The biggest crypto news and ideas of the day Sept. 13, 2021 Sponsored by Welcome to The Node.
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–Daniel Kuhn
Today's must-reads Top Shelf SMART CONTRACTS: Cardano, one of the largest blockchains by market value, now has smart contracts following its network upgrade on Sept. 12. Cardano launched in 2017 intending to become an Ethereum-like platform for decentralized apps. It’s developers, including founder Charles Hoskinson, are known for valorizing the peer-review process and the bleeding edge of cryptography (including adopting proof-of-stake consensus). ETH MINING: Ethereum’s hashrate reached an all-time high on Sunday, indicating two things. One, the worst effects of China’s mining crackdown are in the past. Two, ETH mining is profitable (many miners reportedly went offline following the network’s Aug. 5 “London” upgrade, which changed how fees are distributed to miners). Ethereum’s coming proof-of-stake upgrade will eliminate mining. TAX BENEFITS: El Salvador will exempt foreign investors from a tax on profits from bitcoin investments, according to President Bukele’s legal adviser Javier Argueta. The Central American country, which last week became the first state to recognize bitcoin as legal tender, is reportedly attempting to encourage foreign investment. AT AVALANCHE: In what appears to be the first “major exploit” of an Avalanche-based application, DeFi protocol Zabu Finance was hit with a $3.2 million attack this Sunday. Zabu plans to take a snapshot of its books immediately before the exploit to protect both users who invested before the hack and those who bought in afterwards.
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Overheard on CoinDesk TV... Sound Bites “We’re also seeing members of the old, traditional art collecting world stepping in and downloading Metamask and buying Ethereum.”
–Christie’s Head of Digital Art & Online Sales Noah Davis, on CoinDesk's “First Mover" live at Salt.
What others are writing... Off-Chain Signals
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In May 2021, Nickel Digital Asset Management surveyed 50 wealth managers and 50 institutional investors across the U.S., U.K., France, Germany and the UAE to understand their concerns about investing in digital assets. The survey revealed that more than three-quarters of the respondents believed that “concerns about security of digital assets and custodial services [were] a ‘significant’ hurdle preventing many from investing in crypto assets for the first time.”
Security of crypto assets and trust in the overall markets are a serious concern. Bad actors negatively affect the development and acceptance of the crypto assets market.
Putting the news in perspective The Takeaway 9/11 and the Need for Private Bitcoin The Patriot Act was passed 45 days after 9/11. It was the first of many national security laws that expanded the U.S. government’s ability to listen in to the communications of people around the world (including all Americans). In contravention of constitutional rights, presuming guilt rather than innocence, the law turned “regular citizens into suspects,” as the ACLU said. Two decades later, surveillance has become the norm. Our bodies are scanned with facial recognition, gait detection and a network of an untold number of security cameras. The same is true, and possibly worse, for our online activity. Emails can be monitored, our bank and credit records collected and normal web-surfing watched.
It’s all part of an extrajudicial and anti-democratic infrastructure built in conjunction with the private sector. It was also the impetus for cypherpunks to start building digital tools to reclaim a bit of privacy. Bitcoin, the first cryptocurrency, was built with cash in mind. It offers users final settlement and the ability for people who don’t know one another to remain pseudonymous while they interact directly, like handing a bill to a barista, in a digital context.
But Bitcoin is far from private, and it’s getting less so everyday. The growth of blockchain analytics as an industry and the expansion of “know your client” (KYC) guidelines show how crypto is absorbed easily into the surveillance state.
Developers and users must resist this where they can. And, as the cryptocurrency with the greatest chance of establishing itself as a globally-accepted monetary standard untethered from governments, bitcoin must lead the way.
Bitcoin has what’s sometimes called functional privacy. Depending on how someone acquires it, uses it and stores it, they could remain a fully-pseudonymous entity – a string of alphanumeric gibberish, as far as the blockchain is concerned. Think Satoshi Nakamoto, the fabricated persona behind the Bitcoin network.
This isn’t easy. It requires people to take care at every step of the way of using bitcoin, from buying BTC from non-KYC sources to concealing its blockchain history, rather than treating it as flippently as cash. Matt Odell has a useful guide on how to use bitcoin privately. That’s why it’s key for developers to be thinking about ways to maximize bitcoin privacy. It cannot be left to users (and certainly not exchanges) alone to preserve the cypherpunk ethos of Bitcoin.
The upcoming upgrade Taproot will expand the useability of the Bitcoin network by making it easy to create smart contracts and Lightning channels and hide them as regular transactions. This has positive privacy implications for bitcoin (though it might make things worse in the short term). There are other crypto projects Bitcoin can learn from. There ought to be more discussion of creating natively-secret transaction types that blockchains like Monero and Zcash provide. Bitcoin development is slow by intention, every upgrade or technical change comes with tradeoffs, but privacy needs to be part of the roadmap.
Some defend bitcoin from its overblown associations with the criminal underworld by noting that it’s far easier to track digital coins on a blockchain than actual coins. Let’s make bitcoin like the hard money we’re used to.
–Daniel Kuhn
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