Opinion
Crypto Behemoth Coinbase Enters The Bitcoin DeFi Arena
Published
4 months agoon
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adminA short and cryptic tweet sparked a frenzy in X circles late Tuesday night when leading global exchange Coinbase hinted at plans to enter the wrapped Bitcoin market. The initial speculation was quickly validated by senior employees who corroborated their excitement for further integration of the Bitcoin asset into the company’s on-chain ecosystem.
Other observers have highlighted the strategic nature of the decision following a tumultuous week for current market favorite, BitGo’s wBTC. The latter has long been regarded as the easiest and most popular method for Bitcoin investors to gain exposure to DeFi products.
With the industry’s attention on Bitcoin-native alternatives, the announcement is seen by many as a decisive move toward preserving Ethereum’s dominance as the de-facto Bitcoin DeFi layer.
The Origins Of Wrapped Bitcoin
To better understand the emergence and interest in wrapped Bitcoin products, one needs to rewind the clock to 2018 when the idea of DeFi was just starting to take off on Ethereum.
Looking to attract liquidity to their protocols, a collection of projects decided to set their focus on the most liquid asset on the market: Bitcoin. Loi Luu, one of wBTC’s original contributors, shared his perspective on the ordeal:
“We realized that to really help DeFi grow, we needed to bring Bitcoin liquidity into the ecosystem.”
As the old saying goes, the rest is history. In the middle of 2020, “DeFi summer” sparked a speculative craze that would lead the total value of deposits into wBTC north of $10 billion dollars. Today, a little over 150,000 bitcoins remain locked into its Ethereum contract, under institutional provider BitGo’s custody.
This custody, and the responsibility it necessitates, is the subject of the current controversy surrounding wBTC. Late last week, for example, BitGo revealed a new strategic partnership with Hong Kong-based BiT Global, looking to extend the wBTC product to a “multi-jurisdictional custody” setup. Behind BiT Global is infamous cryptocurrency founder Justin Sun.
The announcement saw blowback from users who claim the introduction of new actors into the custody arrangement is a miscalculated risk.
Dominos started falling the following day as community members from popular algorithmic stablecoin Maker began advocating for wBTC to be removed from the protocol’s collateral assets list as a safety measure. On Tuesday, BitGo founder Mike Belshe and representatives from Bit Global defended the decision on a public X Space.
While concerns voiced on social media have yet to put a material dent into wBTC’s deposits, they have opened the door for challengers. Despite BitGo’s long tenure in the space, it’s safe to wonder whether they’ve exhausted market participant’s confidence.
Earlier this year, a lawsuit from the company, spawned by a failed acquisition from Galaxy Digital, resurfaced as Delaware’s Supreme Court ruled the case should move forward.
A Challenge For Programmable Bitcoin Layers
For Coinbase, this foray into the wrapped asset business might be more than sheer opportunism. Analysts see a potential for the company to reinvigorate a stale product by hitching onto the popular Bitcoin DeFi narrative.
Based on research from BitcoinLayers, over 60% of the new proposed Bitcoin scaling protocols are advertised as replacements for Ethereum’s EVM (Ethereum Virtual Machine). Over the last year, excitement around those proposals has invited many to suggest they could steer users away from Ethereum towards Bitcoin, but most projects have failed to deliver much progress so far. Coinbase could be looking at an opportunity to nip future competition in the bud.
The company’s stake in the success of Ethereum has significantly increased since the launch of its native rollup implementation, BASE, late last year. While it’s fair to question what took them so long to compete with BitGo’s wrapped product, the ability to directly profit from the growing demand for on-chain Bitcoin speculation is likely the driving force behind the decision.
Coinbase recently reported revenues of nearly 20 million dollars from their BASE product in the last quarter alone.
Despite advertisements for more Bitcoin-native, trust-minimized, solutions, market participants have so far favored established institutional custodians like BitGo over more complex and economically volatile alternatives. Coinbase appears intent to double down on this approach by leveraging their existing moat in the custody business.
With the company already responsible for safekeeping the assets of major institutional holders such as Blackrock’s IBIT ETF, the proposed cbBTC product is expected to inspire even more trust from larger players than its predecessors.
The impact this could have on upcoming Bitcoin layers is significant. Coinbase is in a unique position to attract liquidity that will be challenging for smaller projects to rival. Their strongest argument will rest on the security of their bridging mechanism which remains a work-in-progress.
As noted by industry analyst Jacob Brown, this week’s announcement follows a series of moves by Coinbase showing a growing interest in the Bitcoin ecosystem.
Of course, the security trade-offs introduced by custodial products remain strongly criticized by technologists and promoters of more decentralized solutions, but the question remains as to whether or not market participants adhere to those principles.
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Recently, BlackRock released an educational video explaining Bitcoin, which I thought was great—it’s amazing to see Bitcoin being discussed on such a massive platform. But, of course, Bitcoin X (Twitter) had a meltdown over one specific line in the video: “There is no guarantee that Bitcoin’s 21 million supply cap will not be changed.”
HealthRnager from Natural News claimed, “Bitcoin has become far too centralized, and now the wrong people largely control its algorithms. They are TELLING you in advance what they plan to do.”
Now, let me be clear: this is total nonsense. The controversy is overhyped, and the idea that BlackRock would—or even could—change bitcoin’s supply is laughable. The statement in their video is technically true, but it’s just a legal disclaimer. It doesn’t mean BlackRock is plotting to inflate bitcoin’s supply. And even if they were, they don’t have the power to pull it off.
Bitcoin’s 21 million cap is fundamental—it’s not up for debate. The entire Bitcoin ecosystem—miners, developers, and nodes—operates on this core principle. Without it, Bitcoin wouldn’t be Bitcoin. And while BlackRock is a financial giant and holds over 500,000 Bitcoin for its ETF, its influence over Bitcoin is practically nonexistent.
Bitcoin is a proof-of-work (PoW) system, not a proof-of-stake (PoS) system. It doesn’t matter how much bitcoin BlackRock owns; economic nodes hold the real power.
Let’s play devil’s advocate for a second. Say BlackRock tries to propose a protocol change to increase bitcoin’s supply. What happens? The vast network of nodes would simply reject it. Bitcoin’s history proves this. Remember Roger Ver and the Bitcoin Cash fork? He had significant influence and holdings, yet his version of bitcoin became irrelevant because the majority of economic actors didn’t follow him.
If Bitcoin could be controlled by a single entity like BlackRock, it would’ve failed a long time ago. The U.S. government, with its endless money printer, could easily acquire 10% of the supply if that’s all it took to control Bitcoin. But that’s not how Bitcoin works. Its decentralized nature ensures no single entity—no matter how powerful—can dictate its terms.
So, stop worrying about BlackRock “changing” Bitcoin. Their influence has hard limits. Even if they tried to push developers to change the protocol, nodes would reject it. Bitcoin’s decentralization is its greatest strength, and no one—not BlackRock, not Michael Saylor—can change that.
This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
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Opinion
It’s Time to Admit It – There Are Only 2.1 Quadrillion Bitcoins
Published
2 days agoon
December 21, 2024By
adminIf the above statement offends you, you might not have read the Bitcoin source code.
Of course, I’m sure you’ve heard that there are 21 million bitcoin – and this is true, the Bitcoin protocol allows for only “21 million bitcoin” to be created, yet these larger denominations can be subdivided into 100 million sub-units each.
Call them whatever you want, there are only 2.1 quadrillion monetary units in the protocol.
This dollars and cents differential has long been the subject of debate – in the time of Satoshi, Bitcoin’s creator, the dual conventions, Bitcoin having both a bulk denomination, and a smaller unit, was not much of a concern. There were questions about whether the software would work at all, and bitcoin were so worthless, selling them in bulk was the only rational option.
Rehashing this debate is BIP 21Q, a proposal to the Bitcoin users authored by John Carvalho, founder of Synonym, creator of the Pubky social media platform, and a tenured contributor whose work dates back to the days of the influential Bitcoin-assets collective.
In short, the BIP proposes that network actors – the various wallets and exchanges – change how Bitcoin denominations are displayed, with the smallest unit of the protocol renamed “bitcoins,” as opposed to “satoshis,” as they have been commonly called.
Here are the specifics of the BIP:
Redefinition of the Unit:
- Internally, the smallest indivisible unit remains unchanged.
- Historically, 1 BTC = 100,000,000 base units. Under this proposal, “1 bitcoin” equals that smallest unit.
- What was previously referred to as “1 BTC” now corresponds to 100 million bitcoins under the new definition.
Terminology:
- The informal terms “satoshi” or “sat” are deprecated.
- All references, interfaces, and documentation SHOULD refer to the base integer unit simply as “bitcoin.”
Display and Formatting:
- Applications SHOULD present values as whole integers without decimals.
- Example:
- Old display: 0.00010000 BTC
- New display: 10000 BTC (or ₿10000)
Unsurprisingly, the debate around the BIP has been hostile. For one, it’s not a technical BIP, though this is not a requirement of the BIP process. Suffice to say, it’s perhaps the most general BIP that has been proposed under the BIP process to date, as it mainly deals with market conventions and user onboarding logic, not any changes to the software rules.
However, I have to say, I find the proposal compelling. Nik Hoffman, our News Editor, does not, preferring to stick to the market affirmative.
Yet, I think the proposal raises relevant questions: why should new users be forced to compute their Bitcoin balances using only decimals? Surely this has the adverse side effect of making commerce difficult – it’s simply antithetical to how people think and act today.
Also, in terms of savings, at an $100,000 BTC price, it isn’t exactly compelling to think you could be spending a whole year earning 1 BTC, though that may be.
Indeed, there have been various debates for all kinds of units – mBTC, uBTC – that play around with the dollars and cents convention, but Carvalho here is wisely skipping to the end, preferring just to rip the band-aid off. $1 would buy 1,000 bitcoins under his proposal.
What’s to like here, and I argued this during a Lugano debate on the topic in 2023, is that it keeps both the larger BTC denomination and the smaller unit, now bitcoins. They are both important, and serve different functions.
My argument then was that having a larger denomination like BTC (100 million bitcoins) is important. If there was no “BTC unit,” the press and financial media would be faced to reckon that “1 bitcoin” is still worth less than 1 cent.
How much mainstream coverage and interest do we think there would be? I’d bet not very much.
In this way, BIP 21Q is a best-of-both-worlds approach.
The financial world, press, and media can continue championing the meteoric rise in value of “BTC,” while everyday users can get rid of decimals and complex calculations, trading the only real Bitcoin unit guaranteed to exist in perpetuity.
This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
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Bitcoin spot ETF
We Need In-Kind Redemptions For The Spot Bitcoin ETFs
Published
2 days agoon
December 21, 2024By
adminOn a recent episode of the Coinage podcast, guest SEC Commissioner Hester Peirce said that she is open to reconsidering in-kind redemptions for spot bitcoin ETFs.
(For those who aren’t familiar with the term “in-kind redemption,” it refers to the ability to withdraw the bitcoin you’ve purchased via an ETF into your own custody. In essence, it turns a bitcoin IOU into the real thing.)
BREAKING: SEC Commissioner Hester Peirce previews new pro-crypto changes coming to the SEC
ETF in-kind redemptions and ability for ETF issuers to begin staking likely done "early on"
Both ETFs now have more than $100B in AUM pic.twitter.com/g3jtbuBeWU
— Coinage (@coinage_media) December 20, 2024
This makes my heart happy, as bitcoin wasn’t designed to exist trapped within the wrappers of the old system. It was built to set us free from that system.
If Peirce can work with the incoming SEC Chair, Paul Atkins, to facilitate the approval of in-kind redemptions then the spot bitcoin ETFs can serve as some of the biggest on-ramps to Bitcoin, as Bitwise co-founder Hong Kim put it, as opposed to simply existing as speculation vehicles.
Bitcoin was born to exist in the wild. It wasn’t born to exist in a Wall Street zoo.
In-kind redemptions would allow the bitcoin currently trapped within the zoo the ability to return to its natural habitat.
This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
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