Censorship resistance in a volatile world

Matt Odell, Marty Bent

MO: Can we get a show of hands for people who have used bitcoin before?

MB: Sounds like we should do a primer. Bitcoin is beautiful. Two aspects. It's an asset and there's a network. The asset is extremely scarce in a world where we have bad monetary policies around the world. There will only ever be 21 million bitcoin. On the network side, it runs on a p2p distributed network that is extremely hard to censor as long as you're downloading the consensus rules and using it in a p2p fashion which enables you to be censorship resistant.

MO: That's a great explanation. Bitcoin is the best money we have ever had. As more people realize this, I expect the price to increase. Ultimately to me, I see bitcoin as freedom money not controlled by a corporation, government, not controlled by anybody. That is thet key value proposition that enables bitcoin to be the best money that has ever existed.

MO: Recently, we have a bunch of world events showing westerns about how sheltered Americans are. We're used to having the best money in the world for the last 60 or 70 years. We haven't really, maybe some Americans have faced financial discrimination, getting taken out of the financial system, but ultimately it's an experience that more people in developing countries have realized that when money goes bad just how bad it can get.

MB: We see money getting bad not just because of inflation, dilution of savings over time, but more recently the first four months of this year you had Canada deciding to unilaterally just freeze people's bank accounts because they did not like the truckers standing up for bodily autonomy. More recently there are problems in Ukraine we had the US and other western nations sanction Russian reserves held in foreign bank accounts proving to the rest of the world that these reserves are not really your reserves at a moment's notice they can be taken away from you. The first four months of this year have been very educational and staunchly highlighted the value proposition of bitcoin.

MB: What we can do here; I mentioned full nodes and consensus. What other parts of bitcoin allow it to be censorship resistant? I think mining is really misunderstood part of the industry. There's lots of FUD about the energy consumption of bitcoin. It uses a lot of energy and it will continue to do so, and even more, and I think some people don't like using energy. Importantly, bitcoin is permissionless. If you're able to produce electricity, you can produce hashes. As long as you can get those hashes from your solo mine to the network, then you're able to participate in the facilitation of block production which is pretty massive when you think about it. Anyone with a computer and electricity can contribute to the bitcoin network. We should fight against licensing of bitcoin miners, vigorously. The permissionless makes it more censorship resistant and makes it harder to shut everything down.

MO: Since Austin is being dominated by SXSW right now, it's an interesting dichotomy of proof-of-work permissionless bitcoin mining versus proof-of-stake validated altcoins. The main difference is that in a PoS system you have stakeholders holding stake in order to join that system you need their permission. They have to give part of their stake to you for you to join that network. But with bitcoin, anyone can plug in. Marty, while you're talking about mining, what about on-grid vs off-grid mining especially in terms of regulatory risks?

MB: Throughout bitcoin's history, and very recently, and instances where bitcoin miners ... mining algorithm is that you have a great connection, you pay for electricity off-grid and mine bitcoin with that grid electricity is scarce to a certain extent if capacity isn't built out. This is where you see multi-100MW facilities plugged into the grid and they pay for a chunk of power over time. They think they will get consistent returns; but history has showed us, like Canada, and in 2015-2016 Quebec had a bunch of miners coming in and using excess electricity on that hydropower plant and then the Canadian government didn't like miners and specifically raised taxes on bitcoin miners to make mining uneconomical in that location and the Canadian miners fleed. Venezuela is another interesting example where the Maduro regime used the grid to pinpoint where electricity was being pulled more aggressively, and then assumed that they were bitcoin miners. They were able to pinpoint the power consumption above normal, and they confiscated the bitcoin equipment so that they could mine for themselves. Kazakhstan in the last few weeks had an interesting use case where they had lots of excess electricity, they enticed miners to come in and use their power, they came into Kazakhstan and they were using it but then they raised taxes on the miners which made it uneconomical and then everyone last week they just started confiscating mining equipment after thrusting a licensing requirement. Throughout history, in Texas we have better private property rights. We have seen instances where on-grid bitcoin mining has been a weak spot if someone is so motivated to move against bitcoin miners. Off-grid is something I'm fascinated with at Cathedra, and on my own personal mining operations, the energy you're able to access that has no connection to the grid. You're not in a position of political risk where someone can say hey you're taking energy from people who desperately need it in the city, but no this is power that is produced on-site and has no ability to be delivered to the city anyway so what does it matter.... for the bitcoin network overall, forces the inward granular distribution of bitcoin hashrate. Off-grid in my opinion is much harder to execute, but it can provide low-cost mining and I think it provides the network with a more distributed more granularally distributed hashrate which is important to bitcoin because it makes it harder to attack the network. It's peace of mind that there are miners throughout the world using stranded gas. If the US government ever comes ot the multi-100MW facilities in Texas and turns off the electricity, then that would be bad, and I think bitcoin would be threatened by that to a certain extent. Understand the differences and understand why they are important. Welcome to my TED talk.

MO: Parker has done a great job of assembling a lineup today. Jammed packed with programming. There will be more mining discussions later today. It's important to touch on mining though. So you have the mining side; on the off-grid, literally all you need is just energy and some kind of internet connection. Because bitcoin is setup to be as robust as possible, those bandwidth requirements are as low as practically possible. There has been an active attempt by the bitcoin community to keep those requirements accessible and cheap so that you can just use a cellphone connection with low bandwidth and be able to have some kind of energy source, whether that's netgas or something else.

MO: On the other side of the censorship resistance equation, you have two things. One, bitcoin is extremely hard to change. Two, you have the ability to verify everything yourself, and interact with the network without a trusted third party. Anyone can run the bitcoin software themselves on their personal computer. Because it's low bandwidth, they can run it through Tor which is an enhanced privacy network running on top of the internet. Bitcoin is made to be robust. You can't run an ethereum node through tor. That software never auto-updates, you choose when and how it updates. If you can read code, you can read the code. If you don't, then you can have some trust in the groups of people auditing the code all the time. As long as you don't update that code, the rules you are following on the bitcoin network don't change. The way I look at using your own node, the role of nodes in the network, is a hard veto power. It's a personal veto power, but if the overwhelming economic majority of nodes of people using bitcoin don't update, then bitcoin won't change. In practice, it's nearly impossible to change bitcoin, like the 21 million cap. Also, you need a bitcoin node to interact with the bitcoin network. If you're not using a bitcoin node, then you're trusting someone else to run the software and the rules and trusting them with your privacy. It's imperative that we keep running nodes being as cheap as possible so that we can have people around the world interacting with the bitcoin network without needing to go through an intermediary.

MB: it's important to keep the total amount of data on the chain stateless so that people who have bad internet can still access the network. I think maybe the last part of this discussion we can get into examples of bitcoin censorship resistance shining and the network proving itself to be robust. We talked about mining, but I forgot to mention China which kicked out all the miners last year. Just a little event. What happened last year with the China mining ban was that, it may have been the biggest stress test that the network ever experienced. It was a 50-60% hash drop in a matter of weeks. Miners had been outlawed, and htey were moving it around the world to plug it back in. In the meantime, we had blocks slowing down, hashrate fell, and the network acted as it was designed. Every 2016 blocks, there was a difficulty adjustment and figuring out how much the difficulty needs to be adjusted based on number of blocks and their timing over the last 2016 blocks. We had 5 difficulty adjustments in a row, it hit a bottom, and then blocks were back to coming in at 10 minutes per average. It showed how resilient the bitcoin network is. It can have 50% of the computing power fall off in a matter of weeks, and still produce blocks and validate p2p digital transactions which is pretty crazy to think about. Another thing that this event has highlighted is how just capitalistic the industry is. Say what you will about the CCP, but it's hard to argue that chinese bitcoin miners aren't the most capitalistic people in the world. They were able to get their machines out, ship their machines around the world and plug them in again, and they had a high economic incentive to do this. The longer you unplug your miners, the less sats you're stacking. They had this strong economic incentive to find electricity and plug them in as quickly as possible. There's this pure social incentive to protect the network and make it censorship resistant.

MO: Another thing that me and Marty.. and a lot of us... we tend to go deep down the rabbithole. We forget about the little beauties of bitcoin that are, like in the beginning, just really highlight how novel of a money system this is. Digital money. This factors into censorship resistance. You can generate a bitcoin private key, a bitcoin address associated with that private key, all by yourself, offline, you never have to connect to the internet. You don't have to ask anyone for an account. You can just make a private key offline, and it doesn't have to ever touch the internet. You can receive bitcoin offline-- you generate an address, I bury the key, and Marty can send me bitcoin every week for the next 5 years. I mean, he's not going to, but he should.

MO: Also, bitcoin is open source software. I will be speaking with Andrew Poelstra later about open source. Bitcoin Core is the main software running the bitcoin network, and it's not owned by anyone. It's freely licensed. This is inofrmation, it's text. It is viral and will live longer than any of us. The people working on it today could die, and othres could get join and take over from where they left off. The viral nature of open source software makes bitcoin extremely robust.

MB: Ralph Merkle described bitcoin as a living organism contracted out to humans to keep it alive. Another topic is bitcoin fees attached to bitcoin transactions. Economic incentive is attaching a fee to your transaction. If there are a number of miners refusing to put your transaction in a block because they don't like the taint, then you can increase the fee attached to the transaction and there's likely going to be a miner out there that wants to make more money than the other miners by including your higher fee transaction in a block. There is an economic incentive in the fee market that increases the censorship resistance of the network.

MO: By a show of hands, who uses their own bitcoin node? Damn. This was supposed to be for beginners. I was going to say, who owns a hardware wallet? Okay, well if you own a hardware wallet and don't use your own bitcoin node. Download spectra wallet, follow the steps, it includes Bitcoin Core and then you can interact directly between Bitcoin Core and your hardware wallet. Or use Umbrel.

MB: It's really not that hard. People make it seem like it's much harder than it is. Just hit download and follow the instructions. The other thing is that a lot of people think that bitcoin yes it does demand extreme responsibility and extreme ownership, but at the end of the day it's easy to download apps and start creating public-private key pairs and lots of software out there can connect that to your full node that allows you to validate.

MO: Final thoughts?

MB: I think it's beautiful what we have here. It's incredible to see everyone here at the Bitcoin Commons having a full day track on bitcoin. I think what we're working on is one of the most important projects on the planet right now and maybe ever in human history. It's very special to be a part of this.

MO: I have a few final thoughts as well. Bitcoin is about personal responsibility. Everyone needs to take personal responsibility for their actions. Thank you Parker and Unchained for putting this together.

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