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IRS Says It Would Seize Bitcoin To Settle Unpaid Taxes

Peter Chawaga — Thu, 13 May 2021 10:11:28 -0400

In comments at a virtual conference, an IRS counsel indicated the agency would seize virtual currency like bitcoin to satisfy tax collection.

According to comments made at a virtual conference this week by U.S. Internal Revenue Service (IRS) deputy associate chief counsel Robert Wearing, the agency would seize cryptocurrency assets like bitcoin from individuals it deems to be in violation of tax requirements.

“Bottom line: The IRS will seize that property and will attempt to follow its usual procedures to sell it and use it to satisfy collection,” Wearing told attendees of an American Bar Association conference, according to Bloomberg Law.

The perceived authority to seize an asset like bitcoin from the IRS stems from a 2014 notice it issued claiming that “virtual currency is treated as property for Federal income tax purposes.”

In parallel with Wearing’s comments, it appears that the IRS is ramping up its ability to track taxpayers who own cryptocurrency and may owe taxes based on those investments. Earlier this month, it partnered with TaxBit to “provide data analysis and tax calculation support for taxpayers with cryptocurrency,” according to a press release. It also recently received authorization to compel Kraken and Poloniex to provide data on users who made large cryptocurrency transactions.

But there is still some question as to how the IRS would accurately determine the BTC holdings of taxpayers, let alone compel them to relinquish their bitcoin.

As a decentralized cryptocurrency, bitcoin ownership is ultimately a matter of private key ownership. No entity could “seize” bitcoin property without gaining access to these private keys, which can be secured by users in a number of ways. In addition, many bitcoin best practices recommend the pseudonymous use of the technology and there are numerous privacy-enhancing layers and services available that can help bitcoin investors obscure their holdings from third parties.

Polkadot-centric derivatives exchange raises $6.4M in seed funding

Cointelegraph By Sam Bourgi — Thu, 13 May 2021 10:00:00 -0400

dTrade is planning to build the first derivatives exchange on Polkadot following a highly successful private investment round.

AppSwarm’s DOGE division calls for a global dev teams to build off Dogecoin

Cointelegraph By Helen Partz — Thu, 13 May 2021 09:45:00 -0400

AppSwarm’s newly launched Dogecoin division, DogeLabs, wants to become a global Dogecoin player by uniting worldwide DevOps teams.

Central Bank of Bahrain and JPMorgan to work on digital currency settlement pilot

Cointelegraph By Helen Partz — Thu, 13 May 2021 09:34:00 -0400

The Central Bank of Bahrain expects that its digital currency collaboration with JPMorgan and Bank ABC could extend to a CBDC.

Investment bank Cowen set to offer institutional-grade crypto custody

Cointelegraph By Osato Avan-Nomayo — Thu, 13 May 2021 09:17:00 -0400

The 103-year-old bank wants to hold crypto for asset managers and hedge funds as Wall Street begins offering cryptocurrency products to institutional clients.

Unstoppable Domains’ .crypto websites now available via Brave browser

Cointelegraph By Helen Partz — Thu, 13 May 2021 09:00:00 -0400

In contrast to traditional domains stored on behalf of users by custodians like Google Domains, .crypto domains are stored in crypto wallets.

Blockchain sector drives female participation through funding and education

Cointelegraph By Rachel Wolfson — Thu, 13 May 2021 08:42:00 -0400

Blockchain companies are seeking out women-led teams for funding rounds to help close the financial gender gap, but will this suffice?

Grayscale's diversified crypto fund files to become SEC reporting company

Cointelegraph By Osato Avan-Nomayo — Thu, 13 May 2021 08:36:10 -0400

Grayscale Investments has filed to make its $630 million diversified large-cap crypto fund an SEC reporting company.

Grayscale’s diversified crypto fund files to become SEC reporting company

Cointelegraph By Osato Avan-Nomayo — Thu, 13 May 2021 08:36:10 -0400

Grayscale Investments has filed to make its $630-million diversified large-cap crypto fund an SEC reporting company.

Mark Cuban counters Elon Musk, says Mavs will continue to accept Bitcoin

Cointelegraph By Osato Avan-Nomayo — Thu, 13 May 2021 07:49:32 -0400

The Dallas Mavericks owner contends that Bitcoin replacing the legacy financial system will be a net positive for society and the environment.

Bitcoin price fails to build $50K support as traders eye lower levels next

Cointelegraph By William Suberg — Thu, 13 May 2021 06:53:59 -0400

Time to buy or wait and see? Bitcoin may have further to fall but long-term price trends are still intact.

Bank of Korea wants to monitor crypto trading activity, cites monetary risks

Cointelegraph By Osato Avan-Nomayo — Thu, 13 May 2021 06:41:00 -0400

South Korea’s central bank is the latest entity seeking powers to monitor crypto trading activity in the country.

Here’s why Ethereum, AAVE, ALPHA are unfazed by Bitcoin’s latest ‘Elon candle’

Cointelegraph By Yashu Gola — Thu, 13 May 2021 06:12:05 -0400

Several altcoins managed to escape the Bitcoin Tesla FUD.

NFT game developer Animoca Brands completes capital raise at $1B valuation

Cointelegraph By Samuel Haig — Thu, 13 May 2021 06:00:00 -0400

NFT game developer Animoca Brands is claiming the status of crypto’s latest unicorn after raising almost $89 million at a $1 billion valuation.

SoftBank founder hesitant on Bitcoin but says it ‘can’t be ignored’

Cointelegraph By Erhan Kahraman — Thu, 13 May 2021 05:57:00 -0400

SoftBank’s Masayoshi Son compares the popularity of Bitcoin to diamonds and bonds, but he still remains unsure about it.

Hong Kong to expand pilots for cross-border use of digital yuan

Cointelegraph By Marie Huillet — Thu, 13 May 2021 05:14:00 -0400

The first phase of tests for use of the digital yuan across borders has been successful, the Hong Kong Monetary Authority has said.

Sotheby’s crypto-powered auction sells Banksy art for $13M

Cointelegraph By Helen Partz — Thu, 13 May 2021 04:50:00 -0400

Sotheby’s originally estimated Banksy’s “Love is in the Air” to sell for up to $5 million.

3 reasons why Bitcoin doesn't care about Elon Musk

Cointelegraph By William Suberg — Thu, 13 May 2021 04:28:16 -0400

Tempers are running hot in the latest round of Bitcoin FUD, but a longer-term perspective reveals "business as usual" for BTC.

3 reasons why Bitcoin doesn’t care about Elon Musk

Cointelegraph By William Suberg — Thu, 13 May 2021 04:28:16 -0400

Tempers are running hot in the latest round of Bitcoin FUD, but a longer-term perspective reveals “business as usual” for BTC.

Diem parters with Silvergate bank to launch stablecoin in the US

Cointelegraph By Helen Partz — Thu, 13 May 2021 03:26:28 -0400

Facebook-initiated Diem Association announces a new model of its upcoming stablecoin that is set to be issued by California state-chartered bank Silvergate.

You can buy condos with DOGE in Portugal as crypto real estate listings soar

Cointelegraph By Brian Quarmby — Thu, 13 May 2021 01:52:53 -0400

You can now use Dogecoin to buy luxury apartments in Portugal, with a penthouse currently on sale for around 5 million DOGE, worth roughly $2.2 million.

Bitwise launches US ‘crypto ETF’… sort of

Cointelegraph By Samuel Haig — Thu, 13 May 2021 00:54:51 -0400

Bitwise has launched a new ETF offering exposure to the top publicly-listed firms operating in the blockchain and crypto industries.

Which 'green' cryptocurrency is Tesla likely to add for payments?

Cointelegraph By Brian Quarmby — Thu, 13 May 2021 00:02:47 -0400

Elon Musk revealed that Tesla will halt all BTC transactions due to environmental concerns, with the firm set to look at more energy-efficient cryptocurrencies.

Gemini's crypto custody tops $30B as analyst predicts Coinbase shares will fall to $100

Cointelegraph By Andrew Fenton — Wed, 12 May 2021 23:36:14 -0400

Gemini's crypto assets in custody have trebled this year which the exchange attributes to surging interest from institutions and asset managers,

Backlash to Elon Musk’s Bitcoin bombshell as traders start to buy the dip

Cointelegraph By Samuel Haig — Wed, 12 May 2021 23:00:16 -0400

Tesla’s decision to suspend accepting Bitcoin as payment has sent crypto Twitter into a frenzy, with some onlookers alleging a 'pump n dump' while others are boldly buying the dip.

Why Fiat Experts Don’t Get Bitcoin

Pedro Neto — Wed, 12 May 2021 18:57:57 -0400

There are various reasons traditional experts do not understand bitcoin and thus have negative views on it.

Bitcoiners And Fiat Experts

Society has conditioned us to listen to experts. They teach us what to eat, what to learn, how to exercise, how to raise our children and how to care for the environment. We think they know better, that they have our best interests at heart. After all, they have fancy titles, decades of experience, appear in mainstream media and have tons of followers. Many of them even work in organizations that have "World" in the name. How prestigious is that!? We intuitively think we wouldn't be able to decide what's best for ourselves. Why would we or more importantly how could we go against advice from experts?

Money From First Principles

To understand Bitcoin's value and I mean truly understand it, you have to start asking, "What is money?" This sends precoiners spiraling down the Bitcoin rabbit hole. After extensive research on money and economics, a veil is lifted from their eyes. They start thinking, "If I've been lied to about money, about inflation being normal, what else have I been taught that was a lie?" This is generally where people become skeptical which leads them to think critically and not take things at face value. For the first time, they start paying attention to what experts are actually saying. They begin seeing inconsistencies in between the various word salads. Some proceed to look at experts’ track records. How could these experts be so dead wrong about so many things for so many years? Even worse, nothing happens to them. They aren't fired, there aren't any consequences, no accountability.

That's when some newcoiners begin their transformation. It's because of experts’ incompetence, political agendas, manipulation and corruption. Newcoiners become obsessed with (re)learning everything. They begin studying history, philosophy, sociology, diet and environment. They are in pursuit of truth. In a world where everything is manipulated and politicized, they want realness.

In order to do so, you need to identify who the fiat experts are. It is helpful to use the following framework: First, people have to realize experts aren't all-knowing and incapable of being irrational or outright wrong. They're as human as you and me. As such, they are prone to error. Then, recognize that they have plenty of biases. This is arguably the most important part. Absolutely everyone has biases. The best you can do is be aware of them (both your own and others’) and in doing so minimize their impact. Sadly, it appears very few realize how impactful bias is in one’s decision-making. It doesn't stop there, experts also have political agendas. After all, self-interest is a very powerful motivator. Experts, like everyone else, have bills to pay, want promotions and also just don't want to get fired. The problem there is misaligned incentives. What's best for the expert or organization isn't always what's best for their audience. Oftentimes, experts don't have these high-level positions because they're the best for the job but because they can be controlled. On top of that, humans have a hard time differentiating between confidence and intelligence. Be careful to not fall into this trap. The bigger the influence, the higher the accountability should be. Yet that's the exact opposite of what happens in our society, the bigger a person’s influence, the more untouchable they are.

Fiat Experts Entering The Bitcoin Space

Experts have a hard time grasping the fact that they're just like everyone one else when it comes to Bitcoin. Bitcoin doesn’t discriminate. Experts, in my opinion, do have one distinct advantage: They can simply tweet, "I want to understand Bitcoin," and a flurry of Bitcoin authors and podcasters will appear offering them their precious time. That is extremely valuable. Experts are able to have one-on-one conversations with the brightest minds in the space. Instead, they come in thinking they have an original thought on why Bitcoin doesn't work. This repeats over and over again. The same debunked criticisms, different critics (same bewildered reactions when Bitcoiners begin their attack). We've seen many examples of this already. Allen Farrington has slayed a few himself: A Tale Of Two Talebs and Gauge Theory Does Not Fix This come to mind. The former, a two-hour read, deconstructing everything that is wrong about Nassim Taleb and the latter in Allen’s own words: “I spent 3 weeks learning a completely irrelevant subject at postgraduate level whose alleged expert thought nobody would ever actually do and hence he could bullshit about it undetected.”

Lopp’s tweet sums up most critics of Bitcoin:

Bitcoin isn’t in any textbook; the world has never seen something like it before. PhDs try to mold Bitcoin into their theories, but Bitcoin works despite them.

Fiat experts fail to understand that Bitcoin's biggest critics are Bitcoiners:

Experts should first dive deep down the rabbit hole before providing input. Their credentials just help them get their foot in the “influence door.” After that, if they don't shut up and learn, they will get dismissed.

Saifedean’s thread articulates many Bitcoiners’ frustrations with fiat experts:

He also has a podcast episode about this topic with Allen Farrington.

Cyber Hornets

What drew me to Bitcoin Twitter was how different the community is in that they don't rely solely on past accomplishments to continue to have influence. As soon as "influencers" start being inconsistent, unethical or malicious, they will get called out. No matter who they are, the cyber hornets will swarm. What I found interesting was Michael Saylor understanding this and publicly acknowledging his loyalty to Bitcoin:

Every expert should be held to a high standard of accountability in any industry. Like I said above, the bigger the influence, the higher the responsibility.

Reputation In A Bitcoin World

Soon, if not already, reputation will be almost like a currency. What you say and what you do will have great consequences, be that good or bad. A lot of people start with noble intentions but get corrupted along the way. That's why there needs to be accountability at ALL times. "Don't trust, verify" is built into Bitcoin. Bullshitters won't survive for very long. When humans get comfortable in their positions, they become susceptible to corruption, greed or manipulation. Thankfully, if there is constant accountability, they won't get too comfortable. In a Bitcoin future where people and organizations are allowed to fail, only the best will rise up.

I wrote this for those that are early on their Bitcoin journey and are trying to make sense of the world. When in doubt, approach from first principles and stay true to yourself. There is so much noise out there, Bitcoin is our signal.

This is a guest post by Pedro Neto. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

Bitcoin loses 6% in an hour after Tesla drops payments over carbon concerns

Cointelegraph By Samuel Haig — Wed, 12 May 2021 18:53:37 -0400

Bitcoin has shed nearly 6% in an hour after Tesla suspended its support for payments in BTC.

How To Offset Gains Taxes With Bitcoin Donations

Alex Wilson — Wed, 12 May 2021 18:15:20 -0400

This tax season, it may be worthwhile to consider making a bitcoin donation to reduce one’s taxes through philanthropy.

This year is on track to be a record year for bitcoin donations as more donors continue to learn about the tax benefits of donating bitcoin instead of fiat. Why do so many high-networth individuals make large gifts of equities or bitcoin instead of donating in fiat? It’s usually all about taxes. If you donate bitcoin, which is considered property by the IRS for tax purposes, then donating appreciated bitcoin is likely one of the most tax efficient ways to support your favorite bitcoin-friendly charity. Why? Think about it like donating pre-tax dollars. When you donate bitcoin directly to a 501c3 nonprofit, you (the donor) do not owe capital gains taxes and can write off the fair market value of the donation. If you were to sell your bitcoin and then donate afterward, you’d be paying 30% or more in taxes first and then donating less as a result. Plus your write-off would be lower as well since the donation is smaller. Since the nonprofits are a 501c3, they also don’t have any tax liability on the gifts and are better off as well.

For those of you who want to take it one step further, there is also a tax arbitrage opportunity since there is no wash rule related to crypto donations. This only helps you if you’re already donating fiat but have appreciated bitcoin you’re HODLing. You might need to read this next paragraph more than once because this is a little more complex.

So, say you’re already donating $10,000 per year to your favorite charity using your credit card. If you replace that $10,000 donation with an equivalent bitcoin donation, and use the fiat to purchase back your bitcoin position, you’ve now erased your capital gains on the previous positions and raised your cost-basis. So by making that same gift in bitcoin each year and then repurchasing that same amount using the fiat you would have donated, you’re much better off.

Unfortunately, most Bitcoiners don’t know about the tax benefits of donating appreciated bitcoin, but if you ask your financial advisor or accountant, they’ll likely tell you to donate your most highly appreciated assets (like bitcoin) first. Until recently, stock donations weren’t easy so this was usually a strategy reserved for the mega wealthy. With bitcoin being easier to transfer and hundreds of nonprofits accepting bitcoin donations directly, it's becoming more common for the average person to support their cause in a more tax efficient way by donating bitcoin.

To help raise awareness and promote bitcoin donations, The Giving Block has launched a Tax Season campaign that aims to educate users on the tax benefits of donating appreciated bitcoin. Although I’m biased toward making a donation, there are a handful of ways to reduce your bitcoin taxes beyond making a donation. Other methods include

Using tax software to automate tracking your transactions
Working with tax professionals who do the heavy lifting for you
Moving to a city like Miami that is in a state that doesn’t have personal income taxes (plus they have a bitcoin-friendly mayor!)

So whether you’re moving to Miami to get a tan and save on taxes or donating bitcoin to a charity, we hope you take the time to plan ahead or consult a tax professional to optimize your HODL plan so you can stack as many sats as possible.

This article does is not tax advice nor financial advice - all parties should do their own research when making any financial decisions.

This is a guest post by Alex Wilson. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

Finance Redefined: Never a dull day in DeFi! May 5-12

Cointelegraph By Andrew Thurman — Wed, 12 May 2021 18:15:20 -0400

One of the busiest days of the year for DeFi featured exploits, rugpulls, protocol pivots, and more.

Finance Redefined: Never a dull day in DeFi! May 5–12

Cointelegraph By Andrew Thurman — Wed, 12 May 2021 18:15:20 -0400

One of the busiest days of the year for DeFi featured exploits, rugpulls, protocol pivots, and more.

Bitcoin, altcoins and stocks drop as inflation fears impact investor confidence

Cointelegraph By Jordan Finneseth — Wed, 12 May 2021 18:08:19 -0400

Rising fears of inflation and big government spending rocked equities markets and possibly had a knock-on effect on Bitcoin and altcoin prices.

When More Isn’t Better: Inflation In The 21st Century

Sebastian Bunney — Wed, 12 May 2021 17:31:10 -0400

The modern practice of inflationary monetary policies has drastic, wide-reaching effects on the economy.

Over the last 40 years, monetary policy has caused interest rates to decline from a high of around 20% down to the zero bound. During the same period, the U.S. dollar (USD) money supply has expanded at a rate never before seen in modern history and asset prices in dollar terms exploded to the upside, all while the U.S. average hourly wage has lagged on an unprecedented scale.

Ironically, the growing wealth gap, caused by lagging wages and rising asset prices, has occurred while the Federal Reserve (Fed) has been targeting a 2% inflation rate and pushing the narrative that inflation is good for the economy, good for economic growth and, most of all, good for the average Joe. This makes us wonder why the Federal Reserve, through monetary policy, is adjusting interest rates and setting inflation targets and whether this intervention is really benefiting the economy.

To start, let’s focus on the question: Why are we seeing this intervention from the Fed? The United States has a total debt to Gross Domestic Product (GDP) ratio of 257%.¹ This fragile debt house of cards, which the Federal Reserve has created, has caused them to fear deflation and its effects on the economy. The Federal Reserve is then essentially forced to intervene so that they are not perceived as the ones allowing the economy to collapse. They do this primarily through the lowering of interest rates and through inflation, or in other words, a debasement of the currency through an expansion of the money supply. This intervention leads to an increase in consumption, asset purchases and malinvestment, which, in turn, leads to an ever-increasing debt burden and an ever-greater deflationary headwind on the economy. The cycle then repeats itself with the Fed having to intervene time and time again. The Federal Reserve is stuck in a negative feedback loop which they themselves have created.

What Are The Side Effects Of Inflation?

First, let’s look at the effects of inflation from the consumer perspective. Let’s imagine for a second that the government suddenly doubled the total supply of dollars in the system. In theory, everything would double in price as the value of the currency would be halved. Now, the producers of a product or service essentially have three options:²

They could double the price of their product or service to maintain their current margins. The side effect of doing so is that they will most likely drive away customers.
They could maintain the current price. The side effect of doing so is that they will take a hit on their margins and their bottom line.
They could maintain the current price but reduce the quality of the inputs which make up their product or service. The side effect of doing so would be that they would provide their customers with a lower quality product or service but maintain their margins.

What tends to happen is that the producer chooses either option one or three in order to take the path of least resistance and reduce a potential hit to their bottom line. We, therefore, have this byproduct of inflation whereby the producer now has to either raise the price of the product or service or deceive the consumer by lowering the quality of their product or service. Both of which leads to the consumers losing out.

Second, let’s look at the effects of inflation from an asset perspective. As inflation devalues the currency’s purchasing power, it causes both the price and demand of assets to increase, which in turn artificially increases scarcity. This creates knock-on effects in the form of conflict and social unrest, as disputes arise over ownership of assets. Monopolization then tends to ensue in order for those in power to maintain control due to the increasing scarcity and price of assets. We then have the bigger issue, whereby huge wealth inequality between the holders of these assets and the holders of the currency starts to appear as the currency loses purchasing power. This can be seen in the lagging average hourly wage in relation to assets in the chart below.

Table 1: Asset Price and Hourly Wage Growth Comparison ³ ⁴ ⁵ ⁶

What’s worse, is that over the last decade this lagging of wages to asset prices has only increased (as shown in table 1 under the Jan 2010–Jan 2021 column). This has caused one of the greatest transfers of wealth from the lower class to the upper class in recent history (chart below).

Chart 1: Share of Total Net Worth ⁷ ⁸

To play devil’s advocate, when inflation was initially implemented, the central banks had good intentions. Inflation in the form of monetary expansion, or interest rate adjustment, is a way for the Federal Reserve to attempt to dampen short-term volatility by stimulating the economy in times of stress. However, the issue is that volatility is just energy, which as we know from the first law of thermodynamics, cannot be destroyed. Instead, it is just transmuted, and so by trying to prevent/dampen short-term pain in the economy, this instead delays the pain and amplifies its future effects. This is why the initial bump in debt, in the form of monetary and fiscal stimulus in times of stress, evolves into this beast of constant debt expansion in order to prevent economic collapse.

The Federal Reserve may argue differently, but the saying, “there is no such thing as a free lunch,” still applies to monetary and fiscal stimulus. By stimulating the economy, what they are really saying is “I choose to shift money toward one area of the economy and away from another area.” This other area of the economy ends up getting the short end of the stick, which is nearly always the lower class. No matter how the Fed portrays it, stimulus in the form of inflation, helicopter money or the adjustment of interest rates will always have negative side effects.

So why can’t we just stop this monetary intervention in order to close the wealth gap? Earlier, we mentioned the deflationary headwind. In order to understand this, we have to take a look at the current state of the U.S. debt situation. Combined, federal, corporate and household debt add up to $55.26 trillion against a GDP of $21.49 trillion (as shown below). This gives us a total debt to GDP of 257%.⁹ Simply put, for every $1 of GDP, there is $2.57 in debt. Let’s assume, conservatively, that the average interest on this debt is 3%. This would mean that, in order for the United States to service just the interest payment on its debt alone, it would need to grow by 7.71% year over year before we see any real growth in GDP.

Chart 2: Debt vs. GDP ¹⁰

We then come to the realization that the central bank is stuck between a rock and a hard place. They could let the United States go into a deflationary debt spiral, which would effectively cause the economy to collapse. Alternatively, they could maintain low interest rates and continuously expand the monetary base through inflation, hoping and praying that this intervention will lead to meaningful, productive growth in the economy, allowing the United States to start paying down its debt burden. So far, it looks like the central bank is choosing the latter option of relying on hope. This means it is highly unlikely we will see this debasement of the dollar stop anytime soon.

This then makes us question that if inflation is truly happening, then: Why are we not seeing the USD collapse against other currencies? This is not just a problem in the United States but a global issue. If you think the U.S. debt to GDP is a problem at 257%, globally we are sitting at 356%.¹¹ You’ve probably heard the saying “a rising tide lifts all boats.” This quote hits the nail on the head and is the reason we are not seeing the dollar lose value against other currencies. Every other major fiat currency is in the exact same situation. They are all printing away, trying to outrun their own debt burden and are, therefore, all being debased at a similar rate.

You may then wonder, how can this be the case for all countries? In simple terms, we have another negative feedback loop. Let’s say you have countries A, B and C. If A and B decide to debase their currency through inflation, then C’s currency strengthens against A and B’s. A and B are now struggling to trade with C because of the strength of its currency and they decide to reduce trade with C, primarily trading between themselves. C is then forced to debase its currency in order to maintain its trade relationships so that this reduction in trade does not persist and impact its economy. This cycle then repeats as each country continues to debase in order to keep up with one another. Every country is essentially in a rat race to the bottom, where, in the end, all fiat currencies will be worthless.

Why are we not seeing interest rates rise due to the inflationary effects of monetary expansion? The central banks around the world cannot let interest rates rise. From the calculations above, the U.S. GDP has to grow by 7.71% just to service the interest on its debt, assuming a 3% interest rate. If interest rates were to move up to 5%, then the United States would have to grow by 12.85% to service the interest on its debt. This is why we are seeing countries such as Japan and Australia capping interest rates through yield curve control in order to prevent rates from rising too high. Any meaningful rise in rates could be catastrophic to the economy.

It becomes evident that due to the manipulation intervention from the central banks globally, we cannot use our traditional metrics for tracking inflation such as interest rates and currency exchange rates. Additionally, if you are trying to get ahead by investing in assets, the Consumer Price Index (CPI) isn’t going to help either since it is just the average price of a basket of consumer goods and services. It doesn’t include assets such as stocks, real estate and bonds. Central bank intervention is clouding price and inflation signals on both micro and macro levels and, therefore, impacting economic decision-making. We have very few metrics these days to rely on which are not manipulated.

By now you may have reached the conclusion that if you just invest in real estate, stocks and a small allocation of gold, you should be outrunning this debasement of the dollar. I wish it was that simple. When we change the lens through which we view these assets, a different picture emerges. Instead of using the USD as the denominator, let’s see what happens if we use the Federal Reserve balance sheet.

Chart 3: S&P 500 against the Federal Reserve Balance Sheet¹²

Chart 4: Home prices in the US (Case Shiller Index) against the Federal Reserve Balance Sheet¹²

Chart 5: Gold against the Federal Reserve Balance Sheet¹²

What begins to emerge is that these assets aren’t really seeing the huge price appreciation that we’ve been led to believe. Instead, these assets are struggling to keep up with the debasement of the USD, all while the average worker, holding dollars, is drastically losing purchasing power (Table 1). It then becomes clear that this monetary expansion is the reason for the ever-increasing wealth inequality. Until we see a reduction in monetary intervention, or a new alternative sound currency, asset holders, and more specifically equity holders, are going to continue to dominate, while the middle and lower class will get crushed. What’s worse is that behind this facade of rising asset prices, everyone, including the investors, is getting screwed. Unless you invest wisely, you will struggle to outrun the debasement of the USD.

This then begs the question, how much expansion is going on under the hood of the Federal Reserve balance sheet? If we go to the Federal Reserve website,¹³ we can see that the Fed’s balance sheet has increased from $870 billion in July 2007 to $7.793 trillion in April 2021. That’s an annualized growth of 17.33%. This is the hurdle that we have to overcome just to stay ahead of the debasement of the USD. With this expansion, there is always a fear of uncontrollable inflation and prices across the board running away from us. We have seen this occur in dollar terms, especially in asset prices over the last decade. However, when we use the Fed’s balance sheet as the denominator, although there are periods of transitory growth where certain assets outperform, overall, we see underperformance.

To put the 17.33% hurdle into perspective, here are the 15-year annualized returns of various asset classes:¹⁴

Large Cap Stocks — S&P 500 Index: 9.88%
Small Cap Stocks — Russell 2000 Index: 8.91%
International Developed Stocks — MSCI EAFE Index: 4.97%
Emerging Market Stocks — MSCI Emerging Markets Index: 6.95%
REITs — FTSE NAREIT All Equity Index: 7.15%
High Grade Bonds — Bloomberg Barclays U.S. Agg Bond Index: 4.4%
High Yield Bonds — ICE BofA U.S. High Yield Index: 7.44%
S&P U.S. Treasury Bill 0–3 Mth Index: 1.11%
Gold: 7.08%
Real Estate: 2.28%

Not a single asset class in that list outperformed the 17.33% hurdle rate. In other words, if you had invested in any of the above asset classes, with a simple buy and hold strategy, you would have lost purchasing power over the last 15 years. Unless you are outrunning the 17.33% rate of monetary expansion through smart investing, you are losing purchasing power. It is as simple as that.

Unless the premise of our monetary policy changes (i.e., we shift toward an Austrian economic approach¹⁵), I doubt we will see any true, long-term, meaningful growth in assets and in the economy. Rather, the more likely scenario is that the Fed will continually debase the currency and inflate the debt burden. The dollar will continue to lose purchasing power, expanding the ever-growing wealth gap, and the Fed will keep pushing the narrative that everything is hunky dory and stable in the economy.

We have to make some big changes to the way we operate. We must change how we approach monetary policy and ensure that the people in power take accountability and keep its population’s best interests in the foreground. However, these issues have been talked about ad nauseum and so I wanted to bring up a few others:

Banking System

Small banks facilitate and lend to small businesses, while big banks facilitate and lend to big businesses. What is scary is that, since the 1960s, we have seen a decline from around 24,000 banks in the United States to below 6,000 banks today (chart below). This is due to the implementation of legislation which encourages expansion and mergers, while also making it very difficult for small banks to survive due to the hoops they must jump through. In the current banking environment, a select few banks dominate the industry.

Chart 6: Number of Commercial Banks in the United States ¹⁶

Why does this matter? It matters because over 90% of the business population in the United States is represented by small- and medium-sized businesses. Small businesses are a major driver for economic growth and innovation. These same businesses need the small banks in order to survive. They need the ability to borrow in order to innovate and grow by using these funds to help increase productivity, boost efficiency and adopt new technology to keep up with competition. If small businesses are unable to borrow, this has major implications on economic productivity and growth.¹⁷

In order to promote small business growth — which as we know adds jobs, fuels innovation, and increases workforce productivity — we need to change our current approach to banking. Rather than lobbying for legislation which encourages consolidation and mergers within the banking sector, we need to reduce the requirements for small banks in order to promote the proliferation of small branches throughout communities.

Countries such as China¹⁸ have recognized this need for small banks in order to spur on productivity, innovation and growth. In return, China is one of the largest export countries as a percentage of GDP. They have also seen a big impact on their levels of poverty. China’s percentage of residents living below the poverty line has dropped from 98.3% in 1990 to 24% in 2016. During this same period, the United States’ lower class has slowly increased in size,¹⁹ while their stock market and housing prices have concurrently continued to climb higher and become farther out of reach for the average person.

School Of Hard Knocks

Realistically, we are probably too late to implement the school of hard knocks approach due to the size of the debt burden and the systemic issues within the economy. Regardless, we need to stop kicking the can and backstopping the big corporations and big banks every time we hit a speed bump in the economy.

During the mid-1900s, Yellowstone National Park introduced a protocol to extinguish any small forest fire.²⁰ They believed that they were detrimental to the local flora and fauna and were an eyesore for tourists. What they failed to realize is that forest fires are a natural part of the forest’s life cycle and occur in order to clear kindle and brush accumulation, while promoting biological growth and diversity. In 1988, after years of preventing the smallest of fires, enough brush and kindling had accumulated that the park had a fire which wiped out 36% of the forest.

We are currently seeing this play out in our economy. By propping up the economy every time we hit a speed bump, we are

a) Encouraging malinvestment: As people begin to get overly comfortable that the central bank or government will intervene during times of stress, we see a rise in excess speculative leverage in order to maximize returns. This consequently leads to unsustainable growth and thus amplifies the fragility of our economy.

b) Magnifying the wealth gap: With this overhanging debt burden, the central banks have little option but to debase the currency and maintain low interest rates in order to prevent a systemic collapse. This monetary expansion causes a rise in asset prices, all while the dollar’s purchasing power continues to diminish. As we know, the wealthy hold assets while the lower class holds cash, thus creating an ever-expanding wealth gap.

c) Constricting innovation: A zombie company is one which is unable to financially support itself. This is a sign that the product or service the business offers either does not have enough demand, or that the business has been irresponsible with its finances and is unable to service its debt. This business should, therefore, restructure or dissolve. We should allow the natural life cycle of a business to play out rather than prop up unsustainable companies. When a new business has to compete with an ever-increasing number of zombie companies, this makes it all the more challenging for that business to succeed and prosper. This is because instead of focusing on innovation, the business must use a portion of its resources to compete. As of July 2020, 19% of listed companies in the United States are zombie companies and this number is rising.²¹

Recessions are a natural part of the economic life cycle as they cause introspection which leads to innovation and change. They wipe out bad actors who have taken on too much leverage and invested poorly. Overall, recessions have a positive effect on the economy and it is shortsighted to intervene and attempt to manipulate the outcome.

Education

The millennial generation will be the first to be poorer than its parents,²² and this is not a theme we wish to see for generations to come. In order to break this cycle, we need to adjust the curriculum we teach in schools and add:

Financial literacy: It is important to teach the foundation of smart investing by introducing children to the various asset classes and terminology within the financial syst

Bitcoin for pizza, not the other way around, says Papa John's offer to UK customers

Cointelegraph By Turner Wright — Wed, 12 May 2021 17:12:36 -0400

Users of cryptocurrency exchange Luno can claim $14 in BTC rewards before Sunday.

When all-time high? Bitcoin traders lose confidence as BTC price slumps

Cointelegraph By Marcel Pechman — Wed, 12 May 2021 16:59:25 -0400

Bitcoin adoption continues to increase but derivatives data shows retail and professional traders are reluctant to build new bullish positions.

First-Ever Dual-Funded Mainnet Lightning Channel Opened

Namcios — Wed, 12 May 2021 16:53:22 -0400

The world’s first dual-funded Lightning channel has been opened, bringing more features to the network while reducing fees.

The world’s first dual-funded mainnet Lightning Network channel was opened last week in block 681,753 on the Bitcoin mainnet. Blockstream used its c-lightning implementation of the Lightning Network protocol to open the channel and announced it via a blog post.

A dual-funded Lightning channel allows both participant nodes to contribute to the channel’s opening transaction. It is unique because, up to this point, only the Lightning node that initiated the channel opening was able to add funds to the funding transaction.

The ability to open dual-funded channels is an improvement to the Lightning Network because it adds features and reduces costs. For instance, with the new channel type, payments can be sent in both directions immediately, preventing the creation of unbalanced channels — a situation where the entire channel’s balance belongs to the channel-opening node.

Dual-funded channels also reduce the cost of adding liquidity to Lightning channels. As demonstrated in a recent talk at the University of California, Berkeley by Clara Shikhelman of Chaincode Labs, opening a dual-funded channel requires fewer on-chain Bitcoin fees. As a result, deploying capital into the Lightning Network gets cheaper and more efficient, which might increase liquidity on the network.

This improvement upon the standard single-funded Lightning channels is currently considered a “draft.” It will be regarded as a standard only after it gets implemented by another implementation of the Lightning Network protocol.

Petrodollar Deep Dive With Alex Gladstein

Ansel Lindner — Wed, 12 May 2021 16:22:46 -0400

Alex Gladstein joined "Fed Watch" to discuss his recent article about the petrodollar and lessons for Bitcoin's growing monetary role.

Watch This Episode On YouTube

Listen To This Episode:

In this episode of Bitcoin Magazine’s “Fed Watch” podcast, hosts Christian Keroles and Ansel Lindner sat down with Alex Gladstein, chief strategy officer at the Human Rights Foundation. They dove deeply into the petrodollar, its history, implications for the future and lessons that we can apply to thinking about bitcoin’s growing role in the global financial system. Read Gladstein’s great petrodollar post on Bitcoin Magazine, “Uncovering The Hidden Costs Of The Petrodollar.”

The petrodollar reentered the alternative financial discussion in 2003 with the invasion of Iraq. We were told the invasion was due to the presence of weapons of mass destruction (WMDs) and the funding of terrorism by Saddam Hussein. However, as it turned out, Hussein was also beginning to sell oil for euros. That was a major break of international protocol, since the U.S.-Saudi oil deal in 1974, where oil was to be priced in and sold for dollars.

This special U.S.-Saudi relationship became known as the petrodollar and replaced the gold dollar, which was ended a few years before in 1971 by President Nixon.

There is so much to unpack about this event and the era in which it happened. Gladstein walked through some of the basics also found in his piece, and then the hosts started to ask some more systemic questions. Instead of rehashing all the details, they focused on broad macroeconomic effects.

Of course, they covered the many negative impacts of the petrodollar system mainly through U.S. military involvement to maintain the agreement, but people rarely stop to think about it from a monetary angle. A single currency is extremely efficient for global trade, it is also extremely beneficial to emerging markets to be able to borrow in U.S. dollars which the international system can print.

Gladstein dug into some of those negatives and the hosts pushed back slightly, saying it wasn’t all negative. One question you won’t hear anywhere else is when Lindner asked about the very real threat at the time, in 1974, of the Soviets signing a similar deal with Saudi instead of the Americans. Saudi did not like the U.S. at all, a deal with the Soviets was more obvious. All of the evils of the petrodollar would have been magnified if the communists, who killed millions of their own people, would have been able to set up a “petro-ruble.” You have to listen to hear Gladstein’s response to that one.

IRS will seize your crypto if you can't pay back taxes

Cointelegraph By Sam Bourgi — Wed, 12 May 2021 16:15:00 -0400

If you’re a cryptocurrency holder with past-due tax debts, your provable holdings may be confiscated by the IRS if you don’t pay back what you owe.

Dog day afternoon as Vitalik dumps multiple memecoins in the name of charity

Cointelegraph By Jordan Finneseth — Wed, 12 May 2021 15:37:38 -0400

Dog-themed tokens see an abrupt end to their rallies as Vitalik Buterin liquidates the positions he was gifted and donates the proceeds to charity.

Cointelegraph Consulting: Aave’s avenue to over $11 billion in TVL

Cointelegraph By Cointelegraph Consulting — Wed, 12 May 2021 15:34:37 -0400

Breaking down Aave protocol’s usage and its liquidity mining program as the platform’s TLV doubles in under a month.

BitMEX Executives Trial Set For March 2022

Oluwapelumi Adejumo — Wed, 12 May 2021 15:05:29 -0400

The former executives of bitcoin derivatives platform BitMEX face trial over money laundering charges next year.

The former executives of leading bitcoin derivatives platform BitMEX are set to have their day in court.

Former CEO Arthur Hayes, cofounder Benjamin Delo and former CTO Smauel Reed are facing a money laundering trial that is now slated to begin on March 28, 2022 — 18 months after authorities first publicly accused them of wrongdoing.

Per a previous Bitcoin Magazine report, Hayes turned himself in to the authorities last month following allegations that BitMEX had violated KYC laws under his watch. And Delo turned himself in to authorities in March.

According to BeInCrypto, BitMEX is also facing other lawsuits. For instance, a lawsuit “was filed by traders Yaroslav Kolchin and Vitaly Dubinin, who claimed that it engaged in market manipulation and unregistered trading. The plaintiffs further claimed that the exchange ‘looted’ $440 million while being aware of the investigation.”

While the firm has tried to meet the demands of authorities by updating its KYC requirement and forming a surveillance partnership with Eventus Systems. But the U.S. Department of Justice claims that it “did not implement AML procedures for U.S. traders, which is one of the primary charges against it,” per BeInCrypto, will still likely be addressed in the upcoming trial of its former executives.

SEC enforcement actions cost crypto firms and individuals $1.7B in penalties

Cointelegraph By Turner Wright — Wed, 12 May 2021 14:45:33 -0400

Of the 75 enforcement actions on crypto brought by the commission from 2013 to 2020, the majority involved allegations of fraud or unregistered securities offerings.

Papa John's Offering Free Bitcoin To U.K. Customers

Oluwapelumi Adejumo — Wed, 12 May 2021 13:51:30 -0400

Papa John’s, which provided the first-ever real-world items bought for bitcoin, is offering U.K. customers a free bitcoin reward.

Leading American pizza franchise Papa John’s has announced a new offer for its U.K.-based customers, giving them the chance to receive about $14 (£10) in free bitcoin.

According to the terms and conditions on Papa John’s U.K. website, customers can claim the free bitcoin, along with a discount of about $21 (£15) following purchases of about $42 (£30) and above. The offer is valid until May 16, 2021.

The bitcoin reward is claimable via London-based cryptocurrency exchange Luno.

“To claim the £10 worth of Bitcoin, download the Luno app or sign up at www.luno.com,” per the website terms and conditions. “Create an account and verify your identity. Enter your promo code in the Rewards tab. You receive 10 pounds worth of Bitcoin instantly.”

The Papa John’s franchise has a history with Bitcoin. In 2010, the company became the first involved in a real-world purchase of bitcoin, though it did not know it was participating. In 2010, early Bitcoin enthusiast Laszlo Hanyecz infamously paid 10,000 BTC (worth some $550 million at the time of this writing) to a peer who bought him two large Papa John’s pizzas using fiat.

Hanyecz later disclosed to Bitcoin Magazine “that he spent something near 100,000 BTC on pizza that year.”

The Bitcoin community celebrates “Bitcoin Pizza Day” every year on May 22 as a celebration of this first-ever real-world transaction.

Bitcoin Optech #148: A Security Disclosure Affecting Protocols

Bitcoin Optech — Wed, 12 May 2021 13:11:53 -0400

This week’s newsletter covers a security disclosure, a summary of a Bitcoin Core PR Review Club meeting and more.

The Bitcoin Optech newsletter provides readers with a top-level summary of the most important technical news happening in Bitcoin, along with resources that help them learn more. To help our readers stay up-to-date with Bitcoin, we're republishing the latest issue of this newsletter below. Remember to subscribe to receive this content straight to your inbox.

This week’s newsletter describes a security disclosure affecting protocols depending on a certain BIP125 opt-in replace by fee behavior and includes our regular sections with the summary of a Bitcoin Core PR Review Club meeting, announcements of new software releases and release candidates, and descriptions of notable changes to popular Bitcoin infrastructure software.

News

CVE-2021-31876 discrepancy between BIP125 and Bitcoin Core implementation: the BIP125 specification of opt-in Replace By Fee (RBF) says that an unconfirmed parent transaction that signals replaceability makes any child transactions that spend the parent’s outputs also replaceable through inferred inheritance. This week, Antoine Riard posted to the Bitcoin-Dev mailing list the full disclosure of his previously privately reported finding that Bitcoin Core does not implement this behavior. It is still possible for child transactions to be replaced if they explicitly signal replaceability or for them to be evicted from the mempool if their parent transaction is replaced.
Riard analyzed how the inability to use inherited replaceability might affect various current and proposed protocols. Only LN appears to be affected and only in the sense that an existing attack (see Newsletter #95) that uses pinning becomes cheaper. The ongoing deployment of anchor outputs by various LN implementations will eliminate the ability to perform that pinning.
As of this writing, there has not been any substantial discussion of the issue on the mailing list.
Call for Brink grant applications: Bitcoin Optech encourages any engineer contributing to open source Bitcoin or Lightning projects to apply for a Brink grant before the application deadline on May 17th. Initial grants are one year long and allow developers to work full time on open source projects from anywhere in the world.

Bitcoin Core PR Review Club

In this monthly section, we summarize a recent Bitcoin Core PR Review Club meeting, highlighting some of the important questions and answers. Click on a question below to see a summary of the answer from the meeting.

Introduce node rebroadcast module is a PR (#21061) by Amiti Uttarwar that continues work on the rebroadcast project (see Newsletters #64, #96, #129 and #142), previously discussed in review clubs #16698 and #18038, whose goal is to make node rebroadcast behavior for wallet transactions indistinguishable from that of other peers’ transactions.

The review club discussion focused on current transaction behavior and the proposed changes:

Why might we want to rebroadcast a transaction? When our transaction didn’t propagate (perhaps our node was offline) or appears to have been dropped by other nodes’ mempools in the network.
Why does a node drop a transaction from its mempool? Apart from being included in a block, a transaction can expire after 14 days, be squeezed out of a node’s limited mempool size (default size 300 MiB) by higher-fee transactions, be replaced via BIP125 opt-in Replace-By-Fee (RBF), be removed if a conflicting transaction is included in a block, or be included in a block that is later reorged out (in which case the node will try to re-add it while updating the mempool to be consistent again after the reorg).
What could be an issue with the current behavior of each wallet being responsible for rebroadcasting its own transactions?
This can be a privacy leak that allows linking the IP address to the wallet address, as under the current rebroadcasting behavior, a node that broadcasts a transaction more than once is essentially announcing that the transaction is from its wallet.
When might a miner exclude a transaction that is in our mempool? When the miner deprioritized it for having a low fee, didn’t see it yet, removed it from its mempool by RBF, censored it, or mined an empty block.
When might a miner include a transaction that is not in our mempool? When the miner manually prioritized the transaction (e.g. as a commercial service), received it before our node, or the transaction conflicted with another one in our mempool but not in theirs.
How would the proposal under review decide which transactions to rebroadcast?
Once per new block, it proposes to rebroadcast transactions above an estimated feerate that are at least 30 minutes old, have been rebroadcast no more than 6 times and not more recently than 4 hours ago, with up to 3/4 of the transactions that fit the block.
Why might we want to keep a transaction in our rebroadcast attempt tracker even after it has been removed from our mempool?
After a consensus rule change, there can be non-updated nodes on the network rebroadcasting transactions that don’t meet the new consensus rules. Keeping transactions in the rebroadcast attempt tracker would avoid these nodes rebroadcasting them too many times (a maximum of 6 times over 90 days) and allow the transactions to expire.
When would we remove a transaction from our rebroadcast attempt tracker? When the transaction is confirmed, RBFed, or conflicts with another transaction included in a block.
How would the estimated minimum feerate for rebroadcast be calculated? Why not use the lowest feerate in the last mined block?
The rebroadcast feerate floor would be estimated once a minute by assembling a block from the mempool to simulate inclusion in the next mined block. This approach is better than using the lowest feerate of the last mined block because it calculates fees based on the immediate future in a changing environment instead of based on the past.

Releases and release candidates

New releases and release candidates for popular Bitcoin infrastructure projects. Please consider upgrading to new releases or helping to test release candidates.

Rust-Lightning 0.0.14 is a new release that makes Rust Lightning more compatible with getting data from Electrum-style servers, adds additional configuration options, and improves compliance with the LN specification, among other bug fixes and improvements.

Notable code and documentation changes

Notable changes this week in Bitcoin Core, C-Lightning, Eclair, LND, Rust-Lightning, libsecp256k1, Hardware Wallet Interface (HWI), Rust Bitcoin, BTCPay Server, Bitcoin Improvement Proposals (BIPs), and Lightning BOLTs.

Bitcoin Core #20867 increases the number of keys that can be included in multisig descriptors and used in the addmultisigaddress and createmultisig RPCs from 16 to 20. The increased limit can only be used in P2WSH outputs. P2SH outputs are limited to 520 byte scripts which are only large enough to hold 15 compressed public keys.
Bitcoin Core GUI #125 enables users to adjust the autoprune block space size from the default in the intro dialog. It also adds an improved description for how the pruned storage works, clarifying that the entire blockchain must be downloaded and processed but will be discarded in the future to keep disk usage low.
C-Lightning #4489 adds a funder plugin for configuring dual-funding contribution behavior in response to incoming channel open requests. Users will be able to specify a general contribution policy (percent match, percent available funds, or fixed contribution), a wallet reserve amount under which no dual-funding contributions will happen, a maximum contribution amount for any single channel open request, and more.
This PR represents the last step in enabling experimental dual-funding support between C-Lightning nodes. The interactive transaction construction and channel establishment v2 protocols arising out of this work is still being standardized in the open BOLTs #851 PR.
C-Lightning #4496 adds the ability for plugins to register topics about which they plan to publish notifications. Other plugins can subscribe to those topics to receive notifications. C-Lightning already had several built-in topics, but this merged PR allows plugin authors to create and consume notifications for any new topic category they’d like to use.
Rust Bitcoin #589 starts the process of implementing support for taproot with schnorr signatures. The existing ECDSA support is moved to a new module but continues to be exported under existing names to preserve API compatibility. A new util::schnorr module adds support for BIP340 schnorr key encodings. Issue #588 is being used to track the complete implementation of taproot compatibility.

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Vitalik Buterin says Uniswap should become an oracle token

Cointelegraph By Sam Bourgi — Wed, 12 May 2021 13:00:00 -0400

“UNI is in an excellent position to be a token for such an oracle,” said Buterin, in reference to decentralized pricing oracles for stablecoins.

How crypto companies can go public in 2021, explained

Cointelegraph By Connor Sephton — Wed, 12 May 2021 12:53:00 -0400

There is huge demand for crypto companies to go public right now — but in this day and age, are initial public offerings their only option?

Bitcoin car will race at the Indianapolis 500

Cointelegraph By Turner Wright — Wed, 12 May 2021 12:15:00 -0400

“This isn’t the Strike car, the Coinbase car, the Kraken car [...] this is the Bitcoin car,” said Jack Mallers.

Check Your Financial Privilege

Alex Gladstein — Wed, 12 May 2021 12:00:00 -0400

While those comfortable in the dollar bubble deride Bitcoin, the stories of three emerging market users demonstrate why it is so important.

In the eyes of most Western elites, investors, journalists and academics, Bitcoin rates anywhere from an annoyance to a disaster.

Just a few days ago, American billionaire Charlie Munger described Bitcoin as “disgusting and contrary to the interests of civilization.” Warren Buffett, once the world’s richest person, sat next to Munger in obvious agreement. He has said Bitcoin is “a delusion” and “rat poison squared,” and has warned that he is sorry about its rise “because people get their hopes up that something like that is gonna change their lives.” Bill Gates, who also used to be the world’s richest person, has said Bitcoin is a “greater fool theory” investment, and that he would short it, if he could.

HBO host Bill Maher skewered Bitcoin in an extended segment on his show, saying that the new currency’s promoters are “money-hungry opportunists.” A few weeks earlier, The New York Times ran a story that said Bitcoin will “ruin the planet.” Financial Times columnist Martin Wolf has long pegged it as “ideal for criminals, terrorists, and money launderers.”

Prominent Ivy League economist Jeffrey Sachs has said that Bitcoin offers “nothing of social value,” while former International Monetary Fund (IMF) chief and European Central Bank President Christine Lagarde has called it a tool for “totally reprehensible money laundering activity.”

Over the past decade, these financial experts, reporters and policymakers have continuously pounded the narrative that Bitcoin is risky, dangerous, bad for humans and bad for the planet.

They are wrong, and they are blinded mainly by their financial privilege.

How Financial Privilege Blinds Dollar Users To Bitcoin’s Importance

The critics cited above are all wealthy citizens of advanced economies, where they benefit from liberal democracy, property rights, free speech, a functioning legal system and relatively stable reserve currencies like the dollar or pound.

In reality, only 13% of our planet’s population is born into the dollar, euro, Japanese yen, British pound, Australian dollar, Canadian dollar or Swiss Franc. The other 87% are born into autocracy or considerably less trustworthy currencies. 4.3 billion people live under authoritarianism, and 1.2 billion people live under double- or triple-digit inflation.

Critics in the dollar bubble miss the bigger global picture: that anyone with access to the internet can now participate in Bitcoin, a new money system with equal rules for all participants, running on a network that does not censor or discriminate, used by individuals who do not need to show a passport or an ID and held by citizens in a way that is hard to confiscate and impossible to debase.

While Western headlines focus on Coinbase going public, Tesla buying billions of dollars’ worth of Bitcoin and tech bros getting fabulously rich, there is a quiet revolution happening worldwide. Until now, governments and corporations have controlled the rules of money. That is changing.

To learn more, the author spoke to Bitcoin users in Sudan, Nigeria and Ethiopia, three countries with a combined population of 366 million, well in excess of the number of individuals living in the United States.

The three speak for millions whose lived experience is much closer to that of the average person on this planet. Gates, Munger and Buffett may not have recently dealt with conflict and violence, black markets, relentless inflation, political repression, and rampant corruption in their daily routine, but most do.

And yet, these Bitcoiners are more hopeful for the future than the doomers listed above. For them, Bitcoin is a protest, a lifeline and a way out.

Here are their stories.

Bitcoin In Nigeria

Ire Aderinokun is a Nigerian entrepreneur. She is a front-end developer and user interface designer from Lagos and is the cofounder, COO and vice president of engineering at Buycoins, a cryptocurrency exchange that went through Y Combinator in 2018 and is now one of the most popular places to buy bitcoin in West Africa. She is a prolific writer, speaker, organizer and activist and one of the founding members of the Feminist Coalition, a group that champions equality for women in Nigerian society.

Aderinokun talked about Nigeria as a melting pot, like the U.S. of Africa. Three big ethnic groups dominate the country, but the population is split into hundreds of different tribes. This is a strength, but also a challenge, as it is hard to bring so many different people together. The country is governed through a predominantly Muslim north and a predominantly Christian south, and the national leadership rotates between these constituencies. Nigeria has the largest economy in Africa, and the largest population with more than 200 million citizens, but much of the wealth is tied to the export of oil.

Like in many rentier states, there is massive corruption and inequality: while the fabulously rich jetset around the world, six Nigerians are impoverished every minute. People who have wealth and power, Aderinokun said, do not let it trickle down. This has resulted in a situation where in major urban areas such as Abuja and Lagos, there are countless lawyers, for instance, working in restaurants, toiling away in careers that are professionally beneath them, because there are not enough opportunities. Millions head to the big cities for jobs, only to come up empty handed.

As a result, Aderinokun said the country struggles with unemployment, especially among the youth. 62% of the population is under 25 years old. Out of this crisis, however, are upsides. She credits Nigerians with being incredibly entrepreneurial. People do what they need to do to get by, and having a side hustle, she said, is natural.

Part of this need to hustle relates to the country’s economic situation, where the official inflation rate now stands around 15%, with food inflation even higher. In her personal experience, Aderinokun has seen the naira decline from 100 per dollar to 500 per dollar. People, she said, are quite aware that the elites are stealing from the citizens through debasement. It is expected. So much so that when one’s family or friend gets a government job, she said, there is an assumption that they will provide for you and a circle of others. The money trickles down through nepotism and the people at the top get fat. This is an example of the Cantillon effect in action, where those closest to the point of money creation benefit at the expense of the rest.

Growing up, she saw people try to keep their money in dollars, or send it abroad or buy real estate. This was how Nigerians could protect the fruits of their time and energy, but only a handful had these options. Now, Bitcoin is changing the game, allowing more people to save like never before. Anyone with internet access now has an escape from their unreliable and exploitative national monetary system.

Aderinokun got her start in Bitcoin with a Coinbase account in 2016. She and her friends initially thought: could we use this new technology to send money abroad? As it turned out, Bitcoin was easier and faster for sending money from Nigeria to the U.S. than traditional means. So she decided to launch BuyCoins. Paystack — the Nigerian tech giant — was just a few years old then and she is grateful that it existed at the time, as it allowed BuyCoins to reach customers and create an experience that otherwise would have been impossible.

At first, the payment component of Bitcoin was what really attracted Aderinokun, the idea that it could be easy instead of hard to send money from one place to another, skipping over national borders. This, she thought, is something Bitcoin can fix.

Beyond the exchange itself, BuyCoins also released an app called SendCash. At first, it helped people outside of Nigeria send money home. Perhaps a family member moved to the U.S., and they want to send dollars back. The recipient would normally need a domiciliary account in dollars, but Aderinokun said those are difficult to open. Even then, going from dollars to naira can be hard. They thought: could Bitcoin help streamline the process?

With SendCash, users in the U.S. send bitcoin to the app, and it deposits as naira a few minutes later in any Nigerian bank account. Today, the app also sends naira to the U.S. or Ghana, all using bitcoin as a payment rail.

Aderinokun said that around 45% of the Nigerian population has internet access. So is her mission worth it, if a majority of Nigerians still cannot even access Bitcoin? She said this is a dilemma she often ponders. There are countless IDPs (internally-displaced persons) across Nigeria who cannot accept cryptocurrency because they do not have a smartphone. In the end, she said, the work and mission is worth it, because even though there are many who do not have a feature phone or smartphone, there are millions who do, and those individuals are sharing access to smart apps with those who do not have them.

As for the Gates and Buffets of the world: Aderinokun said some of Bitcoin’s critics may have valid points to debate, around, for example, the environmental impact — but she takes issue with Western elites saying there is no upside, or that it is a ponzi scheme, or that it is just for fun.

They do not understand, she said, how important Bitcoin is for those who cannot get dollars. For billions, they are trapped in a flawed currency that does not fulfill the purpose of what currency is supposed to do. For many in Nigeria and beyond, Bitcoin is providing another option and solving real problems.

Is it just helping the rich? Aderinokun laughed and said: this is not the case at all. It is providing employment, it is helping people convert their naira to other currencies, it is enabling commerce where it was not previously possible. With the Feminist Coalition, it helped people overcome financial repression and the freezing of activist bank accounts. This is not, she said, just a case of people sitting around watching the price.

Moving forward, Aderinokun thinks more education is essential. Nigerians are still very misinformed about Bitcoin. The main reason they know about it, she said, is because the price keeps going up, and many do not see past that. Scams are a huge obstacle. Finally though, she said, people are beginning to understand. They know bitcoin is volatile, but they see that it goes up and to the right over time, instead of down and to the right like the naira.

She also wants to focus on building bridges and ramps between the naira and cryptocurrencies. BuyCoins works with a naira stablecoin, the NGNT, which she said can also be helpful to people without traditional bank accounts.

And building on- and off-ramps matters, because the Nigerian government has BuyCoins and other exchanges in its crosshairs. Recently, the regime pronounced Bitcoin as not legal tender and said banks should not hold or treat it as such. They later clarified that individuals could still trade, but have pressured regulated financial institutions to stay away. BuyCoins has been struggling to hold naira because banks do not want to work with it. But now, Aderinokun said, it has shifted to a peer-to-peer solution. When users need to go in and out of naira, depositors and withdrawals are matched in a marketplace.

Aderinokun does not actually think it is possible to effectively ban Bitcoin. The most the government can do, perhaps, is what it has already done — forcing institutions to stay away. But it cannot stop individuals from using hardware wallets or conducting peer-to-peer activity in a place like Nigeria. No one, she said, can stop me. It is like saying it could ban Facebook, she said. It could shut down the internet, but that would have disastrous consequences for the whole nation.

What the government should be doing instead, she said, is trying to understand Bitcoin, and working with exchanges to allow Nigerians to connect to the world around them. Aderinokun does not think the government should have an adversarial attitude. In fact, she believes Bitcoin can help it. Maybe it would even be a good thing if the Nigerian government figured out Bitcoin before other nations. But, she said, for the moment it is not even close to understanding how Bitcoin works. When asked if it is using blockchain surveillance or spying on individual transactions, she laughed. It does not have the abilities or know-how yet, she said.

As for the future, Aderinokun is hopeful, because she has seen Bitcoin’s potential. She watched it shine in the context of human rights and activism. Last October, in the middle of nationwide protests against SARS, a notorious special police unit that was terrorizing citizens across the country, the Feminist Coalition began accepting donations via Flutterwave, a fintech product. This started off well enough, but then the regime started cracking down. Its bank accounts were shuttered.

Bitcoin was the only option left. There was no other way to receive, store and spend money. For Aderinokun and her cofounders, this was an eye-opening moment. They ended up setting up a BTCPay server to process gifts from around the world in a way that avoided address reuse and protected donor privacy. Celebrities including Jack Dorsey shared the link, and they raised more than 7 BTC.

It was a great learning experience, she said, as many young people learned about Bitcoin in this moment as a tool for activism. The experience renewed and strengthened her belief in products she is building at BuyCoins. People saw that Bitcoin was cool, and that the government could not stop it. Because of this, Aderinokun thinks that one day, Bitcoin will be talked about in the same way, with the same importance, as radio, the TV and the internet.

Asked if she is worried about a world where the government can no longer control the money, she said no, she is hopeful. Just printing more money, she said, has its downsides. Taking that option away is not necessarily a bad thing.

Bitcoin In Sudan

Mo, also known as Sudan HODL, is a Sudanese doctor. He currently lives abroad in Europe, practicing medicine to support his family back home.

Mo sees his country with brutally clear eyes. He described the capital of Khartoum as a crowded, diverse megacity, filled with pockets of extravagant wealth, surrounded by an enormous belt of poverty. It is a city of contradictions, he said, where palatial residences sit next to utter destitution.

Mo has worked in Darfur, where he described the lack of development as simply stunning. There is no educational or health infrastructure. During his time there, he was one of three or four doctors treating hundreds of thousands of people. There was a total lack of primary care and there were no pediatric hospitals. He was treating women who suffered from fistula. The national ruling class, he said, did not invest in these places. Warlords ultimately filled the power vacuum, with the youth choosing violence instead of school as a way to get ahead.

Mo told a tortured history of his country. Sudan, he said, has been living through a vicious cycle of military coups and authoritarian rule ever since gaining its independence from the British Empire and losing its fragile first democracy.

Islam, Mo said, did not come to Sudan by violence but through traders and Sufis. He said his Muslim ancestors historically had a peaceful interpretation of their religion. But in the 1980s, the rise of Saudi Arabia’s oil wealth led to the export of the extremist and militant ideology of Wahhabism to many places around the world, including Sudan. Wahhabism was foreign to Sudan’s culture but was forced into the country’s political structure.

By 1983, military governments had allied themselves with the Muslim Brotherhood and imposed Sharia law, alienating the predominantly Christian and animist south. A democratic revolution in 1985 was short-lived, as Islamists led by Omar al-Bashir staged another coup in 1989, paving the way for three decades of his rule. Society was militarized and the intelligentsia were purged. Now if one spoke out against the regime, Mo said, they were not just speaking out against them: they were speaking against Islam. They were against God himself. This gave Bashir an excuse for his brutality and new jihads against ethnic minorities.

Since colonial times, minorities in South Sudan and Darfur had resisted authority from strongmen in far-away Khartoum. The seeds of this tension were planted in the 1950s when these populations fell under postcolonial Arab rule. Over time, these minority groups rebelled, only to be violently subjugated. The bloodshed peaked in Darfur in the early 2000s, when Bashir committed genocide, using the Janjaweed militias to murder hundreds of thousands and displace millions of people. This triggered the U.S. and EU to increase sanctions against Sudan, cutting it off more deeply from the outside world.

Mo thinks it is important to share Sudan’s economic history, often overshadowed by the political story. In addition to the extreme inequality on display in Khartoum, there is a bigger picture of low-income workers trying to catch up to high inflation, while those closer to the regime managed to do well. Infrastructure decayed and the average person suffered while Bashir and his cronies loaded up on weapons, real estate and foreign assets. Modern Sudan is another vivid and tragic example of the Cantillon effect.

It was not always like this. Mo said that under the gold standard, three Sudanese pounds once bought a dollar. There was a middle class, and Khartoum was known as the London of North Africa. But in 1960, the Sudanese central bank took over and devalued the currency, the first instance of what would happen many times over the coming decades.

When Bashir seized power in 1989, he installed a regime of economic terrorism. To instill fear in the population, he chose to make an example of a young man named Majdi Mahjoub, who was a single child living at home, looking after his elderly parents. A Christian minority in a community of traders, Majdi had possession of a few thousand U.S. dollars in his home, the result of many years of family commerce.

Bashir created a new special “economic” division, a sort of secret police, that would go home to home, searching for foreign currency or gold. When the jack-booted thugs came to Majdi’s house, they found his savings and arrested him. After a show trial, he was hanged, sending a message to the population: if anyone tries to use anything but the Sudanese currency through our banking system — if anyone tries to own their own money — they will get the death sentence. Even today, according to Mo, many Sudanese are fearful of using dollars or storing money at home.

At the same time, Bashir launched a tribute system to finance his activities. On top of what was taken through traditional taxation and seigniorage, citizens had to pay a portion of their income to help the martyrs of their dictator’s wars. The secret monetary police would spy on individuals, freeze bank accounts, confiscate assets and impose made-up fees on merchants. No reasonable suspicion was required. Mo calls it a system of national extortion.

As far as the currency itself, Mo recalled several times in his life when the system was overhauled. In the late 1980s, his family was living abroad in Saudi Ar

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Ross Ulbricht Sues Federal Government, Alleges Religious Rights Are Being Violated In Prison

Ethan Biando — Wed, 12 May 2021 11:27:34 -0400

Ross Ulbricht, founder of Bitcoin darknet marketplace Silk Road, is suing over the right to communicate with his father.

Ross Ulbricht, the convicted founder of massive darknet marketplace Silk Road, filed a federal lawsuit last week accusing the Federal Bureau of Prisons of “substantially burdening his exercise of religion.” Ulbricht is serving consecutive life sentences at USP Tucson in Arizona on seven charges including money laundering, computer hacking and conspiracy to traffic narcotics.

Silk Road ran on the Tor network, a program that routes online traffic through intermediary servers, effectively encrypting and anonymizing all IP addresses before they connect with any site. By running his website on Tor, Ulbricht, who operated under the screen name “Dread Pirate Roberts,” was able to conceal the site’s IP address. Combined with his use of bitcoin, he was able to turn Silk Road into a fully anonymous online marketplace.

By March 2013, two years after the site’s launch, 10,000 products were available for sale on Silk Road, 70% of which were drugs grouped under the categories of stimulants, psychedelics, prescription, precursors, other, opioids, ecstasy, dissociatives and steroids/PEDs. According to a study performed by Carnegie Mellon University, an estimated $15 million in transactions were made annually on the darknet site, all of them being paid with bitcoin.

An attorney for Ulbricht, Brandon Sample, said prison officials are in violation of the Religious Freedom Restoration Act (RFRA) by refusing to allow him to communicate with his father through the TRULINCS email system.

The RFRA, enacted in 1993, prohibits the federal government from “substantially burdening any aspect of religious observance or practice unless imposition of that burden on a particular religious adherent satisfies strict scrutiny.”

“Ulbricht is a practicing Christian who is incarcerated in federal prison,” the May 5 lawsuit filing reads. “Ulbricht sincerely believes, consistent with his Christian faith, that he is obliged to honor his father and mother.”

The suit cites Exodus 20:12, which commands Christian practitioners to “honor your father and mother.”

The lawsuit claims that Ulbricht, who corresponds with his father through TRULINCS, believes that being unable to continue to speak with him is inconsistent with Exodus 20:12. The only way Ulbricht would be able to communicate with his father, Kirk, is by using another federal inmate’s TRULINCS account — a violation of prison policy. Ulbricht’s father lives in a remote area of Costa Rica that cannot receive mail or phone calls, leaving the TRULINCS email system as Ulbricht’s only option.

“Ulbricht is in a ‘catch 22’ of sorts,” Sample wrote. “Do not communicate with his father in violation of his sincerely held religious beliefs or communicate with [him] in violation of the BOP’s rules, exposing Ulbricht to penalties and sanctions.”

In the requested relief portion of his lawsuit, Ulbricht asked that the court issue an order requiring federal authorities to permit him to use TRULINCS, cover his court costs and attorney’s fees, and grant him any additional relief the court sees fit.

Ulbricht was initially arrested in October 2013 by federal authorities, who also seized his website, following off-duty research compiled by IRS criminal investigator Gary Alford that implicated him as the owner of Silk Road. He was indicted on charges of money laundering, conspiracy to traffic narcotics, computer hacking and paying $730,000 to have six people killed — a charge that was later dropped due to insufficient evidence.

Two years later, Ulbricht’s trial began. He admitted to founding Silk Road, however, claimed to have transferred ownership to Mark Karpeles. Defense attorneys said Karpeles was the true mastermind behind the “Dread Pirate Roberts” screenname and asserted that he set Ulbricht up as a fall guy.

A little over one month after his trial began, Ulbricht was found guilty on all counts. Following the conviction, he was moved from the Metropolitan Correctional Center in New York to USP Florence High, before finally being transferred to USP Tucson.

Before his sentencing, Ulbricht wrote a letter to federal judge Katherine Forrest, urging the judge to show leniency as prosecutors demanded a lengthy sentence to set an example for aspiring criminals.

“Silk Road was supposed to be about giving people the freedom to make their own choices, to pursue their own happiness,” he said. “I learned from Silk Road that when you give people freedom, you don’t know what they’ll do with it.”

Ulbricht added that he was naïve, ruined his life and destroyed his future. He said that a life sentence was “more similar in nature to a death sentence than it is to a sentence with a finite number of years,” urging the judge to leave him his “old age.”

“Please leave a small light at the end of the tunnel, an excuse to stay healthy, an excuse to dream of better days ahead, and a chance to redeem myself before I meet my maker,” he said.

In 2020, The Daily Beast reported that former President Donald Trump was considering pardoning Ulbricht, however, that pardon ultimately never came as Trump left office.

This is a guest post by Ethan Biando. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.