Month: August 2024

This article is featured in Bitcoin Magazine’s “The Halving Issue”. Click here to get your copy. It is also report #1 of the “FUD Fighters” series powered by HIVE Digital Technologies LTD.

F%$K Bad Research: I spent over a month analyzing a bitcoin mining study and all I got was this trauma response.

“We must confess that our adversaries have a marked advantage over us in the discussion. In very few words they can announce a half-truth; and in order to demonstrate that it is incomplete, we are obliged to have recourse to long and dry dissertations.” — Frédéric Bastiat, Economic Sophisms, First Series (1845)

“The amount of energy needed to refute bullshit is an order of magnitude bigger than that needed to produce it.” — Williamson (2016) on Brandolini’s Law

For too long, the world has had to endure the fallout of subpar academic research on bitcoin mining’s energy use and environmental impact. The outcome of this bullshit research has been shocking news headlines that have turned some well-meaning people into angry politicians and deranged activists. So that you never have to endure the brutality of one of these sloppy papers, I’ve sacrificed my soul to the bitcoin mining gods and performed a full-scale analysis of a study from the United Nations University, published recently in the American Geophysical Union’s Earth’s Future. Only the bravest and hardest of all bitcoin autists may proceed to the following paragraphs, the rest of you can go back to watching the price chart.

Your soft baby ears might have screamed with shock at the strong proclamation in my lede that the biggest and squeakiest research on bitcoin mining is bullshit. If you’ve ever read Jonathan Koomey’s 2018 blog post on the Digiconomist–also known as Alex deVries, or his 2019 Coincenter report, or Lei et al. 2021, or Sai and Vranken 2023, or Masanet et al. 2021, or… Well, the point is that there’s thousands of words already written that have shown that bitcoin mining energy modeling is in a state of crisis and that this is not isolated to bitcoin! It’s a struggle that data center energy studies have faced for decades. People like Jonathan Koomey, Eric Masanet, Arman Shehabi, and those nice guys Sai and Vranken (sorry, we’re not yet on a first-name basis) have written enough pages that could probably cover the walls of at least one men’s bathroom at every bitcoin conference that’s happened last year, that show this to be true.

My holy altar, which I keep in my bedroom closet, is a hand-carved, elegant yet ascetic shrine to Koomey, Masanet, and Shehabi for the decades of work they’ve done to improve data center energy modeling. These sifus of computing have made it all very clear to me: if you don’t have bottom-up data and you rely on historical trends while ignoring IT device energy efficiency trends and what drives demand, then your research is bullshit. And so, with one broad yet very surgical stroke, I swipe left on Mora et al. (2018), deVries (2018, 2019, 2020, 2021, 2022, and 2023), Stoll et al. (2019), Gallersdorfer et al. (2020), Chamanara et al. (2023), and all the others that are mentioned in Sai and Vranken’s comprehensive review of the literature. World, let these burn in one violent yet metaphorically majestic mega-fire somewhere off the coast of the Pacific Northwest. Reporters, and policymakers, please, I implore you to stop listening to Earthjustice, Sierra Club, and Greenpeace for they know not what they do. Absolve them of their sins, for they are but sheep. Amen.

Now that I’ve set the mood for you, my pious reader, I will now tell you a story about a recent bitcoin energy study. I pray to the bitcoin gods that this will be the last one I ever write, and the last one you’ll ever need to read, but my feeling is that the gods are punishing gods and will not have mercy on my soul–even in a bull market. One deep breath (cue Heath Ledger’s Joker) and Here… We… Go.

On a somewhat bearish October afternoon, I got tagged on Twitter/X on a post about a new bitcoin energy use study from some authors affiliated with the United Nations University (Chamanara et al., 2023). Little did I know that this study would trigger my autism so hard that I would descend into my own kind of drug-induced-gonzo-fear-and-loathing-in-vegas state, and hyper-focus on this study for the next four weeks. While I am probably exaggerating about the heavy drug use, my recollection of this time is very much a techno-colored, toxic relationship-level fever dream. Do you remember Frank from the critically acclaimed 2001 film, Donnie Darko? Yeah, he was there, too.

As I started taking notes on the paper, I realized that Chamanara et al.’s study was really confusing. The paper was perplexing because it’s a poorly designed study that bases its raison d’etre entirely on de Vries and Mora et al. It uses the Cambridge Center for Alternative Finance (CCAF) Cambridge Bitcoin Energy Consumption Index (CBECI) data without acknowledging the limitations of the model (see Lei et al. 2021 and Sai and Vranken 2023 for an in-depth analysis of the issues with CBECI’s modeling). It conflates its results from the 2020-2021 period with the state of bitcoin mining in 2022 and 2023. The authors also relied on some environmental footprint methodology that would make you think it was actually possible for you to shrink or grow a reservoir depending on how hard you Netflix and chill. Really, this is what Obringer et al. (2020) inferentially conclude is possible and the UN study cites Obringer as one of its methodological foundations. By the way, Koomey and Masanet did not like Obringer et al.’s methodology, either. I’ll light another soy-based candle at the altar in their honor.

Here’s a more clearly stated enumeration of the crux of the problem with Chamanara et al. (and by the way, their corresponding author never responded to my email asking for their data so I could, you know, verify, not trust. 🥴):

The authors conflated electricity use across multiple years, overreaching on what the results could reveal based on their methods.

The authors used historical trends to make present and future recommendations despite extensive peer-reviewed literature clearly showing that this leads to overestimates and exaggerated claims.

The paper promises an energy calculation that will reveal bitcoin’s true energy use and environmental impact. They use two sets of data from CBECI: i) total monthly energy consumption and ii) average hashrate share for the top ten countries where bitcoin mining is operated. Keep in mind that CBECI relies on IP addresses that are tracked at several mining pools. CBECI-affiliated mining pools represent an average of 34.8% of the total network hashrate. So, the data used likely have fairly wide uncertainty bars.

After about an hour or so of Troy Cross talking me off a rather impressive, art deco and weather-worn ledge that’s probably seen a few Great Gatsby flappers jump–a result of feeling an overwhelming sense of terror after my exasperated self realized that no amount of cognitive behavioral therapy would get me through this study–I determined the equation that the authors used to calculate the energy use shares for each of the top ten countries with the most share of hashrate (based on the IP address estimates) had to be the following:

Don’t let the math scare you. Here’s an example of how this equation works. Let’s say China has a shared share for January 2020 of 75%. Then, let’s also say that the total energy consumption for January 2020 was 10 TWh (these are made-up numbers for simplicity’s sake). Then, for one month, we’d find that China used 7.5 TWh of energy. Now, save that number in your memory palace and do the same operation for February 2020. Next, add the energy use for January to the energy use found for February. Do this for each subsequent month until you’ve added up all 12 months. You now have CBECI’s China’s annual energy consumption for 2020.

Before I show the table with my results, let me explain another caveat to the UN study. This study uses an older version of CBECI data. To be fair to the authors, they submitted their paper for review before CBECI updated their machine efficiency calculations. However, this means that Chamanara et al.’s results are not even close to realistic because we now believe that CBECI’s older model was overestimating energy use. Moreover, to do this comparison, I was limited to data through August 31, 2023, because CBECI switched to the new model for the rest of 2023. To get this older data, CCAF was generous and shared it with me upon request.

Another tricky thing about this study is that they combined the energy use for both 2020 and 2021 into one number. This was really tricky because if you look at their figures, you’ll notice that the biggest text states, “Total: 173.42 TWh”. It’s also slightly confusing because the figure caption states, “2020-2021”, which for many people would be interpreted as a period of 12 months, not 24 months. Well, whatever. I broke them up into their individual years so everyone could see the steps that were taken to get to these numbers.

Look at the far right column with the header, “Percent Change Between 2020 + 2021 Calculations (%)”. I calculated the percent change between my calculations and Chamanara et al.’s. This is rather curious, isn’t it? Based on my conversations with the researchers at CCAF, the numbers should be identical. Maybe the changelog doesn’t reflect a smaller change somewhere, but our numbers are slightly different nonetheless. China has a greater share and the United States has a smaller share in the data that CCAF shared with me compared to the UN study. Despite this, the totals are fairly close. So, let’s give the authors the benefit of the doubt and say that they did a reasonable job calculating the energy share, given the limitations of the CBECI model. Please bear in mind that noting that their calculation was reasonable doesn’t mean that it’s reasonable to use these historical estimates to make claims about the present and future and direct policy. It isn’t.

One evening while working by candlelight, I glanced to my left and saw Frank’s stabbing, black pupils (the Donnie Darko character I mentioned earlier) staring at me like two pieces of Stronghold waste coal, fixed in a quiet bed of pearly sand. He was reminding me that this report was still not finished and something about time travel. I grabbed my extra-soft curls (I switched to bar shampoo, it’s a godsend for frizz) and yanked as hard as I could. Willie Nelson’s 1974 Austin City Limits pilot episode blasting on my cheap-ass Chinese knock-off monitor’s mono speakers was moving through my ears like heroin through Lou Reed’s 4-lanes wide network of veins. Begrudgingly, I accepted my fate. I needed to go deeper down this rabbit hole. I needed to do a deeper analysis of the 2020 and 2021 CBECI data to show how important it is to do an annual analysis and not blur the years into one calculation. Realizing I was out of my hard liquor of choice, a splash of sherry in a Shirley Temple (shaken, not stirred), I grabbed a bottle of bootleg antiseptic that I got during the pandemic lockdown and chugged.

I flipped through my notes. I have lots of notes because I’m a serious person. What about the mining map issues? Can we do this through an analysis of the two separate years? What was happening for each of the ten countries? Does that tell us anything about where hashrate went after the China ban? What about the Kazakhstan crackdown? That’s post-2021, but the UN study acts like it never happened when they’re talking about the current mining distribution…

Not to the authors’ credit, they failed to mention to the peer-reviewers and to their readers that the mining map data only goes through January 2022. So, even though they talk about bitcoin mining’s energy mix as if it represents the present, they are completely wrong. Their analysis only captures historical trends, not the present and definitely not the future.

See this multi-colored plot of CBECI’s estimated daily energy use (TWh) from January 2020 through August 31, 2023? At this macro scale, we see plenty of variability. But also it’s apparent just from inspection that each year is different from the next in terms of variability and energy use. There are a number of possible reasons for the cause of variability at this scale. Some possible influences on energy use could be bitcoin price, difficulty adjustment, and machine efficiency. More macroscale influences could be as a result of regulation, such as the Chinese bitcoin mining ban that occurred in 2021. Many of the Chinese miners fled the country for other parts of the world, Kazakhstan and the United States are two countries where hashrate found refuge. In fact, the power of the Texas mining scene really came to be at this unprecedented moment in hashrate history.

Look at the histograms for 2020 (top left), 2021 (top right), 2022 (bottom left), and 2023 (bottom right). It’s obvious that for each year, the estimated annualized energy consumption data shows different distributions. Even though we do see some possible distribution patterns, we have to be careful not to take this as a pattern that happens every four-year cycle. We need more data to be sure. For now, what we can say is that some years in our analysis show a bimodal distribution while other years show a kind of skewed distribution. The main point here is to show that the statistics for energy use for each of these four years are different, and distinctly so for the two years that were used in Chamanara et al.’s analysis.

In the UN study, the authors wrote that bitcoin mining exceeded 100 TWh per year in 2021 and 2022. However, if we look at the histograms of the daily estimated annualized energy consumption, we can see that daily estimates vary quite a bit, and even in 2022 there were many days where the estimated energy consumption was below 100 TWh. We’re not denying that the final estimates were over 100 TWh in the older estimated data for these years. Instead, we’re showing that because bitcoin mining’s energy use is not constant from day to day or even minute-to-minute, it’s worth doing a deeper analysis to understand the origin of this variability and how it might affect energy use over time. Lastly, it’s worth noting that the updated data now estimates the annual energy use to be 89 TWh for 2021 and 95.53 TWh for 2022.

One last comment, Miller et al. 2022 showed that operations (specifically buildings) with high variability in energy use over time are generally not suitable for emission studies that use averaged annual emission factors. Yet, that’s what Chamanara et al. chose to do, and what so many of these bullshit models tend to do. A good portion of bitcoin mining doesn’t operate like a constant load, Bitcoin mining can be highly flexible in response to many factors from grid stability to price to regulation. It’s about time that researchers started thinking about bitcoin mining from this understanding. Had the authors spent even a modest amount of time reading previously published literature, rather than operating in a silo like Sai and Vranken noted in their review paper, they might have at least addressed this limitation in their study.

—

So, I’ve never been to a honky tonk joint before. At least not until I found myself in a taxi cab with several other conferencegoers at the North American Blockchain Summit. Fort Worth, Texas, is exactly what you’d imagine. Cowboy boots, gallon-sized cowboy hats, Wrangler blue jeans, and cowboys, cowboys, cowboys everywhere you looked through the main drag. On a brisk Friday night, Fort Worth seemed frozen in time, people actually walked around at night. The stores looked like the kind of mom-and-pop shops you’d see on an episode of The Twilight Zone. I felt completely disoriented.

My companions convinced me that I should learn how to two-step. Me, your standard California girl, whose physics advisor once told her that while you can take the girl out of California, you can’t take California out of the girl, should two-step?! I didn’t know a two-step from an electric slide and the only country I remember experiencing was a Garth Brooks commercial I saw once on television when I was a child. He was really popular in the nineties. That’s about as much country as this bitcoin mining researcher gets. The place was filled with kitschy gift shops and bright lights everywhere radiating from neon signs. At the center of the main room, a bartender wearing a black diamond studded belt with a white leather gun holster and lined with evenly spaced silver bullets. Who the hell knows what kind of gun he was packing, but it did remind me of the guns in the 1986 film, Three Amigos.

It was here, against the backdrop of what sounded like a country band that wasn’t entirely sure that it was country, that I watched the Texas Blockchain Council’s Lee Bratcher address a ball with the kind of trigonometric grace that you could only find at the end of a cue and land that billiard in a tattered, leather pocket for what seemed like the hundredth time that night. The smooth clank of billiard against billiard awoke something inside me. I realized that I was not yet out of the rabbit hole that Frank sent me down. I remembered somewhere scribbled in my notes that I had not plotted the hashrate share over time for the countries mentioned in the UN study. So, at half past three in the morning, I threw my head back to take a swig of some club soda and bumped it against the wall of the photo booth where nuclear families could pose with a mechanical bull, and fell unconscious.

Three hours later, I was back in my hotel room. Thankfully, someone placed some worthless fiat in my hand, loaded me into a cab, and had the driver take me back to the non-smoking room I checked into at the very center of the decay of twenty-first-century business travel, the Marriott Hotel. Fuzzy-brained and bleary-eyed, I let the blinding, dangerously blue light from my computer screen wash over my tired face and increase my chances of developing macular degeneration. I continued my analysis.

What follows are a series of plots of CBECI mining map data from January 2020 through January 2022. Unsurprisingly, Chamanara et al. focus attention on China’s contribution to energy use, and subsequently to its associated environmental footprint. China’s monthly hashrate peaked at over 70 percent of the network’s total hashrate in 2020. In July 2021, that hashrate share crashed to zero until it recovered to about 20 percent of the share at the end of 2021. We don’t know where it stands today, but industry insiders tell me it’s likely still hovering around this number, which means that in absolute terms, the hashrate is still growing there despite the ban.

Russia, also unsurprisingly, gets discussed as well. Yet, based on the CBECI mining map data from January 2020 through January 2022, it’s hard to argue that Russia was an immediate off-taker of exiled hashrate. There’s certainly an immediate spike, but is this real or just miners using VPN to hide their mining operation? By the end of 2021, the Russian hashrate declined to below 5 percent of the hashrate and in absolute terms, declined from a brief peak of over 13 EH/s to a bit over 8 EH/s. When looking at the total year’s worth of CBECI estimated energy use for Russia, we do see that Russia did hold a significant portion of hashrate, it’s just not clear that when working with such a limited set of data, we can make any reasonable claims about the present contribution to hashrate and environment footprint for the network.

The most controversial discussion in Chamanara et al. deals with Kazakhstan’s share of energy use and environmental footprint. Obviously, the CBECI mining map data shows that there was a significant increase in hashrate share both in relative and absolute terms. It also appears that this trend started before the China ban was implemented, but certainly appears to rapidly increase just before and after the ban was implemented. However, we do see a sharp decline from December 2021 to January 2022. Was this an early signal that the government crackdown was coming in Kazakhstan?

In their analysis, Chamanara et al. ignored the recent Kazakhstan crackdown, where the government imposed an energy tax and mining licenses on the industry, effectively pushing hashrate out of the country. The authors overemphasized Kazakhstan as a current major contributor to bitcoin’s energy use and thus environmental footprint. If the authors had stayed within the limits of their methods and results, then noting the contribution of Kazakhstan’s hashrate share to the environmental footprint for the combined years of 2020 and 2021 would have been reasonable. Instead, not only do they ignore the government crackdown in 2022, but they also claim that Kazakhstan’s hashrate share increased by 34% based on 2023 CBECI numbers. CBECI’s data has not been updated since January 2022 and CCAF researchers are currently waiting for data from the mining pools that will allow them to update the mining map.

I know I’ve shown you, my faithful reader, a lot of data, but go ahead and have another shot of the hardest liquor you have in your cabinet, and let’s take a look at one more figure. This one represents the United States hashrate share in the older CBECI mining map data. The trend we see for the United States is also similar for Canada, Singapore, and what CBECI Calls “Other countries”, which represent the countries that did not make the top ten list for hashrate share. There’s a clear signal that reflects what we know to be true. The United States took a significant portion of Chinese hashrate and this hashrate share grew rapidly in 2021. While we know that the CBECI mining map data is limited to less than a majority of the network hashrate, I do think that their share is at least somewhat representative of the network’s geographic distribution. Hashrate geographic distribution seems to be heavily shaped by macro trends. While electricity prices matter, government stability and friendly laws play an important role. Chamanara et al. should have done this kind of analysis to help inform their discussion. If they had, they might have realized that the network is responding to external pressures at varying times and geographic scales. We need more data before we can make strong policy recommendations when it comes to the effects of bitcoin’s energy use.

—

At this point, I was no longer sure if I was a bitcoin researcher or an NPC, lost in a game where the only points tallied were for the intensity of self-loathing I was feeling for agreeing to this undertaking. At the same time, I could smell the end of this analysis was near and that, with enough somatic therapy and EMDR, I might actually remember who I used to be before I got dragged into this mess. Just two days prior, Frank and I had a falling out over whether Courier New was still the best font for displaying mathematical equations. I was alone in this rabbit hole now. I dug my fingers into the dirt walls surrounding me and slowly clawed my way back to sanity.

Upon exiting the hole, I grabbed my laptop and decided it was time to address the study’s environmental footprint methodology, wrap up this puppy, and put a bow on it. Chamanara et al. claimed that they followed the methods used by Ristic et al. (2019) and Obringer et al. (2020). There are a few reasons why their environmental footprint approach is flawed. First, the footprint factors are typically used for assessing the environmental footprint of energy generation. In Ristic et al., the authors developed a metric called the Relative Aggregated Factor that incorporated these factors. This metric allowed them to evaluate the placement of new electricity generators like nuclear or offshore wind. The idea behind this approach was to be mindful that while carbon dioxide emissions from fossil fuels were the main driver for developing energy transition goals, we should also avoid replacing fossil fuel generation with generation that could create environmental problems in different ways.

Second, Obringer et al. used many of the factors listed in Ristic et al. and combined them with network transmission factors from Aslan et al. (2018). This was a bad move because Koomey is a co-author on this paper, so it shouldn’t be surprising that in 2021, Koomey co-authored a commentary alongside Masanet where they called out Obringer et al. In Koomey and Masanet, 2021, the authors chided the assumption that short-term changes in demand would lead to immediate and proportional changes in electricity use. This critique could also be applied to Chamanara et al., which looked at a period when bitcoin was experiencing a run-up to an all-time high in price during a unique economic environment (low interest rates, COVID stimulus checks, and lockdowns). Koomey and Masanet made it clear in their commentary that ignoring the non-proportionality between energy and data flows in network equipment can yield inflated environmental-impact results.

More importantly, we have yet to characterize what this relationship looks like for bitcoin mining. Demand for traditional data centers is defined by the number of compute instances needed. What is the equivalent for bitcoin mining when we know that the block size is unchanging and the block pace is adjusted every two weeks to keep an average 10-minute spacing between each block? This deserves more attention.

Either way, Chamanara et al. did not seem to be aware of the criticisms of Obringer et al.’s approach. This is really problematic because as mentioned at the start of this screed, Koomey and Masanet laid the groundwork for data center energy research. They should have known not to apply these methods to bitcoin mining because while the industry has differences from a traditional data center, it’s still a type of data center. There’s a lot that bitcoin mining researchers can take from the torrent of data center literature. It’s disappointing and exhausting to see papers published that ignore this reality.

What more can I say other than this shit has to stop. Brandolini’s Law is real. The bullshit asymmetry is real. I really want this new halving cycle to be the one where I no longer have to address bad research. While I was writing this report, Alex de Vries published a new bullshit paper on bitcoin mining’s “water footprint”. I haven’t read it yet. I’m not sure that I will. But if I do, I promise that I will not write over 10,000 words on it. I’ve stated my case and made my peace with this genre of academic publishing. It was a fun ride, but I think it’s time to practice some self-care, treat myself to several evenings of healthy binge-watching, and dream of the ineffable.

—

If you enjoyed this article, please visit btcpolicy.org where you can read the full 10,000-word technical analysis of the Chamanara et al. (2023) study.

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

This article is featured in Bitcoin Magazine’s “The Halving Issue”. Click here to get your copy.

If, in 2021, the identity of Satoshi Nakamoto remains a mystery, so too does the two-year period from 2008 to 2010 when Bitcoin’s creator served as the project’s principal developer and leader.

Yet, far from a lifeless period of project development, during those years Nakamoto worked with dozens if not hundreds of Bitcoin users, all of whom contributed to the effort in different ways, establishing websites, engaging in commerce and evangelizing for his invention.

Still, some users naturally emerged as more distinguished contributors.

Whether it was by helping establish core elements of the Bitcoin philosophy or articulating its value propositions in new and novel ways, a meritocracy developed as quickly as the market, with some contributors earning outsized accolades from their peers.

With that in mind, this list aims to identify the contributors who most helped to define and shape Bitcoin and its early years, identifying their specific efforts and spotlighting their relevant work.

Martti Malmi (@Sirius)

Satoshi’s initial assistant, Martti Malmi, demonstrated a commitment to Bitcoin at a time when few were willing to see value in an internet currency that lacked even an exchange rate.

A university student in May 2009, Malmi contributed most directly to Bitcoin.org and the Bitcoin Wiki, where he helped make the websites look more comprehensive and professional. (He was less kind to euros he used at the time, writing “Bitcoin.org” on any bills he encountered.)

Malmi also added an early Austrian perspective to conversations around Bitcoin, dismissing complaints about gold as “old Keynesian arguments” and noting that the precious metal was “unmatched” by any paper money in the stability it offered over time.

In his entrepreneurial efforts, Malmi was less successful, his early bitcoin exchange service, BitcoinExchange.com, struggling to get off the ground in 2010.

Yet, he’d arguably make his biggest mark evangelizing for Bitcoin, creating a Facebook page (“Say no to central banking — use Bitcoin, the revolutionary P2P currency!” it read) and leading the first major effort to get Bitcoin publicity.

Theymos

One of Bitcoin’s most influential thinkers, Theymos never contributed code to the Bitcoin project directly but worked for years as a central moderator for its major forums.

A keen student of the codebase, his influence was apparent from the project’s earliest days when on the Bitcoin.org forums or IRC Theymos could be counted on to define how the protocol worked, his understanding sometimes even surpassing that of other avid coders.

What’s clear is that, after discovering Bitcoin in February 2010, Theymos went to work auditing the code, as his posts show an intricate understanding of not just the basic concepts, but even the more obscure commands Satoshi added to the codebase at launch.

However, it’s Theymos’ contributions to project philosophy that perhaps stand out the most. The first to point out directly that changes to the code could result in issues impacting the rights of users, it’s clear Theymos thought deeply about the implications of Bitcoin’s design.

For instance, he was at the forefront of arguing users could leverage their ability to fork the code if they ever disagreed with project leadership, an argument he’d push to its limits when he’d attempt to overturn a code change enacted by Satoshi.

The fact that, when looking back at this disagreement, many would side with Theymos’ view on the matter is all the more evidence that his early thinking has endured.

Hal Finney (@Hal)

A storied cypherpunk, Hal Finney tragically only contributed code briefly at the earliest days of Bitcoin and was absent for much of 2009 and 2010 as he struggled to regain his health.

Still, Finney’s influence today rings far and wide, most notably for the enduring optimism with which he approached the project.

Among his sparse blog posts are some of the most widely quoted moments from the project’s history, including his initial calculations on how, if successful, bitcoin could someday be worth millions should it grow to denominate global economic exchange.

Elsewhere, Finney has even been credited with his own branch of philosophy on how Bitcoin might scale, the term “Finnian view” coming to denote his belief that second-layer networks, as well as bitcoin banks, would help solve the technology’s struggles to accommodate demand.

Finney, who passed away in 2014 at 58, was also the recipient of the first-ever bitcoin transaction, and the only person known to have transacted directly with Satoshi Nakamoto.

NewLibertyStandard

What is bitcoin worth? If it’s a question many have asked, NewLibertyStandard was the first to provide a response.

Indeed, the first-ever quoted price for bitcoin was given by NewLibertyStandard on October 5, 2009, when they posted a daily exchange rate of 1,303 BTC per U.S. dollar. The calculation was made by factoring the cost of the electricity used to mine newly minted bitcoin and lauded by Satoshi as a helpful step in pricing the cryptocurrency.

Not just the creator of the earliest bitcoin exchange, NewLibertyStandard proposed using the Thai baht symbol to represent Bitcoin and suggested “BTC” as its three-letter currency code.

Despite his outsized contributions to the bitcoin economy, however, NewLibertyStandard could also wax philosophical. As an example, they were an early advocate for the idea that Bitcoin might enable individuals to peacefully exit their government currencies.

Gavin Andresen

Andresen may not have been the father of Bitcoin, but in many ways, he raised the kid.

An Australian-born Silicon Valley expat best known for creating a standard for 3D graphics in his younger days (VRML), Andresen had an established career in software prior to coding on Bitcoin, which included time spent at computer manufacturer Silicon Graphics.

His rise up the ranks of the Bitcoin meritocracy would be swift. Not only did he give away over 1,000 bitcoin free of charge to new users, but he quickly became Satoshi’s most active contributor, gaining access to update the code directly by late 2010.

Indeed, it would be Andresen who would “step up” in Satoshi’s absence, leading a charge to push new developers to get involved in the project and shouldering the weight of the press and media that descended during Bitcoin’s first rise to the fringes of the tech mainstream in 2011.

Often now critiqued for his role in stoking later frictions in the project, it’s easy to overlook the fact that Andresen was also one of Bitcoin’s most eloquent early spokespeople, his arguments for it as a “just plain better money” finding ears when bitcoin was a “drug currency” to most.

Laszlo Hanyecz (laszlo)

Best known as the man who spent thousands of bitcoin on pizza, Laszlo Hanyecz was a Florida-based coder who first translated Bitcoin (then available only for Windows) into MacOS.

Joining the project in April 2010, Hanyecz quickly announced an interest in running Bitcoin on his iPhone, but it would be his May 2010 decision to pay 10,000 BTC to anyone who would buy him pizza that would mark his most significant contribution.

At the time, Bitcoin had an established price (less than a penny), and bitcoin had been bought and sold, but no real-world product had ever been purchased with the fledgling currency.

Hanyecz’s time with the project would be brief, however. He stopped contributing in August 2010 but has resurfaced from time to time for interviews, most recently in 2009 for the news show “60 Minutes” where he discussed his bitcoin pizza purchase.

Artforz

A largely unknown figure, Artforz is nonetheless credited with notable engineering contributions, as they are thought to be the first Bitcoin user to mine with more powerful GPUs (in the process starting the global mining arms race that continues to this day).

Though Artforz denied making up 25% of the early network’s hash rate as accused, it was a rumor during his day, one they eventually had to address directly on the forums.

Still, if Artforz did mine an outsized number of early blocks, he showed himself to be an altruistic steward of the network, identifying a bug in one case that, if exploited, would have allowed him to spend bitcoin from other wallets he didn’t own, reporting it directly to Satoshi.

Artforz could also explain and defend Bitcoin with the best of them.

When presented with the idea users might never know the true identity of Satoshi Nakamoto, Artforz settled the conversation succinctly, stating simply: “Let the idea speak for itself.”

Jeff Garzik (jgarzik)

A seasoned Linux open-source contributor by the time he found Bitcoin in 2010, Garzik is known for helping shape project strategy under Andresen, the developer he mentored and encouraged to step up in the wake of Satoshi’s absence.

Yet, Garzik was an active contributor in the days of Satoshi as well, and he remains the author of some of the era’s more often-cited Bitcoin forum posts. Controversially, this includes the first proposal to raise the “block size limit,” first added by Nakamoto, as well as another, more influential proposal to remove subsidies for free transactions.

Later conflicts aside, a review of Garzik’s posts shows what made him such a strong advocate for Bitcoin, one who was revered for thoughtful articulations on how the early network worked.

In one memorable line, Garzik said: “The effort to raise the transaction rate limit is the same as the effort to change the fundamental nature of bitcoins: convince the vast majority to upgrade.”

Ironically, it would be his efforts to lead such a charge that would mark the end of his time with the Bitcoin project nearly a decade later.

Amir Taaki (genjix)

A former poker professional and open-source video game designer, Amir Taaki was little more than 20 years old when he stumbled on Bitcoin in late 2010.

Though it wouldn’t be until 2014 that he graced the pages of Forbes and Wired on the strength of his preference for Bitcoin as a way to fight the establishment, Taaki showed the flashes of what would make him such a polarizing (and popular) figure even in the days of Satoshi.

First and foremost, he’d attempt to get the organizations he most admired into Bitcoin — organizations like Anonymous and WikiLeaks.

As he went about coding what would be the first-ever alternative implementation (libbitcoin), Taaki would find time to build a coalition to convince WikiLeaks to accept bitcoin, a decision that would eventually put him at odds with Satoshi who protested the move.

“Sorry for trying to do something,” he would state in response to later criticism.

His early forum posts showcase how and why Taaki would emerge as such a lightning rod, his responses equal parts combative, illuminating and pulsing with intensity.

Kiba

Likely the least well-known name on this list, Kiba isn’t exactly an industry name.

That said, they are responsible for helping shape something that continues to this day, the legacy of Satoshi Nakamoto. As a string of Twitter, IRC and BitcoinTalk posts from 2010 to 2011 show, Kiba was the first to play around with the idea of Satoshi’s identity, or in his own words, to try “damn hard to make the mystery of Satoshi a meme.”

These efforts mostly took the form of sketches of Bitcoin’s creator, in which Kiba depicted him as everything from a Japanese warrior to a woman in a series he called “The Mysteries of Satoshi Nakamoto.” (His Bitcoin art, sadly, is lost to link rot.)

But while he could be playful, it’s clear Kiba knew Bitcoin users were in charge, dropping early quotes that would be sure to kill on Twitter even today. “Satoshi’s invention is useless without us using it,” he wrote in October 2010.

When Satoshi finally left the project, it was Kiba who declared what appears to be the first Bitcoin holiday, canonizing April 28, 2011, as “Satoshi Disappear Day,” writing:

“I propose we make a Bitcoin holiday in honor of our legendary anonymous founder and to observe the fact that the bitcoin community will be just fine after the inventor of bitcoin left.”

Today, Bitcoin Magazine carries on that tradition. 

Lightspark, a leading Bitcoin Lightning Network payments company, has announced the launch of Lightspark Extend, its new solution that allows businesses to facilitate instant Lightning payments to eligible account holders in the United States.

🚀 NOW LIVE: Lightspark Extend connects Lightning to eligible US account holders in real-time. With Lightspark Extend, seamlessly send UMA-powered payments to eligible US recipients instantly and at a low cost. Learn more here: https://t.co/B2O0or8e9k pic.twitter.com/F85VraLknl

— Lightspark (@lightspark) August 28, 2024

Lightspark Extend integrates with Universal Money Addresses (UMA) and Lightning-enabled wallets, exchanges, or bank accounts, providing a compliant and cost-effective solution for 24/7 payments. Compatible with over 99% of U.S. banks that accept real-time payments, the platform allows businesses to offer their customers fast, low-cost transactions directly to eligible recipients.

UMA, available in 120 countries, simplifies sending value by using a human-friendly address similar to an email, eliminating the need to remember complex codes or passwords. Lightspark Extend launching now makes this capability is accessible in the U.S., enabling recipients with real-time payments-enabled accounts to receive UMA-powered payments via the Bitcoin Lightning Network.

Lightspark further stated in the announcement that businesses interested in adopting Lightspark Extend can sign up for a UMA address, link eligible accounts, and start receiving payments through an onboarding process facilitated by Zero Hash, a regulated U.S. financial institution.

The launch of Lightspark Extend signifies yet another step forward in making instant, low-cost Bitcoin payments more accessible to businesses and consumers across the U.S., expanding the reach and utility of the Bitcoin Lightning Network.

Just last week, Lightspark announced that Coinbase customers can now send Bitcoin transactions up to $10,000 instantly through the Lightning Network, thanks to their partnership. 

Bitcoin, the world’s first and leading cryptocurrency, has proven its mettle in its roughly fifteen years of existence. From 2011 to 2021, it was the world’s best-performing asset class in eight of the last eleven years. At the end of 2023, it reemerged as the world’s top-performing asset class.

It is also a trillion-dollar asset. BTC’s market capitalization is at $1.13 trillion as of this writing. This value is outside the overall crypto market cap and excludes all other crypto coins. From a fledgling currency in 2008, its value has risen from nearly zero to over $73,000, reaching a historical all-time high in 2024.

Bitcoin has minted many new millionaires and several billionaires. Famous founders of multi-billion dollar corporations involved in crypto include Brian Armstrong of Coinbase, Changpeng Zhao (CZ) of Binance, and Michael Saylor of MicroStrategy.

With such a meteoric rise, it’s hardly surprising that hackers keep trying to find ways to steal Bitcoin. As a Bitcoin owner, protecting your assets from cyber threats is critical. Here, we explore how BTC holders can protect their coins across platforms and activities.

The Current BTC Security Landscape

Hacks and losses in the crypto sphere are nothing new. In the second quarter of 2024 alone, the crypto ecosystem lost about $572.7 million due to fraudulent attacks and hacks. The figure is up 112 percent compared to the same period last year.

The year’s most significant BTC hack so far is that of DMM Bitcoin, a Japanese crypto trading platform. On May 31, 2024, DMM Bitcoin lost around $305 million worth of BTC.

Moreover, the year-to-date (YTD) losses from crypto fraud and hacks have reached $920.9 million—up 24 percent from $720 million the previous year. May and June have seen exceptionally high losses, making up $358.5 million of total crypto incidents. Centralized finance (CeFi) platforms accounted for 70 percent of all losses.

Hacking vs. fraud analysis: Hacks cause 98.5 percent of losses

According to a report by Immunefi, a leading bug bounty platform, hacks are responsible for most crypto losses. As of the second quarter of 2024, hacks remain the predominant cause of losses versus fraud. Fraud accounts for only 1.5 percent of the overall crypto losses in Q2 2024. Hacks, on the other hand, account for 98.5 percent.

Hacks

In Q2 2024, the crypto ecosystem lost $564,238,811 to hacks spread across 53 incidents. This figure represents a 155 percent increase versus Q2 2023 when losses caused by hacks amounted to less than half: $220,522,129.

Fraud

Fraud-related loss in Q2 2024 was $8,450,050, spread across 19 specific incidents. These numbers represent a decrease of 81 percent compared to the same period last year.

Bitcoin hackings you should know about

Despite advancements in blockchain technology and security measures, Bitcoin and other cryptocurrencies remain vulnerable to hacking and security breaches.

To understand how Bitcoin hacks happen, you should understand their progression and history. Here, we examine some of the most significant Bitcoin hacks and analyze what went wrong.

The KuCoin hack

In September 2020, Singapore-based KuCoin, a major cryptocurrency exchange, suffered a security breach. The intrusion resulted in the theft of over $280 million worth of cryptocurrencies, including 1008 Bitcoin. The hackers gained access to the exchange’s hot wallets by exploiting weaknesses in its security protocols. According to KuCoin’s CEO, its cold wallets were unaffected.

In retrospect, enhanced security audits to identify vulnerabilities could have prevented the hack. It could also have been mitigated by using multi-signature or multisig wallets for the exchange’s hot storage and storing the more significant portion of assets in cold storage to minimize the accessible amount.

This Kucoin hack is not the first of it’s kind and certainly not the last. Just in June 2024 Kraken’s chief security officer disclosed “extremely critical” zero-day flaw in Kraken’s platform to steal $3M dollars. Here is how it was described:

The ‘security researcher’ disclosed this bug to two other individuals who they work with who fraudulently generated much larger sums. They ultimately withdrew nearly $3 million from their Kraken accounts… They demanded a call with their business development team (i.e. their sales reps) and have not agreed to return any funds until we provide a speculated $ amount that this bug could have caused if they had not disclosed it. This is not white-hat hacking; it is extortion!

Photo by Clint Patterson on Unsplash

The Coinbase hacks of 2019 and 2021

Coinbase is one of the most trusted platforms in the Bitcoin and crypto ecosystem. It is particularly dominant in the USA. As of this writing, Coinbase handles billions of dollars in transactions and has a market cap of $55.24 billion.

The first significant breach that shook Coinbase and the crypto community occurred in 2019. The hack showed the ingenuity of the attackers. It was also a wake-up call for the whole cryptosphere, as it was more sophisticated than anyone expected.

The attackers accessed Coinbase’s internal systems using a sophisticated phishing campaign. They targeted employees with spear-phishing emails carefully crafted to appear legitimate communications from a trusted source.

Over a dozen Coinbase employees initially received an email from Gregory Harris, supposedly a Research Grants Administrator at the University of Cambridge in the UK. The first email was dated May 30, 2019.

According to Coinbase, the email came from the legitimate Cambridge domain. It had no apparent malicious elements, passed spam detection, and appeared from a knowledgeable source, referencing the recipients’ backgrounds. Over the two weeks, the address continued sending emails, and nothing seemed amiss.

The attacker sent a follow-up email on June 17. This time, the new email contained a malicious URL. If opened via a Firefox browser, it would install malware that could take over the target user’s computer. According to Coinbase’s security team, the emails were part of a “sophisticated, highly targeted, thought out” attack.

Upon entering the network, the hackers moved laterally to escalate their access privileges. They exploited a Firefox zero-day vulnerability—an issue that had not yet been patched. Moreover, the attacks used not one but two Firefox zero-days, according to Philip Martin, the company’s chief information security officer, in 2019. Coinbase reported the attacks to Mozilla.

The vulnerability enabled the hackers to gain administrative access to the exchange’s backend network and critical systems, including databases for storing user information and private keys. In other words, a successful attack would allow a hacker to steal funds from the exchange. The tactic has been used numerous times and led to gigantic losses in crypto exchanges.

This particular hack was unique because the attackers demonstrated remarkable patience and precision. They chose a more calculated, insidious, and covert approach over a swift and noisy attack.

However, the breach was eventually detected. During a routine security audit, Coinbase’s security team noticed unusual patterns of withdrawals. They launched an investigation and discovered the breach. They then acted swiftly to contain the damage. They secured the compromised systems, patched the exploited vulnerabilities, and enhanced their monitoring capabilities.

After the hack, Coinbase publicly disclosed its details and mechanics. They assured users and the broader crypto community that the company’s insurance policy covered most of the stolen funds and that no customer funds would be lost.

Nonetheless, the incident had far-reaching implications. It highlighted the vulnerabilities inherent in even the most secure platforms and underscored the need to continuously improve cybersecurity practices.

The Coinbase security team walked back the entire attack, contained it, and reported the zero-day to Firefox.

The second breach that affected Coinbase was in late 2021. It involved the theft of approximately $100 million worth of cryptocurrencies, including BTC. Coinbase detected a platform vulnerability that enabled hackers to exploit a flaw in the crypto transfer process. The vulnerability led to unauthorized transactions and financial losses for some users on the platform.

The Bitfinex hack of 2016

Though it happened further back in the past, the Bitfinex hack is worth mentioning due to its magnitude. Hackers stole 119,756 BTC, valued at around $72 million. Today, based on the BTC price as of this writing, the same amount of BTC would be roughly $6.5 billion.

This particular hack occurred due to vulnerabilities in the multi-signature security system that Bitfinex employed in collaboration with BitGo. It could have been avoided by using advanced authentication protocols, user behavior monitoring, and segregated wallet structures to limit exposure.

BTC Security: Who should care?

Bitcoin security affects large coin holders and average ones alike. Bitcoin is used for different purposes, not just as a plain vanilla investment tool you buy and hold. It can be a payment vehicle or trading instrument.

It can be used as collateral and an underlying asset for various derivatives and derivative-like products. Its value and use cases are expanding as it is now used as the underlying for large-scale ETFs. Thus, you want to ensure your wallet is safe to protect your spending or day-trading money.

According to Chainalysis, the number of unique Bitcoin addresses has ballooned to 460 million. While it is impossible to determine how many people own Bitcoin accurately, we can estimate its popularity based on the number of generated addresses over the years.

We can also gauge active users through the number of wallets with active balances. According to BitInfoCharts, a blockchain analysis firm, over 67 million wallet addresses have a balance of $1 or more. Of these addresses, 40.5 million have a balance between $1 and $100, showing that most Bitcoin holders have a small amount of money invested.

Prominent American entrepreneur Tom Lee predicts that BTC could rally to $150,000 in the coming months. Lee claimed that the asset’s valuation has been negatively affected lately due to the issues related to the now-defunct crypto exchange Mt. Gox.

The Mt. Goz “overhang,” as he calls it, brought down the price due to the long overdue payouts from its bankruptcy proceedings, paying back thousands of users up to almost $9 billion in assets. He expects the overhang to disappear sometime in July.

Your small investment could yield appreciable returns if you buy and hold. Because of its long-term potential, security should matter to all BTC holders.

The security of an individual also affects the ecosystem. KYC hacks and leaks affect an individual’s privacy and identity, enabling malicious attackers to trace their activities. Such hacks can also be detrimental at the large investor or institutional level, leading to massive losses or draining the funds of individual investors signed up on a platform.

In addition, BTC and crypto losses negatively impact the markets. Therefore, security is a shared responsibility of BTC holders of all sizes.

The Importance of Using Secure Platforms

Given its high price and widespread appeal, BTC remains a target for hackers. If you are invested in Bitcoin, choosing a secure platform for buying and storing Bitcoin is crucial for protecting your investments.

Crypto custody solutions

Crypto custody solutions are businesses providing third-party crypto asset security and storage services. They mainly target accredited investors or institutions with significant Bitcoin or crypto holdings. Such clients include hedge funds, Bitcoin exchange-traded funds (ETFs), and exchanges.

These custody solutions generally combine hot and cold storage. Hot storage keeps you connected, but cold storage ensures your assets are safely offline.

Dealing with crypto custody solutions providers requires understanding various crypto security procedures, hot and cold wallets, multisig solutions, and other best practices to ensure your crypto is safe.

Which platform offers the best BTC storage and security?

The answer to this question depends on your needs as a Bitcoin investor or holder. If you wish to buy BTC, you have several reliable options.

According to investment strategist Lyn Alden, you can use Swan Bitcoin to buy BTC. Beyond a place to make one-time or recurring purchases for dollar-cost averaging (DCA), you should consider it as a Bitcoin accumulation platform. Swan provides Bitcoin IRA services for those investors who are serious about accumulating wealth long term.

Fees for all trades are 0.99 percent of each purchase. They do this without taking a spread on your purchase, too, and the first $10,000 worth of BTC has zero fees.

User-friendly security

Some notable security-related features include free auto-withdrawal to a self-custody address. Keeping your BTC with Swan’s custodian is also free, and you can access it through them with the BTC held in your name.

One simple yet ingenious way to use these features is to dollar cost average DCA into Bitcoin utilizing a plan that automatically buys BTC at regular intervals. The platform can also send it to your hardware wallet or another secure custody solution.

According to their website, all Swan data is encrypted with military-grade AES-256 encryption, and traffic on the site is encrypted with industry-standard TLSv1.2 encryption. Moreover, Swan does not have access to nor store private keys for BTC that are stored with its custodial partners.

Currently, Bakkt and Fortress Trust are the custodians of record. BitGo is its cold storage custodian.

Some would consider Swan Bitcoin a Coinbase alternative for buying and storing BTC in the US. While Coinbase is the dominant player in the exchange business, Swan simplifies BTC investment for retail and institutional investors.

Essential Security Tips To Safeguard Your BTC

The persistent attempts to hack BTC are a stark reminder of the ever-present risks lurking in the digital world. For users, it underscores the importance of personal security measures. Among these are enabling two-factor authentication and using hardware wallets for long-term storage of cryptocurrencies.

The following are some concepts and tips that will help you protect your BTC holdings:

Enabling two-factor authentication (2FA)

Two-factor authentication (2FA) provides a second or additional layer of account security by requiring a second form of ownership verification outside your password. It is best defined as a process that increases the likelihood that a person is who they say they are.

Rather than simply using a username and password, the 2FA process requests users to provide two authentication factors before accessing a crypto-related wallet, app, or platform.

Organizations must use 2FA to protect their data and users in the face of a high-risk cybersecurity landscape, specifically in BTC and crypto, wherein you can expect a higher volume of increasingly sophisticated cyberattacks.

One helpful way to frame 2FA is as a process that encourages people and organizations to stop solely relying on passwords to enter applications and websites.

With 2FA, cybercriminals have more difficulty stealing users’ identities or accessing their devices. The measure also helps organizations fend off attackers, even when a password has been stolen from one or several users.

Companies and individuals are using 2FA to prevent common cyber threats. These include phishing attacks that use users’ passwords and spoof targets’ identities after gaining credentials.

Setting up 2FA for Bitcoin

To set up 2FA for your BTC wallet, download a trustworthy authenticator like Authy, Google Authenticator, or other comparable apps.

Access your BTC account and look for the 2FA section. Click “Enable 2FA”. Link your account to the authenticator app by selecting “Scan QR Code” or “Add Account” on Google Authenticator. Afterward, scan the QR code shown on the BTC or crypto platform.

Some systems provide additional backup codes called recovery keys. These codes are vital for account retrieval. You must store these codes in a safe location. If you misplace or lose your device with the corresponding authenticator app, you can use the backup codes to recover your Bitcoin wallet or account access.

To complete your setup, you must enter the time-based one-time password (OTP) generated by the authenticator app when asked by your BTC or crypto platform.

Log out of your account and try to re-access it to test your 2FA setup. This time, the wallet, app, or platform should ask you for an OTP from your authenticator app.

Other 2FA techniques utilize SMS or email verification. While these are better than nothing, they are less safe and vulnerable to more attacks. SMS is susceptible to SIM-swapping attacks. Utilizing an authenticator app is deemed more secure.

Hardware-based 2FA is a more stringent security measure that involves physical devices like YubiKey for verification. However, authenticator apps will do very well for regular everyday use.

Ensure that your authenticator app is up to date and that your recovery keys are kept in a safe place, preferably offline.

Hot vs. cold wallets

As a BTC holder, you must understand the difference between hot and cold crypto wallets. Hot wallets are software that stores your BTC private keys on a device that’s online or connected to the Internet. They are convenient and easily accessible via online devices like mobile phones, tablets, or laptops.

Photo by Bastian Riccardi on Unsplash

Hot wallets often have more activity—they usually handle smaller, more frequent BTC transactions—and are convenient for trading. However, because they are online, they are vulnerable to hacks.

On the other hand, cold wallets aren’t connected to other devices or the Internet, making them less vulnerable to hacks and a more secure method of storing BTC private keys.

Cold wallets are usually hardware devices that resemble modified USB sticks or mini plastic cards with buttons and screens. They cost between $50 and about $300, although they could be more expensive. Popular brands include Ledger and Trezor.

Cold wallets like paper or metal wallets that record your private keys can be more straightforward. Their enhanced security is derived from their being offline. To trade funds from a cold wallet, you need to move them to a hot wallet that’s connected to a crypto exchange.

When you set up your hardware wallet, remember to write down your recovery seed phrase on paper and store it offline in a highly secure location. Please do not share this information with anyone or store it digitally.

Stay updated with the latest security measures

The Bitcoin and crypto space are continually evolving, and so are the hacking methods that threaten them. Thus, it is crucial to stay abreast of the latest security measures.

Keep all your software updated to protect against newly discovered vulnerabilities. Read reputable sources for updates and security news.

Protecting Your BTC Requires a Proactive Approach

In a dynamic tech and crypto sphere, the only way to stay ahead of hackers is to be proactive about your security. Ensure you have all the basics covered: choosing a secure platform, enabling two-factor authentication, and using cold storage or hardware wallets to protect your BTC wealth.

However, as hacks and exploits become more sophisticated, you can only fully secure your BTC when constantly updated on the latest security news. Also, ensure that your platforms and apps are continually on top of threats. If you are a buy-and-hold investor, ensure that your BTC funds are in cold storage.

Security in BTC can be effectively summarized by the old and oft-quoted adage from the early days of Bitcoin: “Not your keys, not your coins.” Make sure you have ultimate control over your private keys. And if you do choose a platform to hold them temporarily or entrust them with custody, understand the nuances of the agreement and infrastructure.

Bitcoin was meant to be decentralized, so the more autonomous you are about managing your keys, the better security you have.

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

Company Name: Bitwise Asset Management

Founders: Hong Kim and Hunter Horsley

Date Founded: December 2016

Location of Headquarters: San Francisco, CA and New York, NY

Amount of Bitcoin Held in Treasury: Undisclosed

Number of Employees: 65

Website: https://bitwiseinvestments.com/

Public or Private? Private

In 2016, Hong Kim and his co-founder at Bitwise Asset Management (Bitwise), Hunter Horsely, were living the startup life — working from a living room in San Francisco and looking for a project that they could develop into a business.

While experimenting with various ideas, none of which were gaining much traction, their friends wouldn’t shut up about Bitcoin. Plus, by early 2016, every venture capital firm in Silicon Valley was focused on Bitcoin, as well.

“We wanted to avoid it for a long time because [there was] too much hype,” Kim told Bitcoin Magazine. “But then, just by osmosis, we spent more and more time thinking about it.”

By the end of the year, after doing their homework on Bitcoin, Kim and Horsely had incorporated Bitwise, a bitcoin-first crypto asset management firm that would provide wrappers for bitcoin so that customers could purchase these assets via traditional brokerages.

Eight years later, Bitwise was one of the 11 US firms to issue a spot bitcoin ETF; it’s currently the 5th largest US spot bitcoin ETF as per the amount of assets under management (AUM). This is in part due to the Bitcoin enthusiasts who’ve purchased it because of how Bitwise has maintained the Bitcoin ethos as it’s interfaced with Wall Street.

Bitwise vs. All Other Spot Bitcoin ETF Issuers

There are a number of factors that differentiate the Bitwise Bitcoin ETF (BITB) from its competitors.

For one, Bitwise is the only company that issues a US spot bitcoin ETF that publishes the addresses of its bitcoin holdings, embracing the idea of transparency, a core Bitcoin tenet.

Announcement: Today the Bitwise Bitcoin ETF (BITB) becomes the first U.S. bitcoin ETF to publish the bitcoin addresses of its holdings.

Now anyone can verify BITB’s holdings and flows directly on the blockchain.

Onchain transparency is core to Bitcoin’s ethos. We’re proud to… pic.twitter.com/1JTUh3zvDE

— Bitwise (@BitwiseInvest) January 24, 2024

“Even now, many, many months have passed and still we’re the only Bitcoin ETF that discloses its holding addresses,” said Kim. “You can go to a Bitcoin block explorer and check our on-chain holdings.”

Kim also made the point that Bitwise is the only spot bitcoin ETF issuer that proactively communicates with its customers via social media.

“We are on Twitter talking about a product and answering questions,” explained Kim.

“I’ll explain anything and engage with the community. If there’s anything they’re upset about [regarding] the products, they can yell at us and we respond and take them seriously,” he added.

What is more, Kim pointed out that Bitcoin remains Bitwise’s primary focus, which makes the company much different from other spot bitcoin ETF issuers like BlackRock or Invesco who manage a plethora of other types of assets.

“We’ve been around for seven years or so and this is the only thing that we talk about,” said Kim.

“When prices go down when there’s a bear market, We don’t rotate to emerging markets or fixed income or whatever,” he added.

“There might not be that big of a difference between BlackRock and Invesco or BlackRock or Franklin Templeton, but there’s a big difference between BlackRock and Bitwise.”

Lastly, Bitwise has committed to giving 10% of its ETF fee profits to three nonprofits that support Bitcoin Core developers — OpenSats, Brink and the Human Rights Foundation (HRF) — for 10 years.

Donating To Open-Source Developers

While many in the Bitcoin community have praised Bitwise for donating to Bitcoin Core developers, Kim sees this contribution as more of an obligation and less as a sacrifice.

“As a Bitcoiner, I feel that it’s not really a donation,” said Kim.

“The US taxpayer doesn’t think that they’re donating to the military budget,” he added.

“That’s not a donation. That’s your security budget.”

Kim went on to explain that while Bitwise does manage some other crypto assets, two-thirds of the company’s holdings is bitcoin. For this reason, he views supporting Bitcoin Core developers as contributing the technology that buoys his livelihood.

“If you’re like BlackRock, where you have all sorts of other [assets] and bitcoin is only one of them, then maybe you don’t feel that way,” Kim said in regard to why a company like Bitwise cares about bitcoin more than some of the bigger traditional financial institutions that issued spot bitcoin ETFs.

“If you are like me or are in an economic situation like me and you care enough about Bitcoin, then it’s not an optional matter that the Bitcoin network is as secure as it can be,” he added.

Kim, Bitwise’s CTO, who has a background in cybersecurity, explained why open-source developers are essential to Bitcoin, noting that many who don’t understand how open-source technology works misperceive what Bitcoin developers do. He made the argument that the majority of Bitcoin developers aren’t there to make radical changes to Bitcoin, but to keep it functional as it interfaces with other software.

“You can have an opinion about the latest contentious soft fork proposal or whatever, but 95% of the devs that we’re talking about don’t work on that,” Kim explained.

“The 50 or so core devs that do this day in and day out, that’s not what they’re spending time on. Whenever there’s a new version of Linux or Mac or Windows, guess what — we need to make sure that Bitcoin Core compiles on that version,” he continued.

“Somebody needs to make sure that the software we depend upon continues to be compatible, well-documented, and runnable.”

On A Mission

While Bitwise does a lot to differentiate itself from its competitors, Kim wants Bitwise to do something more profound than just being one of the better US spot bitcoin ETF issuers.

“There are ways of thinking about a business as the product [it offers] or how it’s different from its competitors, but I think there’s another way of looking at a company as like, ‘What are you here to do?’” explained Kim.

He shares that he and Horsely didn’t start by asking themselves this question, though, now, it seems to be at the forefront of his mind.

“I want Bitwise to be the company that helps accelerate and guide this movement, because it’s such an important thing for the world to have public money that everyone can access and that nobody controls,” said Kim.

After sharing this, Kim acknowledged what he felt many might be thinking as they read this: You’re offering exposure to bitcoin’s price within the walled garden of traditional finance.

“TradFi and Bitcoin culture are inevitably colliding and people rightfully have concerns and some kind of dissonance about that,” said Kim. “That was really top of mind for me.”

Kim reiterated that this is why Bitwise chose to donate to open-source Bitcoin developers, make their Bitcoin addresses public and engage with the Bitcoin community. And he also shared some information on what Bitwise is working on next: redeemable bitcoin.

Redeemable Bitcoin

Bitwise is currently speaking with policymakers in Washington, DC in efforts to have Bitwise facilitate in-kind redemptions of bitcoin from the Bitwise Bitcoin ETF. In layperson’s terms, Kim wants Bitwise customers to be able to withdraw the bitcoin in which they’ve invested via the ETF if they so please, whereas, right now, customers can only withdraw the cash value of the bitcoin in which they’ve invested via bitcoin ETF.

“There are gold ETFs where you can redeem, even as an individual retail investor, and get gold coins and bars delivered to your door,” explained Kim.

“You redeem in-kind without incurring a taxable event. There’s no reason that a bitcoin ETF shouldn’t be able to do that,” he added.

“That would be a product that I would be proud of.”

Kim believes that if Bitwise can make redeemable bitcoin a reality for investors, then spot bitcoin ETFs like BITB have the potential to become some of the biggest on-ramps to Bitcoin.

“Bitcoin ETFs are a huge improvement [in Bitcoin onboarding] in that most people have brokerage accounts,” said Kim, who added that it’s much easier to get family and friends to invest in bitcoin when they don’t have to go through the hassle of setting up an account with a Bitcoin or crypto exchange.

“If your uncle at the Thanksgiving table is convinced and wants to put $100 into bitcoin, you no longer have to go, ‘Wait a minute. First buy a ledger for $40…’ [Now, it’s] just two taps and you have a hundred dollars worth of Bitcoin exposure,” he added.

“But then, at any point in their journey, if they are so inclined, they can withdraw that. And in that sense, it can become a really clean and simple on-ramp.”

While Kim acknowledged that many are skeptical this will ever happen — speculating that Wall Street wants as much bitcoin within walled gardens as possible — he also noted that many felt the same way about the spot bitcoin ETFs ever being issued. He requested some patience as Bitwise persists in its efforts to knock down the wall between Bitcoin and traditional finance.

“There’s a way of looking at Bitcoin ETFs as a clean and easy on-ramp and off-ramp and the lowest friction one for the average person,” said Kim.

“That would be my ideal world, and that is a world that Bitwise is currently working on,” he added.

“In that world, the ETFs and the on-chain world aren’t as separate, but rather they can have a close relationship.”

Today marks the tenth anniversary of the passing of Hal Finney, a renowned cryptographer and computer scientist who played a pivotal role in the early days of Bitcoin. Finney, who passed away in 2014 due to complications from ALS, is celebrated for his profound contributions to Bitcoin and his foresight into the future potential of the nascent technology.

10 years ago today, Hal Finney passed away.

Finney was the recipient of the first ever Bitcoin transaction, receiving 10 #BTC from Satoshi Nakamoto.

Today, we are all running #Bitcoin 🧡 pic.twitter.com/iRxgwQVNR7

— Bitcoin Magazine (@BitcoinMagazine) August 28, 2024

Early in Finney’s career he worked as a video game developer before he joined PGP Corporation, where he worked on early public-key cryptography software. His interest in digital privacy led him to the cypherpunks mailing list, where he collaborated with other pioneers in the field. In 2004, Finney created the world’s first reusable proof-of-work (RPOW) system, a precursor to the proof-of-work consensus mechanism that underpins Bitcoin.

However, Finney is perhaps best known for his early involvement with Bitcoin. As one of the first to recognize the revolutionary potential of Satoshi Nakamoto’s creation, Finney became an active participant in the project. He famously received the first Bitcoin transaction from Nakamoto himself and contributed to the development of the protocol. His 2009 tweet, “Running bitcoin,” remains an iconic moment in Bitcoin history.

14 years ago today, cryptographer Hal Finney made the first #Bitcoin tweet ever 🧡

RIP Hal 🙏 pic.twitter.com/zsCsKEiGnO

— Bitcoin Magazine (@BitcoinMagazine) January 10, 2023

Despite being diagnosed with ALS in 2009, Finney continued to contribute to Bitcoin, using eye-tracking software to code even as the disease progressed. His resilience and dedication have left an indelible mark on the world and those interested in Bitcoin. “Today, I am essentially paralyzed. I am fed through a tube, and my breathing is assisted through another tube,” Finney published on the Bitcoin Talk Forum on March 19, 2013. “It’s been an adjustment, but my life is not too bad… I still love programming and it gives me goals… I’m comfortable with my legacy.”

As the community reflects on his legacy, here is one of the only known recorded videos of Finney speaking at the Crypto 98 conference, discussing zero-knowledge proofs, shedding light on his pioneering work on cryptographic protocols.

✨New video of #Bitcoin pioneer Hal Finney unearths a 25-year-old talk on zero-knowledge crypto

The 1st time I’ve ever heard him speak 🧡 pic.twitter.com/SkGrnae81L

— The Bitcoin Historian (@pete_rizzo_) September 20, 2023