BTC Sessions - US Banks Can Custody Bitcoin, Coinbase CEO Voices Regrets, Utreexo EP082

Starting point is 00:00:12 Wasabi wallet and fairly private. What's up everyone? I'm Ben with the BTC sessions and this is your daily session. Hodel their Bitcoin. Before we dive in, of course I want to give a shout out to sponsors of the show, leaden.io. Of course you guys have heard of these guys before. I've been working with them for well over a year and using their services as well. The first thing I ever used of theirs is their Bitcoin-backed loans. This is where you can use your Bitcoin as collaborative. to get a Canadian or US dollar loan.

Starting point is 00:00:54 So in my instance, I was in a pinch, needed some dollars, and I didn't want to sell my Bitcoin because that's a taxable event, and I was worried I'd have to buy back at a higher price point. So I was able to deposit my Bitcoin, get a dollar deposit a loan to my bank account within 24 hours, and once I paid that back, I got back all of the Bitcoin, which I deposited. Now, they've got a couple of other services. They've, of course, got their Bitcoin and USDC savings accounts,

Starting point is 00:01:21 and they've just up the interest rates on those to a maximum of 8.8%. And then they've got their Bitcoin, or rather their B2X offering, which uses the same loan mechanism and instantly buys more Bitcoin, which effectively doubles your Bitcoin on the spot. I've tried out all of these services. I've had a great time with them. Nothing but good things to say. If you want to check them out,

Starting point is 00:01:43 there's a link in these show notes down below. And if you use that link in Opticit a loan, well, they will give you 50 bucks worth of Bitcoin. for free. So do check them out. And secondly, if you want to help out the show in another way, NordVPN is something that I use on my computer and my phone constantly. What it does is it hides your IP address. It encrypts your browsing data and it allows you to access content that may not be available in your current locale. So if you're doing things like online banking or dealing with sensitive data and you're using public Wi-Fi networks, then a VPN is an absolutely

Starting point is 00:02:21 must and furthermore if you're traveling or you just live in a country where you can access all the content that you want maybe it's geoblocked well you can simply just change your location within the app and access that content seamlessly so if you want to check them out there is a link in the show notes below if you click that link you'll get 70% off their top tier plan plus a month free it ends up being about $3.49 a month so pretty good deal I would say and with that Let's dive into the news. So this dropped on Forbes recently. There was a recent announcement from one of the major U.S. bank regulators that permits

Starting point is 00:03:04 cryptocurrency custody. So I'll read a little bit from the article here. The relationships between banks and cryptocurrency in the United States has been as complicated as the concept of money itself. But today's interpretive letter from the office of the comptroller of the currency, or the OCC may change all of that. The OCC serves to charter, regulate, and supervise national banks. The letter clarifies that national banks have the authority to provide Fiat bank accounts

Starting point is 00:03:34 and cryptocurrency custodial services to cryptocurrency businesses. This clarification from the OCC may open the doors for larger financial institutions to become more comfortable providing traditional bank accounts to cryptocurrency companies, as well as actually provide custodial services for customers' private keys. In this letter, the OCC acknowledged the difference between custodial services for fiat money versus cryptocurrency, noting that because digital currencies exist only on the blockchain or distributed ledger, there is no physical possession of the instrument. Therefore, a bank holding digital currencies on behalf of a customer will take possession of

Starting point is 00:04:17 the cryptographic access keys to that. unit of cryptocurrency. From safe deposit boxes to virtual vaults, we must ensure banks can meet the financial needs of their customers today, said acting controller of the currency, Brian P. Brooks. This opinion clarifies that banks can continue satisfying their customers' needs for safeguarding their most valuable assets, which today, for tens of millions of Americans, includes a cryptocurrency. So very interesting to see this, I guess, gradual capitulation of the incumbents, the traditional banking system. At first, they were very dismissive if they acknowledged Bitcoin at all. Over time, there were a lot of bits of information and opinions put out that

Starting point is 00:05:08 either Bitcoin was just a straight up scam, as famously noted by CEO of J.P. Morgan, Jamie Diamond, or used for illicit activities, nothing more than drug peddlers money, terrorists financing, all of those things have been thrown at Bitcoin. But as more and more data comes out, it's becoming increasingly clear that those instances are less and less of the, main use case of Bitcoin and are far more often enacted with the US dollar in cash. Furthermore, you have banks like J.P. Morgan now banking some of the largest Bitcoin and cryptocurrency firms like Gemini and Coinbase. So I think we're kind of seeing that admission of, hey, this is something legitimate. People want to use it. And I think banks are kind of

Starting point is 00:06:06 trying to say we're still relevant, we're still here, and we can custody this for you. Now, for those of you that have been around the block for a while, you're likely thinking, why the hell would I ever put my Bitcoin in a bank? And absolutely, yes, I agree. Centralized entities holding large numbers of Bitcoin for people and their private keys become honeypots. And as an aggregate, it's much more secure to have people hold their own private keys all over the place. Now, the biggest problem with that, of course, is those that are not technically inclined, given the current state of Bitcoin and how it works. It can be difficult for some people to do so, and they are probably more inclined to make mistakes on their own than

Starting point is 00:06:53 through a custodian. However, over time, I don't believe that will be the case. And there's also the risk of the fact that you can't just loan into existence more. Bitcoin and create more currency out of nothing. So in a world where banks have basically been given a free pass to screw around with the money and their fuck-ups are essentially forgiven by a central bank by issuing more currency, in a world where we're used to being babysat, these major mistakes of banks down the road may have real implications given that there's no bailout when it comes to Bitcoin. So while I see this as a general positive thing, because of the it's kind of an acceptance that Bitcoin is here, it's not going away, and people want to use it,

Starting point is 00:07:40 and everybody is now appearing to want to be involved. The systemic risk of banks holding large amounts of Bitcoin is very real and very much there. So we'll see how this plays out. Now, moving on, an article I did not expect to see from Forbes. The title of this article is Seven Reasons to Consider Investing Your Strait. stimulus check in Bitcoin. Now, I think maybe I'll start off with my thoughts on this before I dive in because I don't want screams of irresponsibility from some people.

Starting point is 00:08:21 First off, okay, if you are on the receiving end of a stimulus check, the odds are that you probably really need that money for your day-to-day expenses. like food and housing and just like keeping clothes on your back and making sure your children are fed and whatever else you need fuel to get around. You probably have some very important things that money needs to be put towards. Now, whether or not people will utilize the stimulus checks in that way is a whole other story. But I'm just saying that there's probably some very, very important things that those checks are needed for if you are an individual that is out of work. That said, I do see the points laid out here and we'll go through them as to why Bitcoin is

Starting point is 00:09:18 important in a general sense. I just think that if you're out of work and you get a stimulus check, banking on the wild fluctuations of the price of a speculative asset to guarantee your purchasing power, especially in the short term as these checks are meant to kind of cover people in the short term, may not be your best option. Sure, if you have a steady job and you're not worried and this is just like an extra $1,200 in your pocket, by all means, do whatever you please with it. But if you're already hurting with everything that's going on with the economy and you're one of the 11% in the unemployment lines, this is probably not your best option and there's more pertinent things that you should be focusing on. Anyways, let's dive into this article. So I'll read a

Starting point is 00:10:25 little bit of the preamble here. It says, according to reports, both Democrat and Republican parties are now in agreement, the new relief package will include another one-time stimulus check of $1,200 per person and $500 per dependent for all individuals earning $75,000 or less. There have been other accounts that indicate the income requirement could be as low as $40,000, however. And unemployment remains at over 11 percent. And many of the states are considering rolling back their reopening plans, most of us are looking forward to this welcome relief. Although many recipients will rush to deposit their checks into savings for a rainy day, here are the reasons why you should consider investing your $1,200 into

Starting point is 00:11:12 Bitcoin instead. And this is where I think that this article, right out the gate, falls off the rails here because it does indeed encourage... some people that may not have the disposable income to do so to dump all of this into Bitcoin. At least that appears to be the intent here. Anyways, let's go through the points. Number one, inflation. They talk about how the balance sheet is continuing to rise by approximately $3 trillion since the beginning of the pandemic in March, which is 14.3% of the GDP from 2019.

Starting point is 00:11:53 So there are obviously risks of inflation. I would posit even more so than the 2008 bailouts, not just because of the amount of money, but because of the actual stimulus checks themselves, whereas the QE back in the financial crisis of 2008 was pumped directly into banks, which subsequently bought back their own shares and pumped up equities,

Starting point is 00:12:18 we're seeing that now as well. We're obviously seeing, I believe the bank, the share buybacks are not allowed at this point moving forward, but we are seeing equities being pumped through the roof through these, I guess, money injections or these capital injections into the system. However, we're also seeing money drop into the lapse of regular everyday spenders that did not previously have it. Now, some people are out of work, obviously, so that's going to have an effect. But when you just drop billions and billions of dollars into people's laps, that does indeed increase the money supply of day-to-day spenders. And so that in the long term may have an actual impact on inflation. Now, they also cited as a hedge against Wall Street because it's experiencing unprecedented

Starting point is 00:13:15 and unexpected booms during a crisis. Again, all these capital injections. However, it does make a good point. The value of the American stock market today is approximately $35 trillion, while the U.S. GDP has decreased below $21 trillion. So the stock market is worth, it's getting close to double the amount of the U.S. GDP. And many argue that this is a perfect recipe for a crash. Bitcoin could be a hedge against.

Starting point is 00:13:45 that. However, in extreme cases, as we saw with the panic in March, at least in the short term, Bitcoin can echo the global markets. In a panic where everybody needs cash, everybody needs liquidity to meet their, to meet all of their obligations, they will sell every saleable good out there. So roll the dice with that one. Price appreciation, they say. They talk about how an investment in Bitcoin five years ago yielded a 3,300% return, even from the beginning of 2020, a 38% return, so on and so forth. Yes, historically, Bitcoin has gone up, but it is very volatile. And in the short term, if you have money and you're going to need that money in the short term, there's no guarantee that it will go up at this point in time. Unless you have an extent,

Starting point is 00:14:45 kind of like runway and its long-term disposable money, a stimulus check meant to keep you afloat in a time of crisis may not be the best thing to park in this unless you are really secure in your job. I will continue to say that. Again, and this is the point that really bothered me. She goes on to say, institutional investors are doing it. And she quotes Paul Tudor Jones. He says, his quote said, at the end of the day, the best profit maximizing strategy is to own the fastest horse, just the best performer and not get wed to an intellectual side that might leave you weeping the performance dust because you thought you were smarter than the market. If I am forced to forecast, my best is it will be Bitcoin. And he's talking about how he's

Starting point is 00:15:38 starting to allocate capital into Bitcoin. However, what's not noted here, And they're talking about hedge funds in general and other institutional. Paul Deuter Jones, yes. Is he buying Bitcoin? Absolutely. He's putting like one to two percent of all his capital in it. He's not dumping his lifeline meant to keep him afloat during a global crisis 100% into a volatile asset. You need to have that separation there.

Starting point is 00:16:11 Yeah, like worst case scenario, if Bitcoin gets cut in half or heaven forbid drops to absolute zero, he loses one to two percent of his net worth. He doesn't lose his food on the dinner table. So keep that in mind. And I feel it's relatively irresponsible that they failed to mention his allocation in this institutional, well, they're doing it. so drop your stimulus check here. Okay, another decent point they talk about being your own bank and how you can't always trust the banks. They reference the currency crisis in Lebanon.

Starting point is 00:16:53 You know, there's plenty of other banking crises that they could reference here. And they talk about how, like, in the end, you can't always trust a bank. Of course, there is the FDIC insurance available to U.S. depositors. that only goes up to $200,000. However, if you're trying to figure out what to do with a stimulus check, odds are, you know, you're up to $200,000 is covered.

Starting point is 00:17:22 Odds are if you have $200 grand in the bank, you're not dealing with a stimulus check in the first place and whatever you do have deposited will be insured, depending on how much you trust the FDIC. But aside from the point, sure, you can probably argue. in some way, shape, or form that a hedge against the current financial system could be good to have. But, again, this is a short-term outlook for a stimulus check. They talk about Bitcoin being digital gold. Again, a valid point as to why Bitcoin is valuable, but maybe not a valid point as to where to allocate your stimulus check.

Starting point is 00:18:04 And then they talk about the ease of use and how over time it's, it's, it's, it's becoming more useful. Cross-border payments are still pretty efficient when it comes to the cost of sending a Bitcoin transaction to somebody versus something like Western Union, so and so forth. Yeah, I mean, all valid claims of why Bitcoin is important on a kind of overarching level. But, man, I don't know. I just, as, as bullish as I am on Bitcoin, as important and paradigm shifting as I believe it to be, if you are struggling, if you're out of a job and your lifeline is this stimulus check,

Starting point is 00:18:52 that's what's going to get you through the next couple of months. For God's sake, don't speculate with it. use it for the bare essentials of what you need to get by. I guess that's that. I'm a little astounded at this article. And again, like, I'm hella bullish on Bitcoin, but holy shit. Okay, moving on, the CEO of Coinbase was interviewed on the What Bitcoin did podcast by Peter McCormick. and he talks about the acquisition of neutrino, the technology that they're using in their

Starting point is 00:19:33 back end, and they discuss acquiring a number of people from hacker team. Okay, and hacker team, what they did is they were out of Italy and they actually sold tracking, I guess it would be like spying and surveillance applications to, to dictatorial. dictatorial regimes. Am I saying that right? Anyways, they sold stuff to, there we go, to authoritarian regimes like Saudi Arabia, Sudan, and Venezuela. And so in interviewing Brian Armstrong, it came out that they basically, he said that they messed up in this acquisition. So his quote, he said, we definitely made a mistake. Most of our diligence was around the technology itself.

Starting point is 00:20:24 what we failed to do was the due diligence more around our values and our culture. This is an instance where we messed up. We should have done more diligence. Since that happened, we revamped our diligence process to include these kinds of reputational checks in the process. There's really no excuse I can give you. Now, in the same vein, though, there are plenty of other reasons to hate on Brian Armstrong and the actions of Coinbase.

Starting point is 00:20:54 This was just one of them. It's good that he recognizes that as a negative thing, but in the same breadth, he's talking about how they are selling their surveillance software to the IRS and the DEA. One could argue also maybe not regimes, but entities which infringe upon people's financial sovereignty. We will say that. There are very real points to why people may disagree with the operations of the IRS and the DEA. So anyways, besides that fact, they start talking about their selling of their technology

Starting point is 00:21:42 to the IRS and the DEA. And he basically said one of the unfortunate realities of the world, like we didn't create it, is that the AML kind of regulations are increasing. Blockchain analytics companies, chain analysis, and others are essentially selling data that is publicly available. So that's what Coinbase Analytics is doing too, basically saying like, well, they're doing it. So I guess we'll do it.

Starting point is 00:22:09 And he also cited that they're looking to just make back some of the money that they spent in-house developing this stuff. I kind of don't buy that. I kind of think that this is more of a play. for them to to buddy up with the regulators so that they can also get approval to list as a public company on a stock exchange, which I wouldn't be surprised if they got approval to do so. But again, there's just so many things that Coinbase has done over time, and this is just one of them.

Starting point is 00:22:44 Again, good to recognize, for them to recognize that it was a bad move, but their actions don't reflect their regret here, I would say. And if you're curious more about why I have a problem with Coinbase, I did make a video last year when there was a hashtag trending called hashtag delete Coinbase. And it was around the time they acquired Neutrino and the guys from hacking team. But I made like a 30 minute descriptor of all the bullshit that they've done over the past years and why Bitcoiners tend to have a bad taste of their mouth when it comes to Coinbase. Anyways, be sure to check that out. You can find it easily on YouTube just by searching delete Coinbase.

Starting point is 00:23:26 It's the first thing that pops up. Moving on, UtreXO. This is a new release, I suppose. It's a working release. Anyways, this was written by, I'm not sure how to say his name, Tadreja. Hopefully I said that right. I probably didn't, though. I apologize.

Starting point is 00:23:49 Anyways, this is a new release that they're attempting to get into the Bitcoin D or the BTCD software that allows more lightweight nodes almost as efficient or getting close to some of the efficiencies that you get from an SBV wallet, which is not running its own node that's much more lightweight. So I'll just read a little bit here. It says existing lightweight Bitcoin software clients often use SPV or or simplified payment verification. While SBV allows some level of verification, it is susceptible to attacks that fully validating nodes aren't.

Starting point is 00:24:29 U-TRIXO fully validates while getting some of the low footprint benefits of SPV nodes that SBV nodes enjoy. U-TXO replaces the UTXO set of Bitcoin, which is the database that keeps track of who owns which coins with a novel cryptograffal, cryptographic accumulator. For more info about the design, there's a paper on it, and there's an explainer by the U3XO developer as well linked within this article. Now, one thing I wanted to note on

Starting point is 00:25:03 here, it says the current U3XO code is able to connect to a server, download the blockchain, and verify all the transactions and signatures, and do so using hardly any disk space. Instead of a multi-gigabyte database, U3AXO stores a single file of a few hundred bytes, which represents the state of the blockchain. The client still needs to download the full-size blockchain. In fact, even more downloading is required, but it doesn't need to store it. So it basically parses through all of the data, checks the validity of it, but in the end doesn't store it. It sounds to me a little bit like a pruned node, but even less than that, because I believe you don't need to to even fully have the string of data connected to your particular stored coins, or rather the

Starting point is 00:25:56 coins that are pertinent to your addresses and your wallet. So anyways, very interesting to see. Again, the reason they're not submitting this to be put into something like Bitcoin Core, the reference implementation of Bitcoin, is because it's such a. a large change. So they're going to work to get it into an alternative implementation of Bitcoin first and then see from there. But regardless, it could be an option for people that want to run a node down the road and

Starting point is 00:26:33 don't just don't have the storage space. I think that's excellent. And the more solutions like this, the better. So good job for the guys at UtreXO. And lastly, I just wanted to point to a new Bitsy Academy article from, from the wonderful writers there. Thank you, Emmy, for putting this together. This is on orphan blocks.

Starting point is 00:26:55 So if you've ever heard the phrase orphan block, but you don't understand what that is, this is a pretty good explainer for it. Now, they go by a few other names, orphan stale, extinct blocks, depending on who you're talking to, and the definition has kind of shifted over time. But basically, it's when there is a block

Starting point is 00:27:13 that is essentially valid and mined that is no longer part of the main chain of Bitcoin. In some instances, if two blocks are mined very quickly in succession, but don't propagate to the network in order, you may get a block that appears to be valid and mined, but there's a missing gap in between there. And so it gets stored, and then eventually when other participants in the network fill in that gap,

Starting point is 00:27:45 then it would be valid. There's also instances of two blocks being mined simultaneously that are both valid for a time. But then eventually miners will have to build on top of one of them. So they may have slightly differing transactions and most of them will probably be the same. But one will be built atop and one will just essentially be orphaned. We'll no longer be in use. It was technically valid at the time and so was the other one. but eventually a miner will say,

Starting point is 00:28:18 okay, I've got the next block and I guess I'm going to build upon this one instead of this one. So you get these blocks of transactions that were technically mined, but in the end are no longer part of the longest valid chain and there is no payout page to the miner

Starting point is 00:28:33 that actually mined the block of transactions. So anyways, very interesting read. I encourage you to take a peek through it. It's got some excellent explanation. So if you've ever been confused about that term or just haven't really heard it, Definitely worth a read and you can level up your Bitcoin knowledge. With that, I'm going to wrap up, you guys.

Starting point is 00:28:50 Thank you so much for watching and or listening. Of course, if you're here on YouTube, do hit like, subscribe, and share. All of those things do really help, so please do them. But if you want to check me out on other platforms, I stream live to Twitter, to Facebook Live, to Twitch, that's D Live, a variety of them. Be sure to go just search BTC sessions on any of them. outside of that I am audio only on the podcast on any platform that you like Spotify

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BTC Sessions - US Banks Can Custody Bitcoin, Coinbase CEO Voices Regrets, Utreexo EP082

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