From the Peanut Gallery

This post is in response to an interview on the One Hundred Trillion podcast, a debate between Ryan (the host) and Paul Puey (CEO of Edge Wallet).

They discussed and debated a range of topics related to Bitcoin's value proposition and historical/current narratives around it. The following are some thoughts I have on certain points I think are worth commenting on. First, I'd like to explain the lens with which I observe and think about these tools.

My Values

For a system like Bitcoin, I value decentralization above all else because it's the foundation of censorship resistance and seizure resistance. Any tradeoffs made that reduce or disincentivize decentralization better be worth it. Still, decentralization is a spectrum, and can be difficult to measure.

I don't value day trading. I believe it's a zero-sum game where you can only win if someone else loses. I value adoption of freedom tools because it benefits everyone who participates.

Discussion Topics

Scaling Layer 1 32:00

The base layer is capable of scaling to do our world of transactions

I wish there was more time spent on this. As far as I know, there isn't a cryptocurrency that has proven to be able to scale to commercial payment volume like Visa. Maybe "world of transactions" refers to financial transactions like trading, as there was more discussion in this realm. I have invited Paul to discuss live at the next San Diego Bitcoiners meetup.

Lightning is a failure 32:52

Lightning has failed to allow 8 billion people to buy coffee in a sovereign way. If this is what is meant, this is merely one narrative that people (missing a lot of nuance) has posed but more sober minds have been more realistic. In truth, as early as 2016, developers determined that "lightning can support about 52 million users with the current one-megabyte limit."

Several metrics show that lightning use is growing, and there are more better tools allowing people to do so in a self-custodial way. I will concede that lighting as a tool is not currently as easy or useful as I would like it to be today, but it's headed in the right direction IMO.

Is Gold Bad Money? 40:27

I don't think Gold is a bad money, I think it was the best money available before there was a large demand for small or distant payments. Gold is durable, difficult to produce, and practically impossible to create.

Gold as a layered money was even better. Gold backed bank notes added the ability to transact in smaller amounts, largely demonetizing silver. This created centralized points of failure as a second layer, but initially banks that produced their own gold-backed paper notes competed and had to build a reputation to be successful.

Government interference on this process led to fiat that was unbacked and even more centralized.

Using this framework to evaluate Bitcoin, it's even harder to produce, more impractical to create, allows for smaller and larger payments than gold, works across larger distances than fiat, and is much easier to verify.

Monero's attack surface 41:38

Monero has hard forked many times and, for a while, had a regular forking schedule.

Should money be moral? 43:27

I agree that "people should be moral, money is a tool." My perspective on a money technology is that it's incentive drive the morality of the people using it.

Show me the incentive, I'll show you the outcome.
- Charlie Munger

Premine vs Fair Release 44:47

In a premine, holders decide who to sell to and at what price. This is a permissioned, centralized, trusted distribution. Even if the sale is "open to anyone" these people must be trusted that they will make good on the transaction. Once the announcement was made about Bitcoin's release, anyone could have participated and a free market price naturally formed.

Agreeing with devs and backwards compatability 48:49

As a Bitcoin user, you can confidently run older versions preventing you from having to agree with today's developers. Backwards compatability is one of the big selling points of Bitcoin. Holding tokens on a network that upgrades with hard forks means not that you "have a gun to your head" but your funds are held hostage.

Do IOUs Inflate an Asset? 59:22

This touches upon a debate in macro economics. It comes down to whether you define inflation as an decrease in value (price), or increase in supply. If there are more IOUs than the underlying asset, it can reduce the price, but it won't change the relative amount of the total supply I hold.

Free Withdrawals in 2017

In the fee spikes of 2017, nobody did it for free

Before Coinbase renamed GDAX to Coinbase Pro, they allowed for transfer (off chain, internal ledger trasnfer) of funds from your coinbase account to GDAX, which allowed for free on-chain withdrawals. I did it in late 2017 and early 2018.

This comment was made to support the argument that if it's too expensive to self custody, people will keep their funds on exchanges, incentivizing custody and KYC. This is a fair statement, but there are multiple exchanges that currently allow for withdrawal on lightning.

Other Thoughts

Ethereum

There's a saying, "no one is better than their incentives." That might be an overgeneralization, but incentives do have a profound impact on people. Ethereum is discussed a lot in this conversation. These are the problematic incentives I see with Ethereum:

• Premine - values original founders more than current developers. It also incentivizes early holders to pump and dump.
• Node complexity - incentivizes reliance on big tech infrastructure and the people who run it. If "not your node, not your rules" holds true, then a network that hard forks regularly and makes it difficult to run your own node leads to much less agency for token holders.
• Proof-of-stake - you need a coin to get the coin. proof-of-work allows you to earn bitcoin without already having any. Since running a node/validator on Ethereum is so difficult, this leads to centralization and network control. Considering the few beneficiaries of the premine, you're incentivizing oligarchy.
• Hard forks - require centralization, which can be co-opted, reduces reliability, and harms confidence against censorship and seizure. (See Slock.it DAO).
• Changing monetary policy - not being able to predict your holdings relative to the total supply means you're trusting the powers-that-be of the network not to steal from you via inflation regardless of current monetary policy.

Taking all of the above, Ethereum is a centralized, co-optable, unreliable, inflation-allowing, seizure-allowing, inefficient network controlled by an oligarchy.

The "Zero to One" of Hard Forks

One man's "upgrade" can be another man's "breaking change." This applies to cryptocurrency hard forks, since they require choosing which version of the node software you want to run.

The pillars of Bitcoin (as I see them) are:

1. The ability to hold your own keys
2. The ability to run your own node
3. Backwards compatibility
4. A supply cap
5. Trust minimizatoin
6. Permissionlessness

Interestingly, points 1 and 2 are in direct competition with each other. Smaller blocks make running a node easier but transactions more expensive, thus harder to hold your own keys. So which one is more important to maintain at the cost of the other?

I believe it's a sign of good design that these pillars haven't changed since the beginning. Hard forks have happened on Bitcoin before, but only to fix bugs, which behooved all to make the change. So there wasn't a contentious split in the network.

I believe hard forking to change any one of these pillars is a slippery slope that would open Pandora's box of changes and compromises, hurting reliability, trust minimization, and decentralization.

Specifically with increasing the block size to get more transaction throughput, there is a diminishing return in increased bandwidth and computational requirements. I'm currently convinced blockchains can't scale to the masses this way alone.