Bitcoin currency (merged topics)

[FreeLancer]

Continuing on the Coinkite theme, I also got their Opendime product, a method of physically transferring "small" amounts of bitcoin off-chain with zero knowledge of the private key by any party.  The 1st Bitcoin Bearer Instrument or just call it a "Bitcoin Stick," as they refer to it. 




There have been attempts before at producing a trust-less physical wallet, such as the Casascius coin, but the Achilles heel was always the nagging uncertainty that the manufacturer could retain the private key information and then spend whatever was loaded onto it after an exchange. 

What CK did with the Opendime was to utilize a secure element on the device, which provides secure storage and true random number generator, that doesn't contain a private key when shipped to the original owner.  The initial setup process requires that the device be plugged into a computer, which comes up like a USB drive, and user defined entropy in the form of files are dropped into the Opendime folder.  Once enough entropy has been added by the user the device hashes that with the device's entropy to generate the public/private key pair and stores that private key in the secure element onboard the device. 

Once initialized the device displays a web page with the public key and QR code for loading and verifying funds with a second party for transactions.  The fact that the person accepting the loaded device is able to verify the funds on the spot and has confidence that the person they received the funds from can't steal it back later means there's no need to do an on-chain transaction, which eliminates the associated fees and confirmation time prior to finalizing the business transaction. 

When the time comes to move the funds off the device in an on-chain transaction the owner sticks a pin through a marked hole on the back to pop a resistor off the circuit board to reveal the private key when plugged into a computer.  This alters the device in such a way that it cannot be reset and the funds on the private key must be swept into another wallet to avoid being stolen.  The device is useless after this and can be destroyed or disposed of, it's a one-shot deal. 

Coinkite doesn't recommend storing "large" amounts on the Opendime device, mainly because there is no way to backup the private key.  Unlike every other hardware wallet device, which allows the user to backup their keys with a seed phrase, there is no way to do that with the Opendime without compromising the zero-knowledge aspect of the device.  So, while one could use it for long-term cold storage, there's no way to recover from loss or damage and one needs to adjust the amount stored on the device accordingly.

Honestly, I personally don't have a good use case for this device at the moment, but I can imagine situation where this could be invaluable.

[FreeLancer]

Linked to on Jimmy Song's current newsletter: 

Bitcoin is not too volatile

The list of bitcoin skeptics is long and distinguished, but the noise contributes directly to the antifragile nature of bitcoin. People that store wealth in bitcoin are forced to think through first principles in order to understand characteristics of bitcoin which otherwise seem, on the surface, to contradict an establishment view of money, which ultimately hardens convictions. Bitcoin volatility is one of these oft-criticized characteristics. A common refrain among skeptics, including central bankers, is that bitcoin is too volatile to be a store of value, medium of exchange or unit of account. Given its volatility, why would anyone hold bitcoin as a savings mechanism? And, how could bitcoin be effective as a transactional currency for payments if its value could reasonably drop tomorrow?

Ultimately, bitcoin’s lack of a price stability mandate and fixed supply will continue to result in near-term volatility but will drive long-term price stability. It is the literal opposite model pursued by Mark Carney of the BOE, the ECB (and its twitter account), the Federal Reserve and the Bank of Japan. And, it is why bitcoin is antifragile; there are no bailouts and it’s a market devoid of moral hazard, which drives maximum accountability and long-term efficiency. Central banks manage currencies to mute short-term volatility, which creates the instability that leads to long-term volatility. Volatility in bitcoin is the natural function of monetary adoption and this volatility ultimately strengthens the resilience of the bitcoin network, driving long-term stability. Variation is information.

Nassim Taleb & Mark Blyth (Black Swan of Cairo)

    “Complex systems that have artificially suppressed volatility tend to become extremely fragile,
    while at the same time exhibiting no visible risks.”

    “This is one of life’s packages: there is no freedom without noise
    —and no stability without volatility.”

Ben Bernanke, Chairman of the Federal Reserve (during the Great Financial Crisis)

    “The Federal Reserve is not currently forecasting a recession.” – January 10, 2008

    “The risk that the economy has entered a substantial downturn appears to have diminished
    over the past month or so.” – June 9, 2008

Proof of Life: Why Bitcoin is a Living Organism

The definition of life has been a challenge for scientists and philosophers alike. While many definitions have been put forward, what precisely differentiates the living from the non-living remains elusive. Are viruses alive? DNA molecules? Computer viruses? Biologically produced minerals?

Ralph Merkle, inventor of cryptographic hashing and namesake of the Merkle tree, made the argument that Bitcoin is the first example of a new form of life. In this article series, I intend to take this claim seriously, explore it further, and see what can be gleaned from viewing Bitcoin as a living organism.

The first part will establish that Bitcoin is indeed a living organism. The second part will take a closer look at Bitcoin’s various habitats, and how changes in these habitats might affect the organism. In the third part we will dissect the Bitcoin organism, trying to understand some of its parts in more detail. Finally, we will perform the thought experiment of trying to kill Bitcoin, to illustrate the remarkable resilience of this strange, decentralized organism.

[FreeLancer]

A little more than 18 million BTC have been mined. 

Mining rewards will be halved to 6.25 in May.

Only 120 more years to reach 21 million.

[FreeLancer]

Bitcoin whale moves ball busting $1.1B for just $83

The transaction, which took place on January 14, saw the whale move 124,946.6 BTC in exchange for a 0.0096 BTC fee.

Back in September, Hard Fork reported that another cryptocurrency whale had moved 94,504 BTC (at the time worth over one billion dollars), paying the equivalent of $700 in BTC network fees.

[FreeLancer]

This is a really good podcast episode by a "tax controversy lawyer with expertise in cryptocurrency and IRS audits."  Answered a few nagging questions and put my mind at ease, even if you don't do crypto there's a lot of good info on how to handle yourself if an IRS Criminal Investigator shows up on your doorstep.

https://talk.bitcoin.tax/irs-crypto-audit-deep-dive-with-alex-kugelman/

Don’t Under-Estimate Over-Reporting (03:12)

Alex: I’m a big believer of over-reporting, which means give as much detail as you possibly can. I think a lot of people get into trouble. They go: “Oh, I reported my transactions”… and you look at the tax return and it’s a single line that says “cryptocurrency” and the net number. You have to think through objectively. I’ve not seen an issue where the IRS has taken a really hard position on lost records as long as you’re making reasonable assumptions and using fair market value data.


A CI Agent’s M.O. (10:30)

Alex: CI’s agents are fairly sophisticated. If they have some information, and they can see these different transfers to different exchanges or wallets – they can piece it together and there’s nothing to stop them from going and getting that data at that point as well. That’s why I think it’s really important that people…try to do the most reasonable good faith effort because it’s hard to make a criminal case out of an accounting error. It’s much easier to make a criminal case when someone’s sold hundreds of thousands of dollars of cryptocurrency and then transferred that fiat into a U S bank account.


Unmatched Trades and Missing Data (12:16)

Alex: The more transactions that you have…with missing information…could lead to more questions. The question becomes where or how did you obtain this cryptocurrency and why is it that you don’t have records?

A very common example is Mt. Gox. The exchange goes down, the records go down. That’s really common. If that’s the story, I wouldn’t be worried about it. But, if you were being paid in cryptocurrency for a couple of years, never reported it as income, and now you’re selling it – that’s more problematic. It could lead to issues down the line.


CI Agents Paying You A Visit (14:35)

Alex: A lot of times when a CI agent shows up it’s meant to catch people off guard. If a CI agent is showing up at your door regarding cryptocurrency, it means they already have information that they believe there was a crime and that would lead to a conviction of a crime. So you’re not going to explain that away in an hour long conversation in your living room. It’s not going to happen. That’s not the way it works.

There’s always going to be two agents, because one is going to be a witness for this conversation. You just need to remember: decline the interview. There’s nothing wrong with that. Get a card and: “my counsel will contact you”. That’s it.

The other thing to keep in mind that’s really important is that you don’t want to start doing things that are new crimes. You don’t want to go in and start destroying records or erasing emails. Taking those kinds of steps is only going to make it worse.


Coronavirus, Audits, and Amended Returns (31:05)

Alex: The IRS is, for the most part, shutdown. That means that they’re not really issuing new audits right now. It also means that the forced collections, when you owe money to the IRS and they levy your bank account or issue liens – that’s not going on right now. So for clients or for taxpayers who owe the IRS money…if they are currently in an installment agreement with the IRS, then actually they can forego those monthly payments right now.

The IRS is already an underfunded agency, and it was affected by the government shutdown recently. There’s really a big backlog to begin with. I mean it’s hard to estimate how much this [virus] is going to affect the administration of tax compliance. I think it’s a great time to amend a tax return or to get into compliance.

[FreeLancer]

Coindesk:  Bitcoin Halving Arrives: Mining Rewards Drop for Third Time in History

Miners racing on the network to compete for freshly minted bitcoin produced the 630,000th block at 19:23 UTC on May 11, which triggered the programmed halving event, marking another milestone in the currency's 11-year history.

In an homage to Satoshi Nakamoto's iconic "brink of a second bailout" message in the 2009 genesis block, f2pool, which mined the 629,999th block (the last before the halving), embedded a reference to the current financial crisis: "NYTimes 09/Apr/2020 With $2.3T Injection, Fed’s Plan Far Exceeds 2008 Rescue.”

The 2020 halving, the third in the network's history, means the mining reward has now been reduced from 12.5 bitcoin per block to 6.25 units. It went down to 25 from 50 bitcoin per block in November 2012 and further decreased to 12.5 units in July 2016.

The immediate implication after halving is that the newly minted bitcoin in a day will fall from 1,800 to 900 units. That would also mean mining operators will see their daily total revenue – at bitcoin's current price of $8600 – reduced from $15 million to $8 million.

As such, it has been expected the computing power connected to the Bitcoin network will fall significantly after the halving as the revenue decrease will squeeze out those miner operators who lack efficient resources to cut their electricity costs.

However, it remains to be seen how that will play out after the halving. Currently, the average Bitcoin total computing power over the last seven days since the previous mining difficulty adjustment has hit a new all-time high of 121 exahashes per second (EH/s), beating the previous record of 118 EH/s, according to data from Chinese mining pool PoolIn.

As such, Bitcoin’s mining difficulty – a measure of how hard it is to compete for mining rewards – is expected to increase by 4.9% in about seven days to an all-time high above 16.55 trillion, based on PoolIn's data estimate.

BTC's hashrate over time represents a mindblowing amount of electricity.




Damn, I just realized it's been 9 years this month since I started this thread. 

[FreeLancer]

In the last couple weeks I’ve finally found the last major piece of technology I have been unable to cobble together on my own; a full Bitcoin node with an Electrum server and Tor connections to all the wallets I use.

MyNode is easy to download and try out on a virtual machine or Raspberry 4 platform and a $99 license gets you one button-push updates. Together with Tails again including the latest version of Electrum, a private local server linked to 100% air-gapped hardware wallets with PSBT capability gives the average guy all the tools needed to be their own bank.

[FreeLancer]

Currently, in by opinion, the best wallet system combines the strengths of the hardware wallets with Electrum.  Set up an Electrum wallet with a hardware device, like the Trezor, holding the private keys and you've got a very powerful and secure system.  The Electrum file on your computer contains no private keys so the concerns about that computer being online are greatly minimized.  Should the computer with the Electrum wallet go down or get stolen, if you still have the Trezor you haven't lost your funds and can access them easily on Trezor's wallet application.  If you lose both Electrum and the Trezor you can rebuild the wallet from the seed phrase.  If you want to go even better, generate a multisignature wallet scheme on Electrum that utilizes 2 out of 3 hardware wallets for signing transactions.  Or go big and do a 10 of 15 multisig scenario.  Electrum will do that.  It's incredibly versatile, I recommend everyone try it.

Many great developments in the bitcoin wallet space over the last year.  While Electrum still plays a vital role in my wallet scheme, Trezor and Ledger hardware wallets have fallen by the wayside, replaced by the superior ColdCard device. 

The CC is designed as a standalone device that can be operated entirely offline, with the ability to create and store private keys internally via its secure enclave.  Equipped with a MicroSD slot, the CC can communicate with Electrum desktop software without the USB connection required by other hardware wallets.  Transaction information can be passed between Electrum and the CC for signing and broadcasting via MicroSD card.  Or, for the less paranoid, you can still hook up to Electrum with USB, like a Trezor or Ledger, and save those steps. 

A long awaited recent upgrade to Electrum 4.0 now allows for creation of multisignature wallets offline using multiple CC devices without having to connect to Electrum via USB.  Add in the ease with which you can securely connect Electrum to the blockchain using a full node like myNode and nagging worries about inadvertently sharing your addresses and balances with a malicious public Electrum server are a thing of the past.

Interestingly, Electrum, myNode, and ColdCard are bitcoin-only solutions, because wallet technology designed to handle multiple cryptocurrencies are just plain harder to secure. 

[FreeLancer]

The volatility is scary as heck in both directions, but the technology has proved itself far beyond what many could ever have dreamed. A decentralized shared ledger documenting ownership is a potentially revolutionary concept that could rival internet protocol in its ability to shatter the status quo. But there will be many white-knuckle moments before we get to $40,000.