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General news related to bitcoin and events surrounding the cryptocurrency


Securing The Bitcoin Network In A Lightning Network World

I like to read about Bitcoin as much as I can. There’s a couple of communities that talk about the tech online, and it’s interesting to read about people’s opinions on the topic. Every once in a while I’ll read a thread that makes me want to comment to debunk their myths, and instead I write an article about it.

There’s a thread over here that makes reference to a tweet a crypto marketplace made, and whose comments are filled with people claiming that the Lightning Network is going to cause disruption in the security of Bitcoin due to the migration of fees away from Layer 1 and onto Layer 2. The claim is there will be less miners actually mining bitcoin blocks because the fee market will have dried up causing the security of the blockchain to become compromised.

There’s a major flaw in this argument of possibly compromising the security of Layer 1, and that’s the fact that miners do not secure the blockchain, only nodes secure the blockchain. Miners gather transactions into a block and broadcast them to nodes, who then confirm whether the blocks are valid or not. We’ll pretend for a minute though that that’s not the case, and we’ll continue on just for the fun of it.

Layer 2 Adoption

One of the arguments is that if the Lightning Network goes mainstream and is wildly successful, fees will drop and, assuming our block reward is 0 at that point, no one will want to mine. This to me is just ridiculous, seeing as the BCH community’s entire mantra is small fees. They tout that their transaction fees on their network costs a single penny, yet I still see miners mining the blocks without a problem.

As the Lightning Network becomes grows over time more nodes will be turned on, and lots of channels open and close for each node. Each of those actions requires a Layer 1 transaction to occur. It’s not hard to imagine as a thought experiment (if “wildly successful” means 25% of the world population) if 1.825 billion people run Lightning Network nodes, and on average there’s 10 channels per node, and every month there’s a 2.5% channel close rate along with a 2.5% channel open rate, we’re looking at 912,500,000 transactions on Layer 1 per month (Layer 2 transactions would be untrackable but most likely in the tens of millions per day). Currently Bitcoin only has about ~10,000,000 transactions per month. That 912,500,000 number is also only Layer 2 channel open/close rates. It does not include Layer 1 transaction numbers.

I want to make a note here that the goal is not to increase the transaction counts on Layer 1 in the long run; that’s why Layer 2 was invented, for the sake of moving transactions off of Layer 1 and into Layer 2. This is by design.

Less Layer 1 Transactions Is OK

Another argument the BCH community makes against the Lightning Network in that thread is that shifting fees off of Layer 1 and onto Layer 2 will take fees away from miners thereby disincentivizing them from securing Layer 1 due to a decreased payout. The thought experiment for them is when the block reward is low (or zero) and miners rely simply on transaction fees.

A possible future outcome is that by the time the block reward is zero (per their argument), the price per bitcoin will have risen to a point where (assuming Layer 2 is wildly successful, as per their argument) transaction fees alone will supplement any lost block reward. We’ve seen this in the past with every block reward halving; the price per bitcoin has risen due to now smaller inflation.

Honestly that entire thread is pretty weird to read, and the groupthink is palpable. I feel like I took the two biggest arguments that were mentioned (over and over again) and debunked them. The Lightning Network, whether it’ll be wildly successful or not, is what’s needed in order to keep Bitcoin moving forward as it grows in popularity across the entire world.


Bitcoin Decentralization Strengthened By Lightning Network

The health of any cryptocurrency can be measured by how decentralized it is. For Bitcoin, that metric for decentralization is the number of full Bitcoin nodes which are being run by independent, non-centralized individuals. The lightning network improves this and strengthens Bitcoin’s blockchain due to genius design decisions made by the developers of the lightning network.

Without healthy decentralization in a blockchain’s ecosystem, a bad actor can perform a double spend. A double spend is very real and has already happened on lesser decentralized coins. Another example of unhealthy decentralization is the use of cloud computing to run full nodes. Often services like Digital Ocean or Amazon’s EC2 service are used to run nodes. If the majority of these nodes are run in cloud based solutions owned by the same company then this gives governments or possible bad actors within the companies themselves opportunities to harm the network and shut these nodes down. You do not truly control these machines, you’re simply renting processing power from the companies and they can do what they wish. History has showed us that centralized services have been taken down before with ease.

The only true healthy way to support bitcoin decentralization and the Bitcoin network is to run a full Bitcoin node from within your home or office. You must be able to control your machine. The lightning network builds upon this and forces you to run a full Bitcoin node if you want to run a lightning wallet. This is required since the lightning client needs to have knowledge of blocks within layer 1 of the Bitcoin blockchain. This inadvertently improves bitcoin decentralization and we’re going to see as the lightning network grows, so too will the strength and security of the Bitcoin network.

For those that are not technical there exist out-of-the-box solutions to run not only a full bitcoin node, but also the lightning network. These new companies are making it really easy to set up new nodes and further improve bitcoin’s decentralization. The lightning network is helping Bitcoin become a self-fulfilling prophecy towards keeping it’s foothold for having the most secure blockchain. If you’re interested in purchasing a full node and lightning network combo box, check it out here. For the more technical individuals that can follow guides check this out.


Bitcoin Anonymity

Bitcoin Anonymity

When television media outlets discuss Bitcoin, and I use the term “discuss” loosely, it usually revolves around the same central points, depending on what the tone of the message they want to convey is. In the negative spectrum, it’s usually things like “it’s a ponzi“, or “only terrorists/money launderers/pornographers use it“, and to support their arguments (since terrorism is scary) they make claim that bitcoin is anonymous. Bitcoin anonymity is for the most part a farce; you can not have true anonymity in this space, at least not yet.

Why do people think Bitcoin is anonymous?

If you wish to make a payment or send bitcoins to another address you do not need their name or social security number. All you need is the public address, which is just a string of numbers or letters. This allows you to send value over the internet to anyone in the entire world at any time, day or night, and within 10 minutes the payment will arrive in their wallet. There’s nobody sitting in the middle of the transaction taking a percent or looking at what the payment was for to confirm that you’re allowed to pay them. It not only “just works”, but has been working non-stop 24 hours a day for the past 10 years.

Due to this reason of ease of use and lack of regulation by some central authority outside of the Bitcoin network (as the Bitcoin protocol is the authority) it’s an easy argument to just simply say “Bitcoin is anonymous”.

Why is Bitcoin not anonymous?

The government and central bank can control their own currency, and have full oversight on all of the banks in the entire network of banks. If you have US Dollars and want to purchase some bitcoins, you have two options. You can use an exchange that will take your dollars from your bank account digitally and give you bitcoins, or you can use an in-person transaction to buy bitcoins face-to-face from another person, much like if I give you $20 in person.

For the first option, KYC and AML are in play here. “Know your customer” and “Anti-Money Laundering” are utilized to make sure you’re “allowed” to use your US Dollars for the purchase of bitcoins. This means you must give up your social security number, driver’s license, and whatever else they deem necessary to make sure you’re not a bad guy. As soon as you do this, any transfer you make outside of the exchange to your own personal wallet of “anonymous” letters and numbers (the bitcoin address) there is a paper trail tying your personal identifiable information to this address. There are companies and government institutions dedicated to tracing and tracking payments in the blockchain. They can and do find criminals based on these on-ramp tracking methods. Bitcoin anonymity for option 1 is just simply not there.

For option 2, buying bitcoins in person, does offer some bitcoin anonymity. The drawbacks to in-person buying from others is usually you can’t use as much cash as you could from an exchange. There’s also the risk of being robbed. Finally, there’s the risk that the coins themselves were stolen and flagged by the government and now you’re being tracked. Even if you can get clean coins from someone else as soon as you move them to an exchange or somewhere else needing your KYC/AML information you are now a part of the tracked system.

Why is anonymity important?

I’m pretty sure this should be obvious to everyone as to why anonymity in any currency is important. As of right now in the United States, any time you use your credit card all of your purchases are tracked and in the open for anyone up the banking food chain to see what you’ve bought, where you bought it, and how much you paid for it. The only true anonymous exchange of value is when dealing with cash in hand with any individual or vendor.

The United States is only one country though. You probably don’t ever think “will the police come to my door if I buy this item”. Since Bitcoin is a world currency, and it works in any country, we have to be mindful that there’s world leaders in other countries that do not like their people buying certain books or donating money to political parties that might go against what their policies are. Anonymity is paramount for these individuals’ safety and security. Their leaders would mark them as domestic terrorists in their country for simply buying something they don’t agree with.

How to make your coins semi-anonymous

There is right now a way to make your coins semi-anonymous, but it takes some work. Until Bitcoin starts implementing more privacy features like Schnorr signatures and Bulletproofs, an individual can mask their coins with plausible deniability by using any of the following methods:

Lightning Network

The lightning network can be used to route coins with 100% privacy over a network in a peer-to-peer fashion that does not expose both the transaction amounts or the public addresses used. Theoretically you can create two nodes that you control, deposit coins on one node and withdraw them on the exit node you’ve created. In this manner the two addresses are not inter-connected, as the lightning network does not have any way to trace coins being routed on it helping you achieve bitcoin anonymity.

Local Bitcoins

Mentioned above, using a service like local bitcoins allows people to meet up face-to-face to buy and sell bitcoins. The two main disadvantages to this are the possibility of being robbed, and most people selling have a large mark up on the prices / don’t have a lot to sell for you. If you need around $2,000 worth of coins this is probably an ok choice.

Public Addresses

Never reuse a public address for receiving coins more than once. This makes blockchain forensics a piece of cake for companies looking to tie your identity to a bitcoin address. Every modern hardware wallet (and some software wallets) automatically create new addresses for you when looking to receive new coins. I highly suggest using this feature and not going against it.


As we just learned, bitcoin anonymity simply isn’t there yet. For any money to be sound money, fungibility is crucial for the success of the currency. You do have options though, and being mindful of what you’re doing will take you a long way in protecting your privacy when performing transactions.


Proof Of Keys Event

On January 3rd, 2019 there is supposed to be the first annual “Proof of Keys” event. For those that do not know what this is, the event is supposed to be a deadline for when users should have pulled all of their coins off of their exchanges and transferred them to their individual, private wallets. The purpose is to keep the exchanges honest about their solvency. While I personally think this is an admirable and honest attempt at exchange solvency, I do not believe this event will amount to anything other than individuals such as myself writing about it.

It’s important in my opinion to understand where this is all stemming from, so I’m going to reverse the clock to late 2013 when Bitcoin first rose to it’s all time high of around $1,000. Back then there was only one major exchange which offered Bitcoin buys and sells, and that website was mtgox. Mtgox (Pronounced Mount Gox) used to be a card game exchange for Magic: The Gathering (hence the name, mtgox) and pivoted to a Bitcoin exchange when Mark Karpeles purchased the site. The exchange was based out of Tokyo, Japan and there weren’t many laws revolving around Bitcoin so everything was pretty under the radar.

When the all time high hit and people began to withdraw their coins from MtGox it was discovered that there wasn’t enough coins to transfer out to everyone. A lot of people got burned, and out of that rose more legitimate exchanges like Coinbase. Everyone that’s traded Bitcoin since 2013 has always had the mantra of “not your keys, not your coin” so those individuals have always held their coins off of the exchanges in cold storage. However, and is always the case, every new wave of investors brings in new newbies and people that do not understand what 2013 veterans have been through.

The proof of keys event’s message is to weed out insolvent exchanges, but I think it’s really more about spreading the message of never leaving your coins on exchanges. If anything, that’s all that will come out of this event. There are 3 types of cryptocurrency investors:

  1. Long-term holders
  2. FOMOers
  3. Traders

Long-term holders

The vast majority of these individuals will always have their coins off of the exchanges to begin with. Unless their holdings don’t warrant purchasing a Trezor or Ledger (sub-1,000 USD investment) they will never have their coins on the exchange to begin with. The proof of keys event is not targeted towards them.


This group of people can be classified as those that purchased between the 10,000 and 20,000 range and just “forgot” about their purchase, completely writing it off as a loss. They just straight up do not give a hoot about the price anymore, nor do they read about crypto news or follow any Twitter celebrities about crypto. They are the sheep, the followers, and you will not hear or see them again until the next major bullrun. Every wave up generates a new flock of FOMOers, and the proof of keys event will not interest any of them.


Finally, this group of crypto holders will absolutely never pull their coins off of the exchange. It isn’t that they’re stupid; I think it’s the complete opposite. If you break the “Traders” group down you have sub-categories of traders. There’s arbitragers, speculators, day-traders, etc. Each of these have traders that are smart and traders that are dumb.

With all investing, even stocks, there’s a clear winner and a clear loser in a trade. It is a zero-sum game. You can not have two winners. The smart traders will realize that if they can get others to remove their coins from the exchange that will reduce liquidity and increase volatility which they can exploit. If they can get anyone to remove their coins if they’ve been actively trading before it’s a good thing for them. They’ll have more opportunities for arbitrage and/or being in a better spot for a winning trade as opposed to if their opponent was still in the game competing against them.

It makes sense for them to think they should pull their coins off of the exchange for the “Just in case” an exchange is insolvent, however it will be immediately realized that this is a mistake and they should keep their coins on the exchange to take advantage of the new opportunities that this “proof of keys event” would create for them. It makes all the more sense to keep them on a US based exchange like Bittrex or Coinbase since the laws and regulations here would mandate a stricter control of not having fractional bitcoin reserves further reducing the possible insolvency problem.


Ultimately I do not think the proof of keys event will amount to anything more than chatter on blogs and forums among those already deep into the crypto scene. While it’s certainly good to have the discussion about never keeping your coins on the exchange, the sad reality is that until we have a decentralized exchange or an exchange that allows atomic swaps of coins without the need for a central authority or custodian to hold our coins, the threat of insolvency will just have to be something that is a part of the game. Until then, stick to US based exchanges and only keep on exchanges what you can afford to lose.


Bitcoin Mining Centralization and the Lightning Network

About a handful of times a year the issue comes up in most online forums about how Bitcoin mining is too centralized and how this is a threat to Bitcoin’s security. This article will cover what it means to have Bitcoin mining centralization and how I think the Lightning Network could potentially help lessen that issue.

There are two kinds of ways to mine Bitcoin; you can solo mine it, or you can join a mining pool. Solo mining just means you are not collaborating your hashing power together with other individuals allowing you to keep all of the mining reward, while pooled mining combines your hashrate with others giving you a piece of the mining reward equivalent to the hashrate you provided. The benefits of pooled mining allows you to get a very small piece of the pie every ten minutes instead of hoping for a lottery and winning an entire block yourself, which is very unlikely.

Most individuals that solo mine Bitcoin are actually companies that can afford to buy large swathes of mining equipment and set up shop in countries where electricity is either subsidized so that it’s cheap or 100% free. Countries like Venezuela which have free electricity or China with lots of hydro power are great places to set up shop for mining Bitcoin. While Venezuela has made it illegal to mine cryptocurrency China has taken a more hands-off approach, attracting industrial sized crypto mining operations.

Pooled miners consist mostly of hobbyists that enjoy working with Bitcoin because the technology is interesting to them. They might be able to mine, with an average sized miner (13 TH/s at the time of this writing), 0.0006648 bitcoins per day. The hobbyists mining in this way will not be able to receive these coins in their private wallet because the mining pool won’t send them unless they hit a payout threshold. For slushpool, that’s 0.01 bitcoins. For most people with below average mining hardware this will take quite a long time to receive a payout with just a balance they can stare at in their dashboard. Even worse, sometimes there’s a payout fee the mining pool charges which cuts into your profits as the Bitcoin protocol requires a fee paid to miners in order to confirm your on-chain transaction.

The result of this is less hobbyists running miners in their home, and more companies solo mining in their factories. The extremely large hashrate can be seen as centralized mining, and although not very likely, possible collusion from a couple of these large mining operations could result in a 51% attack. I believe that mining pools which utilize the Lightning Network for daily payouts can make themselves more attractive to hobbyists, thereby helping reduce possible centralized mining. It can be argued that the mining pools themselves are centralized, but hobbyists can move to any pool they wish to balance out the power.

The Lightning Network can benefit mining pools by completely eliminating on-chain transaction cost, allowing them to pay their customers daily. They could even pay their customers every time their hashrate results in a found block with absolutely no delays. If perks are given to miners in a pool that add a lightning node we could even see a large uptick in the lightning node count. The result of this would mean even more Lightning Network adoption, and more importantly, less Bitcoin mining centralization.


Zebpay Shutdown

Zebpay shutdown: At 16:00 on September 28th, 2018 Zebpay will halt it’s exchange services to all Indian residents. A recent ruling from the Indian central bank has resulted in the inability for Zebpay to provide exchange services to domestic individuals. The overzealous legislation has left Zebpay with the inability to provide fiat transfers to and from it’s exchange to Indian resident’s bank accounts. In an announcement from the company:

We are stopping our exchange. At 4 PM today, we will cancel unexecuted orders & credit your coins to your Zebpay wallet. No new orders will be accepted. The Zebpay wallet will work even after the exchange stops.

This press release from RBI details out the new policy, and seven pages of legislation has resulted in the grinding halt of a service that catered to over 3 million users. The long term result of the Zebpay shutdown has only two paths:

  1. Policymakers will review the law and allow Zebpay and others to transfer fiat again
  2. Cryptocurrency trading will be driven underground

It is doubtful that this policy will be repealed as it most certainly keeps the central banks the key holders of the wealth distribution in a country that is rife with corruption. Back in 2016 there was a nationwide confiscation of privately held gold in an attempt to combat the “black economy” where houses were raided for jewelry. There was also the sudden discontinuation of the 500 and 1,000 rupee note which only hurt the lower and middle class of the nation.

The only logical conclusion to the zebpay shutdown is the driving of trading bitcoin and other cryptocurrencies to the underground shadow market that Modi was trying to (or claiming to) destroy. In a country where assets can be taken from you at a moment’s notice, and gold not being a safe haven for Indians, you can be sure that bitcoin will be a strong choice for people looking to preserve their wealth from being inflated away.

In the short-term this is not great news for Indians. The easier it is to convert fiat to crypto and back the better it is for liquidity in a market that already has liquidity problems, and the cheaper it is to get the coins since the exchange rate was set by lots of individuals trading. This policy, and any policy for that matter, passed by lawmakers that restricts the free flow of fiat to other commodities just solidifies the fact that nations are scared of Bitcoin. This is just a small speed bump in the long road to adoption, and unfortunately for Indians, will now drive fees up if they want to trade their rupees in for bitcoin.