With almost 100 attendees from very diverse backgrounds, I was able to absorb a huge amount of new information at this year’s Satoshi Roundtable. Here are six hypotheses that I take away:
1. Bitcoin matures as a financial asset
Remembering my chats with two CEOs, a CTO, and a fund manager at the conference, it’s clear to me that Bitcoin is coming into its own as a financial asset.
Because selling and re-buying Bitcoin can have tax consequences, entrepreneurs are now building solutions to allow use of it as collateral for dollar denominated short term loans. And in order to meet the demands of investors looking for a liquid and nuanced way to make Bitcoin price bets (and for Bitcoin intermediaries to diminish the volatility of their positions), exchanges are likely to start offering Bitcoin futures products. From the protocol side we see these initiatives complemented by public & federated sidechains, smart signatures, and hardware wallet applications.
In line with these developments, hedge funds and family offices are finally starting to look at Bitcoin with more serious eyes, considering to build up a long term position in this counter-cyclical, counter-inflationary asset.
2. The Segwit impasse: a Chinese-Western cultural deadlock?
A couple miners from China, and some people close to them, were present at the conference. It was difficult to get straight answers about why Chinese miners refuse to implement the Segwit soft-fork. One person said it was “too complex.” Another intriguing answer was that “if [Bitmain CEO] Jihan doesn’t do it, no-one will.” Someone familiar with China said that “Chinese miners just wants bigger blocks”—which gave food for discussion, because Segwit is an actual block size increase.
In the end, the theory that made most sense to me is that Chinese miners feel unappreciated and possibly even insulted by how they’ve been treated by the western Bitcoin community. Without prior consultation with China, Segwit was perceived to be presented in Hong Kong as “the solution to scaling.” Stories surfaced about a Chinese miner who arrived in the U.S. but was not picked up by his hosts there, and other instances where host-guest relationship rituals were potentially breached. Also some memories were shared about the political negotiations involved with upgrading internet protocols.
Suggested solutions to the Segwit stalemate: a name change from Segwit to something more respectful of Chinese miners, a bona fide diplomatic mission to China, and culturally sensitive strategies to introduce new, “next best” scaling solutions in China.
3. Outright trolling is less toxic than subtle misinformation
At the conference, people’s assessment of Bitcoin’s culture and dynamism varied widely. An attendee stated bluntly: “this community is toxic.” Others praised examples of productivity, courage, and diplomacy in the community.
One critical remark that stuck with me was about how harmful it is to have self-styled experts with some technical skills who don’t take responsibility for their errors or even deliberately spread misinformation in the community. Because most people with a stake in Bitcoin (including myself) use technical experts as proxies to form opinions about issues at hand, it’s particularly damaging when these sources aren’t trustworthy—potentially even more damaging than the attacks of anonymous trolls, who can be quite easily recognized and ostracized.
4. Trust is in perpetual flux
Another thing that struck me was the diversity of opinion when it came to what business and tech solutions are to be trusted. Some used intermediaries to help store their coins, others only trusted open source software and hardware wallets. Some relied heavily on exchanges because they believed in liquidity and diversification, others believed only minimalism and self reliance would help them survive and prosper. Some believed hard-forks are out of the question in a post-DAO world, others think they are inevitable or desirable. And so on.
The takeaway for me is that the Bitcoin community is generating an abundance of solutions to some extremely tough problems, and that investors and entrepreneurs are the “skin-in-the-game” actors who put their theories to the test on a daily basis—meritocracy in action.
5. Ransomware negative catalyst for Bitcoin regulation
Bitcoin, as the first successful pseudonymous e-cash, allows hackers to monetize their attacks. This has lead to an explosion in ransomware attacks that victimize virtually anyone: luxury hotels, subway systems, even Washington D.C.’s CCTV video recording systems. The FBI estimates that the revenues of these crimes amounted to $1 billion in 2016. A side effect is that security firms are now proactively building up Bitcoin holdings in order to pay clients’ ransoms (if deemed the best solution).
At the Roundtable, I talked to someone familiar with Capitol Hill lawmakers. There is concern that one day soon the wrong company, high-profile individual, or government entity will be victim of a ransomware attack which will spark heavy-handed intervention: crackdowns on Bitcoin mixers, altcoin exchanges, Bitcoin-to-cash service providers, and potentially other players in the ecosystem.
6. Bitcoin devs embrace permissionlessness, power forward
Despite the palpable disappointment that Segwit may not be activated for quite some time (or ever), Bitcoin development is thriving. Lightning, Sidechains, Mimblewimble, Smart Signatures, Joinmarket… each of these projects continues to produce breakthroughs on a regular basis. Meanwhile, applied crypto-technologies that are currently more in the altcoin sphere, such as zero-knowledge proofs, ring signatures, and proof-of-stake, are also being thoroughly explored.
One alternative proposal to Bitcoin scaling that caught my attention was to create a bigger block sidechain (either using the Segwit or the Bitcoin classic strategy) to which bitcoins could be migrated for cheaper and higher volume transactions. A suggested variation was a Mimblewimble sidechain—given that it’s likely Mimblewimble can be integrated with Lightning solutions.
Even with serious short-term challenges on the scalability and regulatory fronts, Bitcoin is healthier than ever and is developing at a rapid clip.