Bitcoin as a Strategy for an Uncertain Future – Epi-3273
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We are heading into the back half of the current bitcoin halving cycle. Simply put the next halving will be sometime in March of 2024, and the reward per block will drop from 6.25 to 3.125. We call this a supply shock. Simply put Bitcoin has put in its bottom for this cycle and it will be a bumpy up and down journey from here that will trend upward likely for the next two years.
This means the excitement will pick up, tons of misinformation from both the pro and anti bitcoin sides will flow. Bitcoin is going to zero, bitcoin is going to 10 million, and all things in between. But what about practical, real world, common sense wealth building, commerce and practical understanding of bitcoin? That is what we will cover today.
First I will be answering some very beginner type questions on a few things and some basic definitions we tend to take for granted in the bitcoin community. Then let’s talk about the future of bitcoin, fears of CBDCs, etc. How we can use Bitcoin right now, what is coming next and why Bitcoin is superior to old forms of money like silver and gold as “uncensorable money”.
Join Me Today to Discuss…
- Some definitions to basic terms we throw around a lot
- Full Node
- Lightning Node
- Taxable Event
- Private Key
- Consent of the Governed
- Why I don’t recommend Coinbase Wallet as a wallet
- What is cold storage vs. hot storage
- The real weakness of gold/silver as uncensorable money
- Why Nostr marketplace will in time become a foundational parallel economy
- How Bitcoin monetizes stranded energy and why not doing so is fiscally irresponsible
- Why I pretty much ignore all Bitcoin FUD, claims they will ban it, etc.
- The lesson of “The Walls of Babylon”
- Why I am not afraid of CBDCs
Resources for today’s show
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- How to Self Custody Your Bitcoin
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Thank you for the Podcast Jack. Particularly helpful for me was the information about Start9 and the Embassy OS.
You are correct that the danger of centralizaiton in Bitcoin mining is not from hash rate centralizing into mining pools. It is instead the centralization of mining hash rate under corporate control. Corporations are creations of the government, thus regulators have good reason to believe that mining corporations will comply with govt edicts.
When a coalition of Western governments have jurisdiction over a sufficient number of Bitcoin corporations to regulate a clear majority of the BTC hash rate, the regulating govts will be on a path to control of the entire blockchain -all transactions globally.
Gaining complete control of the Bitcoin blockchain will be a stepped process designed to pressure an ever-increasing % of transactions onto centralized exchanges. Eventually, regulators will simply overwrite any blocks containing transactions originating outside of govt controlled exchanges. Govts will then use the exchanges to ID users, censor transactions, tax profits and seize Bitcoin. This process can be expected to start during or shortly after the next bear market. In about 4 years.
The percentage of mining rigs currently owned by corporations is large and growing. Worse it is a recognized bitcoin principle that “pooling pressures” have a centralizing effect on mining. https://github.com/libbitcoin/libbitcoin-system/wiki/Pooling-Pressure-Risk
Bottomline -The centralization of Bitcoin mining hash rate under corporate ownership is a long known risk that few in the Bitcoin community are willing to address.
This is also false because EVERY miner chooses their own pool. I don’t know why this is so hard to comprehend, may be back to it is so simple that the mind is repelling it, again.
Jack, Perhaps you are reading too fast. My reply, and the problem Bitcoin faces, are not because hash rate is pooled. The problem is corporations within the jurisdiction of Western Govts OWNING, not pooling but OWNING, the majority of the hash rate. Corporate ownership of the majority of the mining hash rate is a well recognized problem because Corporations must comply with regulations directing them to only confirm transactions from govt approved exchanges. This too is a simple concept.
No I am not, may be you are. THE CORPORATIONS DO NOT OWN THE HASH POWER, the miners do. Even most the corporate hash is still individually owned.
These operations don’t in general own most of the equipment, they manage and host it. I think that is the confusion point. People think these companies buy rigs, install them and mine. They do some, they mostly though sell equipment into their operations. Bill goes to Giant Mining Corporation XYZ and buys three miners. Bill pays a fee for management, hosting, etc.
Bill selects his pool and while it is often the company pool it often isn’t, lot more companies than pools. Bill can still change his pool any time bill wants. This just does not work the way you have convinced yourself it does.
Thank you Jack, at least some confusion is cleared up.
In late 2022 approximately 1/6 of the global hash rate was owned by the 15 largest publicly listed Bitcoin mining corporations. 62% of their hash power was derived from ASICs they owned. The largest major public corporations do own most of the ASICs they mine with.
But the real issue is the % of the ASICs that are within their corporate facilities. When coordinated regulations are applied to Western Bitcoin mining facilities the owner of the ASIC will have only the choice of paying to shut down and remove their ASICs or putting up with the regulations. Redirecting one’s hash rate to a foreign pool won’t cure the fact that it must comply with the regulations applicable to the jurisdiction the ASIC is operating in.
Since, no Bitcoin mining company has sufficient staff to physically remove and ship a significant % of the ASICs used by their facility, anyone who seeks return of their equipment can expect extraordinarily slow service.
Increasing corporate control of Bitcoin hash power is a real problem. Best estimates indicate that approximately 37% of the global hash rate is now directed by public and private corporations. This is still a minority of the global hash rate and only about 64% of the corporate hash rate is in the West. But both the % of the global hash rate in the West, and the % directed by Corporations is growing quickly. Centralization of the Bitcon hash rate is expected because of the known pressures on mining described by the Libbitcoin authors. They call it Pooling Pressure Risk -but the pressures they describe are really centralizing pressures. Pooling pressure a misnomer that should not be confused with mining pools
Govt control of Bitcoin will be a stepped process. The focus of govt efforts will be first on limiting use of cryptos, then on forcing them to move through centralized exchanges, then on criminalizing “unauthorized” DEX and Peer to Peer transactions. Regulating Bitcoin mining will be the last step taken by govts. It will be effective because coordinated regulation will govern the majority of the hash rate, which will drive many bitcoiners to use alternative coins, and to split Bitcoin into multiple less secure forks.
Appreciate your work and your comments. Thank you.
Follow up for your interest.
This month Carole House, former director of cybersecurity for the White House National Security Council,spoke at Princeton.
She wants more of the Bitcoin Hash Rate in the U.S. so that they can force miners to censor the network on the base layer. She also views international cooperation as a necessary component for successful censorship. It’s not just about telling miners not to mine certain transactions, but to not even build atop blocks that have non-compliant transactions, so that those transactions don’t get anywhere in the chain. A 51% attack, in other words.
Expect the mainchain of the Bitcoin network to be regulated by the end of the decade. There will be black market forks. Bitcoin was designed to be permissionless (black market).
But hodlrs on the mainchain will be Taxed, ID’d & Controlled.
Jack, now that Bitcoin and the crypto exchanges are no longer anonymous and thus taxed, hasn’t the use of crypto currency lost it’s advantages?
First “now” is about 10 years ago for that, and do you pay tax on capital gains on stocks, etc.?
I mean do you not want your house because it is not anonymous? Your bank account? Jeez where exactly do questions like this even come from? Who ever told you that you didn’t have to pay tax on crypto gains? Not me. Who ever told you that crypto (but Bitcoin is not “crypto”) was anonymous, what do exchanges have to do with this anyway?
I think I need someone to refer first step questions off to at the point. I am like an old band tired of playing my one hit over and over for the crowd that I have had to play since the 70s when it was a hit. I am just too tired of saying the same shit over and over to be nice about it any more. And that isn’t your fault.
You may be at fault by playing ONLY your one hit over and over again and it may be time to refer off to someone with a fresh perspective.
I was looking for 3 good justifications that a 62 year old man could understand to make the leap into bitcoin besides the hype “make gobs of money”. I can get that kind of hype from a financial liar.
If you have not gotten that from me yet, you are NOT LISTENING and something tells me you don’t want to. It is also not the question you asked, your question is what is termed a problem seeking question. Don’t buy bitcoin, it isn’t for you because you have chosen to not understand it.
If I thought you were actually attempting to understand it, I’d say, keep working until you understand it, but that isn’t what this is. Also if a 62 year old man is afraid to simply spend 50-100 bucks to learn and actually buy a small amount, possess it and move it, nothing any podcaster says will help him.
No it isn’t my fault, I don’t keep playing the same song, you folks continue to request it.
I’ve thrown away money on worse advice, so look down on me no more. This old man is going to start a coinbase account and buy some bitcoin to move it.
A little suggestion. Don’t be afraid to take some profit back into dollars if it goes up during another bull run. I’ve been into crypto for 2 years now, and I’ve seen my portfolio go from low 4 digits to as high as nearly 40k… but I never took profit and watched all my gains go away.
So just like buying stocks or bonds, set some number goals for yourself. Try and buy during lows and don’t be afraid to sell into rallies. Let the dumb money buy what you were brave enough to buy when there red candles everywhere. Godspeed and good luck!
P.S. And take Jack’s advice and once you get some BTC/crypto, be sure and get into a cold or hot wallet… don’t keep it on exchanges.
thanks for the advice.
Which wallet are you using?
Exodus. Jack and others recommended it and it’s fairly simple to use. Just remember to make a couple of copies of your key phrases.
I do feel like bitcoin is a very significant technology and thanks for pointing out the strengths of a hardware wallet. I did get one of those
One question I have is something like: suppose that the CIA launched 5000 rogue bitcoin nodes at some point in the future. What kind of chaos and mayhem could that produce and what could the bitcoin community do to counter such a threat or what is the threat? I am just curious. I could have also asked is there such a thing as a rogue node, I did see that there has been something like that as I did a google search but have not really looked into it but things like that might be what a conspiracy theorist thinks about