In episode eight of “Bitcoin Bottom Line,” hosts Steven McClurg and C.J. Wilson invited former National Football League player for the Tennessee Titans and philanthropist Derrick Morgan to discuss impact investing.
Aligning his capital with his values, Morgan makes investing with impact a priority, not only in his financial portfolio, but in his everyday life as well. As founders of real estate development company Kingdom Group, Derrick and his wife, Charity Morgan, have projects all across the Southeast, ranging from affordable workforce housing to workforce development.
Referencing episode six of “Bitcoin Bottom Line,” McClurg noted, “One of the biggest impacts on people in an inflationary environment is just the ability to live somewhere.”
Kingdom Group is building a transitional housing development, working with the homeless population in Nashville to get people off the streets. Morgan explained how it is building these properties in parts of town that have been historically segregated by red lines, as well as other acts that have kept that part of town removed from the city. He explained, “The cost of living is going through the roof, but wages aren’t increasing at the same rate. This is creating a need for affordable housing.”
As a former pro athlete himself, Wilson asked Morgan about his post-career impact on real estate, wondering how Morgan has stayed focused on being productive instead of falling into the “get-rich-quick” traps that athletes are encouraged to buy into.
Morgan’s answer was simple: “If you clearly have your goals distinguished and a general sense of direction, that helps cut down on wasted time as well as distractions that don’t align with your missions and values.”
As a founder, he naturally commented on Kingdom Group’s fundamentals as well.
“As a company, when we are presented with an opportunity, we run it first through our values and our mission,” Morgan said.
Morgan’s diligence both during his professional football career and afterwards in his recent lifestyle can be found in the form of eating plant-based foods. He shared how his former teammates would call him “Dr. Morgan,” due to his alternative perspective and passion for health in the NFL community, and he described how veganism helped him succeed in his athletic career.
Charity, who is a chef, is releasing her first cookbook, “Unbelievably Vegan,” to advocate the vegan lifestyle after starring in “The Game Changers” documentary with her husband.
Wilson identified the “long-game mindset” that financial investing and veganism share, connecting the idea of impact investing.
“Health is a lifelong commitment,” Wilson said. “If you’re really committed to it, you can have a higher quality of life.”
McClurg then discussed El Salvador’s recent Bitcoin adoption, explaining how the country decided to not rely on the U.S. dollar anymore and how that applies to the importance of being independent in our thinking.
Closing out the episode, Morgan shared how he became involved in cryptocurrency while owning physical gold and silver, and Wilson pointed out that his mindset while investing in cryptocurrency follows the idea that he is investing in his future self. Referencing Morgan’s current work with Kingdom Group, Wilson told him, “You’re investing in the community and their future.”
McClurg concluded with some advice: “Always have a plan, always have a set of values, and everything you do has to focus on that long-term plan. That has been Bitcoin for me.”
The decentralized, economically empowering technology could bring major benefits to the country.
This paper is an attempt to highlight Bitcoin’s ever-increasing importance to Pakistan’s socioeconomic future. For purposes of our discussion, Bitcoin refers to the decentralized digital asset with a market capitalization of approximately $900 billion and growing as well as its blockchain-powered monetary network that enables peer-to-peer transactions without relying on a trusted intermediary.
Before we proceed, let us be clear on what this paper will not set out to achieve. Although we are very bullish on bitcoin as an asset class over the long term, our commentary will not include any price forecasts. We will not be conducting a technical review of the blockchain technology in this study. Notwithstanding their importance, these topics have been studied in detail by experts more qualified than our team. Furthermore, a deep dive into a pricing and technical discussion will detract us from the main message: Why should Pakistan adopt bitcoin now?
Cryptocurrency adoption has started to gather momentum in the country. Chainalysis’ 2021 Global Crypto Adoption Index has Pakistan ranked in third place globally. Earlier this year, the province of Khyber Pakhtunkhwa announced plans to build pilot cryptocurrency mining farms. At the federal level, a committee has been formed to study cryptocurrency regulation. These are promising developments. However, there is so much more left to accomplish and a small window of opportunity presents itself to act.
Pakistan has several ways to benefit from the Bitcoin ecosystem. Our team believes bitcoin is primed to outperform traditional assets moving forward. Before the price of bitcoin goes beyond the country’s affordability threshold, we propose the State Bank of Pakistan start by converting up to 5% of their sovereign gold reserves (approximately $180 million) into this asset. The upside scenario can have a positive material impact on the state of the country’s asset reserve balance.
Using the internet and a smartphone, here lies an opportunity for the average Pakistani investor to plug into the world’s best performing asset over the past decade. These unmatched returns will provide prosperity across investing households, boost the local economy in the form of additional demand and generate tax on capital gains. We suggest the State Bank of Pakistan and securities regulator open up access to this asset class for all Pakistani investors. Movement between the Bitcoin ecosystem and traditional financial institutions needs to be a low-cost and frictionless endeavor. A fully regulated national cryptocurrency exchange should be introduced with incentives to entice domestic participation. A bitcoin ETF trading on the Pakistan Stock Exchange will offer an attractive investment for local stock market investors desperate for diversified exposure.
Blockchain and smart contract software developers are on their way to becoming prized assets in this new decade of cryptocurrency. In a post–COVID-19 world, remote work is quickly becoming the new normal. We may not be too far from a future state where the best candidates for the role are recruited, regardless of their physical location. Government investment toward skills upgrade and setting up basic cryptocurrency infrastructure will be returned to the economy in the form of budding entrepreneurs, developers and product managers. All productive citizens would boost the local economy from their earnings and contribute to the tax base. In summary, the cryptocurrency economy has the potential to raise masses out of poverty by providing employment.
The “great mining migration” has presented Pakistan with a time-sensitive investment opportunity. Firstly, the recent reduction in the network’s hash rate makes it economically attractive to begin mining operations immediately. Next, the shutdown of Chinese miners has resulted in secondhand mining equipment flooding the market at considerably reduced prices. Finally, Pakistan now possesses surplus electric generation capacity relative to demand. It is our suggestion that the federal government take advantage of this superb timing. Bitcoin mining farms should be set up near power plants to minimize any transmission losses. If bitcoin prices continue to rise as per our expectations, this is another avenue for the federal government to generate massive revenues.
The State Bank of Pakistan has prioritized the rollout of Raast, a new instant payment system. All evidence points to a flourishing local remittance ecosystem. However, international payment remittance remains a clunky process with high fees and lengthy settlement periods. Bitcoin’s monetary network provides a comprehensive solution to this problem. Specifically, Bitcoin’s Layer 2 protocol (Lighting Network) enables transfer of micropayments on a real-time basis with minimal fees. We suggest the federal committee overseeing cryptocurrency to invite fintech players such as Strike to understand the benefits of this solution. Pakistan should begin work on seamlessly connecting Raast to the Bitcoin ecosystem.
The Bitcoin ecosystem is not without risks. China and the International Monetary Fund (IMF) have both leveled criticism against the technology. Furthermore, the Financial Action Task Force has called on the government to better regulate the cryptocurrency industry. It is imperative to involve these important stakeholders in all top-level cryptocurrency discussions.
Pakistan has multiple avenues available to participate in the Bitcoin revolution. The benefits are far reaching and greatly outweigh the costs. There is an urgency to formulate a national cryptocurrency strategy and become an early adopter of this ecosystem. The time to act is now.
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I. What Is Bitcoin?
The advent of the internet-enabled society to digitize information. In the same vein, bitcoin’s revolutionary technology (the blockchain) enables society to digitize value.
Prior to bitcoin, most cryptocurrencies were exposed to a risk known as double spending. This is the risk that a cryptocurrency can be spent twice. It is a potential problem unique to “digital currencies” because digital information can be reproduced relatively easily by savvy individuals who understand the blockchain network and the computing power necessary to manipulate it (Frankfield, 2020).
Bitcoin was the first cryptocurrency to solve the double spending problem without relying on a central authority to oversee transactions.
Here is an investment letter from Miller Value Income Strategy that provides as simple an explanation of the technology (Bill Miller IV, 2021):
“Bitcoin is a decentralized network of value storage. Its core technological breakthrough lies in users’ ability to transfer value to other network participants without any central administrator or authority. This means that users can shift large quantities of value to each other around the globe almost instantly, 24 hours/day, 365 days/year, using only another participant’s ‘public key’ and little administrative hassle. ‘Miners’ verify transactions in exchange for new coins, though the reward for each mined ‘block’ decreases every 210,000 blocks, or approximately every four years. Unlike the dominant systems of account now in use (currencies), the supply of measuring units is predetermined and will never exceed 21,000,000. While aggregate participation in the network is effectively unlimited, there will never be more than 21 million spots (‘bitcoins’) on the ledger, which means that more network participation makes each spot on the ledger more valuable. Each bitcoin is divisible into 100 million units, or Satoshis.”
The decentralized nature of this technology allows users to conduct peer-to-peer monetary transactions without the need to involve a central authority (i.e., banks, currency exchanges, trust companies, etc.). Bitcoin has rules and incentives built into the protocol that are agreed to and enforced by the miners using a consensus mechanism process. Improvements to the technology can be proposed but can only be adopted if 95% consensus is reached among miners (Alex Galea, 2018). As an example, Taproot, the first Bitcoin upgrade in almost four years, has recently been approved by miners and will take effect in November 2021. However, this ecosystem does not have any rulers. There exists no one person or group that controls Bitcoin. This form of organization where there is no controlling centralized actor is known as distributed governance.
Furthermore, Bitcoin is a permissionless system. As there exists no central authority with ultimate control of the network, any individual or group has the right to transact in this ecosystem using a simple internet connection. A user can neither be banned nor suspended from using the network. No central authority has the right to determine whether a transaction can be conducted on the blockchain.
Another important feature of Bitcoin technology is its immutability. Once a transaction settles on the blockchain, it cannot be edited, reversed or replaced. This ledger of all transactions going back to the very first one from January 2009 can be viewed by anyone on the blockchain. The value of transferred bitcoin, public key addresses of both sender and receiver, along with the date and time of the transaction are all recorded on the blockchain. The high level of confidence in the truth of each transaction brings about a standard of data integrity and transparency that has not been available in the past.
Although bitcoin transaction data is transparent on the blockchain, the parties (i.e., buyer and seller) in each transaction remain anonymous. These buyers and sellers are identified on the blockchain through their unique public keys (a long string of alphanumeric characters). However, all other user-identifying information is not required to transact in this ecosystem. As a result, Bitcoin extends a level of privacy to its users that is not common in the centralized finance world.
Last but not least, bitcoin is referred to as hard currency, in large part, due to its scarcity. The protocol is preprogrammed such that there will exist a total of 21 million bitcoin. So far, roughly 18.8 million bitcoin have been mined and make up the current monetary supply. Furthermore, every four years or so, a halving event takes place. This creates a situation where the number of bitcoin entering the ecosystem reduces by 50% thereby accelerating scarcity. Unlike fiat currency value that is directly tied to the actions of its central bank, bitcoin follows through on its protocol independent of the economic situation around it. This predictability of the protocol is a strength as it ensures the current supply will not be debased due to central bank actions such as excessive money printing.
II. Current State: Cryptocurrency Ecosystem In Pakistan
The cryptocurrency boom is upon us. The unprecedented price volatility in this asset class coupled with a relatively low barrier to entry has resulted in a breeding ground for scores of risk takers willing to try their hand at short-term trading. Chainalysis’ 2021 Global Crypto Adoption Index has Pakistan ranked in third place globally, up from 15th place a year before. Specifically, the on-chain retail value transferred metric used to measure the activity of nonprofessional, individual cryptocurrency users ranks Pakistan in the top-10 globally. This ranking underscores the grassroots revolution taking place in the country as more and more Pakistanis enter the cryptocurrency ecosystem.
A. Khyber Pakhtunkhwa
In December 2020, Khyber Pakhtunkhwa provincial assembly unanimously passed the resolution to legalize cryptocurrency and cryptomining (The Express Tribune, 2020).
Soon after, in March 2021, the province of Khyber Pakhtunkhwa announced plans to build pilot cryptocurrency mining farms using hydroelectric power. The provincial government also set up an Advisory Committee on Digital Assets composed of stakeholders and experts with a goal to review various technical matters and associated revenue potential by attracting cryptocurrency-related investments. Zia Ullah Khan Bangash, then advisor to the provincial government on science and technology, sounded upbeat on the future of crypto in the province.
“People have already been approaching us for investment, and we want them to come to Khyber Pakhtunkhwa, earn some money and have the province earn from that as well.
“It’s really just our government that is not participating right now, people all over Pakistan are already working on this, either mining or trading in cryptocurrencies and they are earning an income from it,” Bangash said. “We are hoping to bring this to a government level so things can be controlled and online fraud or other scams can be prevented” (Farooq, March 2021).
However, in a sudden reversal of events, it was announced on May 28, 2021, that the Khyber Pakhtunkhwa government has dissolved the Advisory Committee on Digital Assets citing that decisions on digital currency can only be taken by the federal government. No news has been announced on the cryptocurrency mining farms and associated investments in the province (Ahmed, 2021).
We are of the opinion that the position of the federal authorities, including the State Bank of Pakistan (SBP) on cryptocurrency is not explicit.
Although cryptocurrency itself is not illegal in Pakistan, the on-and-off ramp connecting the ecosystem to traditional financial institutions does not come without headaches. A SBP circular, issued in April 2018, advised “all banks and payment system operators to refrain from processing, trading and promoting in virtual currencies token and not facilitate their account holders to transact in VC and tokens” (Khurshid, 2020). As a result, Pakistani residents are not able to use their bank accounts or online wallets to directly transfer funds to their cryptocurrency exchange accounts.
In order to get around this restriction, most Pakistani cryptocurrency traders and investors use peer-to-peer (P2P) transactions as a method to fund and withdraw from their exchange account. Popular cryptocurrency trading apps provide a listing of verified, country-specific brokers on their platforms. A user looking to fund their cryptocurrency account would send a standard bank transfer to a verified broker’s bank account. The broker would then deposit the agreed-upon cryptocurrency to the user’s exchange account using their public keys address. A withdrawal of funds from the trading app requires a transfer of cryptocurrency from the user to the broker’s exchange account. The broker would then deposit the fiat currency to the user’s bank account using a standard bank transfer. The brokers charge a premium to the market exchange rate for the services provided. The popularity of this P2P process in Pakistan is reflected in the country’s top-10 rank in Chainalysis’ latest P2P Exchange Trade Volume survey. In essence, the P2P process levies an additional cost on Pakistanis transacting in the cryptocurrency ecosystem.
According to recent news reports, a federal committee has been formed to study cryptocurrency regulation. The members are observers from the Financial Action Task Force (FATF), federal ministers, and heads of the country’s intelligence agencies (Farooq, July 2021). This is welcome news and a necessary ingredient in bringing the cryptocurrency revolution to the mainstream economy.
State Bank of Pakistan has also expressed an interest in studying central bank digital currencies (CBDC). In a recent interview with CNN, Governor Reza Baqir cited “financial inclusion, tracking money laundering and counterterrorism measures as possible benefits of digital currencies.” To be clear, CBDC is a digital currency, however, it is under the control of the central bank. This centralized nature makes it distinct from a cryptocurrency such as bitcoin.
The SBP has already started work on Raast, a nationwide instant payment system that will enable end-to-end digital payments among individuals, businesses and government entities within seconds (Ikram, 2021).
This first step in laying down a comprehensive financial rails network is an impressive feat. Our team believes the success of this initiative can lead to on-and-off ramp connections from traditional finance to the cryptocurrency ecosystem.
C. Stacks Education Grant
Earlier in 2021, LUMS, one of Pakistan’s leading universities, was the beneficiary of a research grant earmarked to design Pakistan’s first-ever academic program for blockchain, distributed ledger technology (DLT) and associated platforms.
The grant was in the amount of 5 million STX tokens (a digital currency with an equivalent value of $2.5 million at the time of the announcement). Hiro, the organization behind the grant, builds developer tools for Stacks, the network that enables apps and smart contracts for Bitcoin.
Stacks Pakistan, the local Stacks chapter launched in late 2020, is focusing on awareness, community building and advocacy. The chapter has launched the “Stacks Developers Guild Programme,” or SDG, in seven cities across Pakistan. Through a network of ambassadors, SDG leaders are playing a pivotal role in spreading awareness across universities in Lahore, Karachi, Islamabad, Quetta, Peshawar, Faisalabad and Abbottabad (LUMS, 2021).
III. Bitcoin As A Sovereign Reserve
Economists watched with fascination as the country of El Salvador readied itself to become the global pioneer in accepting bitcoin as legal tender. The Legislative Assembly voted to accept bitcoin as one of two official currencies in the country.
The adoption of bitcoin in the mainstream economy is an interesting case study and not without risks. We feel it is still too early for Pakistan to go the route of accepting bitcoin as an official currency. However, the SBP and Ministry of Finance should pay attention to El Salvador’s rollout. The recently created federal committee should capture the learnings from this public policy experiment, understand the risks and, perhaps, initiate contact with relevant El Salvadoran government officials to remain close to this situation.
An easier way to dip their toes in the cryptocurrency ecosystem would be to consider adding bitcoin to the country’s sovereign reserves. As of July 2021, Pakistan holds $3.795 billion worth of gold reserves (CEIC, 2021).
Gold has been a preferred sovereign reserve asset for most countries going back centuries. There exist two major reasons for this favoritism. First is gold’s globally perceived strength as a store of value. In the event of a fiat currency devaluation or an outright collapse of the local economy, central banks can take refuge in the uncorrelated value of their gold reserves. Finally, gold has a long track record as a valuable global commodity. There are ready buyers available at market prices in the event immediate liquidation is required. For this reason, gold is considered a means of exchange.
In order to be classified as a store of value, the asset (or currency) should be worth the same or more in the future. At first glance, the price of gold denominated in USD over a 10-year period seems to have held its value. However, if you account for the 21% cumulative U.S. inflation rate over this time period, the price performance of gold has been abysmal. This data points to gold’s failure as a store of value as it has generated negative real returns (US Inflation Calculator, 2021).
Conversely, bitcoin has been the best performing asset class over the past decade. Bitcoin generated a compounded annual growth rate of 230% over this time period. As far as store of value goes, you will be hard-pressed to find an asset class better suited than bitcoin.
It is a mathematical impossibility for bitcoin to replicate these returns over the next 10 years. However, our team believes it is primed to outperform traditional asset classes moving forward. The fixed supply of 21 million coins coupled with accelerating scarcity sit at the core of this investment thesis. Moreover, the institutional demand of bitcoin bodes well for future price appreciation and helps to create a price floor. Publicly traded companies in the United States such as Tesla, Square and MicroStrategy have purchased bitcoin as a corporate treasury reserve asset favoring it over the U.S. dollar. Bitcoin exchange traded funds have been approved in Canada and trade on the Toronto Stock Exchange (TSX), thereby creating further retail demand. Even MassMutual has purchased $100 million in bitcoin for its general investment fund.
Pakistan’s gold reserves weigh roughly 64 tons. The storage and transfer costs for this quantity come with costs. Fortified locations with armed security personnel would not be uncommon. If the gold is stored in bank vaults outside the borders of the country, a management fee is likely paid for this service. In this second scenario, the country’s gold would be in the control of foreign actors. This is not without risks as these foreign powers hold influence on the sale and transfer of these sovereign reserves (World Gold Council, 2021).
Bitcoin has significant advantages over gold when it comes to storage. As bitcoin is a digital asset, it does not require the same level of physical security needed to protect gold reserves. Cold storage and multisignature wallets are examples of bitcoin storage options. In both cases, the costs associated with storage are immaterial. Additionally, the control over the bitcoin rests entirely with the owner of the coins. No central authority can influence the purchase, sale or transfer of these assets. MicroStrategy has created the Bitcoin Corporate Playbook that not only provides guidance on safely storing bitcoin but also how to purchase significant amounts without materially impacting market price (MicroStrategy, n.d.).
Finally, bitcoin is a relatively new asset class with a growing spot and futures market. The bitcoin market has a market capitalization of approximately $950 billion with a three-month average daily traded volume of $32.98 billion (Yahoo Finance, 2021). The market trades round the clock with no days off on weekends or statutory holidays. There exists ample liquidity in the market for Pakistan to consider initiating a small yet calculated position. Furthermore, the daily traded volume points to a ready market of buyers in the event liquidation of position is required. The purchase and sale of this asset is seamless through the use of established global market exchanges. For the amounts in question, bitcoin provides a means of exchange no different than gold.
El Salvador is the first country to make public its adoption of bitcoin as a sovereign asset. We believe more countries will follow suit as they begin to understand the benefits of this digital asset. The current price of bitcoin still falls within Pakistan’s affordability threshold. This may not be the case for too long as adoption increases over time. Therefore, it is vital Pakistan be a first mover among nation states. We propose the State Bank of Pakistan start by converting up to 5% of their gold reserves (i.e., approximately $180 million) to finance their first bitcoin purchase. As it is, these growing gold reserves sit idle and unproductive. Bitcoin satisfies the store of value and means of exchange requirement and offers diversification to the sovereign reserve asset portfolio. We feel this allocation is low enough to not cause panic during price volatility. However, the upside scenario can have a positive material impact on the state of the country’s asset reserve balance.
IV. Poverty Alleviation
The prime minister of Pakistan has highlighted reduction of poverty and the uplift of poor people’s living standards as a major goal of his administration. Launched in 2019, the federally sponsored Ehsaas initiative is the country’s flagship social protection program. Financial inclusion, access to digital services and economic empowerment are key areas of focus within this program.
These are noble goals, but they do cost money. The budget for the Ehsaas Emergency Cash Program was approximately $1.2 billion (PKR 203 billion) (Dawn, 2020). This one social program represents approximately 3% of the $36 billion (PKR 6.2 trillion) total revenues collected by the country in 2020 (Trading Economics, n.d.). Total government spending is significantly higher than revenues collected resulting in a growing yet necessary government debt to make up the difference. Over time, a developing nation like Pakistan will find it difficult to fund large social programs without continual assistance from the IMF and other foreign lenders.
A small investment in the Bitcoin ecosystem can yield far-reaching benefits. As we previously pointed out, appreciating bitcoin sovereign reserves can help finance some of these programs. Bitcoin may soon reach global acceptance as a pristine store of value. In this case, any nation holding a material value of this asset would be looked upon as an attractive borrower in the eyes of international lending institutions.
Perhaps the bigger play for the country lies in building out the cryptocurrency economy at the grassroots level. This initiative requires time and effort but will lead to sustainable benefits in the long run. Blockchain and smart contract software developers are on their way to becoming prized assets in this new decade of cryptocurrency. Pakistani youth need to be in a position to seize these employment opportunities. Stacks’ launch in Pakistan could not have been timed better. An excellent platform to onboard the next generation of Clarity coders from all strata of society (Clarity is the programming language used to write smart contracts for the Stacks 2.0 blockchain). This momentum should be carried forward to Solidity programming as well that is used on the Ethereum blockchain.
In a post–COVID-19 world, remote work is the new normal. Corporate America is fast becoming comfortable with employees operating from their homes located across state boundaries. The winds of change could likely push these boundaries across international borders and major oceans. The success of Remotebase, a Pakistani startup connecting Pakistani engineering teams with global companies, is proof of this concept. We may not be too far from a future state where the best candidates for the role are recruited, regardless of their physical location. Pakistan needs to identify and train its talent to be ready for these future employment opportunities.
In summary, the cryptocurrency economy has the ability to raise masses out of poverty. Government investment toward this skills upgrade and setting up basic infrastructure will be returned to the economy in the form of budding entrepreneurs, developers and product managers. All productive citizens will boost the local economy from their earnings and contribute to the tax base. In absence of this ecosystem, how else can Pakistan provide mass employment opportunities for its citizens? The time to act is now.
V. Wealth Generation
Retail Pakistani investors have a myriad of investment options available. Real estate is clearly the favored asset of choice. Within real estate, there exist residential, commercial and agricultural categories. Many investors also take advantage of high-yielding, fixed deposits and government bonds on offer in the country. Further down the list is the Pakistan Stock Exchange where less than 0.02% of the country’s population are considered active investors.
Although investment options are plentiful, the challenge is that they are all domestic in nature. As a result, investors’ overall return expectations are largely linked to the local economy’s future performance. Few investors possess the capital required to invest in real estate outside the country. An even smaller number have access to U.S. and global equities due to local capital controls along with strict KYC/AML/ATF compliance procedures of foreign financial institutions. As a result, most Pakistanis miss out on standout investment returns that are uncorrelated to the local economy.
Bitcoin fixes this unfair treatment. Using the internet and a smartphone, here lies an opportunity for the average Pakistani investor to plug into the world’s best performing asset over the past decade. The ability to participate in the returns generated from this global asset of choice will be a huge win for the country. First off, these unmatched returns will be able to provide prosperity across a large segment of the population. Secondly, this influx of cash will provide a boost to the local economy in the form of additional demand from these newly prosperous households. Finally, the capital gains earned by investors will generate additional tax revenue for the government that can be used for expanded social programs.
Detractors of bitcoin point to its volatile price performance since inception. There is no doubt that bitcoin is a volatile asset class with regular price fluctuations. However, looking at volatility alone gives you half the picture. A better way to account for these price swings would be to look at bitcoin’s Sharpe Ratio relative to other asset classes. The Sharpe Ratio measures the average return earned in excess of the risk-free rate per unit of volatility. As Chart 2 indicates, bitcoin’s Sharpe Ratio is consistently higher relative to other asset classes.
We suggest the State Bank of Pakistan and securities regulators open up access to this asset class for all Pakistani investors. The ramps connecting the Bitcoin ecosystem and traditional financial institutions should be low cost and frictionless. A fully regulated national cryptocurrency exchange should be introduced with incentives to entice domestic participation. For investors not keen on purchasing bitcoin directly through an exchange, other options should be made available. For example, the introduction of a bitcoin ETF trading on the Pakistan Stock Exchange would be an attractive investment for local stock market investors desperate for diversified exposure. Finally, existing mutual funds, pension plans and insurance companies should be provided the freedom to convert a small portion of their treasuries to bitcoin. A significant percentage of the country’s population has investment exposure to these large institutions. These citizens indirectly stand to benefit from the eventual appreciation of this asset.
VI. Bitcoin Mining
China’s recent cryptocurrency crackdown has been front and center in the news. A recent statement from the People’s Bank of China, the country’s central bank, warned institutions not to provide other services related to virtual currency (Sigalos, July 2021). State-backed financial associations have warned their members to stay clear of any financing activities related to popular cryptocurrencies. They stated that any activity related to the exchange of fiat money for cryptocurrencies, providing intermediary services to facilitate trading, or conducting token-based derivatives trading, could be charged as a criminal offense in China (Feng, 2021). Furthermore, news reports from July 2021 confirmed China has shut down bitcoin miners operating in the country. This is a significant event in the Bitcoin ecosystem. Past estimates have shown as high as 65% of global bitcoin mining happened in China (Sigalos, June 2021).
Chart 3 shows the impact of the Chinese mining crackdown on the total computing power supporting the Bitcoin blockchain. As miners based in China were shut down, the total hash rate powering the network fell to a one-year low. A decline in hash rate means the network is less resilient in countering attacks against the blockchain. However, it does create a boon for the remaining miners in the ecosystem as it becomes relatively easier to settle transactions and earn bitcoin rewards.
The now-defunct Chinese miners are in the process of either relocating their operations to another jurisdiction or selling their mining equipment in the secondary market at reduced prices (Reuters, 2021). At some point, this lost hashing power will return to the Bitcoin network.
How does Pakistan figure into this conversation you may ask? First, let us briefly understand the major cost drivers behind a bitcoin mining operation. First off, an internet connection is required to connect the mining operation to the network. This should be simple enough to find in the country and not pose a material burden. Next, a large miner would deploy up-front capital to purchase mining hardware, such as the Bitmain Antminer S19 or S19 Pro, which can cost $6,000–$10,000 per unit, generating approximately 100 terahashes per second (TH/s) of computing power (Cannon, 2021). Finally, and perhaps most importantly, the cost of electricity to power the mining operation is a significant recurring cost.
The shutdown of Chinese miners has resulted in secondhand mining equipment flooding the market at considerably reduced prices. This excess supply should help ease the initial capital expenditure requirement to set up the mining farm. This timing works well for anyone looking to build out a new mining operation.
The electricity cost is where things start to get interesting. Pakistan finds itself in a historically rare situation. For the first time in decades, the country has more electricity generating capacity than the local demand (Reuters, 2021). The Indicative Generation Capacity Expansion Plan (IGCEP 2021–2030) published by the National Electric Power Regulatory Authority (NEPRA) corroborates this statement. As per the report, the total installed generation capacity in the country reached 34,501 MW as of May 2021. Peak demand in the country during 2019–2020 was 22,696 MW (recorded during September 2019), while the lowest demand was 5,635 MW (recorded during January 2020) (National Transmission and Dispatch Company, 2021).
OK, availability of excess electricity and supply over demand is a good start. What about the cost to generate this additional electricity? Pakistan’s power purchase agreements with its independent power producers are mostly take or pay contracts. This contractually binds the government to make capacity payments for the excess electric generation capacity, whether it is used or not. In essence, we can classify this already incurred electricity payment as a sunk cost and ignore it in our mining cost-benefit analysis.
It is our suggestion that the federal government take advantage of this situation. Excess electricity supply coupled with an expense that is already budgeted is too good to pass up. Moreover, the recent reduction in the network’s hash rate makes it economically attractive to begin mining operations immediately. Bitcoin mining farms should be set up near power plants to minimize any transmission losses. Used mining equipment provides a cost-effective means of getting started. Finally, the government can choose to maximize the mining farm output in winter months when local demand is relatively low. If bitcoin prices continue to rise as per our expectations, this would be another avenue for the federal government to generate massive revenues. According to a recent news article in Dawn, “If Pakistan uses this energy for bitcoin mining using the latest S19 Pro Antminer (assuming 10,000MW of excess energy available at a cost of $0.12 per kW/hour), it can generate $35 billion worth of Bitcoin per year at current valuations. Simply put, this means we can pay off our external debt in two years” (Khwaja, 2021).
The State Bank of Pakistan has prioritized the rollout of Raast. These financial rails will enable low-cost, real-time payment and settlement across government institutions, banks, merchants and individuals. Additionally, this initiative will make it possible for millions of unbanked citizens to enter the digital financial economy, simply by using a smartphone. This infrastructure will serve as a backbone of the local digital economy with the capability for fintech firms to build Layer 2 applications. All evidence points to a flourishing local remittance ecosystem.
The next major challenge lies in tackling the network of international remittances coming into the country. In fiscal year 2020–2021, the amount sent home by overseas Pakistanis reached a historic high of $29.4 billion (Siddiqui, 2021). These valuable funds are used by the government to boost its foreign reserves, repay debt to international lenders and cover its import bill. Clearly, this source of funds is of dire importance to the effective functioning of the local economy.
However, international payment remittance is a high friction process. International wire transfers are expensive and not suited for small remittance amounts. Service providers such as Western Union and MoneyGram do not provide real-time settlement. They introduce further obstacles as recipients need to physically travel to an authorized dealer location to pick up the funds. All in all, a clunky process.
PayPal, a global leader in online payments, allows people in more than 190 countries to send and receive money and acts as an international bank account. The fact that this payment service is not available to Pakistani residents is a travesty. The following news report aptly sums up the situation:
“In 2019, a Payoneer index reported that Pakistan has the fourth largest freelancer community in the world. In 2020, the same fintech company reported that Pakistan is the world’s eighth fastest-growing freelancing economy. Currently, there are around one million freelancers in Pakistan and yet the Pakistani freelancers have no reliable payment options … The unavailability of PayPal is hitherto the biggest plight of the Pakistani freelancer community. Almost all online job platforms have a PayPal option … the ease of user interface, timeliness and compatibility offered by PayPal makes it stand out among its competitors. Most good clients refuse to work with Pakistani sellers because they only trust PayPal for online transactions. This nullifies the proposition of a ‘domestic alternative’. PayPal’s absence is significantly felt, especially in the online working community” (Bhatti, 2021).
Bitcoin’s monetary network provides a comprehensive solution to this problem. The core blockchain network enables transfer of value across two users, regardless of their geographical location. A worldwide network of financial rails already exists within the Bitcoin ecosystem. Using a smartphone and an internet connection, a user can easily plug into this global network. The decentralized nature of this ecosystem allows participation without seeking permission. No central authority has the power to de-platform a user from this ecosystem, let alone the fifth most-populated nation in the world.
The Lightning Network is a Layer 2 payment protocol that sits on top of the core Bitcoin blockchain. This innovation allows the network to become scalable. Micropayments can be transferred on this layer on a real-time basis with minimal fees. Subsequently, the initial and final balances from Layer 2 are settled on the core blockchain. Strike, a fintech company pioneering the use of payments over the Lightning Network, is already operating in El Salvador. By allowing users to plug into the Bitcoin network, it seamlessly allows both inward international remittances along with a local payment infrastructure. Even though the Bitcoin monetary network is used, the remitter and receiver of funds never have to own any bitcoin. Volatility of bitcoin prices is not a concern due to real-time conversion of currency taking place.
We suggest the federal committee overseeing cryptocurrency should invite fintech players such as Strike to understand the benefits of this solution. Pakistan should begin work on seamlessly connecting Raast to the Bitcoin ecosystem. As previously mentioned, one way to achieve this is to introduce a State Bank–backed national cryptocurrency exchange that is connected to Raast. KYC, tax filing status and proof of funds of users can be verified upon the onboarding process. We are of the opinion that Pakistani cryptocurrency users will flock to a local solution as long as there exists a seamless ramp to enter and exit the ecosystem. Furthermore, a local exchange allows ease of oversight to regulators and tax authorities.
As with any investment, the Bitcoin ecosystem is not without risk. Our team reviews country-specific risks for Pakistan as it plans to embark on its cryptocurrency journey.
Chinese authorities have laid bare their obvious displeasure with the cryptocurrency ecosystem. China is one of the largest lenders to Pakistan and also a very strong geopolitical ally. The China–Pakistan Economic Corridor is an integral source of foreign direct investment, infrastructure development and employment in the country. Understandably, the recent action taking place against cryptocurrencies in China should be carefully considered by local policymakers.
Commentators have speculated on the possible reasons behind the crackdown in China. It would be useful to separate facts from sensational journalism to better understand China’s concerns.
B. International Monetary Fund
The IMF is also a large lender to the country. Pakistan has received 13 structural adjustment programs from the IMF since 1988 (Dawn, 2019). The organization has been critical about the role of cryptocurrencies as legal tender in a nation. Unsurprisingly, this assessment was put forward by the IMF soon after El Salvador announced its plans to adopt bitcoin as a national currency (Adrian, 2021).
Although our team does not recommend adopting bitcoin as legal tender, the criticism from another important lender should be examined carefully. One way to mitigate this risk would be to invite IMF representatives to be included when formulating the cryptocurrency strategy in the country.
C. Financial Action Task Force
Pakistan has been tirelessly working these past few years toward exiting the FATF gray list. It was recently reported that the FATF has called on the government to better regulate the cryptocurrency industry.
The government’s first response in setting up the federal committee to oversee cryptocurrency regulation is a promising one. Moreover, they have included the FATF as a member of the committee. Money laundering and terrorist financing issues will likely be top of mind for the FATF.
A flourishing and formal cryptocurrency economy in Pakistan is not possible without tackling the FATF’s concerns. Regulations to bring exchanges, dealers and users together is a win-win for all stakeholders involved. This will help bring the industry out of the shadows and lay down the foundations needed for sustainable development.
D. Capital Outflows
Market observers have speculated on several reasons behind China’s actions relating to cryptocurrencies. One of them is centered around the ease of capital flight from China through the use of cryptocurrencies.
This flight of capital is a significant risk for Pakistan as well. Admittedly, it is not entirely possible to stem the flow of capital in the cryptocurrency ecosystem. However, regulations built around the entry and exit points of the ecosystem play a role in mitigating this risk.
Furthermore, Pakistani residents will face stiff scrutiny when attempting to withdraw funds from the cryptocurrency ecosystem in any foreign jurisdiction. There exists a major incentive for domestic users to work within the regulatory framework and pay the required taxes on investment gains. That incentive being immediate transfer of cryptocurrency funds to their local bank accounts.
This is a guest post by Frontier Capitalism. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
At the time of writing, the country boasts a stash of more than 700 individual bitcoin units, which are worth approximately $31 million at press time. This may not sound like much at first but considering that El Salvador is new to the world of crypto, it can be argued that the country has moved fast and has experienced a fair amount of success in its latest plans.
The purchase was initiated following the recent price dip incurred by bitcoin, which began over the weekend following the problems of Evergrande in China. As the country’s second largest property developer, the company has more than $310 billion in debt, and is required to pay much of it back by the end of the week. This is not likely to happen, and with the firm unable to meet its present bond obligations, many assets – bitcoin included – are taking hits.
El Salvador is using the situation to its advantage and has decided to purchase more BTC. President Nayib Bukele explained in a tweet:
They can never beat you if you buy the dips.
The primary reason for adopting bitcoin as legal tender within the country has a lot to do with remittance payments. Bukele has stated that he is confident bitcoin can make these payments easier and less expensive for residents working abroad.
Several citizens of El Salvador are working out of the country in regions like the United States. They send money home to their families, but due to exchange rates and transaction fees, sending money back in USD or other forms of fiat can often see much of that money vanish before it’s even doled out.
Not Everyone Is Happy
Bukele believes that bitcoin, which is less costly, will allow many of these workers to keep most of their money, which in turn will result in their families getting to keep much of that money. Thus far, El Salvador has installed more than 200 separate bitcoin ATMs on its home turf and in the U.S. to allow for these remittance payments.
Despite these good intentions, several individuals in El Salvador have taken to the streets to protest the maneuver, which they say is going to take the Central American nation down the wrong path. Up to this point, the country has been reliant on USD, and many citizens have grown comfortable with the currency. Thus, they do not see the need for change, and instead have expressed concern over the connection bitcoin allegedly shares with illicit activities like money laundering and terrorist financing.
The bitcoin price is suffering today after the Evergrande Group in China took a hard fall. As the nation’s second largest property developer, the firm has too much debt – more than $310 billion – and is struggling to pay it back. The situation is causing many assets to experience nasty drops, bitcoin being one of them.
Evergrande Is Leading to a Drop in Crypto Prices
At the time of writing, bitcoin has fallen to roughly $44,000 per unit. Over the weekend, the asset was trading for about $47,000. Aside from BTC, Ethereum has also incurred a heavy slump, dropping by nearly ten percent in the past day or two. The currency is trading for just over $3,000, while Dogecoin – hit even harder – has dropped by 11 percent and is trading for around 21 cents.
The problem surrounding Evergrande is that it is currently caught in what’s called a “liquidity squeeze” that could cause the company to file bankruptcy in the coming future. The company is having trouble paying back its bond obligations, which are due at the end of this week. If the company cannot meet its financial obligations soon, Evergrande may be forced to sell off hundreds of commercial properties at serious discounts.
In an interview, cryptocurrency specialist James Edwards commented:
Bitcoin is like a very tightly coiled spring right now, but it’s still unclear whether it will shoot forward or buckle under the pressure. Record amounts of bitcoin have been taken off exchanges, with levels being at their lowest point in the past 12 months. Low liquidity typically leads to choppy price volatility, which can easily swing in either direction… The reduction of bitcoin held on exchanges suggests that there is very little appetite for selling, with the market now focused on the next leg up before another wave of profit taking. Unfortunately, the uncertainty surrounding Evergrande may spill out into cryptocurrency markets, which could see bitcoin retest support at $42,000 in the immediate future.
This is now the second time in the past few months where bitcoin tanks hard thanks to activity that is occurring in China. Not long ago, the currency dropped into the low $30,000 range after the country announced that it was purging itself of all crypto miners as a means of becoming more carbon neutral. The order was issued by Beijing – China’s capital city – and all other regions were required to comply.
China Is Sending BTC Miners Away
A mass exodus occurred that saw hundreds of bitcoin and cryptocurrency miners being forced to leave the nation they called home for so many years. Many found themselves relocating to regions such as Kazakhstan to the north, as well as Texas and Florida in the west.
Winston Ma – the managing director and head of North America at China Investment Corp. – has stated the nation is now looking to create a new bank-issued digital currency known as e-CNY, which is set to be launched following next year’s winter Olympics in Beijing.
The investment app has become a regulated Virtual Asset Service Provider, allowing it to provide BTC brokerage services in Europe.
Bitcoin investing app Relai has become a regulated Virtual Asset Service Provider (VASP) in Switzerland, allowing it to provide bitcoin brokerage services to customers in the country and Europe, according to a press release sent to Bitcoin Magazine. The startup, now a partner of the Financial Services Standard Association (VQF), will be able to provide more efficient order processing and cease reliance on third-party exchanges.
“We are excited to be one of the few Swiss bitcoin startups who are members of VQF, allowing us to build Europe’s leading bitcoin brokerage platform,” said Julian Liniger, co-founder and CEO at Relai. “With our own broker, we will be able to set competitive fees, increase order efficiency, and build new products and services for our users.”
Relai acquired the VQF membership to build an in-house brokerage platform, no longer needing to outsource trade execution. Now, the firm will be able to provide customers with the direct exchange of euros and Swiss francs for bitcoin and vice versa, ceasing reliance on third-party businesses.
The Swiss startup provides customers in Europe with instant access to bitcoin purchasing and selling services without creating an account or submitting personal information. Relai doesn’t require registration, and customers don’t have to endure verification processes or extensive document requirements.
Under the previous model, however, Relai customers were limited to purchasing approximately $1,100 per day and $110,000 per year. But since becoming a VASP in Switzerland, the company can now enable more significant purchases, which would require more personal information to be submitted by users.
The news comes to fulfill Relai’s plans first set out in June. That month, the company raised $2.7 million in a Series A round, which it said would fund projects to build a proprietary broker. Other objectives shared by the company include obtaining a financial intermediary license and providing new offerings for investors looking to buy large amounts of bitcoin.
Christine Lagarde – the president of the European Central Bank – has issued a warning about cryptocurrencies like bitcoin and Ethereum, calling them highly speculative and saying that they are “suspicious.”
Lagarde: Crypto Is NOT Cash!
Bitcoin and digital assets have shot up like crazy over the past year. The idea is that these assets are becoming hedge tools against inflation and other economic problems caused by the current presidential administration and ongoing coronavirus fears. While many people have garnered newfound respect for these assets, Lagarde feels very differently, and says that they are not cash and should not be treated as such.
In a recent interview, Lagarde commented:
I think we have to distinguish between cryptos that are highly speculative and suspicious occasionally, and high intensity in terms of energy consumption assets, but they’re not a currency. Cryptos are not currencies, full stop. Cryptos are highly speculative assets that claim their fame as currency, possibly, but they’re not. They are not.
Among the big price highlights to occur for digital assets over the past several months include bitcoin reaching a new all-time high of approximately $64,000 per unit in April. In addition, Ethereum also experienced a new high of about $4,000. Other assets, such as Solana, Ripple’s XRP and Binance’s BNB, have also incurred triple-digit gains.
These currencies – and many others like them – are not garnering affection from Lagarde, though she was rather praising of stable currencies in her interview, claiming:
You have those stable coins that are beginning to proliferate, which some big techs are trying to promote and push along the way, which are a different animal and need to be regulated, where there has to be oversight that corresponds to the business that they’re actually conducting, irrespective of how they name themselves.
Many banks and governments across the globe have been looking at stable coins as of late, recognizing that cryptocurrencies are becoming much more prominent and that they need to stay current to compete. The ECB itself ultimately launched a digital euro project earlier in the year under Lagarde’s direction and guidance. She continued her praise of the stable currency space with:
And in all that, you have the central banks who are prompted by a demand of customers to produce something that will make the central bank and central bank digital currencies fit for the century we are in. I was keen to push the issue, the CBDC issue, on our agenda because I believe that we have to stand ready for that.
Stable Currencies May Provide Solid Answers
One figure sharing this sentiment is Benoit Coeure, the head of innovation at the Bank for International Settlements (BIS). He recently stated of stable currencies:
CBDC (central bank digital currencies) will be part of the answer. A well-designed CBDC will be a safe and neutral means of payment and settlement asset.
PSV received bitcoin through a sponsorship deal in August and confirmed they self-custody it on their balance sheet.
In August, prominent Dutch football club PSV announced a partnership with bitcoin exchange Anycoin Direct, which became the club’s Official Partner for the following two seasons. The exchange paid the sponsorship contract entirely in bitcoin, a first among the major European football clubs, and PSV has recently confirmed to Bitcoin Magazine that the BTC is still held in the club’s balance sheet.
“The possibilities and the future that the world of cryptocurrency offers is very promising,” said Frans Janssen, commercial director of PSV, when he signed the sponsorship agreement. “As a club in the heart of the Brainport region, we are always innovating, and cryptocurrency fits well into this picture.”
Janssen created the necessary Bitcoin wallets immediately after signing the contract to receive the proceeds in BTC sovereignly. The club has been self-custodying all the bitcoin received through the sponsorship since August, with no plans to sell it.
“Anycoin paid their sponsor rights to us via a certain number of bitcoins which we hold in our own wallet,” Janssen told Bitcoin Magazine.
PSV’s pioneering move in the European Union (EU) was recently shared as a success case in the most prominent marketing & insights event in the Netherlands, MIE, fulfilling the club’s initial intention of increasing Bitcoin awareness in the EU.
“Growing up in the region, PSV has always been very close to me,” said Lennert Vlemmings, COO at Anycoin, in August. “As a technology company from the Brainport area we are very excited to be working with PSV. The payment in Bitcoin marks the next step for the adoption of cryptocurrency in the EU.”
PSV’s pioneering move is set to prompt other clubs to adopt bitcoin, mainly because of game theory. As BTC keeps gaining purchasing power against the euro, clubs without bitcoin exposure will be at a disadvantage. This will likely be demonstrated in transfer windows when PSV might secure better players because of the price-appreciated BTC in its balance sheet.
The Eindhoven Football Club PSV is a 108-years-old club from Eindhoven, Netherlands, that plays in the Eredivisie, the top-tier league in Dutch football, which it has won 24 times. In addition to national trophies, the club has also won the UEFA Cup in 1978 and the European Cup in 1987-88.
Then, connect the red lead from the fan to pin #2, which is the five-volt direct current power supply pin. Connect the black lead from the fan to pin #6, which is the ground pin. The fan itself snaps into place on the underside of the top of the case.
Then, snap the top of the case onto the middle part and the Raspberry Pi assembly is finished. You can set this aside for now and we’ll come back to it later.
Satellite Selection And Rough Pointing Angles
Navigate to the Blockstream Satellite network coverage website and make note of the satellite with the strongest signal for your geographic location. You will want to either drop a pin on the map, enter the address where the satellite will be installed, or use a satellite pointer mobile app to get the most accurate elevation, azimuth and polarity numbers that you will need to set up your mounting bracket and antenna.
For example, using the Denver Federal Reserve bank address:
1020 16th Street Mall, Denver, Colorado, 80202, United States
Enter this address into the satellite map website, it will reveal the best numbers for the elevation, azimuth and polarity. Then, use those numbers to set up the correct angles on the mounting bracket and antenna. If you are using the flat panel antenna like the one in this guide, then you will want to make sure your selected satellite has the green check mark, like the Galaxy 18 for example.
You can also download the Satellite Pointer app for iOS or Android to utilize an augmented reality tool to help get all of your angles right. With this app, you can find the satellite you want to point your antenna at by scanning the sky around you. Then, you will be given the best azimuth and elevation to use when you align the cross-hair pointer on screen with the satellite you want to connect with. You can also find the best polarity to use by selecting the appropriate satellite from the list option and scrolling down through the details. It helps too if you allow the app access to your location, or you can also enter the location manually.
Make sure to notate the ideal pointer angles. You will need to carefully set up your mounting bracket based on these angles as described in the next section; otherwise you may not receive good reception from the satellite.
Also, you can follow the @BlockstreamHelp Twitter account to stay up to date with scheduled satellite maintenance that may briefly interrupt service. The announcements will look like this:
The antenna is shipped in an inconspicuous box that has no mention of Blockstream or Bitcoin on it. The label on the outside of the box merely indicates that there is a flat panel antenna inside, which is commonly used for internet reception and televisions, among other things. You can view the complete manual here.
Upon opening the box, you will find that it contains the antenna, the Ethernet power supply, literature, mounting brackets for multiple applications, a compass, hardware and a flat wrench.
Be careful while handling the antenna; try not to scratch the surface or drop it. Also do not apply any paint, stickers or anything else to the face of the unit. The back of the unit has the legacy-style coax cable connections and the Ethernet connection.
In this guide, I will be demonstrating the Ethernet connection. The advantage here is that the satellite signal is being converted into a digital signal internally and I do not need additional outboard hardware with this antenna.
There are a few different mounting options, such as window mounting, railing mounting and surface mounting. The right choice for you will depend on your unique situation. For me, I had an old DirecTV satellite dish installed on my house, so I decided to use the existing stand for it and I went with the railing mounting hardware in the kit.
Next, I installed the bare mounting bracket onto the existing mounting pole on the roof, leaving the satellite safe on the ground.
After I had the new mounting bracket installed and only fastened hand-tight, then I mounted the satellite antenna onto the mounting bracket.
Now that everything is in place and still only hand-tight, the pointing angles all need to be roughly set, these angles will be fine-tuned once it’s powered up. Based on the geographic location example using the Denver Federal Reserve bank, the best pointing angles for the antenna are going to be:
Geometry is not my strong suit, but here is my best explanation: This graphic helps illustrate the three-dimensional planes. The vertical XZ plane defines elevation, the flat XY plane defines azimuth and the horizontal YZ plane defines polarity.
Elevation is the vertical degrees of X from Z, with Z being 0.
Azimuth is degrees on the XY plane of Y from X, with X being equal to north. With my antenna, I set the main mounting bracket roughly correct and then used the smaller adjustment to fine tune the setting:
Polarity is the horizontal degrees of Z from Y, with Y being equal to 0.
The notches on the mounting hardware will only get you so far. To get as accurate as I could, I used the Satellite Pointer app to provide the angles while my mobile phone was physically placed on the antenna. Since the Satellite Pointer app doesn’t display real-time polarity, I used the Level Tool app on my mobile device for this. Also, to assist with the azimuth reading, I used the Compass app on my mobile device. As each angle was as accurate as I could get it, I would tighten down the hardware with the included flat wrench.
With the antenna installed and the pointer angles roughly set, all that is left for the installation piece is to run the Ethernet cable. About a year ago I ran a new coax cable from this satellite dish to my office in the basement on the other side of the house. Due to stocking levels at Blockstream, Lightning Network payment routing issues on my end and getting busy with other projects, I never did end up ordering the Satellite Kit despite running the cabling for it. I’m glad that I waited though, because the flat panel antenna has a built in LNB and internal satellite signal converter. Running a new Ethernet cable from the new antenna to my office was a worthwhile chore, since I did not want to use the legacy signal and buy an additional piece of hardware to convert it.
If you are not comfortable installing your own cable, then call a licensed professional. Depending on your installation, you may need to terminate your own cables, drill holes in your walls, and crawl inside your attic.
I went to a hardware store and bought 100 feet of outdoor-rated CAT5e Ethernet cable, a box of RJ45 connectors and the crimping tool.
Then, you need to decide which standard you want to use for your Ethernet cable. I couldn’t find the standard used for the SelfSat>IP22 antenna but considering it is new, I made a safe assumption that it was the T568B configuration. So long as you terminate both ends of the cable with the same configuration, I don’t think it really matters how the device’s internal configuration is set up. All of the wires are the same color on the inside, after all.
There are some good guides online for making your own Ethernet cables, such as this one. I won’t go into the full details here on how to terminate your Ethernet cables, since there are so many good videos and guides online. But just a few things I do want to point out: Make sure your wire color order is the same on both ends. Make sure the wires go all the way to the end of the RJ45 connector. And make sure there is some of the insulated outer jacket where the pinch point clamps down on the cable in the RJ45 connector.
Before terminating the end of your Ethernet cable that gets plugged into the antenna, make sure you slip the cord-grip connector over the cable so that once you do have the end terminated, you can still plug it in and tighten down the cord-grip to keep and weather out of the connection.
Next, I used some zip ties to run the cable down along the side of my house and then drilled an inconspicuous hole to pass the cable through to the attic. Then, I crawled inside the attic and ran the cable along the length of the house to the opposite side and then down through the interior wall and then through the floor into the basement where I terminated the other end of the cable in my office. If you are uncomfortable with crawling into confined spaces to do this type of work, then I would recommend contacting a professional installer.
With the cable installed, simply plug it into the Power over Ethernet (PoE) adaptor, making sure that the cable connected to the antenna is in the correct port and that the other port is connected to your Raspberry Pi.
Raspberry Pi OS Image
There are three main steps covered in this section:
Installing the Bitcoin Satellite application, which is a fork of Bitcoin Core with the added capabilities to receive Bitcoin network data from satellites
First, the Raspberry Pi needs an Operating System (OS). To achieve this, the OS image will be downloaded and then flashed to the 32 GB microSD card that came in the CanaKit. Navigate to this website and select the image you want, I recommend downloading the latest available ARM 64 image; you may need to navigate back up the parent directory to get to the latest images. I chose the “2021-05-07-raspios-buster-arm64.zip.” Then, you also want to download the SHA-256 file, as well as the signature file as shown here:
You will also need the Raspberry Pi imager executable file to flash the OS image onto the microSD card. The imager application can be downloaded from here. Unfortunately, I wasn’t able to find any PGP verification tools for the imager executable file.
Save all of the files in the same folder. It is important to verify the software that you can. This is why the SHA-256 file and the signature file were also downloaded in addition to the OS image. I’ll show you how to use a PGP signature and a hash value to cryptographically verify the integrity of the OS image you just downloaded before installing it on your Raspberry Pi. For this, I will be using the Kleopatra key manager.
First, import the Raspberry Pi public PGP key into your key manager and then certify it. The PGP key can be downloaded here:
Then, simply right click on the signature file, select “More GpgEX options” and then select “Verify.”
The software will run for a moment and it should return a green verified dialog. Now, you know the downloaded .ZIP file is verified with the Raspberry Pi signature.
Now, you can run a SHA-256 hashing algorithm on the .ZIP file and compare that to the hash value in the downloaded hash file. I like to use a hex editing program called HxD for calculating hash values. Always be sure to get the latest hash files from the same archive you downloaded the image file.
Now that everything is verified, you can delete the SHA-256 hash file and the signature file from that folder, so the only items left are the imager executable file and the .ZIP file. Leave the .ZIP file compressed, the imager executable will take care of decompressing it. Load the microSD card in the USB adaptor and make sure that is available for your computer to communicate with it. Then double click on the imager executable file and the flashing process should start.
The microSD card that comes with the CanaKit already has an image loaded on it. But there is a preference to use the downloaded image in this case. Simply formatting the microSD card is only going to clear out the data in the available disk volume, just to be sure there are no hidden partitions, I’ll do this with the Disk Manager instead. Open the Computer Manager by right clicking on “This PC” from a file explorer. Then navigate to the Disk Manager and then right click on the disk volume in question and select “delete volume.” A warning will pop up indicating that this will delete all the data, select “yes.”
Next, right click on the unallocated volume and select “start new volume.” Then, follow the prompts in the wizard, leaving all of the default settings as they are. Formatting for FAT32 is fine.
Navigate back to the folder containing only the .ZIP file and the imager executable, and double click on the executable. Then, follow the prompts to install it and then run it. If everything went according to plan, you should be looking at this screen:
Select “Choose OS” then scroll down to “Use Custom” and then navigate to your .ZIP file:
Once you hit “Continue,” it will eject the microSD card from the computer. However, a blank Secure Shell (SSH) file needs to be written to the root directory of the microSD card so that it can be connected to remotely. Upon reinserting the microSD card, your computer may tell you that the microSD card needs to be reformatted. Do not reformat it, just select “cancel.”
Using the file explorer, navigate to the root folder on the microSd card, it is probably called “boot.” Then, simply right click in that folder and select “new,” then “text document.” Then, just name it “ssh” without any file extension. You should receive a dialog warning you about changing file extensions, just select “yes.”
That’s it, you’re done flashing the Raspberry Pi image, you can eject the microSd card. Insert the microSD card into the Raspberry Pi microSD card port, not into the USB port using the adaptor, but on the opposite side of the circuit board from the USB ports, there is a microSD card port. Then, connect an Ethernet cable to your router or switch, and the power cable.
Now you are ready to turn on the Raspberry Pi and next I’ll show you how to remote in via SSH connection and install the Blockstream Satellite command-line interface (CLI) tool.
Do not connect your SSD yet.
In this step, you will see how to make the SSH connection from your desktop computer to your Raspberry Pi computer. Once this connection is established, you will then build the OS Image, install the Blockstream Satellite CLI, and compile the Bitcoin Satellite application.
I recommend using a simple SSH tool like Putty.exe. Learn more about Putty here and download it here. Verify the download, then run the .MSI file and follow the install wizard prompts.
Once you run Putty, you will need to enter the IP address of your Raspberry Pi. To find this, log into your home router from a web browser, usually by simply entering 192.168.0.1 in the URL dialog box. Most routers have basic log in credentials like Admin/1234, check online for your brand of router and login instructions.
Once logged into your router, you should be able to locate a list of connected devices on your home network. For example, the connected devices on my home network and their IP address can be viewed from navigating to: “Basic Router” to “DHCP.”
Then in Putty, in the Host Name dialog box, enter your user, which will be “pi” the “@” symbol followed by your RaspberryPi IP local address. For example, all together, mine was: “firstname.lastname@example.org” and then select “Open” at the bottom.
A terminal window will automatically open on your desktop, then you may get a warning about the host key not being registered. Select “Yes” to add this key to your registry.
Then, you will be asked for the password: “raspberry.”
Then, you should be ready to continue when you see this screen:
Configuring The SSD
Here is how I configured my SSD. There might be better and/or more efficient ways to do this, but here are the steps I took:
$sudo apt update;
$sudo apt upgrade -y;
A script will run for a few moments and then run the following commands:
$sudo apt install git -y;
$sudo apt install htop -y;
$sudo apt install curl -y;
$sudo apt install bash-completion -y;
$sudo apt install jq -y;
$sudo apt install qrencode -y;
$sudo apt install dphys-swapfile -y;
$sudo apt install hdparm -y;
Now, there are a few things that need to done in order to set up the SSD such as formatting it, mounting it, and setting the permissions:
$sudo dmesg -C;
$sudo dmesg -w;
Now, connect your external drive. Make note of “idVendor” and “idProduct.” For example, “idVendor = 1058” and “idProduct = 0748”
Following the instructions, now you can connect the Ethernet cable coming from the satellite to the PoE adapter. Then, plug the other Ethernet port into your router or switch. And then plug the PoE adapter into power. Ensure you have the Ethernet cables connected to the right ports, otherwise you can cause damage to your hardware.
When that is connected and powered on, hit “enter” on the terminal window and then you will receive instructions giving you a couple commands you can run once you get back to the main terminal window to complete the configuration.
This means that you are ready to run this terminal on your laptop and monitor the values to make the fine tuning alignment adjustments on the satellite receiver.
Dialing In The Antenna Pointing Angles
With your laptop in hand and a connection to your antenna, you can start dialing in the exact angles on your receiver. This is the most time-consuming part of this entire project. Make sure you attempt this when you have plenty of time and are not in a rush. Ensure that you do this on a day when you have a clear, unobstructed view of the sky, preferably with no clouds, smoke or smog in the air.
My basic approach was to loosen the bolts for the azimuth adjustments and then slowly move the antenna side to side ever so slightly, like half a degree at a time. Then, I would wait a few seconds to see if the readings in the terminal window changed to “Lock = True.” If not, then I would move the antenna half of a degree and wait again.
I repeated this process again and again and again. Sweeping from center to one side, then starting back at center and sweeping the other side. When I couldn’t get a locked signal, then I would loosen the elevation adjusting bolts, adjust the elevation angle by half a degree, and lock the elevation adjusting bolts back down. Then, I would start sweeping the azimuth again.
I repeated this process several times over the course of several days. The windows of opportunity to try this were few and far between because of all the wildfire smoke in the air where I lived during this time. My attempts were spread out over several weeks. But finally, during a clear evening around sunset, I got my terminal to print “Lock = True.”
Once you achieve “Lock = True,” make sure to tighten down all the hardware. The connection should remain locked. Also, keep an eye on the signal quality. If you are not getting 100% quality in clear sky conditions, try adjusting the polarity to dial this in. Be careful not to lose your locked signal.
Running Bitcoin Satellite
With your signal locked, you are now ready to start downloading the Bitcoin blockchain data. You can either use your internet connection to facilitate a quicker Initial Blockchain Download (IBD). Or, if you want to strictly download Bitcoin blocks from the satellite connection and not use any internet connection, you can run bitcoind with the “connect=0” flag. Be aware that if you are doing this for your IBD, this will take approximately 40 days.
You’re going to have three terminal windows open during this part.
1. In the first terminal window you need to have the blocksat-cli running:
“Lock” should “= True” and “Quality” should be as close to 100% as possible.
2. In the second window, you can run Bitcoin Satellite. You want to run this from the directory where you created the /.bitcoin folder on your SSD:
Now you can just let the IBD run. Remember that this will take roughly a month or longer, so check on it often and make sure to address any issues if they happen.
After I get the blockchain synchronized, I plan on setting this up so that my other Bitcoin nodes will continue receiving blockchain data from my satellite node over my local network during an internet outage. But because I’m strictly downloading from satellite signal, this will take roughly a month or longer to get a full sync. That is why I think this is a good stopping point for this guide and I will follow up with shorter guides on useful things you can do with a satellite-connected receiving node.
Having a Bitcoin node configured to receive blockchain data over satellite connection is a censorship-resistant tool that can help mitigate government-enforced internet shutdown like we have been seen in Myanmar recently. Even though the current satellite node configuration only allows for receiving blockchain data and not broadcasting transactions back to the network yet, this can still be a valuable tool to facilitate keeping other internet-connected nodes up to date during times of internet outages, so that when internet communications are back online, valuable time is not wasted syncing.
As this technology continues to develop and get into the hands of those who need it, development of application use cases will grow.
Thanks for reading! I hope that this article helped you get your own Bitcoin Satellite node up and running. Whether you are using a Blockstream satellite kit or sourcing the materials from other places, this is a powerful censorship-resistant tool that helps strengthen the Bitcoin network and helps transfer power from the hands of the few to the hands of the many.
This is a guest post by Econoalchemist. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
Tron price started a fresh decline from the $0.1200 resistance against the US Dollar.
TRX price is now trading below $0.1000 and the 55 simple moving average (4-hours).
There was a break below a major bullish trend line with support near $0.1150 on the 4-hours chart (data feed via Bitfinex).
The pair could accelerate lower if there is a clear break below the $0.8200 support zone.
TRON price failed to continue higher above $0.1200 against the US Dollar, similar to bitcoin. TRX price is trading below $0.1000 and it remains at a risk of more losses.
Tron Price Analysis
After forming a top near the $0.1200 level, tron price started a fresh decline against the US Dollar. TRX price broke the $0.1150 support zone to move into a bearish zone.
The price even broke the $0.1000 support and settled below the 55 simple moving average (4-hours). There was also a break below a major bullish trend line with support near $0.1150 on the 4-hours chart. Finally, the price spiked below $0.0900 and traded as low as $0.0867.
It is now consolidating losses above the $0.0850 support. An initial resistance is near the $0.0920 level. It is near the 23.6% Fib retracement level of the recent decline from the $0.1204 swing high to $0.0867 low.
The first major resistance is near the $0.0.965 level, above which the price could rise towards the $0.1000 level. The next major stop for the bulls could be $0.1035 in the near term. It is near the 50% Fib retracement level of the recent decline from the $0.1204 swing high to $0.0867 low.
A close above $0.1035 and $0.1050 is must for a fresh increase. On the downside, an initial support is near the $0.0865 level. The first major support is now forming near $0.0825. Any more losses might call for a sharp decline towards the $0.0765 level. The next major support below $0.0765 could be near the $0.0650 zone.
Tron (TRX) Price
The chart indicates that TRX price is now trading below $0.1000 and the 55 simple moving average (4-hours). Overall, the price could accelerate lower if there is a clear break below the $0.8200 support zone.
4 hours MACD – The MACD for TRX/USD is slowly losing momentum in the bearish zone.
4 hours RSI – The RSI for TRX/USD is now well below the 50 level.
Key Support Levels – $0.0865 and $0.0825.
Key Resistance Levels – $0.0965, $0.1000 and $0.1035.
The price even spiked below $40,000 and settled below the 55 simple moving average (4-hours). It traded as low as $39,600 and recently started an upside correction. There was a break above the $40,000 and $40,500 levels.
The price climbed above the 23.6% Fib retracement level of the recent decline from the $48,825 swing high to $39,600 low. On the upside, an initial resistance is near the $42,500 level. The first major resistance is near the $43,000 level.
There is also a key bearish trend line forming with resistance near $42,850 on the 4-hours chart of the BTC/USD pair. The main resistance is forming near the $44,000 zone or the 50% Fib retracement level of the recent decline from the $48,825 swing high to $39,600 low.
A close above the $44,000 zone is needed for a fresh increase. In the stated case, the price is likely to rise steadily towards the $47,000 level.
An immediate support on the downside is near the $41,200 level. The first key support is near the $40,000 level. If the price fails to stay above $40,000, it could revisit the $39,600 support zone. Any more losses could open the doors for a move towards the $38,000 support zone.
Looking at the chart, bitcoin price is clearly trading below $44,000 and the 55 simple moving average (4-hours). Overall, the price must settle above $44,000 to start a steady increase in the near term.
4 hours MACD – The MACD is now gaining momentum in the bullish zone.
4 hours RSI (Relative Strength Index) – The RSI is now well below the 50 level.
Key Support Levels – $41,200 and $40,000.
Key Resistance Levels – $42,500, $43,000 and $44,000.