This is an opinion editorial by Daniel Feldman, the CEO of Green Block Mining.
In 2016, after I sold a gaming company that I founded with a high school friend to a group of former executives from Amaya/PokerStars, I was looking for the next thing to do. In 2017, I discovered bitcoin. I would argue with my brother-in-law and father-in-law about the efficacy of cryptocurrency, but could not effectively support my position. So, to learn more and be able to better defend my pro-crypto stance, I started a blockchain and cryptocurrency meetup in New York City. I moderated discussions with curated speakers and hosted a post-meeting dinner, giving time for further discussion and networking. The meetup became popular. Investment banks, family offices, funds, startups, friends and a variety of interesting people regularly attended for three years until COVID-19 hit.
I began each of my meetups with a play on the “Fresh Prince of Bel Air” theme song, “Parents Just Don’t Understand,” by saying, “North Americans just don’t understand.” It was a way to introduce three stories that demonstrated both the global need for decentralized money and why North Americans do not innately understand this. I only gained this perspective by living outside the U.S., through my time living in Moscow as a student and then later as an expat worker.
In 1984, a teacher said that he could teach anyone the Russian past tense in fifteen seconds, which convinced me to begin studying Russian in high school at Buckingham Browne and Nichols in Cambridge, MA. In 1990, I spent the first semester of my junior year in college on a study abroad program in Moscow, USSR at the Pushkin Institute for the Study of Foreign Languages. Students from all over the world studied and lived together in the two dormitories, separated by socialist and non-socialist countries. It was a fascinating time during the final months of the USSR. The first McDonald’s and a Pizza Hut had opened.
The official ruble/dollar exchange rate was $2 for one ruble, but on the black market you could get 64 times that, 32 rubles for one dollar. You had to make at least one exchange at the official rate to get a bank receipt to show that you had at least some rubles via a Soviet bank, but afterward you could trade on the black market. All of the foreign students at my institute traded their hard currency into rubles. This was made easy because Mustafa, a much older student from Uganda who lived on the 11th floor of our dormitory, was a money trader. We would go to his room with our hard currency, in my case U.S. dollars, and he would light some incense, offer us a shot of Russian cognac and then pull out a suitcase full of neatly stacked Russian rubles from under his bed. He offered the best rate in the city. I have no idea where he got so many rubles or who he was trading the money for. Was it the Russian government? The school? The Ugandan government? I will never know, but it made for easy and safe access to rubles. We knew that there were a lot of scams involving old, outdated ruble notes or people who just took your money and ran away if you tried trading on the streets of Moscow.
One day, our resident assistant said that the U.S. ambassador had called to tell us that all 50-ruble bills would be taken out of circulation at the end of the week. This was not public knowledge. Each Soviet could take six bills to the bank, have their domestic passports stamped, and be given new 50-ruble bills. As the Soviet Union was a mattress economy, this government act was going to devastate the savings of much of the population. No one wanted the government to know how much they had in savings and no one trusted the state-run banks to hold their money. With this advance notice from the ambassador, we took our 50-ruble notes and bought Soviet champagne and cognac from a group of Nigerian students who sold alcohol in the dormitory, and threw a big party for all of the students studying at our institute.
Of course, when it became public knowledge that the 50-ruble notes were being canceled, the Nigerians were outraged as they immediately knew that the privileged Americans must have had advanced notice as we paid them in 50-ruble notes only. I was only able to calm them down when I gave them a Bell Biv DeVoe cassette as a peace offering.
In 2002, eleven years later, I was now a lawyer. I moved back to Moscow, Russia, no longer the Soviet Union. I worked for Yukos Oil at a new office building near the Paveletsky train station. My office was on the top floor with great views of Moscow and the nearby train station. Occasionally, while walking to work from the nearby metro station or looking down at the commercial area surrounding the train station, I would see long lines outside a bank. People would wait for hours in these lines. Russians are famously good at waiting in lines, but that reputation was mostly earned during the Soviet era when deficits of food and necessary goods were more common, so these lines seemed out of place. I asked a Russian colleague why there were lines and she matter-of-factly replied, “That bank is going out of business and customers are being offered 60 cents on the dollar to get their money out.”
A few weeks later the bank would re-open and another bank would announce it was closing and another line would form. Watching from above, it was like a game of nefarious musical chairs. After the collapse of the Soviet Union in the early 1990s, a middle class slowly developed and an increasing percentage of the population had to use privately run banks to hold their money. They had no choice as their savings were too large to keep under their mattress, and they could not afford the 24-hour security for their apartment that they would otherwise need. So they had to trust untrustworthy banks and understood that losing some of their money was part of the cost of protecting their savings. This is somewhat analogous to a negative interest rate.
I worked directly for an oligarch who was the richest Russian. I was also friendly with other expats who worked for wealthy Russians, ranging from billionaire oligarchs to mini-garchs worth only in the hundreds of millions of dollars. They had great stories. One was once called into his boss’ office where he was greeted gruffly with the question, “Who is this Mr. Dow Jones and how can I meet him?” Another friend worked for a mini-garch who was told he had five days to leave the country. His businesses were going to be taken from him without remuneration, but he was not going to be arrested and would be allowed to leave Russia to live in exile. He was given less than a week to pack up and go. There was no appeal process; that was that.
However, there was a problem. Like many wealthy Russians, he had full-time armed bodyguards and kept U.S. dollars in his apartment for large transactions like buying a car or property, or to pay bribes to stay in business. The mini-garch had $7 million in cash and no way to get it out of the apartment, let alone the country, by the end of the week. Three police cars sat guard 24 hours a day in front of his building, a guard was at the door of the apartment and at least one followed him wherever he went.
My friend arranged for two western Europeans to fly to Moscow the next day. They met at the mini-garch’s apartment. The two men arrived in slim-fitting black suits with white shirts, monochromatic black ties and awesome shoes.1 Each brought a thin black leather briefcase. No change of clothes. No extra luggage. They did not book hotel rooms. They ate their meals in the apartment. They spent 44 hours in the apartment and then were driven directly back to Sheremetyevo airport, one of the two commercial international airports in Moscow. Nothing was left behind and nothing was taken. Soon after, the mini-garch, accompanied by my friend and body guards, left the building. The mini-garch tapped one of the police car windows with a toothbrush and said, “Gotov, poyekhali,” which means, “I’m ready, let’s go.” He got into his Mercedes G-wagon, without any luggage, and was driven to Domodedovo airport, the other commercial international airport and left Russia. Two of the police cars escorted him to the airport. The third car stayed and the officers got out of their car and walked into the apartment building and I assume they went right to the mini-garch’s apartment. That much money has a distinct smell, it smells like vomit from being handled so many times. I am sure they could smell the money that had been in the apartment. They likely searched for it, but I know that they did not find it. It was not in the walls. It was not in the furniture. It was not below the floorboards. It was not on the roof and it had not been thrown out of a window. It was gone.
As a reminder, I tell these three stories to demonstrate why “North Americans just don’t understand.” The first story is an example of life in a country where the government-controlled currency cannot be trusted. We have no concept of that here in North America with our access to the almighty dollar that serves as the world’s reserve currency, but try to imagine how unsettling it would be without that stability.
The second story serves as an example of living in a society where banks cannot be trusted and where FDIC insurance does not exist. Saving money is disincentivized because you cannot safely store it. Not having a safe store of value means that retaining liquidity has a massive effect on both daily life and long-term planning. The government has the ability to control its population if the people do not have a backstop of savings. Bitcoin creates a trustless ability to save and move money.
The last story emphasizes the difficulty of not being able to store value, while also limiting the ability to flee quickly with your assets. These issues are taken for granted by North Americans, but are common concerns in many other countries. Gold can be used to solve some of these problems, but not all. It is cumbersome to move, buy and sell, and it is not easily divisible.
Bitcoin solves all of these problems. You can store your wealth easily without reliance on a third party. You can move easily around the world with it, without having to transport something tangible. You can divide it without damaging the remaining amount and you can spend it or convert it into fiat currency with the push of a button. All without having to physically carry it anywhere. There is no trying to carry a sack of gold onto a plane, no hiding it in a false-bottom suitcase, no burying it in the backyard, no going to a gold dealer to try to sell it.
I hope you enjoyed these stories. What happened to the $7 million? The solution came by way of ingenious out-of-the-box thinking, which has helped guide my approach to problem solving. No one I have told this story to has guessed the answer. If you have a guess, please reach out to me because I would love to finish the story for you.
1 I mention awesome shoes, as the customs officials, usually older women, at Moscow airports, are trained to look at arriving passengers’ shoes to see if they match those wearing an expensive watch. If the shoes are subpar, the officials assume that the person has been paid to bring the watch to Moscow without paying the tax on new goods. The box and paperwork would be carried by someone else.
This is a guest post by Daniel Feldman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
El Salvador Takes First Step To Issue Bitcoin Volcano Bonds
El Salvador’s Minister of the Economy Maria Luisa Hayem Brevé submitted a digital assets issuance bill to the country’s legislative assembly, paving the way for the launch of its bitcoin-backed “volcano” bonds.
First announced one year ago today, the pioneering initiative seeks to attract capital and investors to El Salvador. It was revealed at the time the plans to issue $1 billion in bonds on the Liquid Network, a federated Bitcoin sidechain, with the proceedings of the bonds being split between a $500 million direct allocation to bitcoin and an investment of the same amount in building out energy and bitcoin mining infrastructure in the region.
A sidechain is an independent blockchain that runs parallel to another blockchain, allowing for tokens from that blockchain to be used securely in the sidechain while abiding by a different set of rules, performance requirements, and security mechanisms. Liquid is a sidechain of Bitcoin that allows bitcoin to flow between the Liquid and Bitcoin networks with a two-way peg. A representation of bitcoin used in the Liquid network is referred to as L-BTC. Its verifiably equivalent amount of BTC is managed and secured by the network’s members, called functionaries.
“Digital securities law will enable El Salvador to be the financial center of central and south America,” wrote Paolo Ardoino, CTO of cryptocurrency exchange Bitfinex, on Twitter.
Bitfinex is set to be granted a license in order to be able to process and list the bond issuance in El Salvador.
The bonds will pay a 6.5% yield and enable fast-tracked citizenship for investors. The government will share half the additional gains with investors as a Bitcoin Dividend once the original $500 million has been monetized. These dividends will be dispersed annually using Blockstream’s asset management platform.
The act of submitting the bill, which was hinted at earlier this year, kickstarts the first major milestone before the bonds can see the light of day. The next is getting it approved, which is expected to happen before Christmas, a source close to President Nayib Bukele told Bitcoin Magazine. The bill was submitted on November 17 and presented to the country’s Congress today. It is embedded in full below.
How I’ll Talk To Family Members About Bitcoin This Thanksgiving
This is an opinion editorial by Joakim Book, a Research Fellow at the American Institute for Economic Research, contributor and copy editor for Bitcoin Magazine and a writer on all things money and financial history.
That’s it. That’s the article.
In all sincerity, that is the full message: Just don’t do it. It’s not worth it.
You’re not an excited teenager anymore, in desperate need of bragging credits or trying out your newfound wisdom. You’re not a preaching priestess with lost souls to save right before some imminent arrival of the day of reckoning. We have time.
Instead: just leave people alone. Seriously. They came to Thanksgiving dinner to relax and rejoice with family, laugh, tell stories and zone out for a day — not to be ambushed with what to them will sound like a deranged rant in some obscure topic they couldn’t care less about. Even if it’s the monetary system, which nobody understands anyway.
If you’re not convinced of this Dale Carnegie-esque social approach, and you still naively think that your meager words in between bites can change anybody’s view on anything, here are some more serious reasons for why you don’t talk to friends and family about Bitcoin the protocol — but most certainly not bitcoin, the asset:
- Your family and friends don’t want to hear it. Move on.
- For op-sec reasons, you don’t want to draw unnecessary attention to the fact that you probably have a decent bitcoin stack. Hopefully, family and close friends should be safe enough to confide in, but people talk and that gossip can only hurt you.
- People find bitcoin interesting only when they’re ready to; everyone gets the price they deserve. Like Gigi says in “21 Lessons:”
“Bitcoin will be understood by you as soon as you are ready, and I also believe that the first fractions of a bitcoin will find you as soon as you are ready to receive them. In essence, everyone will get ₿itcoin at exactly the right time.”
It’s highly unlikely that your uncle or mother-in-law just happens to be at that stage, just when you’re about to sit down for dinner.
- Unless you can claim youth, old age or extreme poverty, there are very few people who genuinely haven’t heard of bitcoin. That means your evangelizing wouldn’t be preaching to lost, ignorant souls ready to be saved but the tired, huddled and jaded masses who could care less about the discovery that will change their societies more than the internal combustion engine, internet and Big Government combined. Big deal.
- What is the case, however, is that everyone in your prospective audience has already had a couple of touchpoints and rejected bitcoin for this or that standard FUD. It’s a scam; seems weird; it’s dead; let’s trust the central bankers, who have our best interest at heart.
No amount of FUD busting changes that impression, because nobody holds uninformed and fringe convictions for rational reasons, reasons that can be flipped by your enthusiastic arguments in-between wiping off cranberry sauce and grabbing another turkey slice.
- It really is bad form to talk about money — and bitcoin is the best money there is. Be classy.
Now, I’m not saying to never ever talk about Bitcoin. We love to talk Bitcoin — that’s why we go to meetups, join Twitter Spaces, write, code, run nodes, listen to podcasts, attend conferences. People there get something about this monetary rebellion and have opted in to be part of it. Your unsuspecting family members have not; ambushing them with the wonders of multisig, the magically fast Lightning transactions or how they too really need to get on this hype train, like, yesterday, is unlikely to go down well.
However, if in the post-dinner lull on the porch someone comes to you one-on-one, whisky in hand and of an inquisitive mind, that’s a very different story. That’s personal rather than public, and it’s without the time constraints that so usually trouble us. It involves clarifying questions or doubts for somebody who is both expressively curious about the topic and available for the talk. That’s rare — cherish it, and nurture it.
Last year I wrote something about the proper role of political conversations in social settings. Since November was also election month, it’s appropriate to cite here:
“Politics, I’m starting to believe, best belongs in the closet — rebranded and brought out for the specific occasion. Or perhaps the bedroom, with those you most trust, love, and respect. Not in public, not with strangers, not with friends, and most certainly not with other people in your community. Purge it from your being as much as you possibly could, and refuse to let political issues invade the areas of our lives that we cherish; politics and political disagreements don’t belong there, and our lives are too important to let them be ruled by (mostly contrived) political disagreements.”
If anything, those words seem more true today than they even did then. And I posit to you that the same applies for bitcoin.
Everyone has some sort of impression or opinion of bitcoin — and most of them are plain wrong. But there’s nothing people love more than a savior in white armor, riding in to dispel their errors about some thing they are freshly out of fucks for. Just like politics, nobody really cares.
Leave them alone. They will find bitcoin in their own time, just like all of us did.
This is a guest post by Joakim Book. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
RGB Magic: Client-Side Contracts On Bitcoin
This is an opinion editorial by Federico Tenga, a long time contributor to Bitcoin projects with experience as start-up founder, consultant and educator.
The term “smart contracts” predates the invention of the blockchain and Bitcoin itself. Its first mention is in a 1994 article by Nick Szabo, who defined smart contracts as a “computerized transaction protocol that executes the terms of a contract.” While by this definition Bitcoin, thanks to its scripting language, supported smart contracts from the very first block, the term was popularized only later by Ethereum promoters, who twisted the original definition as “code that is redundantly executed by all nodes in a global consensus network”
While delegating code execution to a global consensus network has advantages (e.g. it is easy to deploy unowed contracts, such as the popularly automated market makers), this design has one major flaw: lack of scalability (and privacy). If every node in a network must redundantly run the same code, the amount of code that can actually be executed without excessively increasing the cost of running a node (and thus preserving decentralization) remains scarce, meaning that only a small number of contracts can be executed.
But what if we could design a system where the terms of the contract are executed and validated only by the parties involved, rather than by all members of the network? Let us imagine the example of a company that wants to issue shares. Instead of publishing the issuance contract publicly on a global ledger and using that ledger to track all future transfers of ownership, it could simply issue the shares privately and pass to the buyers the right to further transfer them. Then, the right to transfer ownership can be passed on to each new owner as if it were an amendment to the original issuance contract. In this way, each owner can independently verify that the shares he or she received are genuine by reading the original contract and validating that all the history of amendments that moved the shares conform to the rules set forth in the original contract.
This is actually nothing new, it is indeed the same mechanism that was used to transfer property before public registers became popular. In the U.K., for example, it was not compulsory to register a property when its ownership was transferred until the ‘90s. This means that still today over 15% of land in England and Wales is unregistered. If you are buying an unregistered property, instead of checking on a registry if the seller is the true owner, you would have to verify an unbroken chain of ownership going back at least 15 years (a period considered long enough to assume that the seller has sufficient title to the property). In doing so, you must ensure that any transfer of ownership has been carried out correctly and that any mortgages used for previous transactions have been paid off in full. This model has the advantage of improved privacy over ownership, and you do not have to rely on the maintainer of the public land register. On the other hand, it makes the verification of the seller’s ownership much more complicated for the buyer.
How can the transfer of unregistered properties be improved? First of all, by making it a digitized process. If there is code that can be run by a computer to verify that all the history of ownership transfers is in compliance with the original contract rules, buying and selling becomes much faster and cheaper.
Secondly, to avoid the risk of the seller double-spending their asset, a system of proof of publication must be implemented. For example, we could implement a rule that every transfer of ownership must be committed on a predefined spot of a well-known newspaper (e.g. put the hash of the transfer of ownership in the upper-right corner of the first page of the New York Times). Since you cannot place the hash of a transfer in the same place twice, this prevents double-spending attempts. However, using a famous newspaper for this purpose has some disadvantages:
- You have to buy a lot of newspapers for the verification process. Not very practical.
- Each contract needs its own space in the newspaper. Not very scalable.
- The newspaper editor can easily censor or, even worse, simulate double-spending by putting a random hash in your slot, making any potential buyer of your asset think it has been sold before, and discouraging them from buying it. Not very trustless.
For these reasons, a better place to post proof of ownership transfers needs to be found. And what better option than the Bitcoin blockchain, an already established trusted public ledger with strong incentives to keep it censorship-resistant and decentralized?
If we use Bitcoin, we should not specify a fixed place in the block where the commitment to transfer ownership must occur (e.g. in the first transaction) because, just like with the editor of the New York Times, the miner could mess with it. A better approach is to place the commitment in a predefined Bitcoin transaction, more specifically in a transaction that originates from an unspent transaction output (UTXO) to which the ownership of the asset to be issued is linked. The link between an asset and a bitcoin UTXO can occur either in the contract that issues the asset or in a subsequent transfer of ownership, each time making the target UTXO the controller of the transferred asset. In this way, we have clearly defined where the obligation to transfer ownership should be (i.e in the Bitcoin transaction originating from a particular UTXO). Anyone running a Bitcoin node can independently verify the commitments and neither the miners nor any other entity are able to censor or interfere with the asset transfer in any way.
Since on the Bitcoin blockchain we only publish a commitment of an ownership transfer, not the content of the transfer itself, the seller needs a dedicated communication channel to provide the buyer with all the proofs that the ownership transfer is valid. This could be done in a number of ways, potentially even by printing out the proofs and shipping them with a carrier pigeon, which, while a bit impractical, would still do the job. But the best option to avoid the censorship and privacy violations is establish a direct peer-to-peer encrypted communication, which compared to the pigeons also has the advantage of being easy to integrate with a software to verify the proofs received from the counterparty.
This model just described for client-side validated contracts and ownership transfers is exactly what has been implemented with the RGB protocol. With RGB, it is possible to create a contract that defines rights, assigns them to one or more existing bitcoin UTXO and specifies how their ownership can be transferred. The contract can be created starting from a template, called a “schema,” in which the creator of the contract only adjusts the parameters and ownership rights, as is done with traditional legal contracts. Currently, there are two types of schemas in RGB: one for issuing fungible tokens (RGB20) and a second for issuing collectibles (RGB21), but in the future, more schemas can be developed by anyone in a permissionless fashion without requiring changes at the protocol level.
To use a more practical example, an issuer of fungible assets (e.g. company shares, stablecoins, etc.) can use the RGB20 schema template and create a contract defining how many tokens it will issue, the name of the asset and some additional metadata associated with it. It can then define which bitcoin UTXO has the right to transfer ownership of the created tokens and assign other rights to other UTXOs, such as the right to make a secondary issuance or to renominate the asset. Each client receiving tokens created by this contract will be able to verify the content of the Genesis contract and validate that any transfer of ownership in the history of the token received has complied with the rules set out therein.
So what can we do with RGB in practice today? First and foremost, it enables the issuance and the transfer of tokenized assets with better scalability and privacy compared to any existing alternative. On the privacy side, RGB benefits from the fact that all transfer-related data is kept client-side, so a blockchain observer cannot extract any information about the user’s financial activities (it is not even possible to distinguish a bitcoin transaction containing an RGB commitment from a regular one), moreover, the receiver shares with the sender only blinded UTXO (i. e. the hash of the concatenation between the UTXO in which she wish to receive the assets and a random number) instead of the UTXO itself, so it is not possible for the payer to monitor future activities of the receiver. To further increase the privacy of users, RGB also adopts the bulletproof cryptographic mechanism to hide the amounts in the history of asset transfers, so that even future owners of assets have an obfuscated view of the financial behavior of previous holders.
In terms of scalability, RGB offers some advantages as well. First of all, most of the data is kept off-chain, as the blockchain is only used as a commitment layer, reducing the fees that need to be paid and meaning that each client only validates the transfers it is interested in instead of all the activity of a global network. Since an RGB transfer still requires a Bitcoin transaction, the fee saving may seem minimal, but when you start introducing transaction batching they can quickly become massive. Indeed, it is possible to transfer all the tokens (or, more generally, “rights”) associated with a UTXO towards an arbitrary amount of recipients with a single commitment in a single bitcoin transaction. Let’s assume you are a service provider making payouts to several users at once. With RGB, you can commit in a single Bitcoin transaction thousands of transfers to thousands of users requesting different types of assets, making the marginal cost of each single payout absolutely negligible.
Another fee-saving mechanism for issuers of low value assets is that in RGB the issuance of an asset does not require paying fees. This happens because the creation of an issuance contract does not need to be committed on the blockchain. A contract simply defines to which already existing UTXO the newly issued assets will be allocated to. So if you are an artist interested in creating collectible tokens, you can issue as many as you want for free and then only pay the bitcoin transaction fee when a buyer shows up and requests the token to be assigned to their UTXO.
Furthermore, because RGB is built on top of bitcoin transactions, it is also compatible with the Lightning Network. While it is not yet implemented at the time of writing, it will be possible to create asset-specific Lightning channels and route payments through them, similar to how it works with normal Lightning transactions.
RGB is a groundbreaking innovation that opens up to new use cases using a completely new paradigm, but which tools are available to use it? If you want to experiment with the core of the technology itself, you should directly try out the RGB node. If you want to build applications on top of RGB without having to deep dive into the complexity of the protocol, you can use the rgb-lib library, which provides a simple interface for developers. If you just want to try to issue and transfer assets, you can play with Iris Wallet for Android, whose code is also open source on GitHub. If you just want to learn more about RGB you can check out this list of resources.
This is a guest post by Federico Tenga. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.