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  • 🏦 Are CBDCs a Boon for Bitcoin Adoption? ⚡ Coinbase Integrates Lightning Network

🏦 Are CBDCs a Boon for Bitcoin Adoption? ⚡ Coinbase Integrates Lightning Network

Greetings Earthling,

Welcome to issue #32 of the Bitcoin Breakdown, where we realize Bitcoin as the ultimate pathway to financial self-sovereignty.

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📰 HEADLINES

Central Bank Digital Currencies (CBDCs) concerns were raised by experts during a US Congressional Hearing, citing potential government control and abuse, limited economic benefits, and privacy concerns.

This comes as G20 leaders plot the release of CBDCs and Digital IDs worldwide.

Meanwhile, GOP lawmakers launched legislation aimed at inhibiting the federal government from implementing a CBDC. Led by House Majority Whip Tom Emmer, the Central Bank Digital Currency Anti-Surveillance State Act aims to halt the Federal Reserve's exploration of a digital dollar version, a move that could have significant implications for monetary policies.

COMMENT: I can’t divulge too much from the future, but consider these scenarios where the rising popularity of CBDCs might actually be a boon for Bitcoin adoption:

  • Centralized CBDCs will bring surveillance and restrictions, pushing individuals towards Bitcoin's decentralized, censorship-resistant nature.

  • With multiple national CBDCs emerging, a neutral digital currency like Bitcoin becomes even more essential for international transactions.

  • When CBDC implementations lead to financial missteps and crises, people will sought out a safer, alternative store of value, like Bitcoin.

  • As central banks adopt monetary policies like negative interest rates or ‘expiration’ of funds for their CBDCs, individuals will also seek out Bitcoin, which doesn't have these constraints and whose monetary policy is transparent and predictable.

This, of course, doesn't mean that one should actively promote CBDCs; it simply underscores the genius of Bitcoin once again.

Coinbase to integrate Bitcoin Lightning Network, confirms CEO Brian Armstrong, calling it the ‘most important assets in crypto’.

The LN enables Bitcoin to scale better without having to make any trade-offs in terms of its security or decentralization, unlike altcoins.

Despite initial reluctance from major exchanges like Coinbase and Binance due to perceived limited monetary incentives, both have now adopted the LN as users seek faster and cheaper BTC transactions.

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QUOTE OF THE WEEK

Don't hold more money in bank accounts than you are willing to lose.

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🏆 TOP STORIES

Pay Me in Bitcoin Theory (Sept 20 | 17 min read)

Parker Lewis (author of the highly acclaimed Gradually, Then Suddenly series) outlines the endgame for Bitcoin as a price system and emphasizes the pivotal role merchants will play in achieving it. Virtually all goods and services worldwide will eventually be priced in BTC and transacted in BTC, establishing it as the universal unit of account. Merchants, more than consumers, will spearhead the transition to BTC payments because it's a balance sheet decision linked to Bitcoin's unrivalled ability to store value. The merchant who understands Bitcoin will unavoidably and inevitably drive the shift to BTC payments. With businesses run by entrepreneurs that understands Bitcoin, the primary incentive would be to further de-risk their business from fiat payment rails. In short, if you are a bitcoiner, you can help speed up Bitcoin becoming the universal unit of account by asking to be paid in BTC, or if you run a business, at least giving your customers the option to pay you in BTC.

Authors Dylan Campbell and Alexander Larsen from the IRM Energy and Renewables Group wrote a paper for the Institute of Risk Management, exploring the relationship between Bitcoin and the energy transition and calling for a shift in the narrative from focusing on risks to recognizing the opportunities presented by Bitcoin in the energy transition. The paper outlines seven opportunities where Bitcoin can play a positive role in energy management, including stabilizing electricity grids, reducing methane emissions, accelerating the adoption of renewable energy, supporting nuclear power, enhancing ocean thermal energy conversion, utilizing heat recovery, and integrating with geothermal and hydroelectric energy sources. The authors stress that Bitcoin miners actively seek low-cost and untapped energy sources, potentially leading to an energy growth boom worldwide and contributing to human progress and economic development.

Sovereignty vs Society (Sept 9 | 15 min read)

Jameson Lopp, CTO of Casa, delves into the paradoxical relationship between liberty and the individual's reliance upon society at large when discussing the concept of sovereignty, particularly in the context of Bitcoin. While individual sovereignty is a cherished value, achieving complete sovereignty in today's interconnected world is challenging due to specialization and reliance on third-party services. Bitcoin, through cryptography and consensus mechanisms, enables individuals to enhance their sovereignty by securing their data and reducing the need to trust third parties. Lopp also touches on the trade-offs between efficiency and systemic risk in centralized systems, the importance of social scalability in blockchain networks, and instances where blockchain protocols have been modified in response to perceived threats. The whole piece is worth reading, especially Lopp’s take on Bitcoin’s inviolable properties.

Packy McCormick of Not Boring (who unfortunately often conflates Bitcoin and crypto) discusses the potential of cryptocurrency and how it can enhance capitalism's effectiveness. He emphasizes how valuable capitalism is with its ability to incentivize entrepreneurship and adapt over time. McCormick argues that crypto can improve capitalism by providing strong property rights, enabling global free markets, and fostering competition. He acknowledges that while the crypto space has faced challenges and setbacks, there are signs of progress towards its ideal state. He also highlights the importance of digital property rights and the potential for crypto to create decentralized markets for various assets, including scientific research and ideas. Overall, he sees crypto as a transformative force in making capitalism more efficient and adaptable.

Iain Davis, a UK investigative journalist, delves into the rise of a so-called Synthetic Hegemonic Currency (SHC) as the cornerstone for a new multipolar International Monetary and Financial System (IMFS). This currency, rooted in interoperable CBDCs, is championed by major governments, including the G7 and G20 nations, to address the current debt-driven global monetary system's challenges and to usher in a multipolar world order. The overarching goal is to utilize the digital currency model for geopolitical negotiations, particularly given the discreditation of SWIFT due to its political misuse by the US against Russia. This system is designed to streamline multi-currency exchanges and represents a significant paradigm shift in the global financial landscape. While it's frequently framed in terms of global central planning, its core intent is to facilitate seamless global trade transitions, especially as the East becomes more dominant. It's also a strategy to counteract the repercussions of previous financial actions, such as quantitative easing and the fiscal responses to the COVID pandemic. This move towards a ‘multipolar world’ has long been a part of the Central Bank system's blueprint, with historical power transitions underscoring the need for sturdy stabilization tools, reminiscent of post-World War eras, culminating in a more centralized global economic authority. Part 2 (65 min read) delves more into the concept of a SHC as introduced in 2008 by Mark Carney, then Governor of the Bank of England. Davis suggests that the conditions for the introduction of an SHC were engineered by central banks and investment firms like BlackRock to create a multipolar global economy. [Such technocratic arrogance appears to be blind to the unstoppable consolidation of Bitcoin. Good.]

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📖 GUIDES & EXPLAINERS

An Introduction to Spiderchain (Sept 18 | 13 min read)

Jameson Lopp reviews the latest layer 2 protocol proposed for pegging Bitcoin to a sidechain. The proposal by Botanix Labs for building 2-way pegged sidechains on top of Bitcoin is known as Spiderchains. Unlike other Layer 2 solutions, Spiderchains can be implemented on Bitcoin without requiring changes to the base layer protocol. The motivation behind this proposal is to bring the benefits of Ethereum's decentralized finance applications to Bitcoin by introducing full Ethereum Virtual Machine (EVM) equivalence on the second layer. The Spiderchain design utilizes a Proof of Stake consensus model and a series of multisig wallets managed by Orchestrators to facilitate the pegging of Bitcoin onto the sidechain. Lopp raises various security considerations, such as the need to prevent centralization and the importance of dynamic adjustment of key variables. He also pose open questions regarding potential issues with peg-ins and Orchestrator behavior.

Unchained’s Tom Honzik and Stephen Hall wrote a deep-dive into seven ways people try to improve their single-signature (singlesig) Bitcoin security, and why multisig is a better alternative for long-term savings. The improvised methods, which all have their own limitations and risks associated, include copying, splitting, and encoding seed phrases, along with standardized tools like BIP 39 passphrases, Seed XOR, and Shamir's secret sharing. These methods aim to reduce the risk of theft but often increase the risk of losing access to funds. Multisignature (multisig) wallets are a superior alternative for long-term savings, as they eliminate single points of failure and provide enhanced security for Bitcoin custody. [Although, OG Andreas M. Antonopoulos disagrees.]

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