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The Perils of Centralized Control

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“It is in the nature of a system of government control of business to aim at the utmost centralization…In voting for government control of business the voters implicitly, although unwittingly, are voting for more centralization.”

– Ludwig Von Mises

One of the most underestimated threats that modern society faces is the ever tightening grip of centralized control. History has shown us time and again that centralized control inevitably devolves into tyranny, eroding the foundations of liberty upon which free societies are built. The 10 planks of communism, as outlined by Karl Marx and Friedrich Engels in The Communist Manifesto, that serves as the blueprint for transitioning society to a collectivist system cannot be implemented without centralization first occurring; due to the fact that communism at its core seeks to abolish every form of private ownership while enthroning the state as master of all. The sad reality is that these planks have been gradually implemented over the years by most countries in the world, thus progressively eroding free markets and the overall liberty of their citizens.

The centralization of speech online is the most recent threat that has emerged as a potent tool for state control. Ironically, this phenomenon resembles the realization of plank 6 of the communist manifesto, which advocates for the “centralization of the Means of Communication and Transport in the Hands of the State.” As commerce and communications via online platforms grows, these two very important aspects of human existence become centralized in the hands of the big tech companies that own these platforms. In our cancel culture driven world, the increasing overlap between centralized social media platforms and financial services has significantly increased the risk of absolute censorship; where violating the constantly changing “community guidelines” can lead to one becoming persona non grata and being immediately deplatformed.

Without decentralized alternatives, censoring any speech or transaction that is deemed “undesirable” becomes a trivial matter. Big tech social media giants acting as the de facto thought police and enforcers for the state, wield immense influence over the flow of information, and suppress every form of dissent through the threat of financial strangulation when one doesn’t toe the line. There are two major factors that undergird this power to silence dissent online:

Centralized nature of the social media platforms Centralized payment processors like PayPal that dominate these platforms

For individuals who rely on social media for their livelihood, deplatforming represents a significant threat, not only to their ability to express themselves freely but also to their income. Self-censorship naturally becomes the norm and this is even more dangerous as it creates the illusion of alignment with the current thing of the day. Thankfully, Bitcoin has made these payment processors irrelevant and due to it being fully decentralized, neutral, apolitical and censorship resistant; it’s a viable alternative.

Code is Speech

In 2013 Cody Wilson, the pioneer of the world’s first 3-D printable gun, received a letter from the State Department demanding removal of blueprints for his plastic firearm, the Liberator, or risk facing jail time and millions in fines. In 2015 Wilson’s organization, Defense Distributed, filed a lawsuit against the State Department, alleging that prohibiting the publication of his plans, which are essentially computer code, constitutes a prior restraint of free speech rights, as guaranteed by the First Amendment of the US constitution. The dispute revolved around the State Department’s claim that posting 3-D printable gun files online constitutes a potential breach of arms export controls, a controversial set of regulations known as the International Traffic in Arms Regulations (ITAR).

The history of ITAR has been marred by controversy and contention. In the 90s, it was used to target cryptographers (aka cypherpunks), classifying strong encryption tools as military munitions. After the source code for PGP was released and printed out as a book, it immediately fell under First Amendment protection. Despite this seemingly obvious fact, its inventor Phil Zimmermann, was subjected to a grueling three-year Department Of Justice (DOJ) investigation during these Crypto Wars, which was subsequently put to bed without any indictments. In 1995 cryptographer Dan Bernstein also sued the DOJ, arguing ITAR violated his First Amendment rights, and won the case. This was the landmark case that designated code as speech.

Despite the State Department’s two-year enforcement of ITAR against Defense Distributed, it failed to stop the proliferation of its 3-D printable gun files online. Instead, concerns over censorship spurred over 100,000 downloads of the Liberator blueprint in just two days! Despite removal from Defense Distributed’s websites, the file quickly spread to platforms like the Pirate Bay, making erasure nearly impossible. Attempts to ban speech in the digital age are not only absurd but futile because of its ability to manifest in infinite forms.The historical example of RSA’s classification as munition highlights the futility of restricting information as epitomized by printing forbidden information on t-shirts. Information must be free.

Export-controlled RSA encryption source code on a T-shirt turned the shirt into a restricted munition.

In an interview I had with Jessica Solce, the film maker and executive producer of Death Athletic: A Dissident Architecture a documentary that profiled Cody Wilson and the 3D-printed guns movement; when commenting on the significance of Cody’s battle with the government she said,

Cody entangled the First and Second Amendment by pushing guns into the digital era. He utilized the burgeoning technology of 3D printing to reduce a gun to code. This WikiWeapon, the Liberator, was directly inspired by Wikileaks, and immediately threatened the Government’s axis of power and control. It was a masterful play that antagonized the military complex and forced the conversation of gun control into the age of the Internet.”

In other words, Wilson didn’t just challenge the military industrial complex’s monopolization (i.e., centralization) of firearms manufacturing. His stance extended to firmly resisting instances of government overreach that sought to regulate and control information pertaining to emerging technologies, which in and of itself is another form of centralized control. A condition which George Orwell described in his book 1984 as, “an endless present in which the party is always right”.

Interestingly Jessica also encountered firm resistance from centralized content distributors and media outlets when the film was released, as it definitely didn’t fit the “approved narrative” because on the surface it looks like a film about guns but it’s really a story about the power of free speech and free access to information in the internet age. Clearly the time is ripe for more decentralized content distribution and streaming services that are integrated with Bitcoin payments, think Angel Studios on a Bitcoin standard. This will empower content creators to not only profit from captivating content while simultaneously challenging centralized control over information, ensuring artistic creative control, prioritizing truth, and preservation of free speech., but I digress.

In July 2018, three years after Defense Distributed challenged the State Department’s actions in court, they accepted a settlement offer from the State Department, including a license to publish its files and a payment of nearly $40,000. When questioned about the settlement, State Department spokesperson Heather Nauert justified the decision, stating that the Department of Justice advised settling the case to avoid likely loss on First Amendment grounds in court. Information must be free.

This and many other ongoing legal battles faced by Cody Wilson and Defense Distributed underscore important aspects of individual rights and freedom of speech that must be defended. These battles serve as a reminder that:

The state seeks to control and capture new technologies by “any means necessary” Lawfare and bureaucracy are the weapons of choice in achieving this aim More decentralized technological tools and protocols that incorporate Bitcoin as the monetary layer need to be built to ensure the preservation of liberty and individual sovereignty.

Jessica echoed similar sentiments when stating one of the biggest takeaways that she hopes people will get from Cody’s story; “The takeaway is to build however you can – community, resources, decentralized systems, archive history and information. The battle for information, the era of the Internet and the battle for its control must be understood as a type of new frontier. Many are against second amendment rights so I’d ask them are they truly against the free and open dissemination of information as well? Do they like someone telling them what they are able and not able to understand and read?”

I couldn’t agree more.

Decoding Free Speech in the Digital Age

Just like PGP or Cody’s 3D-printable gun designs, Bitcoin at its core is fundamentally open source code, thus Bitcoin is speech. In the words of Beautyon,“There is no point in any Bitcoin transaction that Bitcoin ceases to be text. It is all text, all the time.The ruling in the Bernstein v. The DOJ case set a precedent that recognized code as protected speech under the First Amendment, and therefore this protection also directly applies to Bitcoin. Fundamentally, Bitcoin is a messaging system and functions much like email and text messaging, all of which transmit messages. Its primary aim is to definitively confirm an owner’s control over a cryptographic key, represented as a block of text, enabling access to a corresponding entry in the global Bitcoin network ledger. The point here is that restriction of communication using programming languages is an example of a prior restraint of speech.

Attempts to ban Bitcoin are just as ludicrous as banning memorizing 12 words in your head or outlawing certain musical scores .Does this mean that the powers that be will not try to outlaw Bitcoin and increase their grip on the narrative through censorship? You bet they will! Just like they have declared war on free speech online by rebranding it as a war on “misinformation and disinformation”, propaganda is also being disseminated by the corporate media that paints Bitcoin mining in particular, as being harmful to the environment, a claim that has been repeatedly debunked along with the usual “Bitcoin is for money launderers and criminals

Time fails me to discuss the latest proposed FinCen regulations and the EU’s Markets in Crypto Assets (MiCA) law which are all very subtle but sinister attempts to gradually cripple Bitcoin in the name of combating money laundering and enforcing know your customer policies.. In the same vein, digital ID’s and central bank digital currencies (CBDC’s), are more than just surveillance tech; but are also weapons for destroying free speech and independent thought. The ultimate road to serfdom. While legal challenges against all these forms of government overreach noted above will be launched and likely won, they take a long time to settle and are usually very costly. The best solution is to develop more open-source, decentralized technological tools that will thwart and defang any attempts by the state to censor speech.

As big tech companies pay lip service to freedom of speech while simultaneously implementing “freedom of speech not reach policies, online discourse increasingly mirrors the authoritarian control described by Ludwig von Mises when he said: “At every instant of his life the “comrade” is bound to obey implicitly the orders issued by the supreme authority. The State is both his guardian and his employer. The State determines his work, his diet, and his pleasures. The State tells him what to think and what to believe in”. This is even more true today, than it was in 1944 when it was written.

Without the freedom of speech we lose a critical part of what it means to be free human beings. Today we may witness the battles between Defense Distributed and the State Department, Wikileaks and the DOJ, Bernstein and the DOJ, and so on. However, one thing remains clear: the players may change, and the time frames may differ, but the underlying struggle has always been centralization versus decentralization, a battle between those who seek to control speech and those who seek to liberate it. Satoshi Nakamoto, Julian Assange, Aaron Schwartz and many others are some of the martyrs of freedom that contributed immensely to the preservation of free speech in our society today. Bitcoin is the best shot that we have at safeguarding the future from being suffocated by the censorship industrial complex leviathan. 

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

​ Centralized forces exerting influence over the masses is the greatest threat to any decentralized system or activity. 

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BitVM Just Got A Massive Upgrade

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The introduction of BitVM smart contracts has marked a significant milestone in the path for scalability and programmability of Bitcoin. Rooted in the original BitVM protocol, Bitlayer’s Finality Bridge introduces the first version of the protocol live on testnet, which is a good starting point for realizing the promises of the Bitcoin Renaissance or “Season 2”.

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Unlike earlier BTC bridges that often required reliance on centralized entities or questionable trust assumptions, the Finality Bridge leverages a blend of BitVM smart contracts, fraud proofs, and zero-knowledge proofs. This combination not only enhances security but also significantly reduces the need for trust in third parties. We’re not at the trustless level that Lightning provides, but this is a million times better than current sidechains designs claiming to be Bitcoin Layers 2s (in addition to significantly increasing the design space for Bitcoin applications).

The system operates on a principle where funds are securely locked in addresses governed by a BitVM smart contract, functioning under the premise that at least one participant in the system will act honestly. This setup inherently reduces the trust requirements but has to introduce additional complexities that Bitlayer aims to manage with this version of the bridge.

Source: https://blog.bitlayer.org/introducing_finality_bridge/

The Mechanics of Trust

In practical terms, when Bitcoin is locked into the BitVM smart contract through the Finality Bridge, users are issued YBTC – a token that maintains a strict 1:1 peg with Bitcoin. This peg is not just a promise but is enforced by the underlying smart contract logic, ensuring that each YBTC represents a real, locked Bitcoin on the main chain (no fake “restacked” BTC metrics). This mechanism allows users to participate in DeFi activities like lending, borrowing, and yield farming within the Bitlayer ecosystem without compromising on the security and settlement assurances that Bitcoin provides.

While some in the community might find these activities objectionable, this type of architecture allows users to get some guarantees that they previously could not hope to get with traditional sidechain designs, with the added bonus that we do not need to “change” Bitcoin to make it happen (although covenants would make this bridge design completely “trust-minimized, which would effectively make it a “True” Bitcoin Layer 2). For more details about the different levels of risks associated with sidechains designs, take a look at Bitcoin Layers assessment of Bitlayer here.

However, until such advancements come to fruition, the Bitlayer Finality Bridge serves as the best realization of the BitVM 2 paradigm. It’s a testament to what’s possible after the dev “brain drain” from centralized chains back to Bitcoin. Despite all the challenges that BitVM chains will face, I remain exceptionally excited at the prospect of Bitcoin fulfilling its destiny as the Ultimate Settlement Chain for all economic activity.

This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Guillaume’s articles in particular may discuss topics or companies that are part of his firm’s investment portfolio (UTXO Management). The views expressed are solely his own and do not represent the opinions of his employer or its affiliates. He’s receiving no financial compensation for these Takes. Readers should not consider this content as financial advice or an endorsement of any particular company or investment. Always do your own research before making financial decisions. 

 The BitLayer Finality Bridge is Delivering On The Promises of BitVM – While still far from a fully trustless system, the progress made over the past year is remarkable 

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Bitcoin Banks: We Should Build Them Ourselves

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Bitcoin banks are going to happen. We already have a few of them. We’re going to have more of them. Existing legacy banks are going to start offering services. New banks are going to be founded around Bitcoin. This is completely unavoidable at this point. Bitcoin doesn’t scale. Even absent that, people value other services that inherently require other parties. Debt being the chief one.

This is an inescapable reality.

Even if we could snap our fingers and roll out every well specified opcode and covenant proposal at once, it would still take a lot of time to begin building out self-custodial layers that could compete with something like credit unions and banks offering bitcoin accounts at scale. That is not a problem that can be trivially solved overnight.

So what can we do? We need to embrace a localist attitude around making interaction with your bitcoin easy. This requires a two pronged approach, one involving technical development and the other involving, I hate to say it, lobbying.

There already exist pieces of software like LNDHub or LNBits that allow people to offer custodial accounts for Lightning. We need a lot more software like this, and we need it to be miles better. It needs to not involve tinkering around on the command line and hooking up independent software, or perusing Github to follow manual installation instructions, or fumbling around trying to fix dependencies mismatches.

It needs to just work.

Click, sync to the network, done. It needs to be something that power users who are still not very tech savvy can run safely, and not lose other people’s money. It needs to support more than basic accounts for Lightning. Ecash offers privacy, which would be something important when it comes to small groups of people who know each other. You don’t want your friend seeing what you spend your money on. It needs to support things like Unchained or Nunchuck style on-chain self custody. People aren’t going to want to hold all their friends and family’s life savings, but holding a recovery key to safeguard them from their own mistakes is another matter.

We need the software that will actually scale this type of user interaction beyond a bunch of activist nerds online.

We also need a regulatory carve out. There needs to be a clear acknowledgement that running this type of software for friends and family with trivial amounts of money, say thousands of dollars, and without charging anything for it, is an unregulated activity. Helping friends and family interact with Bitcoin safely and easily, and for free, does not make you a bank. The idea of a few thousand dollars needing to comply with the regulations banks managing billions of dollars do is frankly absurd.

This is the path forward given the current constraints of Bitcoin, and the reality of growing and accelerating adoption, that leads us away from a system that eventually becomes completely captured and neutered by legacy financial institutions.

Instead of depending on them to deal with the current scaling limitations of Bitcoin, we depend on each other. 

This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

 Bitcoiners shouldn’t sit around and wait for fiat banks and financial companies to offer services built on Bitcoin, we should do it ourselves. 

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Galoy Launches Bitcoin-Backed Loan Software, Sets Groundwork For Open-Source Banking

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Founder: Nicolas Burtey

Date Founded: September 2019

Location of Headquarters: United States

Number of Employees: 11

Website: https://www.galoy.io/

Public or Private? Private

Last week, Galoy launched Lana, software that enables banks to accept bitcoin as collateral for loans.

Lana helps community and challenger banks (the banks with which Galoy is looking to work) to offer bitcoin-backed loans to various types of customers.

“Some banks might want to use it to sell to retail, and some might want to use it to sell commercial customers or high-net-worth individuals,” Burtey told Bitcoin Magazine.

In offering such loans to a wide array of customers, Burtey believes that the high cost of borrowing currently associated with such products will come down.

“Today’s interest rates are 12% to 15% if you want to get a loan using your bitcoin as collateral,” said Burtey.

“The rates are high because there are so few financial institutions offering this type of product. We see an opportunity now that the regulations are allowing banks to do things with bitcoin,” he added.

“We think a lot of banks will want to enter this market.”

If Burtey is correct in his prediction that banks are keen to offer bitcoin-backed loans, this will not only lower rates for such loans, but it will also introduce open-source Bitcoin software into the world of banking, which could initiate a new trend in the industry.

But more on that in just a minute. First, some background on Galoy.

Galoy’s History: From Blink Wallet To Lana

Founded in September 2019, Galoy had intentions to enable banks to use bitcoin from the start, but it had to hold off on doing so due to an unfriendly regulatory environment.

So, instead, it focused its efforts on creating and supporting Blink wallet (which was originally called the Bitcoin Beach wallet and which Galoy recently sold), a custodial Bitcoin and Lightning wallet predominantly used at first in El Salvador and then in Bitcoin circular economies globally.

“Galoy’s mission was to onboard banks to Bitcoin five years ago,” said Burtey.

“But the regulatory environment was so bad during the last five years that we decided to create Blink. The reason we are now focusing on our original mission is because with the end of Choke Point 2.0 and the repeal of SAB 121, we think now is the perfect time to help banks adopt Bitcoin.”

Burtey spoke about his work in creating and growing Blink fondly and shared that he had to stop working on the project only because it would be too difficult to continue managing it while also aiming to serve a new type of clientele.

“Blink is a B2C (Business-To-Customer) play, and it’s hard as an early-stage startup to focus on too many things,” explained Burtey.

“Galoy is a B2B (Business-To-Business)-driven business, and we want to work with banks and financial institutions,” he added.

“It’s good to be focused on just one thing.”

And, as mentioned, that one thing will now be Lana.

How Lana Works

Lana is software that Galoy helps banks integrate and manage for a subscription fee. With this software, banks can issue bitcoin-backed loans under the terms they create.

“We’re not the ones deciding how much interest will be charged or anything like that,” explained Burtey.

“We give banks the platform to do this, and then they can figure out their cost of capital, the duration of the loan, the liquidation price for the bitcoin in the loan and the rate at which they want to lend,” he added.

“We’re giving you software, and helping you run and automate that software.”

Something else that Galoy doesn’t do for banks is custody the bitcoin provided as collateral for the loans they issue. Each of the banks with whom the company works is responsible for selecting their own custodian.

“You can go to BitGo or Fireblocks or each loan can have its own multisig,” said Burtey. “We’re agnostic on custody.”

With that said, Lana helps banks monitor the bitcoin in custody so that banks can be aware of whether or not collateral is nearing liquidation levels.

“A key piece of this product is risk management,” said Burtey.

“Bitcoin is volatile, and the bank will need a tool to show that it’s taking calculated risk. So, we’ll provide banks with a dashboard to monitor this risk,” he added.

An example of the risk-monitoring dashboard for bitcoin-backed loans that Galoy has created

Who Will Use Lana?

Galoy is targeting community banks and other smaller financial institutions with this new product mostly because they think these smaller players will benefit most from it — and because the big banks likely won’t need such a product.

“We don’t think JP Morgan will really want to work with us,” said Burtey. “They’re probably building something like this themselves, whereas a smaller bank, a credit union or small company probably isn’t.”

Burtey also understands that smaller lenders’ incorporating Lana as opposed to building something comparable themselves can save these financial institutions a significant amount of time and effort.

“Our goal is to say, ‘Look, you can develop this internally, and it will take you six months, a year or longer depending on how much you know about Bitcoin,’” said Burtey. “‘Or we have a lending product as a service for you, and you can launch it much more quickly.’”

And as Burtey and his team onboard their first round of smaller banks, they’ll not only be making history in enabling more banks to accept bitcoin as collateral for loans, but they’ll potentially be altering the trajectory of banking in general by introducing open-source software to it.

Open-Source Bitcoin Banking

Burtey’s long-term vision for Galoy is to do much more than just help banks issue bitcoin-backed loans. He’s looking to introduce open-source software into banking as more banks begin to embrace Bitcoin.

However, it’s important to note that Lana isn’t open-source just yet. It’s fair-source software, and, under such a license, code becomes open-source after two years.

“It’s a delayed open-source system, but it’s all available on GitHub,” said Burtey. “You can go and try it, test it, and play with it on your own.

Under the fair-source license, no company other than Galoy can sell the product to a bank right now, allowing Galoy to profit while still building with auditable code.

“We sell the deployment, and we help banks to plug in to their custodian,” explained Burtey. “We’re building in the open — but we also want to generate revenue.”

Beyond helping banks implement Lana, Burtey’s wants to develop open-source “core banking software,” as he’s looking to disrupt the “core ledger” oligopoly.

“The core ledger is where banks store the account data, customer information and transaction details,” said Burtey. “It’s the source of truth for banks.”

And only three companies — FIS, Fiserv and Jack Henry — have the core ledger market cornered.

“These are all like hundred billion dollar companies that you’ve probably never heard about because all they do is focus on selling software to banks,” said Burtey.

“Our long-term goal is to disrupt this industry by making something that is open source,” said Burtey. “Today, there is no company that does core banking with the idea of open source, and so we’re working towards this.”

Burtey envisions a world in which open-source software can make it much easier for someone to start a Bitcoin bank. (For those who wince at the words “Bitcoin” and “bank” being used in tandem, might I remind you that it was the legendary Hal Finney himself who wrote that bitcoin-backed banks would serve as a scaling solution.)

“To start a bank today is a very expensive and complicated process,” said Burtey. “You have to pay $100,000 plus just to purchase the core ledger technology.”

Burtey then referenced his own experience in starting Blink wallet, essentially a bitcoin bank run on open-source code, before continuing.

“I just went to El Salvador and started what was effectively my own bank because I wanted to,” said Burtey.

“We need to reinvent how core banking software is being made in the world of Bitcoin, and I think this is where open-source becomes relevant,” he added.

“This is really why I think the world of banking and Bitcoin will be very different from the world of banking with fiat, and I think we’re one of the companies at the forefront of this.”

 Galoy founder and CEO Nicolas Burtey wants to help more borrowers use bitcoin as collateral for loans while introducing open-source software into the traditional banking stack. 

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