Locha Mesh sustainability and availability.

BM: If I recall correctly, Locha Mesh relies on radio signals broadcasted on the ground. Grubles has used the Blockstream satellite for his own mesh networks. In what ways does your design differ, and what are the pros/cons of your approach? 

Brito: What the Blockstream satellite does is beam Bitcoin’s blockchain data and messages to Earth. You could use this service to get the latest transactions and blocks using a satellite dish on your rooftop and then transmit this important data to others through the Locha Mesh to allow people to transact in Bitcoin and the Lightning Network, even if they don’t have an internet connection. They just need to be inside the Locha Mesh and get the Bitcoin data from you. 

This is the same [solution that] Grubles has demoed, but the mesh hardware he has tested it with is not capable of transmitting Bitcoin’s blocks data due to hardware and bandwidth limitations, only short messages. We are working on the needed capabilities for the Locha Mesh to be useful for Bitcoin in a worst-case scenario.

The post From ISP to P2P: How Mesh Networks Take Bitcoin off the Grid appeared first on Bitcoin Magazine.

Source: Bitcoin magazine

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Crypto News Updates

How the Lighting Network Could Improve Encrypted Messaging

“…using a network of…micropayment channels, Bitcoin can scale to billions of transactions per day with the computational power available on a modern desktop computer today. Sending many payments inside a given micropayment channel enables one to send large amounts of funds to another party in a decentralized manner.”

Thus reads “The Bitcoin Lightning Network” white paper, the seminal document for Bitcoin’s secondary payment network written by Thaddeus Dryja and Joseph Poon. This 2016 paper would refocus the debate on scaling, as notions of bigger blocks and on-chain growth largely gave way to a new network of payment channels and deferred on-chain settlement.

But who would have thought that some four years later, developers would look toward the Lightning Network not just as a payments solution, but as a new delivery method for encrypted messaging too?

Well, apparently a handful of forward-thinking Bitcoin developers: namely, Joost Jager and Paul Itoi.

Both Jager and Itoi have cooked up interesting methods for Lightning-powered messaging, though each use different technical mechanisms for transmissions. They’re also disseminating their solutions differently, with Itoi and his team launching its Sphinx Chat as an application and Jager releasing the source code for his Whatsat to the public directly.

We covered how these messaging apps work at the end of 2019. The TLDR: A recent update to Lightning has allowed for certain extra, arbitrary data to be added to Lightning transactions. For these use cases, these data would be messages, which can be sent directly to a peer for no cost or routed through the network for a small fee just like typical Lightning transactions. 

But why would you default to these protocols and not to other encrypted messaging options?

The answer lies in what Lightning messaging can offer that traditional encrypted options can’t.

Decentralized Pigeons

Some historical trivia: Messenger pigeons were one of many forms of communication in World War I. Especially popular among tank crews (who lacked other reliable forms of communication as radios were crude at this point in history), the messenger pigeon was a failsafe for when other options, like telephones, signal flares or runners, had failed or weren’t available.

But messenger pigeons were vulnerable. Knowing they carried vital messages, enemy soldiers would have an open season with these unfortunate high-soaring couriers. Of course, there was an answer to such setbacks: encryption.

Indeed, encrypted messaging would play a crucial role in World War I and many other wars. This, more or less, solved the problem of interception (if the enemy couldn’t decrypt the cipher, then it was useless, whether he got hold of it or not).

Come the 21st century and encryption has arrived at the forefront of national cybersecurity debates. For instance, some government officials have called for encrypted backdoors in mainstream consumer technology in the interest of “national security.”

And therein lies the problem. In WWI, the pigeons themselves were just the vessels for transmitting messages; in case anyone needed reminding, they didn’t produce the encrypted message themselves nor the keys to decrypt it — that was the job of military intelligence. 

But with electronic communication, the messaging app itself produces the means for encrypting the messages you send. So, in many cases, unless you or someone with the technical chops can review and verify the code, the application you use for encrypted chatting is only as secret as the app developer’s ability to keep their promise. This is why most Bitcoiners only trust open-source applications like Signal as being secure, while others like WhatsApp and Telegram are not to be trusted as such.

So, with traditional encrypted messengers, you often have the problem of a single point of failure. You are trusting a centralized entity (whose code you haven’t reviewed) at its word that the messages you send can only be decrypted by you and the recipient — that no backdoors exist. And you are also betting that governments won’t pressure these companies into giving them access (or that they already have).

Conversely, Lightning Network messaging relies on the infrastructure of Bitcoin’s decentralized secondary network. With some 11,000 (known) public nodes, Lightning Network messages are routed through this Tor-like network without any central arbiter. By setting up a direct channel with your recipient, you can beam the message directly to them without having to pass through an intermediary node at all. 

As Jager told Bitcoin Magazine in November 2019, there’s no central pillar that you can knockdown to compromise Lightning Network encrypted chatting.

“The difference is that there is no central server involved,” he said. “No single kill switch that could be used to shut down all communications. Or that is used more selectively to deny certain users to communicate.”

Private Pigeons 

As an extension, Lightning messages also have the benefit of being more private.

This follows the same line of argument that leads people to say Lightning transactions would also be more private. Since they are basically onion network-routed, the path for each message would be lost in the hops it takes on the network. The only way this may be compromised is if one node were responsible for, say, 50 percent or more of a message’s routing — a real possibility if the path from sender to receiver includes fewer mutually connected peers than not.

So in some cases, it may be better privacy-wise to set up direct payment channels for your messaging.

“Chatting over Lightning also makes it much harder to find out who is communicating with whom,” Jager said. “It is not required to have a direct (observable) TCP/IP connection between users and there is no central server either that could reconstruct the communication pathways.”

Of course, as we mentioned above, routed messages could still theoretically be deanonymized. But, as Jager said, “[p]rivacy and security are relative concepts.” 

This still could be more private than legacy options, and even if a node knows who the sender is, it still can’t intercept or decode their message.

Clunky Pigeons

Ultimately, Lightning messaging has a leg up against traditional encrypted chat when it comes to censorship-resistance and privacy. 

But this doesn’t mean that it’s perfect or that people will view it as the more attractive alternative. As we have seen with Bitcoin and FOSS writ large, the decentralized option is usually the most difficult to implement at scale and can be the most difficult to grasp for novice users. 

Still, devising a scheme that handles both messaging and payments under one roof could be a killer app, Jager thinks. Even more important is architecting a permissionless and censorship-resistant means of communication; in fact, decentralized money would likely necessitate such a tool, just as it would require decentralized identity.  

“The key benefit is integrating the ability to pay and communicate under one identity,” Jager said. “Our core belief: the privacy and censorship resistance that Lightning provides for payments should apply equally to speech. Using Lightning for chat will accelerate the adoption of bitcoin as a medium of exchange.”

So will Bitcoiners and the public beyond flock to Lightning messaging? With Sphinx Chat currently in closed beta, we’ll soon find out if this alternative lives up to the expectations and/or is as seamless to use as the alternatives. Jager believes that people will default to a Lightning-based alternative as snafus like the Equifax breach (and the creeping reality that the code for encrypted chat services will have backdoors built into their design) engenders distrust in centralized services. 

So, with the fate of private online communications up in the air, Lightning’s new use case may prove essential for establishing online sovereignty in an age of ever-increasing government surveillance.

The post How the Lighting Network Could Improve Encrypted Messaging appeared first on Bitcoin Magazine.

Source: Bitcoin magazine

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Crypto News Updates

Beanie Babies and Black Markets: Where Mainstream Media Gets Bitcoin Wrong

Bitcoin has a media problem. Or, perhaps, the media has a Bitcoin problem. 

Mainstream media has often framed Bitcoin with the same scandalous curiosity that may publicize a troubled former child star or a controversial tech startup. Most journalists have viewed it as a sideshow, a distraction that warrants only so much attention lest it detract from the supreme spectacle of the 21st century’s historic advancements in technology, business and finance. By some combination of apathy, lack of curiosity and ignorance, Bitcoin is often misrepresented or represented poorly in mainstream news outlets. 

Let’s cut these career journalists some slack. After all, a traditional finance reporter may be daunted by this new and confusing world of decentralized digital currency. And fluent as they may be with the ever-evolving world, seasoned technology reporters may nonetheless view Bitcoin as a leviathan of the technically arcane.

Bitcoin is indeed a complex esoterica. So it’s little wonder that just four years after its creation (when Bitcoin was beginning to formally enter the international conscience), Vitalik Buterin opined in the seventh print volume of Bitcoin Magazine that “a significant amount of disinformation about Bitcoin continues to float around the internet.”

Read Vitalik Buterin’s “Common Misconceptions About Bitcoin — A Guide for Journalists.”

In an article called “Common Misconceptions About Bitcoin — A Guide for Journalists,” Buterin listed five prevalent misconceptions and attempted to set the record straight.

“Whether a given story is unfairly biased against Bitcoin, or even unfairly biased in its favor, it is important to work together to make sure that the truth always comes out — in the first case, not to needlessly scare potential Bitcoin adopters away, and in the second case, not to disappoint,” he wrote.

When writing for the February 2013 print issue, Buterin admitted that things had gotten better from Bitcoin’s earliest years. But over seven years since Buterin’s original article was published, we clearly have a long way to go until even rudimentary Bitcoin literacy becomes prevalent in the circles of traditional journalists. 

No, Bitcoin Is Not a Company

I say “rudimentary” because, to this day, some of the most glaring misconceptions about Bitcoin are still the easiest to dismiss. It would be unreasonable for us to expect journalists whose beat is typically anything but Bitcoin to parse the differences in the block size debate or have a fluent understanding of the Lightning Network’s technical infrastructure. 

But 11 years out from Bitcoin’s launch, it’s absurd to see the core tenet of Bitcoin’s architecture — its decentralization — so blatantly mischaracterized or outright ignored. Or, as one Motley Fool article from 2019 shows, Bitcoin is constantly contrasted with a corporate structure:

“Here’s the problem: Buying a cryptocurrency token (bitcoin or most any other) does not give investors any ownership in the underlying blockchain. If the underlying blockchain of a crypto token becomes the basis for innovation at a particular company or within an industry, its associated token isn’t necessarily going to benefit (and neither will token-holders),” the article reads. 

When you buy bitcoin, you are not buying shares of a company, nor do you hold equity (as this excerpt laments); you are buying into a digital monetary system that exists outside of the current system. When you understand that Bitcoin is a monetary system (and thus also intrinsically a store of value, medium of exchange and a unit of account), the comparison to a corporation is as anathema to Bitcoin’s design as it is ignorant. 

To be sure, this conversation has evolved. At least now, slightly more educated detractors know that Bitcoin is not “owned” by anyone and no corporation has de jure control over it. Altering their stance, many now argue that miners have de facto control of the network. Centralization of mining in China is a cause for concern, but what the alarmist viewpoints don’t take into account are the complex social and technical mechanisms that check and balance mining centralization. 

As Kyle Torpey has espoused, ultimately investors hold the keys to the kingdom, and as “NO2X” showed us, so too do the node operators — something Satoshi intended from the start.

Blockchain, Not Beanie Babies

My next gripe with mainstream Bitcoin coverage is not one Buterin covered. In 2013, few altcoins existed, and the ICO boom, which Buterin’s Ethereum would ironically detonate, was a few years out. 

But in the fallout of 2017’s market hysteria, as snake oil and utopian promises flowed like sour mana from the marketing teams of a new class of crypto-hucksters, the idea that the real innovation is “blockchain not Bitcoin” has ossified in the minds of many who follow the cryptocurrency scene with marginal interest. 

“To answer why bitcoin has become so big,” one Guardian columnist pontificated in 2018, “we need to separate the usefulness of the underlying technology called ‘blockchain’ from the mania of people turning bitcoin into a big dumb lottery. Blockchain is simply a nifty software invention (which is open-source and free for anyone to use), whereas bitcoin is just one well-known way to use it.”

Imagine for a moment that people had said TCP/IP is just “one well-known way to use it” and that the real innovation was the internet, which must be co-opted to create a private, permissioned version of the real thing. People did this: the result was the intranet, a private version of the internet that is primarily used for private functions for businesses or other organizations today. 

Hack, Hacks, Hacked

Of all Buterin’s observations in 2013, none ring so painfully true today as the ever-raging debate over Bitcoin’s security.

I have personally read numerous articles that misattribute an exchange’s servers being compromised to a security breach in Bitcoin’s core software.

“For a technology that’s supposed to be hyper secure, in practice, it’s often proven itself to be, well, not,” one Recode (Vox) article from 2019 states with snarky confidence. “Bitcoin and other cryptocurrencies have proven a prime target for hackers despite their characterization by proponents as super safe and impregnable.”

This is an egregious mischaracterization of Bitcoin’s design. And even though the author later on distinguishes between Bitcoin’s blockchain and Binance’s own security (with Binance’s 2019 hack as the timely subject of the coverage), the lede suggests that Bitcoin itself was hacked. For the average reader, who might not get past the headline or first paragraph, this could be enough to cement in their mind that Bitcoin’s technical structure is shot full of holes. Indeed, the blunderbuss reporting of the likes of Vox are the forces that shred this security in front of the readers’ very eyes; even if this damage is fictional, the shrapnel is very real for readers who don’t know better.

The Eternally Bursting Bubble

When the media frames bitcoin exchange hacks in this way, it has the same effect as when undereducated journalists harp on the virtues of blockchain technology or mistakenly frame Bitcoin as a centralized entity. The truth eludes all but the most critical observers, and non-Bitcoiners are left with rotten kernels of mistruths (or, in the worst cases, propaganda), which they accept as truisms: After all, didn’t the Guardian publish the story?

One of these aphorisms is the ever-looming Bitcoin obituary. I hardly need to cite any examples here, as this phenomenon is burned into any faithful Bitcoiner’s consciousness. If misconceptions about Bitcoin’s decentralization and its security are the head and neck of our collective albatross, then this is the sagging torso — it is constantly weighing us down. 

Buterin wrote particularly about a myth in 2011 that bitcoin’s market price had fallen to $0.01. How prescient this gripe was would only become apparent following bitcoin’s meteoric race to $20,000. Ever since, the number of publications pronouncing Bitcoin dead has seemed to multiply; like a plague of cicadas, the death knells hum and rattle on with a pessimistic buzz. 

Shy of transcending the $20,000 all-time high, we likely will not hear the end of these incessant wakes. Mainstream journalists tend to think that Icarus’s wings have dissolved and the boy is now dead. They ignore bitcoin setting local highs, so they believe that it is effectively dead or — as the New York Times’ Nathaniel Popper put it in yet another article extolling Bitcoin’s capacity to bankroll criminal activity — that bitcoin has “lost steam.”

Even as bitcoin reaches local highs in value — and as companies like Blockstream, Lightning Labs and others continue to push important protocol developments — the reports of Bitcoin’s untimely death pour in.

Keep them coming, and Bitcoiners will keep our tally going.

Dueling Narratives

Another primary misconception stems from Bitcoin’s utility and its branding as “electronic cash.”

Detractors often cite that no one is using bitcoin as a medium of exchange and that few retailers accept it. A wellspring of online theory and thought is remolding our perceptions of Bitcoin, though. It’s not just a currency but an entire monetary system. It’s not just cash, but it’s digital gold, as well.

Much like the gift of the internet became much more than sending messages, Bitcoin has evolved into more than a currency — or rather, our perception of it has. The gold narrative, of course, is still subjective. Many people see gold as highly speculative and of little use, so selling them on the notion that Bitcoin is digital gold — and by extension, valuable — will be a harder sell still and will likely take some years to cement. Still, deriding bitcoin as useless because you can’t buy coffee with it is an absurd and myopic view.

Not least because bitcoin has proven its utility as a permissionless and censorship-resistant form of currency. These are the key characteristics of Bitcoin, and as Nic Carter trenchantly observes in “A Most Peaceful Revolution,” this is what Bitcoin is all about: All of Bitcoin’s utility and significance, all of its appeal and all of its potency take root in its primary function as a monetary system that is parallel to and exists to undermine the state.

Hence why so many journalists, as evidenced by Buterin’s final objection in the 2013 article that persists even now, fixate on bitcoin’s utility in illicit markets. Indeed, the Silk Road catapulted bitcoin and its price to hitherto-unseen significance in 2010 and 2011. Bitcoin is first and foremost useful for edge cases like this, sectors of the economy that are illegal and cannot operate without a permissionless and pseudonymous means of exchange.

These are also the most interesting use cases for Bitcoin. For many journalists, they are the most sensational and salacious, so they crowd headlines in hopes of driving clicks in an industry that lives or dies on website traffic and SEO placement. Perhaps we could again cut these journalists some slack; after all, many of them are covering Bitcoin on an ad hoc basis on the whims of their editors. 

But the common insistence that Bitcoin is only good for terrorism, drugs and other illicit activities is tragically overplayed. Fewer than 1 percent of Bitcoin transactions can be attributed to illicit activity, according to research by blockchain analytics firm Elliptic. Even so, stories of exchange hacks, ransomware and drug markets have outsized representation in mainstream media.

Again, perhaps we can chalk this one up to an era of broken incentives for online media, where sensationalism dominates both attention and content. From their bully pulpit, these outlets harangue and taunt Bitcoin proponents and whip their readers into their biased points of view.

But even so, it seems like statistics such as the one above should be hard enough evidence to snuff out this coverage; or at the least, journalists could include the illicit transactions that drive Bitcoin adoption in countries choked by despotism or international sanctions, such as Iran and Venezuela. 

Another often-ignored statistic is that over 70 percent of bitcoin mining is sourced from renewable energy. In 2017, the world seemed to awaken to the trade-off of proof of work: More activity on the network equals more energy expended. This has led to the common refrain (now something of an inside joke among Bitcoiners) that Bitcoin will boil the oceans.

Hardly. Not only is the vast majority of bitcoin mined using renewable energy, but it consumes fewer kWh annually than Christmas lights or every idle device running in U.S. households yearly — not to mention that the carbon footprint is several magnitudes less than that of the global banking and finance industries.

Once again, we see a sensationalist narrative peddled with little regard for oppositional arguments or even hard statistics. 

The Future of Bitcoin Misconceptions

Now, Bitcoin literacy among some journalists has improved since Buterin first covered these misconceptions in 2013. Bitcoin’s features, such as the 21 million hard cap, its decentralized node architecture and even the Lightning Network, are starting to take hold. But even so, misconceptions abound, some of which as evidenced in this article are almost as old as Bitcoin itself.

Uneducated reporting on Bitcoin eventually gave way to Bitcoin-specific media, of which Bitcoin Magazine was the seminal outlet. Until mainstream media acquaints itself more  thoroughly with Bitcoin, we’ll be around to throw the FUD back in their faces and correct the record.

Some, as with their perceptions of gold, may never come to see the value that we do. Or, if they do, they may grudgingly succumb to the changing times as the old guard did with the advent of the internet.

No matter the scenario, Bitcoin needs a voice to right the fallacies preached by the mainstream. So, we’re not going anywhere.

The post Beanie Babies and Black Markets: Where Mainstream Media Gets Bitcoin Wrong appeared first on Bitcoin Magazine.

Source: Bitcoin magazine