Month: January 2024

Bitwise, a leading cryptocurrency asset management firm, has set a new precedent by becoming the first U.S. spot Bitcoin exchange-traded fund (ETF) to publicly disclose its Bitcoin address holdings.

“Now anyone can verify BITB’s holdings and flows directly on the blockchain,” the asset manager stated. “Onchain transparency is core to Bitcoin’s ethos. We’re proud to walk the walk with BITB.”

In a move that aligns with the growing demand for openness and accountability in the industry, Bitwise is providing investors and the public with real-time access to the Bitcoin addresses associated with its ETF holdings. This disclosure enhances transparency and and attempts to fosters trust, addressing concerns related to the verification of asset backing and allocation within the ETF.

“Publishing on-chain addresses is a first step toward increasing public transparency,” Bitwise continued. “As infrastructure evolves, we hope to do more, such as working with firms like hoseki app to provide real-time cryptographic attestations.”

The decision to publish BTC address holdings helps positions Bitwise at the forefront of regulatory compliance and investor communication. By voluntarily sharing this information, Bitwise demonstrates a commitment to setting an industry standard and building credibility for Bitcoin investment products.

Earlier this month, the United States Securities and Exchange Commission (SEC) officially approved the listing of the first-ever spot Bitcoin ETFs. Since launch, the ETFs have seen billions of dollars in demand and have become the second largest ETF commodity in the country.

On October 23, 2023 we asked our attorney, Rafael Yakobi of The Crypto Lawyers to assemble an expert legal team to respond to the U.S. Department of the Treasury and FinCEN’s proposed rules that would seriously harm your privacy by effectively outlawing bitcoin mixing as well as conflating basic best practices such as not reusing addresses as a suspicious action requiring enhanced reporting.

Below is an exact reproduction of the letter we have submitted to Treasury and FinCEN as part of the public request for comment period.

We wish to thank Rafael Yakobi and the team he assembled to draft this response on behalf of Samourai and our users: Carla Reyes, Sasha Hodder, JW Verret, among others who worked diligently behind the scenes for months preparing this submission because they believe this harmful overstepping by the federal government must be addressed.

We would like to warmly thank Ten31, who graciously pledged to help cover some of the considerable costs we incurred to draft this response.

Lastly, we would like to thank all 25 of the unaffiliated Bitcoin companies that read and signed this letter to FinCEN in agreement with our position. They are listed individually at the bottom of this page.

You can download a PDF of the letter below:

Section 311 Mixing Transactions Designation NPRM Comment Letter PDF

Andrea Gacki January 22, 2024
Director
Financial Crimes Enforcement Network
U.S. Department of the Treasury
P.O. Box 39
Vienna, VA 22183

SUBMITTED ELECTRONICALLY

Re: Docket Number FINCEN–2023–0016 – Proposal of Special Measure Regarding Convertible Virtual Currency Mixing as a Class of Transactions of Primary Money Laundering Concern

Dear Director Gacki:

We appreciate the opportunity to comment on Docket Number FINCEN-2023-0016 (the “Mixing Transaction NPRM”), released by the Financial Crimes Enforcement Network (“FinCEN”) on October 22, 2023.[1] We are a variety of unaffiliated companies that rely on important cybersecurity safeguards and privacy-enabling software to protect our businesses and our users. The extreme breadth of the rules proposed by the Mixing Transaction NPRM would overly burden our use of such technologies in ways that would not assist FinCEN in achieving its mandate of preventing money laundering and other illicit use of money. As a result, we write to express our grave concerns regarding the novelty and scope of the Proposed Special Measures and the inadequate definitions contained therein.[2]

The Proposed Special Measures would unreasonably infringe upon the legitimate financial privacy interests of cryptocurrency users, and would apply to a variety of digital techniques that are not mixing transactions at all, but rather simply represent good cybersecurity practices. Moreover, the Proposed Special Measures are unnecessary to achieve FinCEN’s aim, and we encourage FinCEN to either withdraw the Mixing Transaction NPRM altogether or to pursue a less invasive, less restrictive, and more effective approach—the same approach it has used since its first enforcement activities in the cryptocurrency space in 2013—to enforcement against specific bad actors.

1. FinCEN should exercise caution and either withdraw entirely or narrowly tailor the Mixing Transaction NPRM because if adopted, the Mixing Transaction NPRM would not only represent the first time FinCEN used its Section 311 powers against a class of transactions, but also the first time FinCEN has ever imposed Special Measure 1.

Historically, FinCEN has exercised caution in making designations under Section 311 and implementing Special Measures. Section 311 (31 U.S.C. 5318A), authorizes the U.S. Department of Treasury (“Treasury”) to designate a foreign jurisdiction, financial institution, class of transactions, or type of account as being of “primary money laundering concern” and impose one or more of five possible “special measures.” Treasury delegated that authority to FinCEN, which has used its power quite sparingly since Section 311’s enactment. The first Section 311 action instituted by FinCEN in the virtual currency space occurred in 2013, when FinCEN instituted special measures against Liberty Reserve. Prior to that time, between 2002 and 2013, FinCEN had only ever implemented special measures against just four jurisdictions and 13 financial institutions. After a protracted legal battle regarding a Section 311 action between 2015-2017, FinCEN seemed reluctant to use its Section 311 powers widely. [3] The creation of the Global Investigations Division (GID) in 2019 [4] and the enactment of the Anti-Money Laundering Act of 2020, which increased FinCEN’s authority “to prohibit or impose conditions upon certain transmittals of funds (to be defined by the Secretary) by any domestic financial institution or domestic financial agency,” [5] coincided with an uptick in the use of Section 311 powers and a broadening of FinCEN’s attention to all 5 available Special Measures.

Importantly, throughout its use of Section 311, FinCEN traditionally imposes Special Measure Number 5 to isolate a specific foreign financial institution and prevent it from accessing the U.S. financial system. Until this Mixing Transaction NPRM, FinCEN has only used Special Measure Number 1 one other time—in 2012 against JSC CredexBank (“Credex”).[6] FinCEN later withdrew that proposed rule in 2016. [7] If adopted, the Mixing Transaction NPRM would constitute the first time FinCEN has imposed Special Measure Number 1 in exercising its Section 311 Powers. Moreover, this Mixing Transaction NPRM represents the very first time FinCEN has sought to designate an entire class of transactions as a primary money laundering concern. We encourage FinCEN to exercise extreme caution in the exercise of its Section 311 powers in such a novel way—the first-ever designation of a class of transactions and the first-ever imposition of Special Measure 1.

Exercising caution in Section 311 powers reflects the seriousness of Treasury’s policy purposes for invoking its powers to make primary money laundering concern designations and impose special measures—namely, to act as a signal to the world that FinCEN is “serious about ensuring that the international financial system is safeguarded against the threat of money laundering.” [8] As Treasury explained in the press release announcing the very first use of its Section 311 powers in 2002, when FinCEN uses Section 311, “[FinCEN] tell[s] the world clearly that these jurisdictions [or entities or transactions] are bad for business and that their financial controls cannot be trusted.” [9] For the reasons further explained below, FinCEN’s targeting of convertible virtual currency (“CVC”) [10] purported “mixing” transactions does not achieve these aims. Rather than target transactions that are “bad for business,” the Mixing Transaction NPRM targets an overly broad range of technical approaches used as best practices both by businesses and individuals for ensuring the security of CVC and impinges on privacy rights of legitimate users of CVC. In an attempt to exercise authority it has never used before (class of transactions) through a special measure it has never previously imposed successfully (special measure 1), FinCEN created a proposed rule fraught with misunderstandings and overreach. We urge FinCEN to withdraw the rule and reconsider its approach to this novel use of its authority.

2. The Mixing Transaction NPRM proposes a rule that is an improper and overbroad application of Section 311 measures to achieve transaction surveillance and suppression that FinCEN does not otherwise have a lawful basis to undertake.

Although the Mixing Transaction NPRM ostensibly designates a class of transactions as being of Primary Money Laundering Concern, its real goal is to uncover an alternative method for collecting information about and suppressing the use of digital currency in general. The Mixing Transaction NPRM is an improper and overbroad application of Section 311 measures for that purpose. Indeed, although the Mixing Transaction NPRM allegedly sanctions a class of transactions, it inconsistently throughout refers to “CVC mixers,” “CVC mixing” and “CVC mixing services” by reference to specific business entities [11] and as a type of business model more generally.[12] If FinCEN has reason to believe specific entities conduct illicit activities, FinCEN could use the Section 311 powers it has traditionally and successfully used to target specific entities as financial institutions of primary money laundering concern. Such an approach offers a more targeted way to address actual money laundering while protecting legitimate users of legitimate privacy-enhancing tools.

Notably, Treasury has separately sanctioned what it refers to as CVC mixing transactions through its Office of Foreign Asset Control (OFAC) authority to designate people or property who conduct transactions with specifically designated foreign jurisdictions identified through executive order as posing terrorist threats. [13] Treasury is currently facing legal challenges to, and has been widely criticized for, its attempt to sanction the Tornado Cash open source software as property of a non-existent entity Treasury alleges is called “the Tornado Cash DAO entity.” [14] Although we agree with the many arguments as to why Treasury’s OFAC action with regard to Tornado Cash software is an example of agency overreach, we wish to make a different but related point here. To justify its OFAC sanctions against the Tornado Cash software, Treasury had to designate the software as property of an entity. [15] OFAC officially explained as part of defending its sanction to a judge that the Tornado Cash software was property under Treasury’s regulations because it fell within the broad reach of “any contract whatsoever.” [16] Although the definition of “transaction” under the BSA regulations is quite broad, it does not encompass “any contract whatsoever” but rather centers on monetary transfers and specific services offered by financial institutions, and provides a catch-all for “any other payment, transfer, or delivery by, through or to a financial institution, by whatever means effected.” [17] No part of the definition applicable to CVC mixing is also a contract.[18]

In other words, in proposing the Mixing Transaction NPRM, one arm of Treasury is classifying CVC mixing as a transaction type while another arm of Treasury argues that mixing is a contract for services. Under the regulations governing both enforcement actions, mixing activity cannot be both a transaction type and a contract for service simultaneously. Treasury’s attempt to designate mixing software as both a type of transaction and a contract is evidence of the arbitrary and capricious nature of its attempt to regulate open-source software that enhances the digital privacy of legitimate CVC users. To the extent that FinCEN really wants to target non-custodial, open-source software that individuals can use on their own accounts, FinCEN exceeds its statutory authority.

Indeed, tools that enhance digital privacy in CVC transactions simply seek to enable a form of digital cash. As a result, in its rush to find a way to suppress CVC mixing transactions, by whichever means, even if inconsistent amongst different internal branches of its own agency, FinCEN’s Mixing Transaction NPRM amounts to an attempt to sanction “all transactions conducted in cash,” which is both impossible and an unreasonable over-extension of its rulemaking authority.

3. The Mixing Transaction NPRM should be withdrawn because the proposed definition of “CVC mixing” is overbroad and targets lawful activity in a way that makes the agency’s proposed action arbitrary and capricious.

Setting aside FinCEN’s own apparent confusion about whether CVC mixing is a transaction, a service, a business, or a specific business entity, when FinCEN does attempt to define the “class” of transactions that it considers to be CVC mixing, the Mixing Transaction NPRM’s definition of “mixing” is extremely broad and includes numerous activities routinely conducted by legitimate users as a matter of routine safety precautions in online transacting in CVC. Specifically, the Mixing Transaction NPRM provides:

The term “CVC mixing” means the facilitation of CVC transactions in a manner that obfuscates the source, destination, or amount involved in one or more transactions, regardless of the type of protocol or service used, such as: (1) pooling or aggregating CVC from multiple persons, wallets, addresses or accounts; (2) using programmatic or algorithmic code to coordinate, manage, or manipulate the structure of a transaction; (3) splitting CVC for transmittal and transmitting the CVC through a series of independent transactions; (4) creating and using single-use wallets, addresses, or accounts, and sending CVC through such wallets, addresses, or accounts through a series of independent transactions; (5) exchanging between types of CVC or other digital assets; [19] or (6) facilitating user-initiated delays in transactional activity. [20]

Indeed, most of the activities captured by the proposed definition of CVC mixing are considered established best practices within the industry for the use and safekeeping of CVC. Specifically, the proposed definition encompasses lightning transactions, single-use wallets, atomic swaps, decentralized finance protocols, privacy coin features, and multi-signature wallets, among other things. The main commonality among this broad range of software tools is that they enhance digital privacy and offer basic cyber-security techniques to owners or custodians of CVC. Employing these techniques to safeguard valuable digital assets is as routine and mundane and free of illicit purpose as using two-factor authentication to secure a digital wallet containing payment card information or an X (formerly Twitter) account to prevent an unauthorized announcement.[21]

4. The Mixing Transaction NPRM should be withdrawn because its inaccurate depiction of standard security practices as “mixing” impermissibly restricts the capacity of users to protect their property so that FinCEN can conduct a fishing expedition.

The proposed rule describes as red flags such everyday practices as “creating and using single address wallets” and “splitting CVC for transmittal.” [22] The standard practice among cryptocurrency users is to change addresses with every transaction. For example, Coinbase Exchange describes to their users that: “[w]e automatically generate a new address for you after every transaction you make or when funds are moved between your wallet and our storage system. This is done to protect your privacy, so a third party cannot view all other transactions associated with your account simply by using a blockchain explorer.” [23]

The fact that a small subset of users, who may be criminals, engage in the same operational security practices as ordinary users does not make those operational security practices suspect. The fact that criminals may use two-factor authentication to protect the security of their online applications does not mean that the use of two-factor authentication is itself an indicator or facilitator of criminal activity. In exactly the same way, the fact that users do not reuse Bitcoin addresses is merely indicative of basic operational security.

In an apparent recognition of the fact that these tools legitimately enable important cyber-security precautions, FinCEN exempts financial institutions from reporting on any of their own mixing transactions that they may conduct in the course of providing services to the public.[24] By exempting financial institutions from the rule, FinCEN creates a regime where financial institutions can take proper cyber-security measures for using CVC, but regular people cannot.

Perhaps even more problematic, throughout the Mixing Transaction NPRM, FinCEN justifies the proposed rule as necessary to enable law enforcement and the agency to better understand the transactions and the extent to which illicit activity occurs through CVC mixing. [25] The extraordinary and never before successfully invoked Section 311 power to designate a class of transactions and implement special measure 1 is not appropriate for use in a fact-finding mission. Employing such overly broad definitions as proposed in the Mixing Transaction NPRM for the purpose of authorizing an invasive fact-finding mission represents an arbitrary and capricious use of FinCEN’s delegated rulemaking authority because FinCEN’s justification for the rule lies outside of the statutory criteria for determining a class of transactions is of primary money laundering concern.

Specifically, FinCEN is statutorily required to consider the following factors when determining that a class of transactions is of primary money laundering concern: (1) the extent to which the class of transactions is used to facilitate or promote money laundering in or through a jurisdiction outside of the United States, including money laundering activity with connections to international terrorism, organized crime, and proliferation of WMDs and missiles; (2) the extent to which a class of transactions is used for legitimate business purposes; and (3) the extent to which action by FinCEN would guard against international money laundering and other financial crimes.” [26] Throughout the Mixing Transaction NPRM, FinCEN acknowledges that due to a lack of data and a lack of understanding of CVC mixers, it cannot sufficiently assess the extent to which CVC mixing and the proposed rule measures up under any of these three criteria. [27] FinCEN’s assessment ultimately boils down to: FinCEN does not have sufficient information to properly assess the statutory criteria required to justify the proposed rule, so the proposed rule is justified because, in FinCEN’s own words, it “is necessary to better understand the illicit finance risk posed by CVC mixing.” [28] Using a sanction to obtain the information necessary to justify imposing the sanction even when the agency knows that doing so will likely impose a high burden on legitimate uses and financial institutions is the definition of arbitrary and capricious regulatory action.

5. The Mixing Transaction NPRM should be withdrawn or significantly narrowed in scope because FinCEN’s required statutory analysis fails to adequately value the legitimate uses of CVC mixing services and unduly burdens legitimate users and financial institutions.

FinCEN admits that public blockchains “make it possible to know someone’s entire financial history on the blockchain” [29] and that it “recognizes that there are legitimate reasons why responsible actors might want to conduct financial transactions in a secure and private manner given the amount of information available on public blockchains.” [30] Yet, in the same document, alleges that the Mixing Transaction NPRM is necessary because CVC “is not without its risks and, in particular, the use of CVC to anonymize illicit activity undermines the legitimate and innovative uses of CVC.” [31] These two propositions cannot be simultaneously accurate.

As a matter of technical reality, FinCEN’s assertion that public blockchains expose a user’s entire financial history on the blockchain to the public for everyone to see and inspect is correct. [32] Indeed, that creates the fundamental need for legitimate CVC users to conduct CVC mixing transactions—to reintroduce the same level of financial privacy that they enjoy in the traditional financial system [33] to their transactions via CVC (for example, the traditional financial system does not expose a consumer’s entire credit card history to the public, and indeed, federal law requires that financial institutions protect such information from being exposed to the public [34]). [35]

Ensuring their CVC transactions enjoy the same level of privacy as transactions in traditional finance reduces the potential danger of personal harm to legitimate users and enables legitimate users to avoid waiving their constitutional right to privacy. When the identity of a legitimate CVC user is known and connected to the wallets holding CVC assets, the user becomes a target for kidnap, robbery, extortion, and hacking schemes. [36] Further, because of this inherent transparency by design of public blockchains, the Fifth Circuit recently ruled that no expectation of privacy exists for users of permissionless public blockchains who take no additional action to privacy-protect their transactions. [37] Legitimate users employ privacy-enhancing software when transacting in CVC in order to avoid inadvertently waiving their constitutionally protected privacy rights.

Ultimately, FinCEN has completely failed in its obligation to adequately account for the impact on legitimate users as required by its rulemaking authority. In defending its selection of special measure 1 over 2 through 5, FinCEN emphasizes, without explanation, that special measure 1—additional record keeping—allows legitimate users to continue using privacy-enhancing software without interruption. [38] This is false, as covered entities must report on any transaction that may have involved CVC mixing and a foreign jurisdiction. Indeed, read broadly, it is possible that the rules proposed by the Mixing Transaction NPRM require reporting on transactions that involve CVC that were transacted through mixing software at any point in the asset’s transaction history. Such reporting directly impedes the reasons for which legitimate users employ mixing software (to enhance financial privacy) by requiring the elimination of financial privacy (it is not a private transaction if an intermediary must surveil and report on the transaction). Software tools like mixers that enhance digital financial privacy provide a true electronic equivalent to cash. Notably, transactions in cash are not subject to rules such as those proposed in the Mixing Transaction NPRM. In an apparent acknowledgment of this deep and inherent conflict between the rules proposed by the Mixing Transaction NPRM and the legitimate uses to which legitimate users put CVC mixing software, FinCEN itself predicts that the rule will chill the use of CVC mixers.

6. The Mixing Transaction NPRM should be withdrawn because it requires covered financial institutions to perform law enforcement’s function to accomplish FinCEN’s AML goals, which FinCEN, DOJ, and law enforcement can achieve using existing tools when they have a proper legal basis to employ those tools.

Like the definitions of CVC mixing and CVC mixer, the Mixing Transaction NPRM’s information reporting requirements demonstrate a deep lack of technological understanding. Notably, all of the transaction information that the Mixing Transaction NPRM proposes to include in required reports by covered financial institutions involves data that, in most circumstances, FinCEN can just as easily obtain itself through blockchain data analytics. Similarly, the customer information that FinCEN would require covered financial institutions to report includes the same kinds of information such institutions must already report if a transaction raises sufficient red flags to trigger the filing of a Suspicious Activity Report (SAR). Nevertheless, the Mixing Transaction NPRM seeks to require covered financial institutions to file such reports on every single transaction for which the CVC involved may have ever been transacted through the extremely broad set of software that FinCEN’s proposed rule defines as CVC mixing software. In other words, because law enforcement investigations into activity involving CVC are sometimes more difficult, FinCEN seeks to impose broad surveillance of individuals without cause through covered financial institutions. Covered financial institutions should not have to become de facto law enforcement officers to make investigations easier for FinCEN.

FinCEN, the Department of Justice, and law enforcement have previously and successfully employed the very tools FinCEN asks financial institutions to use for reporting compliance under the Mixing Transaction NPRM to target specific illicit actors. FinCEN has demonstrated that it knows how to properly investigate and enforce against specific custodial CVC mixing service providers that are not complying with the regulations to which they are subject. Specifically targeting illicit actors about which FinCEN and law enforcement have built a clear, strong case using the available blockchain data analytics tools better balances the need to combat illicit CVC mixing with the legitimate use of CVC mixing by individuals seeking to protect their legitimate, constitutionally and statutorily protected privacy interests.

For all of the reasons discussed above, we urge FinCEN to withdraw the Mixing Transaction NPRM altogether.

Thank you for your consideration.

If you have any questions or would like additional information, please see the contact information below:

Rafael Yakobi, Esq.
Managing Partner
The Crypto Lawyers, PLLC.
rafael@thecryptolawyers.com
(619) 317-0722

Sincerely,

Samourai Wallet, Ten31, River, Strike, RoninDojo, Swan Bitcoin, Primal, GRIID, Zaprite, Peach, Mempool Space, Upstream Data, Stakwork, Vida Global, Voltage, Coinkite, Mutiny Wallet, Standard Bitcoin Company, Satoshi Energy, Cathedra Bitcoin, AnchorWatch, Bitnob, Oshi, Battery Finance,Fold, Start9

FinCEN, Proposal of Special Measure Regarding Convertible Virtual Currency Mixing, as a Class of Transactions
of Primary Money Laundering Concern, Dkt. FINCEN-2023-0016 (Oct. 22, 2023) https://www.fincen.gov/sites/default/files/federal_register_notices/2023-10-19/FinCEN_311MixingNPRM_FINAL.pdf [hereinafter Mixing Transaction NPRM”] ↩︎In this regard, we intend this letter to specifically respond to FinCEN’s request for comments A(1)-(8), B(2)-(3), C(1), D(2), and D(11) as listed in the Mixing Transaction NPRM. ↩︎See FBME Bank Ltd. v. Lew, 125 F. Supp. 3d 109 (D.D.C. 2015); FBME Bank Ltd. v. Lew, 142 F.Supp.3d 70 (D.D.C. 2015); FBME Bank Ltd. v. Lew, 209 F.Supp.3d 299 (D.D.C. 2016); FBME Bank Ltd. v. Munchin, 249 F. Supp.3d 215 (D.D.C. 2017). ↩︎FinCEN, Press Release, New FinCEN Division Focuses on Identifying Primary Foreign Money Laundering Threats (Aug. 28, 2019),https://www.fincen.gov/news/news-releases/new-fincen-division-focuses-identifying-primary-foreign-money-laundering-threats. We note with some alarm that the timing of GID’s creation coincided with the release of FinCEN’s 2019 CVC guidance, indicating that perhaps the two were coordinated and greater targeting of CVC users has been underway for some time. ↩︎2021 NDAA, Section 9714, https://www.congress.gov/116/bills/hr6395/BILLS-116hr6395enr.pdf. ↩︎77 Fed. Reg. 31,794 (Mar. 30, 2012). ↩︎81 Fed. Reg. 14,408 (Mar. 17, 2016). ↩︎U.S. Dept. Treas., Press Release, Fact Sheet Regarding the Treasury Department’s Use of Sanctions: Authorized Under Section 311 of the USA PATRIOT ACT (Dec. 20, 2002), https://home.treasury.gov/news/press-releases/po3711. ↩︎Id. ↩︎We note that we dislike the term convertible virtual currency, as it does not fit industry understanding of the technical realities of cryptocurrencies and their many uses. We use the term in this letter only because it is the language that FinCEN has adopted for the implementation of its regulations. As an aside, we would encourage FinCEN to adopt more technically accurate vocabulary for implementing its regulations, as doing so would help FinCEN avoid proposing unworkable and overbroad regulations such as the Mixing Transaction NPRM. ↩︎See, e.g., Mixing Transaction NPRM, supra note 1, at 15 (“ChipMixer, a darknet CVC ‘mixing’ service”); 16 (referring to Bestmixer.io as a CVC mixing transaction); 20 (referring to enforcement against “Bitcoin Fog”). ↩︎See, e.g., id. at 5 (“persons who facilitate…CVC mixing transactions”); 18 (“RAILGUN falls under the umbrella of CVC mixing…because it uses its privacy protocol to manipulate the structure of the transaction to appear as being sent from the RAILGUN contract address, thus obscuring the true originator.”); 20 (“CVC mixing services often deliberately operate opaquely…”.) ↩︎U.S. Dpt. Treas., Press Release, U.S. Treasury Sanctions Notorious Virtual Currency Mixer Tornado Cash (Aug. 8, 2022), https://home.treasury.gov/news/press-releases/jy0916. ↩︎See, e.g., Van Loon et. al., v. OFAC, No. 23-506669 (5th Cir. 2023) (notably, a variety of amici intervened with arguments critiquing the OFAC sanction at both the District Court and 5th Circuit Court of Appeals); Peter Van Valkenburgh, New Tornado Cash Indictments Seem to Run Counter to FinCEN Guidance, CoinCenter (Aug. 23, 2023), https://www.coincenter.org/new-tornado-cash-indictments-seem-to-run-counter-to-fincen-guidance/. ↩︎OFAC, FAQ 1095, https://ofac.treasury.gov/faqs/1095 (“OFAC designated the entity known as Tornado Cash, which is a “partnership, association, joint venture, corporation, group, subgroup, or other organization” that may be designated pursuant to the IEEPA.”). ↩︎See, Order, Van Loon et. al. v. Dpt. Treas., 1:23-CV-312-RP at 18 (W.D. Tx. Aug. 17, 2023). ↩︎31 CFR 1010.100(bbb)(1). “Except as provided in paragraph (bbb)(2) of this section, transaction means a purchase, sale, loan, pledge, gift, transfer, delivery, or other disposition, and with respect to a financial institution includes a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument, security, contract of sale of a commodity for future delivery, option on any contract of sale of a commodity for future delivery, option on a commodity, purchase or redemption of any money order, payment or order for any money remittance or transfer, purchase or redemption of casino chips or tokens, or other gaming instruments or any other payment, transfer, or delivery by, through, or to a financial institution, by whatever means effected.” ↩︎Notably, in the Mixing Transaction NPRM, FinCEN refers to Tornado Cash as a “CVC mixer,” not as a CVC mixing transaction. Is mixing a transaction? Is mixing a contract? Is mixing a type of business? The fact that FinCEN cannot decide belies the inappropriateness of using its Section 311 sanctions as proposed. ↩︎We note that the Mixing Transaction NPRM does not include a definition of “other digital assets” anywhere. Further, we are unaware of any definition of “digital assets” in FinCEN’s regulations or guidance. Finally, it is not clear to us how FinCEN has authority to impose regulatory reporting requirements upon exchanges of CVC for digital assets that are not CVC. See FinCEN, Application of FinCEN’s Regulations to Persons Administering, Exchanging or Using Virtual Currencies, FIN-2013-G001 (Mar. 18, 2013) (the phrase “digital assets” appears nowhere in the 2013 Guidance); FinCEN, Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies (May 9, 2019) (the only time that the phrase “digital assets” appears in the 2019 Guidance is in footnote 75 in reference to the title of the SEC “Framework for Investment Contract Analysis of Digital Assets”). This is just another small but notable way in which FinCEN seeks to overreach its authority through the Mixing Transaction NPRM. ↩︎Mixing Transaction NPRM, supra note 1, at 30-31. ↩︎True Tamplin, How to Protect Your Digital Wallet from Cyber Threats, Forbes (Dec. 19, 2023, 2:00 pm EST), https://www.forbes.com/sites/truetamplin/2023/12/19/how-to-protect-your-digital-wallet-from-cyber-threats/?sh=1e9146825981 (noting the importance of 2FA for securing digital wallets). ↩︎Mixing Transaction NPRM, supra note 1, at 30-31. ↩︎See https://help.coinbase.com/en/exchange/managing-my-account/crypto-address-change ↩︎Mixing Transaction NPRM, supra note 1, at 31. ↩︎See, e.g., id. at 24 (“Furthermore, the information generated by this special measure would support investigations into illicit activities by actors who make use of CVC mixing to launder their ill-gotten CVC by law enforcement. At present, there is no similar or equivalent mechanism possessed by law enforcement to readily collect such information, depriving investigators of the information necessary to more effectively understand, investigate and hold illicit actors accountable.”). ↩︎31 U.S.C. 5318A(a)(1). ↩︎See Mixing Transaction NPRM, supra note 1, at 19 (not enough data to know how much CVC mixing is used in money laundering); 22 (not enough “available transactional information” for FinCEN to “fully assess the extent to which or quantity thereof CVC mixing activity is attributed to legitimate purposes”); 22 (essentially claiming that FinCEN’s lack of information itself is reason enough to show that getting more information would guard against international money laundering). ↩︎Id. at 23. ↩︎Id. at 7. ↩︎Id. at 21. ↩︎Id. at 6-7. ↩︎Matthias Nadler & Fabian Schar, Tornado Cash and Blockchain Privacy: A Primer for Economists and Policymakers, 105 Fed Res. Bk. St. Louis Rev. 122 (2023); Vitalik Buterin, et. al., Blockchain Privacy and Regulatory Compliance; Towards a Practical Equilibrium (Sept. 9, 2023) (unpublished manuscript), ↩︎See, e.g., 12 U.S.C. §§ 3401-3423 (the Right to Financial Privacy Act of 1978 (RFPA), which protects the confidentiality of personal financial records by creating a statutory fourth amendment protection for bank accounts). ↩︎16 C.F.R. Part 314, 67 Fed. Reg. 36484 (May 23, 2002) (FTC rule addressing the requirement that covered financial institutions safeguard non-public information”) ↩︎Matthias & Schar, supra note 32. ↩︎For a documented timeline of physical attacks on Bitcoin users, see Known Physical Bitcoin Attacks, GitHub
https://github.com/jlopp/physical-bitcoin-attacks/blob/master/README.md (last visited Jan. 22, 2024). ↩︎See United States v. Gratowski, No. 19-50492 (5th Cir. 2020). ↩︎Mixing Transaction NPRM, supra note 1, at 25 (special measure 1 is the only special measure that will preserve “legitimate actors’ ability to continue conducting secure and private financial transactions.”). ↩︎

This is a guest post by Samourai Wallet. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

The below is an excerpt from a recent edition of Bitcoin Magazine Pro, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.

The First 5 Days

The Bitcoin spot ETF launch was one for the history books. By all accounts, it was the largest launch of an ETF product in history, beating out the previous record set by the Proshares Bitcoin Strategy ETF (BITO) launch in October 2021. First-day trading volume was huge at $4.6 billion, and it has remained relatively strong compared to typical post-launch declines of other products. We can be confident in the volume numbers, unlike the inflows. After the first two days of trading, the market was left wondering about flows because the data provided by TradFi was delayed and incomplete. Experts, such as Eric Balchunas of Bloomberg, said it was normal to have delays in reporting of flows by as much as T+3 (three days after). Bitcoin isn’t used to such bad transparency.

In the below table, you can see the GBTC outflows are now over $2 billion, with the largest day being Day 3. However, it is highly probable that most of Day 3’s flows was due to trading on Day 2, and likewise for Day 2 on Day 1, and so forth. We also cannot tell if all the issuers are up-to-date on their data. Is that all their flows or are they not done counting? We simply don’t know.

Bitcoiners are supplementing slow TradFi data which can take days by tracking flows on-chain. On Wednesday morning, James Van Straten of Cryptoslate reported that 18,400 bitcoin were sent from Grayscale to Coinbase’s Prime OTC desk right at market open, following a pattern of outflows on the two previous trading days of 9,000 bitcoin on January 16 and 4,000 bitcoin on January 12. The on-chain data from intelligence firm Arkham is trustworthy, the problem is it doesn’t match the reported outflows. Those three days of on-chain data add up to $1.3 billion worth of bitcoin and the reported outflows were only $1.1 billion. Also, interestingly there were no transactions the morning on January 18, but they resumed this morning.

Source: Arkham via @DylanLeClair_

Coinbase already custodies Grayscale’s bitcoin, so these are transfers from their custody account to the OTC desk, where other ETF market makers can pick it up, limiting the effect on the spot price.

GBTC Selling Could Be Drawing to a Close

Grayscale selling was expected but we still don’t know the ultimate amount that will end up being sold by the time the dust settles. Will 100% of their coins slowly come out, or perhaps only 10%? People are speculating the expense ratio of 1.5% versus the other ETFs averaging 0.25% might cause people to swap ETFs. If that is the case, it would not translate into any net selling. GBTC did lower their fee when they converted, from 2% down to the new 1.5%. If GBTC holders are sitting on significant unrealized gains, they might choose not to sell until the next rally. Remember, there are tax implications with swapping, also.

Many early sellers of GBTC are doing so for ideological reasons. The discount which formed in Feb 2021 took them by surprise and they felt stuck. The question is how many bitcoin is that? GBTC still has over 550,000 bitcoin as of January 19, how many of those still feel stuck? Why wouldn’t they have already swapped out in the first several trading days? I think it is less than people think. Yes, all of the bitcoin will come out eventually if they keep the expense ratio that high, but not in one sustained movement. I think the dumping will be spread out over several large rallies in the bull market. Selling from GBTC might already be slowing with the discount to NAV dropping from 150 bps on day 1 to 47 bps on January 17.

Bitcoin Price

Speaking of price, bitcoin has managed to hold support at $40,000 even with the massive outflows from GBTC and whale selling. Again, James Van Straten reports a whale who bought at $48,000 in 2021’s bull market, who held through the massive drawdown and the FTX debacle, possibly unloaded 100,000 BTC with an ask of $49,000. For context, all the ETFs ex-GBTC are still below that at 79,000 BTC. This was not a sell-the-news event, it could have simply been a whale selling after breaking even. Meaning the consistent buying pressure of the ETFs is only delayed by a week or so.

We are still in the range dating all the way back to the beginning of December, but are threatening to fall below it right now. My attention remains on $40,000 and the $44,193 line we’ve been watching that whole time, created from the high daily close back on December 8.

For those readers with beautiful low time preference, the monthly Ichimoku cloud is flipping bullish. This is an extremely bullish signal that only happens at the beginning of bull runs in bitcoin. It occurred last in October 2020 after almost flipping prior to COVID in February 2020. Interestingly, if it would have flipped in February, it would be at very nearly the same relation to the halving that we are today. Prior to 2020, the only other time this has occurred was in June 2016, at the beginning of that massive bull market, and one month prior to the July 2016 halving.

Massive Buying Pressure in Context

Using the incomplete inflow data above, we can say that the average daily buying pressure, including GBTC selling, has been more than $200 million/day. Interesting that Day 4 was the second highest, adding some evidence to the theory that buying pressure might level out around the $250-300 million mark. To put that amount in context, Microstrategy just began a 4-month process of selling $216 million in new shares to buy more bitcoin. The ETFs do that in a day. Tether is also constantly buying bitcoin for their reserves. Recently, they reported adding another $380 million in bitcoin at the end of 2023. Two out of the first five days of the ETFs were more than that.

With all those sources of gigantic demand in mind, look again at the monthly chart above, again. There is one way for this market to go. Are you ready?

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Hundreds of millions of Africans face two problems holding them back from progress: 600 million lack electricity, while virtually all 1.4 billion people on the continent lack high-quality currency. Compare this to the US, Northern Europe, or Japan, where nearly everyone has access to consistent, affordable power and a widely-accepted reserve currency like the dollar, euro, or yen.

The longer that Africans suffer from power blackouts and high inflation, the harder it is for them to get a leg up, despite their best efforts. Worse still, legacy energy and financial providers have no incentive to alleviate this issue, meaning currency debasement, debt traps, and grid shutdowns persist.

Most might look at this scenario and conclude that the next African century will be very difficult. Despite being blessed by abundant energy sources like mighty rivers, blazing sun, strong winds, and geothermal heat, Africa remains largely unable to harness these natural resources for its economic growth. A river might run through it, but human development in the region has been painfully reliant on charity or expensive foreign borrowing. Until now.

In the eyes of some of the continent’s entrepreneurs, educators, and activists, something has emerged that has the potential to revolutionize access to reliable electricity and high-quality currency — the building blocks of progress — for Africa’s swiftly rising population. Believe it or not, that thing is Bitcoin.

I. Mining in the Shadow of Mt. Mulanje

A little over an hour southeast of the city of Blantyre, in southern Malawi, along scenic dirt roads, towers Mount Mulanje. A stunning 3,000-meter massif — one of the highest peaks in southern Africa — its complex of cliffs and valleys straddles the border with Mozambique. The jaw-dropping scenery rivals Yosemite, but given its remote location, there are many days of the year where local guides say there are no hikers at all. In any other country, Mulanje might be the site of a top-5 national park — with world-class, soaring granite faces and the biggest vertical climbs in Africa — but most days, the area sits quiet.

Hydropower in the foothills of Mt. Mulange, just outside the village of Malawi

In the 18th and 19th centuries, the region was hit hard by European and Arab slavery. Portugal, Oman, Britain, and other empires extracted hundreds of thousands of slaves from Mozambique, Malawi, and the surrounding areas to ship off to forced labor in the Americas and the Middle East through regional ports like Zanzibar. At best, 1 in 5 survived the journey. Slave routes passed right through Mt. Mulanje, which was an easily-identifiable marker along the way. Today, the mountain’s foothills are peppered with lush forests, encroaching tea plantations, and farmers growing pineapple, banana, and maize. The ecosystem is a world treasure, with endemic plants and animals including prehistoric cycads, the endangered national tree of Malawi, the Mulanje cedar, and some of the rarest insects and reptiles on earth.

Sadly, the exploitation from long ago continues, just in different forms. Logging and mining threaten the local environment, and without industrial infrastructure, residents are isolated and left to fend for themselves.

The population here may be gifted with many natural resources, but the mother of modern progress has eluded them. Only about 15% of Malawians — and only about 5% of people living in the country’s rural areas — have access to electricity. In Bondo, a small village in the foothills of Mt. Mulanje, some residents got their very first access to lights at night in 2016. “Before then,” according to the town’s senior chief, “there was only darkness.”

This lack of power creates several problems for a growing population. Instead of flipping on a stove, residents log the area around the mountain, cutting down trees and brush to make fires or to create charcoal for cooking. At night, children study under the light of dangerous paraffin lamps, or don’t study at all. The logging devastates the forest and the fires and lamps create noxious indoor air pollution. Foreign donors — including the Scottish Government — paid for a small hydroelectric plant for Bondo in 2008, and after eight long years of construction, it began to provide power for some of the local population.

During that time, Carl Bruessow — an avid hiker and the head of the Mt. Mulanje Conservation Trust — helped start the Mulanje Electricity Generation Agency (Mega), Malawi’s first privately-owned micro-hydro energy provider. Mega is also a social enterprise with the mission of providing the citizens of Bondo with electricity. The raw cost of power from a small hydro scheme like the one financed by the Scots on the banks of a river on Mulanje is extremely high, nearing 90 cents per kilowatt-hour. For context, residential power in the US or Europe ranges from 10 cents to 20 cents per KwH. Grid power in Africa typically ranges from 20 cents to 40 cents per KwH. For example, in Kenya, it’s 27 cents. Karl, in his efforts to give back to the local community, heavily subsidized this cost for the residents of Bondo. Due to his generosity, they paid less than 20 cents per KwH to Mega for electricity.

Carl covered the difference, but such an operation was not sustainable. Over 2,000 households had so far been connected to the Mega grid, but another 3,000 were still waiting for hookups to their homes, and Carl was running out of money. The power stations were producing more than enough power for 5,000 homes, but much of the electricity was orphaned and unable to be sold, as Mega did not have capital to be able to purchase the equipment to connect new households. There was no capital, either, to consider expansion so that the hydropower would not dwindle in the late summer during the dry season.

In some places, industrial operations might buy orphaned rural power. But in a place like Bondo, there simply aren’t very many power-hungry businesses. The excess electricity couldn’t be sold, so the power stations built machines that existed solely to suck up the unused power. This was especially tragic when there was a lot of rain, or at times of low demand like at night, when the stations were forced to dissipate the overwhelming majority of their precious electricity: a total waste.

Two years ago, entrepreneurs Erik Hersman, Janet Maingi, and Philip Walton launched Gridless, a new company focusing on off-grid Bitcoin mining in Africa. The trio had backgrounds with companies like Ushahidi, BRCK, and iHub, with expertise in building hardware, writing software, as well as scaling communications and internet infrastructure, giving them a fitting resume for the task. One of their first site visits was in Bondo, where they visited with Carl and inspected Bondo’s power stations. In early 2023, a Gridless Bitcoin datacenter was installed and launched, and now, Carl and Mega have a new source of capital. In December, I was able to travel to Bondo to figure out how it all works.

Gridless’s set-up at a Bondo micro-hydro generatorOutflow from the power station

Today, any and all excess power generated by Bondo’s power stations gets sold in real-time to the Bitcoin network by Gridless’s miners, and Carl earns 30% of that revenue. It arrives directly to Mega’s wallet, in BTC. The new capital is enabling Mega to connect more customers to power, drive costs down, and expand their operations, to eventually connect everyone in the Bondo region to electricity. Mega, the community, and Gridless all benefit. And the most profound part? No aid or government subsidy is required.

Bitcoin is often framed by critics as a waste of energy. But in Bondo, like in so many other places around the world, it becomes blazingly clear that if you aren’t mining Bitcoin, you are wasting energy. What was once a pitfall is now an opportunity. Bitcoin miners can be thought of as dung beetles, scraping up the waste energy that no one else wants and transforming it into something valuable.

As Mega hooks up more and more customers, Gridless may unplug some of their mining machines, and move elsewhere, or perhaps move to harness the output of new power generation stations in the same area that are waiting to connect to their clients. If the Bitcoin network pays X, customers will need to pay X+1, so eventually miners will start to get priced out. But even in a situation where at 5:00pm the local demand from Bondo eats close to full capacity of what’s available, mining can still be lucrative, because there’s so little demand overnight, and the river never sleeps.

Elsewhere in Malawi, the national grid is broken. As of December 2023, people who receive grid power suffer from 6-8 hours of “load shedding” per day, where huge swaths of the country’s population are cut off from power by the electricity company. But in Bondo, there is no load shedding. The mini-grid is properly balanced by the Bitcoin miners. If there’s not enough water power, Gridless’s automated software turns the ASICs off. If there’s too much water power from, for example, one of the tropical cyclones that periodically hammers the region, Gridless’s ASIC operation eats it up. It’s a small wonder that in little Bondo, the electricity works more consistently than in the big cities.

One night during my visit to Bondo, Carl asked me to pause as the sunset was fading, to look at the hills around us: the lights were all turning on, all across the foothills of Mt. Mulanje. It was a powerful sight to see, and staggering to think that Bitcoin is helping to make it happen as it converts wasted energy into human progress.

The potential for this model to scale is mind-boggling. Consider: power generation in Africa is typically planned looking forward, for example, on a 30-year window. So sites are built to provide future capacity, not the capacity of today. So when a site like the one in Bondo boots up, it takes a while before it can get from 0% to even 20% capacity. At that point, before Bitcoin, the power company might have had to charge 5 times the price for the electricity it sold, just to make itself whole.

This is catastrophic for customers, especially those like the ones in Bondo who have some of the smallest disposable incomes on the continent. But with Bitcoin, the network now buys 100% of the all available excess electricity, bringing costs down even if only a small percentage of the power station’s capacity is being purchased by residential or industrial consumers.

We are told to believe that progress is always happening and that pure human innovation is going to make things better and cheaper. But in Malawi, given the collapse of the local kwacha currency, and the lack of incentives for infrastructure investment, the expansion of the electricity grid has not just been stalled, it has been made prohibitive.

Bitcoin fixes this in two ways: by directly delivering a high-quality, peer-to-peer currency to the power generators, and by allowing them to use all of their capacity, all of the time, lowering prices for their customers and raising their profits.

MEGA’s foreign donors, who finance capex but not opex, now being replaced by Bitcoin mining

Roughly 95% of all small power generation in rural Africa, according to Erik, is funded with concessional financing, whereas it could take five to seven years to raise funds from charity. The process is dependent on altruism and the subsidy is someone else “doing the right thing.”

The micro-hydro stations in Bondo, for example, were paid for by foreign donors, who can be very helpful for getting a project off the ground but who typically don’t pick up the bill for ongoing operation costs or expansion. They also don’t have very much skin in the game, and are OK with an eight-year timeframe for getting people online. With Bitcoin, the incentives are different. Out with the donors, in with co-investors, who are very interested in getting the power up and running as soon as possible.

Moving forward, there’s much work to do in Bondo. Carl and Mega are currently determining how to leverage their new income stream from the Bitcoin network to connect up hundreds of new homes to electricity. They are also considering an expansion to a new, larger power station to address the issue of lower power output in the two driest months of the year.

It would, of course, be built in partnership with Gridless, so that it could start generating revenue immediately, on day one, even if it takes time to connect new homes and businesses.

The critical importance of electricity was underlined when we met Bondo’s community leaders and members of the residents’ electricity committee. They listed all of the new benefits that the town now receives: they used to have to walk 20 kilometers for things like corn mills, or televisions, or refrigeration, or to charge phones, or for their kids to study at night, or for healthcare, and now they don’t.

The ladies in our meeting even pointed out a funny thing: before, the men of the village would go to town to watch football at night, leaving their families behind. But today, they don’t leave, they just watch it at home and are there for their wives and children. LEDs replace kerosene lamps, reducing fire risk and deadly indoor air pollution. The percentage of children that go on to higher levels of schooling has increased, dramatically. The list of life upgrades goes on and on.

By this point you might be saying, fine, this sounds good, but why not do something else with the electricity generated by Bondo’s rivers? Philip explains that no other business would run better in a place like this, blessed by cheap energy but isolated from infrastructure.

The cost of AI farming, for example, is only in a small way dictated by electricity: a chip might cost $30,000 and use 1200 watts. Contrast this to Bitcoin mining, where electricity makes up a huge portion of cost, and a chip might cost $1,200 and use 3500 watts. So it makes no economic sense to build an AI data center in Bondo, not to mention the connectivity, bandwidth, and latency issues.

Moreover, AI processes cannot be simply turned on and off like Bitcoin mining without causing some kind of harm to the service itself, so AI compute, in its current form, cannot be a grid balancer. But Bitcoin can: when the microgrid needs to deploy electricity elsewhere, miners can turn off easily. Finally, even if Mega tried to service AI companies in Bondo, how would they get paid? It would be the same trap of foreign exchange problems, fees, and dealing with the collapsing local currency. With Bitcoin, they get paid in globally-accepted, 24/7 saleable satoshis.

One more area of potential is the externality of Bitcoin mining: heat. When we put our hands over the air exhaust coming out of the back of the Gridless facility in Bondo, we felt a searing blast. The more miners, the more heat. A miner is in essence a space heater, and a surprisingly efficient one at that.

A new Reason documentary helps explain this, focusing on a bathhouse in Brooklyn, where the owner is now paying less every month in electricity bills to heat his spa water with ASICs than he did using more traditional heating equipment. Any heating operation that is not mining Bitcoin is probably wasting energy.

1,000 miles to the north of Bondo, in the D.R. Congo’s spectacular Virunga National Park, rangers have been mining Bitcoin with stranded hydropower for the past three years, generating critical income for the bioreserve and the five million people who live nearby.

This coming March, the heat from Virunga’s miners will be harnessed to dry cocoa beans. Traditionally, this is done by laying out the beans to roast under the sun, where they are vulnerable to the weather, and to being eaten or stolen by animals. Drying the beans with the hot blast from the miners will dramatically expedite the process, and for minimal additional cost.

Instead of spending $200,000 on an industrial drying operation, the park rangers simply bought $200,000 worth of ASICs that can process cocoa and earn Bitcoin. Moving forward, if any of their competitors process cocoa and don’t mine Bitcoin, they will be wasting energy, and they will be less competitive.

Cocoa beans drying in Virunga today. Soon, they will be dried by Bitcoin mining heat

According to environmentalist and Bitcoin advocate Troy Cross, in the last Bitcoin price cycle that crescendoed in late 2021, mining was driven by access to cheap capital, not cheap power. For example: Wall Street borrowing cheaply to buy shares in Bitcoin mining companies.

But in the next cycle, he says, it will be driven by access to cheap power. And this could tilt in Africa’s favor. There might even be places, he says, where the cost to mine, let’s say in Blantyre, exceeds the mining benefit, but the business savings from the excess heat (selling chocolate) makes the whole thing profitable. Really, he says, one should think in terms of: profit from mining plus profit from heat minus the cost of mining. Anywhere where one finds low grade electrical heat, there are unrealized Bitcoin profits.

In Bondo, Mega’s original idea was to make dried pineapple snacks using the excess heat. But on our visit, a new idea was hatched: the mine itself is on a tea plantation. Tea, once picked, needs to be dried within a matter of hours, and it is done so with heaters, which suck up electricity. Why not use ASICs to dry the tea? The operators are now thinking about it.

In a place where electricity is typically exceedingly scarce, it’s a luxury to think about and consider what to do with extra power, but it’s happening in Bondo now that there’s a technology that allows people to harness value that was once just blown out the window.

II. The Collapse of the Kwacha

One Wednesday morning in November 2023, the 20 million citizens of Malawi woke up to find their currency devalued by 44%. The government and IMF argued that the move would boost exports and stabilize the economy, but for the average person, all they felt was an immediate decrease in purchasing power. Many merchants simply closed for the day, as employees needed time to recreate the price labels used everywhere from gas stations to grocery stores.

This was not, like in Argentina, something that most people could escape. In Argentina, there is a widely accessible and sophisticated black market for dollars. In Malawi, this doesn’t exist. People are stuck in the kwacha. According to the country’s Reserve Bank, 85% of Malawians are unbanked, meaning nearly everyone uses paper kwacha notes issued by the government as their main store of value and medium of exchange. Devaluation here remains an effective way to steal from the population.

A rural street market outside Blantyre, a few weeks after the country’s massive currency devaluation

If one were to design the perfect weapon, something that could hurt everyone in a country at the same time, it’s hard to think of a better one than currency devaluation. Unlike a nuclear blast or bioweapon, it can hurt every single person simultaneously. In this case, the damage was an immediate 44% reduction in the purchasing power and standard of living for millions of people in Malawi, especially the poorer and middle classes who cannot easily access dollars.

It is not as if the government held a referendum, asking the public to vote on whether they wanted their purchasing power to collapse the following week: of course, no one would agree. Devaluation has to be planned and orchestrated mostly in secret, and it tends to be overnight phenomena. So despite the status of Malawi as a partly free country, with relatively free and fair elections, the devaluation was entirely undemocratic. This is part of a larger global issue where financial repression is ignored, even though political repression is discussed and highlighted.

Devaluations, for example, tend to be relegated to the back page of the newspaper, cast as a procedural matter. But they inflict grievous harm. It is a wonder why devaluation is not considered a crime, or even a crime against humanity. The people of Malawi did resist, in a series of protests. These small uprisings were put down, often brutally, by police. And ultimately, the marchers were forced to give up and accept the theft. This wasn’t the first time that the public was robbed of its labor and wages at scale, either: over the past 20 years, the kwacha has lost 95% of its value against the dollar, much of it in planned devaluations like this one.

As we drove through the markets and farms near Blantyre, it was clear that the hard-working people around us did not need such a devaluation. They were already some of the poorest in the world. Malawi’s per capita income, according to the United Nations, hovers around $650 per year. That’s 33 cents per hour, assuming a nine-to-five, five-day work week. And that is, of course, the median rate. For people living in remote areas, it’s probably much closer to $100 per year or 5 cents per hour. And now, each hour of their effort only gets them 56% as much grain, fruit, meat, airtime, electricity, medicine, private schooling, or petrol as it did two months ago.

This particular devaluation, like so many others, was a result of foreign pressure from the IMF and World Bank, who want client countries to pass through austerity before receiving any fresh new funds. Austerity is a euphemism for weakening the currency, ending subsidies on basic goods, shrinking welfare, raising taxes, crushing unions, harming small local businesses, and creating more favorable conditions for large multinational corporations and buyers of any locally harvested, excavated, or produced goods.

After completing the late 2023 devaluation and pleasing its creditors, Malawi received the green light for a $137 million World Bank loan, as well as a new loan of $175 million from the IMF. $115 million of these loans have already been paid out as of early December: a Christmas bailout for the country’s corrupt bureaucrats. The IMF projects that Malawi will need $1 billion in debt relief over the next three years, ensuring that a lot more currency devaluation is on the horizon.

Word on the street is that another devaluation, perhaps another 25%, is coming.

Official statement from Airtel, one of Malawi’s largest companies, about losses related to the collapse of the kwacha

The macro impact on the country’s economy has already been huge: Airtel, one of the country’s largest mobile operators, posted a statement at the end of 2023 that the company’s profit is expected to be 100% less than the profit posted in 2022. “The adverse deviation,” they write, “has arisen from the impact of the foreign exchange loss… because the Malawi Kwacha has lost 66% of its value to the United States Dollar since June 2023 to date.” Citizens might have stopped protesting in the streets against this disaster, but some are finding other, more quiet ways to wage a revolution.

Grant Gombwa is a student living in the Blantyre region, and is one of the country’s first Bitcoin meetup organizers. He loves the idea of a currency that no government can devalue. Malawi’s first official Bitcoin meetup will take place in February in the capital, Lilongwe. Grant will make the 5-hour drive to unite with perhaps two dozen other Bitcoiners. It’s a modest start, but given the economic conditions, it’s likely a trickle in what will eventually become a flood of new Bitcoin users. Grant said that, personally, what inspires him is that before he was stuck, unable to pay for anything abroad with his native currency. But today he has an upgrade, and can speak the same monetary language as someone in New York, Cairo, or Beijing.

Grant estimated that among young people in Malawi, between 18 and 30 years old, that nearly all of them owned a phone, and that around two-thirds owned smartphones. Not all smartphone users can afford consistent data, of course, but that doesn’t prevent them from using Bitcoin.

As we’ll learn more about later in this story, Africans in countries like Malawi can use a service called Machankura to send or receive Bitcoin from any feature phone, or any smartphone with no data: no internet required. This means that an economic escape route is here – it just will take Grant and other local educators some time to show people the way.

In one of our conversations, Grant explained a potentially promising idea. The Malawian government, he said, with incentives from foreign lenders, is installing electric vehicle charging stations across the country. He guesses that very few locals will actually be able to afford these types of cars, especially in the first few years. So these solar-powered electric generators will be for the most part sitting, unused, wasting the sun’s energy. Enter Bitcoin.

Grant’s idea is to bring a few ASICs to these likely-idle charge-points, hook them up, earn some satoshis, and pay a percentage to the owner of the property to make sure he doesn’t get kicked out. We’ll see if Grant’s idea gets traction. But what’s certain is that there will be many more ideas like it, springing out of places like Blantyre and Bondo now that wasted energy can be turned into capital.

III. Turning Fire into Digital Gold

The Great Rift Valley is one of the largest areas of seismic and volcanic activity on earth. The geothermal energy potential in this part of Africa, stretching 7,000 kilometers south from the Red Sea to Mozambique, is vast and nearly entirely untapped.

A 1.4 megawatt geothermal power station near Lake Naivasha, Kenya

To get a sense of the potential that Bitcoin mining could have on the region, I visited a site a few hours outside of Nairobi, Kenya, on the shores of Lake Naivasha. The situation is representative of any number of industrial operations in rural Africa, or for that matter, in rural places anywhere in the world. A 1.4 megawatt geothermal plant (which funnels hot steam rising out of a 2,000 meter-deep hole through a turbine to generate electricity) powers a water pump perhaps a kilometer away on the shores of the lake.

The pump pushes the lakewater up to a nearby complex of fields, where flowers are grown and exported to supermarkets in Europe. This is just one such flower farm in a country full of them: Kenya is the world’s largest flower exporter, and all of those fields need irrigation, and all of that irrigation needs power.

Here’s the thing: these water pumps do not consume power in a consistent way. But geothermal power is always on, hinting at a tremendous amount of electricity waste just waiting for someone (or something) to come and buy it up. Geothermal is probably the single best existing power source in the world for Bitcoin mining. Hydro is great, but during dry months, it can slow down. Nuclear might be better in a vacuum, but it’s impractical at the moment for small sites, and at least a decade away from a rollout across Africa.

Geothermal is 100% clean and 100% consistent. A plant like the one here in Naivasha could run for 40 years, with no interruptions, and no change in power output. It’s one of many that make up a total of 1 gigawatts (i.e. one thousand megawatts) of power generation just in this region alone. The foreman in charge of the site tells us that the surrounding hills and valleys could actually support up to 10GW of geothermal electricity, but the rest remains untapped.

A peek at the 144 Whatsminer ASICs inside the custom-built shipping container

Down at the pump, we see something that could soon be present at any industrial operation in the African countryside: a small shack, with a Starlink on top emitting a strong hum. Inside are 144 Whatsminer ASICs, set up, neatly corded, and run by Gridless. Everything from the hut itself to the software is custom-made in Africa by Africans. It’s a 500-kilowatt operation, which is about perfect, according to Erik, for a situation like this. He shows me the actual electricity used by the ASICs on his cellphone: about 375KW on average, every day. This is projectable into the future. Gridless has done a 5-year backstudy on Bitcoin mining revenue, and can predict being paid between 7 and 9 cents per kilowatt hour by the Bitcoin network. If the BTC price goes up, the earnings get beaten back down by the new mining competition. If the BTC price goes down, it becomes easier to mine: the difficulty adjustment in action.

Gridless’s Erik Hersman showing the electricity used by their miners on a typical day. On average, around 375 kilowatt-hours

The upfront cost for a set-up like the one on Lake Naivasha runs in the low six-figures including the ASICs and other infrastructure. Daily revenue for the Bitcoin mine will be a few hundred dollars. Gridless pays out 30% of the revenue to the power company as a flat fee for the right to use the stranded electricity. Depending on the consistency of the excess energy, Gridless generally recovers their investment within a few years.

One can quickly see how Bitcoin mining is going to be enormously profitable across Africa. “If you know you are building a variable-demand power station in the future, you will incorporate Bitcoin mining from the start,” says Erik. “Otherwise, you are wasting energy.”

Storing the energy in batteries and using it later sounds like a nice idea, but doesn’t make economic or technological sense right now, he says. Imagine a slightly larger 2-megawatt operation similar to the one at Lake Naivasha, that could be $1,000,000 in gross revenue per year, and not in kwacha or shillings, but in cold hard satoshis, payable directly to the site, no accounting office or foreign exchange costs required.

The scene by the lake is perfectly solarpunk: the earth’s heat is powering agriculture, and the Bitcoin mine is eliminating any electricity waste, and converting it instead into digital gold. It’s sitting here in a place like this that you realize that not Bitcoin mining is such a staggering waste of energy.

Later, as I talk with the Gridless team about the implications of the Lake Naivasha site at a restaurant in Nairobi, the power goes out during our meal. Janet tells me that this is typical in Kenya but that Bitcoin can help fix this, as a demand response technology.

“During the day, there’s a lot of demand, and we turn off our machines,” she says, “At night, when people go to sleep, we turn on our machines. Normally, if there’s too much unplugging too fast, it can cause blackouts. But we can balance the grid with more Bitcoin mining. We can absorb sudden incoming power, and we can slow sudden collapses of power by turning off.”

ASICs can be turned on and off at a moment’s notice without harm to the operator, unlike manufacturing or other compute processes, making Bitcoin mining one of the best technologies in the world for stabilizing grids.

What Gridless is doing at small scale with offgrid energy could also help the national grids struggling all across the continent.

Micro-hydro and geothermal aren’t the only power sources that Gridless is tracking. Solar, they say, only provides energy during one third of the day, and requires expensive battery technology to be viable. Such batteries could triple the cost of operating a power site, making it far less appealing.

Gridless does have its eye on a few wind sites, but another option is biomass energy. In the past weeks, the company has brought two new East African Bitcoin mining sites online, powered by biomass.

One new mine adorns a sugar processing facility, and one complements a plant that refines sisal, a tough fiber used for rugs, rope, and other textiles. In both cases, the leftover plant material is burned and the heat boils water to power a turbine, generating electricity. In both cases, as is the case for most African industrial operations, the site is too far from any residential communities to directly power homes or other businesses. Often, the electricity is simply just run straight back into the ground.

Biomass is generally considered clean and renewable: sisal and sugar plants suck carbon dioxide from the air into their constituent parts, and then when they are burned, that carbon is released back into the sky. Sisal and sugar production is widespread in East and South Africa, and yet the excess power typically goes to waste.

Phillip explains that even in the case where a power generation piece is added to a sisal or sugar refinery, the operators can’t usually produce electricity unless about 70% of the capacity is used: otherwise the boiler malfunctions. In the case of the sugar refinery, there was no one close enough to buy the power. In the case of the sisal farm, the power generation feature was simply never turned on. Again: enter Bitcoin. With Gridless technology, these power stations are now running at close to full capacity, and saving the previously orphaned electricity, turning it into capital.

“ASICs will become an integrated component of any energy site,” says Philip. “A turbine, a transformer, and a mining container. This is just what you will do. If you don’t, you won’t be competitive. You’ll be wasting energy.”

IV. Bitcoin Without Internet

As of 2023, some 600 million Africans lacked internet access. More than half the continent is still offline. Starlink makes what Gridless does possible, and innovative companies like BRCK continue to expand internet access in rural places. But what good can Bitcoin do for the average citizen of a country like Malawi, where only a fraction of the population is online?

Ten years ago, Bitcoin educator Andreas Antonopolous wondered: what if Africa could leapfrog banks, just like it had leapfrogged landline telephones? What if people just used their phones to access Bitcoin-powered financial services? He even wondered: could this be possible without internet access?

As fate would have it, an entrepreneur named Kgothatso Ngako born in Mamelodi, a township outside of Pretoria originally built by the apartheid government of South Africa, would come up with a solution.

Kgothatso Ngako

Ngako — or “KG” as he is commonly known — was working as a computer scientist at the Council for Science and Industrial Research in Pretoria about 8 years ago when his boss gave him a new assignment: research Bitcoin.

KG was once offered a $1,000 payment in Bitcoin in 2016 for a remote gig (1.3 BTC then, worth more than $50,000 today), but took the payment in PayPal instead. Why? He couldn’t use Bitcoin for anything. The CSIR study he worked on rekindled his interest, but ultimately the researchers concluded that blockchain technology was the thing that had merit, not Bitcoin.

In 2017, Bitcoin’s price shot up and KG, like many others, finally took a harder look. But what initially attracted his interest was the galaxy of crypto tokens that sprouted up around Bitcoin. By early 2018, when the next bear market began to hit, he was trading a dizzying array of tokens on Binance. He had a bunch of altcoins that had lost so much value they couldn’t even be traded on the engine, so KG visited a “dust page” to convert them into Binance’s native BNB token and from there he converted to BTC.

He eventually did enough reading and research and had seen enough: he wanted to start saving in and working in Bitcoin, not other digital currencies. Warren Buffet in particular had inspired him: what will gain value over 30 years, thought KG? Bitcoin, he thought, and maybe not so much the other tokens.

The first Bitcoin project KG created was Exonumia, named after an old word for the study of currencies and numismatics. In 2018, he wasn’t ready to contribute to Bitcoin with code, but at least, he thought, he could introduce the idea to more people. Exonumia is an African-wide translation platform, still in operation today, that puts Bitcoin educational materials into dozens of African languages from Berber to Malagasy to Shona. The key, KG said, was the architecture of the translation itself.

Most people would try to automate translations using software. But that wasn’t the full point of the mission. Building a human network was the real goal. So KG did it the “slow way” and would recruit people from various countries in Africa and pay them to do the work. Over time, he got to know Bitcoiners in dozens of places across the continent. In 2019, he expanded this network by hosting regular spaces on Twitter and inviting anyone in Africa with an interest in Bitcoin. People would message him out of the blue on the Exonumia account, with new ideas, from new countries, and new projects were born.

After his CSIR job, KG took a role at AWS. But ultimately, the work there felt like it was taking him further away from the things he found interesting. It was, as he says, completely disconnected from the realities of life back in the South African townships where he grew up.

Exomunia seemed so much more important. At the end of 2020, he decided to quit the corporate world and work full-time on freedom technology. The first software project that he spun up was a VPN, called ContentConnect.Net. Privacy is hugely important to KG. Not that long ago, he says, South Africans lived under a dictatorial state of surveillance and control. He pointed out that Steve Biko published his famous “I Write What I Like” essays under a pseudonym: once the authorities found out he was the author, they put him on trial and killed him.

Everyone can be a hero, KG says, but if they feel like it’s too risky, they won’t take the biggest steps. So creating a privacy-boosting VPN accessible to Africans was a worthy goal.

KG’s next project was a software solution to what he saw as one of the biggest barriers to Bitcoin adoption in Africa: the lack of internet access. 10 years ago, he was part of an MIT Global Startup Labs effort working on mobile money in South Africa. The problem was that the mobile money system was fragmented, and they wanted to try to bridge the different types of credits that people used across the country. This is where he started tinkering with USSD: a protocol for communication over text messaging, no internet required. In May of 2022, a Namibian Bitcoiner wrote “There has got to be a way to get a Bitcoin wallet onto a non-smartphone mobile phone. Someone out there is definitely smart enough to figure this out. I believe in you.” KG quickly responded: “Give me 2 weeks.” He was ready. He had taken a pay cut (known as a “soul dividend”) when he left Amazon to work on his VPN, but was more energized than ever to work on Bitcoin.

A few days after his famous tweet, with the experience from the MIT challenge a decade ago in mind, he launched Machankura, referring to the South African slang term for money. The new service would allow feature phone users — or smartphone users with no data — to send, receive, and save Bitcoin. Some of the biggest challenges that Machankura overcomes are in the UX area: traditionally, to use Bitcoin, people need to copy and paste an address, or read a QR code. But feature phones in general do not have these capabilities. KG’s tool would also need to use Lightning, to overcome the increasingly high on-chain fees, but USSD has a 182 character limit, so lengthy Lightning invoices were not going to fit. The solution was to adopt the Lightning Address, a mechanism invented by the Brazilian software engineers Andre Neves and Fiatjaf, which gives Machankura users an email-based, human-readable identity. For example: [your phone number]@8333.mobi.

Machankura in action: Bitcoin without internet

Today, Machankura users can send Bitcoin to each other using phone numbers or Lightning Address “usernames.” They can also use on-chain addresses or Lightning invoices, assuming their phones have copy-paste functionality, but the former two options are dominant. To fire up the service, a user dials a number from their phone, generating a text response with various options, a decision-tree of sorts. To send, press 1, etc. From here a user can do a variety of things with Bitcoin with no internet.

One powerful functionality is the overlap with Azteco, a voucher service. So for example, KG might go into a convenience store in South Africa, and with cash buy a voucher called OneVoucher. In Kenya someone might buy a similar voucher using MPESA. It’s a 16-digit code with a certain amount of value on it, and this code can be entered into the Machankura menu. On the back end, what KG and team are doing is buying an Azteco voucher with the 16-digit code, and crediting the account of the Machankura user. This allows Machankura users to easily “top up” their Bitcoin account using cash or MPESA credits.

Machankura also has an API to Bitrefill, so any product available on Bitrefill can be sold on the app’s user interface. Availability ranges by country but when they go to option 4 inside the app, they can barter for goods and services: for example, airtime or grocery vouchers. What this means is today, as we begin the year 2024, Machankura’s user base of 12,000 Africans are able to send and receive value globally, buy mobile minutes, buy vouchers for gas or petrol, purchase electricity (through pre-paid vouchers), or trade into cash, all using Bitcoin, with no internet. KG’s dream is starting to be realized.

Of course, big challenges remain. One is scaling across the entire African continent. Right now, KG works with services like Africas Talking to access different telecom networks. In that model, Machankura pays a monthly fee to Africas Talking for airtime, instead of the users paying the telecom directly. The scaling is a slow but steady process, but is happening, even in places like Malawi. A second challenge is custody. At the moment, Machankura is a custodial service. Meaning: they hold your Bitcoin. Not your keys, not your coins. So even though it’s a very useful tool, it’s not actually giving property rights to its users. But, in the coming month, Machankura is planning to release a proof-of-concept that allows users to self-custody. If it works smoothly, it will be one of the biggest innovations in Bitcoin’s history, allowing people without the internet to actually be their own bank.

The trick, KG says, is that a SIM card is a computational platform that can store things. It can, for example, sign Bitcoin transactions, or interface with the Lightning Network. He is incentivized to push Machankura in this direction for the mission of human freedom, but also, for business reasons: they don’t want to grow as big as MPesa, and be liable for all user funds, and to carry so much counterparty risk. This way, when KG goes to Vodaphone to pitch a partnership for tens of millions of new users, he can say: how would you like to introduce your users to Bitcoin, with no counterparty risk? It’s a much easier “yes” than if he were to say: let’s introduce your users to Bitcoin, but you have to hold all the funds, and deal with those regulations and laws and responsibilities.

In the West, Bitcoin adoption might mean the centralizing forces of large on-grid mining operations and ETFs. But the amazing irony is that in Africa, Bitcoin’s technology arc is making the currency more and more decentralized. As the network eats more and more off-grid cheap electricity, at dozens of completely separated sites, it becomes harder and harder to shut down. And as the network adds more and more self-custodial users on potentially millions and millions of SIM cards, it becomes more and more unstoppable. As Lyn Alden describes in her book, Broken Money, up to this point modern monetary technology was inexorably centralizing as it became more digital and more advanced. Bitcoin breaks this trend, and Africa helps Bitcoin break it.

And as Africa helps Bitcoin, Bitcoin helps Africans. KG says that some Machankura users started with feature phones, and then, after getting involved in the Bitcoin economy, bought themselves a smartphone. They are pulling themselves into the internet using Bitcoin. And others through Gridless are pulling themselves into electricity using Bitcoin. Together, they are moving into the future.

V. Bridging the Gender Gap

There are 700 million African women. All of them, according to Marcel Lorraine, could one day be Bitcoin users. Marcel, a Kenyan entrepreneur and social activist, has made it her life mission to onboard the women of Africa into a new currency system that they (not their husbands) can control, and that can meaningfully improve their own freedom.

Her journey began in 2018, when she was doing a gig in Nairobi and struggling with her finances. She was running Loryce, her company that consults for corporate and social events. She would save her earnings, she says, but then at the end of the year have less and less to show for it. The government, she says, kept raising taxes. And her only option was to save in a shilling bank account, which kept depreciating rapidly. For context, while not as weak as the kwacha, the Kenyan shilling depreciated 21% against the dollar in 2023, which itself also depreciated against goods and services. In the end, Kenyans are getting at least 25% less stuff for their wages than one year ago.

Marcel Lorraine in action: orange-pilling African women

At the gig, Marcel heard about cryptocurrency and decentralized finance. “Can I be paid in that,” she asked herself, “to save me from the hassle of fees and inflation?” At that time, she said, there was a ridiculous amount of hype around blockchain in Kenya. There were tons of scams, and tons of promoted events around different tokens. During that time there were no educational hubs or groups: you’d show up at an event and hope it wasn’t pitching a scam. “I invested in a variety of tokens,” she says, “including Bitcoin. I made money. I lost money. It was frustrating.”

During the COVID pandemic, she couldn’t do event production, so she was day trading shillings and dollars. She decided to focus on Bitcoin, because she didn’t have time to study more than one type of investment, and besides, as she says, it is the mother of digital currencies.

In 2022, Marcel helped organize the first post-pandemic Bitcoin event in Kenya in April at a Nairobi hotel at a conference room full of Bitcoiners. Attendees included local educators Rufas Kamau and Master Guantai, and even Paco de la India, who was passing through on his journey to travel the world only using Bitcoin. At that event Marcel noticed a problem: there were a lot of men but only two women, and she was one of the two. She had noticed that crypto and blockchain events had a gender gap, perhaps only 30% women. But 98-2 for Bitcoin? “We could do better,” she said. So she reached out to a few female friends, who told her that they were afraid to go to Bitcoin events, because the environment felt male dominated. OK fine, she thought: “There’s a problem and I can make a solution.”

Marcel created Bitcoin DADA in 2022 as a safe space for girls and women to learn about financial freedom. The first cohort was held in May, with 20 people, just her circle of friends. Ever since, she has run online classes every Tuesday and Thursday at 9:00pm. At first, it was just Kenyan females. In the second cohort, they had 40 students. Each cohort is 6 weeks long. Now, she says, they have held five cohorts, and more than 300 women have gone through the course, with a total of 130 graduates. All of them now have a solid understanding of Bitcoin. They know how to self-custody and buy Bitcoin with no KYC via cash trades.

On our way through Nairobi, I watch as Marcel effortlessly uses Bitnob and Machankura to buy Bitcoin with MPESA, and then send Bitcoin without using any data. I think of how people on Wall Street or Silicon Valley would be blown away by this feat, which she makes look so simple. Marcel normally suggests a range of wallets in her course, including the self-custodial Muun and Phoenix, and the custodial Wallet of Satoshi for small transactions.

For on ramps, Marcel typically recommends the Nigerian-founded Bitnob app. Students, like everyone in Kenya, have MPESA, and use Bitnob to swap that for Bitcoin and then withdraw to, for example, a Muun wallet. Kenya is much more developed than Malawi, but many smartphone users still don’t have consistent data, rendering Machankura also a key tool. For the main curriculum, Marcel uses the Mi Primer Bitcoin book (originally created in El Salvador) and then she walks students through practical examples of why it’s important for African females to become Bitcoiners.

Back in 2022, Marcel first heard about the Africa Bitcoin Conference. The Austrian educator Anita Posch approached Marcel and asked if she was going: no, Marcel said, it was too expensive. But Anita insisted and helped organize a fundraiser, and contributed half while the community covered the rest. On her visit to Accra in December 2022, Marcel was inspired by what the conference organizer and Togolese human rights activist Farida Nabourema had created. In 2023, Marcel came back to the second edition of the conference with 4 ladies, and Bitcoin DADA helped two female-led teams enter the event’s hackathon. Marcel now offers a mentorship program which helps the ladies speak in their own capacities, whether on social media or at events like ABC, to help them tell their own stories.

On the ground, Marcel visits universities and runs trainings for women and men together. Students are vulnerable because they are often targeted by scams. She describes the obscene lengths that WorldCoin went to try and sucker students into buying and trading their token in Kenya. Bitcoin, she points out, has no similar marketing budget. Teaching and training the youth, she says, is underfunded and vitally important. Every single person that attended one of her events at a university recently had been targeted by WorldCoin: a brutal reality.

Marcel’s goals are to streamline DADA’s mentorship program so that they can match talent and skill for Bitcoin companies, to help get women hired in the space, and also to expand to different countries. Several of her mentees have already earned jobs or fellowships in the Bitcoin ecosystem, at organizations like Btrust or ABC. She says they now have 30 active alumni in Uganda now, and more in Nigeria, South Africa, and Tanzania.

Marcel’s students: new self-sovereign Bitcoin users

“For me,” Marcel says, “Bitcoin gives us back our voices. It’s hard being African, and harder being an African female. This gives us financial independence and an opportunity to work on ourselves.”

Marcel has long supported one particular school in Nairobi’s Kibera, the largest urban slum in Africa. She has personally seen Bitcoin help people escape. She knows it can help get many many more, but the hard work needs to be done.

Her mission seems a tall order: going from what is now probably just a few thousand African female Bitcoiners to tens of thousands, hundreds of thousands, millions, and eventually, hundreds of millions. “If I don’t do this,” Marcel says, “then I would have failed my sisters. Finance is thought to be a man’s thing, so women get financially abused. I don’t want to leave the women behind.”

Bitcoin, she says, gives a way out of macro problems like currency devaluation, and micro problems like repression inside the home. A lot of foreign aid, she says, doesn’t make it to the slums. Bitcoin helps because it makes sure the money gets directly where it needs to be: “We eliminate the waste and corruption.”

On my last night in Nairobi, I meet Felix, a local Bitcoin entrepreneur. Like many others I met, he’s now running a Bitcoin business, in his case selling merchandise, and is earning in satoshis. He explains how the Lightning integration at Binance has been huge for Kenyans, as now they can interface with Wallet of Satoshi, Phoenix, Machankura, and other apps instantly with very low fees. He says how Binance p2p is also being used widely to trade from MPESA to Bitcoin. I ask him about Marcel, and he raves about her work. He says that it’s essential to get women involved in Bitcoin adoption, and that Marcel is doing god’s work in this area. “She is,” he said, “bridging the gap.”

VI. African Producers, not Consumers

Bitcoin mining might help provide electricity to millions of Africans, but if the proceeds aren’t spendable in a local economy, and usable by all citizens, then it’s just a partial revolution. If one challenge for popular Bitcoin adoption in Africa is the lack of internet, and another is low use among women, then another, according to Femi Longe, is breaking the cycle of dependence on the West.

Femi is a Nigerian social entrepreneur with 20 years of experience mentoring African technologists and start-up founders, and played a key role in creating and running the two most important tech hubs in Nigeria and Kenya. In 2022 he was hired to lead the Qala Fellows, an initiative from Tim Akinbo, Carla Kirk-Cohen, Bernard Parah, and Abubakar Nur Khalil to accelerate the process of moving African computer engineers into contributing to the Bitcoin ecosystem.

Last year, Qala was acquired by Btrust — the charity founded by Jack Dorsey and Jay-Z to support Bitcoin infrastructure in Africa and the Global South — and renamed Btrust Builders, where Femi now sits as director. He is focused on helping Africans move up the value chain in Bitcoin. Rather than just being consumers, like Africans are in so many ways in the existing global financial system, he wants them to be producers in the new Bitcoin economy.

Btrust Builders director Femi Longe

Femi says there are two legs to this journey: first, getting Africans more involved in protocol and infrastructure discussions. As Jack Dorsey says, if Bitcoin is going to be money for the world, it has to be made around the world. Femi says that African views will be needed to help evolve Bitcoin to its true potential. We can already see evidence of that in Machankura’s product road map, which could help decentralize and strengthen Bitcoin by creating potentially millions of more self-custodial users, and Gridless’s work, which makes mining more censorship-resistant and robust. The second leg to the journey, Femi says, is creating Bitcoin tools and applications that help Africans improve their quality of life, in the context of their own community, city, and country.

Femi says that these are early days: in 2022, when Qala participated in a hackathon around the first Africa Bitcoin Conference, they struggled to attract participants. People were “just dipping their feet in,” said Femi. But in 2023, he said the influx of talent was impressive. One winner was BitPension, a start-up aiming to allow anyone in Africa to set up a BTC-denominated pension, where anyone can buy satoshis in small amounts every day, which go into a time-locked self-custody, so that you can’t betray yourself. Today’s pensions, Femi says, could easily rug you, or they could be investing in oil or weapons companies. BitPension, or a similar idea, could be game-changing. The company won $5,000 of BTC, and is currently building a minimum viable product. Femi also pointed out Splice, another hackathon entrant, which is leveraging local communities of mobile money agents to facilitate dollar-stabilized trades over Lightning using Taproot Assets.

Femi says that the Western mentality around Bitcoin is too focused on the savings aspect, and not enough on the medium of exchange part. In his view, this overemphasis on savings slows down the adoption, and cements fiat currency as the on-ramp to Bitcoin. A lot of the work that needs to be done is not just teaching people how to save, but also sitting down with local rideshare apps, for example, and showing them how they can add native Bitcoin payments. The only way we can get out of the broken currency system is to build a new one, he says, to leave the old one entirely behind.

Consider the average person’s day, says Femi, and ask: what are all the touch points where they are going to interact with money? Now: how do we put Bitcoin at any one of them? How do we help create options for them to spend the Bitcoin that they earn? If they don’t have those options, Femi says, they remain part of the exploitative fiat system. The more merchant services we have, he believes, the more goods we can buy, and the less interest there will be in the conversion to USD aspect. “If we don’t get merchant traction,” he says, “we are stuck in the past.”

Another insight Femi has is that wallets will be in the future features, not core products. “Where you keep your coins is important. More important is what you can do with them,” he says. There will be, he says, pension solutions, international trade settlement solutions, payroll solutions: currently, a lot of these services are disconnected from wallets, eventually those will be built in.

Btrust Builders in Action

Something else Femi is focused on is helping Africans build strong narratives. He points to the fact that there are no Bitcoin books written by Africans. “We need to tell our stories and document our experiences,” he says. “There is a strong narrative about what Bitcoin is for and who it is for,” he says. A lot of people who are using Bitcoin in their daily life beyond savings do not know how to, or aren’t very good at, explaining this to others. Or, they may not want to alert the authorities. For example, he points to Nigerian importers who don’t want the state to know they are paying in Bitcoin. The government, for its part, has instructed any bank to freeze accounts that are involved with Bitcoin or cryptocurrency.

When people see Nigeria as a top-10 country for Bitcoin adoption, they say: there are so many hodlers in Nigeria. No, Femi says: “a lot of these folks don’t even have a wallet. They just need to get funds to China tomorrow. They send naira to some guy who does the transfer.” Bitcoin is beginning to change the fabric of international commerce, but nobody knows. Partly it’s because people don’t want others to know about the details, but partly again it’s because there is no investment into a platform to help people tell their story.

The Bitcoin ecosystem, he says, isn’t doing the work to counter what the IMF might be saying. There is very little empirical data on adoption, which according to Femi could really help with policymakers. One contact of his in the Nigerian government told him: “I need something to convince me that this makes sense, that it’s not just handing power from one group of white guys to another.” There isn’t enough work being done either, Femi says, to help people avoid scams and token schemes. This hurts the individual, and it hurts any governments looking to innovate. Look at the Central African Republic, he says. “They tried to follow El Salvador, but a bunch of scammers with Sango Coin got to them first.”

“To move forward, I think we need to write books,” Femi says. “That’s scary for a lot of us because we haven’t done it before. We don’t know what the process is.” He says that 16 or 17 years ago he wanted to read a non-fiction book about Africa written by an African — and it was very hard to find one. Africa Unchained by the Ghanaian economist George Ayittey was one of the first he saw, but there were not many others like it. This problem is now, according to Femi, spilling over into the Bitcoin space. What his fellow Btrust leader Abubakar Nur Khalil is doing with his Forbes columns is great, he says, “but we need books, and mentorship about how to get there.”

Femi thinks a lot could go wrong. He is wary of the power of Bitcoin billionaires as the currency continues to grow at scale. “As an African,” he says, “we have seen that Bill Gates might have good intentions but his foundation has massive influence on healthcare policy on the continent at the moment. Zuck may be great – but again, his corporation has huge influence here. So there’s a part of me that’s afraid that even if the system is decentralizing, in a hyperbitcoinized world there will still be people with outsized power. The real promise of Bitcoin is that everyone should have a fair shot. The world we live in is broken: the gap between the richest and poorest, in every country, has never been wider. Replicating these same imbalances in the Bitcoin world would be a failure.”

Despite this concern, Femi says that Africans “cannot afford to stay on the sidelines.” Bitcoin, he says, is inevitable and is already happening around us. He thinks it could change the existing global monetary system. “What happens in Africa,” he says, “affects the way black people are treated everywhere in the world. Bitcoin is an opportunity to redefine the power system and power structure.”

His hope is that when Bitcoin achieves its full potential, Africa’s place in the world will be different. Independent, and not dependent. “I hate being from the continent that everyone just wants to help,” he says.

But the only way Africa truly benefits from the Bitcoin revolution, he says, is if Africans lead the way. “The hope I have,” he says, “is not inevitable. We have to make it happen.”

VII. A Glitch In the Matrix

In Kenya, I got the chance to hear the origin story of Gridless from Philip: 10 years ago, he and Erik were discussing the Turkana Wind Farm, a huge 400-megawatt project built in Kenya that had no customers for years. The government had to pay 9 to 10 cents per KwH for nothing. This was because the architects wouldn’t build the site without a guaranteed income flow from a government or anchor client. The situation is common: a “take or pay” contract. The worst part: Kenya has a lot of cheap geothermal power, but oftentimes it is actually kept offline because the government is already on the hook to pay for the expensive wind power.

Erik and Philip watched this unfold and thought: what a disaster. They also thought: how could we address this? What’s a power user that doesn’t need a lot of connectivity? That’s location agnostic? Initially, they thought about bringing an aluminum processing plant up to Turkana, but the logistics challenges were overwhelming. Then they thought about a data center. Better, but the internet wouldn’t be good enough, they thought.

Finally, the Eureka moment: Bitcoin could fix this. They laugh at how well they might have done if they had taken that risk a decade ago. Of course, it was early days back then, and mining at Turkana was an idea just a bit too crazy to leave their existing jobs for. It wasn’t until 2022 that they finally got everything in place to make Gridless happen.

For many Africans, Bitcoin is a dual revolution: allowing communities to utilize stranded energy, and, at the same time, giving them access to a parallel global economy, based on property rights, not borrowing from abroad with strict conditions.

In the modern financial system, countries like Kenya, Malawi, and the DRC must obtain dollars or euros to buy planes, industrial equipment, fertilizer, oil, or even to pay back debt. Bombardier is not going to accept kwacha for payment. And printing kwacha to buy dollars is not an option: it crashes the local currency. So policymakers must focus on making stuff that the US or Europe or China wants, instead of what the country needs. Only then can they earn the dollars to be able to advance as a nation.

It doesn’t always have to be this way. If Bitcoin becomes a bigger and bigger piece of the global economy, African nations will be able to transform their energy into a global reserve currency, without asking permission from or doing business with any empire or far-away power.

The relative amount of Bitcoin might not be huge, all things considered, but economics is all about the margins, where it could make a big difference.

A resident outside of Bondo: today, no electricity, and a collapsing currency. Tomorrow: a customer of an efficient micro-grid, and a Bitcoin user?

Today, Africa has 45 currencies. Inter-continental business is plagued by delays, bureaucracy, and rent-seeking, especially from abroad. As of late 2022, 80% of all inter-African payments were processed by a European or American company. But in a Bitcoin world, Africans could trade with each other without paying what is essentially a tribute tax to former colonial powers. There would be no global rent-seeking as someone in the DRC trades with someone in Kenya: it could be a truly peer-to-peer transaction.

It’s hard to say, of course, if things will transpire in this way. But all revolutions start small and grow. Today, individuals in Eastern Africa can already easily connect with their peers elsewhere on the continent, in minutes or in seconds, in a way that does not unduly benefit the West.

Fundamental technologies like the plow, metallurgy, the steam engine, airplane, and the internet have advanced civilization beyond the wildest dreams of our ancestors. People today without question live longer and healthier lives than we did 1,000 or 5,000 years ago. That’s not to say it’s always been positive: advancement in one place has often come at the expense of advancement elsewhere.

Colonialism, tyranny, slavery, the subjugation of women, and war remain scourges on the planet.

One wonders what might come of a monetary revolution on par with the biggest inventions in human history. Morally speaking, it is hard to argue for today’s system, where approximately 1 billion people enjoy a globally-accepted, freely tradeable reserve currency, and 7 billion earn wages in strictly inferior monetary technologies.

The dominant currency is rescued, at times, by tactics like aggressive interest rate hikes that crush more than 150 other weaker currencies, depleting the wages of billions of people. Politics and markets have both played a role in creating this currency caste system, and left alone, it seems it might only get more and more brutal, with peripheral currencies getting weaker and weaker, and dominant ones becoming more and more widespread.

When the West suffers a financial collapse, ironically, people flock to the dollar.

Where you are born should not determine the quality of your wages, and yet it does. Until now. Bitcoin is, without exaggeration, something like a glitch in The Matrix. Something the current system did not expect and cannot process.

If it continues to grow and expand, it will eventually take away the “currency devaluation” option that governments in Malawi and in so many other places exercise to keep their corrupt operations afloat. They will have to resort to other options: higher taxes, or reduced government spending, but they will no longer be able to perpetrate mass theft at the press of a button.

Three years ago, inspired initially by the 2020 Stone Ridge Shareholder Letter written by Ross Stevens, and confirmed by interviews with various Bitcoin miners, I wrote about how Bitcoin would help bring a lot of new renewable power online in Africa. But I had no idea at what scale, until I started to visit some of the Gridless sites, and I had time to think carefully about the implications, which are truly staggering.

For example, instead of a government trying to build power infrastructure by reckless borrowing, selling off equity to foreigners, cutting fiscal expenditures, or raising taxes, why not just design a strategy around mining Bitcoin? Kenya could send a team of researchers to map all the sites like Lake Naivasha, figure out the total wasted electricity at existing power generation sites, figure out how many ASICs they could integrate, plot the income, and then take one last fiat loan from the IMF or an international creditor.

As the years go by, the fiat payments to the IMF would get overshadowed by the appreciating capital from the Bitcoin mining operations. Eventually, they could go debt-free.

One also can’t help but wonder about the fleets of older ASICs, no longer very profitable with expensive Western electricity rates, but perfectly functional with the cheap or free power being unlocked in Africa and the global south. They could, and likely will, be a boon for off-grid miners in countries like Malawi. Here’s another thing: weather events, trade wars, and financial crises might make energy very expensive in the West, where miners might have to shut down in America or Europe. But off-grid in Africa, this drama is irrelevant, and can even mean more Bitcoin for the local miners.

It’s not just what Bitcoin can do for Africa: it’s what Africa can do for Bitcoin. If companies, and, one day soon, nation-states and corporations start converting the continent’s thousands of gigawatts of wasted and untapped hydro and geothermal and biomass energy into capital, feeding all of that electricity to the Bitcoin network, across a decentralized and disconnected grid system, then we have a much more unstoppable global currency.

The kind of off-grid mining that makes economic sense to scale out across Africa can decentralize Bitcoin and make it stronger. Similarly, if the hundreds of millions of mobile money users of today never actually get a bank account, but just move from MPESA to Bitcoin using their SIM cards through a service like Machankura, the network becomes much more resilient.

I asked Erik and Philip about the time it would take for Bitcoin to start to truly transform the continent. Erik said that within 30 years mining will help increase electricity access in Malawi from 15% to close to 100%. Philip said that Africa could, with Bitcoin’s help, reach Northern Europe’s per-capita electricity consumption by the end of the century. But both agreed, Bitcoin adoption as a medium of exchange might happen much, much faster.

For hundreds of millions of people, it may not in the end be the United Nations or Bill and Melinda Gates or the World Bank that bring them into the 21st century, but an open-source software network, with no known inventor, and controlled by no company or government.

For dozens of brilliant African entrepreneurs, this is the vision. And in a time where so many are jaded about the world around them, it’s a refreshing one.

“The big problem that keeps us going every day,” says Erik, “is the number of people who lack electricity on this continent. It’s impossible to comprehend.”

“Picture 1,000 people without power,” he says. “Now 10,000. Now 1 million. Now 600 million. You can’t. It’s so egregious and unfathomable. And without power, there is no freedom. But now we can fix this problem, and make money, all at the same time.”

Pakistan is one of the emerging markets in Southeast Asia with a population of approximately 250 million, and a country where the majority of the population lives below the poverty line.

The people of Pakistan are hopeful; many believe that good times are coming, and the country’s future is bright amid political chaos and a tumbling financial situation for 2023. However, the overall situation seems to be getting on track, with the Karachi Stock Exchange (KSE) reaching its historical all-time highs.

“Bitcoin Pakistan,” a community of like-minded technology and bitcoin enthusiasts in Pakistan, organized its first physical networking event in Lahore last month, in November. The interest in understanding bitcoin as an inflation hedge tool and a global payments network is increasing.

However, people in Pakistan are also afraid of the legality of cryptocurrency; many seem reluctant to talk publicly about it, fearing consequences from the authorities. There is a common misunderstanding that bitcoin is banned or illegal in Pakistan.

The Central Bank of Nigeria imposed a similar ban on cryptocurrency transactions through banks in 2021. However, after witnessing the increased demand for bitcoin and its usage in the country, the CBN lifted the ban in the latest circular, providing clear instructions.

The Central Bank of Nigeria stated:

“However, current trends globally have shown that there is a need to regulate the activities of virtual asset service providers (VASPs), which include cryptocurrencies and crypto assets.”

In contrast, the State Bank of Pakistan, through its Circular issued in 2018, cautioned the public that cryptocurrencies are not legal tender, issued, or guaranteed by the Government of Pakistan. Moreover, the SBP clarified that it does not authorize or license any individual or entity for the issuance, sale, purchase, exchange, or investment in any such Virtual Currencies (VCs)/ Coins/ Tokens in Pakistan. Therefore, all regulated entities were advised to refrain from processing, using, trading, holding, transferring value, promoting, and investing in Virtual Currencies/ Tokens.

Bitcoin adoption, on the other hand, has increased significantly in Pakistan, even though there is no regulated exchange in the region. People use peer-to-peer services like Binance, Paxful, and other OTC trade methods to acquire bitcoin in Pakistan.

The number may not be precise, but it seems Pakistan is ranking among the top countries in bitcoin adoption rate in emerging markets in the developing world.

Pakistan’s rapid adoption of bitcoin can also be explained when we look at the yearly inflation, which is exceeding 25% and has been worsening for the past few years amid political chaos and pressure from the International Monetary Fund (IMF).

The freelancing industry is thriving, and Pakistan is one of the top countries exporting IT services. The freelancers’ community has shifted towards storing a major portion of their wealth in foreign currency such as USD or GBP, and the number of freelancers holding bitcoin or USDT as an inflation hedge has increased significantly since the COVID crisis.

Bitcoin is a revolution that can’t be stopped; many other nations have realized it and are working to make regulations to keep up with the innovation in the digital world. With friendly regulations from the government and a strict crackdown on crypto frauds in Pakistan, doors can open for new opportunities and attract huge investments that can help lift Pakistan out of its debt crisis.

This is a guest post by Farooq Ahmed. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Cornell University’s College of Arts & Sciences’ College Scholar Program has officially approved the first independent Bitcoin-focused study on January 11th. The pioneer behind this academic milestone is Ella Hough, a student at Cornell University, who is set to embark on a unique academic journey that is centered around Bitcoin.

“The past 15 months have been a long but incredibly worthwhile road to approval,” Hough told Bitcoin Magazine. “I continue to believe that spending my time and energy studying Bitcoin is the most worthwhile academic endeavor. I’m particularly grateful to study it inside the College of Arts and Sciences and at Cornell whose founders championed ideals Bitcoin embodies, warning of the dangers of fiat money inflation and supporting the development of rails to transfer knowledge-based and monetary wealth.”

Ella’s major will encompass a diverse range of subjects, including Cognitive Science, Psychology, Philosophy, Information Science, Government, Economics, Anthropology, and History. This interdisciplinary approach reflects the multifaceted nature of Bitcoin, exploring its cognitive and game theoretical components, as well as its implications for adoption and societal structures.

“When asked, ‘What is my College Scholar major?’ My response would be Bitcoin,” she further explained. “The cognitive and game theoretical components related to Bitcoin adoption and the implications of Bitcoin to emphasize why it matters.”

As part of the College Scholar Program requirements, Ella will undertake the task of writing and presenting an honors thesis with an oral defense in May, 2025. While her thesis is set to adapt and evolve in accordance to new information over time, Ella anticipates the core focus of her thesis will center around the world-wide adoption and revolutionary implications of Bitcoin the network and asset. Her final thesis will be displayed at the university in Klarman Hall and will be kept in the permanent library of the program, she told Bitcoin Magazine.

One distinctive feature of Ella’s new academic journey is her ability to choose the title that will appear on her diploma and transcript. Pending approval from the Director of the Program, Bitcoin will prominently feature in her official credentials, symbolizing her dedication to exploring the significance of this decentralized technology.

Ella’s commitment to studying Bitcoin further extends beyond academia; she has taken the initiative to establish Cornell’s first official Bitcoin club. The club will join Generation Bitcoin’s Bitcoin Students Network—a Gen Z focused community built to support and inspire college and high school aged students to get involved in Bitcoin.

“There is a humanitarian imperative affecting generations, present and future, to study all aspects of Bitcoin and for students to be validated in their efforts,” Hough stated. “My hope is that this precedent encourages, empowers, and eases the journey for other students to think outside our current systems and build a more inclusive, truthful, and honest world.”

Cornell University’s approval of Ella Hough’s Bitcoin-focused degree marks a significant step towards recognizing the relevance and importance of Bitcoin within traditional academic institutions. As Bitcoin continues to shape the global financial landscape, Ella’s pioneering work to officially further her understanding of Bitcoin at a prestigious university opens doors for further exploration and understanding of this burgeoning technology.