BTC Sessions - Lightning Network Privacy Holes, Money Printer vs Free Markets, Bitcoin Mining Difficulty To Hit ATH EP047

Episode Date: April 21, 2020

SUPPORT THE SHOW: Visit LEDN to check out getting a bitcoin-backed loan https://platform.ledn.io/join/0a00cca3dd61dea5909c95cd41f41685 Buy Bitcoin on Coinberry and get $20 after your first $100 purchase https://app.coinberry.com/invite/c5d52730857 Get Wasabi wallet and enjoy your privacy https://wasabiwallet.io/ Wasabi Tutorial https://www.youtube.com/watch?v=ECQHAzSckK0 Get NORDVPN to protect your online privacy. 75% off a 3 year https://nordvpn.org/btcsessions Check out my website for private bookings: http://btcsessions.ca/ Join my Telegram channel! https://t.me/btc_sessions If you value my work and would like to send me a tip, they are always appreciated! LIGHTNING tips: https://tippin.me/@BTCsessions SHOW RESOURCES: Lightning network privacy may be in question according to this research https://www.coindesk.com/researchers-surface-privacy-vulnerabilities-in-bitcoin-lightning-network-payments The (weak) argument for more money printer brrrr’s https://www.coindesk.com/how-i-learned-to-stop-worrying-and-love-the-money-printer More efficient miners contributing to new difficulty all time highs https://cointelegraph.com/news/next-generation-bitcoin-mining-hardware-arrives-just-in-time-for-btc-halving https://decrypt.co/26201/bitcoin-mining-difficulty-ramps-up-ahead-of-halving Belief in money: authority vs free markets https://decrypt.co/26205/bitcoins-belief-problem-only-26-trust-decentralized-cryptocurrency Bitcoin ATMs top 7500 worldwide https://decrypt.co/26162/bitcoin-atms-pump-to-over-7500-worldwide

Wasabi wallet and fairly private. What's up everyone? I'm Ben with the BTC sessions and this is your daily session. Before we dive in, of course, shout out to sponsors of the show, leaden.io. This is where you can use your Bitcoin for a few different services. They've got Bitcoin savings accounts where you can earn interest on your Bitcoin. They've got Bitcoin backed loans, which was the first thing I ever used from their site. And this is where you can use your Bitcoin as collateral to obtain a Canadian or US dollar loan. So in my case, I was in a pinch.

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check out any of those, there's a link in the show notes down below. And if you click on that link and you utilize it to get a Bitcoin back loan, they'll actually give you 50 bucks worth Bitcoin for free. Secondly, we have CoinBerry. This has been my go-to for picking up Bitcoin for stacking sats as of late, especially this year. I've been using it quite a bit. And I actually find this super convenient. They've got a killer web interface and the paired app is very, very nice to navigate for on the go stacking. And there's a few other things that I really like about this. One of the things is this speed with which I could fund my account. So e-transfers are super convenient. And in my experience, I've only ever had to wait around 20 minutes for that account to get funded,

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And with that, let's dive into the news. Now, this is an article from CoinDesk talking about the Lightning Network, namely privacy vulnerabilities that are there. So there's been a lot of talk around Lightning Network, which enables very fast, basically instant payments, very cheap. Now, there was also an expectation of a certain level of privacy. And the reason for that is each lightning network transaction goes through typically 20 different hops, 20 different nodes in between, and each one of them is onion-rooted through the Tor network, which is encrypted. And so, reasonably so, people assumed that this pretty much obfuscates everything about the transaction. But not so. There are some tricky ways and some interesting,

kind of privacy related attacks that people are carrying out to try and deanonomize parts of the Lightning Network. And it's actually very interesting the way that they did this. And so what they did is the Lightning Network is a series of channels. So Bitcoin locked up between two different addresses and every time you send between two different addresses, the balances kind of get adjusted. And when those channels get closed, the amount of Bitcoin allocated to each side of the channel get settled to the main Bitcoin network. So if I had a network between myself and you, say you were a bar owner, and every time I paid you, you would give me a beer.

Basically, it's like if we had $100 locked up, every time that I receive a beer and I send over $5, the contract updates. So we each receive a certain proportion of that $100 worth of Bitcoin. And then when that settles, it just settles up the contract. and I take home the amount of change left over from buying all those beers, and you take home the amount of revenue that you earned from that service. So there are allocations of Bitcoin between all of these channels. And so what this attack did, and I guess it's more just like experimenting to try and see

what kind of information that you could get out of the Lightning Network is you can send or attempt to send transactions that are not actual transactions, but you can still get some information in doing so. And so this is with a fake hash is what it's called. And when you go to send this transaction, you can actually test the capacity how much Bitcoin is locked up in these certain channels. And in doing so, you can then kind of test around the network and see what's allocated where.

And keep in mind that it costs you nothing to do so. because it's an imaginary transaction, it will not actually be executed because the hash is invalid. And so because of this, you can then see what balances are where. And the way that they did this is they kind of overshot what they were trying to send, and then they just lowered it more and more and more and more until they no longer got the error message that there wasn't enough capacity to send through specific channels. And so that would more or less give them the exact balance sitting in that channel. So they did that through multiple channels.

And then they actually sent a real transaction and then executed that same attack again by probing the, you know, how much is sitting in each channel. And through that, they could actually discover the sender and recipient of various different transactions to see the begin point and the ending point of specific transactions. in the Lightning Network. Now, it should be noted that this attack was only carried out, only able to be carried out on public channels. Channels on the Lightning Network can be both public and private. And when they're private, they're by default routed through the Tor network completely. And you can't search up those channels throughout public inquiry.

The other thing is this could also be obfuscated. keep in mind that Bitcoin addresses and public keys are not completely private, right? They're public. You can audit the blockchain at any time. And through that, you can also try to draw ownership of that specific address through chain analysis. However, you could probably get around this by funding Lightning Network channels with mixed coins via something like Wasabi Wallet or Samurai Wallet. or join market. So you can feasibly fund a Lightning Network channel via some of those methods.

Maybe even pay to endpoint which BTC pay server has implemented, which creates a coin join on the spot, but it looks like a regular transaction. And with a lot of those tools, you begin to obfuscate who owns what on the base layer. And with the added benefits of some of the obfuscation through lightning, and making sure that you're utilizing private channels, there's still a reasonable amount of privacy. It's just that if you're not careful, yes, indeed,

you can be leaking information through this. So kudos to the researchers here that took a look at this and discovered these vulnerabilities or these holes in the assumed privacy of lightning. And, you know, research like this helps people realize what works and what doesn't and take necessary measures to even further harden privacy measures on top of Bitcoin. So kudos to everyone here. And yeah, highly recommend you take a look at this research. I will link to it down below. Up next, I wanted to touch on this article from CoinDesk

called How I Learn to Stop Worrying and Love the Money Printer. And so what this article is talking about is how a lot of Bitcoiners are very averse to the money printing that has been going on right now with the Federal Reserve effectively saying that they'll make unlimited quantitative easing. They'll do whatever it takes to print enough money for the global financial system to function and for the U.S. to function. And it talks about how there's a liquidity crunch and how there's issues in not doing this, in that if there's a liquidity crunch for dollars and the value of the dollar goes up

because there's not enough supply, then people that have gone into debt and nations that have gone into debt in terms of dollars may not be able to keep up with their obligations. And the interesting thing is, at the end of this article, I'll just read the last paragraph here. It says someday after a vaccine is found, referring to COVID obviously, when we were all once more commuting to work

on the subway and toasting each other in bars, it will become important for the U.S. to find the political will to shut down its money printer. We will have to wind down that way, that which today is necessary. We will have to hike interest rates. I am not confident. I am not confident that will happen. At that point, I will become concerned about dollar devaluation, but not today. Today, we need to keep our dollars flowing. And to me, this article is a very good example of high time preference. And I'm not discounting the fact that, yes, it does hurt if you have obligations in U.S. dollars and you cannot meet them because the value of the dollar has gone up and you can no longer afford to get your hands on dollars because of a liquidity crunch.

But I think the reason that people have gotten into positions where it's this culture of borrowing globally and we put ourselves in over leveraged positions like this is inherent in the money that we use and that we just have easy money everywhere. And easy money is the basis of the world reserve currency. In a system where you actually have hard money as a reserve currency as the de facto unit of value, I suppose, then people are less likely to put themselves in positions where they don't take on risk, or they're less likely to put themselves in positions where they take on risk that they cannot handle if things go sideways. And I'm a firm believer that this money printing while, yes, in the short term, getting that liquidity out there can help some people

right now. It's just another instance of kicking the can down the road. You know, what's the end game here. Is the Fed going to unwind and start to unwind its balance sheet eventually? I don't see how they can. They tried doing that from all the QE that we did from 09 to 14. And look what happened. Immediately there was a liquidity crunch in the overnight repo markets and they started to have to pump billions and billions of dollars into it first weekly or first monthly than weekly, then daily, which continues. And so it's just an inherent flaw in our current monetary system and saying that, well, we just need to print some more dollars right now. We just, all we need to do is print trillions and trillions more dollars and then we'll have to deal with

unwinding that later. It's never going to be unwound. There's always going to be a next crisis when the stock market isn't perpetually going up, we're just going to need to do it again. There's always going to be another global crisis where we just need to, oh, we just need to devalue everybody else's savings once again. But we'll deal with the consequences of that later. It's always later that we're going to figure our shit out.

And I just, what's the end game? I mean, obviously, they're going to keep doing it. It's not going to stop. They're not going to say, well, we're just going to, We'll just let things. We'll just let shit hit the fan. I think what happens if Bitcoin is successful over time is that it's a gradual shift from one system to another. And people, you know, in a world where Bitcoin is successful and you see something like a return to hard assets

and you start to see a logical placement of assets in or of value in things that are actually scarce. and then only allocate capital to other speculative things like stocks and equities and, you know, other other ways of making money. You only allocate there when the risk outweighs the reward of just holding your money in a mildly deflationary asset like Bitcoin. I think that it's a gradual shift to that. And once people are kind of weighted half and half over time, then you'll start to see a more decisive, quicker shift towards that type of a system.

They're obviously not going to stop the excessive money printing. I think it will continue to grow and grow and grow in the coming years. But I by no means condone that. And by no means do I think it's a good system to rely on. And I think decades from now, hundreds of years from now, people will look back at this time and history and say, oh, my God, this was their monetary system. This was how they did things. I do think it's pretty unbelievable and it's unprecedented times to live in. Very interesting.

But, yeah, I've got to say this article, like, I could not agree with it less. And I mean, people are entitled to their opinion. That's fine. But I do think it's kind of the end. of the ethos of why I entered the Bitcoin space. Moving on here, new generation of Bitcoin mining hardware arrives just in time for the Bitcoin having. So we are seeing a lot of new Bitcoin mining hardware come onto the market.

So Bitmain has released their S-17s. They've been around for a while now. But Bitcoin ASIC manufacturer MicroBT has revealed its new. mining hardware boasting a hash rate of 100 terahashes per second, this product unveiling demonstrates that competition is heating up among major ASIC and manufacturers following Bitmain's pre-sale of its S-19 miners and miners. And so they have a couple different ones. They have the MS 30S and the MS 30S plus, or sorry, 30S plus plus and the 30S plus and the 30S plus. And the 30S plus. And so the first model there with the double plus is capable of 112 terahash at a power

efficiency of 31 joules per tarahash. And the single plus edition reportedly clocks in at 100 terahash per second at 34 joules per tarahash efficiency. And they're priced at $3,900 US dollars and $2,800 US dollars respectively. Now, the ant miners, the S19 Pro, just to put in perspective, 110 terra-hash per second, efficiency of 29.5 joules per tera-hash. So more efficient than the other. The standard S-19 is 95-terahash per second, so lower than the second rate one, and it is 34.5 joules per tera-hash. So, actually the lower end one from microBT seems to be a better deal than the lower end one from Bitmain, but the inverse seems to be true by, it's still tight, but it seems to be pretty close,

slightly more efficient from the ant miner, but slightly better tarahash from the microBT. So anyways, what I wanted to touch on here is in relation to the Bitcoin mining difficulty. So the mining difficulty is ramping up. And what this means is the amount of energy that a miner has to expend in order to, that the network has to expand in order to mine a block of Bitcoin. And this has been going up. In fact, we're hitting all-time highs. It's looking like we're going to be hitting,

we're going to be having a difficulty rise of 8.09% bringing it to 17.24 terra hash. Yeah, so it's definitely getting more difficult to mine Bitcoin. Now, the interesting thing about this, this article that I'm looking at from DeCrypt, they're talking about minor capitulation, and that's when Bitcoin miners that are less efficient that have less efficient power and that have less efficient and lower performing hardware, they get priced out and it becomes too expensive for them to operate. And so they have to shut down and perhaps reallocate or be sold to areas with cheaper power or just go out on offline entirely in some instances. So that old line of S-9s is more or less being priced out of the market. And so as difficulty increases, they will capitulate.

A lot of those will drop off the network and be replaced by more efficient hardware. This article seems to be framing this as a negative thing, but it's very much, in my eyes, a positive thing. Because, again, the most efficient hardware and most efficient allocation towards cheaply attained energy is where the money will flow. which I think is a positive thing in a free market. These machines get commoditized and can be shipped to where they're most efficiently used, and eventually they'll just drop off a cliff. So what's happening right now is we're seeing an influx of these new mining machines, which is bringing up the hash rate of the network to the highest levels we've ever seen.

Right now, we had that massive drop in price along with the everything crash that happened in mid-March. And that forced a lot of miners off the network. We saw a huge drop. We saw like a 16% drop in hash rate and a single difficulty adjustment. And that was largely because, again, those miners become unprofitable

at their current power consumption for mining $4,000 Bitcoin. But now that we're back up in and around the $7,000 range, a lot of those mining operations were likely able to switch the power back on and eke out a little bit longer on that hardware. And that's, but we're also seeing, again, more efficient hardware come on, which may price out some of those S-9s again, not to mention the halving is coming up in 20 days now.

And that cuts the reward for Bitcoin miners in half. So at the current difficulty, at the current mining difficulty and the current price of Bitcoin, those s-nines will all go offline around the halving but that's fine that's totally fine because what happens is their reward that they were claiming will be swept up by the more efficient miners the more efficient miners will have to sell less of their bitcoin to pay for their overhead expenses in aggregate and they'll be able to contribute more to the network and add more miners and even new miners coming on from different operations that are using more efficient hardware and more efficient power sources, we'll be able to scoop up that portion of the network.

And so we'll have less cell pressure on the network. Right now we have a lot of cell pressure because those S-9s are starting to go out of fashion like nobody's business, and they're not making as much profit. And those S-9s are anybody running those is pretty much having to sell everything they mine. So I'm looking forward to this next wave of new Bitcoin mining. miners really proliferating around the globe and these S-9s more or less being obsolete especially post-having it will definitely help not only to have less you know way less Bitcoin that can even be sold onto the market but also

miners that are more efficient and inherently have to sell less just to survive okay I wanted to touch on this quick article here this was a survey done by, this is an economist survey, and they're looking at belief in cryptocurrency or decentralized cryptocurrencies versus banks versus cash. Only 20. Just take a look at the chart here. I'm looking at it. If you're listening audio only, I'll kind of read what I'm seeing here.

So what they did is they had, they rated the trustworthiness of various methods of commerce. and cash or money. So they gave a rating of trustworthiness, whether it was not trustworthy, balanced, trustworthy, or they didn't know. And so they started with banknotes like cash, physical cash, and that got the most trustworthy rating of 84%. Then they said a digital currency issued by my country's government or central bank. and I got a 54% rating. Keep in mind that that doesn't exist yet. So I find that statistic to be

interesting. And then a digital currency issued by a large international financial firm, which also technically does not exist yet. Facebook Libra would be the closest one. And that got 40% trustworthy. A digital currency issued by a large international technology firm. Again, Libra likely the most most the closest to that, but again, that's still not even close to launching. That got 36%. And then a decentralized digital currency, such as a cryptocurrency, that is not backed by any particular organization, and that got 26%. So I find this very interesting in that it's obviously a symptom of the length that these things have been around. Cash has been around for a very long time. people are used to it. Obviously, they're inherently going to trust it, especially if you're

in a country that doesn't have hyperinflation currently. Digital currency is issued by a government bank. Again, governments and central banks have been around for quite a long time, so people are more likely to understand them at all. Now, the digital currency issued by financial firms, international financial firms and technology firms, that's an interesting one because it's no longer trusting a bank or organization that somebody would be used to. But it does show that people are more likely currently to trust in some benevolent kind of leader or dictator to tell them that their money is valuable rather than an inclination towards something that can't be controlled or manipulated by somebody else. What I would have loved to have seen from this

is to incorporate gold because that is something that is a sound money that cannot be manipulated by anyone else other than trying to buy and sell it, but like the core supply of it, more or less cannot be manipulated. And it's not controlled by a government or anything like that. I would be very interested to see the trust in something like gold because Bitcoin is more or less the digital equivalent to that. A finite store of wealth that cannot be manipulated by outside sources, at least at its core. And I would be very interested to see if it's just, and my inclination is to believe that it's just a symptom of unfamiliarity because of big, if gold was very high on this list and Bitcoin was the opposite, then it would just lend itself

towards people don't really know how Bitcoin works and it hasn't had enough of a track record after only 11 years to have that much trust instilled with it. I expect that will change over the coming decades as more people just inherently are more familiar with Bitcoin. Again, my daughter's two. She's always lived in the world where Bitcoin existed, it's not going to seem weird to her that it's a mechanism of holding wealth and transferring wealth globally. So it'll be interesting to see how these types of surveys change in the coming years. And in fact, I mean, this is already quite a shift, even just from a few years ago, 26% consider a digital decentralized cryptocurrency to be trustworthy.

That would not have been the case even just a few years ago. Anyways, very interesting there. And last thing I wanted to touch on, Bitcoin ATMs. There's now over 7,500 worldwide. That's an increase of over 70% since last year, which is actually kind of amazing to me because we're still kind of more or less just coming out of that bear market that we've been through for the past couple of years here.

And I mean not even decisively so because last year we had a pretty big spike in June and haven't reattained that yet. So very interesting to see that there's been such an increase in ATMs worldwide. But people are using them. I know in my city there's a ton of them. I think there's like 40 maybe 40 or 50 now. There's quite a bit. Now the U.S. has the most. They've got 70% of the global market.

but Canada has about 9.5%. Now, the interesting thing here is, is the U.S. has, what, 5,400 ATMs. Canada has about 700, but we've got about a tenth of the, a tenth of the population. So, realistically, we're pretty similar in per capita when it comes to ATMs. I think Canada might even be a little bit higher. I can't do the math in my head right now. Anyways, following that up, the UK has about 3.7% and Austria, oddly enough, follows that up with 1.8%. Yeah, Europe has about 16% of the global market. South America lags behind with 0.8%. Asia has 1.7%. Yeah, very interesting to see some of the allocations of these. I'm sure if you're in a large-ish city, you've probably seen one around. If you're unfamiliar if there are any around you, go to, what is it, coin ATM radar,

and that will tell you if there's any in your city. But do beware that sometimes the fees on these machines, because these machines are expensive to buy and maintain and manufacture. and it's not cheap to run these machines. So the convenience of using it can often be weighted on the other side by higher fees, especially. So just be cognizant of that if you're taking a look at Bitcoin ATMs. Yeah, so I'm going to wrap up there. Thank you very much, you guys. As always, if you're watching this on YouTube, do hit like, subscribe, and share.

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A few others. Just look around. Also, if you want audio only, if you're looking for a podcast version of this, you can find me on Apple Podcasts, Google Podcasts, on Spotify, everything. Wherever you are, wherever you're listening to this, please do give it a share, give it a rating that really helps with visibility. If you want to help with the show in another way, you can hit up the sponsors I mentioned down below. That was Ledden and Coinberry. They've got some deals for you, as well as Wasabi Wallet. Check them out for Bitcoin privacy that I alluded to earlier. Excellent way to do so. And if you really love what you saw, you can always drop me a lightning network tip via my tibbin.combe. page. That's tippin.combe slash at BTC sessions.

That is it for today, guys. Thank you so much for watching. And always, have a wonderful evening. I will see you next time for your daily session.