Standard Crypto

Coinbase (CEO Brian Armstrong left and top Legal Counsel Paul Grewal right) has responded to the SEC Wells notice they received with this video:

It is a very nice video.

I myself am a customer of coinbase, so I don’t want to give them too hard of a time.

That being said, there are pretty clear rules on what constitutes a security (regulated by SEC), most importantly the Howey test adjudicated by SEC v. W. J. Howey Co. in 1946.

https://en.wikipedia.org/wiki/SEC_v._W._J._Howey_Co.

It was obvious to me, and most people I knew in crypto when the ICO bubble was brewing, that the vast majority of (easier to defend than “every single dang”) ICOs were in violation of Howey. Certainly ethereum is.

TLDR: “An investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.” (from wikipedia)

As Paul Grewal notes at 5:49 in the video, the law governing securities has not changed. That would be the Howey test.

Thinking this might be helpful to Grewal, or viewers, I posted a youtube comment linking to the Howey Test page on wikipedia, and excerpting the above summary.

I screenshotted it just in case, because youtube can be weird about comments.

Well, I am glad I did screenshot it, because someone from coinbase must have deleted my comment. In fact, all comments on the Wells letter response have been deleted. Jeez, why didn’t they just turn off comments for that video?

I am just a nobody with a something dot wordpress blog, so I am not sure if anybody from coinbase legal managed to read my deleted comment, or is now reading this. But if they did, I hope this has been helpful.

So today it is

https://www.nytimes.com/2023/04/09/business/bitcoin-mining-electricity-pollution.html

It’s paywalled. Curses!

As usual, sneak behind the paywall from links left helpfully at hacker news.

https://news.ycombinator.com/item?id=35510724#35511989

OK. I commented (as tphyahoo) at

https://news.ycombinator.com/item?id=35510724

But curses again! I’m shadow banned. I dislike the new wordpress editor but I guess I’ll have to put my comment up here. oh well. universe helping me quit hacker news for good.

Having dispensed with these preliminaries, here is my blocked comment from hacker news. In response to original comment by x-complexity.

X-Complexity said: “This is another a hit piece on Bitcoin, AND an attempt to force in ESG mandates based on concerns for the environment.

The most jarring part of the article is the table that attributes 70-90+% of the met energy requirements towards fossil fuels, whilst not providing ANY explanation as to how such conclusions were made other than “We pulled it from WattData’s analysis for energy usage from March 9”, and are provided NO links or references towards the WattData data used. The percentages themselves aren’t backed up with references towards WattData. Nothing concrete from NYT themselves that can be used to say “Here’s the exact calculations & sources that we used for this data”.

Keep in mind that this is the lynchpin for the entire article. If no references are provided for such a a critical part of the article, then such data cannot be used and the random average case must be used instead:

((Daily energy usage of facility, MWh) / (Average Daily Total Power generated by the state, MWh)) * (Generated from fossil fuels, %) * (Total emissions from fossil fuels for the state, MT of CO^2)”

I replied: “as you say.

“WattTime… were recommended in a report by the Crypto Climate Accord, an initiative to reduce the industry’s carbon footprint supported by more than 200 cryptocurrency companies.”

https://www.coindesk.com/markets/2021/04/08/ripple-coinshare…

coinshares is a bitcoin co. but most companies in CCA are not, and my educated guess is that CCA is a PR op targeting bitcoin, and supported by dirty money from centralized, non-howey test compliant scam tokens like eth and xrp, plus some useful idiots. consensys is the corp behind ethereum. ripple and ethereum are known for using their vast cash reserves to buy negative PR against bitcoin from respected entities like greenpeace and, in the case of this article, nyt.

https://www.youtube.com/watch?v=GWgjys5p8-k (“Bitcoin Tells Greenpeace To Go Fork Itself”)

more crypto climate accord supporters, who even are these people lol

as a bitcoin supporter, I do call bullshit on elements of bitcoin community to claim that every hash is somehow good for the environment. of course bitcoin uses non-renewable energy. and the renewable energy it uses displaces other users of that renewable energy. this is also true of every other energy consumer. and hot showers. and beef. Nice things take energy.

green-ness of energy should be enforced at the producer level, not the consumers. aluminum smelters should be treated the same as bitcoin mines; and as an aside in many cases bitcoin mines are sited in former smelters.

the article’s rather weak argument for why this should not be the case is:

“WattTime’s method is the one many energy and climate experts recommend for measuring the environmental effects of increased power use by any industry, particularly one that grows so large so suddenly.”

so basically, penalize new users of energy, privilege existing users.

Anyway this is bad journalism. NYT is just being played, or possibly being paid to be played.”

re

https://vitalik.ca/general/2022/11/19/proof_of_solvency.html (“Having a safe CEX: proof of solvency and beyond”)

discussed at

https://news.ycombinator.com/item?id=33689411

“Plasma and validiums: can we make CEXes non-custodial?”

This section. What a crock of garbled bullshit.

This objective is impossible by definition.

Sure, if somehow the CEX doesn’t hold dollars but some gnarly blockchain asset maybe there is some way.

Vitalik Buterin has been off my whitelist for a long time, for the way he communicates and obfuscates. But every once in a while I check in.

Yup, still at it.

Potscriptum:

Maybe the right question here is, should Hacker News be off my whitelist?

Sorry @dang. I know you try. You’re heroic in my book.

But still, Probably yeah.

Russia is flirting with a gold standard.

https://vz.ru/news/2022/7/28/1169741.html

google translate: “Treasury proposes to create an alternative to the London Precious Metals Standard”

“A new international standard for the precious metals market, the Moscow World Standard (MWS), should be created, which will become an alternative to the standard of the London Bullion Market Association (LBMA), the Russian Finance Ministry said.”

dmitry orlov: “To put it in the plainest terms possible, Russia is colluding with a number of other countries to exclude the dollar, the euro and the pound from the system of international settlements, starting with precious metals but not necessarily stopping there. These countries control a lion’s share of gold production. For starters, Russia has fixed the price of gold in rubles at 5000₽/g, which works out to $2,447.17 per troy ounce. This compares rather favorably to the current LBMA fix of $1,737.84. The days of LBMA’s ability to drive down gold prices using paper gold manipulation appear be nearing the end.”

https://boosty.to/cluborlov/posts/b467c87c-2d46-4df9-87a1-be6f01d8c81a (paywalled)

$2447 vs 1737, quite an arbitrage! But there’s no way to execute it because it because of capital controls. Darn, if only there some way to sell those rubles for bitcoins…….

dmitry orlov: “The Finance Ministry wants to make membership in this organization attractive to all market participants, especially China, India, Venezuela, Peru and other South American countries, as well as Africa. It aims to swiftly destroy the monopoly of LBMA and to provide for stable development of the precious metals sector.”

russia + all the countries with capital controls. all the countries that make it hard to buy bitcoin. they now want to make it attractive to settle international payments with gold.

what can you do with rubles? you can’t buy bitcoin. you can’t buy dollars. you can buy gold, but at a 41% higher price.

And, you can buy energy. Hmmmmmmm you can buy bitcoin with energy.

(note, dmitry orlov is putin fan, russia booster and bitcoin uber skeptic. I don’t think he understands this.)

https://news.bitcoin.com/bank-of-russia-ready-to-legalize-crypto-mining-if-miners-sell-minted-coins-abroad

“In August 2021, Russia accounted for about 11% of the global processing power used for minting new units of bitcoin, according to the Cambridge Centre for Alternative Finance, making it the third-biggest mining hub behind Kazakhstan.”

https://www.cnbc.com/2022/04/22/sanctions-could-hurt-russias-multibillion-dollar-crypto-industry.html

either russia will be next big country to ban bitcoin mining, or bitcoin is going to undermine russia’s financial war on non-capital controls (though not really rule of law following either) countries, countries that use dollars and pounds I guess to settle gold on the LBMA.

actually it doesn’t matter that much. china banned bitcoin, but a huge amount of bitcoin mining (though less) still happens in china.

ruble (and euro, and usd) is a shitcoin.
gold is a physical shitcoin.

with this weaponized energy, some day there’s going to be a test, do you rather sell your energy for gold/rubles following the capital control regime rules, or do you rather mine bitcoin and lie about it, and stay free.

The whole thing is worth watching but pay particular attention around 13:30, where shellenberger talks about turning up the flame with lng when solar isn’t putting out enough watts, and also observes that a drawback to nuclear is that it is very hard to vary the output of a nuclear plant up or down, which is why — besides environmental concerns — solar is usually supplemented with lng cogeneration, and not nuclear.

Again, the problem with nuclear is that unlike with lng, it’s hard to “turn the flame down” when energy isn’t needed. But bitcoin actually solves this problem! (not mentioned in the video).

If you ever find yourself with too much energy on your hands, and were formerly forced to burn it as heat because there was no buyer, bitcoin miners will happily take that energy for 2 to 5c per kwh, and put it to work securing bitcoin against shenanigans.

As shellenberger says, lng cogen turns up the flame when green is putting out too little. Well, using the same metaphor, bitcoin could turn the flame DOWN when nuclear is putting out too much.

Saying plus to turn the flame up, and minus to turn the flame down, yields the equation:

nuclear – bitcoin >= solar + lng

Couple things. 1, the same logic could be applied to overprovisioned solar + batteries, as to nuclear. And bitcoin mining does indeed soak up a lot of peak solar kwh, when the sun is shining and producing more energy than nearby communities need, or batteries can store. However, the problem to solve with solar is usually lack of watts, which is why carbon emitting lng peaker plants have to be brought in for cogeneration at peak on hot days, and during hours of night. Nuclear plants don’t have this problem. They just put out energy, whether there is a buyer or not. So I presume that there are probably areas with a lot of nuclear energy that are overprovisioned, you just don’t really hear much about this as a “problem” because it is easy enough to burn electricity as heat. But nor is it much benefit to overprovision, with any energy source… until bitcoin came along that is.

And 2, I am not an expert, and I will not defend nuclear energy against accusations that environmentalists make that it is too dirty, or economists that it only works when it is subsidized with liability caps, or any of that.

I’m just… saying.

According to altcoin tracker fiatmarketcap.com, the current top altcoins are yuancoin at #1 and usdcoin at #2, with 27% and 18% respectively. Bitcoin is currently at 1% dominance, and sprinting rapidly upward.

Fiatmarketcap doesn’t track the ethereum currency dominance, but if it did it would be at around 0.5%, half of bitcoin, and somewhere between mexico and hong kong. For ethereum currency dominance you have to consult coinmarketcap.com, which has a longer list of altcoins, but is currently for some reason excluding usdcoin and yuancoin. I’m actually not sure why coinmarketcap excludes the leading alts, so if anyone does know please comment below.

It’s useful to also consider energy dominance.

I was unable to find energy consumption of the People’s Liberation Army, which backs yuancoin. But US armed forces uses 30000 gigwatt hours a year, or 3GW. I assume yuancoin is similar, maybe a bit less. According to cambridge university, bitcoin is backed with 13GW.

World energy consumption is 16,800 GW, so usdcoin uses 0.02%. Bitcoin uses 0.07%, almost 4x as much. By my lights, this makes bitcoin significantly more secure than usdcoin, so probably undervalued. But who can say, maybe the currency market knows something I don’t. I went into the napkin math a bit more here.

Ethereum still has mining, so presumably it also has some claim on the global energy markets, but I was unable to track down any hard numbers. However, ethereum foundation has committed to environmentally green their security budget by transitioning to Proof of Stake, which uses 0 kwh.

Projecting forward 3 years (next halving), I expect usdcoin and yuancoin energy dominance will remain flat around 0.01-0.02%, bitcoin will increase 4x to 0.25% or so.

Further out — 12 to 15 years say — a naive hyperbitcoinization scenario would imply 100% bitcoin currency dominance (100x current), and 7% energy dominance if energy usage scales linearly. I expect the actual energy dominance fraction to be somewhat less, due to halving of block subsidy and other market factors. So conservatively, bitcoin might stabilize at 2-3% of global energy usage if it replaces money.

Meanwhile, with Proof of Stake, ethereum will have transitioned its share of the worldwide energy security budget to 0%.

Invest accordingly!

from the official filing

sec.gov/Archives/edgar/data/0001878848/000114036121035328/ny20000275x5_f1.htm#tUOP

https://www.sec.gov/Archives/edgar/data/0001878848/000114036121035328/ny20000275x5_f1.htm#tUOP

“The data center site, which has been operating since 2019, has approximately 30 MW of capacity and operating hashrate capacity of approximately 0.7 EH/s (exahashes per second), as of October 1, 2021.”

planned expansion… “we have entered into binding hardware purchase contracts with Bitmain Technologies Limited, a leading producer of Bitcoin mining hardware, to acquire the latest-generation miners, Antminer S19j and Antminer S19j Pro, with an aggregate nameplate hashrate capacity of 14.5 EH/s and deliveries commencing in October 2021 and ending in September 2023, which is expected to increase our operating and contracted nameplate hashrate capacity to 15.2 EH/s and result in an average nameplate hardware efficiency of approximately 30 W/TH.”

and this would be with 530 MW.

current total hashrate is 155,000 PH.
from https://bitcoin.clarkmoody.com/dashboard
(shown in EH, under mining / “Hash Rate, 2016 Blocks
“)

so, currently
30 MW => 700 PH (petahashes per second)
(about 0.4% of total hashrate) (700 / 155000)
planned for september 2023
530 MW => 15,700 PH
unknown what percent of total hashrate, but my estimate is hashrate doubles by end of 2022, 3.5x by end of 2023. (slow growth because new of fab bottleneck for manufacturing miners, growth will accelerate later)
so my estimate is they would have 2.8% of total hashrate.
15,700 / (155,000 * 5)

2.8% is a lot! if Iris was mining with 3% of hashrate the whole of 2023, that would entitle them to 10,000 btc, or $600M at today’s prices, 600% over the ipo. Sentiment expects bitcoin usd price significantly higher in 2023 than today.

but not so fast. they will only hit this 3% towards the end of the year, so more like 5000 btc according to their plan, or 3x ipo.

(btw, the above 3x / 6x is assuming 100% of $100M raised by ipo, goes into buying hardware and electricity and related opex. that’s probably a gross oversimplification, but not so terrible that it’s useless for this exercise.)

anyway, that was the success path.

the main risks are, imho,

1) late delivery or bad equipment or other problems from bitmain.
it’s a single supplier bottleck
2) operational problems scaling up, provisioning power, etc
3) the big wildcard, difficulty goes up by significantly more than my estimte of 3.5x.
4) bitcoin usd price stagnates.

2021: Bitcoin is #1 (already), various altcoins follow, such as ethereum, cardano, solana, binance coin, ripple, usdt, litecoin, dogecoin, and others. Bitcoin dominance, 45%.

2041: Bitcoin is #1 (not yet, currently #14), various altcoins follow, such as usdcoin, cnycoin, eurcoin, ethereum, gpbcoin, litecoin, jpycoin, and many others. Bitcoin dominance, say 47% ( not yet, currently 1%).

Historically 47x growth in bitcoin, is just a good year. Over 20 years, you’d barely notice it. Usdcoin, currently the world’s reserve currency, could maintain or even grow its current 30% dominance. It would just be clearer that the dollar’s actual competition isn’t bitcoin, but ethereum, ripple, cardano, and other altcoins with uncapped issuance and little or no share of energy securing against double spends.

It seems rather hysterical to me to call this hyperinflation.

Perhaps one could call it hyperaltcoinisation.

tldr: 2021 bitcoin is 0.5% of global electricity, 0.07% of global energy. napkin math follows.

“In 2008, the world total of electricity production was 20.279 petawatt-hours (PWh). This number corresponds to an average power of 2.31 TW continuously during the year.”

note this is electric energy only, not total energy.

https://en.m.wikipedia.org/wiki/Electric_energy_consumption

total electricity 2300gw, and hoover dam produces 2gw, so about 1000 hoover dams to power the world, sounds right.

That’s just electricity, though.

Energy is basically fungible between electric and non-electric uses. So the real figure to compare bitcoin against is total annual global energy, including electricity. This is 14420 mtoe a year, or 168,000twh a year, or 19.1 terrawatts. (nb: mtoe is million tons of oil equivelant)

https://en.m.wikipedia.org/https://en.m.wikipedia.org/wiki/World_energy_supply_and_consumptionWorld_energy_supply_and_consumption

The cbci estimates for bitcoin mining energy use is 13gw. That’s 0.5% total electricity, 0.07% total energy.

0.5% of total electricity is a lot, remember this next time you experience a brownout. (I had one half an hour ago.)

Even 0.07% of 14.4 billion tons of oil is a lot. At what point does OPEC start talking about bitcoin in their policy guidance? I estimate 2024, early in the next halving.

To be clear, I’m predicting 2024 bitcoin at 2.5% total electricity, 0.5% total energy, for opec to officially acknowledge bitcoin in energy policy.

That has difficulty 5x now, or 100T, in 2024.

Since my 1 yr estimate based on extensive polling is 40T by end of 2022, this doesn’t seem outlandish.

So in 2024 bitcoin is competing with tesla for electricity, and competing with regular cars, and datacenters, for gas and diesel oil.

“if a big supplier fails, Ofgem will appoint an emergency administrator to limit the risk of market chaos created by trying to quickly transfer a large number of customers to another supplier. Ofgem, the Department for Business, Energy and Industrial Strategy and the Treasury may decide to financially prop up the supplier while another company is appointed to take on its customers.”

https://finance.yahoo.com/news/u-k-pays-price-energy-070043348.html

This will prevent brownouts in the uk, as long as energy suppliers accept airdropped gbpcoins for oil and lng.