Month: June 2024

One in four Americans own Bitcoin.

That’s more Americans than are over the age of 65, but how often do you hear candidates talk about senior concerns compared to concerns of crypto owners?

President Donald Trump has been making a concerted effort in the 2024 campaign trail to appeal to Bitcoiners.

At the recent Libertarian National Convention, President Trump vowed to “stop Joe Biden’s crusade to crush crypto,” and assured Bitcoin holders specifically that he supports the right to self-custody.

“I say this with your vote, I will keep Elizabeth Warren and her goons away from your Bitcoin, and I will never allow the creation of a central bank digital currency,” President Trump said.

It’s clear which candidate this November is the best choice for Bitcoin owners and the entire industry – President Trump. He appears to see the wisdom of the pro-Bitcoin stances taken by popular leaders around the world, such as Presidents Javier Milei of Argentina and Nayib Bukele of El Salvador

Accordingly, he is staking out a clear position.

Trump acknowledges our right to self-sovereignty, and perhaps no one better understands the value of decentralization, as people have been losing trust in institutions like the government and banks. Trump has been the target of unprecedented lawfare politicizing the justice system, and Trump-affiliated organizations have been debanked and de-platformed.

President Biden, meanwhile, just vetoed legislation that would have ensured a customer’s right to have their preferred regulated financial institution custody their Bitcoin or other digital assets—laughably—in the name of “consumer protection.”

The Biden administration has been extraordinarily hostile to Bitcoin as well as the broader cryptocurrency ecosystem. The administration launched “Operation Choke Point 2.0” whereby regulators effectively instituted new rules via press release instructing banks to stop doing business with companies in the digital asset space. Further, the White House proposed a 30 percent tax on the energy used to mine Bitcoin, which would make it unprofitable and completely uneconomical for the industry to do business in the United States. Their Energy Department also attempted to collect information regarding Bitcoin miners’ energy contracts as a step towards regulating them out of business. The Justice Department even broke with long-standing Treasury Department guidance when it attempted to regulate via court filing to say that self-hosted wallets should be treated as money transmitting businesses. This is all by design. They want to effectively ban the industry.

It all starts to make sense when you consider that the Biden administration has also laid the groundwork for a Central Bank Digital Currency.

Certain politicians support the creation of a CBDC because they desire complete control. They want to be able to track our transactions and tell us how we can and cannot spend our money. Bitcoin represents the polar opposite: freedom from government-driven collectivism and the empowerment of the individual.

To be clear, there are many pro-Bitcoin leaders in the Democratic party, such as Sen. Kirsten Gillibrand and Reps. Ritchie Torres and Wiley Nickel, just to name a few. Over 70 Democrats in the House of Representatives recently voted for favorable market structure legislation. But there needs to be many more.

President Biden has surrendered governance of his administration on these issues to the self-appointed “anti-crypto” Senator Elizabeth Warren and her acolytes. This has resulted in policies that mirror the Chinese Communist Party’s approach to Bitcoin, and anything of which the ruling party disapproves: cut off financial services, attempt to cut off access to energy in the name of environmentalism, impose impossible market regulations, and essentially do anything they can to handicap the Bitcoin network while they work towards the ultimate tool of control over their populace: a CBDC.

Sen. Warren herself has even proposed legislation that would effectively ban Bitcoin mining in the United States by treating miners the same as financial institutions by requiring anti-money laundering standards despite the fact that miners do not custody any customer assets. As she well knows, if there are no Bitcoin miners, there are no Bitcoin transactions, and the path to a CBDC would be much easier without any private alternatives.

The good news for Bitcoiners this November is that they have a clear alternative. This is critical because a whopping one-third of voters say they are weighing candidates’ views on digital assets for their choice in the election.

The choice is clear. President Trump will protect your right to own Bitcoin, to mine Bitcoin, to transact with Bitcoin, and for many of us, to work in the Bitcoin industry. We believe he will support Bitcoin miners’ ability to help revolutionize the finance and energy industries in the United States and maintain American economic leadership for the future. And he will ban a CBDC, protect self-custody, and stop out of control regulators from trying to put us out of business. If you are a Bitcoiner, President Trump is the best candidate this year to, dare I say, Make Bitcoin Great Again in the eyes of the U.S. government.

Brian Morgenstern is the head of public policy for Riot Platforms. He previously served as deputy assistant secretary of the Treasury and White House deputy press secretary.

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

Bitcoin & Beyond is an educational series by the team at The Rollup focused on a new and emerging class of builders in the Bitcoin ecosystem. Through spaces, panels, and interactive presentations, the objective is to provide deep technical insights into innovative scaling projects.

In this episode, the crew discusses building Bitcoin’s first ZK (zero-knowledge) rollup with Orkun from Citrea. Rollups are a new technology that promises to enhance Bitcoin’s utility, allowing for different scalability improvements while preserving the security of the Bitcoin infrastructure.

“A rollup is a blockchain that uses another blockchain as the data availability layer,” Orkun says emphatically.

Plenty of other elements are considered in rollup design but he believes they shouldn’t be part of the definition. “Where does the settlement fit in, the bridging? ZK or optimistic? The execution layer? It doesn’t matter.”

The Motivation Behind Citrea

Citrea’s motivation behind building a zero-knowledge rollup on Bitcoin stems from Bitcoin’s unparalleled security and censorship resistance. Despite these strengths, Bitcoin has limitations in block size and script capabilities. Orkun noted, “What you can do with Bitcoin beyond simple payments is extremely limited today. We want to do more using Bitcoin’s block space security.”

Overcoming Bitcoin’s Limitations with Modularity

Citrea is attempting to address these limitations through modularity. By building a rollup, developers can customize their stack to create various applications, such as payment rollups, gaming rollups, and EVM rollups. This flexibility allows for different optimizations that might scale blockchains without requiring changes to their core protocol. The combination of different services becomes a fertile ground for experimentation that wasn’t possible before.

Security is paramount for Bitcoin and any layers built on top of it. “Building a rollup is the only way to actually get that security. If you are not building channels like Lightning or Mercury, which are still limited by Bitcoin’s functionality.”

Citrea’s innovation is to use Bitcoin as a data availability layer. Thanks to historical changes like SegWit and Taproot, developers are discovering new ways to inscribe data in Bitcoin transactions. This makes it feasible to use Bitcoin as a data availability layer for rollups. “So you can publish data into Bitcoin, but that data can be arbitrary because it doesn’t get executed ever in the blockchain,” Orkun explained.

Using Bitcoin for data availability involves trade-offs. While it ensures high security, it may not be suitable for high-speed, low-cost applications. “If you want full Bitcoin security, you must use Bitcoin as your data availability layer. However, for high-speed, low-cost applications, other layers like Celestia may be more appropriate.”

The Clementine Bridge

To move bitcoins in and out of the system, Citrea has built Clementine, a BitVM-based two-way peg that optimistically verifies ZK proofs. This mechanism aggregates proofs from Bitcoin, reducing the need for frequent settlements and enhancing security. “We are just inscribing these proofs on Bitcoin every hour. Other rollups can read the proof from there and execute based on that,” Orkun explained.

The evolution of BTC bridges has seen a shift from custodial and federated threshold bridges to modern crypto-economic security bridges. Federated bridges rely on a majority consensus within a committee, while crypto-economic bridges like Stacks or tBTC use staked assets to ensure security. Orkun detailed, “In crypto-economic security, you are still trusting a federation, but those people actually stake some other assets. If they steal the money, then you can slash that asset.”

Clementine, however, takes this a step further. It uses an optimistic approach inspired by BitVM to verify ZK proofs, which is cost-effective and secure. This approach allows for the aggregation of proofs, making the process efficient and scalable.

The core idea behind Clementine is to provide optimistic settlements for ZK rollups. “We just aggregate the Bitcoin proofs from Bitcoin to settle less frequently because you cannot settle in every single block. It will be expensive,” Orkun explained. By inscribing data periodically and aggregating proofs, Clementine ensures that the state remains accurate and secure.

To achieve this, an operator will initially cover user withdrawal requests out of pocket then aggregate the necessary proofs into a single submission to the network. If other operators suspect foul play, they can challenge the submission. Successful challenges result in the dishonest operator losing their initial bond and being removed from the network. If the operator’s submission is not challenged, they can then reclaim the equivalent amount they disbursed from users’ original deposits.

This setup introduces a trust-minimized assumption where only one participant needs to be honest to ensure security. “We call it trust minimized because now we have this 1-of-N assumption. As long as one person in this N people is honest, then your money is secure,” Orkun emphasized. This is a significant improvement over traditional models that require a majority consensus for security.

Future Plans and Ecosystem Impact

Looking ahead, Citrea plans to introduce volition, a hybrid model balancing on-chain security with off-chain cost efficiency. This allows applications to choose their data storage method based on their specific needs. Orkun also emphasized the importance of transaction fees for Bitcoin’s long-term security, with Citrea’s use of Bitcoin as a data availability layer contributing to maintaining miner incentives and network security.

“So depending on your usage, if you want to deploy now a gaming application, you can use off-chain data. It is very cheap, very fast, but still gets this Bitcoin interoperability. If you want to build a Bitcoin-backed stablecoin application, you can use on-chain data so your stablecoin is fully on-chain secured, fully Bitcoin secured. A bit expensive but you still get this interoperability between the gaming application and the stablecoin application.”

Bridging Bitcoin’s resilience with the flexibility of rollups could push the boundaries of what’s possible with Bitcoin. Check out Citrea’s website to learn more about their work. Follow our Bitcoin & Beyond series at therollup.co to learn more about the evolving state of Bitcoin scaling solutions.

Ecash is becoming an unavoidable topic these days. In a climate of contention over pretty much every proposal floating around these days ecash stands out as a protocol that can be deployed today without any alterations or changes to the Bitcoin protocol.

The ability to deploy an application or protocol without depending on changes to Bitcoin is an incredibly valuable thing in the current climate, so it is no surprise that the Cashu ecash protocol is starting to rapidly take hold on the fringes. Adoption is starting to occur on platforms like Nostr, and inter-mint settlement across the Lightning Network makes Cashu wallets a viable alternative to things like Wallet of Satoshi as easy to use Lightning wallets.

Ecash is likely going to become an increasingly popular piece of the Bitcoin ecosystem, and Cashu in particular has been incredibly successful at encouraging multiple compatible implementations.

Cashu developers have a comprehensive plan for an ecosystem built around the protocol to address some of the fundamental trust model issues of ecash, as well as different use cases specific needs. Let’s go through the vision for the Cashu ecosystem.

Blinded Tokens

The core of all ecash protocols is a blind signature scheme. This is the mechanism that enables a centralized entity to process ecash payments in a privacy preserving manner.

To start, users minting a token must generate a random value. This is the actual ecash token. Generating it themselves ensures that the token is securely held in their possession and no one else’s. But that isn’t enough, anyone can just generate a random value. The ecash mint operator needs to notarize the token with a signature.

The problem is if they see the token when they sign it, then they will know who they signed it for and can know who made a payment when someone else comes to them to redeem it. To address this, a second random value, a blinding factor, is generated by the user before having the mint notarize a token. The binding factor is essentially multiplying the token value by the blinding value.

The user then provides the blinded token value to the mint to sign it. This leaves you with a problem though, the mint signed the blinded token value, not the plaintext one. Because of how the blinding protocol and underlying cryptography works, you can do the reverse operation done to blind the token in the first place to unblind the signature.

This leaves you with a valid signature for the plaintext token value, and ensures that when it is redeemed the mint has no idea when, what, or for whom it signed it. That’s ecash in a nutshell (get it?).

Small Local Mints

The goal of Cashu is to be a lean and lightweight protocol that is easy to implement, easy to integrate, and easy to build on. The vision is an ecosystem of large numbers of very small mints running locally all interconnected over the Lightning Network. Rather than focus on larger mints with network effects allowing direct token transfers between users, incentivizing the concentration of massive amounts of bitcoin in the hands of a few trusted counterparties, the developers envision much more small value and localized operators.

This allows users to place trust in people they have closer relationships with, and each user to depend on an operator much closer in their social circle of trust. Lightning enables this, because rather than having to convince everyone to accept tokens from your mint, you simply redeem them and allow them to receive tokens form their own mint.

The strategy here tries to lean into the reality of Dunbar’s number, the maximum number of people someone can mentally have a meaningful relationship or degree of trust with.

Mint Discovery Over Nostr

Feeding into the general idea of encouraging numerous mints local to people’s circle of trust, the newish Nostr discovery protocol is a huge component of the long term functioning of a Cashu ecosystem. Nostr is built around the idea of users’ identities being tied to self-custodied cryptographic keys, guaranteeing that no one else but them can broadcast messages attributed to their identity.

Nostr’s primary use case currently is social media, which combined with the key based identity scheme provides a powerful foundation for a very old concept in cryptography: webs of trust. Cashu is leveraging this to allow users to discover mints that they could possibly use.

With their Nostr key, anyone using a Cashu wallet supporting the feature can locate mints, and will be able to see what mints people they know, trust, and interact with use. This can form a reputational system allowing them to make more informed decisions on which Cashu mints to trust their funds with rather than blindly guessing and hoping that they don’t get burned at some point.

The more mints that come online, and the more people using them who have Nostr identities, the stronger this reputational web of trust will become overtime. This should naturally sift out malicious or unknown mints, and give users a solid set of trustworthy and honest mint operators to choose from.

Using Multiple Mints

The basic concept of a diverse ecosystem of mints for users to choose from is a solid foundation for a market based system of open and competitive optionality for users. But things can be taken even further. A single user can make use of multiple mints.

Users can have their balance spread across multiple mints, and utilizing a variant of multipath payments, can initiate a payment over the Lightning Network to a single destination with pieces of the payment originating from many different mints they have balances with. This allows the counterparty risk of storing your funds with custodians to be spread across many of them, without sacrificing the ability to make smooth payments to people using different mints than you.

This is made possible by the mints running customized software to enable a mint to only partially pay a Lightning invoice, allowing other mints you have funds with to pay other chunks of the invoice. As long as each mint successfully routes their payment to the final destination, the payment will succeed.

It is even possible with further customization of their Lightning nodes to allow users to receive a payment to multiple mints. If the mints support a users wallet generating the preimage to finalize the payment instead of the mint, each mint being used to receive funds can issue their own invoices where the receiving user controls the preimage release. As long as each participating mint receives the routed HTLC, the user can release the preimage to all of them and successfully distribute their received funds across the mints.

This scheme can massively reduce the risk of fund loss due to any one mint, and in combination with the Nostr discovery protocol and associated webs of trust can drastically improve user security.

Programming The Money

One of the most useful aspects of the Cashu is the ability to program script functionality into an ecash token the same way that a real bitcoin UTXO is lockable with a program using Bitcoin script. Cashu tokens can encode script conditions before blinding the token for the mint to notarize, and when they are later redeemed the mint can refuse to redeem the token unless those arbitrary script conditions are fulfilled.

Currently Cashu has implemented a lock to public key script, requiring a signature from the specified public key in order to redeem the token. This enables minting tokens that are locked and only redeemable by the holder of a specific private key. Once the token is minted with the public key lock, it is impossible for anyone else to redeem it.

This can be used to enable secure payments where the receiver is offline. Even without an internet connection, as soon as they receive the token from the sender they can be sure once they verify the mint’s signature that no one else can redeem the token. They can safely accept it as payment knowing they can redeem it later at a convenient time.

This introduces a bit of complexity, as a sender has to lock tokens to a specific receiver ahead of time if they do not have an internet connection at the moment of spending. Given that people very frequently don’t know exactly how much they will spend somewhere, this creates a problem of potentially allocating too much money with no way to take it back if they don’t spend it.

But script can support many things, tokens could be created that require a signature from a specific public key, or anyone after a certain amount of time has passed. Something analogous to an HTLC. The Cashu spec also defines an actual HTLC token script.

As time goes on and more use cases are desired, the scripts that people can lock Cashu tokens with can be expanded arbitrarily based on the needs of users and mint operators. I expect this to become a very powerful aspect of the protocol in the long term. It could support escrow services, multisignature tokens, and a large variety of arbitrary smart contracts. Cashu mints can enforce any script condition that Bitcoin can, and much more.

The Big Picture

People use custodians, it is something people have always done, and will likely always do regardless of how much flexibility is offered by non-custodial solutions. It’s just a fact of life that some people can’t or don’t want to take the responsibility or deal with the complexity of self custody.

Cashu aims to be a radical improvement for users of custodial services. Something that can bring privacy, censorship resistance, and flexibility to users who otherwise would not have access to these things with the way traditional custodial services are architected.

The goal of the Cashu project is not to “scale Bitcoin” using custodians, but to offer an improved and private system for users of custodial services. I think this is a laudable goal, and one that in the long term has massive potential to be a huge benefit for these users. 

In hindsight, all it took for real institutional adoption of Bitcoin to take place was the introduction of a risk-minimized, easy-to-use product in the form of an exchange-traded fund (ETF). In January, the SEC approved nine new ETFs that provide exposure to Bitcoin through the spot market, a strict improvement over the futures-based ETFs that began trading back in 2021. In the first quarter of trading, both the size and number of institutional allocations to these ETFs have blown away consensus expectations. Blackrock’s ETF alone set a record for the shortest time an ETF has hit $10 billion in assets.

Beyond the eye-popping AUM figures these ETFs have drawn, this past Wednesday marked the deadline for institutions with over $100 million in assets to report their holdings to the SEC through 13F filings. These filings reveal a complete picture of who owns Bitcoin ETFs—the results are nothing short of bullish.

Institutional Adoption is Broad-Based

In years past, a single institutional investor reporting ownership of bitcoin would be a newsworthy, even market moving event. Just three years ago, Tesla’s decision to add bitcoin to their balance sheet sent bitcoin up over 13% in a single day.

2024 is clearly different. As of Wednesday, we now know of 534 unique institutions with over $1 billion in assets that chose to begin allocating to bitcoin in Q1 of this year. Ranging from hedge funds to pensions and insurance companies, the breadth of adoption is remarkable.

Source: River

Of the largest 25 hedge funds in the US, over half now have exposure to bitcoin, most notably a $2 billion position from Millennium Management. Additionally, 11 of the largest 25 Registered Investment Advisors (RIAs) are now allocated.

Source: River

But why are Bitcoin ETFs so appealing to institutions who could’ve just bought bitcoin?

Large institutional investors are slow moving creatures from a financial system steeped in tradition, risk management, and regulations. For a pension fund to update its investment portfolio requires months, sometimes years of committee meetings, due diligence, and board approvals that are often repeated multiple times.

To gain exposure to bitcoin by purchasing and holding real bitcoin requires a comprehensive vetting of multiple trading providers (e.g. Galaxy Digital), custodians (e.g. Coinbase), and forensics services (e.g. Chainalysis), in addition to forming new processes for accounting, risk management, etc.

To gain exposure to bitcoin by purchasing an ETF from Blackrock is easy by comparison. As Lyn Alden put it on a TFTC podcast, “All the ETF is, is in developer terms, it’s basically an API for the fiat system. It just allows the fiat system to plug into Bitcoin a little bit better than it used to.”

This is not to say that ETFs are the ideal way for people to gain exposure to bitcoin. In addition to the management fees that come with owning an ETF, there are many tradeoffs that come with such a product that may compromise the core value provided by Bitcoin in the first place—incorruptible money. While these tradeoffs are beyond the scope of this article, the flowchart below depicts some of the considerations at play.

Why hasn’t Bitcoin rallied more this quarter?

With such a strong rate of ETF adoption, it may come as a surprise that the price of bitcoin is only up 50% year-to-date. Indeed, if 48% of the top hedge funds are now allocated, how much upside could really be left?

While the ETFs have broad-based ownership, the average allocations of the institutions that own them are quite modest. Of the major ($1b+) hedge funds, RIA’s, and pensions that have made an allocation, the weighted average allocation is less than 0.20% of AUM. Even Millennium’s $2 billion allocation represented less than 1% of their reported 13F holdings.

The first quarter of 2024, therefore, will be remembered as the time when institutions ‘got off of zero’. As for when they will get past dipping their toes in the water? Only time will tell.

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

Spot Bitcoin exchange-traded funds (ETFs) in the U.S. attracted $1.8 billion in inflows last week, their 18th consecutive record day of demand. The surge comes as the successful Bitcoin ETFs continue maturing.

Trading volumes across Bitcoin ETFs also rose 55% week-over-week to $12.8 billion. The past week’s haul was Bitcoin funds’ largest since mid-March when Bitcoin hit nearly $74,000.

Significantly, the ETFs acquired around 25,700 BTC last week, almost equal to the entire new Bitcoin supply mined during that period. This absorption of new supply is tightening the market.

The wave of inflows this month has already surpassed May’s total inflows. It follows the regulatory embrace of Bitcoin ETFs in the U.K., Australia and Thailand, while political winds are also shifting positively.

With total assets under management across Bitcoin ETFs now exceeding $70 billion, the funds continue legitimising Bitcoin as an institutional asset class. Their uninterrupted demand streak further cements Bitcoin’s reputation.

NEW: Global Spot Bitcoin ETFs now hold over $70 billion in #Bitcoin

That’s 5% of the BTC supply 🤯 pic.twitter.com/NYqldI5SIn

— Bitcoin Magazine (@BitcoinMagazine) June 10, 2024

The past week’s activity shows investors increasingly treating Bitcoin as a hedge against inflation and uncertainty as interest rate cuts begin in Canada and Europe. 

This institutional embrace is why Bitcoin ETFs have quickly ballooned despite launching just months ago. If current momentum sustains, more and more institutional money seem poised to flood the Bitcoin market.