Shadowy coders

Back in 2021, an American Senator complained in her submission to Congress that cryptocurrency put the financial system in the hands of ‘shadowy super coders’. In so doing, she coined a phrase that was then adopted by thousands of enthusiasts across the globe, many of whom added ‘shadowy coder’ to their profiles on social media. It gave rise to art collections, t-shirts and became a movement all on its own.

It raised its head again this week when the Wall Street Journal declared “Bitcoin’s Future Depends on a Handful of Mysterious Coders”; it came complete with shadowy image.

The premise of the article was that there are only a handful of people that can commit code to the bitcoin protocol. That is actually not true at all. Anybody can take the code today and do whatever they want to it, including recommend changes. Many thousands of people do so. It is true that the core maintainers of bitcoin (literally known as bitcoin core) are a small number of people who have keys to sign a particular version of bitcoin software but it ignores the massive contributions that come from the community who do not work full-time on bitcoin.

It may be helpful to look at one of these shadowy coders, because he is an Australian. In 2019, Michael Ford was added to the list of bitcoin core maintainers, which might be considered the highest status of bitcoin developer. Here’s his social media profile. It’s a farm in Western Australia where he works with his family.

On the left is a sheep dog who famously disappeared for a few days before returning in good health to the relief of those following along. Here’s another message from him in 2020 about his mapping tools that he built for farmers in Western Australia.

He’s basically a brilliantly talented developer, who not only contributes to bitcoin but also to other projects that enhance the lives of other people. He isn’t shadowy. Indeed, the only core developer from Australia has most likely contributed more to the advancement of humanity than 99% of the country. Nobody has ever heard of him in this country and his efforts likely won’t get credit for a long time.

The tagline ‘shadowy coder’ is borne of frustration that bitcoin just seems to attract so many talented people. It must be annoying for someone trying to push US dollars on the world. If you want a reason that bitcoin will win, look to people like Michael Ford, Nicholas Dorier (Frenchman living in Tokyo who built BTC Pay Server), Jack Mallers (American building Strike), Elizabeth Stark (Lightning Labs, turned down squillions to keep working on bitcoin).

The state attracts no such loyalty. It’s a loser (see next section).

I’m putting a team together

The Federal Reserve is recruiting. The lucky person should have the following skills:

• Experience designing and maintaining digital payments, cryptocurrencies or Central Bank Digital Currencies;

• Hands on programming experience;

• Knowledge of distributed systems, cryptographic protocols and zero knowledge proofs.

The role is based in San Francisco and will pay $110,000 at the base level. Now far be it from me to suggest what the Federal Reserve ought to pay its staff but if you are a programmer that understands cryptography and digital currencies and has previously built a Central Bank Digital Currency then you are probably IBM or Accenture and you don’t get out of bed for less than $1m before lunchtime. Finding somebody with those skills that is willing to live in San Francisco on that sort of money is a fool’s errand but you never know.

Systems of this nature are incredibly difficult to build in a resilient way. It has taken over a decade of road testing to get bitcoin to its current level of security. Millions of people have tried to hack and break it including some of the most skilled computer scientists in the world. Many of them gave up and bought bitcoin. The lucky candidate will be going up against the very best there is when they land their $100k+ job at the Fed.

The reality is FediCoin will be built by a consulting firm (or a group of them). They will fleece the American taxpayer for billions of dollars. It will be a very long and robust project, with project managers and workflows and sign-offs and ‘all-hands’ meetings. It will launch to great fanfare. By 2030 bitcoin will likely be going through another 70% drawdown collapsing to half a million dollars a coin. This time it will be over for good.

FediCoin will be a SQL database (which will be called a high speed blockchain), Oracle will make good money. It will run on IBM servers, IBM will make good money. It will be audited, the consulting firms will make bank too.

It will be the USD with a new name. The usual suspects will fill their boots at the expense of everyone else. It will be a ‘success’. The American people will love FediCoin.

The dark days of December

Back in December, bitcoin mining was a bloodbath. A number of major miners filed for bankruptcy. It was, you might say, carnage. Since then, the hash rate has absolutely surged, now reaching all time highs of 320 EH/s.

There is a seasonal element to bitcoin mining too. Much of it is now grid responsive, meaning the miners provide a service to the grid network by soaking up the excess generation and switching off when demand from other users is high. In the northern hemisphere winter, there is more power available than during the air conditioned summers, particularly in the USA.

Mining is a long-term game and a very risky one. Having watched hash rates closely for a long time now, I have the view that mining hash is a general proxy for price activity 18 months hence. It’s a continual debate about whether the bitcoin price drives the hash rate or the other way around. I view it like this:

Mining hash rate signals market belief. If the hash rate and mining continues to grow it means there is enough new capital that understands the bitcoin network and understands that the dynamics of bitcoin will ultimately pay off for miners. More hash joining than leaving = additional capital to the network. That is then later reflected in new institutional and finally retail capital reaching the same understanding.

Bitcoin miners understand bitcoin very well. So their investment generally front runs wider market understanding by a fairly long period, maybe longer than 18 months. It just reminds me very much of a period in 2019 when we saw a similar dynamic, where nothing happened for a while and then something did.

It might take longer this time because of the widespread damage done by fraudulent exchanges in 2022 but we will see.

In any event, one day all this will be obvious; and you will wish, and I will wish, we had more bitcoin.

Nostr

For those of you following the latest trends in tech, all the talk is AI. All the talk in bitcoin circles is Nostr (Notes and Other Stuff Transmitted via Relay). We covered it last week but this graphic is rather helpful in setting out the differences between traditional social media and this new version.

The more interesting aspect of the platform is the integrated micro-payments. It’s very hard to achieve with the current payment infrastructure. The question now is what else might use similar infrastructure? The advent of paid relays means you can have your own private groups hosted on Nostr (just like a group of Facebook friends) and your information won’t be plastered all over every server.

The barbarians are at the gate of centralised (and censored) social media. Watch this space, you will likely hear about it in a couple of years. Another reminder, the currency of Nostr: bitcoin.

Euro-Trash

Goodness me! Having been completely and profoundly wrong on inflation, indeed so wrong that an order of magnitude does not describe it, the ECB is now ‘back on track’ with the accuracy of its estimates. Let’s pause for a moment to congratulate them. Broken clocks are right twice a day after all and if you’re lucky you might just glance at it at the right moment. Their usefulness cannot be discounted.

“The accuracy of the Eurosystem and ECB staff short-term inflation projections for the euro area deteriorated following Russia’s invasion of Ukraine before improving in the last quarter of 2022.”

Correct. It was Vladimir Putin’s fault all along, which seems strange given that inflation was steaming down the track long before Vlad went mad.

We covered this back in 2022 when the ECB released their paper explaining why their prediction capability was so appalling. The entire exec summary at the time was devoted to errors made well before the Russian invasion. Fast forward a year and it’s all Russia’s fault because I guess it’s partly true and nobody will argue, at least not in Europe.

I don’t think this sort of stuff does the ECB any favours at all. Despite their unparalleled resources they have a woeful record with economic prediction. Mostly because they fail to accept the complexity of the task they set themselves, which is billions of transactions interacting with billions of others resulting in a price mechanism so wildly complex that it is best left to do its work. That they have the resources available to produce some smoke and mirrors performance around their incompetence is even more of a concern.

Now, hold hands children and say after me, post hoc ergo propter hoc. (West Wing fans might recall an episode of the same name).