Greetings Earthling,

Welcome to issue #47 of the Bitcoin Breakdown, where we unyieldingly champion Bitcoin’s core principles and do not dare drop our guard for a second in ensuring the network's integrity against any potential compromise.

In this week’s Top Stories edition:

• 🇺🇸 US Government flags Bitcoin Ordinals as bug exploit

• 🌊 Jimmy Song defends Luke Dashjr over Ocean Mining Pool's exclusion of certain transactions

• 📊 CFA Institute explores four Bitcoin valuation methods

• 🖋️ Jason Lowery pens open letter to the Defense Innovation Board on the National Strategic Importance of Bitcoin

• 🔍 Preston Pysh critically examines FinCEN's proposed policy that violates your rights

• ⚙️ Study: Leveraging Bitcoin Miners as Flexible Load Resources for Power System Stability and Efficiency

• 🕒 Is there a best time and day to Cost-Average Bitcoin?

• 🔓 If it's not FOSS, it's not Bitcoin

• 🌐 Nostrato: How Relational Contracts on Nostr might Underpin the Foundations of most Economic Trade in the Real World

• ⚡ Guide: The Art of Swapping BTC between on-chain Bitcoin and the Lightning Network

• 🧠 Understanding Bitcoin Transactions and Mempool Policy Enhancements

Please leave us a positive 5-star review here (where you’ll then be rewarded 2000 sats for free). Happy readings! 👽️

📰 FEATURE HEADLINE

The US Government's National Vulnerability Database has identified Bitcoin's Inscriptions (which enables the Ordinals Protocol) as a cybersecurity risk. This follows a 'vulnerability' flagged last week by Luke Dashjr, Bitcoin Core developer and CTO of the new bitcoin mining pool OCEAN.

Dashjr views this workaround as a spam 'bug' as it uses Segwit and Taproot upgrades in ways that diverge from the transaction-oriented intention of those upgrades. Satoshi Nakamoto primarily designed Bitcoin for payments, not as a network for arbitrary data storage.

The bug that permitted inscriptions to circumvent a transaction data size limit has been fixed in the latest update of Bitcoin Knots, which is a combined Bitcoin node and wallet software developed by Dashjr and used by the OCEAN mining pool.

This update could impede the creation of new Bitcoin Ordinals and BRC-20 tokens, which have been contributing to network congestion. Recently, there's been a surge in activities involving Ordinals, which has increased the current average BTC transaction fee to around $20, reaching a peak of over $31 during the Ordinals frenzy in May.

Only about 143 nodes however use Bitcoin Knots out of the thousands of Bitcoin nodes worldwide. Moreover, OCEAN's hash rate of ~560 Ph/s represents just 0.1% of the total Bitcoin network hash rate of 490,000 Ph/s.

Proponents of Ordinals inscriptions argue that the blockchain is a public, uncensorable resource open to any use, and that the free market should ultimately determine its applications. Inscriptions have also benefited Bitcoin miners by increasing transaction fees, thereby enhancing the security of the Bitcoin network.

Any Bitcoin user is also free to broadcast their transaction to any other solo miner or mining pool, and their transaction will be mined into Bitcoin’s blockchain.

In the end, @notgrubles observes, 'If I were a state intelligence agency, I would disguise myself as an inscription-related project with bright, loony tunes colors and then bribe miners with 4MB transactions ad infinitum. Clearly, it's the perfect attack that cannot be criticized, else you'll get canceled.'

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🏆 TOP STORIES

Jimmy Song on Ocean Mining Pool, Inscriptions and Luke (Dec 9 | 4 min read)

Jimmy Song took to Stacker News to add to the debate of over Ocean Mining Pool's recent exclusion of certain transactions from their blocks, which has been criticized as censorship by proponents of Ordinals and BRC20 tokens. The controversy underscores a broader discussion about the motivations of mining pools, where profit-maximization is not always the sole driver. Song likens Ocean's operator, Luke Dashjr’s stance to businesses that choose ethically sourced products despite higher costs when Dashjr prioritizes ethical considerations over maximum fees.

Pioneering Bitcoin Valuation with the CFA Institute (Nov 30 | 5 min read)

Rob Price, CFA, explores four bitcoin valuation methods in research for the CFA Institute. These include comparing Bitcoin to similar assets like gold, assessing production costs such as electricity and equipment used in mining, analyzing Bitcoin's value in the context of the US dollar by considering real interest rates and money supply growth, and examining the behavior of Bitcoin holders to understand their conviction and impact on its valuation.

Open Letter to the Defense Innovation Board on the National Strategic Importance of Bitcoin (Dec 4 | 8 min read)

Statist Jason Lowery penned an open letter to the US Defense Innovation Board, earnestly calling for a more nuanced examination of Bitcoin as a tool for national security, particularly in the realm of cybersecurity defenses. He argues, ‘This oversight may prevent us from recognizing and leveraging the full strategic scope of Bitcoin’s impact, much like China’s early underestimation of black powder. Our limited view of Bitcoin as just a monetary system may be causing us to underestimate its potential to fundamentally transform the base-layer architecture of the internet, with profound downstream implications on cybersecurity.’

How FinCEN may be Violating your Rights (Dec 6 | 59 min read)

Preston Pysh critically examines FinCEN's proposed policy FINCEN-2023-0016, arguing it overreaches into individual freedoms. He analyzes seven areas where the policy may infringe on rights, such as violating personal information privacy, restricting financial autonomy, and impacting freedom of speech and association. The policy's broad definition of Anonymity-Enhanced Convertible Virtual Currencies (AECVCs) is particularly concerning, potentially including a wide range of technologies and infringing on rights to free and anonymous speech.

Leveraging Bitcoin Miners as Flexible Load Resources for Power System Stability and Efficiency (Nov 30 | 40 min read)

A peer-reviewed study on Bitcoin by authors including Nic Carter and Dennis Porter emphasizes the industry's advancements in energy efficiency, transition toward renewable sources, and innovative applications. The paper emphasizes Bitcoin mining's role in demand response, leveraging its quick response capabilities for grid flexibility. It also highlights how Bitcoin mining can utilize stranded energy resources, showcasing its potential to foster renewable energy growth and grid efficiency.

Is There a Best Time and Day to DCA Bitcoin? (Nov 21 | 9 min read)

River Financial released a report by Sam Wouters looking to find the best time and day to cost-average Bitcoin. Key observations include a higher likelihood of daily price lows occurring within specific time frames, such as from 12-1 PM Eastern Time, and days like Mondays showing a higher chance of weekly price lows. The first and second days of each month have also historically had the highest odds of having the lowest price relative to the monthly high price happening on those days. Wouters concludes that while these patterns can offer small advantages, the overall impact on investment outcomes is minimal.

If it's not FOSS, it's not Bitcoin (Nov 27 | 7 min read)

Roy Sheinfeld, Co-founder and CEO of Breez, argues that true Bitcoin requires being completely free and open-source software (FOSS). Sheinfeld asserts that anything less undermines the core principles of decentralization, trustlessness, and censorship-resistance embedded in Bitcoin. He believes proprietary software threatens the sovereignty provided by these principles. To foster trust, security, and adoption, he advises every piece of the Bitcoin network's infrastructure should be insightfully auditable, which is accomplished by adhering to the FOSS standards. Participating in the FOSS community is crucial for the growth and evolution of Bitcoin.

Nostrato: How Relational Contracts on Nostr might Underpin the Foundations of most Economic Trade in the Real World (Dec 9 | 12 min read)

Dirac Delta, a mathematician and scientist, discusses the concept of Nostrato and its relation to relational contract theory. He suggests that our current economy is deemed inefficient due to the rigid contracts unable to accommodate unexpected changes. Proposing Nostrato, Delta says this system, based on relational contracts, fosters flexible functioning to adapt to unforeseen circumstances. This system focuses on building relationships rather than enforcing rigid rules that might deter growth and innovation. Citing examples from successful businesses like Hollywood and Silicon Valley, Delta emphasizes that trust, communication, and flexibility are the cornerstones of generating value and growth in the modern economy.

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📖 GUIDES & EXPLAINERS

The Art of Swapping (Nov 30 | 4 min read)

Natalia Mok wrote a practical guide to swapping sats between on-chain Bitcoin and the Lightning Network. She reviews two tools, Boltz.exchange and Robosats, highlighting their features like no-KYC, no sign-up, and non-custodial swaps. Mok shares personal experiences with these tools, including tips for optimizing swap times and fees, and discusses the nuances of each tool, such as the technical skills required and the refund process.

Understanding Bitcoin Transactions and Mempool Policy Enhancements (Dec 13 | 5 min read)

TFTC delves into the complexities of Bitcoin transactions, which might seem straightforward at first glance, but there's a complex system at play behind the scenes. At the heart of this system is the mempool, a holding area for transactions awaiting confirmation. This piece explains the dynamics of transaction processing, the role of miners, and how fees influence transaction prioritization. It also discusses strategies like Replace-by-Fee and Child-Pays-for-Parent for handling stuck transactions, and explores the evolution of Bitcoin transactions, including V3 transactions and package relay. Additionally, it addresses the security implications for layer two protocols and the broader impact of these developments on the Bitcoin ecosystem.

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Until our next transmission,

Naiw

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