Bitcoin, year 12.

Alice: This year sucks. You know what’s almost as bad as 2020?

Bob: Yeah?

Alice: Multisig is still scary.

Nunchuk: Hold my beer.

It’s somewhat ironic that for a technology that reveres decentralization as its central operating principle, Bitcoin still heavily relies on single point of failure as the dominant method of ownership. This despite the fact that the unique risk profile of digital assets desperately calls against such a practice.

The highest barriers are technical challenges. Multisig is not for the faint of heart. Many pitfalls await around the corner.

Did you back up all your seeds? Do you need seeds? Are you sure the signing devices use the same derivation path? What about that change address? What do you mean you lost your device in a boating accident? Oops, some vendor has just made an update that bricks my setup. …

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Photo by Thought Catalog

In its 3+ years of existence, Ethereum has had no shortage of controversies. From the DAO hack, to the long-anticipated transition to Proof-of-Stake, to the Constantinople upgrade that reduces mining reward and changes the inflation schedule on-the-fly (not that Ethereum had a clear one to begin with). Ethereum’s culture seems to be diabolically opposed to Bitcoin’s. Everything that Bitcoin shuns, Ethereum loves to embrace.

If one were to ignore all the noise and dig under the hood, one would find that Ethereum’s #1 problem is not a problem of product-market-fit but one of engineering soundness. …

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”

Ten years ago today Satoshi Nakamoto immortalized these words by embedding them in Bitcoin’s very first block — the genesis block. They are a solemn reminder of the unfair and broken system we all live under, and likely the reason Satoshi created Bitcoin in the first place: to wrest control of money back from governments and central bankers [1].

The last 10 years has been nothing short of a miracle. The Bitcoin network has been up 24/7, boasting an impressive record of 99.98% uptime [2]. …

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Unlike Proof-of-Work and Public-Key Cryptography, the third component of Bitcoin is not based on math, but human behavior. Specifically, Bitcoin relies on a system of financial incentives and people chasing these incentives to sustain itself.

That sounds a bit scary, and a sharp shift from the strong mathematical foundation that underlies most modern technologies, such as the computer or artificial intelligence. If we have learned anything from history, it is that humans are not always predictable. We are, after all, biological creatures made up of “wet” matter. We’re not like “dry”, cold-hearted machines who can calculate things accurately or consistently. We change our mind in a heartbeat. …

Cryptography is the art of protecting and breaking secrets. Bitcoin employs a special type of cryptography, called public-key cryptography, in order to facilitate its system of storing and transferring of value. It is through this mechanism that Alice can keep her bitcoins secure or send some of them to Bob, or that coinbase rewards are issued to the miners. The term “cryptocurrency” derives its name from this usage. …

Much has been written about Proof-of-Stake (PoS).

There are many ways to slice and dice PoS and uncover its weaknesses. Mainly:

Evolutionary Psychology/History: “Collectibles” or “proto-money” in history all had one thing in common, unforgeable costliness [1] — or at least unforgeable costliness in the context of their times. From sea shells, furs, teeth, to precious metals to minted coins. As PoS merely involves the temporary lockup of existing capital and does not consume said capital, it does not satisfy the unforgeable costliness requirement that Nick Szabo identified as one of the 3 key properties of money.

Economics: If an object has value, people will spend effort to chase it, up to whatever the object is worth (MC=MR). This effort is also “work”. Paul Sztorc correctly concluded that PoS is an obfuscated form of PoW. …

One of the nastiest, consensus-critical bugs (CVE-2018–17144) has been recently discovered in the Bitcoin Core software, which prior to that point had an almost immaculate history. Jimmy Song has written an excellent breakdown of this bug.

The short summary of the bug is that there are 4 cases where the Bitcoin Core software needs to check for double-spending. All 4 cases initially shared the same code execution flow. …

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All circles are not created equal :-)

Feedback loop and circular reasoning fallacy are highly common, but they involve very different types of circularity.

Feedback loop: action induces further action, but the extra action also requires work, it doesn’t come from thin air.

Feedback loops typically weaken and end by themselves, although they can last longer as long as more work is put into the system. Feedback loop is essentially about amplification & second-order effects.

Think: deforestation that leads to land erosion, which leads to further deforestation.

Another example of a feedback loop is economic bubbles. Hype leads to more hype which leads to more hype, until all people who could be hyped up have been hyped up. Each stage in a hype cycle requires more work. …

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The same rule governs this pair of dice & Bitcoin PoW

Randomness forms the cornerstone of Bitcoin’s Proof-of-Work (PoW). But how did we get here?

A brief history of the study of randomness [1]

Randomness has always been an essential part of life. Many ancient divination rituals were based on chance: the tossing of astragali (animal knucklebones) by the Greeks, Kau Cim sticks by the Chinese, Opele chain by West Africans. The use of dice-like devices in games & gambling also goes back thousands of years.

Bitcoin is protected by a combination of stock & flow.

What is stock? And what is flow?

In general terms, flow is defined as a quantity which is measured over a period of time. Flow is the rate of change. Examples include business earnings, cash flows, national GDP, rate of depreciation, mortgage payments, number of births/deaths per year, rate of carbon dioxide extraction by plants, etc.

Stock, on the other hand, is defined as an accumulation of flows over time, and is measured at one particular moment in time. Mathematically, stock is an integral function. Stock can also be depleted with outflows (negative flows). …

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