Omnishambles

He’s basically saying that the move to Proof-of-Stake (PoS) will happen in September. In fact you can track the likely time here, currently suggesting 15 September.

All of that is well and good, but you can’t help feeling that events are rather moving in another direction. We reported last week on the US government blocking mixing service Tornado Cash. This wasn’t such a big deal to begin with but it has set off a cascading sequence of events right across DeFi.

So-called decentralised platforms are rushing to comply with the government’s mandate. To name a few:

• Circle (operator of the largest stablecoin on eth) complied immediately by freezing associated accounts that used the service
• Centralised exchanges Coinbase and Binance froze accounts
• POKT Network, a “decentralised” node provider, complied
• AAVE, a “fully decentralised” community, complied and froze accounts
• Trading platforms dYdX, Maker, Balancer Labs, Uniswap did the same
• Node operators Infura and Alchemy complied

It then got worse. The tainted addresses originally identified by the US government then started sending assets to other addresses, thereby tainting them too. It deliberately targeted addresses known to belong to CEOs of the companies involved in freezing assets. As a result, their own crypto-assets are at risk of being frozen.

All of this has suddenly focused people’s minds on the Ethereum Merge (it’s called the “Merge” because the already running test chain on PoS will merge with the existing Ethereum chain). Post-Merge the direction of the protocol will be determined by the largest holders of ETH; that is what Proof-of-Stake means.

If you look at those that have staked into the new protocol, 66% of them have already complied with the OFAC sanctions on Tornado Cash.

What does it mean? Simply that under the new consensus mechanism, we know the US government can censor any transaction they want.

It might be very good for the ETH price, because now the government knows they can control it, why not let Ethereum run?

It is not decentralised though. Increasingly, it’s a database controlled by US-based entities. Plenty of those have performed spectacularly, so if you’re in it for the money it might be good. If you’re in it for the decentralisation you might need to look elsewhere.

For more on the long-term outlook for Ethereum, see Dan’s article for Livewire.

0%

There was much outcry after this one. So removed from the lived experience of Americans was the 0% clarion call.

It happened to be true though, in the absolute sense. The June CPI was 8.5% (on an annualised basis) while the July CPI was 8.3% (annualised). The absolute change in the price index in July was flat over the 31 days, which caused the cumulative 12 month figure to fall. Are you following? 350 million Americans certainly are not.

Anyway, via semantic gymnastics you get to 0% inflation; which is actually 8.3% annually and not really very good at all.

Imagine the roundings and spreadsheet devilry they used at the bureau of statistics to get to zero. Here they are hard at work.

Armchair enthusiast

Prudential Investment Management (now PGIM) has somewhere in the realm of $1.5 trillion in assets under management. They released an investment report this week on bitcoin. Throughout they called out some specific areas of concern (and only areas of concern).

‘Bitcoin has an unstable price, is a poor medium of exchange and is rarely used outside the crypto- native realm as a unit of account.’

‘Central bank digital currencies are not a distant prospect: China has already launched the e-CNY.’

‘Despite the investment mythology surrounding bitcoin it does not currently offer an attractive proposition for investors.’

The criticisms are fine but you might reasonably expect a more nuanced view from the 41 contributors who wrote the report.

Then I happened upon this one man tour de force by Andrej Karpathy. He is the former head of AI at Tesla, a post he left in June. He obviously has an interest in bitcoin and some time on his hands.

Nice waffle Andrej, but then what? Well then he manually creates, signs and sends a bitcoin transaction from scratch in his own code, which he also shares over pages and pages of well explained technical enthusiasm. In so doing he demonstrates a large part of the value proposition; anyone can single handedly transact value on the internet and that reality will last forever and likely grow. The bigger picture wasn’t lost on him.

Who will be right? The armchair genius who actually went to the effort to understand what is going on, or the 41 person copy paste team at Prudential?

The Inflation Reduction Act

On page 17 of the Treasury report accompanying the Act was a chart showing almost $80 billion in new resources for the Internal Revenue Service. Joyously, this will allow for the hiring of an additional 86,852 full-time employees. What better way to reduce inflation than to collect additional tax that cannot then be spent in an inflationary way?

Euro-Trash

Christine is still away. But even in her absence she never lets us down.

It’s 35 degrees, the sun is belting off the Mediterranean and beer is flowing like the Amazon in flood. Oh look! Everyone is about to go water skiing.

“Would you like to join us?”

“No. I’m listening to podcasts about inflation, climate change and female economic empowerment.”