Bitcoin in 2021: Principles vs Number Go Up

In retrospect, it was inevitable: the fiat billionaires who added bitcoin to their companies’ balance sheets are not our friends and definitely not honest Bitcoin advocates. And while the likes of Elon Musk and Michael Saylor announce the creation of a Bitcoin Mining Council to effectively attack censorship resistance and attack the permissionless nature of securing the network, Kevin O’Leary essentially blackmails us into compliance:

“Right now, the institutions are interested in getting exposed to the volatility of bitcoin, but they’ve gotta resolve this problem. And I think there’s some interesting research going on now and deep investments, and I’m part of it: to try and find a way to tag a bitcoin to prove that it has a wrapper around it to prove that it came from a sustainable miner. I know this sounds out there, but it’s being worked on right now because that’s what institutions want.

And when that dam gets released, the amount of capital that will come into bitcoin… it will be the reason why it goes to $100.000, $200.000, and all the dreaming that’s been going around price appreciation. That’s not going to happen until institutions start to buy it. So everyone’s gotta wake up and realize that there’s demand, but it’s gotta be done around ESG (Environmental, Social, and Corporate Governance) concerns” (Source: Coindesk’s interview)

Bitcoin Mining Council? $100k Conditioned by ESG Compliance? How did we get here?

It all seems to be happening too fast. In August 2020, Michael Saylor became a bona fide Bitcoin advocate after buying a huge position and spending the coming months in a perpetually bullish state that pleased the “cyber hornets” and their “hive mind”. By May 19th 2021, Saylor announced that he and his “entities” hold about 110.000 bitcoins.

Elon Musk had a similar trajectory: he started out as a Bitcoin critic, and then gradually dipped his toes into the space in 2020 in a more playful way (he became the self-proclaimed Dogecoin CEO and then started making ridiculous statements about the potential of an otherwise highly-inflationary meme coin). After adding BTC to Tesla’s balance sheet and reporting a profitable 2021 Q1 specifically thanks to this investment, Elon Musk also made a bold move when he announced that his company would sell electric cars for BTC.

But the honeymoon phase lasted for roughly 3 months: on May 12th 2021, Musk tweeted that Tesla would stop accepting BTC payments due to environmental concerns. There are two catches involved, though: Tesla never sold any bitcoins and announced that it would once again consider accepting BTC for payments “as soon as mining transitions to more sustainable energy”.

Following this tweet, the price tanked. And within a few days, the entire space was faced with more of the perpetual FUD about China banning Bitcoin mining. The declining prices and the newly-generated panic provided the perfect setting for an organization like the Bitcoin Mining Council to get established.

The tradeoff in simple: a bunch of billionaires promise to bring “institutional adoption”, but in exchange they want to gain control over mining so they can vet the participants based on their arbitrary criteria for sustainable energy.

In theory, it’s a win all across the board: the HODLers get the promised $100k price, the companies profit from selling carbon credits to miners, mining gets theoretically greener, and governments and trans-national NGOs get more control over Bitcoin. Everybody wins in terms of fiat money and power – but the Bitcoin project and its great ambitions get crushed by the greed and short-sightedness of a handful of self-proclaimed leaders and their ardent “number go up” fans.

Also, what do Saylor, Musk, and O’Leary have in common? They all used to be skeptics and critics of Bitcoin – but now they pose as true believers with skin in the game. They claim that their goal is to bring more institutional adoption and pump the price to the levels that everybody’s dreaming of… and all they ask in return is a little bit of control which irreversibly destroys the fungibility, censorship resistance, and security model of the bitcoin cryptocurrency and of the Bitcoin network.

Source: Twitter

Why Is ESG Compliance Bad For Bitcoin?

Now hold up a minute, shouldn’t we all cheer for the news that Bitcoin mining is getting greener? Aren’t we supposed to be celebrating that the environmental impact diminishes and we all get to enjoy a truly decentralized currency with a lower carbon footprint which pleases governments and institutions? Shouldn’t we be happy that corporate heads are trying to bring the kind of adoption which gets us to $100k and beyond?

Make no mistake: the Bitcoin Mining Council and its ESG compliance have very little to do with environmentalism and concern top-down control over a vital component of Bitcoin’s security model. Basically, a bunch of rent-seeking fiat billionaires are trying to establish themselves as the overlords of mining.

They realized that China will gradually scale down the operations, they realized that the opportunity can be geopolitically seized by the USA, and instead of allowing the free market to converge towards the least expensive forms of energy (which often times turn out to be renewables due to the low production costs) they seek to gain control.

Collectively, Michael Saylor and Elon Musk have 56.8 million followers on Twitter. Their net worths in US dollars also exceed those of bitcoin whales. And their influence in relation to the US Government is second to none: one received government subsidies and was allowed to join the narrow circle of aerospace corporations which undergo space exploration, while the other has a long history of working with governmental agencies.

Right now, Saylor and Musk are trying to become the Al Gores of mining environmentalism by selling carbon credits. Interestingly, Elon Musk tweeted about this shortly after announcing that Tesla would stop accepting BTC payments, and only a couple of weeks prior to joining the Bitcoin Mining Council conversations.

It’s very likely that this is all part of a greater scheme which aims to make the US Government control more Bitcoin mining. But the fact that China (a communist country that we enjoy bashing for its infringement of human rights) has more respect for the Bitcoin miners and allows them to function without imposing a certain agenda for control says a lot. Under the guise of environmental friendliness, the United States are currently being a lot more authoritarian than the country which filters a large chunk of internet pages, bans political speech against the establishment, and coordinates a genocide against the Uyghur minority.

Also, it should be noted that Bitcoin mining is still a small endeavour in the United States of America. The higher electric energy prices, the more expensive labor costs, and the various regulations make it less profitable than in other parts of the world. The beauty of Bitcoin mining is that it leverages the best part of geopolitics: international arbitrage. If one country raises the costs and makes political decisions against it, then another one will welcome miners for the sake of acquiring a competitive advantage.

Yet the United States of America is an important battleground for Bitcoin mining, as the policies are likely to inspire NATO members and other friendly nations. And if we allow a handful of fiat billionaires to play their game without opposition, then it’s likely that they will seek to gradually increase their power and influence beyond the borders of the USA.

Bitcoin Mining Should Be Permissionless, Decentralized, Efficient, and Honest

Bitcoin mining was designed to be permissionless and decentralized. This means that currently, anyone around the world can use their computing power to attempt to solve the difficult math problem – and in the process provide security for the network. Though people like Slush have created collaborative approaches (also referred to as “pools”), you can still have cases when a miner from Argentina joins a Chinese pools to maximize his chances and split the rewards with the other partners from the same team.

In and of itself, Bitcoin mining is selfish and driven by incentives: in order to make the highest profits, everyone searches for the most efficient, reliable, and affordable forms of energy. It’s why most miners in China have set up their operations around water wheels in small villages, and it’s also the reason why the demand for sustainable energy increases worldwide.

Also, the design of the Nakamoto consensus always makes it more profitable to mine honestly than to try to attack – if the users’ validating nodes reject a block, then the miners take a significant financial loss. So if the same amount of energy gets used to mine while playing by the rules, then the rewards get bigger.

However, the nodes can’t coerce miners into adding all transactions into blocks. They can only sanction dishonest work. The miners possess the power to blacklist transactions that have certain origins (for instance, the US Treasury Department has a list of 20 Bitcoin addresses). In the presence of decentralization and global mining, this is an irrational economic behavior which only makes it more costly and energy-intensive for miners to operate.

Let’s say that we have two transactions: one uses “dirty” bitcoins that get sent from a blacklisted address but pays a high transaction fee, while the other is sent from Coinbase, is “clean” and it pays the smallest possible fee. A compliant miner will refuse to add the former into a block and include the latter – at the cost of refusing some precious transaction fees.

As the block rewards get halved every year, by 2028 we will find ourselves in the middle of a situation where the mining fees always offer a greater reward than the block reward itself. And this is when any type of censorship will become economically irrational.

Yet miners can still afford to play the censorship game for a few years. And maybe that nation states and trans-national corporations believe that, if they’re allowed to gain more control over mining and over the narrative, they will successfully create a hard fork which increases the mining rewards to favor their thirst for censorship.

Giving them the power to decide who can mine (and who can’t and must therefore pay carbon credit taxes) sets a dangerous precedent which takes away Bitcoin’s censorship resistance. Sure, there will always be jurisdictions which allow free mining to take place. But standing by and watching how oligopolies and cartels get established is never a good idea.

We must stand up for the principles of Bitcoin while we still have the chance.

Principles vs Number Go Up

It’s very easy for them to desensitize us and effectively make us stop caring about the fundamentals while they pump the price with the BRRRRR money. They have infinitely inflationary fiat and there are only 21 million bitcoins that will ever exist.

Instead of selling our coins to them (as legal entities, the corporations can only buy from compliant exchanges such as Coinbase), we should create parallel economies on Bisq, HodlHodl and peer to peer exchanges. If we do more meetups to do swaps in which cash or gold get traded for BTC, then it would be beneficial for the ecosystem.

Also, we should exercise our right to mine at home while we still can. It might be costly and inconvenient, but it helps decentralize the network and it takes away from the power of farms and cartels. Principled bitcoiners should also avoid joining pools such as Mara (Marathon Digital Holdings) and join forces with pools which have a long history of acting in good faith (such as Slush pool).

And whenever we get the chance, we need to give them hell and make them feel unwelcome. Bitcoin was not created to please them and their corporate plans. It was never meant to be compliant – instead, it leverages geopolitics to exist under the principles of free market capitalism.

It’s time to stop idolizing Michael Saylor, Elon Musk, and other billionaires who express positive views and effectively pump our bags. We already know the nature of their game and we understand the threat model. Let’s not make it worse by giving them extended control (either social or protocol-level).

Bitcoin is for people who need to escape central banking and inflation. It’s for refugees and freedom fighters who need to survive in hostile political environments. It’s the tool of sovereign individuals who constantly seek freedom and empowerment. And it’s also the financial instrument that can effectively bank the billions of unbanked people via second layers like Lightning.

We need to teach and preach these principles, and then give no quarter to the centralizing rent-seekers. They either accept Bitcoin for what it is, or else build their own (either a fork or an entirely new protocol). Good luck getting support and benefiting from the same network effects, though.

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Vlad Costea

I'm here for the freedom, censorship-resistance, and unconfiscatability. What about you?

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