Also: Bitcoin mining difficulty, INX's $85M IPO, DeFi's latest hack

What you need to know today in crypto and beyond

May 3, 2021

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Today's must-reads

Top Shelf

BIGGER THAN BOA: Ether (ETH), the native cryptocurrency of the Ethereum blockchain, surged Monday to a record price of over $3,200, just hours after topping $3,000 for the first time. Ether now has a market capitalization of $364 billion, exceeding that of Bank of America, the largest U.S. bank.

BITCOIN ADJUSTS: Bitcoin had a 12.6% drop in its mining difficulty, its fourth-largest negative adjustment since 2012, likely due to power outages in Xinjiang. “It’s a great time to be a miner,” Compass Mining CEO Thomas Heller said. Coinciding with the difficulty adjustment, Bitcoin’s Taproot update (to make Bitcoin multi-signature transactions cheaper and more private) has finally begun its “Speedy Trial.” Miners have three months to signal their support.

DIGI-DOLLAR: The U.S.-based Digital Dollar Project, a private project founded by Accenture and two former CFTC regulators, will begin five pilot programs to test how a Federal Reserve-issued CBDC would function.

SPARTAN PROTECTION? Spartan Protocol, a decentralized protocol built on Binance Smart Chain, lost more than $30 million earlier Sunday after someone exploited “a flawed liquidity share calculation.”

INXS OF $85M: INX (the crypto exchange, not to be confused with the Australian band INXS) just closed its Ethereum-based IPO with $85 million in proceeds. This was the first security token offering registered with the U.S. Securities and Exchange Commission.

– Daniel Kuhn

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Overheard on CoinDesk TV

Sound Bite

“The future of money is digital. Whether it’s sovereign money or non-sovereign money."

– Former CFTC Chairman Chris Giancarlo, on CoinDesk TV's "First Mover."

A message from CoinDesk

CoinDesk Research: Does Bitcoin Have an Energy Problem?

Is Bitcoin bad for the environment? This CoinDesk Research report looks at the data behind the most common critiques and shows that, while Bitcoin uses a lot of energy, the mix is evolving toward renewables. Bitcoin also incentivizes investment in clean energy sources, can convert pollution into value, and redistributes wasted power production. Download the free report.

What others are writing...

Off-Chain Signals

Are CFOs flocking to bitcoin? “Almost nobody else wants to pile a potential time bomb on their balance sheet,” Fortune writes
At least one of Vitalik Buterin’s wallets holds over $1 billion in ETH (Decrypt)
CME Group has launched micro bitcoin futures (the contracts are 1/10th the size of one bitcoin and will be settled in cash) (The Block)
Spot trading volumes on legitimate crypto exchanges hit $1.58 trillion in April (The Block)

- D.K.

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Read more about CoinDesk Indexes, the industry standard in crypto benchmarks.

Putting the news in perspective

The Takeaway

Bitcoin Has a Nonviolent Security Model
Say what you will about the social cost of securing the Bitcoin network, but it will never shoot anyone.

The same promise cannot be made under the security model of today's fiat currencies.

Bitcoin secures its scarcity, and therefore its value, using only cryptography and its proof-of-work system.

Once upon a time, fiat currencies were secured by the value of gold. That stopped being the case in 1971 under President Richard Nixon, who declined to continue redeeming dollars for gold.

So now the value of dollars (and other fiat currencies that float like the dollar does) is secured by the powers of the state: its economy, its credit and its revenue, all of which is ultimately secured by its military and police forces.

This argument, it should be noted, is inspired by one of the latest in Nic Carter's ongoing series of posts on the issue of cryptocurrency and climate, but this post is not about global warming; this is about the application and the abnegation of institutional violence.

When the wind blows

At one point, Carter argues that if we're to compare the climate impact of different forms of money, one should factor in the climate impact of militaries that secure them. He writes:

"Visa transactions are non-final credit transactions that rely on external underlying settlement rails. Visa relies on ACH, Fedwire, SWIFT, the global correspondent banking system, the Federal Reserve and, of course, the military and diplomatic strength of the U.S. government to ensure all of the above are working smoothly ...

“The dollar’s ubiquity is partly due to a covert arrangement whereby the U.S. provides military support to countries like Saudi Arabia that agree to sell oil exclusively for dollars."

It would probably also make sense to throw police forces in here as well.

Freely floating currencies are backed by the full faith and credit of the nation-state that issues them, but they are also backed by the state monopoly on violence.

The cradle will rock

Hopefully, no one is going to quibble over whether states have the monopoly on violence. Peaceful dispute resolution is ... like ... the main point of government.

If you and your neighbor have a dispute about who can plant a garden on which piece of dirt, it is no longer permissible to "settle this like men." Fisticuffs have been disallowed as a means of sorting out differences. It's a matter for the local magistrates and the courts, which in turn are backed by police forces enforcing their decisions.

Today, those same forces also guarantee the monopoly on the issuance of currencies.

For most of us, this is hardly even worth discussing. Why would anyone ever want to use anything but the state currency? It's so convenient! It has such great network effects! What kind of action would ever need to be taken to protect the monopoly of the thing that's so obviously the best thing to use?

Except, crypto bans have been floated by nation-states several times around the world already.

When the bough breaks

If a full-on ban were ever to be enacted, it won't be the accountants and the lawyers in the securities regulatory offices that go looking for folks hiding bitcoin. It will be state employees authorized to wear sidearms as fashion accessories who do it.

An obvious objection to this post will be: Look, most states follow the lead of the U.S. and the U.S. has been pretty clear that it's fine with cryptocurrency in general – it just needs to hammer out some rules for it.

This objection misses the point. The point is not whether states will or won't ban crypto. The point is that the U.S. could. It could use its police forces to maintain its monopoly rights over the money supply. The U.S. could try it; any nation-state with a police force could try it.

So in that way it's not only the faith and credit securing the money supply, it's also the apparatus of violence. At the end of the day, all authority of any state comes down to a mixture of the will of the governed and the state's monopoly on violence. Some governments err more on one side and some err more on the other.

The cradle will fall

But Bitcoin (and, for that matter, its progeny) will never show up at anyone's door to enforce its value in the market. Bitcoin is and always will be secured by cryptography, electricity and the network effect of its users. That's it.

I can take this one step further: Let's get a bit science fiction-y and imagine that some ultra-powerful new codebreaking technology comes along and it beats the cryptography underlying bitcoin – all the private keys become public! All the secrets are exposed!

What happens?

Bitcoin just breaks. It's donezo. There's no fallback. F2 and Antpool don't have armies secreted away somewhere to come out and enforce whose wallets belong to whom.

Many bitcoiners may be partial to firearms, but bitcoin itself has no use for them. The original cryptocurrency is as non-violent as a hippie commune baked out of its mind once the marijuana harvest is ready. The dollar and its fiat family cannot say the same.

– Brady Dale

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