If Bitcoiners Don’t Do More, CBDCs Will Win


This is an opinion editorial by Logan Chipkin, a professional writer who creates educational content about Bitcoin and other topics.

In “The Fiat Standard,” economist Saifedean Ammous argues at length that the United States federal government has been propagandizing the masses into choosing “cheap industrial substitutes” and “massively reducing (its) meat consumption” since at least 1916.

As Ammous wrote:

“…the ADA (American Dietetics Association) is responsible for formulating the dietary guidelines taught at most nutrition and medical schools worldwide, meaning it has for a century shaped the way nutritionists and doctors (mis)understand nutrition. The astonishing consequence is that the vast majority of people, nutritionists, and doctors today think that animal fat is harmful, while grains are healthy, necessary, and safe!”

In other words, even though a meat-centered diet is superior to a grain-centered one, the government and its quasi-private partners succeeded in persuading millions of people into opting for the latter.

Ammous raises the topic of dietary guidelines as just one example of how a fiat standard distorts an industry, but there’s another lesson in this story that Bitcoiners have to grapple with:

Even if your product is the best on the market, governments (and other entities) are capable of spreading narratives that persuade citizens to choose an inferior alternative.

If it happened with food, it could happen with money.

A CBDC Punch-Counterpunch

On July 10, 2023, Karin Strohecker published an article in Reuters titled, “Twenty-Four Central Banks Will Have Digital Currencies By 2030, Survey Shows.” Apparently, a couple dozen central banks have been making “great” progress in their development of central bank digital currencies (CBDCs). Strohecker wrote that these central banks have been “working on digital versions of their currencies for retail use to avoid leaving digital payments to the private sector (emphasis added) amid an accelerating decline of cash.”

This purported motivation behind CBDCs has been brewing for a while — in August 2022, the European Central Bank (ECB) released a report called “Towards The Holy Grail Of Cross-Border Payments.” In it, the authors compared the merits and demerits of various technological implementations of a cross-border payment solution that might be “immediate, cheap, universal and settled in a secure settlement medium.” Of the candidates they considered, they concluded that “Bitcoin is least credible” and that “the interlinking of domestic instant payment systems and future CBDCs, both with a competitive FX conversion layer” are the two most credible solutions.

While the ECB left out any remark about the risks that CBDCs pose to citizens’ privacy and sovereignty, River Financial responded with a report of its own. Spearheaded by River’s Sam Wouters, this report does explain the gaping hole in the ECB’s argument for CBDCs, as well as the technological barriers that Bitcoin ought to overcome if it’s going to be adopted worldwide.

Readers can review the technical and quantitative arguments of both ECB and River Financial for themselves — my purpose in bringing up this punch-counterpunch is that the battle between freedom-money and tyranny-money is not one that we will win by default, and that it’s as much a battle for hearts and minds as it is for product superiority. Much like the propaganda campaign that persuaded people to switch from healthier diets to those that the government preferred, central banks are levying their best words, videos and other marketing techniques to convince people that CBDCs are superior to Bitcoin.

And, in the end, their victory is possible.

Understanding The Education Process

We know that Bitcoin solves humanity’s many monetary problems far better than CBDCs do. We recognize the havoc that rampant inflation wreaks on nations. We understand that lacking a store of value is the cause of so many anti-civilizational behaviors. But that’s not enough. If others don’t understand the fiat origins of these problems, they don’t stand a chance of appreciating Bitcoin as their solution. Whether or not central banks recognize the importance of this knowledge in the battle over the future of money, they’re certainly taking every opportunity they can to spread ideas that push Bitcoin to the outskirts and earn CBDCs widespread acceptability.

“Bitcoin bad, CBDCs good,” the people think. And that’s all central banks need, the inferiority of their product be damned.

As Wouters rightly pointed out in his report:

“Great strides have been made in education, but if Bitcoiners who are less experienced in education want to accelerate adoption, they would benefit from gaining a deeper understanding of the education process to take ownership of it and become more effective. This starts by understanding the gap between their perspective and knowledge and that of the recipient… (S)ome people inside the Bitcoin space are not aware enough of how difficult it is for the average person to go through this journey.”

As much as Wouters heroically explains the “how,” “what,” and “why” of the technological improvements that will help Bitcoin achieve widespread adoption, none of these holds a candle to peoples’ ideas about money. Even if Bitcoin eventually becomes as easy to use as credit cards or cash, the masses could still reject it in favor of CBDCs for purely-ideological reasons. Grain will have defeated meat once again.

This is no reason to despair. Bitcoin isn’t inevitable, no. But victory is possible, and its fate is largely determined on the ideological battlefield. The gap between our deepest explanation of monetary economics and most peoples’ views on the subject is vast. The same goes for the problems that fiat money continues to cause, the dangers of CBDCs, and how and why Bitcoin is a panacea for most of our money problems.

The educational effort before us is enormous, but, in the face of the enemy’s propaganda, necessary. And it’s thrilling — billions of people are about to learn about the greatest civilizational battle they hadn’t even known was occurring right under their noses.

Our war is an ideological one. Bitcoin doesn’t have to suffer the same fate as meat — and the industrial sludge that is CBDCs can perish in the sewers of history. We have persuading to do.

This is a guest post by Logan Chipkin. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Why Do Crypto Options Lag Behind Traditional Options?


Traditional options are only growing more popular. 2022 witnessed record numbers of zero-day S&P options trading. A single day in November saw about 1.5 million trades, over double the amount in January and nearly quadruple the amount in early 2020.

Crypto options, while having risen in popularity in recent years, have not yet become normalized in the minds of most traders.

A recent five-day average of options volume including CBOE, NASDAQ, NYSE, MIAX, and BOX options was 37,001,379, compared with only 8.9 million ETH contracts and 778,000 BTC contracts on Deribit for the entire month of November.

If bitcoin is poised to become the next global reserve asset, it is puzzling that the number of options contracts traded on top of it is about two orders of magnitude less than the number of zero-day S&P option trades.

Contrast crypto’s small options market size with that of traditional market single-stock options, which exceeded stocks in daily notional value in 2021 (see Figure 1).

Figure 1. Average quarterly notional U.S. options and share trading.

Meanwhile, BTC’s daily spot trading volume reached $31.06 billion as of November 2022, according to The Block. During the same month, Deribit’s 24-hour BTC option volume was $460 million, two orders of magnitude less than BTC’s spot volume.

Qualitatively, the ratio of equity options over equity shares is far greater than the ratio of BTC options over BTC spot trades.

It is not obvious why traditional options should be much more popular than crypto options. In this article, we offer three plausible explanations for the disparity.

Reason One: Traditional Options are More Established

Although options have been with us for thousands of years, the form of traditional options that traders are familiar with was established in 1973 with the founding of the Chicago Board of Options Exchange. In the years leading up to CBOE’s formation, trading options were not a user-friendly process, and so the market for them was stagnant. Even after its formation, the market for trading options did not grow significantly for about two decades. Only in 1999 did trading options begin to increase in popularity (see Figure 2).

Figure 1. Average quarterly notional U.S. options and share trading.

The same year that CBOE was founded, Fisher Black and Myron Scholes came up with the famous Black Scholes Pricing Model for calculating the price of an option. This gave otherwise unknowledgeable investors psychological security in entering the options market.

Crypto options, on the other hand, are just a few years old. Cryptocurrencies were invented in 2008 with Satoshi Nakamoto’s white paper, so it stands to reason that higher-order financial instruments have taken some time to be developed. It will also take time for cryptocurrency enthusiasts to become comfortable enough to trade in crypto-based financial instruments.

Similar to traditional options’ early years, aggregated open interest in crypto options is small (see Figures 3 and 4) but primed for exponential growth as exchanges continue to innovate and make options trading more user-friendly.

Figures 3 & 4. Aggregated open interest of BTC (top) and ETH (bottom) options from July 2020 through July 2022.

Because traditional options have been around for so long, exchanges have had ample time to innovate and better satisfy customer needs.

The ecosystem of traditional options trading platforms is mature and robust. For example, TD Ameritrade was founded in 1975 and so has had ample time to earn the trust of the public. They offer a wide range of products, professional educational tools, and analytics.

Widely praised competitors to TD Ameritrade include E*TRADE, Fidelity, Merrill Edge, and Interactive Brokers IBKR Lite.

Platforms for trading cryptocurrency options are both younger and fewer in number than their traditional counterparts. Deribit is the leader of the pack, and was founded in 2016.

In short, one reason that traditional options are more prominent than crypto options is that the former has had more time to become normalized in the minds of traders.

Reason Two: Differences in Market Dynamics

Options are fundamentally a tool that traders use to hedge risk. For example, a trader will purchase a put option to acquire the right to sell the underlying asset at a fixed price within an established time interval. This is a useful strategy when dealing with both volatile assets and a market whose trades can take days to settle. Trade settlements in traditional finance can take up to two days, by which time a volatile asset’s price could have swung wildly.

Crypto markets do not suffer from such delays: trades on crypto exchanges are settled instantly.

Furthermore, a crypto trader typically has a private wallet that he uses for peer-to-peer transactions. Such trades also take very little time. Therefore, a crypto trader with a significant fraction of his crypto portfolio on his own wallet has less of a need for hedging strategies than traditional finance traders.

In particular, 2022 saw a mass exodus of BTC from exchanges to private wallets. By December, exchanges possessed less than 12% of all BTC in circulation (see Figure 5).

Figure 5. 2022 witnessed a mass exodus of BTC from exchanges.

Moreover, the amount of ‘illiquid’ supply of BTC–the amount held in self-custody–has been rising aggressively (see Figure 6).

Figure 6. The amount of BTC held in self-custody has increased dramatically in 2022.

Those who self-custody BTC are quite unlike those who have spare cash in the bank. The former tend to adopt the ‘HODL’ strategy and aim to hold their BTC for years at a time, while those with cash prefer to put their cash to work in order to beat inflation. This discrepancy is another reason that traditional options are more popular than crypto options relative to their respective markets.

Reason Three: Prime Brokerages

Prime brokerages have long been a centerpiece in traditional finance, servicing institutional traders and hedge funds by handling trades, managing custody, and offering advisory services.

The crypto ecosystem’s demand for prime brokerages is currently greater than the supply, though this is changing. For example, crypto traders may need a brokerage to facilitate trades across a number of platforms simultaneously as a hedge against any particular exchange’s illiquidity.

Because there is not yet a robust legal framework around crypto, many traders are afraid to invest in crypto options and other investment vehicles in the space. A prime brokerage service can offer traders the security and insurance that they need in order to engage in large-scale crypto trading.

Fortunately, crypto prime brokerages are now emerging. In fact, some are offering services that go beyond what the traditional prime brokerage ecosystem tends to provide. For example, one particular brokerage offers clients the ability to automatically scan the crypto market for arbitrage opportunities.

As more crypto prime brokerages enter the space, expect traders to feel more comfortable purchasing crypto derivative products.


Relative to their respective markets, traditional options continue to be more popular than crypto options. This is largely due to the fact that traditional options have been around longer, and that they provide greater relative risk reduction than crypto options. As the crypto ecosystem’s legal framework, user-friendliness, and quality of services mature, crypto options will dramatically increase in trade volume and market capitalization.

Nevertheless, crypto options have some advantages over traditional options. For example, because crypto is more volatile than traditional markets, trading crypto options is a straightforward way to solve for crypto volatility. Relatedly, crypto options are a way for traders to profit from crypto’s unique volatility. Finally, as mentioned above, crypto markets are open 24/7, unlike their traditional counterparts.

Deribit is the world’s leading cryptocurrency derivatives platform. Through Deribit, all types of traders make use of these exciting new markets, whether experienced or inexperienced, aggressive or conservative. We are proud to have 97% of ETH options market share and 90% of BTC options market share. We also offer free educational content for traders who wish to learn about crypto, derivatives, and the mechanics of trading.


Logan Chipkin Logan Chipkin

Logan Chipkin is a writer in Philadelphia. He publishes on science, economics, and philosophy. He can be found on Twitter, and his previous articles can be found here.


The post Why Do Crypto Options Lag Behind Traditional Options? appeared first on Deribit Insights.

What Are Zero Knowledge Rollups And Can They Help Scale Bitcoin?


Since nearly its creation, some Bitcoin enthusiasts have looked to ways the functionality & scalability of Bitcoin might be increased. As Bitcoin adoption continues to expand, the ability to build trustless financial primitives on top of the protocol will be key in challenging the fiat based monetary system(s).

To date scaling solutions to Bitcoin have varied from side-chains to layer-1s, to trustless solutions like the Lightning Network. When it comes to more complex smart-contract enabled financial primitives, most Bitcoin scaling solutions have relied on side-chains & layer-1s, which present unique centralization risks. 

Examples of Existing Bitcoin Scaling Solutions:

Enter ZK-BTC 

A recent report published by a participant in the Human Rights Foundation’s ZK-Rollup Research Fellowship, John Light, lays out how Bitcoin could deploy a trustless Layer 2 solution – through the use of a validity rollup. I will give a high-level overview of Mr. Light’s findings, a more detailed report is available here.

What is a Validity Rollup?

A rollup holds the state root and the transaction data needed to recompute the current state on the rollup blockchain from its genesis. This state data is stored on the parent chain – in this case Bitcoin – while transaction execution is handled on the rollup itself.

A validity rollup uses ‘validity proofs’ to ensure the new rollup blocks follow the rules of the rollup protocol. Everytime a new block is created on the validity rollup, the block producer sends a state update to the parent chain – in this case Bitcoin. 

The validity proof is used to show that the update from the block producer is valid before the state data is updated on the parent chain. 

Deploying A Validity Rollup to Bitcoin

A recently published post from Trey Del Bonis has documented how a validity rollup could be deployed to Bitcoin’s Turing-incomplete language, Script, with minor changes (in terms of code changes). By enabling a few extra opcodes, two new primitives could be enabled on Bitcoin: validity proof verification and recursive covenants. This could be done, according to Del Bonis, without the need for a hard-fork. 

However, given that this requires giving Bitcoin Full Nodes the ability to verify validity proofs, the community will need to decide what type of rollup they’d want to enable if any – for example better smart contract functionality. Put simply, Bitcoin Full Nodes would be the gatekeepers that verify validity proofs before they are able to be added to the Bitcoin network. 

Because the Bitcoin Full Nodes would not actually need to verify the computations taking place on the validity rollup, the computational effort is the same whether the Full Node is verifying one validity transaction or a full block of validity transactions. 

Del Bonis covers other potential methods of enabling rollups on Bitcoin & more technical aspects of the implementation here

Benefits of Using A Validity Rollup

A validity rollup would enable an entirely new functionality to be added to Bitcoin without the need for any consensus rule changes on the parent chain itself – in this case Bitcoin. The reason behind this is that the Bitcoin Full Nodes would only need to know how to verify the rollup validity proof – not all the specific consensus rules on the rollup itself. 

This would allow for additional functionality to be added that builds on top of Script – Bitcoin’s scripting language – without the need to hard-fork the network. 

The goal of the rollup is in essence is to allow for an alternative programming language – say a smart contract enabling one – to operate directly on Bitcoin instead of using a “two-way peg” or a Layer-1 as is the case in Liquid Network and Stacks respectively. 

Though there are Bitcoin focused side-chains with smart-contract functionality today, they have drawbacks & centralization risks. Presently for example, RSK & Liquid Network are essentially custodial side-chains: you peg in your BTC to their protocol and get an IOU back, which their multi-sig process says they will give back to you if & when you ‘peg out.’ A rollup would allow for the experimentation with alternative execution environments, while maintaining full custody of one’s Bitcoin – a key tenant of Bitcoin ethos.

Final Thoughts

Assuming a validity rollup could be implemented on top of Bitcoin without a need for a hard-fork (or other drastic changes to the protocol), this is a solution that warrants further consideration.

Ultimately, though, the community will need to decide if the benefits of this solution outweigh both the risks & costs. Another consideration is where the addition of this rollup functionality fits with the long term vision & ethos of the Bitcoin community. 

The post What Are Zero Knowledge Rollups And Can They Help Scale Bitcoin? appeared first on Bitcoin News.