A Few Comments on Privacy in the Crypto Universe
In “The Power of One” sand_puppy wrote (comment #37):
The last couple of weeks action in BTC price was very impressive moving up hundreds of dollars on many days.
And VTGothic’s story of moving funds across national borders using BTC was powerful.
I can very much see the value of this kind of function.
My reluctance to put much savings into BTC comes from uncertainty about privacy from the public/private surveillance apparatus of the oligarchy (NSA and its private contractors) and the risks that are unknown (to me, at least) that transactions might be blocked and coins confiscated via backdoors. (This of course would be done in the name of national security and would target dissidents.)
Wish I had a solid understanding of this aspect of BTC risk.
Sand_puppy, I’d like to offer a few comments on your post’s concerns, for what it’s worth – and free advice is always worth what you pay for it 😉.
1) There are no back doors in the BTC protocol. Remember that it’s a public protocol, published on the web that anyone can look at; and while that doesn’t do you and me any good, since we don’t read code, there are tens of thousands of people who can and do, located all over the world – and there’s a growing international network of Bitcoin core developers who spend their time improving the coin’s infrastructure to increase its security and functionality. In short: there’s no way anyone can sneak in a back door without the entire community knowing. (The same cannot be said for almost every other crypto coin, nor for traditional banking services and investment vehicles.)
On the other hand, we can (and should) assume that the government can find out who is purchasing BTC from exchanges; we can be confident (from news releases various exchanges have made) that government has secured their willing cooperation in any investigation they want to make, and so we should assume government has back door access to all regulated exchanges – or soon will.
The exchange is the choke point. As long as your BTC is not held on an exchange, it is immune to seizure. Under certain circumstances that could mean it is unusable (or, at least, cannot be converted to fiat), but it is not confiscatable if you have it in your own wallet. Especially if you have it on an external wallet you can detach from the internet.
2) Meanwhile, the risk of government interference is receding as BTC is increasingly adopted by mainstream institutions and actors. OKCoin’s CEO, Hong Fang, made this point in an opinion piece published this morning (as others have before her) when she wrote:
Another major risk comes from sovereign governments. Given that bitcoin is positioned as future money, it is possible that sovereign governments ban it for fear of threatening fiat currencies. Again, such risks are highest in earlier years before bitcoin builds meaningful adoption momentum. Actually, such bans have already happened in several countries (India in 2018, for example, which was revoked in 2020). Central bank digital currency (CBDC) experiments around the world could also have an impact on how bitcoin’s future plays out.
This year has seen the first wave of institutional endorsement for bitcoin, and therefore 2020 will be recognized as a milestone year in alleviating this political risk. When publicly listed companies, asset managers and well-known individuals start to own bitcoin and speak in favor of bitcoin, such a ban is going to become very unpopular and hence harder to implement in countries where popular votes do matter. I hope the momentum will continue to build, making a risk of total bitcoin ban increasingly remote as time passes.
She sees that risk steadily declining, however:
Different from its 2017 ride, bitcoin’s current run-up is characterized by more vocal institutional endorsement: Square and MicroStrategy allocate treasury cash into bitcoin; the Office of the Comptroller of the Currency (OCC) allow U.S. banks to offer crypto asset custody; PayPal enabling crypto buying and selling; Fidelity making a case for 5% asset allocation and doubling down on crypto engineer recruiting; well-established traditional asset managers including Paul Tudor Jones and Stanley Druckenmilller announcing public support for bitcoin. The mainstream momentum is building up. (Source, and a worthwhile read, imo.)
It is the building mainstream momentum that makes it decreasingly likely our government will be able to declare BTC illegal. We’re not yet past the danger point, but we’re getting there rather quickly, now.
3) On the other hand, by the time that danger is fully muted, a lot of upside earnings potential may have been bypassed. There is risk in being an early adopter, but by the time Fidelity is recommending 3-5% allocation to BTC (as it’s now doing) the risk is rather muted.
Lyn Alden, an investment strategist I listen to, officially recommends a couple percent, and not more than lets you sleep well, but recently noted in an interview that she’s increased her personal allocation. She’s not very risk-tolerant, and she has not changed her published recommendation, but she has changed her own exposure. For me, that’s an additional indication of the declining risk of BTC becoming worthless. (Alden also addresses the risk of government ban as item #6 in this piece.)
For what it’s worth (and remember, it’s free advice): Personally, I think if there’s ever been or is going to be a time to swing for the fences, this is it. The next 12-24 months are potentially life-changing. But I know that if I lose every penny I’ve put into BTC since 2014 I’ll still get by reasonably well.
Maybe I’ll lose because government comes along and confiscates my BTC by some mechanism I just can’t see. I’m prepared to take that uncertain, and (I think) increasingly unlikely, risk. I’m not prepared to take the certain loss of not putting all that I can into BTC right now. That’s why I’m regularly adding to my holdings.
Nice response VT.
I always find it humorous when there are objections to crypto on the basis of privacy.
As Edward Snowden pointed out, there is no such thing as privacy. The government knows literally everything about you. It knows all of your financial transactions, it knows where and when you travel, it knows your purchases, it knows EVERYTHING you post online including right here on PP.
You can however exchange crypto for fiat w/o them knowing. Just don’t use an exchange. You can exchange crypto for goods and services w/o converting to crypto.
The problem here on PP is Dave has everyone scared shitless. He basically ignores crypto until there is an opportunity to diss it. He has a lot of gravitas here.
As I have said here numerous times Andreas Antonopolous has responded to every question asked here. All anyone needs to do is look up his videos on YT
As BTC is poised to take out its all time high of $20,000….
…Deutsche Bank’s Jim Reid to conclude that “there also seems to be an increasing demand to use Bitcoin where Gold used to be used to hedge Dollar risk, inflation and other things.”
The latest weekly fund flow data confirms this, because even as bitcoin continues to rise amid a surge in institutional buying, with volumes in futures contracts exploding to an all time high…
While money is flowing out of gold
…both bitcoin and gold will be early indicators, because as Hartnett concludes, “Bitcoin >20,000, Gold >2000, DXY <90 would all be harbingers of higher volatility & yields.” His advice: “hedge inflation risk via volatility, commodities, CRE, and EM.”
Institutions are not people; there is a difference. The ZeroHedge article headline
Record Inflows To Bitcoin; Record Outflows From Gold
and then the chart. It is comparing LBMA gold to BTC, maybe? That said, I imagine basically no institution and no actual people are selling gold to buy BTC. The record outflows are from ETFs like GLD.
ETFs are not gold. Institutions, and people, sell GLD and other EFT funds for all kinds of reasons, including how convenient it is. Just a wild guess here; PPers are not selling actual gold and buying BTC. Gold is gold, derivatives are not.
WOW. If there ever was an assertion on PP this is it. “basically no institution and no actual people are selling gold to buy BTC.”
Well David I am sure you have data to back that up.
Raoul Pal founder of Real Vision has stated he has moved gold to buy BTC.
I have no idea how many people or institutions are selling gold to buy BTC but it abundantly clear BTC is going up and gold at best is going sideways. It is also clear that the current rally in BTC is being fueled by large institutional investors.
There are only 900 BTC mined a day. In 3.5 years it will be 450. In the foreseeable future people will not be buying or earning BTC they will be buying and earning Satoshis.
I woke up this morning thinking, “When you buy a Bitcoin you don’t own 1 BTC, you own 100,000,000 Satoshis. Few people understand this.”
Given the current rate at which Paypal alone is hoovering up Bitcoins (now ~40% of new daily production), as more institutions and high net worth individuals enter the market, there will soon be no whole Bitcoins for sale. Individuals and institutions will start buying bulk lots of 100,000 Sats; then 10,000; then 100.
Apologies for any offenses. I don’t mean to support BTC or GOLD. I mean to take offense with the first article linked in sand_puppy’s post. I find it disingenuous.
The title suggests institutions are selling gold and buying bitcoin when the article tells us shares of electronically traded funds were being sold, not gold. These two, gold and shares of ETFs, they are not the same thing. Gold ETFs are not gold.
The article referred to ETF sales using the word “flow,” “record outflow” to describe fiat leaving ETFs. This is not a “record” selling of physical gold. It might be a “record” selling of ETFs but the article didn’t actually quote any figures. This is not the same thing. Most people don’t use the word “flow” to describe gold sales. Why did this article choose this word?
I understand the article was referring to institutional gold, not individual gold. I also understand selling physical gold, especially a “larger” quantity, is not convenient, much less quick. Deutsche Bank suggest institutions see “…an increasing demand to use Bitcoin where Gold used to be used to hedge Dollar risk, inflation and other things.” How does the bank know this?
Recently, I have been selling ETF funds too, because I do not trust the funds to survive what I see; a looming financial crisis. How would Deutsche Bank know the difference? They’d have to ask? Who have they asked, I wonder? The article did not suggest a single institution that is exchanging physical gold for BTC.
Most Americans do not own gold (1). Those who do own very little (2). I have no idea how much physical gold institutions own much less how many companies generally. Is there any way to really know?
As to bitcoin, it is true I do not understand how this crypto is a hedge against inflation based on there being a fixed amount. Satoshis is why I do not understand. If we can simply divide a bitcoin into smaller and smaller units, six decimal places, then seven, then eight, how is this not inflation? We will never run out of coin because we simply trade smaller and smaller pieces while the price gets larger and larger? Feels like inflation to me. What am I missing?
David Turin said:
Satoshis is why I do not understand. If we can simply divide a bitcoin into smaller and smaller units, six decimal places, then seven, then eight, how is this not inflation? We will never run out of coin because we simply trade smaller and smaller pieces while the price gets larger and larger? Feels like inflation to me. What am I missing?
I think what you’re missing, Dave is that the number of Satoshis is just as fixed in the code as the total number of Bitcoin. In fact, the protocol definition of a Bitcoin is 100 million Satoshis. The Satoshi, not the Bitcoin, is the base unit.
At the beginning, 11 years ago, a Bitcoin was worth just pennies if anything. It made no sense to try to price Satoshis. Today it still doesn’t make a great deal of sense, although the price of Bitcoin is now high enough that a value can be assigned to a Satoshi, and some people buy Satoshis in lots of 1 or 100 or 10,000 – according to their means. It’s called “stacking sats.”
We can look ahead, now, to a day when the price of a Bitcoin will be so great that most individuals won’t be able to afford to buy one. That’s when the alternatives will accord with my waking thoughts recorded above. Affordable amounts of BTC will be measured in blocks of Sats, starting with relatively high amounts (a 100,000 Sat block, for instance), but getting smaller over time as the price of BTC continues its upward climb. However, 1 Satoshi (1/100,000,000 BTC) is as small as it gets.
I think you are confusing some items.
A dollar is 4 quarters, 10 dimes, 20 nickels, and 100 pennies.
Just because I can divide it into smaller units does not mean I have more dollars. I am not inflating the dollar by dividing it into smaller units.
Or put another way. We have a pie and we cut it into 8 pieces. It is still ONE pie. It has not been inflated.
Now this Thursday I will probably be inflated even though the number of pieces of pie have not.
there will soon be no whole Bitcoins for sale
In the foreseeable future people will not be buying or earning BTC they will be buying and earning Satoshis.
I thank you two for your time in trying to help me understand what is going on, both in the world of commodity ETFs, physical metals, bitcoin, and how you see all this. One last confusion, for the moment. What is the difference between 0.5 BTC and 50,000,000 Santoshi?
What difference does it make if your bitcoin is spread out over the blockchain instead of a whole bitcoin? How do you know you have a whole bitcoin? If you buy 1.0 BTC, would it be a whole bitcoin or .25 BTC from four different coins? How would you know either way? Why would a person care one way or the other?
How would a buyer procure a whole bitcoin? Who sells whole bitcoins? How do you sell a whole bitcoin?
Is this all just the same thing, or Semantics?