THE WORLD REQUIRES THE RELENTLESS OPTIMISM OF BITCOINERS

 First off, I recently read Aleksander Svetski’s article “Bitcoiners Are the Remnant, The Masses Don’t Matter.” It hit a chord at my deepest core and what he was elegantly articulating in that piece inspired me to write this.

Bitcoiners, here is my ode to all of you:

“Bitcoin fixes this!”

The phrase has become like a mantra in the Bitcoin space, being spoken on podcasts and used to create memes on social media. For those of us who are already orange pilled, we understand the significance of Bitcoin — the purest form of hard money that has ever been invented in human history.

Bitcoin can starve the beast of central banks that have perpetuated rapacious war, exploitation and oppression. The fiat dark ages are now finally coming to an end. Bitcoin has helped us see a glimpse of a new world in which humanity can become free from misery and suffering created by the few.

This new vision of the future gives us hope. It is the source of bitcoiners’ relentless optimism. The creation of Bitcoin brought excitement in the world. For some people, this enthusiasm over time got transformed into a kind of peacefulness inside them. Personally, I found a sense of relief, as if all of a sudden, a heavy weight on my shoulder got lifted, I became permeated with the sensation that everything is going to be alright.

I am sure that I am not the only one to have experienced this. Many of us have gone through our lives being haunted by the feeling that we can’t quite explain. In the film “The Matrix,” Morpheus told Neo:

“What you know you can't explain, but you feel it. You've felt it your entire life, that there's something wrong with the world. You don't know what it is, but it's there, like a splinter in your mind, driving you mad.”

We have been looking for answers to the problems that we can’t quite articulate. This civilization run by the fiat regime operates like the matrix control system. Through the global financial Ponzi scheme that enriches those who are close to money printers, it creates a paradigm of materialism, confining us within a perception of mere physical existence.

In the consumer capitalism harnessed inside “The Matrix,” we are being pushed down to stay in survival fear and become dependent on the system. We are made to seek our sensory pleasure and only to satisfy fleeting desires.

Like me, you might have felt that life is more than just eating, sleeping and being entertained. We have been searching for meaning. Somewhere at a deep level, perhaps we knew that this system does not nurture and nourishes us. In fact, many of us have probably felt that by adjusting to this society, parts of ourselves are dying.

Our culture denies the intrinsic value of our personhood and destroys our dignity. The banking model of education teaches us to be passive students who simply store the information that self-appointed authorities handed down to us. Instead of creating critical thinkers, this mind control program has produced a population that is obedient, being easily manipulated and corralled like a herd by mass media.

In the fiat system’s centrally-planned economy, we all are treated like rats in a Skinner Box. Being conditioned with low expectations of life, people get on a hamster wheel of meaningless nine-to-five jobs to keep a debt cycle going. The incentives that are misaligned with our self interests punish our will to self determination, creativity and the pursuit of happiness. Through stimulus and response, we are made to give up our dreams and are being rewarded for the sacrifices we make for the good of a society.

The world has become full of grown ups who are cynical, pessimistic and can easily become fearful. The fast pace of life made us unable to enjoy the smiles of our children, to cultivate our friendship and appreciate our connection with our loved one. In the environment that has now turned into the corporate wasteland, we became disconnected from beauty that surrounds us every day.

As, one by one, people have been domesticated, we Bitcoiners couldn’t be tamed. While a majority of people seem to not question society’s prescribed way of life and are able to go along with it, we Bitcoiners couldn’t easily accept society’s expectations.

Here, I speak for myself: Growing up, I always felt like an outsider, not being able to fit in. At times, I could not shake off the feeling that I didn’t belong to a culture that I was born into. Being surrounded by people who speak the same language and look like me, somehow I felt like a foreigner. My peers didn’t quite get me and I often felt misunderstood by my colleagues and associates at work.

If you are reading this, you might be able to resonate with this strange feeling that I carried through my life. Let’s face it, you might agree with me saying this. We were called geeks, lunatics, fringe, and radicals, long before Bitcoin came into our lives! We were often ridiculed and called crazy. People around us saw us being eccentric and overly idealistic.

Let’s admit it: We’ve been “toxic” maximalists, freedom lovers and revolutionaries even before we made our first bitcoin transactions. We are remnants who are compelled to reject the status quo. We were willing to remain as a minority, accept all stigma and labels by refusing to trade our authenticity for acceptance. Some interpreted our rebelliousness as us being too stubborn or unreasonable, when in truth we were simply not willing to compromise our values.

Bitcoiners are deviant from the norm — an anomaly that creates a glitch in the matrix. We could not accept the fiat’s standard of living that constantly steals our energy through inflation and keeps us in perpetual state of poverty and sickness. We couldn’t even if we wanted to. Why?

Somehow, we are equipped with an internal guide system that others don’t seem to have. It is like a compass that helped our ancestors navigate in a jungle as they paved the way toward a civilization. We had this laser-eyed vision to see the bright North Star in the dark night sky that shines the light on paths to our destination.

Psychologist and founder of archetypal psychology James Hillman wrote in “The Soul’s Code: In Search of Character And Calling”:

"Sooner or later something seems to call us onto a particular path. You may remember this ‘something’ as a signal calling in childhood when an urge out of nowhere, a fascination, a peculiar turn of events struck like an annunciation: This is what I must do, this is what I've got to have. This is who I am." 

We heard a call, a tiny voice inside us that asks us to remember who we are. It is the heart that communicates with us through calm sensation of love, joy and excitement. While others around us seem to have forgotten this “something” that gives us life, we could not. When a majority of people in our society learned to suppress this subtle signal coming from within through medications and indulging in entertainment, we could not, but choose to follow this internal voice that gently nudges us to do what makes us come alive.

Whether we know it or not, we’ve been searching for our connection to our soul. Our desire to exit from the destructive fiat matrix was driven by our deep yearning to claim our own individuality. Then came the 2008 financial meltdown. As trust in institutions weakened, our reality began to collapse. This has created an existential crisis for humanity. As layers of our identities wrapped up in the modern nation state were slowly being peeled off, a new foundation of our society began to emerge.

Satoshi Nakamoto, the mysterious creator of Bitcoin, cracked open the matrix, beginning to transform it into a womb in which new humanity can be developed. Bitcoin began to activate a soul’s code. Emitting high frequencies, it sent out a signal. We heard the voice that comes to us from the future. We slowly began to remember ourselves in childhood whose boundless imagination could reach the stars!

The signal that now got amplified through the network effect began to transform lives of those who have received it.

Our universe has been taken under the control of power hungry parasites. A global syndicate of central banks warps space and time through money made out of thin air. Through gravity, they create a black hole destroying stars and absorbing all light into their emptiness. In their artificial world maintained through infinite money printing, the land becomes barren and people are made to be sterile and can’t produce anything. As a debt spiral increasingly captures all that moves, now Bitcoin has come to our rescue.

Recognizing an escape route that Bitcoin opens up, the head of the European Central Bank, Christine Lagarde, called for global regulation.

Now, through the darkness inside Bitcoin mining, stars begin to reappear to form a new galaxy. Every 10 minutes, as new bitcoin enter into the world economy, the network gives birth to new humanity that can resuscitate this dying world.

In the novel, “The Neverending Story” (“Die Unendliche Geschicht”) written by Michael Ende, “the childlike empress,” the supreme ruler of a mythical land called Fantasia, has fallen into illness. Her beautiful magical country begins to be destroyed by an evil force. In order for her to regain her strength, she needs a child in the human world who can dream and give her a new name. She calls a young boy, Bastian, to make wishes and keep her alive.

“Bastian: How many wishes do I get?

The Childlike Empress: As many as you want. And the more wishes you make, the more magnificent Fantasia will become.

Bastian: Really?

The Childlike Empress: Try it… The emptiness cannot be destroyed; it has to be filled with love.” 

The world needs human beings who can envision a future with enthusiasm. Without our ability to imagine, the earth will become a hollow desert which nothing can inhabit. It is through our dreams and wishes that the world would come alive. The land becomes fertile and flourishing. Its people become healthy, prosperous and abundant.

The age of Bitcoin has begun. We, Bitcoiners are bringers of hope. For those of us who embraced sats in the heart, we are visionaries, artists, prophets and pioneers of this new world. We are the way shower. We are here to facilitate user activation of the soul’s code across a network.

“Imagine there's no countries

It isn't hard to do

Nothing to kill or die for

And no religion, too

Imagine all the people

Living life in peace...

You may say I'm a dreamer

But I'm not the only one

I hope someday you'll join us

And the world will be as one.”

–John Lennon, “Imagine”

Bitcoiners, it’s time for us to wake up to our existence as infinite creative beings. With money backed by our source energies, now we can create a new operating system of reality and upgrade our civilization.

As we reconfigure ourselves by integrating new codes in our field of consciousness, we can now transcend the false matrix, its limiting beliefs and mentality that keep us powerless. Stack harder and HODL to keep our vibrations high. Laser beam focus toward hyperbitcoinization to create a heaven on the earth.

The sky's our limit. With sparkles in our eyes, let’s make magic and show the rest of humanity what is possible.

DON'T USE AN ETF TO GAIN BITCOIN EXPOSURE. BITCOIN IS AVAILABLE FOR PURCHASE

 The recent launch of bitcoin futures ETFs may have made history, but this exposure is not the same as holding BTC yourself.

“What happens if the government makes bitcoin illegal?” is a question you will frequently hear. The underlying assumption — the same one that Prohibitionists made in the early part of the last century — is that usage will decrease, or even stop altogether, if you make something illegal.

But this is not necessarily so.

On September 24, Chinese regulators issued two documents: One outlawed cryptocurrency mining, the other reiterated a ban on all cryptocurrency transactions and noted that all companies providing cryptocurrency trading services to Chinese citizens are engaged in illicit financial activity.

And here we are, just over a month later, and the price of bitcoin is up over 50%...

MEET THE NEW BOSS, SAME AS THE OLD BOSS

Bitcoin has broken out to new highs against almost every currency there is, even the U.S. dollar. Bitcoin’s market cap has never been bigger. The network is stronger than ever. Mining simply relocated following China’s regulatory notice.

This is now the 18th — something like that, anyway — time China has attempted to ban bitcoin. Its bans don’t seem to have the desired effect.

The reason for bitcoin’s recent rally, certainly the latter part of it anyway, was the announcement last week that there will, finally, be a listed bitcoin exchange-traded fund (ETF).

Said ET, the ProShares Bitcoin Strategy ETF (NYSE:BITO), began trading on October 19. It turned over almost $1 billion (we don’t know the precise number as of this writing), with more than 24 million shares changing hands.

This makes it the second-most-heavily-traded fund on record, beaten only by a BlackRock carbon fund, which ranked higher due to pre-seed investments.

We have been waiting a long time. The Winkelvoss twins tried to get a bitcoin ETF off the ground in 2013, when bitcoin was $65. Many others have tried, and here we are finally, eight years on, with the price a thousand times higher. I guess bitcoin ETFs are like buses. You wait all that time and then two come along at once. Valkyrie’s bitcoin futures ETF launched soon after.

I used to be CEO of Canadian-listed privacy tech company Cypherpunk Holdings (CSE:HODL) and I was extremely proud of myself and the team for securing what I thought was the best ticker in the world in “HODL.” But, credit where credit’s due, Valkyrie have gone one better. They have secured the ticker “BTFD.” “LOL,” as they say.

It’s being hailed as a watershed moment for the crypto industry, enabling it to enter the financial mainstream, easily accessible to investors of all shapes and sizes through traditional brokers.

I am less convinced, myself. Call me a grouch.

The publicity is good, sure. But bitcoin has done perfectly well without an ETF. Does it even need one?

Crypto is supposed to be an entirely new financial system, where individuals take control of their own keys, their own custody, their own money, freeing themselves of the need for intermediaries and trusted third parties. In that sense, an ETF is like a step back.

It feels a bit like French revolutionaries celebrating that Marie Antoinette and the aristocracy have joined them in overthrowing the regime.

IF YOU WANT TO GET BETTER EXPOSURE TO BITCOIN, THERE’S AN EASY ANSWER

What’s more, these futures ETFs are based on futures contracts, not the “spot” price of bitcoin. I confess I am out of my depth discussing the intricacies of short- and long-dated futures contracts, but if my understanding is correct, the fund, which charges a 1% fee, will have to constantly sell expiring contracts and buy longer-dated ones, which tend to be more expensive. This constant rolling of contracts is going to cost money — in the 5% to 10% range — and that means the ETF might not end up accurately replicating the price of bitcoin itself, which is the very purpose of the thing.

United States Oil Fund (NYSE:USO) used to be a popular ETF for investors hoping to track the oil price. But with all of the complications of rolling futures contracts, contango and backwardation, it always seemed to underperform the price. It might reflect short-term swings, but in the longer term, it was useless, even more so than Shell or BP as oil price trackers. It is immensely frustrating for an investor to correctly call a market, only for the chosen vehicle not to deliver.

USO is by no means alone in its failure as an ETF to actually track the underlying asset. One hopes that BITO, BTFD and their investors will not fall into the same trap. I am sure this is something they have prepared for, but it is a concern.

The Grayscale Bitcoin Trust (NYSE: GBTC), with a market cap of $32 billion, had been the previous way by which traditional investors could buy exposure to bitcoin through their brokers. It is a closed-end fund that owns bitcoin directly — not futures — charging 2%. As a closed-end fund, new shares are not created as new money buys in. The trust price is therefore determined by supply and demand for the trust, rather than the price of the asset it is designed to replicate. It has traded at a consistent 20% discount to the price of its bitcoin.

Trusts often trade at a discount to their net asset values (NAVs), many perpetually so, which means there is a value proposition there. But that is not why people buy GBTC — they buy it to replicate bitcoin’s price, and it hasn’t.

What I’m saying is this: if you want to get exposure to bitcoin’s price, then buy bitcoin!

It involves some self-education that many can’t or are not prepared to take on, but that is the sacrifice to be made. I can’t see how synthetic vehicles for mainstream investors will ever be anything but second best.

Grayscale is now, I hear, applying for ETF status. The danger here is that, if it achieves it, it will then sell the bitcoin it currently holds, which could actually mean greater selling than would otherwise have happened.

We are at new highs. New highs, way more often than not, lead to more new highs. This ETF should mean a lot more money flowing into bitcoin. That has to be bullish.

BEWARE THE CURSE OF THE ETF LAUNCH

And one final word of warning: I remember the launch of the gold and silver ETFs back in the noughties. Until then, it was difficult for mainstream investors to get easy exposure to the gold and silver prices. Buying physical metal was cumbersome — it was hard to make quick entries and exits with all of the delivery and quality complications. Futures contracts presented their own problems.

The gold and silver ETFs were brilliant innovations to make gold and silver quickly and easily tradable. There was a lot of hype about both in the lead up to their launch.

The SPDR Gold Shares ETF (NYSE:GLD) launched in late November 2004 and the iShares Silver Trust (NYSE:SLV) did so in April 2006. We take them for granted now, but they were considerable breakthroughs at the time and there was a lot of excitement.

Gold was trading around $440 an ounce at the time of the launch of GLD. It rallied over the next ten days or so to $450 — and then went into a two-and-a-half-month bear market that saw it go below $415.

When SLV was launched in April 2006, it rallied for a fortnight to $15 an ounce, then crashed 40% to $9.

Bitcoin is a different beast of course. And the mistake with bitcoin has always been to underestimate it.

I am a bitcoin bull — don’t get me wrong on that. But let’s just say it wouldn’t surprise me to see this market rally for a fortnight on all the excitement, then turn around and sell off, just as the gold and silver ETFs did.

ESTIMATING THE TOP OF THIS CYCLE'S BITCOIN PRICE

 As this bitcoin price bull cycle carries on, everyone wants predictions of when the price may top out. We will add one framework to the mix.

As the bull cycle carries on, everyone wants price predictions and a better understanding of when the price may top out and reverse course. Although we expect bitcoin to reach a six-figure price this cycle, it’s difficult to estimate how far the cycle will extend beyond that. There’s a lot of different models, thoughts and projections on this already. We will add one framework to the mix using long-term holder cost basis and long-term holder historic spent output profit ratio (SOPR) trends. This shouldn’t be taken as a price prediction for the cycle but rather a logical thought exercise based on simple historical assumptions.

SOPR tells us price sold over price paid, indicating what profit levels long-term holders realized in the past. At the peak price over previous all-time highs in 2018 and 2021, long-term holder SOPR peaked at 20.74 and 9.04, respectively. Said otherwise, that’s 1,974% and 804% realized profit. A big market question is at what price level will a portion of long-term holders be incentivized to sell some of their bitcoin? That will likely mark the cycle top.

Using the long-term holder cost basis, an estimate for the market price paid, and the profit ratios of the past two cycles, estimates for price sold, we can multiply the two to get implied cycle top prices for this cycle.

For example, the long-term holder cost basis is now $17,751. If long-term holders look to take the same level of profits like they did at the previous all-time high (804%), the cycle price would need to be $160,469. If they expected to take profit levels at the peak in January 2018 (1,974%), the cycle price would need to be $368,157. A midpoint between the two would be 1,389% with a price around $264,000.

It’s also a fair assumption that long-term holders may expect lower profit percentage returns as larger returns diminish over time. So the long-term holder SOPR peak may exist below the January 2018 peak but above the previous all-time high, assuming that we haven’t reached the cycle top yet.

All that said, we don’t really know how this cycle will behave compared to previous cycles or how long-term holders will respond to profit taking this time around. Maybe they realize a lower level of profit this time around or hold out for higher prices, expecting a new type of adoption cycle unfolding.

After all, we’re not stacking sats to just get rid of them at cycle tops. This is a multi-decade adoption thesis where timing the local cycle tops won’t matter in the long-run.

LESS BTC IS BEING SOLD BY BITCOIN MINERS

 Using a Coldcard hardware wallet with Seed XOR, you can split your backup seed phrase and better protect your bitcoin from accidents and bad actors.

This guide demonstrates everything you need to know in order to secure your Bitcoin private keys using a Coldcard hardware wallet and its integrated Seed XOR method. With this method, you are able to split your backup seed phrase into multiple parts that look and function like complete 24-word seed phrases of their own. This opens up a range of possibilities and safeguards to protect your bitcoin.

BACKGROUND ON SELF

CUSTODY AND KEEPING BITCOIN SAFE

Welcome to the wonderful world of self custody, this is where the laws of man and the laws of math collide in a battle over your cryptographically-secured wealth.

There are a number of different reasons that people find themselves here; some realize the risks associated with trusted third-party custodians; others know that authorities have what it takes to take what you have; and a few understand that inflation is taxation without representation and confiscation of wealth without due process of law, propped up by an elaborate scheme between the U.S. Treasury and the Federal Reserve in an attempt to keep the rich in power and everyone else enslaved to debt and perpetual consumption.

For whatever reason you found yourself here, let's dive into securing your bitcoin in a way that offers protection from environmental hazards, confiscation and seizure, that mitigates trust and introduces plausible deniability.

STEP ONE: MATERIALS

Although there are several hardware wallets to choose from, you can see my top-10 reasons for using Coldcard here. At a bare minimum to follow along with this guide, you will need:

• One Coldcard
• Three stainless-steel SeedPlates
• One spring-loaded punch
• One ColdPower Adaptor
• One microSD Card
• One USB-to-micro-USB cable
• One permanent marker
• One pen
• One balanced dice
• One nine volt battery
• One wallet backup card (included with Coldcard)
• One computer with internet connection

If you haven't done so already, you can order a SeedXOR kit from Coinkite that comes with a Coldcard, an industrial microSD card, three stainless-steel backup plates, and the security bags.

STEP TWO: CHECKING YOUR NEW COLDCARD

Upon receiving your Coldcard, ensure that the tamper-evident bag has not been compromised.

You will see the tamper-evident words "void" appear when the seal is opened.

Inside, you will find your new Coldcard, the wallet recovery backup card, sticker(s), and an additional copy of the bag number which should match the bag number printed on the outside of the bag.

Here is a graphic to help you figure out the navigation of your Coldcard. You can always hold down the “up” or “down” arrows when scrolling.

STEP THREE: UPGRADE FIRMWARE

One of the best features of the Coldcard in my opinion is that it can be used in a completely air-gapped fashion, meaning that you never have to connect it to a computer, although that option is there if you choose to use it. I prefer to use a nine volt battery with the ColdPower adaptor.

First, read and accept the terms of sale and use. Then you will be asked to confirm the bag number.

Next, select "Advanced" and then scroll down to "Upgrade Firmware" and finally "Show Version." 

Even the firmware can be upgraded in an air-gapped way by utilizing the microSD card. These steps will show you how to do that and verify the integrity of the firmware file on a Windows desktop using Kleopatra OpenPGP from the GPG4win bundle.

If you don't want to get into the PGP verification piece of this process, then you can skip ahead to the part about just saving the firmware file to the microSD card and loading on the Coldcard.

These next steps will show you how to save the PGP-signed hash value of the .dfu file and verify it with Doc Hex's PGP public key and then calculate your own hash value on the firmware to confirm.

From the CoinKite website, click on the link for the latest firmware version at the top of the page. 

From this same page, scroll down toward the bottom to the advanced section and then click on the "this clear-signed text file" link. That link will open a PGP-signed message containing the SHA-256 hash values of various firmware versions.

You want to save this PGP signed message as a .asc file. You can just hit “ctrl” and “s” from your web browser and you should be presented with a pop-up window like the one below. Make sure you have the "All Files (*.*)" option selected from the "Save as type:" drop-down menu. And then save the file with the ".asc" extension. You can leave it named "signatures."

Next, you need to get Doc Hex's public PGP key and import it to your Kleopatra keychain so you can certify it. Doc Hex's public key can be copied from this keyserver here.

Once you copy his public key to your clipboard, then in Kleopatra navigate to "Tools," then "Clipboard," then "Certificate Import." You will then be asked for your PGP password to certify Doc Hex's public key. Once certified, this public key will be added to your keychain.

You can confirm that the fingerprint of the public key you just imported for Doc Hex matches the fingerprint of the Doc Hex account from KeyBase

Now that you have Doc Hex's key imported and certified, you can verify that the signed message with the firmware hash values was actually signed by Doc Hex. Open the folder containing the signed message .asc file and right click on it, then select "More GpgEX options," then "Verify."

Kleopatra will start calculating the veracity of the signature and after a moment, you should receive a dialog box confirming that the signature matches the public key you certified.

At this point, you have verified that the PGP-signed message containing the hash values for the firmware files was in fact signed by Doc Hex. But you now need to verify that the .dfu firmware file does in fact return the same hash value as the one in the signed message.

To do this, I prefer using a freeware hex editing program called HxD. Simply navigate to "File" then select "Open" and navigate to the file path where you have the firmware .dfu file saved. Once opened, then navigate to "Analysis" then "Checksums" then scroll down to "SHA-256" and hit "OK." Then the software will return the calculated SHA-256 hash value on the firmware file you downloaded. Visually compare this returned hash value with the hash value that you can look at in the signed message by opening it with a text editor.

Now you know that the firmware file you downloaded is an exact match to the file that Coinkite intended that you receive and that it is safe to install on your new Coldcard.

Grab your microSD card and the USB adapter and insert them into your desktop. Once recognized, just drag and drop the firmware .dfu file onto the microSD card. Then safely eject the microSD card.

Turn the Coldcard over and insert the microSD card into the slot until it clicks in place.

You should still be in the "Advanced" menu, then scroll down to "Upgrade Firmware" then "From MicroSD" then select the firmware file. This will take a moment to automatically load, verify and upgrade.

With the firmware now upgraded, you're ready to move on and set your PIN number.

STEP FOUR: SETTING A PIN

Make careful considerations with your PIN number. You don't want to use one that is easy to guess. It is convenient when you can memorize it so that you don't have to find your notecard or other storage medium every time you want to access your Coldcard. Or perhaps you want a PIN that you don't have memorized, specifically so that you must have access to your notecard or other storage medium to open the Coldcard.

Either way, your PIN will have two parts: a prefix and suffix. The idea is that once you enter the prefix, you will be presented with two anti-phishing words. If the words are the same as the words that were originally presented to you at initial startup, then you know that your Coldcard has not been tampered with since the last time you accessed it.

First, select "Choose PIN Code," then you will see a brief description of how the PIN code works. Each part of your PIN code can be between two and six digits. There is absolutely no way to access a forgotten or lost PIN. And if you enter a PIN incorrectly too many times, it will brick your Coldcard as a security feature.

After hitting "OK" you will get one more warning about the risk of losing or forgetting your PIN. After reading that, you can enter your PIN prefix. Use the included notecard to write down your PIN prefix, then hit "OK.

Next, you will be presented with your two anti-phishing words. Write these down on your notecard.

Next, enter your PIN suffix, then write it down on the notecard and hit "OK."

Then, you will be asked to re-enter your PIN prefix, confirm the two anti-phishing words, and enter your PIN suffix. The Coldcard will save that information and then open up the wallet where you can generate your seed phrase.

STEP FIVE: CREATING A SEED PHRASE

There are a couple considerations you may want to make when creating a seed phrase.

For example, Coldcard will generate a seed phrase for you by default, but maybe you don't trust the true random number generator (TRNG) used for some reason. Well, you don't have to trust it because you can generate your own entropy with dice or by other means. Then you can leave the seed phrase like it is, with 24 words, or you can add a 25th word, also known as a passphrase.

The passphrase can be any combination of upper case letters, lower case letters, numbers, or special characters. There is no way for the wallet to know if your passphrase is correct or not though once you set it. So if you do decide to use a passphrase and then you misenter it when accessing the wallet in the future, the Coldcard will display a perfectly valid wallet, but it won't be the wallet that contains your funds. Even with the same 24 words, entering two different passphrases will generate two completely different wallets.

So, think about what your threat model is, how you will secure your recovery information and how your loved ones would recover your bitcoin if you were gone.

Typically, I like to use dice to generate my seed phrases and then I like to add a high-entropy passphrase to it, so I will show you how I do it and you can pick and choose what works for you.

Like I said, the Coldcard will use a TRNG to make a random seed phrase for you by default. Select "New Wallet" and after a moment you will be presented with 24 words. You can use that seed phrase if you want, there is nothing wrong with doing so.

But I like to scroll down to the bottom of the word list and select "4" to add some dice rolls.

It is recommended to use at least 50 dice rolls for 126 bits of entropy or 99 dice rolls for 256 bits of entropy. Entropy is calculated by using: log2(6) = 2.58. For reference, it would take the world's most powerful supercomputer trillions of years to brute force a 256-bit key.

So, roll the dice and enter the corresponding number for each roll. Repeat this process as much as you want. If you roll fewer than 50 times, then the Coldcard will add the remaining necessary entropy with the TRNG. Then hit "OK."

You can always verify that the dice roll math is actually doing what it purports to be doing by following the instructions in the Coldcard documentation here, or by checking out another guide of mine here.

Now you will be presented with a new list of 24 words. Write these words down on your notecard. Then, double check your work.

Next, you will be asked to take a test to prove you wrote the words down correctly.

STEP SIX: CREATING A PASSPHRASE

From the main menu, select "Passphrase," then you will see a short explanation that warns you about how passphrases are not recoverable, so if you lose your passphrase then you will lose access to your funds. It also warns you that any passphrase you enter will generate a completely separate wallet.

After reading through the warning, select "OK" to continue, then you have a few options of passphrases you can enter:

• Choose any assortment of characters, for example: h&v03kNUU6768%6J
• Choose from lowercase words, for example: comic hazard glazed madagascar
• Choose from uppercase words, for example: DIFFER MEDIA MORE GRASS
• Choose any assortment of numbers, for example: 1948568742364521
• Choose any combination of any of the above, for example: h&v03comicDIFFER194856

You can make your passphrase whatever you want. Just keep in mind that if you lose it, you lose your bitcoin. Keep in mind too that it may not be you recovering your funds, it might be your spouse or child or someone else, so think about how complex your security model is and if they will be able to use it if you were gone.

Once you have entered the passphrase you want, select "APPLY," then you will be presented with the new wallet fingerprint. It is important to write this fingerprint down so that you can always verify that your passphrase was entered correctly. Then hit "OK" to enter this new wallet.

At this point, I recommend double checking your work by trying to regenerate this fingerprint in another wallet by importing your 24 words and then applying the passphrase. If you have properly documented everything, then you should be able to get the same fingerprint from the other wallet.

For example — and please take into consideration the implications this may have on keeping your wallet fully air gapped — use Sparrow Wallet in offline mode and preferably with WiFi turned off and your network cable disconnected from the desktop.

Don't save the wallet unless you want a second instance of your Coldcard wallet on your desktop. Or, if you do create and save a wallet file, then you can always navigate to C:\Users\YourUserName\AppData\Roaming\Sparrow\wallets and delete the wallet file from there. You just want to be careful about having any second instance of your wallet.

Alternatively, you could also perform this check with your Coldcard by navigating to "Advanced," then "Danger Zone," then "Seed Functions," then "Destroy Seed." Once you have deleted your seed, then you can import it using your backup notecard and the passphrase you wrote down.

If everything went well, then you should get the same wallet fingerprint as the one you originally wrote down. The advantage to this approach is that you do not enter your seed words and passphrase on a computer, even though it was in an offline wallet and the computer was disconnected from the network, you just never know.

Once you have your recovery information written down and you are confident that it is correct by whatever means you choose, then you are ready to split the seed.

STEP SEVEN: SPLITTING THE SEED PHRASE WITH SEED XOR

In my own words and as a high level explanation, with Seed XOR you can apply some math to your seed phrase that results in multiple functional, standalone seed phrases. These seed phrases can be combined later to recreate the original seed. So, imagine that you have your seed phrase and you use Seed XOR to split it into three parts — all three parts will now be needed to recreate your wallet and recover your bitcoin. If you added a passphrase to your original seed phrase, then you would need all three parts plus your passphrase in order to recover your bitcoin.

The problem this is solving for is that if you just have a 24-word seed phrase and you stamp it on a steel SeedPlate, then anyone who gains access to that plate could recover your wallet and swipe your funds. Obviously, a passphrase would also prevent this from occurring, assuming that you used a high entropy passphrase. But if you used a weak passphrase, then it could be guessed or brute forced and combined with your 24-words to steal your bitcoin.

So, with Seed XOR, you can split your seed into multiple parts, and then rest assured that if anyone gains access to any of them, then they would need all of the parts and they would need to know how Seed XOR works in order to steal your funds. And, if you used a passphrase on the original 24-words, then they would also need that. If a single plate is found then you could even have some duress bitcoin stashed on it to hopefully satisfy your attacker and live to see another day. This is an advanced level of complexity that should ensure the safety of your bitcoin in the most adversarial environment.

Some tradeoffs with this approach are that if your loved ones need to recover your bitcoin after you are gone, then they will need to be able to complete these steps. This probably means that you will need to leave them very clear instructions, but the instructions themselves then become another piece of information you need to secure because if an adversary found your instructions, then they could follow them to steal your bitcoin assuming they are able to locate all of the steel plates.

Which brings up another trade off: depending on how many pieces you split the seed into and whether you used a passphrase or not, you can wind up with several pieces of critical information that you need to secure in order to recover your bitcoin.

Imagine that you have three plates and a passphrase and instructions for your family — that is five pieces of information that you must ensure are secure. Securing them all in the same geographic location could be problematic if you are ever threatened with your life during a robbery and the attacker is incessant on there being more bitcoin, or if there is an environmental catastrophe like a flood that sweeps everything away. Four of those five pieces would be absolutely necessary to recover the bitcoin and that is with the assumption that it is you recovering the bitcoin. If it is your family, then they would need all five pieces, otherwise all could be lost.

There is a lot to think about with threat models and recovery schemes. I recommend you weigh your options carefully and think about your setup for multiple days before deciding on one. Try to consider all of the tradeoffs you can think of, talk to your loved ones and maybe even try stepping through some processes with them to get a gauge for how well these concepts click with them. If Seed XOR solves a problem for you and the tradeoffs are acceptable then here is how it works.

Navigate to "Advanced," then "Danger Zone," then "Seed Functions," then "Seed XOR," then "Split existing." Then you will see a short description of what you are about to do with the option to split your seed into two, three or four parts.

You have the option to use a deterministic split or a random split. The deterministic split will produce the same sub parts every time you split your seed, the resulting 24-word lists will be the same words each time. With the random split option, you will get different 24-word lists each time you split your seed.

The consideration to make here is that if you combine your deterministic sub parts into the original seed and then split it again, it will produce the same sub parts, which means that an informed adversary could conclude that there are missing sub parts if the results are different than the parts they have available or conclude that the original split was done randomly.

In this example, I split the original seed into two parts. Once the seed is split, the Coldcard will present two lists of 24 words each. Record both lists and double check you work. The Coldcard will display the 24th word of your original seed, which is recommended to keep documented as a checksum to verify proper reconstruction later. Then, the Coldcard will test you on the 48, 72 or 96 words.

To verify your work, you can navigate to "Advanced," then "Danger Zone," then "Seed Functions," then "Seed XOR," and finally "Restore Seed XOR."

There will be a short dialog presented that explains you already have a seed stored on your Coldcard and that if you reconstruct a seed from Seed XOR parts, the resulting seed will not be saved to the secure element. So, if this was an actual reconstruction and not a verification exercise, then you would probably be working with a blank Coldcard, but this would be something to consider in the situation where you already have another seed existing on the Coldcard.

In this exercise, you will have the option to include the Coldcard's stored seed with the Seed XOR reconstruction. I would recommend choosing not to include it because it is the seed being reconstructed, so including it as a part of the reconstruction will produce a different wallet than the original one.

I had chosen to destroy the original seed on the Coldcard for this example to simulate a Seed XOR reconstruction on a new and blank Coldcard. I would only recommend destroying your seed if you know what you are doing and are 100% confident in your chosen backup method.

For example, if you look closely at the photo above, I made a mistake on deterministic split, part two, word 16. I wrote down "archieve," which isn't a word at all. This caused me a massive headache trying to figure it out and it was only because I had the original seed written down on the notecard that I was able to import that seed, split it again, and then double check the words I had written down.

So, make sure you are double checking all of your work and then verifying that the backup information actually works before you deposit any bitcoin or destroy any records of the original.

To restore from Seed XOR on a new or blank Coldcard, navigate to "Import Existing" then "Seed XOR." You will see a short description that informs you all parts are needed and that the Coldcard has no way of knowing if the reconstructed seed is correct or not.

For reconstructing either the deterministic or random split, select the first 23 words from part a in order, then the Coldcard will present a short list to choose the 24th word from as it is a checksum with limited possibilities. Repeat the process for part b. Then, the Coldcard will show you what the 24th word of the resulting seed phrase would be if you stopped at this point with the two pieces.

If you have more pieces, you can continue entering them until completion. Once you have entered all pieces and the resulting 24th word is what you expect, then hit "OK" and the Coldcard will load that seed. Remember, if you already had a seed loaded on your Coldcard prior to reconstruction, then the seed resulting from the reconstruction will not be saved to your Coldcard. Only if you were importing a seed on a Coldcard that didn't have one stored will the resulting reconstruction be loaded and saved on the secure element.

That is how you can use Seed XOR with your ColdCard, and here is what Seed XOR is doing cryptographically:

When combining two seeds together to restore your original seed, every word from your 24-word seed phrases gets converted into a three-digit hex sequence, for example:

Then the hex values get combined using a table that makes it so that it doesn't matter which order they are combined in. For example, using the table below, let's say the first two hex sequences we are combining start with "7" and "9."

Looking at the red squares, if you follow the columns to "7" then go down to row "9," then you arrive at "E." Likewise, looking at the blue squares, if you start with row "7" and go across to column "9," then you again arrive at "E."

Using this method, we can see that the first words on my deterministic split resulting seed phrases are “BRASS” and “LEAR,” which equate to “0D9” and “3F6” in hex. By combining these two hex values on the Seed XOR table, we arrive at “32F,” which equates to “GRASS,” the first word from my original seed phrase.

Taking the values from the A⊕B row and using the seed-word-to-hex conversion table, you can see that the original seed has been reconstructed:

 

Now, you may have noticed that this is only 23 words, not 24.

In all BIP39 seed phrases, the last word acts as a checksum and it can be calculated with the first 23 words. The Seed XOR math does not use these last 8 bits that make up the checksum. This is why it is advisable to save the 24th word from your original seed phrase so you can ensure you have recreated the correct one upon reconstruction.

Alternatively, you can type the 23 words into a Coldcard through the import seed phrase option and the Coldcard will generate a short list of possible 24th words. This would narrow down your choices, but if you don't recall which one it was then this approach could cost you a considerable amount of time in recovering your bitcoin as you would have to try one, enter that wallet, export the xpub, import it to another wallet, and scan it for your transactions.

If it is empty, then you will have to do the process over again and try the next word on the list. Not impossible, but not ideal either. Keep record of your original seed's 24th word to avoid this last resort.

Now that you are sure your backup information works and you understand how the math works, you can secure this information on a robust medium like stainless steel.

STEP EIGHT: STEEL RECOVERY PLATES

Steel plates offer a simple solution for securing your recovery information in a medium that can withstand environmental hazards such as fire and flooding. The basic idea here is that we will take the two BIP39 seed phrases split from the original seed phrase and imprint those on their own steel plates. Then these two steel plates will be needed to reconstruct the original seed phrase.

Another benefit is that both of the steel plates can be funded with an amount of duress bitcoin and this can be used in a plausible-deniability scheme, so long as your attacker doesn't know how Seed XOR works and doesn't know that multiple BIP39 seed phrases can be combined and that they should pressure you for more information or other backup seed phrases.

The steel plates can be stored as a secret in the open since alone, none of the split pieces can access your original funds. There is still benefit in storing the plates in separate geographic locations and also concealing them securely.

You will notice that the plates have the alphabet running vertically on the first column and that there are twelve numbered sections, one through 12, that each contain four columns. If you flip the plate over, the sections are numbered 13 to 24. Each section will get stamped with the first four letters of each seed word. Only the first four letters are necessary to recover the word since no two words on the BIP39 word list have the same sequence of initial four letters.

Start with a permanent marker so you can double check your work before making the markings with the spring-loaded punch. If you make a mistake with the marker, you can use acetone to clean it off.

Use the spring-loaded punch to stamp the marks on both sides of the plate.

These plates provide a robust medium of secure storage against the elements, fire and flooding.

Once you have your seed phrases stamped on the steel plates and you know that your backups can reconstruct your original seed, then you can destroy the handwritten seed phrases you made while setting up your wallet by safely burning them.

Thanks for reading! I hope this guide has helped you get a Coldcard setup and has given you some food for thought on ways in which you can secure your backup information that provides you with plausible deniability and a robust, stainless-steel storage medium.

IS IT PERMITTED TO MAKE MONEY FROM BITCOIN INFLUENCE?

 Should those who seek influence in the Bitcoin ecosystem feel entitled to compensation for their efforts?

This is not an article about selling your bitcoin. Rather, we will be discussing profiteering or being an influencer in Bitcoin. At what point is it acceptable to make a profit for this type of work in Bitcoin? Not using the asset as a store of value, or as a currency like in El Salvador, but as a source for content or another service.

We’re all familiar with the influence
rs pursuing recycled content, taken from someone else and rebranded as their own; dropping repetitive buzzwords around Bitcoin; or participating in the neverending echo chambers where rising pundits of social media despotism all desperately seek to get in a one liner that could garner them a greater following.

You could say some of those activities apply to me as a writer in the space. But what about those who are truly making a difference? How do we separate simple profiteering from those who enact real change? First, we should discuss why it matters.

A PROTOCOL OF PHILOSOPHY

Inherently, Bitcoin is a resistance to controlled power and cults of personality. Centralization and leaders are subject to the single greatest weakness humanity faces: the human element.

Bitcoin is the first solution to the problem of the human element. It is money written in programmatic code that cannot be controlled by anyone and only listens to the established rules accepted by the system. Attempts to resuscitate the human element back into the network are justifiably met by Bitcoin’s immune system.

Bitcoin has an inherent resistance to influencer personalities and applications that do not practice the established ethos of Bitcoin. Why? Arguably, one might consider that much of the dogma within Bitcoin furthers many values, such as freedom, sovereignty, free markets and others. But it also represents a better future for humanity that is only achievable without centralized control of finance, which brings us to…

THE FIRST INFLUENCER OF BITCOIN

Satoshi Nakamoto.

For those who don’t know, this is the pseudonym of the person or people who developed Bitcoin. The amount of bitcoin held in the wallet controlled by this pseudonymous creator is immense and has never been used. And that’s the point. But why has Satoshi’s Bitcoin largely gone unused?

Because Satoshi left. They disappeared, and we haven’t heard as much as a peep in years. By now, the creator of this platform could have emerged in a stupendous exhibition of ego, shouting “I told you so!” from the mountains as they paraded the streets of Dubai with a receipt for purchasing Apple that they set on fire because they had enough money to do so.

Not only did Satoshi leave, but no wallet holding that substantial amount of bitcoin has ever sold any of it. Satoshi never sold their bitcoin (at least not the majority). The first influencer of Bitcoin never attempted a claim to fame, never pursued their 15 minutes and allowed their bags of wealth to solidify a worldwide network, while Satoshi held those bags for everyone else.

No credit. No podcast. No monetized blog. No YouTube channel making millions. Just the delivery of the only truly decentralized form of finance humanity will ever achieve because the creator walked away.

If the creator of Bitcoin wouldn’t profit from their own name, why should we?

BECAUSE SATOSHI BUILT IT INTO THE SYSTEM

The Bitcoin protocol is maintained every second of the day without compensation for those who provide the single most crucial element of the entire ecosystem: the nodes.

Nodes operate as validators for the network. They keep track of all of the transactions and agree on what consensus is for the entire blockchain. They are low cost to set up, and low cost to maintain. This is what allows decentralization, and simultaneously is what the “block wars” were about. Because the blocks of transactions are so small, a lot of people can afford to run a node.

They are not compensated. Nodes are completely voluntary, and anyone can enter the system, but they are not compensated for the crucial importance of maintaining the network. Much like Satoshi before them, node operators seek the greater good of furthering the network without personal gain (though running a node does allow you to verify your own transactions).

Does all of this mean that Satoshi never wanted anyone to profit? Not even close. They probably used a few bitcoin before vanishing. But we know the system wants people to profit. How?

MINERS

Nodes maintain the network by validating all of the transactions and giving the “proof” in a proof-of-work system. Miners provide the “work.”

Miners are given a puzzle to solve at the beginning of each block, which comes about every 10 minutes. In a simplified explanation, if the miners can guess the “password” of the block, then they are given the block reward, which is bitcoin. The miner that solves the block is paid in bitcoin. This is very clearly a model for profit. Solve this puzzle, get paid. So, why did Satoshi believe that the miners should be compensated?

Work, effort, resources. In the proof-of-work model, a necessary output of resources is needed to achieve the calculations that result in solving the block. This can result in heavy energy expenses for the miners, depending on how they acquire their energy, most of which is now clean and renewable. They are incentivized to find clean energy and get their costs as low as possible, allowing a greater margin when expending resources into mining Bitcoin.

WHAT’S THE POINT?

Understanding the mechanisms that allow Bitcoin to operate and understanding its origin allows us to see a very clear message: Profiting in Bitcoin is permissible when following proof of work.

Resources need to be spent. Cost is associated with the efforts put into the craft associated with Bitcoin. Whether it is leading a course to teach people about Bitcoin, creating content in the form of podcasting or vlogging, creating a new hardware wallet, or even developing financial instruments built for institutions — we cannot say that any of these activities, nor their creators, are pure to principle. What we can do is check the block.

Is this particular person, product or company furthering adoption? Is there a focus on premium content and mentorship offered to the community at large? Or do they seem to be making a political position? Perhaps they are using the network of Bitcoin to further their own audience for personal gain?

Once we have determined the motive, we evaluate the work. In mining, the work is considered the expenditure of resources when solving the puzzle. Michael Saylor famously said that “money is energy.” In many ways, this picture allows us to see the obvious: Energy spent away from home provides money. We go to our jobs, expend energy and return with money (ideally). In many ways, energy can be thought of as time and effort put towards the goal of a particular outcome.

If someone is putting real effort into their creation and an audience forms from that creation, that audience very well may have never entered the ecosystem at all. If we can see the resources spent (time and energy), and we can attribute a positive experience to the product or influencer, then It’s up to the community to decide if the product or influencer provides justifiable value. Measure the proof of work.

HOW DO YOU KNOW WHEN IT’S TIME TO PROFIT?

Passion fuels many of us, but rarely pays rent. We should address the elephant in the room, which is that all of us have bills to pay. It is perfectly justifiable to want to do something you love and pay your bills at the same time.

What is not justifiable is truly profiteering, or taking advantage of a community, nor is having expectations or feelings of being owed something for your contribution.

I was guilty of this.

I’ve been a writer for years, and when I fell in love with Bitcoin and its values, I desperately wanted to be a writer in the space, and I didn’t care how. When I learned I could be a contributor, I craved the option of having a full-time job as a writer. Not because I thought I deserved it, or that I was better than others. I simply wanted to do what I love and be able to pay my bills.

I needed proof of work. More importantly, I needed to understand the ideals of Bitcoin. The possession of a skill does not entitle one to an income for its utilization.

I encourage those who are like me to create, review the feedback of the community and adjust. The protocol, the principles and the protest to the current system — put all of that before your own personal gain. There are moments where we have to contribute selflessly for the sake of others and for ourselves, there are times of strife and sweat equity that allow us to reach a place of reciprocity based on our effort, or resources expended. Quality begets recognition. Recognition favors those worth being recognized.

The nodes aren’t paid but are essential to the continuation of the protocol. I don’t know that I truly understood Bitcoin until I understood this. We must all be a node before we become a miner.

THE PRESIDENT OF EL SALVADOR INVITES BITCOIN MINERS For Using VOLCANO ENERGY

 Nayib Bukele, the president of El Salvador, invited bitcoin miners to set up at a state-owned geothermal facility powered by a volcano.

The President of El Salvador, Nayib Bukele, has invited bitcoin miners to take advantage of new facilities to be set up at a state-owned geothermal, electric company specifically for the industry.

“Our engineers just informed me that they dug a new well, that will provide approximately 95 [megawatts] of 100% clean, 0 emissions geothermal energy from our volcanos,” Bukele shared on Twitter. “Starting to design a full Bitcoin mining hub around it.”

The idea to use El Salvador’s volcanoes as a power source for Bitcoin mining apparently arose in a Twitter Spaces chat room hosted by Coin Metrics cofounder Nic Carter. The chat room held conversations around Bitcoin, mining, and how the largest cryptocurrency has a high penetration in developing countries, as Carter said in an interview.

In particular, El Salvador’s recent approval to make bitcoin legal tender in the country happened while the chat room was being held. Bukele joined the chat room live from the country’s assembly while the vote occurred.

Bukele is moving fast to increase Bitcoin adoption in his country. He announced that El Salvador would be declaring bitcoin as legal tender on June 5 in a video recorded for the Bitcoin 2021 conference, and the country’s government approved the bill only four days later. On the same day, Bukele shared that he had already contacted the country’s geothermal electric company to make arrangements for bitcoin miners to enjoy cheap, clean, renewable energy that emits no greenhouse gases. Engineers dug the new well in a matter of hours.

Bukele’s moves might present opportunities for the Bitcoin mining industry at a particularly good time. Chinese miners, for instance, are experiencing a strong state crackdown on the sector, and might be encouraged to take advantage of El Salvador’s cheap and clean geothermal energy and relocate their rigs to Central America. Bitcoin mining acts as a purely free market and the geographic location of miners is determined in a game-theoretic way — while one country may ban it, another can always welcome it.

THE BEST BUYERS ARE MINERS: IN TEXAS, THE DATA BEHIND BITCOIN-LED DECARBONIZATION

Comments from Senator Ted Cruz underscore the potential that Bitcoin mining has to integrate with the Texas energy grid in a transformative way.

Recently, Ars Technica published an article from staff writer and environmental science PhD Tim de Chant, aiming to rebut Texas Senator Ted Cruz’s comments from the Texas Blockchain Summit earlier this month.

De Chant took issue with the following statement from Cruz:

“Because of the ability of bitcoin mining to turn on or off instantaneously, if you have a moment where you have a power shortage or a power crisis, whether it’s a freeze or some other natural disaster where power generation capacity goes down, that creates the capacity to instantaneously shift that energy to put it back on the grid.”

De Chant offered a number of responses, but generally seems to misunderstand the substance of Senator Cruz’s point. Additionally, he made a significant mathematical error (later retracted) that called into question his literacy on Bitcoin mining.

But first, it’s worth quoting Cruz in full, as the intent of his claims are lost without the full context. We have included a transcript excerpt of Cruz’s comments on mining from his conversation at the summit with Jimmy Song below, in which he referenced a recent winter storm that left many in Texas without access to power for days:

”There were lots of things that went wrong [during the winter storm] that I think are worthy of study, but I do think that Bitcoin has the potential to address a lot of aspects of that. Number one, from the perspective of Bitcoin, Texas has abundant energy. You look at wind, we’re the number one wind producer in the country, by far. Number two, I think there are massive opportunities when it comes [indistinct audio]. If you look at natural gas right now, in West Texas the amount of natural gas that is being flared — 50% of the natural gas in this country that is flared, is being flared in the Permian right now in West Texas. I think that is an enormous opportunity for Bitcoin, because that’s right now energy that is just being wasted. It’s being wasted because there is no transmission equipment to get that natural gas where it could be used the way natural gas would ordinarily be employed; it’s just being burned.

“And so some of the really exciting endeavors that people are looking at is ‘can we capture that gas instead of burning it?.’ Use it to put in a generator right there on site. Use that power to mine Bitcoin. Part of the beauty of that is, the instant you’re doing it, you’re helping the environment enormously because rather than flaring that natural gas you’re putting it to productive use. But secondly, because of the ability to Bitcoin mining to turn on or off instantaneously, if you have a moment where you have a power shortage or a power crisis whether it’s a freeze or some other natural disaster where power generation capacity goes down, that creates the capacity to instantaneously shift that energy to put it back on the grid. If you’re connected to the grid, they become excess reserves that can strengthen the grid’s resilience by providing a significant capacity of additional power to be available for critical services if and when it is needed. So I think that has enormous potential and it’s something that in five years I expect to see a dramatically different terrain, with Bitcoin mining playing a significant role as strengthening and hardening the resilience of the grid.

“It’s a weird point. A lot of the discussion around Bitcoin views Bitcoin as a consumer of energy. A lot of the criticism directed at it is the consumption of energy. The perspective I’m suggesting is very much the reverse, which is as a way to strengthen our energy infrastructure. And it also has – one of the exciting things about crypto also, is the ability to unlock stranded renewables. So there are a lot of places on earth where the sun shines a lot and the wind blows a lot but there aren’t any power lines. And so it’s not economically feasible to use that energy. And the beauty of Bitcoin mining is that if you can connect to the internet, you can use that energy and derive value from those renewables in a way that would be impossible otherwise. And I think we’re going to see in the next five years massive innovations in that regard as well.”

De Chant made a number of points in reaction to Cruz’s statements. We will tackle them in turn.

De Chant starts with the admission that “it stands to reason that bitcoin mining could create enough demand that investors would be enticed to build new power plants. Those plants could theoretically be tasked with providing power to the grid in cases of emergency.”

But this isn’t really the point that Cruz and the Bitcoin community are making. Instead, we are pointing out that power providers will have improved economics from the existence of bitcoin mining as an additional source of offtake. These improved economics could induce extra construction. But we haven’t come across the suggestion that mining would finance the construction of bitcoin-only plants that would be directed to the grid in emergency situations.

The other claim is that bitcoin miners represent a unique type of interruptible load, whose ability to dial back energy consumption can help safeguard the grid from instability.

De Chant continued by pointing out that the February blackout in Texas was caused by significant winter storms in conjunction with a poorly weatherized grid — although Cruz completely acknowledged this in his remarks. This doesn’t score a point against Cruz — he’s fully aware of why the grid failed: significant winter storms in conjunction with a poorly weatherized grid, alongside other contributing factors such as natural gas delivery. What happened was that, alongside power plant failures, the natural gas infrastructure was unable to deliver natural gas to power plants. Additionally, the Electric Reliability Council of Texas (ERCOT) under forecasted its high case peak load scenario by around 10 gigawatts (GWs), which was a huge miss.

Cruz was not claiming that Bitcoin would prevent a black swan weather-driven grid meltdown. Ultimately, only better planning can do this.

De Chant continued by pointing out that Bitcoin miners wouldn’t spend extra cash to winterize their operations. But this is a confusing point: De Chant appears to be conflating miners and energy producers. In practice, the two are distinct. General grid failures have nothing to do with Bitcoin, and no one is suggesting that Bitcoin will cause power plants to fully avoid two-sigma tail events.

THE ECONOMICS OF ACCEPTING LOWER UPTIME

The main line of argument from De Chant is simply his claim that the economics of mining don’t support curtailment, even when prices are high. In his words: “Bitcoin miners would be unlikely to offer their generating capacity to the grid unless they were sufficiently compensated.” In the first version of his article, he originally claimed that miners would need to be paid $31,700 per megawatt hour (MWh) during the February 2021 winter storm to turn off their machines, an estimate which he revised to $600 per MWh later on. But both estimates are erroneous.

Even for the highest-end equipment (Ant miner S19s), the “turn-off point” in February 2021 for miners would have been $480 per MWh. Older equipment has a lower turn-off threshold as it is more sensitive to electricity prices. When electricity prices reach a certain threshold, miners are no longer breaking even and turn off their machines — whether or not they are enrolled in a formal grid program to compensate them for downtime.

Miners are acutely aware of their economics and can adjust to grid conditions in real time. De Chant was off by a factor of 66 in his initial estimate. In his revised estimate, he maintained erroneously that miners would turn off their rigs at $600 per MWh, which is still an overestimate. Put simply, Bitcoin miners are highly price sensitive and engage in “economic dispatch” — meaning that they react to prices and simply do not run their equipment if electricity prices get too high. This is independent of whether they are participating in a “demand response” program, which formally employs power consumers to curtail their usage during periods of electricity scarcity.

In the below chart, you can see that miners would have turned off their machines well before the $9,000 per MWh price cap was reached for electricity in ERCOT.

The precise threshold at which miners curtailed their usage depends on the types of machines employed — higher-end machines have a higher opportunity cost, and are hence kept online through more expensive periods of power pricing.

Electricity is generally cheap in ERCOT, which might imply relatively few instances in which miners would curtail their usage. But of course, the average doesn’t tell the story. The nature of the spot-driven grid is that much of the time, energy is cheap or even free (depending on where it's being consumed), and a small fraction of the time it’s very scarce and expensive (this is a feature — the high prices are a signal to incentivize new generation to be built).

It’s during those right-tail events that Bitcoin miners can significantly benefit the grid by interrupting their load. Running the rest of the time means that energy is generally more abundant, because the presence of miners is an economic pressure that improves grid economics, making it more worthwhile to build new energy projects (who can now for the first time have the option to sell their full generation capacity to the grid or to Bitcoin).

For example, Lancium is a Houston-based technology company that is creating software and intellectual property solutions that enable more renewable energy on the grid. In 2020, it was the first company ever to qualify a load as a controllable load resource (CLR) (more on these later).

As of today, the company owns and/or operates all load-only CLRs in ERCOT with approximately 100 MWs of Bitcoin mining load under control for CLR. These mining facilities are being optimized on both a daily and hourly basis to mine when it is economic to do so and to turn down when it is not.

It’s worth diving into the distribution of power prices on a grid like ERCOT to fully understand how miners engage with the grid. Much of the time, energy is abundant and cheap. In West Texas, prices are routinely negative, as the supply of wind and solar periodically vastly outstrips demand, and there’s a limited ability to export the supply to load centers elsewhere in Texas.

What the miners do is provide a load resource which eagerly gobbles up negatively priced or cheap power (everything on the left side of the chart), while interrupting itself during those right-tail events (you can see the winter storm to the right).

On the one hand, this improves the economics of energy producers who for the first time have a new buyer to sell their electricity to, beyond just the inflexible grid. This promotes the construction of more renewable energy infrastructure and improves the prospects for existing installations. On the other hand, a highly interruptible load that can tolerate downtime means there’s more power available for households and hospitals during periods of scarcity, when supply trips offline through weather or other interruptions.

From the miner’s perspective, accepting interruptions to their service is actually an economically rational decision, for two reasons:

They avoid paying extremely high prices for electricity during a shortage

In some cases, they are actually paid for the service of providing “insurance” to the grid

The below table shows the average yearly electricity price for consumers willing to tolerate various amounts of downtime. You can see that if you strategically avoided high-priced periods (as miners are motivated to do), you dramatically saved on power overall.

In 2021, with the right-tail event due to the winter storm causing prices to spike, if you reduced your uptime expectation from 100% to 95%, you were able to drive your overall power cost for the year from $178 per MWh to a mere $25 per MWh. So, the grid does not need to rely on the beneficence of miners to expect them to turn off their machines during times of grid stress: as profit-maximizing entities, they have a clear economic motive to do so.

For a more holistic look at what prices in ERCOT have done during the last five years, we have included a chart showing the cumulative distribution by year below. Given that it hosted the winter storm, 2021 has the “fattest” right tail, with 5% of hours being priced over $100 per MWh.

You can see that wholesale spot prices are low much of the time, but are characterized by extreme spikiness as you get to the last 15% of the distribution. Neither tail is desirable: negative or low prices indicate an excess of supply causing a mismatch, and imply poor economics for energy producers; extremely high prices are indicative of blackouts and households not getting the energy they need. The presence of flexible load on the grid chops off both tails of the distribution. It is not a panacea and it cannot stop poorly-winterized equipment from failing during once-a-century storms, but the net effect is positive regardless.

DEMAND RESPONSE AND CONTROLLABLE LOAD

Additionally, the existence of flexible load is so useful to grid operators that they have designed specific programs to pay these load centers for a type of grid insurance. Broadly, these programs are known as “demand response” (DR). This term covers a range of load responses that generally reduce load at the instruction of the grid operator. Virtually all independent system operators maintain demand response programs, but most of them have programs that require 10 to 30 minutes of response time on the load.

In fact, on a percentage of peak demand basis, ERCOT lags its peers like MISO (the Midcontinent Independent System Operator) when it comes to enrolling utilities in demand response.

As ERCOT is a single balancing authority interconnection that is not synchronously connected with any other interconnection, it is essentially an islanded electrical grid. This means that ERCOT cannot lean on its neighbors for help when faced with an expected energy shortfall and instead must balance on its own.

Texas leads all states in having the highest levels of installed wind generation capacity in the country and is expected to double its renewable capacity over the next three to five years. Being an islanded grid with a significant portion of energy supply coming from renewables requires ERCOT to procure and utilize more responsive DR products, with requirements to respond in seconds or even at the sub-second frequency in addition to the more traditional 10-to-30-minute response times.

What De Chant simply failed to mention — but Ted Cruz hinted at — is the remarkable ability of miners to act as these controllable load resources.

In ERCOT parlance, this is a type of power consumer that can dial down their consumption and back up again in response to grid operator commands on a second-by-second basis. Most data centers can’t do this — in fact, the selling point for many data centers is precisely their high uptime and non-interruptibility.

The Bitcoin network is a much more forgiving client: it doesn’t really care if you interrupt the action of mining, because each successive hash is statistically independent of the last (this is known as “memorylessness”). Aside from making slightly less revenue, nothing adverse happens if a Bitcoin mining data center only runs at 60% or even 0% capacity for a few minutes or hours. Compare that to a hospital, a smelter, a factory, or commercial real estate. These sources of load need constant uptime, and cannot tolerate interruptions.

Due to the statistical properties of mining and the physical tolerance for mining hardware to deal with interruption, Bitcoin data centers can therefore dial up and down their consumption on a highly-granular basis and on short notice.

For a grid operator, such a load type is a dream, because it gives them the ability to balance supply and demand from the demand side, rather than having to tweak supply (typically by spinning up and down natural gas turbines). There have historically been some semi-interruptible loads that grid operators relied on for similar programs, like arc furnaces, wood pulp production, cement mills, or aluminum electrolysis, but none could provide the flexibility or response times Bitcoin miners can.

The industries mentioned are industrial loads which cannot easily power up and down, and certainly not on extremely short notice, as is necessary for a modern CLR. For context, CLRs have to be able to curtail their targeted load reduction by 70% within 16 seconds. Before Bitcoin mining, no load type qualified in ERCOT.

You can think of a CLR as a power generator in reverse. Instead of adding expensive power to the grid during a period of scarcity, the CLR receives a real-time price signal from the grid operator and if it's above its economic turn-off point, it will automatically “dispatch down” (curtail consumption) to make way for other, more critical loads. Therefore, instead of only having flexible (and CO2-emitting) thermal energy from a coal or natural gas generation available to the grid operator during peak demand periods, the CLR capacity not reserved as grid insurance is offered into ERCOT’s security-constrained economic dispatch (SCED) and will automatically dispatch down when the real-time price is higher than the turn-off point for the bitcoin mining load.

An added benefit to ERCOT in having bitcoin mining loads as a “load resource'' is that during local shortages or system emergencies, ERCOT can directly turn down the load. This is a very big deal. For the data center, it’s a great deal, because they can sell “ancillary services” (basically, a bundle of products that give the grid operator the right to curtail the data center’s production should they need to), collect a premium for doing that, and mine the rest of the time. So, they collect a premium on an ongoing basis (even if not called upon to curtail their usage), effectively lowering their all-in power cost, while also providing a valuable service to the grid.

In contrast, a generation resource which sells ancillary services has a real opportunity cost: it has to run below its maximum in order to retain some slack in case it is called upon to increase its power.

So, when Cruz mentioned the possibility of Bitcoin mining “playing a significant role as strengthening and hardening the resilience of the grid,” he is likely referring to the strong benefits that interruptible load offers to a grid operator. The existence of qualifying CLRs means that policymakers can target structurally-higher renewable penetration and feel comfortable in the grid operator's ability to procure more insurance against adverse events. As grids become increasingly renewable and move from fossil-fuel-powered steady baseload to more volatile wind and solar power, these kinds of controllable loads will become increasingly critical.

Additionally, the ability of Bitcoin miners to colocate with renewable assets and act as an independent buyer when the grid has no demand provides a base level of monetization which was not available previously. This incentive means that intermittent energy sources like wind and solar (which are often curtailed, as they are frequently distant from load centers) have improved economics.

Indeed, an analysis from Dr. Joshua Rhodes and Dr. Thomas Deetjen with IdeaSmiths LLC demonstrated that flexible data centers would actually promote the stability of an increasingly-renewable grid and allow for more renewable penetration than the grid could otherwise support.

The analysis from Rodes and Deetjen found that “operating data centers in a flexible manner can result in a net reduction of carbon emissions” and can “increase the resilience of the grid by reducing demand during high stress times (low reserves) on the grid.”

Under the scenario where 5 GWs of flexible data center growth was added to the base case with a range of uptimes between 85% to 87%, the flexible data center “consumes about 35.5 million MWh, but supports the deployment of an additional 39.5 million MWhs of wind and solar energy.”

In simple terms, the incremental MWh output from solar and wind is greater than the incremental MWh consumption from the flexible data centers — hence, carbon negative.

THE BITCOIN IS A FILM ABOUT GENERATIONAL WEALTH

 “Bitcoin is Generational Wealth” is a short film exploring the potential Bitcoin has across generations.

Throughout recorded history, cycles of “rise and fall” repeat — both of civilizations themselves and of what they use for money. We are experiencing another fall now.

However, something unprecedented has occurred — the invention of a money that is incorruptible, indestructible, and infallible: “un-fall-able.” It is money that can support on its shoulders a civilization that will also be un-fall-able. Bitcoin offers an incentive for cooperation on a global scale. The enabling of digital private property rights for everyone on Earth is an incredible leap forward in creating a safer world. The citizens of the world now have a reliable network upon which to coordinate their lives, as opposed to the chaos of fiat monetary manipulation.

The unprecedented freedom created by bitcoin is a revolutionary change that will be felt beyond our time.

With the prospect of preserving capital forever, new possibilities can be imagined and their potential made into reality over multiple generations.

That is what this film aims to impress upon viewers: replacing these cycles with an everlasting, productive peace.

THE BITCOIN WHITE PAPER WAS RELEASED 13 YEARS AGO TODAY.

 The research paper detailing the engineering and design requirements to enable the first distributed, un censorable, electronic digital cash system to come to life was released 13 years ago. The Bitcoin whitepaper exposed the since a long time ago looked for goal to the twofold spending issue of all past endeavors to construct computerized cash. 

Be that as it may, in opposition to mainstream thinking, the creation of Bitcoin by Satoshi Nakamoto wasn't definitively a remarkable development. The journey for advanced money has begun numerous years prior to the Bitcoin white paper was distributed, and Bitcoin is all the more precisely considered to be the summit of many years of innovative work. Satoshi splendidly applied a few changes and perplexed everything together to devise the Bitcoin organization and its agreement convention.

The Bitcoin marvelously joined together digital signatures, proof of work, public-key cryptography, hash functions, timestamps, block rewards, transaction fees, mining difficulty adjustment, Merkle Trees, and the concept of a peer-to-peer network run by independent nodes. This unique construction allowed the double-spending problem to be solved and the soundest form of money ever created to emerge.

Each of these pieces was built upon previous knowledge. The white paper cited eight of such prior developments, hinting at how the pseudonymous inventor arrived at the requirements for creating Bitcoin.

THE PIECES OF THE BITCOIN PUZZLE

The first reference is “b-money,” where Wei Dai explores how cooperation could be possible without governments and trusted entities.

“A community is defined by the cooperation of its participants, and efficient cooperation requires a medium of exchange (money) and a way to enforce contracts,” Dai wrote. “Traditionally these services have been provided by the government or government sponsored institutions and only to legal entities. In this article I describe a protocol by which these services can be provided to and by untraceable entities.”

The paper’s three subsequent references are all about timestamping, which is central to the functioning of the Bitcoin network and its ordered history of blocks and essential to help solve the double-spending problem. Moreover, timestamping proves the existence of data at a specific time.

The second reference is “Design of a secure timestamping service with minimal trust requirements” by H. Massias, X.S. Avila, and J.-J. Quisquater. Again, a paper that explores how to reduce trust requirements in systems.

“We define ‘digital timestamp’ as a digital certificate intended to assure the existence of a generic digital document at a certain time,” the authors wrote. “There are two families of timestamping techniques: those that work with a trusted third party and those that are based on the concept of distributed trust. Techniques based on a trusted party rely on the impartiality of the entity that is in charge of issuing the timestamps. Techniques based on the distributed trust consist on making documents dated and signed by a large set of people in order to convince the verifiers that we could not have corrupted all of them.”

“How to timestamp a digital document” is the paper’s third reference, in which S. Haber and W.S. Stornetta propose a technique to make it infeasible for a document to be back-dated or forward-dated. Bitcoin leverages the idea of linking hashed data to make it not practical to tamper with the records without leaving telltale signs.

The two authors are cited once again in the fourth reference, “Improving the efficiency and reliability of digital timestamping,” in which they explore a way to “achieve exponential increase in the publicity obtained for each timestamping event, while reducing the storage and the computation required.” Merkle Trees are also central to how Bitcoin stores transactional data in blocks and allow for quick payment and block verification by validating nodes.

From the latest reference to Haber and Stornetta, Satoshi Nakamoto leveraged “Secure names for bit-strings” to combine hash functions with Merkle Trees, allowing for easier integrity verification.

Adam Back’s “Hashcash - a denial of service counter-measure” is cited by Satoshi and was leveraged to implement Bitcoin’s proof-of-work (PoW) system — the core of the Bitcoin consensus model and responsible for allowing BTC to be mined in a decentralized and free-market fashion. PoW also allows for the lack of human coordination for recording transactions and the lack of trust for achieving consensus. Simply put, without PoW, there would be no Bitcoin.

“Protocols for public key cryptosystems” by R.C. Merkle explores schemes for public key distribution and protocols for digital signatures, which it says is “an ideal method of broadcasting authenticated messages from a central source which must be confirmed by many separate recipients.”

Digital signatures enable Bitcoin users to prove ownership of a transaction output and spend it in a pseudonymous way while allowing peers to verify the validity of such claims quickly. Bitcoin currently uses ECDSA and enables users not to reveal their identities (private keys) when interacting with the protocol. The next major upgrade to Bitcoin will add Schnorr signatures, further improving the capabilities of Bitcoin in that regard.

Last but not least, “An introduction to probability theory and its applications” by William Feller was cited by Satoshi. The pseudonymous creator of Bitcoin leveraged the mathematics book to calculate the probability that an attacker can successfully compete with the honest chain — a central issue in the double-spend problem.