The Wolf Den #675 - Controversy Strikes The Bitcoin Community
Wizards, Fart Noises and Fake Punks Have Landed on Bitcoin
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In This Issue:
Controversy Strikes The Bitcoin Community
Bitcoin Thoughts And Analysis
Legacy Markets
The IMF Has A Rare Bout Of Honesty
Coinbase Will Fight Back
The Right To Mine
The SEC Sues Paxos Over BUSD
ChatGPT | Will AI Be The End Of The World And Your Job? | Daniel Jeffries, Futurist
Controversy Strikes The Bitcoin Community
If you had fallen asleep a decade ago and just woke up, you would find that Bitcoin has remained unchanged. Apart from developments in the Lightning Network, Taproot (the first upgrade in 4 years), and some imitation forks, Bitcoin is still the same dependable currency we love. On the other hand, Ethereum is a kaleidoscope of intersecting developments, roadmap delays, protocol upgrades every other month, new narratives, and a vision so broad that there is still no clear endpoint for the currency. This creative spirit is what we love about Ethereum.
Since their inception, Bitcoin and Ethereum have grown so far apart that the two protocols have historically had no cultural overlap, but this is now changing. A project called Ordinals has launched on the Bitcoin blockchain, and the NFT army from Ethereum is marching into uncharted Bitcoin territory.
Whether you like it or not, the Bitcoin community is now being forced to experience the Ethereum rainbow. In just one month, Bitcoin has seen an explosion of NFTs inscribed onto single Satoshis, made possible by Ordinals. These inscriptions can take the form of images, videos, audio, and HTML, limited only by our imagination. Creative minds have inscribed Bitcoin punks, recordings of farts (inscription #2312), and the 1993 first-person shooter video game DOOM into Bitcoin NFTs. This is just the beginning of the madness.
I'm not sure how this works exactly, as I am a "boomer," but just know that it is technically possible and open-source.
Before I delve into the controversy surrounding Ordinals, you may already have some guesses about where this could be going. The development of Ordinals can be traced back to Colored Coins, which helps explain how we got here in the first place.
To understand how memes, mammals, rocks, and pixel cartoons started selling for millions of dollars, we have to go back to the first iteration of NFTs, Colored Coins. NFTs, as we know them today, exist almost entirely on the Ethereum blockchain, but the idea originated in Bitcoin's code. In 2012, a Bitcoin blog post by Yoni Assia (founder of E-Toro) wrote about the possibility of a new currency built on top of the Bitcoin blockchain, which he called "Colored Coins."
Yoni wrote, "creating an economy of Bitcoin 2.x, multiple currencies easily created by any community and deriving its value from the community and protected and secured by all communities."
A few years later, NFT experimentation in Bitcoin migrated to the more programmable Ethereum blockchain. At the same time, the rise of meme culture coincided with Ethereum's increased popularity in 2017, leading to comedic Pepe the Frog images becoming the focus of early NFT development. Tech-savvy artists realized there was a new way to create their art that guaranteed provenance.
Two men, John Watkinson and Matt Hall, had a grand vision. They algorithmically generated 10,000 CryptoPunk NFTs through computer code on the Ethereum blockchain, and no two punks were the same. This was a game-changer. Along the same lines of fun and creative art, CryptoKitties arrived a few months later with another innovation. These NFTs were interactive, causing the entire Ethereum blockchain to slow down in 2017 due to the congestion of digital cats.
Fast-forwarding through Ethereum's NFT explosion, Bitcoin is now getting its first taste of the NFT world, and not all Bitcoiners are enjoying the experience.
In just one month, Ordinals have effectively sparked a new debate, dividing the Bitcoin community in half. The case for Ordinals is that they drive block space demand, attract developers, boost miner revenue, and attract new users. The case against Ordinals is that they are a distraction and waste, consume block space, attract unwanted speculation, and can be wrapped back into Ethereum. To make matters worse, some Bitcoiners who were familiar with the development of Ordinals refused to participate, out of principle, and missed out on quarter-million-dollar opportunities just to prove a point. Meanwhile, NFT-savvy Ethereum users profited handsomely by appropriating Bitcoin's sacred blockchain.
It is unlikely that there will be any censorship of Ordinals, but if we are being honest, there are definitely some Bitcoiners who entertain the thought of censorship in the back of their minds.
The question remains: What do you think about Ordinals? Are they the new narrative that promises high-end NFTs with the security and immutability of Bitcoin, or are they the opening of a self-sabotaging floodgate that will ultimately detract from Bitcoin's core purpose as a pure store of value?
Like them or not, Ordinals will be a major topic in the cryptocurrency world in 2023.
Bitcoin Thoughts And Analysis
Legacy Markets
Equity futures on Wall Street and European stocks have posted modest gains as investors prepare for a busy week. The week includes the release of US consumer price data, which may indicate that inflation is not over, potentially dashing hopes of a Federal Reserve rate pivot. Treasuries have been rangebound following a selloff in US government debt. Investors are reassessing how high US interest rates will rise this year, with inflation and jobs data expected to come in hot later this week. The chief investment officer at Credit Suisse International Wealth Management says the firm is "very cautious on equities" due to a disconnect between valuations and interest rates. The yen weakened past 132 per dollar after news reports that Kazuo Ueda would be picked to become the next governor of the Bank of Japan. Traders are keeping a close eye on geopolitical developments after the Pentagon shot down an object over Michigan and oil prices fell as the dollar climbed.
Key events:
India CPI, Fed Governor Michelle Bowman speaks at the American Bankers Association Monday
US CPI, UK jobless claims, Eurozone GDP, New York Fed President John Williams gives the keynote speech at New York Bankers Association event Tuesday
Japan’s new BOJ governor nomination Tuesday
US retail sales, UK CPI Wednesday
US jobless claims, Australia unemployment, Cleveland Fed President Loretta Mester speaks at Global Interdependence Center event Thursday
France CPI, Russia GDP Friday
Some of the main moves in markets:
Stocks
S&P 500 futures were little changed as of 6:01 a.m. New York time
Nasdaq 100 futures rose 0.4%
Futures on the Dow Jones Industrial Average fell 0.1%
The Stoxx Europe 600 rose 0.3%
The MSCI World index was little changed
Currencies
The Bloomberg Dollar Spot Index rose 0.2%
The euro was little changed at $1.0681
The British pound fell 0.1% to $1.2044
The Japanese yen fell 0.9% to 132.56 per dollar
Cryptocurrencies
Bitcoin fell 0.6% to $21,621.33
Ether fell 1.8% to $1,484.56
Bonds
The yield on 10-year Treasuries was little changed at 3.73%
Germany’s 10-year yield declined two basis points to 2.35%
Britain’s 10-year yield was little changed at 3.40%
Commodities
West Texas Intermediate crude fell 1% to $78.94 a barrel
Gold futures fell 0.3% to $1,869.10 an ounce
The IMF Has A Rare Bout Of Honesty
Since El Salvador adopted Bitcoin as legal tender in September 2021, its growth has been minimal at best. The proposed "Bitcoin city" has yet to be built, volcano mining remains mostly a concept, delayed laws have just been passed to allow for Bitcoin bonds, and widespread adoption has slowed. In addition to these challenges, El Salvador was cut off from IMF financing in an attempt to force the country to reconsider, but it has not worked. After a week-long visit from the IMF, their observations and opinions regarding Bitcoin have improved.
The IMF stated, "While risks have not materialized due to the limited use of bitcoin so far, as suggested by survey and remittances data, its use could grow given its legal tender status and new legislative reforms to encourage the use of crypto assets, including tokenized bonds (Digital Assets Law). In this context, underlying risks to financial integrity and stability, fiscal sustainability, and consumer protection persist, and the recommendations of the 2021 Article IV remain valid." The IMF then called for "greater transparency around Chivo" and suggested that El Salvador should "reconsider their plans."
Overall, I would say this is a win for El Salvador. Being the first to adopt an entirely new monetary system is not going to happen overnight or without challenges.
Coinbase Will Fight Back
When Kraken ceased its staking services, the question arose whether Coinbase would follow suit if put under significant pressure. The word is out: Coinbase will not back down without a fight. The Chief Legal Officer at Coinbase, Paul Grewal, wrote a blog outlining the company's stance on the issue, which was reshared by Brian Armstrong with the statement, "We will happily defend this in court if needed."
Given Coinbase's immense size and influence, it's reassuring to know that the company has our backs and will not give in easily. Their strong partnerships with companies like BlackRock and Google make them even more formidable to challenge. As a responsible investor, it's important to consider these potential risks if you choose to stake with Coinbase, but at least we now know that they won't immediately comply if told to shut down.
The Right To Mine
This may not be breaking news, but it's worth mentioning. The state of Montana has passed a bill, nicknamed "The Right to Mine" by the cryptocurrency community. This bill effectively protects Bitcoin miners by providing legal certainty to their work and acknowledging the stabilizing effect mining has on the power grid.
Sensible, right?
The SEC Sues Paxos Over BUSD
The U.S. Securities and Exchange Commission (SEC) is planning to sue stablecoin issuer Paxos, which is behind the Pax Dollar (USDP) and Binance USD (BUSD) tokens, over the latter, according to the Wall Street Journal. The SEC is alleging that BUSD is an unregistered security. Paxos is already under investigation by the New York Department of Financial Services, though the scope of the investigation is unclear. BUSD is a Binance-branded stablecoin issued by Paxos, which is a New York-regulated trust company. A Binance spokesperson said that Paxos will continue to service BUSD and that the funds are safe and fully covered by reserves in their banks. Spokespeople for Paxos did not immediately respond to requests for comment. The news follows the SEC's recent settlement with crypto exchange Kraken, who was accused of offering unregistered securities through its staking services. Binance admitted last month that it had not always maintained the proper balance to back Binance-Peg BUSD (PBUSD).
The fight is on.
ChatGPT | Will AI Be The End Of The World And Your Job? | Daniel Jeffries, Futurist
Daniel Jeffries is one of my favorite guests. After seeing the meteoric rise of ChatGPT, he was the perfect guest to discuss the evolution of AI and its impact on our lives. Should we worry about AI, can AI steal our jobs, or is it a good thing and we should embrace this technology? Listen to Daniel Jeffries, a futurist, author, engineer, CIO at Stability AI and Managing Director at AI Infrastructure Alliance and find out what our future and the future of AI will look like.
In this episode with Daniel, we discussed:
Is this the end?
Cyborgs will help us do our jobs
ChatGPT & evolution of work
ChatGPT & cheating
Moving fast & breaking things
AI & crypto
Crypto killer app
How we can use AI
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.