US Banks Can Custody Bitcoin | Coinbase CEO Voices Regrets | Utreexo

by birtanpublished on August 4, 2020

Wasabi wallet unfairly private what's up everyone i'm ben with the btc sessions and this is your daily session huddle that bitcoin before we dive in of course i want to

Give a shout out to sponsors of the show leddenio of course you guys have heard of these guys before i've been working with them with for well over a year and using their

Services as well um the first thing i ever used of theirs is their bitcoin backed loans this is where you can use your bitcoin as collateral to get a canadian or us dollar loan

So in my instance i was in a pinch needed some dollars and i didn't want to sell my bitcoin because that's a taxable event and i was worried i'd have to buy back at a higher price point

So i was able to deposit my bitcoin get a dollar deposit alone to my bank account within 24 hours and once i paid that back i got back all of the bitcoin which i deposited

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88 percent and then they've got their bitcoin or their rather their b2x offering which uses the same loan mechanism and instantly buys more bitcoin which effectively doubles your bitcoin

On the spot um i've tried out all these services i've had a great time with them um nothing but good things to say if you want to check them out there's a link in the show notes down below and if you

Use that link and opt to get a loan well they will give you 50 bucks worth of bitcoin for free so do check them out and secondly if you want to help out the show in another way um nordvpn is something that i use on my

Computer and my phone constantly what it does is it hides your ip address it encrypts your browsing data and it allows you to access content that may not be available in

Your current locale uh so if you're doing things like online banking or or dealing with sensitive data and you're using public wi-fi networks then a vpn is an

Absolute must and furthermore if you're traveling or you just live in a country where you can't access all the content that you want maybe it's geo-blocked well you can simply just change your location

Within the app and access that content seamlessly so if you want to check them out there's a link in the show notes below if you click that link you'll get 70 percent off their top tier plan

Plus a month free it ends up being about 349 a month so pretty good deal i would say um and with that let's dive into the news uh so this dropped on forbes recently

Uh there was a recent announcement from um one of the major us bank regulators that permits cryptocurrency custody so i'll read a little bit from the article here

Uh the relationships between banks and cryptocurrency in the united states has been as complicated as the concept of money itself but today's interpretive letter from the office

Of the comptroller of the currency or the occ may change all of that the occ serves to charter regulate and supervise national banks the letter clarifies that national banks

Have the authority to provide fiat bank accounts and cryptocurrency custodial services to cryptocurrency businesses this clarification from the occ may open the doors for larger financial

Institutions to become more comfortable providing traditional bank accounts to cryptocurrency companies as well as actually provide custodial services for customers private keys in this

Letter the occ acknowledged the difference between custodial services for fiat money versus cryptocurrency noting that because digital currencies exist only on the blockchain or

Distributed ledger there is no physical possession of the instrument therefore a bank holding digital currencies on behalf of a customer will take possession of the cryptographic

Access keys to that unit of cryptocurrency from safe deposit boxes to virtual vaults we must ensure banks can meet the financial needs of their customers today

Said acting comptroller of the currency brian p brooks this opinion clarifies that banks can continue satisfying their customers needs for safeguarding their most valuable assets

Which today for tens of millions of americans includes cryptocurrency so very interesting to see this i guess capitulation of the incumbents the the traditional

Banking system at first they were very dismissive if they acknowledged bitcoin at all over time there were a lot of uh bits of information and opinions put out that either bitcoin

Was uh just a straight-up scam as famously noted by ceo of jp morgan jamie dimon um or used for illicit activities nothing more than drug peddlers money um

Terrorist financing all of those things have been thrown at bitcoin but as as more and more data comes out it's becoming increasingly clear that those instances are less and less of the main use case of bitcoin and are

Far more often enacted with the us dollar in cash furthermore you have banks like jp morgan now baking and banking some of the largest

Bitcoin and cryptocurrency firms like gemini and coinbase um so i think we're kind of seeing that admission of hey this is something legitimate people want to use it

And i think banks are kind of trying to say we're still relevant we're still here and we can custody this for you now for those of you that are have been around the block for a

While you're likely thinking why the hell would i ever put my bitcoin in a bank and absolutely yes i agree centralized entities holding large numbers of bitcoin for people and their

Private keys become honey pots and as an aggregate it's much more secure to have people hold their own private keys all over the place now the biggest problem with that of

Course is those that are not technically inclined given the current state of bitcoin and how it works it can be difficult for some people to do so and they are probably more inclined to make mistakes

On their own than through a custodian however over time i don't believe that will be the case um and there's also the risk of the fact that

You can't just loan into existence more bitcoin and create more currency out of nothing so in a world where banks have basically been given a free pass to screw around with the money and

Their their fog ups are essentially forgiven by a central bank by issuing more currency in a world where we're used to being babysat these major mistakes of banks down the road may have real implications

Given that there's no bailout when it comes to bitcoin so um well i see this as a general positive thing because it's kind of an acceptance that bitcoin is

Here it's not going away and people want to use it and and everybody is now appearing to want to be involved uh the systemic risk of banks holding large amounts of bitcoin

Is very real and very much there so we'll see how this plays out now moving on uh article i did not expect to see from forbes the title of this article is seven reasons to consider investing

Your stimulus check in bitcoin now i i think maybe i'll start off with my thoughts on this before i dive in because i don't want uh screams of irresponsibility from some

People um first off okay if you are on the receiving end of a stimulus check the odds are that you probably really need that money for your day-to-day expenses like food

And housing and just like keeping clothes on your back and making sure your your children are fed and whatever else you need fuel to get around you you probably have some

Very important things that money needs to be put towards now whether or not people will utilize the stimulus checks in that way is a whole other story but i'm just

Saying that there's probably some very very important things that those checks are needed for if you are an individual that is out of work that said um i do see the points

Laid out here and we'll go through them as to why bitcoin is important in a general sense i just think that if you're out of work and you get a stem stimulus check banking

On the wild uh fluctuations of the the price of a speculative asset um to guarantee your purchasing power especially in the short term as these checks are meant to kind of cover people in the short term

May not be your best option sure if if you have a steady job and you're not worried and this is just like an extra 1200 in your pocket by all means do whatever you please with it

But if if you're already hurting uh with everything that's going on with the economy and you're one of the the 11 percent uh in the unemployment lines this is probably not your best option

And there's more pertinent things that you should be focusing on anyways let's dive into this article so i'll read a little bit of the preamble here it says according to reports both democrat and republican parties are now

In agreement the new relief package will include another one-time stimulus stimulus check of twelve hundred dollars per person and five hundred dollars per dependent for all individuals earning

75 000 or less there have been other accounts that indicate the income requirement could be as low as forty thousand dollars however and then unemployment uh remains at over

11 percent and many of the states are considering rolling back their reopening plans most of us are looking forward to this welcome relief although many recipients will rush to

Deposit their checks into savings for a rainy day here are the reasons why you should consider investing your 1200 into bitcoin instead and this is where i think

That this article right out the gate falls off the rails here uh because it it does indeed encourage some people that may not have the disposable income to do so

Uh to dump all of this into bitcoin at least that appears to be the intent here anyways let's go through the points number one inflation they talk about how uh the balance sheet is continuing to

Rise by approximately three trillion since the beginning of the pandemic in march which is 143 percent of the gdp from 2019 um so there are obviously risks

Of inflation i would pause it even more so than the 2008 bailouts not just because of the amount of money but because of the actual stimulus checks themselves

Whereas the qe back in the financial crisis of 2008 was pumped directly into banks which subsequently bought back their own shares and pumped up equities we're seeing that now as well we're

Obviously seeing i i believe the bank the the share buybacks are not allowed at this point uh moving forward but we are seeing equities being pumped

Through the roof through these uh i guess money injections or these capital injections into the system however we're also seeing money drop into the laps of regular

Everyday spenders that did not previously have it now some people are out of work obviously so that's going to have a an effect but when you just drop billions and

Billions of dollars into people's laps that does indeed increase the money supply of day-to-day spenders and so that in the long term may have an actual impact on inflation

Now uh they also cite it as a hedge against wall street because it's experiencing unprecedented and unexpected booms during a crisis again all these capital injections

However it does make a good point the value of the american stock market today is approximately 35 trillion while the us gdp has decreased below 21 trillion so the the stock market is

Worth it's getting close to double the amount of the us gdp um and many argue that this is perf a perfect recipe for a crash bitcoin could be a hedge against that

Uh however in in extreme cases as we saw with the panic in march um at least in the short term bitcoin can echo the global markets in a panic where everybody needs cash everybody needs

Liquidity to meet their um to to meet all of their obligations they will sell every saleable good out there so roll the dice with that one um price appreciation they say these

They talk about how uh an investment in bitcoin five years ago yielded a thirty three hundred percent return um even from the beginning of 2020 at 38 percent return so

So forth um yes historically bitcoin has gone up but it is very volatile and in the short term if you have money and you need you're gonna need that money in the short term

There's no guarantee that it will go up at this point in time unless you have an extended kind of like runway and it's long-term disposable money a stimulus check meant to keep you

Afloat in a time of crisis may not be the best thing to park in this unless you are really secure in your job i will continue to say that um again and this is the point that really

Bothered me she goes on to say institutional investors are doing it and she quotes paul tudor jones he says he his quote said at the end of the day the best profit maximizing strategy is to own the fastest horse just the

Best performer and not get wed to an intellectual side that might leave you weeping the performance dust because you thought you were smarter than the market if i am

Forced to forecast my best uh my best is it will be bitcoin and he's talking about how he's starting to allocate capital into bitcoin however what's not noted here he's and they're

Talking about hedge funds in general and other institutional pauldron jones yes is he buying bitcoin absolutely he's putting like one to two percent of all his capital in it he's not dumping his lifeline meant to keep him afloat

During a global crisis 100 into a volatile asset you need to have that separation there yeah like worst case scenario if bitcoin gets cut in half or heaven forbid

Drops to absolute zero he loses one to two percent of his net worth he doesn't lose his food on the dinner table um so keep that in mind and and it's i feel it's relatively irresponsible

That they failed to mention his allocation in this institutional and while they're doing it so drop your stimulus check here okay uh another decent point they talk about

Being your own bank and how you can't always trust the banks they reference the currency crisis in lebanon um you know there's there's plenty of other banking crises

That they could reference here um and they talk about how like in the end you can't always trust a bank uh of course there is the fdic insurance available to us depositors that only goes up to 200 000

However if you're um trying to figure out what to do with the stimul stimulus check odds are uh you know you're up to 200 000 is covered odds are if you have 200 grand in the

Bank you're not dealing with stimulus check in the first place and whatever you do have deposited will be insured depending on how much you did you trust the fdic but aside from the point sure you could

Probably argue in some way shape or form that a hedge against the current financial system could be good to have but again this is a short-term outlook for a stimulus check

Um they talk about bitcoin being digital gold again a valid point as to why bitcoin is valuable but maybe not a valid point as to where to alike

Allocate your stimulus check and then they talk about the ease of use and how over time uh it's it's becoming more useful uh cross-border payments are are still pretty efficient when it comes to um

The cost of sending a bitcoin transaction to somebody versus something like western union so and so forth yeah i mean all valid claims of why bitcoin is important on a on a kind of over

Arcing level but man i don't know i just i as as bullish as i am on bitcoin as important and and paradigm shifting as i believe it to be if you are struggling if you're out of a

Job and your lifeline is this stimulus check that's what's going to get you through the next couple of months for god's sake don't speculate with it use it for the bare

Essentials of what you need to get by um i guess that's that i'm a little astounded at this article and again like i'm hella bullish on bitcoin but holy um okay moving on uh

The ceo of coinbase was interviewed on the what bitcoin did podcast by peter mccormick and he talks about the acquisition of neutrino um the technology that they're using in

Their back end and uh they uh discuss acquiring a number of people from hacker team okay and hacker team what they did is they were out of italy

And they actually sold tracking um i guess it would be what would it be like spying and surveillance applications to to dictorial dictatorial regimes am i saying that

Right anyways they sold stuff to there we go to authoritarian regimes like saudi arabia sudan and venezuela um and so in interviewing uh brian armstrong it came out that

They basically he said that they messed up in this acquisition so his his quote he said we definitely made a mistake most of our diligence was around the technology itself what we failed to do

Was the due diligence more around our values and our culture this is an instance where we messed up we should have done more diligence since that happened we revamped our diligence process

To include these kinds of reputational checks in the process there's really no excuse i can give you now in the same vein though uh there are plenty of other reasons to

Hate on brian armstrong and the actions of coinbase this was just one of them it's good that he recognizes that as a negative thing but in the same in the same breath he's talking about how they

Are selling their uh surveillance software uh to the irs and the dea one could argue also maybe not regimes but entities which um infringe

Upon uh people's financial sovereignty we will say that uh there there are very real points to why people may disagree with the operations of the irs and the dea um so anyways besides that fact they they

Start talking about um their selling of their technology to the irs and the dea and and they he basically said um uh one of the unfortunate realities of the world

Like we didn't create it is that the aml kind of regulations are increasing blockchain analytics companies chain analysis and others are essentially selling data that is publicly available so that's

What coinbase analytics is doing too basically saying like well they're doing it so i guess we'll do it and he also cited that they're they're looking to just make back some of the money that they spent in-house

Developing this stuff um i kind of i kind of don't buy that i kind of think that this is more of a play for them to to buddy up with the regulators

So that they can also get approval to list as a public company on on a stock exchange which i wouldn't be surprised if they got approval to do so but again there's there's just so many things that coinbase has done over time

And this is just one of them again good to recognize for them to recognize that it was a bad move but their actions don't reflect their regret here

Uh i would say um and if you're curious more about why i have a problem with coinbase i did make a video last year when there was a hashtag trending called uh hashtag delete

Coinbase and it was around the time they acquired neutrino and had the guys from hacking team uh but i made like a 30 minute descriptor of all the that they've done

Over the past years and why bitcoiners tend to have a bad taste of their mouth when it comes to coinbase anyways be sure to check that out you can find it easily on youtube just by searching

Delete coinbase it's the first thing that pops up uh moving on uh utreexo this is uh a new release i suppose it's it's a working uh release anyways um this was written by i'm not sure how

To say his name tag uh drija hopefully i said that right i probably didn't though i apologize anyways uh this is a new release that um they're they're attempting to get into the bitcoin d or the btcd

Software uh that allows more lightweight nodes almost as efficient or getting close to some of the efficiencies that you get from an sbv wallet which is not running its own node

That's much more lightweight so i'll just read a little bit here it says existing lightweight bitcoin software clients often use spv or simplified payment verification while sbv allows some level of

Verification it is susceptible to attacks that fully validating nodes aren't utreexo fully validates while getting some of the low footprint benefits of

Spv nodes that spv nodes enjoy utreexo replaces the utxo set of bitcoin which is the database that keeps track of who owns which coins

With a novel cryptographical cryptographic accumulator for more info about the design there's a paper on it and there's an explainer by the u3xo developer as well

In linked within this article um now one thing i wanted to note on here it says the current utreexo cold code is able to connect to a server download the blockchain and verify all the transactions and signatures and

Do so using hardly any disk space instead of a multi-gigabyte database utraxo stores a single file of a few hundred bytes which represents the state of the

Blockchain the client still needs to download the full-size blockchain uh in fact even more downloading is required but it doesn't need to store it so it basically parses through all of

The data checks the validity of it but in the end doesn't store it it sounds to me a little bit like a pruned node um but even less than that because i

Believe you don't need to even fully have the the string of data connected to your particular stored coins or rather the the coins that are pertinent to your um

Your your addresses and your wallet so anyways very interesting to see uh i again the reason they're not submitting this to be put into something like bitcoin core the

Reference implementation of bitcoin is because it's such a large change so they're gonna work to get it into an alternative implementation of bitcoin first um and then see from there but

Regardless it could be an option for people that want to run a node down the road and don't i just don't have the storage space i i think that's excellent and the more solutions like this the better

So uh good job for the guys at utreexo and lastly i just wanted to point to a new bitzy academy article from uh from the wonderful writers there thank you emmy for putting this together uh this is on orphan blocks

So if you've ever heard the phrase orphan block but you don't understand what that is this is a pretty good explainer for it now they go by a few other names orphan stale extinct blocks depending on who you're

Talking to and the definition has kind of shifted over time but basically it's when there's a block that is is essentially valid and mined uh that is no longer part of the main chain of bitcoin

Um in some instances if two blocks are mined very quickly in succession but don't propagate to the network in order you may get a block that appears to be valid and mined

But there's a missing gap in between there and so it gets stored and then eventually when other participants in the network fill in that gap then it would be valid

There's also instances of two blocks being mined simultaneously that are both valid at for a time but then eventually miners will have to build on top of one of them so they may have slightly differing

Uh transactions and then most of them will probably be the same but one will be built atop and one will just essentially be orphaned will no longer be in use it was technically valid at the time and

So was the other one uh but eventually a miner will say okay i've got the next block and i guess i'm going to build upon this one instead of this one so you get these blocks of transactions that were

Technically mined but in the end are no longer part of the longest valid chain and there is no payout page to the miner that actually mined the block of transactions so

Anyways very interesting read i encourage you to take a peek through it it's got some excellent explanations so if you've ever been con confused about that term or just haven't really heard it

Definitely worth a read and you can level up your bitcoin knowledge with that i'm gonna wrap up you guys thank you so much for watching and or listening of course if you're here on youtube do hit

Like subscribe and share all of those things do really help so please do them uh but if you want to check me out on other platforms i stream live to twitter to facebook live to twitch that's d live a variety of

Them be sure to go just search btc sessions on any of them um outside of that i am audio only on the podcast on any platform that you like spotify google apple all of those

Be sure to search me and follow me there uh also very helpful and other than that if you want to help the show in another way you can hit the sponsors that i mentioned down below that was ledden as well as the affiliate

For nordvpn if you really liked what you saw you can always drop me a bitcoin lightning network tip at my tip and dot me page that is tippin t-i-p-p-i-n-dot

Me slash at btc sessions and with that i'm out have yourselves a wonderful evening a wonderful weekend wherever you are and i will see you next time for your daily session

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