Mining energy consumption and privacy protection – Exploring the unresolved problems of Bitcoin in 2019 (below)

In the previous article , we introduced four main issues that Bitcoin still has not solved in 2019: account type and incompatibility, lightning network, assets, and exchanges. Let us look at four other issues today: privacy protection, energy use and environmental impact from mining, regulation and control, and community.

5. Privacy protection

Bitcoin is not private or anonymous in nature, but you can use it like this. You can do a lot of things to stop the government's "chain analysis." Even if you don't deliberately conceal from the government, using Bitcoin can greatly improve privacy.

So we have determined that you should use your own wallet instead of the exchange. The wallet has unlimited addresses, so basically every time you accept a payment, you should tell the sender a brand new unused address.

One thing to emphasize here is that the blockchain does not know any address, and the address only appears when the transaction is sent to it. So, when you tell someone a new address, there is no link to you or anything else. These links come primarily from multiple senders, and you send from that address to multiple recipients. This adds to the protection of the chain analysis that all "send" and "receive" services are your account on the exchange.

But in 2019, what are the shortcomings of Bitcoin in this regard?

Of course, users are not good at this, you are not good at this, you don't care. But even if you care, the wallet will be bad for you.

When you send any amount in your wallet, the Bitcoin wallet usually combines the balance with all the addresses of the wallet. Suppose you have 3 addresses, one with 1 bitcoin, one with 5 bitcoins, and one with 2 bitcoins. You enter the wallet app and try to send 4 bitcoins. Most likely, your wallet app will merge transactions from an address containing 1 bitcoin and another address containing 5 bitcoins, resulting in 0 bitcoin leaving the first address, leaving the second address Next 1 bitcoin. Now, on both the blockchain and the receiver, both addresses are linked to you. All transactions starting with the first address are now linked to you. Few wallets allow you to choose a specific address and indicate "send 4 bitcoins from this address with 5 bitcoins and ignore the others." Ethereum allows you to do this, but sometimes it will be removed before restoring the default settings.

However, Bitcoin's privacy protection is recovering. Typical in 2019 are Samurai Wallet and Wasabi Wallet. These two wallets are very privacy-conscious and can mix all your transactions and replace the bitcoins you own with other people's mixed bitcoins. However, this is very stupid, because the mix of bitcoin, especially with Samurai Wallet or Wasabi Wallet, means multiple online transactions and high fees, and you can't even use Bitcoin until all this is done. Because Bitcoin's development in this area has stagnated in the past five years, the market has created more products that are more privacy-protective and faster, such as Monero, and other alternatives are also in full swing.

One of the bitcoin improvements is that the Lightning Network payment channel can separate transactions. You can open the Lightning Network payment channel in other addresses in other wallets to separate Bitcoin before entering circulation. Large-scale monitoring through chain analysis is lazy, which will force law enforcement to return to the old-fashioned investigations, using subpoenas and warrants, just like tracking cross-bank transactions. If you are just tracking, the open and transparent blockchain of Bitcoin is the entry point. When the transaction is completed on the "chain", all transactions are public, you can view the balance and transaction history of each account, and The balance and transaction history of anyone who sent the funds to the account. Although you don't know the identity of these senders, you can infer a lot of information, so its privacy protection is very poor, and Lightning Networks has changed that.

In the future, Bitcoin is expected to be anonymous, similar to Monero. Some of Bitcoin's core development teams are also working for Monero, and the Monero team is also developing Bitcoin. Often, government actions will accelerate these improvements, which I specifically call "transfer to alternatives."

In 2019, atomic swaps with other public opaque blockchains were quite common. At any given point in time, you can exchange $500,000 worth of Bitcoin at a good price on Monero at a good price, so your trading history can be completely separated. No company can issue a subpoena with atomic exchange. The alternative entrances and exits that Bitcoin users can use have changed a lot, but I expect these to be even better. With patience, you can easily separate or “clean up” millions of dollars in bitcoins in a matter of days.

It is not difficult to do dangerous activities that the government prohibits funding. Therefore, the activities of tens of billions of dollars in money laundering by HSBC, Danish banks and Deutsche Bank are more likely to be related to the mutual cooperation of everyone on the planet.

6. Energy use brought by mining, environmental impact

Maintaining Bitcoin is a resource-intensive business and highly competitive capital-intensive business model. In addition, reports of environmental issues are seriously inaccurate. Bitcoin mining ensures transactions from one place to another, as well as subsidies for new bitcoins that are declining in quantity. This subsidy is called block reward. This is very profitable, so the competition is also very intense. The only way to make money is to use a powerful computer at a very low energy cost. Therefore, the mining business favors renewable energy or uses excess energy from power plants. These will become more and more fierce in the future, so dams, geothermal energy and investment in other renewable energy sources will have to be considered by miners.

Many media have only reported on the increasing use of energy, but have not pointed out the source of energy. This is very hypocritical.

The infrastructure needed to power the banking, Wall Street, London financial districts and other financial centers, as well as all of their regional operations, demand far exceeds Bitcoin.

7. Supervision and control

The world is waiting for the United States to find a way to regulate bitcoin.

By 2019, Bitcoin has at least been identified as an asset, a digital commodity. We can assume that bitcoin spot exists under the commodity framework, which means CFTC's nominal supervision of the bitcoin futures market, but there is no further regulation, only the bitcoin futures market is regulated.

This eliminates a regulatory cloud, but may introduce CFTC licensing requirements for custodians who trade on behalf of others.

The Commodity Futures Trading Commission (CFTC) is the custodian of entity-settled Bitcoin futures, Bitcoin futures options, Bitcoin spot options, and Bitcoin index options. However, they have approved several entities, including LedgerX, to provide bitcoin spot options to everyone. The CFTC is the most flexible of the financial regulators. They like Bitcoin, but they still restrict the market in a way that they think is responsible for the market. The Commodity Futures Trading Commission (CFTC) can give a green light to anything, while the US Congress directly bans a contract before the Commodity Futures Trading Commission expresses its opposition.

The US Securities and Exchange Commission (SEC) is much more conservative than the Commodity Futures Trading Commission (CFTC). The SEC's high-standard review of this matter has made the entire bitcoin and encryption industry grow faster, albeit frustratingly hindering innovation. The biggest exchanges have done a lot to increase market confidence, such as avoiding hacking, helping to find prices and avoiding fraud. The SEC wants these things, and although its mission is not to regulate the spot market, they are currently the appropriate institutions to regulate Bitcoin ETFs. In addition, SEC employees do not want this to exist because they are subject to the current financial system that hates Bitcoin. What I want to say is that this has not played its due role. So far, only one commissioner has been appointed to handle the cryptocurrency ETF, her name is Hester Pierce. The SEC also made a recommendation to completely stop the review of the ETF, which will also give a green light to the approval of the Bitcoin ETF. They all come with a prospectus that lets the market decide if they are useful, just like every IPO. The SEC's task is not to review the value of the investment, but the ETF happens to be a passive fund, and the fund manager can also openly trade, so the SEC has taken a variety of actions to effectively judge the value of the investment.

The SEC and FINRA regulations on digital asset custody have fueled this process. The clear classification of Bitcoin assets by the US Commodity Futures Trading Commission (CFTC) and the US Securities and Exchange Commission/Financial Industry Regulatory Authority (SEC/FINRA) is driving the development of Bitcoin.

Online Bitcoin derivatives circumvent all of these regulatory approvals. You should be able to trade Bitcoin futures, swaps and options directly from your private wallet without having to deposit funds into LedgerX or any such exchange. Some people have already created these. Let's take another look next year.

FinCEN and the US Treasury Department updated their guidance on digital assets including Bitcoin. Most of them only apply to blockchains that are more powerful than Bitcoin's leading light years.

The US Internal Revenue Service (IRS) is still implementing the 2014 guidelines, calling Bitcoin “property” and treating it as a commodity spot tax. As a result, the US Commodity Futures Trading Commission (CFTC), the US Securities and Exchange Commission (SEC), and the US Internal Revenue Service (IRS) are no longer in conflict, but there are now some unresolved issues.

Is the Bitcoin options contract now included in 1256 contracts, subject to the 60/40 rule tax incentives (60% long-term capital gains per transaction)?

All of these institutions were considering bitcoin in 2019 and only considered bitcoin. It is too difficult to want Ethereum futures or options. XRP risk management is even less likely.

8. Community

The Bitcoin community is better than ever!

In that dark period, there were one or two forums discussing Bitcoin. In the darker days, all of these forums were owned by the same person, so software upgrades and lack of consensus could not be agreed because that person would ban objections. This made the construction of the Segregated Witness and Lightning Network longer than the required time of 15 months. The code already exists, it just needs such a high consensus – not a constitutional amendment – and people want to be told to discuss the possibilities. Fortunately, what they did forced many of the key members of the Bitcoin ecosystem to leave and establish their own communication channels. From 2015 to 2016, I had several reddit accounts blocked by several Bitcoin channels because of "promoting malicious technology." Now that the number of groups on Facebook is huge, the streaming community on Youtube is full of energy, the groups on Telegram are ridiculous, WeChat, Line, Kakao, everything. In the past two months, I was invited to participate in several Whatsapp groups of professionals, but due to the sim card switcher, I declined to say.

The Bitcoin community is more mature than ever. People from all walks of life have influence in all places and are part of the community. Speculation drives innovation, and if the way to make money is not that much, they won't be here. The same is true for regulators and governments. Politicians were the “pocketers” of the 2017 bubble period, and they realized that they had the ability to make Bitcoin more widely available and benefit more people. For some people, this is a complaint against this concept, while for others, the blockchain works exactly the way it was built, and it spreads by absorbing human desires.

The marginalized anarchists disappeared, and the “bitcoin maximists” who believed that there was only one digital asset were largely overwhelmed. Bitcoin is easier to obtain than before, although this article is about how bad Bitcoin is.

When President Donald Trump pushed some negative information about Bitcoin, all encrypted tweets reacted so quickly.

Education is very poor. Academic, translatable books have only existed for a few years now. On a global scale, many terms are not standardized and are very easy to misunderstand. There are a lot of scammers who don't know what they are talking about and make it difficult. I have heard that a partner in Europe believes that Bitcoin Cash (BCH) is more like a French version of Bitcoin, used for "over-the-counter trading" between people. I used to have a disagreement with Hackernews, when I mentioned that many people quoted digital asset prices in Satoshis or "sats", and people there had never heard of it. Satoshi is the minimum face value of Bitcoin. Currently, it is only 8 digits after the decimal point in the Bitcoin economy. Many goods and services are priced in Bitcoin. "People may say "823 sat" instead of "00000823 BTC." Many people use it to represent the price of other assets, but use the adjective "Eth Sats" to mean a small amount of Ether. In the end, I can work with the parallel bitcoin economy. Traders in the middle of the communication, and many bitcoin enthusiasts have never traded in the bitcoin economy, they may be trying to convert bitcoin into more dollars than when they were purchased.

Politicians mix all the concepts together and are surrounded by technology. When it comes to Bitcoin and the entire field, they are an extension of the people they represent, but so far, the US government has taken a balanced approach to a large extent. Congress and legislatures, which are self-proclaimed as Bitcoin, have been misunderstood and arbitrarily globally, but so far the results of the new law have been mostly good and are becoming quite mature. These laws are primarily about cryptocurrencies as a whole, rather than really helping or hurting bitcoin.

A year later, we will be interested to see if people affected by Warren Buffett's conservative investment master brand will speculate in the bitcoin field. Personally, I like Warren Buffett’s leveraged investment experience in the 1960s and 1970s. It’s these experiences that have brought him to the present. Warren Buffett in his 30s and 40s will like those. Bitmex with too high leverage.

Viewpoints | Several major issues that Bitcoin still needs to solve in 2019 (I)

Source: Hackernoon

Author: Eric Lamison-White

Translation: Bitker Institute

Disclaimer: This article was compiled by the Bitker Institute.