Ethereum is under pressure and has just dropped below $1,600. However, on-chain data shows that a crypto whale, “0xb154”, has moved more coins from Binance, a cryptocurrency exchange, to a non-custodial wallet.
On September 21, the ETH whale transferred over $8.1 million of the coin.
When crypto prices contract, outflows from non-custodial wallets to centralized ramps, including Binance and Coinbase, tend to rise. This is because centralized exchanges supporting stablecoins or fiat, including the Euro or JPY, offer an interface where they can easily swap for the “safety” of the less volatile fiat currencies or tokens designed to mirror them, including USDT.
That the holder is shifting tokens away from Binance regardless of the heightened volatility can signal confidence for ETH and the broader Ethereum ecosystem. It is not immediately clear what could have motivated the whale to move coins away from the exchange at this point.
However, what’s evident is that ETH is down roughly 4% from September 21’s peak and moving further away from April 2023 highs when it rose to over $2,100.
Records show this is not the first time the whale moved funds. On September 6, the investor withdrew 9,688 ETH worth $15.8 million from Binance. Less than two weeks earlier, the whale notably transferred 22,340 ETH, worth $41.2 million, to Binance.
A closer examination of the same address shows it has 24,556.59 ETH worth over $38.8 million at spot rates. Besides ETH, the address controls dust amounts of other periphery altcoins, including ZUM and SWISE.
Apart from simply HODLing ETH, the whale has also been active on the non-fungible token (NFT) scene, looking at historical purchases. Over time, the investor has held over 100 NFTs where, on average, spent 0.2641 ETH; the latest purchase was on September 21.
The investor has been actively accumulating NFTs since early April 2023 and has spent over 35 ETH.
The whale has accumulated more ETH and NFTs when the crypto market is fragile. To illustrate, NFT trading volume is over 90% down from 2021 peaks.
Presently, ETH prices are down 25% from April 2023 peaks. When writing, bears have successfully forced the coin below June 2023 lows as the coin moves further away from the psychological $2,000 level. Candlestick arrangement points to weakness, suggesting that ETH could dump even lower to $1,400--or March 2023 lows, if sellers press on.
A cryptocurrency wallet associated with the prominent trading platform, Binance, has seen massive activity in the last 24 hours, leading to abnormally high transaction fees on the Ethereum network.
A crypto wallet labeled "Binance 14" witnessed a significant transaction surge on September 21, rising above 140,000. As a result of this activity surge, transactions of the Binance-owned wallet consistently incurred gas fees of over 300 gwei, even though the network's average fee was around 10 gwei.
This gas fee jump and significant wallet activity have resulted in around 530 ETH (equivalent to nearly $850,000) in gas used on the Binance 14 address today.
The increase in transactions on the Binance wallet had a broader, albeit temporary, impact on the Ethereum network. Gas fees on the blockchain momentarily jumped from less than 10 gwei to above 330 gwei per transaction, according to blockchain data tracker Etherscan.
Gas fees refer to the cost blockchain users incur or pay validators to conduct transactions or execute contracts on the Ethereum network. Fees depend on the blockchain’s demand and supply of processing power. This means when a network has many transactions, there is often a high demand for processing power, which increases gas fees.
In the wake of this incident, Wu Blockchain reported that Binance said it was carrying out its wallet aggregation process when the gas fees were low to facilitate withdrawals and ensure the safety of user funds. Nonetheless, some prominent crypto community members have weighed in on the situation, offering possible explanations for the gas fee spike.
Martin Koppelmann, cofounder of the Gnosis chain, said on the X (formerly Twitter) platform that Binance might be using a "really inefficient script" to consolidate, leading to high transaction costs.
Gas prizes spiking because of a ton of regular ETH transfers related to Binance.a) they are using a really inefficient script to consolidate funds and are massively overpaying transaction costsb) something fishy is going on
— Martin Köppelmann
(@koeppelmann) September 21, 2023
Blockchain analysts at Scopescan gave a similar prognosis on the gas incident. The on-chain analytics platform said:
Due to Binance consolidating funds from long-inactive deposit addresses, the Ethereum network is experiencing congestion, causing Gas fees to surge to 300 gwei.
Adam Cochran, a popular crypto investor, suggested that the abnormally high transaction fees might have been due to Binance's subpar APIs. In his X post, Cochran criticized the exchange's technological infrastructure while casting doubts on its capacity to safe-keep "hundreds of billions in coins across multiple protocols."
According to CoinGecko data, the price of Ethereum currently sits below $1,600, reflecting a 2.8% decline in the past 24 hours. Nevertheless, Ether maintains its position as the second-largest cryptocurrency, with a market capitalization of over $190 billion.
Over the years, Cardano (ADA) has grown to be one of the most beloved cryptocurrencies, securing its spot as one of the top 10 largest cryptocurrencies by market cap in the process. However, while the Cardano network has grown tremendously, investors in its native ADA token have not been as lucky with profitability levels plummeting over the last two years.
Data from the on-chain tracking website IntoTheBlock shows that ADA might be the worst performer of the top 10 in terms of profitability. While the other assets in the top 10 have managed to maintain a reasonable profitability level for holders during the bear market, ADA has been in free fall.
As a result of this, the tracker shows that the percentage of ADA investors seeing any kind of profit at this time has fallen to 0%. An alarming 95% of holders are reported to be seeing losses while 4% are sitting in neutral territory, meaning the prices at which these tokens were last moved correlate with the current price of the altcoin.
To put this in perspective, Bitcoin, the largest cryptocurrency in the market, is sitting at 64% of holders in profit. Ethereum, the second-largest cryptocurrency, is at 52% of holders in profit. Dogecoin, which is one spot ahead of Cardano on the list, is at 41% of holders sitting in profit.
Mid to long-term traders also completely dominate the ADA holder base. According to IntoTheBlock, 39% of all holders have held their coins between 1-12 months, while 61% of all holders have held for more than one year.
Despite the low profitability of the coin, investors seem to be looking toward ADA's current price level as a good entry. This is evident in the CoinShares Digital Asset Fund Flows Weekly report that showed that despite massive outflows from digital asset products, Cardano held strong. The altcoin was able to maintain its inflow trend with another $0.43 million flowing from institutional investors into the asset.
Crypto analysts are also very bullish on the coin's potential. One analyst, Kara Szabo, predicted that the price of ADA would rise as high as $5 in the next bull market, saying that the altcoin is in a prime price range for accumulation.
Another analyst Hashtoshi, also said in an interview that he expects the altcoin to exceed its previous all-time high price marked in 2021. Hashtoshi attributes this expected rise to the network's design and strong community backing the token.
Since its inception, Bitcoin, the preeminent cryptocurrency, has witnessed several market cycles, each with its highs and lows. Its volatile nature has recently tested investors’ mettle, especially those who ventured into Bitcoin in the past three months.
New findings from analytics firm Glassnode have painted a detailed picture of the current scenario, revealing the challenges faced by short-term holders (STHs) of the premier cryptocurrency.
STHs, defined by Glassnode as entities holding Bitcoin for 155 days or less, have recently felt the heat. The firm’s research disclosed that roughly 97.5% of these investors grapple with unrealized losses.
To put it in perspective, as of September 17, Glassnode reveals the cost basis (or average purchase price) for those refraining from selling their BTC stands at $28,000, precariously hovering around 5% above the prevailing market rate.
This situation stresses those new to the crypto ecosystem, causing many to reconsider their potential investment strategies.
Delving deeper, Glassnode’s “The Week On-Chain” report highlights a marked change in sentiment among Bitcoin’s short-term holders. The firm identified a distinction between STHs based on their activity - those who spend their Bitcoin and those who hold.
An interesting trend emerged from this classification. The cost basis of the spenders dipped below that of the holders during the market’s descent from $29,000 to $26,000 in mid-August. This shift indicates a sentiment of concern and pessimism among the STH community.
Glassnode introduced a ‘trend confidence metric to quantify this sentiment further.’ This metric is derived by deducting the spender’s cost from the holder’s cost basis and dividing the resultant value by Bitcoin’s current price.
A pivotal takeaway from this metric was the evident negative shift in market sentiment. As stated in Glassnode’s conclusion:
The Bitcoin market is experiencing a non-trivial shift in sentiment, with almost all Short-Term Holders now underwater on their supply.
The firm noted that the current atmosphere of unease has been “unparalleled” since the FTX debacle. Glassnode noted:
This has resulted in a negative shift in sentiment, with investors spending now having a lower cost basis than the rest of the cohort. This suggests a degree of panic is dominating this group, which is the first time since FTX collapsed.
Meanwhile, although Bitcoin’s short-term holders are grappling with steep losses, the asset experienced a slight uptick yesterday, pushing its price above $27,000. However, this gain was short-lived as Bitcoin quickly retraced its steps, trading at $26,605 at the time of writing, with a 2.1% decline in the last 24 hours.
Featured image from iStock, Chart from TradingView
An analyst has explained how the growth in “paper BTC” could be counteracting a bullish Bitcoin supply shock from taking effect.
In a new post on X, analyst Willy Woo shared insight into how the paper BTC compares against the real BTC being traded. According to the analyst, “paper BTC” refers to the combined futures open interest value.
Here is a chart that shows the trend in the ratio between the two types of Bitcoin over the past couple of years:
The graph shows that the ratio’s value has fluctuated between 0.2 and 0.3 in recent months, suggesting that the paper Bitcoin has been 20 to 30% more than the real coins during this period.
The real supply of the cryptocurrency may be divided into three categories: illiquid, liquid, and highly liquid. The on-chain analytics firm Glassnode puts coins into these divisions based on the behavior of the investors holding them.
To be more precise, the ratio between the cumulative outflows and inflows of the investor since they entered the market is used to define their liquidity. This ratio’s value approaches zero for the illiquid supply, as holders of this cohort rarely move coins out of their addresses.
Similarly, the value becomes close to 1 for the highly liquid supply, as investors of this class tend to shift their coins quickly. In the above ratio, Woo has only used this highly liquid supply as a measure of the “real BTC.”
As the chart below shows, this highly liquid Bitcoin supply has been going down recently.
The analyst notes that the less the number of coins in this supply, the more bullish is the outlook for Bitcoin since there are a lesser amount of coins available to be bought.
Another analyst, James V. Straten, replied to Woo’s post with a chart that combines the liquid supply into the ratio, which, while less fluid than the highly liquid supply, still constitutes a notable part of the BTC traded supply.
According to Straten, the liquid and highly liquid supplies have observed a combined drawdown of 500,000 BTC (around $13.3 billion at the current exchange rate) since May 2023.
However, as the paper BTC is still significantly more than the real BTC, any “supply shock” effects being created out of the real supply becoming less liquid are being more than made up for by the increase in the paper supply.
Bitcoin has registered a sharp decline in the past day, as the coin has lost the $27,000 level and is currently floating around the $26,500 mark.
Since its conception in 2009, Bitcoin, a revolutionary digital money, has advanced significantly. The development of Bitcoin wallets has been astounding along with the rise of Bitcoin. It has been a wonderful journey from simple solutions to the sophisticated and feature-rich wallets we have today. We'll go into the fascinating past of Bitcoin wallets in this post, and we'll also look at how they've changed to accommodate the demands of modern cryptocurrency fans.
Let's first define a Bitcoin wallet before starting our time travel adventure. A Bitcoin wallet is a software program or physical object that enables users to securely store, transmit, and receive bitcoin. Your private keys, which are necessary for accessing your Bitcoin assets, are stored in it as a virtual vault. It would be nearly difficult to conduct Bitcoin transactions without a wallet.
Security was a major issue in the early days of Bitcoin. To store their private and public keys, users depended on paper wallets, which were simply printouts. The keys were stored offline, away from any online threats, in these paper wallets, making them safe. They were inconvenient, though, because each transaction needed human key input.
Basic software wallets soon followed, offering a more user-friendly interface. Users could easily manage their Bitcoin on their PCs with the help of these wallets, which were easy to install. To avoid data loss, they needed to be constantly backed up and were susceptible to virus assaults.
With the popularity of smartphones, Bitcoin wallets appeared on portable electronics, enabling users to carry their digital assets with them wherever they went. Mobile wallets made using Bitcoin more convenient and opened the door for regular transactions.
The ability to access money from any internet-connected device thanks to web wallets transformed the Bitcoin experience. Users no longer had to bother about backups or install software. They may use a web browser to safely access their Bitcoin, making it simpler for beginners to enter the cryptocurrency realm.
Hardware wallets became the most safe choice as Bitcoin's value skyrocketed and security worries multiplied. These tangible objects protect private keys from potential internet attacks by storing them offline. Hardware wallets offer an additional degree of security for your Bitcoin by being resistant to hacker attempts.
Bitcoin wallets have become sophisticated, feature-rich solutions in modern times. They provide seamless exchange integration, support for several currencies, biometric identification, and improved user interfaces. Some wallets even let users to engage in decentralized finance (DeFi) systems and earn interest on their Bitcoin holdings.
From its inception to the present, Bitcoin wallets have had an amazing journey. Wallets have improved in security, practicality, and use with each new development. It's important to keep in mind, though, that in the end, it's your obligation to protect your Bitcoin. To guarantee the safety of your digital riches, keep educated, follow best practices, and select a wallet that fits your demands. Wallets are incredibly important in the fascinating world of Bitcoin. Your Bitcoin adventure awaits, whether you choose a stylish mobile wallet or the strong security of a hardware wallet.
This is a guest post by Ethan Reed. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
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"The special commodity or medium that we call money has a long and interesting history. And since we are so dependent on our use of it and so much controlled and motivated by the wish to have more of it or not to lose what we have we may become irrational in thinking about it and fail to be able to reason about it like about a technology, such as radio, to be used more or less efficiently." - John Nash
Money is a technological tool that humans developed organically out of the necessity of bargaining axioms such as time and space. Many of the financial services that exist today have risen to meet the need of an evolving market, and yet at its most reductive, the modern banking system still represents supply and demand via sellers and buyers. This remains true even when looking into the complicated circuit of the U.S. banking system, including the regional banks providing mortgages for first-time buyers, to corporate debt obligations from large private American banks, to the issuance of government bonds by the Treasury. Only by examining the monetary flow in a logical manner within our current system can we begin to present coherent alternatives to the status quo of a select few holding the special privilege as a world reserve currency debt pardoner. At the center of the circuit of the U.S. banking system sits the Federal Reserve and the Treasury -- a proprietary black box chip that controls both the current (short-term and overnight interest rates) and voltage (the issuances of U.S. Treasuries, "USTs").
"The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts." - Satoshi Nakamoto
The reserve asset at the bottom of the stack of the U.S. economy is not the U.S. dollar, but rather U.S. Treasuries. Offshore dollar markets such as the eurodollar have long operated under the illusion of dollar creation by these European banks without hardly touching U.S.-issued government debt. The Treasury issues debt in the form of USTs to be sold to private banks, who later create credit via dollars in their customer accounts in order to finance the budget of the U.S. government, as well as service any outstanding national debt. The idea of issuing new debt to service old debt would seem illogical, and in many ways it is, yet becomes far more conceivable with the proper understanding that not all debt is created equal. Debt, at least in the Treasury issuance example above, is demarcated by both the percentage of profit generated as yield, and the duration until said bond reaches maturity. Historically, and perhaps logically, the longer the duration (twenty years vs one year), the higher the yield (2.4% vs 1.2%, using real rates from March 2022). The most liquid denomination of government debt are short-term Treasury bills, referred to as T-bills, which are any bonds with a maturity date less than one year; generally, the yields on those bonds are most directly influenced by short-term federal funding rates. When the government wants to sell more debt, it can increase the yield on these T-bills by increasing the short-term interest rate on offer, driving yield-seeking capital back into the U.S. banking system in search of profit. When rates rise, the cost to borrow increases and these new debt instruments soak up excess dollar liquidity.
Conversely, when rates fall, the cost to borrow decreases, and thus the demand for personal debt increases. To put it simply, if rates are at or near zero, more people will take on debt due to the negligible additional economic cost of eventually paying it back. When rates are higher, and there is market-high yield to be made on simply loaning dollars to the government by purchasing government-issued securities, there is little available supply to be loaned out, and even less demand due to the high costs of borrowing. The issue with this credit-debt boom-bust cycle is that it is levered by trusted third parties, culminating with a buyer and lender of last resort at the modern Federal Reserve -- who are in fact actually limited in their ability to manipulate the short end of the yield curve. The yield curve demonstrates the different yields offered by the bond market, denoted by their duration. When there is unexpected and excessive relative volatility within short-term interest rates, the yield curve can invert, meaning short-term debt now pays a higher yield than long-term bonds. If simply held to maturity, sometimes as long as 30 years, Treasury bonds will never yield a material loss, but if short-term liquidity needs strike a bank in the form of depositors withdrawing, banks are forced to sell and realize a loss.
The health and efficiency of the U.S. banking system can be measured in how volatile short-term interest rates are, the state of the yield curve, foreign and domestic interest in government-issued bonds, and the discrepancy between outstanding liabilities and reserves -- be it securities or cash.
The dollar has been digitized for a long time; be it the Zelle or Venmo credits in your retail account, or the dollar balance in your checking account at Bank of America. But generally speaking, the mechanisms behind the transfer of Treasuries and other reserve assets backing these numbers on a screen have remained at the technical agility of a fax machine. The dollar may be the world reserve currency, and can be transacted via intermediaries on obvious centralized banker rails, or less obviously on Ethereum rails via ERC-20 tokens in the form of popular retail stablecoins, but the U.S. Treasuries held by these novel credit creators remain the world reserve asset. The public has generally feared the direct issuance of some form of retail CBDC (central bank digital currency) due to surveillance concerns and currency seizure from a centralized issuer, but fewer realize both the level of financial surveillance already imposed by banks, never mind the ability for these trusted third parties to censor, blacklist and even expose retail to their counter-party risk. All of these actions are made increasingly possible via the digitization of the currency with an encroaching reliance on centralized payment rails, but up until this July, the communication network for interbank asset trades has remained lossy and slow.
FedNow, slated to launch next month, serves multiple purposes, but perhaps none as important as creating a much more efficient lever for the Fed to have 365/24/7 influence on overnight banking rates, such as SOFR, effectively setting the cost of borrowing short-term liquidity between fractionalized private banks attempting to meet their depositors' withdrawals. You have probably heard the phrase "reverse repo" once or twice, but the underlying mechanic is often misunderstood. The "repo" stands for a repurchasing agreement; essentially a contract between two entities in which Bank A, with excess dollar liquidity, agrees to lend cash to Bank B, with overnight liquidity needs, via a short-term loan collateralized by Bank B's assets such as USTs, with the conditions that Bank B will repurchase their securities, usually the next morning ("overnight"), plus a percentage-based fee that Bank A gets to keep. A reverse repo is essentially the same behavior, except that Bank A is bond-rich, cash-poor and thus asking Bank B for dollar-denominated liquidity. This exact scenario came to fruition within the recent regional bank failures in the U.S., and the Fed created new mechanisms to backstop the liquidity needs of the depositors. In the case of the ever-growing reverse repo market, Bank B is routinely the largest American banks, and sometimes even the Fed directly. FedNow is a digital lever, made possible via the internet, for complete centralized control on the overnight rate of borrowing dollars, the necessary transferring of Treasuries between banks, and thus the reshoring of dollar-denominated activity away from the Eurodollar market, and back to the United States within the scope of the Fed and the Treasury.
"It's not all about payments. We will have exchanges forever. We will have banks forever." - Calle
Did you notice that at no point above were payments even mentioned? Bitcoin in its current state is not necessarily ready to replace the dollar as a global medium of exchange, which takes advantage of financial services to scale over time and space, but it is potentially poised to replace USTs as a world reserve asset and an interbanking settlement network. For Bitcoin to service the many functions of a banking system, there needs to be further tooling beyond the peer-to-peer payment networks innate to the base layer and the Lightning Network, the most discussed second layer. Paper money represents dollars as cash, a physical bearer asset for settling debt obligations, yet the majority of U.S. dollars today exist solely as credit in a user's account balance at a trusted third party such as a bank. In stark contrast, Bitcoin itself contains zero account balances, and instead relies on a UTXO model: Non-fungible unspent transaction outputs that when signed and spent can transfer fungible satoshis, the atomic unit of bitcoin, between wallet addresses. The address balance of your wallet is an aggregation of the multiple UTXOs associated with your private key. By sharing a UTXO between two or more parties, typically in the form of Lightning channels, Layer 2 payment solutions create near-instant, probabilistically trustless settlements allowing for account balances. By taking a UTXO and creating a shared channel with a peer, you create the functions of credit and debt within the Bitcoin network. Some instances of LN even allow sub-satoshi denominations such as "msats" -- a literally unrecognizable unit on the baselayer, and thus only existing as a form of credit or debt. Due to the nature of Layer 2 solutions having the ability to simulate credit and debt, these services enable a trustless iteration of yield via routing fees, and trust-minimized financial services akin to the traditional banking system. Tooling built on top of Bitcoin can create analogs to legacy loan, yield, and liquidity-sharing services. Unfortunately, a large aspect of the trustlessness of Layer 2s being able to finalize and settle back to the mainchain is an open topological network and an ever-surveilled open ledger, significantly reducing the capacity for private financial exchanges.
"Actually there is a very good reason for Bitcoin-backed banks to exist, issuing their own digital cash currency, redeemable for Bitcoins. Bitcoin itself cannot scale to have every single financial transaction in the world be broadcast to everyone and included in the block chain. There needs to be a secondary level of payment systems which is lighter weight and more efficient." - Hal Finney
Chaumian mints were invented by cryptographer and mathematician David Chaum in a 1982 paper titled "Blind Signatures For Untraceable Payments". Chaumian mints utilize blind signatures to represent ecash in mint-specific denominations to create near-perfect privacy within the federation. This newly found privacy is at the expense of reserve asset custody and potential economic debasement depending on both the coding of the mint instance as well as malicious actions from mint authority signatures; this is a situation nearly identical to the downsides of using a legacy financial institution. Ecash uses a similar token mechanic to bitcoin in that while a single wallet can appear to contain an aggregate account balance, in reality the ecash wallet balance is actually distributed among many iterations of common denominations of ecash tokens issued by the mint. The mint itself is completely unaware of the account which funded the initial issuance of ecash, and at redemption merely sees that it had previously validated this token via a blind signature. When using any privacy-preserving payment protocol, there are always two anonymity sets: inside and outside the protocol. While a Chaumian mint can offer near-perfect privacy when transacting within the federated mint itself, an external settlement from the mint can be noticed with a low number of user withdrawals, unassuming metadata collection, and a multitude of poor operational security choices by users. A user could generate ecash from a Chaumian mint instance via a relatively private sender-side LN payment, take the newly generated tokens and fund another outbound sender-side LN payment with zero ability for the mint to generate user account balance information, nor associated metadata with proper external privacy technique. With cheap, near instant, and perfectly private payments, if authored correctly, Chaumian mints can bridge the gaps between Layer 2 balances and even base layer UTXOs.
Chaumian mint construction types differ mainly in two ways: the federation construction itself and the ecash token denominations it issues. A federation can contain a single signature with administrative access to issuing its ecash, as well as having the ability to sign for the mint's reserve asset when processing withdrawals. A federation can also enable multisignature capabilities to similar mint duties, distributing responsibilities away from a single point of failure to a quorum of trusted third parties. Ecash token denominations are unique to the mint, but theoretically decided at launch of the instance. In lossy parallel to Bitcoin's UTXO model, there are no account balances, but rather aggregates of ecash tokens that were issued as common denominations (think $5, $10, and $20 notes). These common denominations allow for greater fungibility and far greater anonymity sets within the mint, especially when combined with issuance validation via blind signatures. All of these decisions, including the relative issuance per reserve asset -- say ecash token per satoshi -- are to be made by the founders of the Chaumian mint, generally upon its genesis. Cashu is a popular, open-source, single-signature instance (created by open-source developer Calle) that is capable of being spun up quickly, leaning on tooling such as LNBits to create fast and easy operability with users already on the Lightning Network. Fedimint, a multisignature instance, allows for a more decentralized mint consensus among federation members, creating more administrative checks within the mint when minting ecash tokens, and when eventually redeemed, signing transactions to withdraw from the bitcoin reserve.
Coincidentally, the main user concerns when using ecash come from its privacy-preserving qualities. Due to there being no account balances, successfully auditing a mint to check its supposed reserves against its liabilities is rather difficult. And since there are no accounts, a trusted custodian must be responsible for holding enough of the reserve asset against the total supply of ecash held by unknown users of the mint. The mint itself is a trusted third party responsible for both appropriate monetary issuance and being able to make depositors whole at time of redemption. This is another prudent parallel to our current banking system, similarly true in both a regional bank and the Federal Reserve itself, of course, with none-to-little of the privacy benefits. These concerns can be theoretically met with clever proof-of-liability schemes such as the one proposed for Cashu by Calle, which publicly generates a monthly token burn list and a monthly token issuance list, rotating issuance keys after every monthly epoch. Both of these lists simply consist of the blind signatures representing their specific ecash denominations from their issuance, and users can check that their own transactions are present in their respective monthly list. The liabilities of the mint is the difference between the mint and the burn list, and thus should be similarly demonstrated within the reserve asset wallet. Proof of reserves is simple with a bitcoin-backed financial service (a public bitcoin wallet), but proof-of-liabilities is significantly more difficult. Concerns of economic debasement and associated custodial risk are nonnegotiable on the base layer of Bitcoin, and yet these real risks are easily mitigated depending on how you use the mint. If a Chaumian mint instance such as Cashu or Fedimint sees user volume at significant scale mostly for extremely short-term payment needs, proper usage of ecash -- funding and withdrawing from a busy mint nearly instantaneously -- leaves little time for monetary debasement nor reserve asset theft.
"I believe this will be the ultimate fate of Bitcoin, to be the 'high-powered money' that serves as a reserve currency for banks that issue their own digital cash. Most Bitcoin transactions will occur between banks, to settle net transfers. Bitcoin transactions by private individuals will be as rare as... well, as Bitcoin based purchases are today." - Hal Finney
Trust is a necessary component of many of the beneficial financial services employed by the U.S. banking system. This remains true now as well as during the gold window. Loans, fractional reserve banking, and counterparty risk is all possible on a bitcoin standard, much like it was on previous hard money standards. By decentralizing the manipulation of monetary issuance away from central pardoners, bitcoin has supplanted USTs as the ideal reserve asset for a new banking system. While it is perhaps seen as a failure to simply replace the instrument banks use to settle their reserves with bitcoin, the elimination of these special privileges from the Fed as reserve asset issuers -- and the replacement being a disinflationary, censorship-resistant asset -- will have profound effects on the current status quo of monetary manipulation. Bitcoin's base layer simply cannot service 8 billion people, but proper tooling in layers can allow this scarce, neutral asset unfettered access to a stable monetary policy; a revolution in banking, financial, and economic reality as we know it. Layer 2s are delegated as such due to their trustless ability to settle back to the mainchain without any third party. But ecash enables an entirely new interoperability between Layer 2s and traditional financial services, with an innate ability to be created specifically and timely in accordance to customer demands and needs. Behind every online community that warrants certain privacy needs for their users could be another unique interaction of Cashu. In order to distribute mining rewards privately, mining pool operators can use tools such as FediPools to maximize anonymity sets derived from mining reward payments.
The future of banking is not stablecoin issuers providing opportunities for the Global South to buy U.S. debt; the future is every website, every digital community, threatening to run their own ecash instance, backed by bitcoin -- the only neutral reserve asset -- when their current financial counterparties are eventually cut off. David Chaum built the tooling and constructed the ideas needed for everyone to be their own bank in the 1980s, and yet those were the days of double-digit interest rates, and the largest onshoring of dollar demand in the modern economic era. Now, as the U.S. banking system is showing serious fundamental cracks -- from UST markets marking unrealized duration risk losses, to increasing depositor centralization in the Big Four American banks, to literal government seizure of some of the largest regional banks in the country -- it is no surprise that a second wave to the ecash revolution has begun.
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The Bitcoin Policy Institute, in collaboration with the Cornell Brooks Tech Policy Institute, is set to host a high-profile panel discussion on the theme of "Digital Currencies & Strategic Competition." The event, which promises to be a pivotal moment in the ongoing conversation about the role of digital currencies in global affairs, will be held at the prestigious National Press Club on Wednesday, September 27, from 12:00 to 1:30 EDT.
The discussion will delve into crucial topics such as the use of digital currencies in sanctions evasion and financial aid, the influence of digital currencies on U.S.-China techno-industrial competition, and the security implications brought about by Central Bank Digital Currencies (CBDCs) in the United States.
One of the central themes of the discussion will be the recent -e conflict, which will serve as a backdrop for examining the role of digital currencies in sanctions and financial aid. This aspect of the conversation will provide insights into how nations are using Bitcoin and digital currencies in the context of geopolitical conflicts.
Additionally, the panel will address the broader implications of digital currencies on global dynamics. Sarah Kreps, Professor and Director of the Tech Policy Institute at Cornell University and Senior Fellow at the Bitcoin Policy Institute, will join the panel to offer her expertise on the subject. Matthew Pines, Director of Intelligence at Krebs Stamos Group and National Security Fellow at the Bitcoin Policy Institute, will provide insights from a national security perspective.
Chris Meserole, Director of the Brookings Institution's Artificial Intelligence and Emerging Technologies Initiative, will contribute to the discussion by examining the interplay between digital authoritarianism and activism, shedding light on the tactics employed by authoritarian governments and the countermeasures adopted by dissidents.
The discussion will be moderated by Daniel Flatley, a distinguished National Security Reporter for Bloomberg, ensuring a well-structured and informative exchange of ideas among the expert panelists.
David Zell, Co-Founder of the Bitcoin Policy Institute, emphasized the significance of the event, stating, "We're at a pivotal moment in terms of the role Bitcoin and digital currencies play on the global stage. This panel aims to shed light on the ways emerging monetary networks are shaping the balance of power, from geopolitics to grassroots activism."
The event is open to the public, with options for both in-person attendance and livestream viewing via Bitcoin Magazine's YouTube. Interested attendees are encouraged to register on the event page.
For media inquiries and additional information, please contact David Zell at [email protected]. This panel discussion promises to provide critical insights into the evolving role of digital currencies in the realm of strategic competition and global politics.
UTXOracle is a simple Python script [Attention: direct download link] that takes advantage of a surprising fact about the Bitcoin blockchain - by parsing on-chain data it's possible to derive an approximate U.S. dollar price.
All of this is based on the chart above. The lines on the graph represent Bitcoin UTXOs of certain values.
If you look at the left-hand side at the BTC denominations, you'll see that straight lines match up perfectly. Those represent the creation of UTXOs in exact round BTC denominations. The wavy lines are UTXOs being created with round fiat denominations.
All this is to say that a large percentage of Bitcoin transactions (~15%) create outputs with round denominations in fiat currencies, an obscure data quirk that allows software to make derivative assumptions about the economic activity they represent.
By finding the points where these wavy and straight lines intersect, one can ascertain a point in time when the fiat price of BTC was a round amount, and extrapolate to other points in time.
But while this may sound highly technical, and it is, the immediate result is something useful for every Bitcoiner, especially those who want to harness its decentralization - with UTXOracle, users who run a full node no longer need to rely on third-party exchange price data.
UTXOracle allows you to track the fiat price average solely with on-chain data, not only giving new abilities to Bitcoiners, but to its product builders as well. In short, it's a big breakthrough we expect to manifest itself further in the years ahead.
Released today after some months of work, I had a chance to ask creator and developer Steve Jeffress a few questions about the project. The following discussion sheds further light on the software he released, and what might lie ahead:
SHINOBI: What gave you the insight into UTXO set amount distributions having this relationship with fiat price?
JEFFRESS: I've been rendering heat maps of the UTXO set for like 8 years now. I've always known the USD price was a clear emergent property of output patterns. I've known I could write the program for several years and finally got around to doing it.
SHINOBI: What are the limitations of the accuracy of UTXOracle?
JEFFRESS: Right now, the limits are $1,000 to $100,000 for the price, and I've only tested it back to July 26th, 2020. It's also dependent on people continuing to transact in round amounts of US dollars.
SHINOBI: What kind of use cases do you see UTXOracle enabling?
JEFFRESS: I'm excited to see what people come up with. I'm happy if it encourages people to do more stuff with their own node. Anything that further decentralizes nodes is a super positive thing IMO. I just want to improve bitcoin.
SHINOBI: Can UTXOracle be gamed or manipulated?
JEFFRESS: Yes, certainly, however it would be costly to manipulate. You might even be able to estimate the price of manipulation. Clearly if this was used to settle contracts, the contracts would need to be far less than some estimated cost of manipulation
[One thing that Steve pointed out is the potential for delayed withdrawals to distort the accuracy of the model to a degree. For example, imagine you buy $50 of bitcoin on Coinbase and withdraw it. This type of behavior is a large driver of the data this model depends on. Imagine now if you buy $50 of bitcoin on Coinbase, but wait a week until you withdraw it. The price will be different than when you purchased it, meaning the on-chain output created will not accurately reflect the round amount in fiat it was when you purchased it.
This type of behavior could throw off the accuracy of the model, which is something to consider during a high fee environment when more people will adopt such behavior. The model could be adapted to account for this as long as larger value transfers that were economical still occurred in round fiat amounts on-chain. An algorithm could properly distinguish between those and lower value transactions that are throwing off the price model and weight the larger value transactions much higher than lower value transactions to account for the distortion.]
SHINOBI: Could this model be extended or made more accurate with other on-chain data?
JEFFRESS: Probably. though i think people should keep in mind trade offs between simplicity, accuracy, complexity, etc. For example, I've written the code to maximize understandability over efficiency. I could import libraries to make it more efficient, but I've chosen not to.
For a deeper dive on UTXOracle, read our feature guide.
In a recent video interview on the Paul Barron Network, Mark Yusko, CEO and Chief Investment Officer of Morgan Creek Capital Management, made a compelling prediction about Bitcoin's future. Yusko, with decades of experience in the financial industry, suggested that the approval of a Bitcoin spot exchange-traded fund (ETF) by the SEC could pave the way for an influx of $300 billion into the market.
The interview, which delved into the current state of the Bitcoin landscape and its potential for institutional investment, saw Yusko shed light on the impact that regulatory developments can have on the Bitcoin market.
Yusko began by emphasizing the importance of the approval of a Bitcoin spot ETF in the United States, highlighting that it would provide a bridge for institutional investors to enter the Bitcoin market with confidence. He explained, "Institutional investors have been cautious about entering the crypto space due to regulatory uncertainties and concerns about custody. A spot ETF would offer them a regulated and secure way to gain exposure to Bitcoin."
Bloomberg Senior ETF analyst Eric Balchunas predicated an inflow of about $150 billion coming into the market upon approval, but Yusko thinks there is potential for even more. "I'll go further and say 1% seems more likely. That'd be $300 billion. $300 billion on a $100 billion of free float - price goes up a lot. A lot, a lot," he stated.
There is currently a wave of 10 active spot Bitcoin ETF filings, not including Grayscale's application to convert its flagship fund GBTC into a spot Bitcoin ETF. Among these applicants include the worlds largest asset manager BlackRock, who is "going to fight like cats and dogs to win market share" against the other assets managers once approved, according to Galaxy Digital CEO and spot Bitcoin ETF applicant Mike Novogratz.
Yusko emphasized the importance of the first mover advantage in getting an ETF approved, stating "Whoever is first, is gonna get the vast majority of assets." But he sees BlackRock coming into the market as a complete game changer. Where many of tried and failed to get a spot ETF approved by the SEC, Yusko believes BlackRock will be the first -- and maybe only applicant to one approved.
"I believe and I've said multiple times that BlackRock will be the first one. I've actually been saying that for over a year. I actually might even go stronger and say that they'll be the only one approved," he said.
Yusko's optimism is grounded in the belief that a regulated spot ETF would satisfy the due diligence requirements of institutional investors, enabling them to allocate a portion of their portfolios to the digital asset. He mentioned that Bitcoin's maturation as an asset class and its growing recognition as a store of value had already piqued institutional interest.
A spot Bitcoin ETF "will be approved sometime around year end," Yusko believes, whether that be before the end of the year or early in 2024.
