Ep. 67 Bitcoin Bonkers in South America
On this episode of the Unhashed Podcast: Mario is out sick! Wish him well. In other news, why is South America going coocoo for Bitcoin? Has math proved that 6 confirmations are far too many to be safe? And…is Lightning Network totally inefficient? Find out the answers to these and other questions on this week’s episode of the Unhashed Podcast.
Weekly News Wrap Up:
If you haven’t been on twitter this week, then you haven’t gotten to read about the latest outrage. Nakamoto.com was launched this week and the vitriol that can only come from Bitcoin twitter was unleashed. Maximalists were accusing the creators of bait and switch tactics by using the Bitcoin name to talk to visitors about altcoins. The list of contributors includes some people who have not been very kind to BTC over the past few years like Roger Ver and Vitalk; however it also includes Rob Rhinehart, the cofounder of Soylent, so could it be all that bad?
The temperature has steadily been rising in the Argentinian crypto space for several months of 2019, creating a clear timeline for the increased acceptance of bitcoin and other alternative assets. The nation’s economy and fiat currency have been especially wobbly since August 2019 as the stock market hemorrhaged during an upset presidential election. In addition to damaging the return value on investments, this also caused the peso’s value to plummet. Very soon after this initial trigger, the relative valuation and trading volume of bitcoin spiked to levels comparable to conflict-stricken regions like Hong Kong. The Central Bank of Argentina, run by the national government, attempted to stabilize the situation first by imposing limitations on the purchase of USD. Beginning by limiting Argentinians to only $10,000 in purchases per month in September 2019, the bank added additional restrictions on October 31, 2019. In addition to limiting the amount of USD that a citizen can acquire per month to $200, the bank also announced that bitcoin could only be purchased by means of “funds transferred from a bank account.” Since this time, the relative valuation and trade volume of bitcoin have spiked yet again in Argentina, even compared to the initial increase when the peso first hit shaky territory. The bitcoin price was reported to reach as high as $12,759 on an Argentinian exchange in November 2019, marking a 38 percent premium compared to other exchanges around the world. In that same month, Argentina exchanged an estimated 19.4 million pesos on LocalBitcoins.
Transaction volumes in bitcoin traded over LocalBitcoins have shown a rising interest in Argentina since late 2017, with the volume of bitcoin bought and sold reaching spikes surpassing $20 million and then $30 million in a tremendous boost toward the final months of 2019. The trade volume in Chile, however, had already reached $50 million by the second half of 2017 and has been steadily climbing ever since. With the trading volume approaching the $250 million mark in December 2019. Using the data from Bitex, latin american’s largest crypto exchange indicated that bitcoin is primarily used for international payments, rather than as a safe haven asset to protect long-term wealth. Manu Beaudroit, Bitex’s chief marketing officer, said “In our case, we provide cross-border payments using bitcoin, and we see a much more interesting use of crypto in transfers rather than saving for the long term,” he said. “People are always looking for better solutions to move money abroad, mostly for business reasons. Remittances are also a big deal in Chile, as they send 1.5 billion [pesos] a year to countries like Colombia, Haití, the Dominican Republic and Perú.”
In a recent research paper, Published on the computer science and cryptography section of Cornell University’s arXiv library, European mathematicians Cyril Grunspan and Ricardo Pérez-Marco demonstrated through calculus and game theory that, thanks to the robust network security and relatively high BTC price, small bitcoin transactions may not need the six confirmations typically required by merchants and exchanges. According to the findings presented, a potential attacker who owns 1 percent of the total hash rate would have to spend at least 50 coinbases (currently 625 BTC and 312.5 after the 2020 halving) in order to revert a single confirmation. To revert two confirmations, the cost would be 1,666 coinbases, according to the research. “What we compare is the profitability of the double spend and honest mining,” Pérez-Marco explained. “For a small transaction, any major miner with high hashrate has no interest in engaging into a minor double spend. And in the case of small miners who possess less than 1 percent of the hashrate, only a big amount can justify a double spend from the profitability point of view. For example, with a 1 percent hashrate, and only 1 confirmation requested, the minimal amount to double spend is more than 49 coinbases, that is currently more than 612 BTC.” After taking into account multiple scenarios and doing all of the calculations involved, Grunspan and Pérez-Marco reached the conclusion that, after two network confirmations, it’s more profitable to mine honestly than to double spend. This game theory conclusion is applicable even in cases where the value of the transaction equals the coinbase. The paper takes on the calculations of Satoshi Nakamoto, as presented in subchapter 11 of the Bitcoin white paper.
The most devastating cryptocurrency Ponzi scheme in history may be contributing to bitcoin’s 2019 price decline. That’s according to blockchain analytics company Chainalysis, which has been tracking funds from the roughly $3 billion PlusToken scam since the thing blew up at the end of June 2019. As the scammers have scrambled to obfuscate hundreds of millions of dollars’ worth of bitcoin they accrued, they’ve left a trail on the Bitcoin blockchain, and Chainalysis has been following it for months. And according to its research, released in a recent blog post, these movement dead-end at a handful of independent over-the-counter (OTC) desks that operate on the Huobi exchange. If Chainalysis’s findings are to be believed, the scammers have sold some 25,000 BTC for just shy of $200 million in profit — and they’ve got at least another 20,000 that’s been untouched since September 2019.
A new research paper, entitled “A Cryptoeconomic Traffic Analysis of Bitcoin’s Lightning Network,” was written by a trio of Hungarian researchers: Ferenc Béres of the Institute for Computer Science and Control, István A. Seres of Eötvös Loránd University and András A. Benczúr of Széchenyi István University. Using a Lightning Network traffic simulator created for this research to imitate the network’s flow of transactions, the paper concludes that the current rate of network transaction fees is not economically viable for the long term. In addition to an immature fee market, the paper addresses the tendency of bitcoin senders using the Lightning Network to utilize more direct, less private payment routes. The paper proposes solutions to both perceived issues and, in doing so, raises questions about what the Lightning Network should ultimately be for Bitcoin. The authors state, “currently, LN provides little to no financial incentive for payment routing. Low routing fees do not sufficiently compensate the routing nodes that essentially hold the network together.” In their presentation, the authors estimated that daily routing income for major router entities at different levels of traffic volume and payment value is approximately 100,000 sats (about $7) per day.” Assuming nodes operators want a legitimate return on investment from transaction fees, the paper asserts that the financial incentives in the Lightning Network are not enough. To make payment routing economically viable for node operators, the paper proposes either 1) increasing traffic or 2) increasing transaction fees. The paper also finds that despite randomized onion routing, “strong statistical evidence can be gathered about the sender and receiver of payments, since a substantial portion of payments involve only a single routing intermediary.” As a potential solution to this privacy drawback, the authors suggest using “deliberately suboptimal, longer routing paths [that] can restore privacy while only marginally increasing the cost of an average transaction.” Additionally, creating a direct payment channel between senders and receivers creates the optimal level of privacy. Based on the paper’s recommendations, if default transaction fees increase, taking longer, less direct payment paths for privacy will cost more. Similar to the concern with setting a default transaction fee for node operators, and in the spirit of Bitcoin’s earliest developments, this paper’s findings currently put the responsibility of privacy on users selecting their payment routes.
Price Analysis:
Number go up
One Final Note:
Make sure you are storing your crypto on something secure like a Ledger and backing it up on something sturdy like a Billfodl. If you buy these items through the links above, we do take a cut of the profits but it also helps support the show - a win/win for all involved.
And also...thanks for stopping by and listening. If you want to help us grow, there are several ways you can help out.
You can donate bitcoin to us at the address on the donate page on our website unhashedpodcast.com, you can also sponsor our show by getting in touch with us at mailbag@unhashedpodcast.com, or there are a few other things you can do that will cost you nothing but a little time - you can rate our show on itunes or wherever you are listening to this, you can tell a friend about us, or most easily, you can retweet our tweets announcing each episode and follow us @unhashedpodcast or join our telegram channel at t.me/unhashedpodcast.
Again thanks for listening and helping us grow. See you on the other side.