Bitcoin Is Magic Internet Money

Week of Jan 5th

There may not be a more perfect representation of Bitcoin and its early community than this drawing created in Microsoft Paint, portraying a wizard in a blue cloak holding a staff with the slogan “Magic Internet Money”. The illustration was created as a promotion to entice users on Reddit to learn more about the currency and join the Bitcoin specific forum. Its reception was overwhelmingly well-received, and in part, helped build Bitcoin’s brand awareness. When the advertisement went live, the community consisted of a little over fifty thousand subscribers and the price of bitcoin was still under three hundred dollars. For reference, the same forum is currently 1.2 million users strong. There were even almost 600 comments discussing the promotion and drawing itself. The thread is filled with Bitcoin users tipping other users with the “magic internet money”. It was an example of a true grassroots and community-driven marketing campaign for, which at the time was still an incredibly niche community.

A subreddit moderator for r/Bitcoin made a post asking the community to help create and brainstorm ideas for a promotion. Within the hour, the user /r/mavensbot submitted the iconic image. He later went on to say it supposedly only took five minutes to illustrate it. For those unfamiliar with the Reddit website, this is what the promotion looked like to visitors:

Source from a write-up done by Paul Bars

The slogan describing the currency as “magical” however, was first used on a relatively obscure BitcoinTalk.org post. A poll had been created to pick a slogan for this new internet native currency. With only a few dozen voters participating, the infamous meme was born. “Magic Internet Money” won the poll, with “In Crypto We Trust” and “You Asked for Change, We Gave You Coins” not too far behind it.

Bitcoin users embraced the nerdy and near whimsical characterization given to it by the media and countless individuals in power. Even with the constant doom and gloom predictions of the currency’s future, “magically” the network has continued to operate.

  • “The Rise and Fall of Bitcoin” – Wired at $2.37

  • “So, That’s the End of Bitcoin Then” – Forbes at $15.15

  • “The SEC Shows Why Bitcoin Is Doomed” – Bloomberg at $93.57

  • “Bitcoin Sees the Grim Reaper” – NY Mag at $105.7

  • “Fool’s Gold” – Slate at $131.95

  •  “Bitcoin revealed: a Ponzi scheme for redistributing wealth from one libertarian to another” – The Washington Post at $182.00

  • “Bitcoin Is a Victim of Disinflation” – The New York Times at $208.50

  • “Bitcoin is headed to the ‘ash heap'” – USA Today at $208.50

  • “Bitcoin’s upcoming capital crisis” – Financial Times at $290.51

  • “Bitcoin’s defects will hasten its demise in 2015” – Reuters at $327.20

  • “Can Bitcoin survive 2015?” – AOL at $332.63

  •  “Where did Bitcoin go wrong?” – CNN at $333.58

  • Bitcoin Is A Joke” – Business Insider at $433.57

Bitcoin was seen as a fringe phenomenon, even just a joke. With almost a decade of price making higher lows along with its seven network effects growing exponentially, the narrative is starting to shift. We are seeing Bitcoin go from “nerd money” to every corporation, government, bank and institution attempting to leverage it for themselves. There have been multiple attempts to package Bitcoin into something “compliant” or more digestible for the legacy system it ironically itself challenges. The creation of new digital currencies has been one of the more recent  attempts. This only strips away everything about the network that makes it interesting to begin with. Blockchain has become the latest buzzword to fit this purpose. It is the most pervasive means of using one of the technologies that underpin the Bitcoin Network. As an exercise, take any company that comes to mind and do a quick internet search of its name along with the word “blockchain”. There will be at least a few pages of results. Now do the same again, except replace “blockchain” with “bitcoin” and the results will only be a fraction of the prior search. 

It may be news to some, but the term “blockchain” in the literal sense just means a “chain of blocks”, a list of records, called “blocks”- quite similar to that of spreadsheets. The pages are cryptographically linked together, one after another. This concept goes back nearly thirty years in cryptography and computer science, but the term and technology have been made popular recently due to the way the Bitcoin Network has emerged. A ledger is not interesting in and of itself. What makes Bitcoin’s ledger unique is that no single entity controls how or which transactions are recorded in the structure. Strip away the permissionless nature of the system, in which anyone can access and innovate upon, and you are left with a database. In other words, just an excel spreadsheet.

A talk by Andreas Antonopoulos discusses this phenomenon of digital gentrification and corporatization of cryptocurrencies along with why we should be fighting to preserve the “weirdness” that Bitcoin brings to the world.

When someone tells you, “I’m interested in blockchain but not Bitcoin”, what they mean is “I don’t understand.” - Andreas

That has not stopped numerous attempts to control it. As of today, several of the world’s largest nations are actively developing digital currencies with the same “underlying blockchain” structure that Bitcoin leverages. They are taking the cypherpunk ideals of Bitcoin and removing the “punk” aspect while keeping the financial privacy for themselves. Last year, 2019, will be remembered as the year governments stopped laughing at bitcoin and entered the "then they fight you" stage with these digital currencies being announced:

  • DCEP (China)

  • EUROChain (EU)

  • Libra (Facebook)

  • e-Dinar (Tunisia)

  • Petro (Venezuela)

  • Aber (Saudi Arabia)

  • Turkcoin (Turkey)

  • e-Krona (Sweden)

  • PayMon (Iran)

Less extreme attempts to conform Bitcoin has been occurring though “financialization”. It is the inevitable process of Wall Street getting control of bitcoin. That is only a joke, of course. Financialization is when the value between multiple parties is facilitated using a financial instrument - this includes derivatives like futures and options.

There is a case to be made that Bitcoin’s financialization and these financial products serve to complicate the market which requires a skill set out of reach for most market participants. Bitcoin is the first time the average person has had a head-start on Wall Street, and many do not want to give that up. Increased complication can also end up concealing  bitcoin creation ‘out of thin-air’ if auditing the onchain metrics is not done. Rehypothecation, or creating more claims to the Bitcoin Network than there are Bitcoin is likely and could already be happening. Debating whether or not this is a negative development is a moot topic, as it will continue. Market participants and Bitcoin users need to be aware of this process and leverage the audibility of the network to maintain confidence. Verify, don’t trust.

Even from within the very community that rejected the status quo and embraced the memes of “Magic Internet Money”, it has experienced attempts of “corporatization” with a past proposal called SegWit2x. This post is not meant to teach about the specific details and intricacies of the changes to the network or call out any actors on either side of the debate. Bitcoin may end up needing all of the supporters and advocates it can get, and re-opening old wounds seldom benefits anyone at this point. That is still to say though, those who do not learn history are doomed to repeat it. It would be a waste of months of debating and spent resources to not take anything away as a learning experience.

For a brief background, an agreement was formed in New York City mid 2017. This was to be known as the New York Agreement (NYA) where several individuals with a corporate focused mutual interest agreed to implement Segwit if a 2 Mb hard fork followed it. You can learn more about the details of Segwit here and more about block size here. This proposal and hard fork of Bitcoin’s network was called SegWit 2x. It meant a doubling of the block size, and what the proponents saw as a compromise between those who still wanted even larger blocks after Segwit itself was implemented. If you would like more of the details and backstory to this implementation, Aaron van Wirdum has a well-documented article on it here.

It is important to note that not a single member of the Bitcoin Core development team, the most used implementation of Bitcoin, was invited to this select meeting. While Bitcoin’s strength is in its permissionless properties, the exclusion of those most trusted by the community in implementing new changes to the network in favor of corporate CEOs, does send a message.

The announcement was made via a blog post on Medium by Digital Currency Group. The proposal was backed by 58 of the largest companies in the ecosystem and 83.28% of the Bitcoin Network’s hashing power initially. 

In the grand scheme of attacks that Bitcoin will end up facing in its lifetime, this block size increase may appear to be relatively minor. The proposed hard fork of SegWit2x was eventually cancelled after only a few months. Bitcoin users voiced their concerns loudly. Similar to the initial announcement, a joint statement was later made by only six individuals to cancel the hard fork. This highlights how few were actually involved in the decision-making process versus the traditional governance of Bitcoin, or lack of governance I should say. To their credit, they included this in part of that decision:

Our goal has always been a smooth upgrade for Bitcoin. Although we strongly believe in the need for a larger blocksize, there is something we believe is even more important: keeping the community together. Unfortunately, it is clear that we have not built sufficient consensus for a clean blocksize upgrade at this time. Continuing on the current path could divide the community and be a setback to Bitcoin’s growth. This was never the goal of Segwit2x.

To reiterate, those who do not learn from history are doomed to repeat it. The point I'm trying to make in this write-up is to embrace what makes Bitcoin unique. Giving up the permissionless nature of the technology with government-issued stablecoins, the decision making process of protocol changes like with SegWit2x, or even just financialization of Bitcoin as an asset should be looked at with skepticism to say the least. Challenging the status quo has got Bitcoin this far already, why stop now?

Keep Bitcoin weird.


News:

U.S. Warns Iraq It Risks Losing Access to Key Bank Account if Troops Told to Leave:

The Trump administration warned Iraq this week that it risks losing access to a critical government bank account if Baghdad kicks out American forces following the U.S. airstrike that killed a top Iranian general, according to Iraqi officials.

According to a report by the Wall Street Journal, the State Department warned that the U.S. could shut down Iraq’s access to the country’s central bank account held at the Federal Reserve Bank of New York, a move that could jolt Iraq’s already shaky economy, the officials said. Read More

The Anniversary of Hal Finney’s “Running bitcoin” Tweet:

Here is one of Hal’s quotes regarding bitcoin sent via email only a week after the genesis block was mined:

As an amusing thought experiment, imagine that Bitcoin is successful and becomes the dominant payment system in use throughout the world.  Then the total value of the currency should be equal to the total value of all the wealth in the world. Current estimates of total worldwide household wealth that I have found range from $100 trillion to $300 trillion. With 20 million coins, that gives each coin a value of about $10 million.

So the possibility of generating coins today with a few cents of compute time may be quite a good bet, with a payoff of something like 100 million to 1! Even if the odds of Bitcoin succeeding to this degree are slim, are they really 100 million to one against? Something to think about…

Bitcoin's Taproot/Schnorr upgrade proposal is 'nearly ready' as it moves through developer feedback phase:

The proposal for Taproot, a long-anticipated technological change to bitcoin, is “nearly ready" according to developers – a notable update that comes nearly two years after its introduction.

First unveiled by Bitcoin Core developer Greg Maxwell in January 2018, Taproot offers a new degree of privacy by making all transactions – no matter how complicated – appear the same to observers of blockchain data. The code adds what supporters call a much-needed feature to the network, and brings with it significant implications for scaling, fungibility and script innovation. Read more.

10M Bitcoins Haven’t Moved in More Than a Year, Highest Since 2017:

About 10.7 million bitcoins haven’t moved in more than 12 months, according to Digital Assets Data, a fintech company building crypto data feeds. Considering the total number of bitcoins in circulation is 18.14 million, this also means nearly 60 percent of the coins remained dormant and only 40 percent participated in the price action seen in 2019. The percentage of bitcoins lying dormant for over a year is at its highest level since early 2017. Read More.

Bitcoin Network SegWit Adoption Hits 66% After BitMEX Embraces Upgrade:

More Bitcoin (BTC) transactions now use so-called Segregated Witness (“SegWit”) technology than ever before, the latest data shows.

According to various resources including SegWit.Space, adoption of the protocol has reached up to 66% of all Bitcoin transactions as of Jan. 4. Read More.

Community content:

[Podcast] SLP139 Andreas Antonopoulos - Mastering Lightning & Using BTCPayServer: Listen to it here.

[Podcast] Rabbit Hole Recap: Week of 2020.01.06: Listen to it here.

[Podcast] The Beginner’s Guide to Bitcoin Part 3: Bitcoin's Pre-History and the Cypherpunks with Aaron van Wirdum: Listen to it here.

[Book] A shout-out to the Little Bitcoin Book. While it did not come out this week, it is a great resource to share with those newly interested in bitcoin: You can buy here.

[Graphic] Interesting chart by Messari:


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