Beyond Overpriced JPEGs

“The nature of Bitcoin is such that once version 0.1 was released, the core design was set in stone for the rest of its lifetime… I don’t believe a second, compatible implementation of Bitcoin will ever be a good idea.”

The creator of Bitcoin, known by the pseudonym Satoshi Nakamoto, wrote these words in a forum post on June 17, 2010, and they set the tone for the protocol’s slow evolution in the 13 years since. Bitcoin’s deliberate approach to change and innovation is rooted in a commitment to security, stability and decentralization. Developers and thought leaders in the Bitcoin community have emphasized the importance of maintaining a slow and careful pace when it comes to introducing changes – avoiding unintended consequences and ensuring that any modifications to the protocol align with the its founding principles.

Thus it created quite a stir in the crypto community when developer Casey Rodarmor – whose career includes time at Google, as well as contributing to the Bitcoin protocol – introduced in January 2023 the Ordinals protocol and the hottest new NFT project was built on Bitcoin. Non-fungible tokens are a major focus in the blockchain world, but have been primarily associated with Ethereum and Solana. While NFTs on Bitcoin aren’t a new concept, the Ordinals innovation lies in enabling the storage of immutable information on the Bitcoin blockchain.

Ordinal NFTs combine two essential components: ordinals and inscriptions. The term “ordinal” refers to a piece of bitcoin inscribed with rich data, such as text or images, residing on the blockchain. Essentially, ordinals serve as the serial numbers of each satoshi, or “sat” for short, the smallest denomination of a Bitcoin (one hundred millionth). With the Ordinal Protocol, users can identify, track, transfer, and inscribe arbitrary content on each individual sats. The inscriptions, comprising images, videos, audio, text, or applications, define the content of Bitcoin Ordinal NFTs.

Bitcoin Ordinals require no additional layers, making them entirely Bitcoin-native and backward compatible with the network. Rodarmor thus refers to Bitcoin Ordinal NFTs as digital artifacts. “They are permissionless, uncensorable, and immutable,” he wrote in the Ordinal Theory Handbook. “In essence, ordinal inscriptions allow Bitcoin to store digital artifacts that are as valuable as physical artifacts, and their potential uses are yet to be fully realized.”

Each satoshi in Bitcoin Ordinals receives a sequentially ordered number, ranging from 0 to 2,100,000,000,000,000, based on the time of mining and Bitcoin’s maximum supply of 21 million tokens. This unique ordinal number provides a distinctive identity to every sat on the Bitcoin blockchain. To create an ordinal NFT, users initiate a transaction for an individual satoshi, attaching desired metadata as inscriptions, such as text, images, or videos.

Bitcoin Ordinals maintain the fungibility nature of Bitcoin, as the Bitcoin protocol itself does not formally recognize them. However, a dedicated community of ordinal enthusiasts has collectively developed the system and tools to honor it – which revolve around the perceived value of different aspects of their rarity. As Rodarmor described it in the Handbook:

Humans are collectors, and since satoshis can now be tracked and transferred, people will naturally want to collect them. Ordinal theorists can decide for themselves which sats are rare and desirable, but there are some hints… Bitcoin has periodic events, some frequent, some more uncommon, and these naturally lend themselves to a system of rarity.

And he notes four of these periodic events: blocks (a new one is mined approximately every 10 minutes), difficulty adjustments (the protocol factors in the current hashrate, or computing power, every 2016 blocks and makes an adjustment to maintain the 10-minute target for block production), halvings (every 210,000 blocks, approximately four years, the amount of bitcoins minted with each block is cut in half) and cycles (every six halvings, the halving and difficulty adjustment coincide).

In addition to energizing NFT enthusiasts, the Ordinals project has triggered a predictable divide within the Bitcoin community. Some view it as an innovative expansion of the network’s capabilities, while others see it as a threat to the core principles of Bitcoin. The controversy is rooted in differing perceptions of Bitcoin’s purpose, with some viewing it as a means of protecting savings and fighting inflation, and others interpreting it as a political and social statement, as well. Periods of heavy Ordinals activity have also resulted in higher network fees, prompting mixed reactions within the Bitcoin community. While some argue that this is a positive development incentivizing miners, others express concern about potential impacts on the stability and user-friendliness of the Bitcoin network.

As the enthusiasm for Bitcoin Ordinals has grown, a number of projects have formed to develop various aspects. Taproot Wizards aims to reshape Bitcoin’s perception by injecting innovation into the blockchain. Co-founders Udi Wertheimer and Eric Wall announced November 16th that the project had raised $7.5 million in a funding round led by Standard Crypto to rebuild Bitcoin’s “wizard village,” suggesting a desire to compete with Ethereum and Solana. Wertheimer emphasized their goal of bringing back the culture of building on Bitcoin and making it magical again, stating, “We care a lot about Ordinals and Taproot Wizards, but our mission is bigger than that; we want to bring innovation back to Bitcoin.”

Taproot Wizards introduces a limited mint of 2,121 wizards, each paying homage to the total supply of Bitcoin: 21 million. Currently, 99.3% of the total supply has been inscribed, with less than 1% (20 Taproot Wizards’ Ordinals) distributed. Wertheimer emphasized their strategic approach to releases, aiming to find individuals on a mission rather than those solely focused on JPEGs. The distribution of Ordinals has been reserved for active community members who participated in the “wizard school” or demonstrated significant dedication, such as getting tattoos or sending videos of themselves showering in wizard outfits to claim one.

On the creative end of the community, one of several new projects from the Thesis venture production studio, Etcher serves as a launchpad for creators, enabling them to introduce their work in a distinctive and authentic manner and cultivate a close-knit community around their work. Referring to itself as “Shopify for Ordinals,” Etcher aims to move beyond the era of static JPEGs by focusing on immersive, generative, and interactive art experiences. It merges art and technology, leveraging the security and distribution strengths of Bitcoin. Etcher enables creators to concentrate on their art while it manages the technical aspects.

Crypto Start-up Profile: Superfluid

Ever wonder why our paychecks typically come twice a month or bi-weekly, in some cases weekly? In the 19th century it was common for workers to be paid monthly, at the end of a season – or in the case of seamen, at the end of a voyage when profits were divided. Labor historian Nelson Lichtenstein traces the modern pay cycle to World War II, when the U.S. Congress passed the Revenue Act of 1942 to increase revenue to fund the war effort and introduce the country’s first tax withholding system.

Given the complexities of calculating pay rates, tax, healthcare and other deductions, as well as managing a company’s human resources and payroll functions, it’s not surprising that most employers balance that effort with their employees’ need for prompt payment (if you think about it, waiting for a paycheck is effectively granting your employer a 0%-interest loan).

But in a fast moving, technology-intensive Web3 context, this all seems quite anachronistic. And startups like Superfluid are showing that it is, allowing payments that flow continuously across the economy at the speed of the internet. Superfluid’s asset streaming protocol enables DAOs and crypto-native businesses to stream not only salaries and other payments but also subscriptions, token vesting and rewards to recipients every second.

“Superfluid fundamentally changes the velocity of money and gives everyone the ability to automate money over time, allowing us to rebuild various financial relationships in more people-empowering ways,” Vijay Michalik, Head of Product at Superfluid, told Modern Consensus. “It’s a novel mechanism that fundamentally can’t be built outside of Web3.”

Payroll on autopilot

Superfluid simplifies and automates payroll management, reducing the cognitive effort traditionally associated with monthly administrative tasks. In just a few steps, users can set up autopilot payroll, ensuring a continuous stream of tokens to contributors without the need for constant manual interventions. An entire year’s payroll can be automated in a matter of minutes, with the ability to update it at any time. And with the ability to pay multiple wallets in a single transaction, Superfluid minimizes gas fees, making it a cost-effective solution.

Superfluid does this by employing what it calls Constant Flow Agreements (CFAs), which are smart contracts defining the terms of the payment stream. CFAs specify the rate at which tokens flow from one party to another, and the entire system operates in terms of “stream units,” representing a quantified flow of tokens per second. These streaming payments occur in real-time, eliminating the need for recipients to wait for specific intervals, a departure from traditional periodic settlement methods. Superfluid’s design also offers flexibility, allowing developers to create streams that are composable, so users can split and forward incoming streams effectively transferring funds as they receive them allowing recipients to compound in real-time, without having to wait until the end of the month

Streaming subscription payments

Superfluid Subscriptions offer a range of benefits to Web3 companies seeking a streamlined and efficient solution for crypto-native checkouts and automated recurring transactions. This free, open-source, and self-hosted software toolkit provides a seamless Web3 subscription experience by utilizing programmable money streams. With Superfluid Subscriptions, customer payments are effortlessly processed in a single transaction, eliminating the need for repetitive gas fees and ensuring a disruption-free payment flow.

Noteworthy is the toolkit’s flexibility and cost-effectiveness. Being open-source and non-custodial, Superfluid Subscriptions incur zero fees, allowing companies to implement a highly customizable Web3 subscriptions checkout tailored to their brand. The toolkit supports any ERC-20 token and is compatible across various networks, including Polygon, Optimism, Arbitrum, Avalanche, BNB Chain, Gnosis Chain, and Celo. This versatility enables companies to accept payments in their preferred stablecoin or utility token, with ongoing plans to expand to more networks in the future.

Custom vesting schedules

Superfluid provides projects with the capability to effortlessly establish and share customized vesting schedules through a user-friendly interface. One of the distinctive features of Superfluid’s streamlined vesting mechanism is its liquid nature, ensuring that tokens are accessible in the sender’s wallet before the vesting process commences. This liquidity affords users flexibility, allowing them to generate yield in decentralized finance (DeFi) or utilize the tokens for various purposes until they undergo the vesting process.

Superfluid’s Vesting solution goes beyond simplicity and liquidity; it is designed to seamlessly integrate with the Web3 ecosystem. The composable nature of Superfluid’s vesting enables the automatic transfer of vested tokens to DeFi products, facilitating activities such as liquidity provision, staking, or yield farming. This integration adds a layer of flexibility to token management, aligning Superfluid’s vesting solution with the broader landscape of decentralized applications and protocols in the Web3 space.

“Airstreaming” token airdrops

Superfluid’s Airstreams feature offers advantages in mitigating the inherent risks associated with traditional airdrops, particularly those reliant on snapshots. By opting for a streaming approach over time, Airstreams effectively reduce the likelihood of bulk sales triggering sudden price drops, providing a more stable and controlled distribution of tokens. This approach minimizes the volatility typically associated with snapshot-based airdrops in traditional settings.

Airstreams contribute to sustained user engagement by providing organizations with a tool to design incentives that foster continuous user participation and activation. This capability allows organizations to tailor rewards for both present and future user behaviors, thereby promoting ongoing contributions to the success of their products. The flexibility of Airstreams is underscored by its configurable and adaptable rules, empowering organizations to align the logic of their Airstreams with the evolving needs of their products. This includes the ability to reward various behaviors over time and maintain the airdrop as an open-ended initiative, enhancing its effectiveness in meeting the dynamic requirements of the organization and its user community.

Judge Keeps CZ in U.S. Pending Review

As we noted two days ago in Will Congress Finally Do Its Job?, the operator of the world’s largest cryptocurrency exchange, Binance,  pleaded guilty and agreed to pay $4.3 billion to resolve the Justice Department’s investigation into violations related to the Bank Secrecy Act, failure to register as a money transmitting business, and the International Emergency Economic Powers Act. Additionally, Binance’s founder and CEO, Changpeng “CZ” Zhao also pleaded guilty to failing to maintain an effective anti-money laundering (AML) program, resigned as CEO of Binance and personally paid a $50 million fine to the Commodity Futures Trade Commission (CFTC) for “intentionally sabotaging and subverting Binance’s superficial compliance controls, including controls designed to restrict the participation of U.S. persons”.

As part of that agreement, Magistrate Judge Brian A. Tsuchida tentatively permitted CZ to return to the United Arab Emirates pending sentencing based on his $175 million appearance bond (though as a practical matter, it was secured by two guarantors with cash pledges totalling $350,000 plus a third guarantor with real property located in Los Angeles valued at more than $5 million, while CZ wired $15 million, which is being held in his Seattle-based attorney’s trust account). However, Judge Tsuchida gave the government until 5:00 p.m. today to seek review of the release order.

Prosecutors filed on November 24 a reply arguing that CZ is a flight risk and should thus remain in the U.S. until sentencing on February 23, 2024:

In the vast majority of cases, a multi-billionaire defendant who has pleaded guilty, faces possible prison time, and lives in a country that does not extradite its citizens to the United States would be detained. But this is an unusual case. Changpeng Zhao has voluntarily appeared in the U.S. to face justice. At the bond hearing, the United States took that into account and made an exceptional recommendation: that Mr. Zhao be allowed to remain free until his sentencing. The United States did not make that recommendation because it believed that Mr. Zhao presented no flight risk. Rather, the United States believed that Mr. Zhao presented a flight risk that could be managed by requiring him to remain in the U.S. and preventing him from returning to the safe haven of the UAE until sentencing. This is a reasonable restriction given that, if Mr. Zhao is allowed to return to the UAE and then fails to appear, he may never answer for his crime.

They added that CZ “has no ties to the U.S.”, given that his family lives in the UAE and is wealth is held there and elsewhere outside the U.S. and that since he obtained UAE citizenship by invitation “should Mr. Zhao decide not to return to the United States to face an uncertain sentence, there is no reason to believe that the UAE would hand him over”.

Today, Judge Richard A. Jones of the U.S. District Court for the Western District of Washington issued a stay, writing, “Having considered the briefing, and the files and pleadings herein, the Court determines it will review the decision of Magistrate Judge Brian A. Tsuchida permitting Defendant to return to the United Arab Emirates pending sentencing pursuant to the conditions of his appearance bond.”

The defense motion filed on November 24 made the follow points in arguing for permitting CZ to travel to the UAE and return for the February sentencing:

  • “Judge Tsuchida found that Mr. Zhao presents no risk of flight, even while residing in the UAE”
  • “Agreeing to pay collectively billions of dollars to multiple U.S. government agencies, his intent is to resolve this case and it would be illogical to take all of these material steps without the intent to appear for sentencing”
  • Having founded the world’s largest crypto platform by volume “makes evasion of the U.S. justice system impossible. He has pleaded guilty to a crime which—though serious, as Mr. Zhao has acknowledged—has nothing to do with violence or fraud; there are no victims and there will be no restitution”

But that last point is disputed by the Securities Exchange Commission, which filed 13 charges against Binance and CZ in June, stating:

Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law. As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform, the manipulative trading of its affiliated market maker, and even where and with whom investor funds and crypto assets were custodied. They attempted to evade U.S. securities laws by announcing sham controls that they disregarded behind the scenes so that they could keep high-value U.S. customers on their platforms.

There has been evidence of this for years, including all the way back in 2020 when crypto journalist Micheal del Castillo obtained a Binance presentation outlining a plan to pretend to be compliant while inviting large customers to go around the controls:

The leaked Tai Chi document, a slideshow believed to have been seen by senior Binance executives, is a strategic plan to execute a bait and switch. While the then-unnamed entity set up operations in the United States to distract regulators with feigned interest in compliance, measures would be put in place to move revenue in the form of licensing fees and more to the parent company, Binance. All the while, potential customers would be taught how to evade geographic restrictions while technological work-arounds were put in place.

And the Wall Street Journal reported today that, “The Securities and Exchange Commission is still looking for evidence that Binance and its founder Changpeng Zhao may have a backdoor to control assets stored on the Binance.US platform” – as did FTX at the direction of  Sam Bankman-Fried, who was convicted earlier this month after a headline-making trial resulting in only four hours of jury deliberation.

As for how CZ is taking all this, he tweeted on Thanksgiving that he’s been reading Ryan Holiday and people are noting that his “mental strength and stoicity is just crazy nuts”.

Tweet by CZ asserting his stoicism

Will Congress Finally Do Its Job?

Congress seems drugged and inert most of the time. Even when the problems it ignores build up to crises and erupt in strikes, riots, and demonstrations, it has not moved. Its idea of meeting a problem is to hold hearings or, in extreme cases, to appoint a commission. – Representative Shirley Chisholm, writing in her book Unbought and Unbossed


The U.S. Constitution vests in Congress the power to create laws and in the executive branch the responsibility of implementing and enforcing those laws, while the judicial branch interprets laws and assures they do not violate the Constitution. This vaunted system of checks and balances is designed to ensure a separation of powers, preventing an undue concentration of authority and fostering a system of governance that upholds the primacy of the rule of law over the whims and prejudices of the moment.

With the recent string of cases in which U.S. courts have reprimanded Gary Gensler and the Securities Exchange Commission – including a D.C. appeals court calling its refusal to approve a Bitcoin ETF “arbitrary and capricious” – and Tuesday’s multibillion dollar Binance bombshell, the failure of Congress to do its job in providing clarity on crypto could not be more overdue, glaring or costly to digital asset holders, corporations, developers and taxpayers.

Binance Holdings Limited – operator of the world’s largest cryptocurrency exchange, – pleaded guilty and agreed to pay $4.3 billion to resolve the Justice Department’s investigation into violations related to the Bank Secrecy Act, failure to register as a money transmitting business, and the International Emergency Economic Powers Act. Additionally, Binance’s founder and CEO, Changpeng “CZ” Zhao also pleaded guilty to failing to maintain an effective anti-money laundering (AML) program, resigned as CEO of Binance and personally paid a $50 million fine to the Commodity Futures Trade Commission (CFTC) for “intentionally sabotaging and subverting Binance’s superficial compliance controls, including controls designed to restrict the participation of U.S. persons”. Attorney General Merrick B. Garland said in a press conference, “Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed – now it is paying one of the largest corporate penalties in U.S. history”. 

In Congress’ absence, many states have made efforts to fill the void. New York was the first to regulate crypto, creating its BitLicense regulatory framework in 2015, which empowers its Department of Financial Services to regulate and oversee virtual currency businesses operating in the state. While a subject of debate and criticism for its potential impact on innovation and the high compliance costs associated with obtaining and maintaining the license, nevertheless the BitLicense was seen by many as a significant step in bringing regulatory clarity to the cryptocurrency industry.

Fast forward to 2023 and the United States still does not even have a single money transmitter license, so companies are required to obtain a money transmitter license from 49 different states (the exception being Montana, which does not have a money transmitter license) plus Washington D.C., Puerto Rico, the US Virgin Islands and Guam.

States are also going further, creating structures that recognize the unique characteristics of and opportunities resulting from the many forms of decentralized autonomous organizations (DAOs) being created every day. Wyoming – the first state to pioneer the limited liability company in 1977 – is in the vanguard here, passing legislation in 2021 that recognized DAOs as legally distinct business entities, with protections for token holders similar to those offered to corporation stockholders or limited liability company members. Tennessee followed a year later, with the bill’s sponsor saying the aim was to make “Tennessee the Delaware of DAOs… With this new business structure, Tennessee will be a beacon for blockchain investment, new jobs and investment”. And in March of this year Utah passed its “Utah Decentralized Autonomous Organizations Act”.

But these are no substitute for thoughtful federal legislation. And there are other ramifications. The New York Times reported in September that the FTX bankruptcy last year has been a bonanza for lawyers, who have racked up more than $700 million in fees already. A spokesman for FTX’s new management called the bankruptcy, “extraordinary in almost every conceivable way,” requiring the recreation of records from scratch and huge efforts to track down missing funds (not to mention the time and money spent by the FBI and other agencies in tracking the $600 million hacked from company wallets within hours of the bankruptcy announcement). “Andrew Dietderich, a partner at Sullivan & Cromwell,” the Times reported, “said in a statement that the lack of clear crypto regulations made the cases more complex and time-consuming, driving up costs.”

This may change in 2024, though being a presidential election year could complicate matters. In a flurry of legislative activity, Congress has engaged in discussions and markups of several stand-alone cryptocurrency bills this year. Lawmakers are focusing on legislation addressing various aspects of the cryptocurrency industry. Key topics under consideration include establishing a formal process to determine whether digital assets should be treated as securities regulated by the SEC or commodities under the CFTC. Stablecoin legislation is also in focus due to concerns about its potential impact on the U.S. government’s ability to oversee monetary policy, and many have questions about the safety of Tether and Circle, the largest issuers in the $120 billion stablecoin market.

Addressing AML, bills like the Financial Technology Protection Act – introduced in April by Senator Ted Budd (R-NC) and Kirsten Gillibrand (D-NY) – are advancing to set regulatory clarity for cryptocurrency entities, particularly regarding Bank Secrecy Act compliance. In July, Senators Gillibrand, Cynthia Lummis (R-Wyo.), Elizabeth Warren (D-Mass.) and Marshall (R-Kans.) introduced an amendment to the National Defense Authorization Act for 2024 that would help prevent the use of crypto assets in illicit financial transactions. The legislators noted that “the amendment would require regulators to set examination standards for financial institutions engaged in crypto asset activities and require the Treasury Department to give recommendations to Congress regarding crypto asset mixers and anonymity-enhancing crypto assets”.

Also in July, Senators Warren, Marshall, Joe Manchin (D-W.Va.) and Lindsey Graham (R-SC), reintroduced the Digital Asset Anti-Money Laundering Act, 2022 legislation by Warren and Marshall aimed at closing gaps in the existing AML and countering of the financing of terrorism framework as it applies to digital assets. Not to be outdone, Senators Jack Reed (D-RI), Mike Rounds (R-SD), Mark Warner (D-VA), and Mitt Romney (R-UT) presented the CANSEE Act, requiring decentralized finance (DeFi) services to meet the same AML and economic sanctions compliance obligations as other financial companies. Coincenter called that legislation, “a messy, arbitrary, and unconstitutional approach to DeFi”.

Striking a more positive tone, a few legislators are proposing bills that aim to protect individuals’ ability to self-custody cryptocurrency and shield certain blockchain platforms from being designated as money-services businesses. Senator Budd announced in early November that he had introduced the Keep Your Coins Act, which “would protect an individual’s right to conduct transactions with cryptocurrency assets without the need to utilize a third-party intermediary.” Specifically, the bill cites the FTX collapse in seeking to “prohibit Federal agencies from restricting the use of convertible virtual currency by a person to purchase goods or services for the person’s own use, and for other purposes.”

And majority whip Tom Emmer (R-Minn.) said in March, when introducing The Blockchain Regulatory Clarity Act: “Crypto and blockchain technology, by nature, does not easily fit into the frameworks policymakers have considered when crafting regulations in the past. For too long, federal regulators and lawmakers have jammed the blockchain ecosystem into statutory definitions that just do not make sense. It should be simple: If you don’t custody consumer funds, you aren’t a money transmitter. My bill provides that necessary confirmation for the blockchain community.”

Were Tom Petty still alive he might consider adding crypto to the lyrics of “Jammin’ Me”:

You’re jammin’ me, you’re jammin’ me, quit jammin’ meBaby you can keep me painted in a cornerYou can look away, but it’s not over

… Take back your angry slander

The State of Ethereum Scaling

As Ethereum passes the milestone of a quarter of a billion unique addresses, daily gas used has remained over 100 million for more than a year, the number of ENS names registered approaches 2.6 million and market cap once again flirts with $250 billion, its worth taking a step back to look at the numerous scaling solutions that are enabling this growth without also triggering the sky-high transaction fees the network has seen during several periods of high blockspace demand.

How Ethereum would scale was a key issue from the time the network’s launch in 2015, and by 2017 its inventor Vitalik Buterin was discussing its status in interviews, such as this one in Bitcoin Magazine where his pronouncement in 2014 that Bitcoin’s 5-cent transaction fees were “absurd” came back to haunt him (and that was long before network congestion – at times coupled with user error – brought headlines like “Ethereum user pays $430,000 in transaction fees for a failed payment”).

Now widely referred to as “Layer 2” solutions, these efforts to expand Ethereum’s transaction processing capacity address the challenges not only of high transaction fees but also user experience – particularly with the exploding popularity of decentralized finance (DeFi) applications – transaction confirmation delays, as well as perceptions that other Layer 1 blockchains may become “Ethereum killers“. In this overview we’ll mention advantages and disadvantages of various types of Layer 2 solutions: state channels, plasma, rollups, sidechains, and Validium chains.

State channels: unleashing off-chain potential

State channels, an early entrant in the Layer 2 landscape, enable off-chain interactions between participants. These channels facilitate multiple transactions without directly interacting with the Ethereum mainnet until a final state is submitted. The Raiden Network, named after the Japanese god of thunder and lightning (a nod to Bitcoin’s Lightning Network), was created by brainbot labs Est. and launched in 2017. It seeks to enhance transaction speed and reduce costs by enabling private and continuous transactions off-chain.


  • Fast and cost-effective transactions off-chain
  • Enhanced privacy for participants


  • Requires locking funds in channels
  • Not suitable for all types of transactions


Plasma: a hierarchy of chains 

Plasma, another Layer 2 solution, introduces a hierarchy of interconnected blockchains, creating a framework to offload computation and storage from the main Ethereum chain. The OMG Network (formerly OmiseGO), founded in 2013 by Jun Hasegawa and including Vitalik Buterin on its advisory board, is a notable example of a Plasma-based scaling solution. It aims to provide scalability for decentralized finance (DeFi) applications and other use cases.


  • Enhanced scalability through interconnected blockchains
  • Potential for diverse use cases beyond payments


  • Complexity in managing hierarchical structures
  • Security challenges associated with plasma exits


Rollups: batching for efficiency

Rollups, a more recent innovation, come in two forms: optimistic rollups and zk-rollups. These solutions bundle multiple transactions off-chain, submitting a single batched transaction to the Ethereum mainnet. Optimism, founded in 2019 by Jinglan Wang and Karl Floersch, is perhaps the best known optimistic rollup, along with Arbitrum. It optimizes transaction processing and confirmation times on the Ethereum mainnet.


  • Efficient batching of transactions
  • Optimistic rollups allow for faster deployment


  • Potential for data availability challenges
  • zk-rollups may have higher gas costs


Sidechains: independence plus connectivity

Sidechains operate as independent blockchains connected to the Ethereum mainnet, providing a balance between independence and connectivity. Polygon, previously known as Matic Network, stands out as a significant sidechain solution. Launched in 2017 by Jaynti Kanani, Sandeep Nailwal, Anurag Arjun, and Mihailo Bjelic, Polygon aims to offer a scalable framework for building and connecting Ethereum-compatible blockchain networks.


  • Independence with seamless asset transfer
  • Enhanced scalability for decentralized applications (DApps) and smart contracts


  • Security considerations for bridge connections
  • Potential for centralization on some sidechains


Validium chains: balancing security and data availability

Validium chains, a hybrid of optimistic rollups and zk-rollups, utilize zero-knowledge proofs for validation. Unlike zk-rollups that rely on on-chain data availability, Validiums opt for an off-chain data availability strategy. zkSync with Validium, part of the zkSync ecosystem, is an example of this innovation and reflects ongoing efforts to merge security with data availability.


  • Enhanced security through zero-knowledge proofs
  • Development of niche applications, particularly focused on privacy and enterprise


  • Complexity in managing different security models
  • Potential challenges in consensus mechanisms

As Ethereum’s ecosystem evolves, Layer 2 solutions like those discussed play a pivotal role in shaping the future of DApps and smart contracts. Developers and users alike navigate the landscape, selecting solutions that align with their priorities — whether it be speed, scalability, privacy, or a combination of these.

Brave Enhances Its “Sign-in With Ethereum” and CoW Swap Features

Here’s a thought exercise: what is the most impactful thing you could make in just 10 days? Thirty years before creating the crypto-enabled  Brave browser in 2015, Brendan Eich was a young developer at Netscape, the company Marc Andreessen co-founded with fellow entrepreneur and computer scientist Jim Clark after coding the first web browser as a student at the University of Illinois. Eich was charged with creating a working prototype of a new computer scripting language in a week in order to compete with Microsoft.

He succeeded, and what is now known as JavaScript is the most popular programming language, used by 68% of developers according to a survey by Stack Overflow, as it makes possible the interactivity and dynamic features of approximately 98% of the world’s websites. Released the same year as the Ethereum blockchain, Eich’s vision for the Brave browser was perhaps equally ambitious: to create a browser that prioritizes user privacy and delivers a faster, more efficient browsing experience. As Modern Consensus wrote in a 2018 story, This browser will pay you in crypto:

“Most ad revenue systems are somewhat hostile to both users and advertisers. You—the consumer—have an ad between you and the content you’re downloading on your data plan. Meanwhile, the website publisher has little incentive to prove you’re actually consuming the ad they sold on your behalf. Now Eich has delivered a new platform that users runs on the ether-based Basic Attention Token (BAT) to improve the ad experience for users, advertisers, and publishers.”

This proactive stance against intrusive ads and trackers was designed to block unwanted content by default, resulting in faster page load times and a cleaner online experience for users, and it resonated with people increasingly concerned about privacy and the intrusive nature of online advertising. The BAT token serves multiple roles, including being the reward mechanism in Brave’s rewards program, enabling users to support content creators by contributing BAT tokens, acting as a medium of exchange for privacy-preserving advertising, compensating users for viewing Brave Ads, and being stored in the integrated cryptocurrency wallet for user management and distribution to content creators.

Enhancing Sign-in With Ethereum

Brave’s version 1.60 release last week introduces two features that enhance the security and user experience of signing messages with the wallet: Sign-In With Ethereum (SIWE) gets a significant overhaul and the redesigned signing experience is expanded to CoW Swap orders.

Available in basic form since the initial Brave launch, SIWE shifts the role of authentication away from large centralized identity providers and into the hands of the individual by taking problematic traditional login methods such as username and password or via Web2 platform like Google or Facebook – and replacing it with wallet-based sign-in functionality. This also allows one’s wallet login to be stamped with the “indelible ink” of an Ethereum wallet address of one’s choosing. Now, in addition to displaying prompts as human-readable plaintext messages without any validation by the wallet, Brave has improved the safety of signing into third-party apps and services by helping prevent phishing attacks. Brave notes, “This is particularly important for SIWE, since the sign-in action is basically producing a signature for a message, which is susceptible to spoofing by a motivated attacker.”

Additional security for CoW Swap trade orders

One of the many successful crypto tools descended from the original Gnosis project incubated by ConsenSys, CoW Swap introduced a novel approach to on-chain asset trading using the “coincidence of wants” (thus CoW) concept rooted in economics and the barter system. Built on the CoW Protocol, this trading interface employs batch auctions for price discovery. Users express off-chain intents through signed messages, enabling a gasless experience. However, the challenge lies in the security risks associated with blindly signing off-chain messages, as highlighted by a December 2022 scam that exploited a gasless Seaport message to steal NFTs worth over 852 ETH.

To address security concerns and improve user experience, hacker teams from Brave and CoW Swap collaborated on a solution at DappCon 2023. They developed a message parser for CoW orders, ensuring users can easily comprehend order details, such as formatted amounts, token symbols, and logos, before approving signing requests. The parser is specifically tied to the type hash of CoW Swap’s order struct, enhancing security by preventing its use on non-CoW messages. Additionally, the teams implemented calldata parsers for on-chain transactions within the swapping process, enhancing transparency and user confidence in signing requests involving native assets like ETH or XDAI.

Bitcoin Is 15, and the Tributes Are Legion

On the 15th anniversary of Satoshi Nakamoto publishing the Bitcoin white paper, Modern Consensus has gathered a selection of tributes – a mix of the poignant, the thought provoking and since Securities and Exchange Commission Chair Gensler felt the need to get in on the act, the clownish.

Bitcoin Magazine

One of the very first publications devoted to Bitcoin, it was co-founded in 2012 by a 17-year-old Vitalik Buterin, whose father had piqued his interest in the young technology the year before and who went on to invent Ethereum, announcing it in his own white paper in November 2013. In a feature published today entitled “The Reformation of Money: Bitcoin’s Whitepaper and Its Parallels to Martin Luther”, author Robert Hall sets the stage by writing:

It was 15 years ago today that one of the most important documents ever written was released to the world. The importance of this document is akin to Martin Luther, who published his 95 Theses in Wittenberg, Germany, on October 31, 1517.

Satoshi Nakamoto must have been a student of history because there is little chance this was a coincidence and Satoshi must have understood the significance of publishing the Whitepaper on this day. The parallels between the Whitepaper and the 95 Theses simply can’t be ignored.

The article is definitely worth a read, both for the history lesson and the salient points Hall makes about Bitcoin’s importance, including these:

“Given absolute power over the lives of others, even the most pious and well-meaning among us will become corrupt… The only thing that we as humans can do is to mitigate this urge as much as possible.”

“Bitcoin binds this innate temptation towards corruption in an unbreakable chain of positive incentives, decentralization, transparency, and hard-capped supply, enabled by the ingenious difficulty adjustment and backed by the world’s energy.”

“We have the opportunity to remake the world with better money that works for everyone and not just the elite. This is a social experiment that has never been tried in human history and is one that we can ill afford not to try.”

Lyn Alden

Founder of her own “fundamental investing with a global macro overlay” firm, Lyn Alden Investment Strategy, Alden argues that it’s important to understand monetary history in order to better gauge the potential market size of new technologies like blockchain. Her commemorative tweet today makes an important point about Satoshi’s methodology in initially communicating what was to become the blockchain revolution:

Nakamoto released the project’s major breakthrough/invention details to the world, and gathered input, before he released the actual open-source client that people used to bootstrap the network.

Joël Lightbound’s tweet about a speech he gave on Bitcoin to the Canadian Parliament

Joël Lightbound

Liberal Party member Joël Lightbound tweeted a clip of a speech he gave to the Canadian Parliament where he quotes Twitter founder Jack Dorsey calling the Bitcoin white paper “one of the most seminal works of Computer Science in the last 30 years” and making these  points:

In the words of SEC Chairman Gary Gensler, Satoshi’s innovation potential to spur change is worth pursuing to lower economic rents and promote economic inclusion.

Over the last decade we’ve seen Bitcoin empower the underbanked, as well as those living in oppressive regimes.

Women, who use Bitcoin all over the world to evade unjust restrictions on their financial freedoms.

It’s also helped thousands of families avoid the tragedy of currency debasement.

I’m advocating for everyone to study it, progressives in particular because Bitcoin was born in the midst of the Great Financial Crisis as an alternative to big banks’ greed and the system that never failed to bail them out.

Nic Carter

Yesterday Modern Consensus highlighted Nic’s efforts as part of an avalanche of rebuttals to an egregious, dangerous and still uncorrected misrepresentation by the Wall Street Journal regarding crypto and Hamas, and his Bitcoin tweet today harks back to a thoughtful piece he wrote three years ago. It’s worth quoting at length for speaking to the broader misunderstanding of crypto and the role of the press:

Bitcoin has often confused people. It’s perhaps one of the most misunderstood phenomena of the last decade. If you lack sufficient ideological and historical context, you most likely consider it a complete boondoggle or a bizarre, unnecessary waste of computing power and effort. This is the default position. Most people in the West rarely give any thought to monetary policy or banking — why should they? Their currencies depreciate at a slow, barely perceptible rate. Their bank arrangements work fairly well, and they don’t find themselves frozen out of the financial system too often.

Of course, this isn’t the reality for the majority of the world’s population, who suffer under inflationary regimes, or politicized and untrustworthy banking systems. But the views of American coastal elites are far overrepresented in the discourse, so the press is replete with confused assessments of this purportedly useless monetary scheme. But understanding the purpose of Bitcoin is itself a shibboleth. If you don’t get it, it’s probably not meant for you.

Eric Wall 

Among other things, Eric is the creator of an experimental NFT that tokenizes a personal consulting service based on his experience as a crypto analyst and investor. Too difficult for me to try to explain in a sentence, but check it out here. Eric’s commemoration today enunciates even more aspects of Bitcoin’s unique properties not just as a concept and technology, but as an all-too-rare occurrence where a crazily powerful and meaningful idea takes root and becomes a global phenomenon.

Our world doesn’t seem like a place where an email on a cryptographic mailing list can really make a dent on this world. No matter how cool of an idea you may have for some distributed system, it’s never going to be the type of thing that could ever really become talked about in the mainstream. Let alone become a new asset, listed on the same finance pages as oil, stocks or gold.

In 2008, human kind did not seem like the kind of place that would embrace an idea like Bitcoin. The modern world wasn’t some ancient Greece where philosophical ideas were exchanged and listened to—we were already on a fast-track toward idiocracy by then.

But Bitcoin really did become that idea. It’s one of those rare, once in a generation type of things where the good guys win, the good idea wins. What happened 15 years ago with Bitcoin is the kind of stuff for history books. The journey it has taken from a pdf to where it is today is one of the most insane things to ever have occurred in our lives.

Pete Rizzo

Editor at Bitcoin Magazine, Editor-at-Large at Kraken and a contributor to Forbes, I give Pete a pass for calling himself on his website “the definitive writer on Bitcoin and crypto” because a) the “archival research” he does on Bitcoin’s history is important and b) he writes about the people and events that most impacted its development – something that is far too rare in journalism generally and especially the coverage of crypto. Today Pete published an article in Forbes highlighting these salient points:

  1. The White Paper is Only 9 Pages
  2. No One Knows Who Wrote the White Paper
  3. The White Paper was widely critiqued when released
  4. Bitcoin Only Appears Twice in the White Paper
  5. Satoshi Wrote Code Before He Wrote the White Paper
  6. The White Paper Doesn’t Include the Word Blockchain or Cryptocurrency
  7. The Most Common Word in the White Paper is Block
  8. 10 People Are Cited in the Bitcoin White Paper
  9. Parts of the White Paper Are No Longer Being Worked on by Developers
  10. The White Paper Is Hosted on Many Websites Around the World
  11. The White Paper Was Embedded on Every Mac Computer, But Was Later Removed
  12. Twitter Creator Jack Dorsey Once Called the White Paper ‘Poetry’
  13. Kraken Put the White Paper on an F1 Racer
  14. The White Paper Has Been Cited Over 4,000 Times

Documenting ₿itcoin

I only stumbled on this Twitter account today after typing “Bitcoin 15” in the site’s search box, but the short video in Documenting ₿itcoin’s tweet today deserves at least a view or two for featuring Austrian-British economist and political philosopher F.A. Hayek musing that, “I don’t believe that we should ever have a good money again… All we can do, is by some sly, roundabout way, introduce something they can’t stop”, followed by a scrolling list of cryptographic innovations set to the theme music for “2001: A Space Odyssey”.

Extra points for the account’s pinned tweet, “Explaining #bitcoin at $100 to an empty room”, which features the inimitable educator Andreas M. Antonopoulos doing just that in 2013, apparently his first-ever of hundreds of talks on Bitcoin, Ethereum and crypto.

Gary Gensler

And now for something completely different, we’ll leave the realm of world-changing ideas to drop in on SEC Chair Gensler’s flying circus, aka regulation by enforcement action (albeit in the absence of Congressional action). Gensler took the opportunity to attempt a lame joke in reference to his claim that nearly all crypto tokens are securities, tweeting: “If Satoshi Nakamoto went as Satoshi Nakamoto for Halloween, would we be able to tell? Happy 15th anniversary to Satoshi’s famous white paper that started crypto. Any crypto companies that are tricking investors should start treating them to compliance with the securities laws.” Twitter user @PharaohX33 invoked The Simpson’s evil Mr. Burns in their apt reply.

Back to the Future with Misinformation About Crypto

On October 10th, the Wall Street Journal ran a story with the headline, “Hamas Militants Behind Israel Attack Raised Millions in Crypto. Digital currency transactions highlight how U.S. and Israel have struggled to sever the access of Hamas, Palestinian Islamic Jihad and Hezbollah to foreign funding.” The story stated: “Digital-currency wallets that Israeli authorities linked to the PIJ received as much as $93 million in crypto between August 2021 and June this year, analysis by leading crypto researcher Elliptic showed.” It also cited research by crypto analytics firm BitOK suggesting that Hamas received $41 million.

Ten days later the paper followed up with “Why Hamas Uses Crypto to Raise Money”, essentially a rehash citing the same two sources plus such unilluminating sentences as, “Much of the world’s illicit finance activity happens through the traditional banking system, as well as cash. But crypto has become an important means of funding sanctioned entities and laundering money because crypto users can instantaneously move value around the world by using what are known as digital wallets.”

But by then 105 U.S. lawmakers had signed a letter to President Biden and the Under Secretary for Terrorism and Financial Intelligence about cryptocurrencies allegedly undermining national security, citing the Journal’s story and combining the two figures: “between August 2021 and this past June, the two groups raised over $130 million in crypto”.

And on October 18th Senators Elizabeth Warren, a Massachusetts Democrat, and Kansas Republican Roger Marshall took to the Journal’s op-ed page with “Cryptocurrency Feeds Hamas’s Terrorism”, citing the $130 million figure, adding without evidence, “the publicly reported numbers are likely a small percentage of the actual total” and concluding with the charge that, “In short, the crypto industry is profiting from financing terrorism and rogue nations.”

Aside from the error of taking two estimates and adding them together without regard to how much of it was duplicative, the idea of the crypto industry profiting from terrorism would be laughable did it not have such severe ramifications for public policy. The senators are co-sponsors of the Digital Asset Anti-Money Laundering Act and asserted that the legislation is required for “cutting off Hamas and other terrorist groups from vital financing”, which former senior counsel at the House Financial Services Committee J.W. Verret called in a letter to the Journal, “a Trojan Horse promising stronger national security that would in fact be a gift to adversarial foreign governments”.

Naturally, the skeptics and blockchain sleuths on Crypto Twitter were all over this slander, pointing out flaws and asking the researchers cited for clarification. Sure enough, Elliptic posted a lengthy blog post on October 25th to set the record straight, stating up front in bullets:

There is no evidence to support the assertion that Hamas has received significant volumes of crypto donations.

A full understanding of blockchain analysis and the context of any analysis is needed when using these insights to draw conclusions.

Elliptic has engaged with the Wall Street Journal to correct misinterpretations of the level of crypto fundraising by Hamas.

In addition, we have been in discussions with the office of Senator Warren to ensure that the relevant parties have a proper appreciation of the complexities and nuances of analyzing these wallets.

Elliptic added that Hamas began soliciting Bitcoin donations in 2019 and saw a peak in May 2021 before suspending its public-facing crypto fundraising in April 2023 citing “concern about the safety of donors and to spare them any harm.” The company explained how the Journal had misinterpreted their analysis of wallets seized by Israel’s National Bureau for Counter Terror Financing: “As we made clear in our research, in no way does this mean that PIJ had ‘raised’ all of these funds or that they even all belonged to PIJ. It is not known what proportion of the funds received by those wallets are directly attributable to PIJ or other terrorist groups.”

Venture capitalist Nic Carter highlighting one of the bounty winners

Nic Carter, a general partner at Castle Island Ventures, has been particularly dogged in not only pulling apart the Journal’s claims and calling for them to correct the record, but even going as far as to issue bounties of $500 in bitcoin for the “21 best open source analyses of the facts surrounding the WSJ/Warren letter”, 14 of which he’s already selected and shared (other people have subsequently donated, raising the bounty payouts). In contrast to the newspaper and many in Congress, he emphasizes the use of blockchain analysis tools and reporting techniques: “Focus on knowable ground truths. Your reporting can focus on debunking a specific detail of the story, creating an independent, more fact-based account of the events, creating a data visualization, or simply creating a meme or graphic depicting the events or the WSJs reporting.”

Nic’s also shared efforts by some in Congress to focus on the facts, such as Senator Bill Hagerty, Republican from Tennessee saying in a Senate Banking Committee hearing on October 26th, “When it comes to regulating crypto, we need a scalpel, not a sledgehammer.” 

Crypto compliance and investigation software firm Chainalysis also posted a Twitter thread addressing misconceptions and “overstated metrics and flawed analyses of terrorist groups’ use of cryptocurrency”.

Non-correcting “correction” at the bottom of the online story

So has this avalanche of rebuttals, corrections and education motivated the Wall Street Journal to note their errors and correct the record? Dream on. The reporters have left the discredited $93 million and $41 million figures, sensationalist headline and lack of context, tossing in at the bottom a word salad rivaling the maddening cirumlocutions we’ve heard from Sam Bankman-Fried on the stand the last few days.

Liquid Staking Issues & Perils

In our recent article Staking and Liquid Staking: a Primer we covered the fact that staking is rapidly becoming a substantial ecosystem of its own, including via increasing uptake from institutional investors. We explained the differences between simply staking tokens and liquid staking, which enables investors to pledge their tokens but also achieve liquidity by receiving a new token known as a liquid staking token (LST) or liquid staking derivative (LSD), which is typically deployed in decentralized finance (DeFi) to earn yield or other benefits.

Sounds great, so what’s the catch? Well, in addition to the potential catches inherent in any young and relatively untested technology – crypto generally but DeFi in particular is decidedly experimental and prone to major exploits – there are also larger, possibly systemic, risks that people in the space are not only calling out but actively working to mitigate.

First, there are growing concerns that the increasing popularity of liquid staking is building up to a centralization risk for Ethereum. One of the first liquid staking platforms was Lido, created in part to allow those who were staking ETH to get liquidity long before it was possible to withdraw one’s stake. Launched in 2020, the company added staking for ill-fated Terra Luna in March 2021 and Solana in September of that year. Lido is now the largest liquid staking protocol, having issued $14.5 billion of stETH (staked ETH), and many are raising the centralization risks given that Lido has a 32% share of liquid staked ETH. For example, Ethereum Foundation researcher Danny Ryan wrote a post entitled The Risks of LSD, stating:

Liquid staking derivatives (LSD) such as Lido and similar protocols are a stratum for cartelization and induce significant risks to the Ethereum protocol and to the associated pooled capital when exceeding critical consensus thresholds. Capital allocators should be aware of the risks on their capital and allocate to alternative protocols. LSD protocols should self-limit to avoid centralization and protocol risk that can ultimately destroy their product.

No less than Ethereum inventor Vitalik Buterin to asked (in the context of a long blog post on whether more things should be enshrined in the Ethereum protocol itself): “might it make sense to enshrine some kind of in-protocol functionality to make liquid staking less centralizing?”

How does Lido respond to these concerns? Protocol relations contributor Marin Tvrdić argues that the economic incentives built into the Ethereum protocol, specifically the risk of slashing (losing one’s staked ETH) for misbehavior: “in reality, Lido would need to make 37 entities [the decentralized node operators] do something that’s really bad for the protocol itself. It’s a bit silly to think that Lido DAO has that power; it doesn’t.”

Viktor Bunin, a Protocol Specialist at Coinbase (he joined the company when Coinbase acquired infrastructure provider Bison Trails) has been active in the Crypto Twitter conversation on Lido’s centralizing impact, saying “For all the folks unhappy with Lido, here is a real, workable solution to continue to decentralize it” and quote tweeting a post by the CTO of Obol Network. Asked for further comment, Bunin referred Modern Consensus to a post from when he announced he was joining Obol as an advisor, which stated:

Obol Network enables trust minimized staking on Ethereum using Secret Shared Validators (SSV) technology. SSV is a new infrastructure primitive that enables a validator key to be split between independently operating validator instances… There is also an additional dark horse potential use case in that Obol Network can enable totally permissionless liquid staking, both on the token holder and operator side.

Another way that the popularity of liquid staking has impacted the crypto ecosystem has been during times of extreme market volatility. In June 2022, after the spectacular collapse of Terra Luna, the price of Lido’s LST stETH (which is supposed to track the price of ETH) fell to a low of 93.8% of the ETH price, as fears of contagion caused investors to sell their stETH. A report by blockchain research firm Nansen quantified this in detail, noting, “Our on-chain investigation revealed that contagion stemming from the de-peg of UST and subsequent collapse of the Terra ecosystem was likely the main factor for stETH deviating away from this 1:1 ratio.” It also explained that leverage played a role in this de-peg: “Since stETH is tradable, there are opportunities to lever up on stETH positions on the secondary market… By doing this, they can effectively earn multiples of the ETH staking rewards (plus rewards for supplying stETH on Aave minus ETH borrowing cost).”

“Lido DAO’s largest token holders include several funds. Paradigm holds 7% of the total supply of LDO, Lido’s governance token, making it the second-biggest whale, according to a dashboard from Arkham Intelligence. FalconX and Dragonfly Capital are also among the top holders of LDO.”


:( , of, oof – don’t think I have anything particular?

Political philosopher Hannah Arendt’s 1963 book Eichmann in Jerusalem: A Report on the Banality of Evil became a classic in part by introducing the concept in noted its subtitle. She argued that the full context of Eichmann’s actions in helping organize and carry out the Holocaust weren’t fully elucidated by his trial, which thus obscured, “the lesson that this long course in human wickedness had taught usthe lesson of the fearsome, word-and-thought-defying banality of evil”.

Not to say that what FTX founder Sam Bankman-Fried is currently on trial for rises to the level of evil, but I’ve been struck over and over by the banality and seemingly utter disregard for the impact his hubris and incompetence had on the many victims of not just FTX’s collapse (more than 1 million creditors), but the 130 affiliated entities also forced to declare bankruptcy. The former high-flying boy genius has pleaded not guilty and took the stand today in a highly unusual hail mary by his defense, after weeks of punishing testimony by his former friends/colleagues/roommates Gary Wang, Nishad Singh and Caroline Ellison, each of whom pleaded guilty to fraud, money laundering and conspiracy charges.

Take for example Government exhibit 1621, which illustrates an exchange three of the four executives had November 6, 2022 via a Signal chat group that someone brazenly – yet also presciently – named “Wirefraud”. (See our cover image and this example to the left; The New York Times has posted the full exhibit here.)

That was the day that Changpeng Zhao (known as “CZ”, a moniker even shorter than Bankman-Fried’s 3-letter one), the founder and CEO of FTX rival exchange Binance tweeted, “As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books.”

FTT being the bullshit token Bankman-Fried and FTX had created ostensibly as a kind of loyalty program – it allowed customers to make discounted trades, earn increased commissions on referrals, and they could use it as collateral; the company website described it as “the backbone of the FTX ecosystem” – but which they used to inflate the value of FTX and Alameda Research as companies (40% of the assets on Alameda’s balance sheet as of June 30, 2022 were FTT tokens; $292 million in locked FTT being listed among its liabilities).

So the withdrawals that Nishad Singh (FTX co-founder and director of engineering) notes are coming in so fast that the company can’t process them fast enough – even in the case of wallets that contain enough funds to do so – were the result of FTX customers trying to get out while they could. That is, before news of Binance preparing to liquidate tanked the price. (For his part, CZ knew that was most likely to happen, thus weakening or taking out his rival – notwithstanding his follow-up tweet, “We will try to do so in a way that minimizes market impact. Due to market conditions and limited liquidity, we expect this will take a few months to complete.” Reuters detailed earlier in 2022 how Binance “drove its explosive growth while maintaining weak anti-money laundering controls and withholding information from regulators”, and this June the US Securities and Exchange Commission filed 13 charges against the company for operating unregistered financial entities, misrepresenting trading controls and selling unregistered  securities.)

Caroline Ellison testified on October 10th that she was “in sort of a constant state of dread” by June 2022, because she and Bankman-Fried had lied for years, misleading lenders and creating phony financial documents – in contrast to the detailed spreadsheets she’d kept of what Alameda owed various lenders and how the companies were using customer deposits for a variety of company purposes, including venture capital investments, political donations and paying celebrity endorser/enablers more per hour than they’d ever made in their lives.

So to see graphic evidence that her response to the flood of panicked withdrawals that would bring down FTX and Alameda in a matter of days, leaving customers locked out and shellshocked, was “thx”, then “(:” and finally a banal, “don’t think I have anything in particular?” is maddening.

Sam “I got involved with crypto without any idea what crypto was” Bankman-Fried in headier days

And Bankman-Fried – lauded by venture capitalists, journalists and speculators for being so boldly insouciant as to play video games during pitch meetings and interviews – appears unable to summon the effort to type the three whole letters he corrects with a laconic “oof”. Before going on to wonder how CZ will react and then finally posting the tweet they are crafting he muses, “maybe something like ‘we can meet a ton [of withdrawals] but it’s already getting large’? idk”

IDK indeed.

We’ll give the last word to Ms. Arendt (while adding that Modern Consensus has more to report on this topic in the coming weeks): “it was difficult indeed not to suspect that he was a clown. And since this suspicion would have been fatal to the entire enterprise [his trial], and was also rather hard to sustain in view of the sufferings he and his like had caused to millions of people, his worst clowneries were hardly noticed and almost never reported”.


On Eve of SBF Trial, Stolen FTX Funds On the Move

As Sam Bankman-Fried, disgraced founder of crypto exchange FTX, sits in a jail cell in Brooklyn’s notorious Metropolitan Detention Center awaiting the start of his trial on Tuesday for seven counts of fraud and conspiracy, funds that were stolen from FTX in a hack hours after the firm filed for Chapter 11 bankruptcy last November have moved for the first time in more than 9 months.

Not only was the FTX collapse already one of the most stunning debacles in the long history of financial disasters, the siphoning of $600 million in funds from the company’s  crypto wallets added insult to injury and led to speculation that company insiders were absconding with funds. Self-described “rug pull survivor” turned crypto sleuth ZachXBT tweeted Ethereum, Solana and Binance chain addresses involved, noting, “Multiple former FTX employees confirmed to me they do not recognize these transfers.”

While FTX’s then general counsel Ryne Miller acknowledged the hack and warned customers not to attempt to use FTX sites, only after the exploit did they start moving assets out of company wallets and into cold storage. “Following the Chapter 11 bankruptcy filings – FTX US and FTX [dot] com initiated precautionary steps to move all digital assets to cold storage,” Miller said. “Process was expedited this evening – to mitigate damage upon observing unauthorized transactions.”

Fast forward through 10 months of post-collapse FTX drama–including not only the inability of Bankman-Fried to refrain from speaking to the press but also his passing on to the New York Times private documents belonging to Alameda Research’s CEO (his former girlfriend), who pleaded guilty only weeks after the bankruptcy and is now a cooperating witness for the prosecution, along with FTX’s co-founder and head of engineering. Now the hacker who stole the crypto from FTX wallets has started moving the funds for the first time since last December. On Saturday, blockchain analytics service Spot On Chain and others following the hacker addresses noted that one of those had moved 2,500 ETH ($4.2 million at the time) to two new addresses.

The next day Spot On Chain reported that a total of 22,500 ETH had moved from exploiter addresses in 24 hours. They show 12,250 ETH moving from 2 addresses (0x3e9 and 0x7F3) to Thorchain, which is a decentralized protocol that allows users to add or swap liquidity across chains. Rather than “wrapping” assets (which involves sending a cryptoasset, such as Bitcoin, to a custodian who holds it and creates a version of it on another chain, as BitGo does by minting WBTC tokens on Ethereum), Thorchain uses an automated market maker mechanism where liquidity providers deposit tokens and then Thorchain’s RUNE token is paired with two tokens in succession to execute a user’s desired swap from one to the other. Spot On Chain also shows 7,750 ETH transferred to Railgun, a smart contract system that enables zero-knowledge privacy for any on-chain applications. Railgun’s site explains that “All transferring, swapping, lending, borrowing, and interactions with dApps increases the variations of interactions in RAILGUN and decreases the chances that withdrawals can be linked to deposits.”

An additional 2,500 ETH has been swapped by the hacker for 153 tBTC (and subsequently redeemed for Bitcoin) using MetaMask’s in-wallet swap functionality that compares prices on various decentralized exchanges and provides the best price (for an 0.875% fee). tBTC is similar to wrapped Bitcoin but rather than sending one’s BTC to custody firm BitGo, nodes running a protocol created by Threshold Network mint the ERC-20 token via a decentralized process using threshold cryptography. But all these transfers are with just a fraction of the hacked funds, as the FTX exploiter entity still holds 163,246 ETH ($280 million) across 14 addresses, according to Spot On Chain.

Examining the addresses used and their complete history, one can see not only the activity of the hacker moving funds but anyone else who interacted with those addresses. This being the wacky world of crypto, perhaps it’s not surprising to see that from the day ETH was first transferred into the 0x3e9 address on November 21, 2022 until the ETH starting to move out September 30, 2023 there were 18 additional transfers to the address–ranging from 1 wei to 0.0004 ETH ($0.64) from addresses with ENS names like umbrellauni.eth, couldyoupleasesendmesome.eth and hacker-dont-give-up.eth. And yes, the hacker included those tips when transferring the ETH out, leaving only 0.00005 of ETH dust remaining.

So has all this on-chain sleuthing gotten us any closer to identifying the hacker? Bloomberg cited anonymous sources in reporting last December that the Justice Department was investigating the hack, so presumably they are following the recent activity closely. One also wonders whether Bankman-Fried’s trial will elicit any relevant information, particularly considering that he told YouTuber Tiffany Wong in a November 29 interview that he had, “narrowed it down to like eight people. I don’t know which one it was. I have a pretty decent sense. Either it was an ex-employee or someone installed malware on an ex-employee’s computer. I don’t know for sure which one it is because access is totally shut down right now, because it would be dangerous to allow people to query data.”

Let’s hope that the ease of querying data on blockchains ultimately proves dangerous to criminals of various stripes.

Is Big Brother Attempting to recruit All the Young Devs?

In our ongoing series exploring the increasing intersections of blockchain and AI, we’ve highlighted both novel approaches to combining the two exponential technologies in sectors like healthcare that impact everyone, as well as how blockchain can ensure both privacy and transparency. The latter is particularly important given the risks posed by AI — its potential to eliminate millions of jobs, including those previously deemed more immune to technology, the acceleration of deep fakes that threaten our increasingly slippery hold on what is true, the reduction in the ability of humans to control weapons of mass destruction and more. (And as evidence that these are collective concerns, when you type “biggest risks of” in Google search, its top suggestion to complete the thought is “risks of AI”.)

And for an industry characteristically overoptimistic about the ability of technology to fix every problem (including those it creates), it’s notable that we’ve recently seen leaders in AI call for tighter regulation because of their concerns over its potential to create or exacerbate catastrophes that are global in scale — and in some cases irrevocable: “A.I. Poses ‘Risk of Extinction,’ Industry Leaders Warn“.  It’s concerning, however, that these warnings are deemed too little, far too late by some, including Eliezer Yudkowsky, a leader in the field for 22 years who has called for all AI efforts to be shut down immediately — in part because Elon Musk and others brazenly passed up the opportunity years ago to make a good-faith effort to align on safeguards for AI when they would have had a better chance of succeeding. Yudlowsky is a decision theorist who leads research at the Berkeley, CA-based Machine Intelligence Research Institute.

As if these risks aren’t enough, how about adding a crypto element into the mix to spice things up further? Surely given crypto’s ongoing negative image — gleefully fueled by such influential figures as US Senator Elizabeth Warren, she of the “shadowy super coders” histrionics — no one who claims to admire the positive values of cryptocurrency and blockchain would think it wise to offer up a project with Big Brother elements as the answer to the deepfakes and nightmares AI is accelerating. But alas, Sam Altman, the CEO of OpenAI (creator of ChatGPT) believes that Worldcoin, the crypto project he also founded, “could drastically increase economic opportunity, scale a reliable solution for distinguishing humans from AI online while preserving privacy, enable global democratic processes, and eventually show a potential path to AI-funded UBI” (the last acronym there referring to “universal basic income”, the concept of providing all citizens a guaranteed income, without a work requirement or means test).  

Graphic courtesy of Frédéric Martin’s <a href="http://<a%20href=%22”>critique of Worldcoin

The backlash against this idea and the way the company has gone about pursuing it — paying people in Africa, Latin America and Southeast Asia $50 in WLD tokens to allow one of Worldcoin’s custom designed metallic “orbs” (see one staring you down in the photo to the left) to scan their eyeball’s iris as the biometric basis of a supposedly unique ID, paying local officials to look the other way and other shenanigans — was swift and vociferous. In an April 2022 article entitled “Deception, exploited workers, and cash handouts: How Worldcoin recruited its first half a million test users”, MIT Technology Review interviewed 35 people in 6 countries who “either worked for or on behalf of Worldcoin, had been scanned, or were unsuccessfully recruited to participate” and “found that the company’s representatives used deceptive marketing practices, collected more personal data than it acknowledged, and failed to obtain meaningful informed consent”.

That deceptive marketing included enticing villagers in Indonesia with the promise of a “social assistance giveaway” and collecting emails and phone numbers (the company insists that only a hash of the iris’ image is saved, not the image itself or any other information connecting the data to the person who agreed to the scan: “No personal information required. We don’t want your name, email, passport, or a selfie,” Worldcoin’s website proclaims). And the compensation of $50 worth of crypto? Until Worldcoin’s ERC-20 token WLD debuted on July 24, 2023 participants who didn’t receive payment in local currency or Bitcoin were promised an indeterminate number future tokens. The WLD token traded as high as $3.58 on launch day according to CoinMarketCap, dropped to a low of $0.97 on September 13th and is trading for $1.55 at the time of publication.

In May 2023 TechCrunch reported that, “Hackers have installed password-stealing malware on the devices of multiple Worldcoin Orb operators, giving them full access to the Worldcoin operator dashboard.” So much for privacy, security and social goods.

With this context in mind, I was both surprised to see Worldcoin as a key sponsor of ETHGlobal’s myriad 2023 events and eager to hear how they would frame the controversy around the project in their primetime talk at ETHGlobal in New York on Friday, titled “Global Proof of Personhood with World ID”. At this point you may be able to guess how much of the company’s background the presenter addressed. Answer: zero. His approximately 15-slide presentation launched right into Worldcoin’s purported values (“For every human. Privacy-first. Owned by everyone”), walked through the various options the company explored for unique identification methods (online accounts, KYC, web of trust and social graph analysis) before settling on the iris scans (“Authenticating a user via FaceID as the rightful owner of a phone is very different from verifying billions of people as unique,” Worldcoin’s website explains), and then spent most of the time on how the hackers at the event could build cool stuff with the company’s World ID, software developer kit and API.

Plus how much the devs can win if their project is one the the 7 winners or takes home cash as part of the $3,000 prize pool “distributed equally among all qualifying submissions”: $20,000 in total prize money. Those generous amounts — 7 other ETH NYC sponsors are awarding as much, while 38 others offer total prizes ranging from $5,000 (the Ethereum Foundation, Unlock Protocol and Sunscreen) to $16,000 (zero-knowledge rollup Scroll) — is pocket change for Worldcoin, which initially raised $100 million in March 2022 at a $3 billion valuation and this May another $115 million in their Series C round led by Blockchain Capital and joined by a16z, Bain Capital Crypto and Distributed Global.

Slide showing the prizes for hackers choosing to build with Worldcoin at ETH NYC

So how did conference and hackathon attendees react to Worldcoin’s presentation and booth? The 20-minute presentation had attendance similar to others that day, and while the booth didn’t garner the kind of attention that sponsors like Filecoin and Metamask did (having established brands and kickass swag certainly helps), it did get some action and those manning the booth reported that approximately 30 attendees had signed up at the event in the first day and a half (they declined to speak on the record, however, deferring to Worldcoin’s press manager; Modern Consensus has contacted the company for comment and will publish their response if we receive one).

Nico Marotta, an environmental design professor attending ETH NYC told Modern Consensus after seeing the presentation, “I eagerly try out new technologies, especially interesting ones in the crypto & NFT space. And I’m generally open to providing PII [personally identifiable information] if the product seems like it may be beneficial. But the idea of Worldcoin’s retinal scan was very alarming from day one.”

We will see how people in the blockchain community and beyond continue to react to both Worldcoin’s product and their mission to “become the world’s largest identity and financial network” (isn’t the current state of financial surveillance terrifying enough?). But given their journey to signing up the 2,317,380 “unique humans on Worldcoin” the website’s ticker currently counts, one can only hope they don’t end up doing the kind of damage Altman’s OpenAI is charged with: “OpenAI Is Now Everything It Promised Not to Be: Corporate, Closed-Source, and For-Profit”.

Multi-year effort to improve Bitcoin-to-DeFi bridging crosses Threshold

Threshold Network announced this week that it has completed a multi-year effort to upgrade its Bitcoin-to-DeFi bridge tBTC from its original structure and security model launched in 2020. Specifically, the protocol added redemption capability – that is, the ability for customers to not only put their bitcon in escrow and mint tBTC (an ERC-20 token) but also reverse the process and “unmint” back to BTC. 

This is the latest in a string of Threshold announcements beginning in January with tBTC minting, an integration with interoperability protocol Wormhole in May and four subsequent partner launch announcements involving Ethereum “Layer 2” (L2) scaling juggernauts Polygon, Arbitrum and Optimism.  

The reason given by Threshold for the years of building and the phased launch is security: “Quality was our focus, especially after high-profile Bitcoin bridge failures like Ren and Multichain. We ensured comprehensive testing for security and functionality — employing a phased release that began in January with ‘optimistic minting’ supported by prominent crypto partners like Curve DAO, Yearn.Finance, Synthetix and others,” NuCypher co-founder MacLane Wilkison (a Threshold contributor) told Modern Consensus

Scalable, decentralized solutions that don’t require users to ask anyone’s permission are of critical importance to the DeFi ecosystem and the ethos of crypto generally. This redemption feature means that tBTC now enables Bitcoin holders to transfer and use BTC within the DeFi ecosystem without having to go through a trusted intermediary — as has been the case with the majority of Bitcoin-to-Ethereum bridging activity since 2017. 

BitGo and Kyber Network launched WBTC (also known as “wrapped Bitcoin) that year, and while it’s been the most widely used Bitcoin-to-Ethereum bridge, it’s a highly centralized solution. In fact, BitGo CEO Mike Belshe is admirably candid about the company’s desire for more decentralized solutions and the fact that the technology was not available at the time to build WBTC in a more decentralized way. Speaking on a Twitter Space hosted by the decentralization watchdog Blec Report in December, Belshe told Chris Blec, “Although we’re running this centralized custodian, that was never my career ambition… I would love for it to be decentralized. I have no ambition of being the world’s holder of tons of asset in a centralized way. We see centralized things fail a lot.”   

Indeed, centralization has been a key theme in the spectacular crypto failures in the last year. To pick one of the two bridge failures cited by Threshold’s Wilkison in the quote above, Ren Protocol saw its development team “join” Alameda Research in 2021, only to give token holders a few weeks’ notice before shutting down operations amid the FTX collapse in November 2022. Fast forward to April 2023 and the FTX estate seized Ren’s assets, including any Bitcoin collateral that users hadn’t withdrawn. 

Threshold Network, which includes the protocol itself (a Dapp running on Ethereum), a DAO and a utility token, was formed January 1, 2022 in the first on-chain protocol merger of two pre-existing networks, Keep and NuCypher. Both those companies for several years had been developing privacy solutions for public blockchains when several active members of each community championed a merger as the best way to bring robust solutions to market and, in the case of tBTC, take market share from WBTC. 

In his blog post announcing the launch of tBTC redemption capability, Keep co-founder Matt Luongo cited as “prophecy” a March 2020 call by Ethereum inventor Vitalik Buterin for “a proper (trustless, serverless, maximally Uniswap-like UX) ETH BTC decentralized exchange. It’s embarrassing that we still can’t easily move between the two largest crypto ecosystems trustlessly.” 

Now that movement between Bitcoin (market capitalization of $570 billion as of July 30, 2023) and Ethereum ($225 billion market cap) is possible without trusting a centralized custodian to hold the Bitcoin, Modern Consensus will be following how much of the resulting DeFi activity stays on Layer 1 Ethereum vs. moving to lower-cost L2 scaling solutions like those mentioned above  — and covering the concomitant and debates and developments around them. 


Disclosure: As noted in his Modern Consensus editor’s bio paragraph, John Packel currently serves in elected part-time roles on Threshold’s Council and its Treasury and Marketing Guilds. He holds Threshold’s native work token.