April 25, 2024 | Read Online

Byron Gilliam

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"If you give people tools, and they use their natural abilities and their curiosity, they will develop things in ways that will surprise you very much beyond what you might have expected."

- Bill Gates

Thursday Invasive Mailbag

Q: Are cryptocurrencies more dangerous than guns?

The government appears to think so, given yesterday morning's arrest of the founders of yet another crypto-mixing service, Samourai.

As with Tornando Cash, the US Department of Justice has accused Samourai's founders of money laundering, albeit indirectly — they haven't laundered any of their own money, but the code they developed allows money launderers to conceal the origin of crypto assets.

This line of thinking raises an obvious question: When will the DOJ accuse the CEOs of gun manufacturers of murder because their guns are used by murderers?

The answer, of course, is "never."

That's partly because The Protection of Lawful Commerce in Arms Act, passed into law in 2005, grants both the manufacturers and dealers of guns legal immunity to anything illegal that their customers may choose to do with those guns.

That law was predicated on the generous idea that the manufacturers and sellers of guns cannot foresee what people might do with them — they cannot be held "vicariously liable."

In the case of Samourai, however, the DOJ alleges that the founders both "intended" and knew that "a substantial portion of the funds that Samourai processed were criminal proceeds passed through Samourai for purposes of concealment."

It seems to me like you could say the same about gun manufacturers, but, you know, guns are popular in the US and crypto is not.

Q: Can we arrest Bill Gates then?

Gates is not subject to arrest, no, because when he developed Windows in 1985, there was no way he could foresee all of the shady things we use our computers for in 2024.

Unlike gun manufacturers, however, software developers haven't needed special legal protection because they have only rarely been sued for how the software they write is used — until now, with crypto developers.

Also unlike gun manufacturers, software developers won't be getting any special consideration from Congress.

As crypto enthusiasts, we should recognize that, in the US at least, cryptocurrency is both less popular than guns and less obviously useful than Windows.

Bill Gates was arrested in 1977, but that was only after being caught speeding in his new Porsche 911 for the third time in one day — twice by the same state trooper!

The big smile in his mug shot above is evidence of how little danger he felt he was in.

With crypto as unpopular and unvalued as it generally is, the founders of Samourai and Tornado Cash are probably feeling less at ease.

Q: Are memecoins good for Bitcoin?

Casey Rodarmor brought NFTs to Bitcoin (with Ordinals in January 2023) despite his stance that "the vast majority of NFTs are a stupid ugly, waste of time and space."

This week, he's brought memecoins to Bitcoin (with the Runes protocol) despite his opinion that memecoins "are even worse than NFTs."

He's bringing them, however, because he expects they will do more good than harm: "I think that moving those activities onto Bitcoin is a net positive."

That's because Bitcoin needs fees to incentivize miners to secure the network.

"The fee market needs to get jump started sooner or later," he reasons, and he'd rather see it be sooner, even if that means inviting "unsavory and harmful" things like "monkey jpegs and shitcoins" into heretofore high-minded Bitcoin.

It's hard to argue with that — since almost no one uses Bitcoin as money, the fees will have to come from something else and the only crypto thing that attracts substantial amounts of fee-paying users are NFTs and memecoins.

The early returns have been promising: Bitcoin miners have generated more in fees than they've lost in block rewards in the few days after block rewards were cut in half on Friday. That's entirely thanks to the introduction of memecoins via Runes.

People are skeptical about how sustainable this is, because Rodarmor's Runes protocol is a janky workaround to make memecoins work in a place they were never intended to — storing memecoins on unspent bitcoin transactions as Runes does feels a lot like smashing a square peg into a round hole.

But bitcoin's $1 trillion market capitalization represents a mountain of idle collateral sitting around doing nothing — it seems inevitable that developers will figure out how to give Bitcoiners things to do with their bitcoin.

That, however, may turn out to be the real problem — if Bitcoin NFTs and memecoins catch on, it might solve Bitcoin's security problem. But it might also change the ethos of Bitcoin in the process.

Bitcoin's value derives from the collective belief within its community that bitcoin is a store of value.

So what happens when the community is overrun with collectors collecting NFTs and degens degening memecoins?

Will the community still revere Bitcoin's foundational monetary policy if the community of people doing things on Bitcoin L2s outnumbers the people doing nothing (ie, HODLing) on the L1?

Rodarmor is introducing toxic (in his view) memecoins to solve Bitcoin's security issue, but that might be like introducing an invasive species like kudzu to the US or cane toads to Australia.

In both cases, the foreign species were introduced for some expected benefit, but wound up entirely overrunning their host.

Memecoins may prove similarly difficult to contain.

Like Bill Gates did for personal computers in the 1980s, Rodarmor is effectively introducing an operating system for the computer that is Bitcoin — and it's probably no more predictable what people will do with it than it was for Gates.

The unintended consequences of bringing NFTs, memecoins and L2s to Bitcoin may turn out to outweigh the security benefits.

Should Rodarmor be held responsible for what people do with his invention?

Not any more than Gates is for everything we now do with Windows.

But good luck explaining that to the hard-money mob if memecoins overrun Bitcoin like kudzu and cane toads have overrun the US and Australia.

― Byron Gilliam

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Blockworks Research @blockworksres

1/ Perp DEXs are still lagging far behind CEXs, but we're seeing strong efforts from new projects who are trying to close this gap.

@HyperliquidX stands out as one rapidly gaining market share, representing almost 30% of total volume across perpetual DEXs currently.

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BOOM: S&P 500 stocks with lower passive ownership have beaten the most passively owned stocks over varying time horizons = just one amazing finding/chart from @psarofagis new explosive study that disproves much of the Passive fearmongering out there.

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Quinn Thompson @qthomp

New all-time low made today in Bitcoin mining profitability.

But you won't hear about it. You'll only see the bull tweets cherry picking the one off high fee blocks around the halving. Remember to keep an open mind even if a piece of data or information against your bias :)