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This is issue #31 of the Bitcoin Breakdown, where we understand that true ownership cannot be granted by any intermediary, but only deserved through understanding Bitcoin’s revolutionary potential.
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Drivechains have ignited new controversy as Bitcoin Improvement Proposals (BIPs) 300 and 301 face criticism. Drivechain is the creation of Paul Sztorc, who introduced BIP 300 in 2017 and BIP 301 in 2019. Another developer, Luke Dashjr, recently updated Drivechain’s code and submitted a pull request to Bitcoin developers, leading to the current drama.
Drivechain is fundamentally a soft fork proposal that would permit the creation of layer-2 sidechains. This would allow altcoins to be built on Bitcoin, which many anticipate will become the base layer for everything in any case.
Supporters believe this is beneficial as it could render altcoins redundant more rapidly and also enhance the scalability of the Bitcoin network. Critics, on the other hand, contend that this would not only introduce the purportedly beneficial features of some altcoins but also the scams associated with them. This could result in negative publicity and increased regulatory scrutiny. Antifragile honey badger however of course doesn't give a sh!t about that.
Furthermore, the Taproot upgrade already facilitates the construction of off-chain drivechains. Thus, some argue that the sole purpose of endorsing BIP300 is to interfere with base layer incentives. This is why numerous Bitcoin maximalists view it as a veiled attack on Bitcoin.
In summary, modifying the Bitcoin protocol carries an inherent risk. This risk must be nearly negligible, as there's more at stake than just safeguarding wealth. Bitcoin aims to address one of civilization's most pressing issues: governments’ manipulation of the money supply.
The US Financial Accounting Standards Board (FASB) votes in favor of fair value accounting rules for Bitcoin. The previous rules were terrible and accounted for Bitcoin as an intangible asset which meant it is recorded at purchase price and cannot be revised upward even if market values increase, unless sold. Conversely, when BTC went down, companies had to take an impairment loss on their books even if they didn’t sell.
The new rules allow companies to report all unrealized gains or losses on their books. To demonstrate the change, MicroStrategy would have reported a net profit of $39M in Q1 2022 instead of a $131M net loss under the new rules.
This is a huge step forward for the corporate adoption of Bitcoin as a treasury asset and makes it difficult for large companies such as Apple or Microsoft to ignore.
The new rules go effect in 2025, but companies can adopt them sooner, and it does not apply to NFTs, stablecoins, wrapped tokens, or other sh!tcoinery. See more explanation and analysis of the new accounting rules here and here.
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🏆 TOP STORIES
Achim Warner discusses concerns related to the implementation of drivechains in the Bitcoin ecosystem, particularly focusing on the potential abuse of power by miners. He highlights the wide range of possible sidechain applications and lays out scenarios where miners become gatekeepers of the ecosystem, potentially influenced by external entities with significant resources. This newfound power may disrupt traditional mining incentives as miners get to decide on what bitcoins come back to the mainchain. This would open up a lot of additional political considerations, which would detract significantly from Bitcoin’s strength as an apolitical, decentralized money.
Nelson Cardozo analyzes the recent privacy paper released by Vitalik Buterin and Chainalysis that attempts to address the issue of Tornado Cash users not being able to provably dissociate from illicit funds—except by revealing their entire transaction history. The paper introduces Privacy Pools, an open source project that enhances user privacy while complying with regulatory requirements. Privacy Pools would utilize exclusion proofs or membership proofs based on zk-SNARKs to demonstrate that users' funds are not associated with entities flagged by regulatory authorities. Cardozo however raises concerns, including the involvement of Chainalysis, a mercenary blockchain analysis company known for using unverified tools, the lack of clarity in AML/KYC regulations, the potential for authoritarian control, and the ambiguity of blacklists. All-in-all, Privacy Pools may inadvertently centralize control in the crypto space, contrary to the original principles of ‘blockchain technology.’
What Is Bitcoin? discusses the growing trend of countries considering or adopting Bitcoin as legal tender, with a focus on potential adoption in 2024. The primary reason for countries seeking Bitcoin adoption is financial sovereignty, as fiat currencies controlled by central authorities often lead to economic instability and devaluation. Factors like Bitcoin Spot ETFs, halving events, and currency devaluation will likely cause further adoption to increase in 2024. Countries like Argentina, Turkey, Vietnam, Lebanon, and Venezuela are likely considering Bitcoin adoption due to hyperinflation and economic instability.
Cointroversy analizes the questionable practices of Calvin Ayre, a co-leader of the BSV blockchain, and his involvement with RockWallet, a crypto wallet and exchange platform. RockWallet pretends to be a neutral crypto company but is in reality just a front for the true purpose of being a dedicated BSV exchange and mechanism for paying Craig ‘Faketoshi’ Wright's legal bills. Users should avoid RockWallet because it only delays the inevitable decline of BSV.
The Cambridge Centre for Alternative Finance (CCAF) recently revised its Bitcoin energy consumption estimates. Daniel Batten breaks down the report which highlights that CCAF's previous model overestimated Bitcoin's energy usage by 16.8% in 2021 and 10.2% in 2022, aligning with earlier research suggesting a 20.6% overestimation. This adjustment contradicts GreenpeaceUSA's claim that Bitcoin consumed as much energy as Sweden, which was based on the now-discredited CCAF data. The revised estimates indicate that Bitcoin's energy use is comparable to that of tumble dryers in the US. CCAF however still overestimates emissions by 67.6% due to outdated emission intensity calculations. They however acknowledge the potential for further reductions in emissions through methods like methane mitigation and waste-heat recovery. CCAF's updated model aligns with industry data and receives praise for transparency regarding historical overestimations.
Robert Breedlove published the foreword he wrote to Erik Cason's latest book Cryptosovereignty, release just last month. Breedlove highlights the historical context of political power and the role of the state in wielding force, with a focus on the vulnerability of state-based legal systems to the whims of individuals in power. He argues that true sovereignty lies in an immutable ruleset that cannot be subject to exceptions or arbitrary changes. After an overview of the historical role of gold as a store of purchasing power and its connection to centralized political power, Breedlove moves onto the idea of ‘digital gold’ and explains how Bitcoin embodies this concept by allowing individuals to secure their wealth through cryptographic means, thereby undermining the authority of the state. Bitcoin represents an apolitical solution to the problems of political economy and statism, offering individuals a way to assert their sovereignty in a world with little faith in the state. The whole foreword is a must read. You can get Cryptosovereignty here.
📖 GUIDES & EXPLAINERS
Sachin T R writes for Bringin about the evolution of the ‘Never sell your Bitcoin’ meme into a movement within the Bitcoin ecosystem, highlighting its resilience in the face of challenges. This has however led to limited economic activity involving BTC as a medium of exchange as Bitcoin proponents favor accumulation over spending. The ‘Spend and Replace’ meme was thus introduced as a solution to this issue, whereby individuals spend BTC and immediately replace it, effectively increasing its saleability (defined by renowned economic Carl Menger, as the facility with which a money can be disposed of at a market at any convenient time at current purchasing prices). Sachin identifies slow and expensive BTC transactions and poor exchange user experiences as barriers to Spend and Replace adoption, but he proposes the Lightning Network as an adequate solution to these issues. All-in-all, increasing Bitcoin's saleability through initiatives like Spend and Replace is important for its widespread adoption.
Athena Alpha breaks down the Bitcoin Rainbow Chart which overlays rainbow color bands onto a Logarithmic Regression curve in order to highlight market sentiment at the various colors of the rainbow. The chart's color bands correspond to different market phases (buying opportunity, accumulation zone, hold signal, possible bubble, intensifying FOMO, and overbought market). It predicts Bitcoin's price at the end of 2023 to range anywhere from $20K to $250K. In five years, Bitcoin's price could be anywhere from $90K to $900K according to the chart. Past performance of course does not guarantee future results so the chart is just a speculative tool.