Crypto News

Using DNS To Coordinate Bitcoin Payments

Published

11 months ago

February 20, 2024

Matt Corallo proposed a little more than a week ago a BIP for the coordination of making Bitcoin payments. Making bitcoin payments has always presented something of a challenge in terms of coordination, both on-chain and off-chain with protocols like Lightning, for different reasons. When it comes to digital systems like email or payment systems like Paypal, Cashapp, etc. people are very used to the concept of a single static identifier. If you want to send John an email, you just email “john@[insert domain].” If you want to send John some money on Cashapp, you just send a payment to @John on Cashapp.

This is the user experience that people are familiar with, and when it comes to entrenched user behavior and expectations with things it is incredibly difficult to push them into a substantial or sharp change in their behavior. If you present them with a tool that requires that, it presents a large degree of friction and more than likely is simply going to disincentivize most people from using that tool.

On-chain payments run into a problem with this expectation, not because of an inability to have a static identifier (a single address), but because of the privacy implications of posting a single on-chain address and having everyone you interact with use that to pay you. It puts your entire payment history and coin ownership in the public view of everyone. If you are only rarely receiving money now and again, i.e. when being paid for work or settling bar tabs with people, it’s not a burden at all to simply open your wallet and generate a fresh address to receive to. If you are frequently receiving money however, specifically in instances where you do not directly solicit the payment, that presents a serious burden.

This is why tools like BTCPay Server were created, in order to lower the barrier to entry for people to spin up the needed infrastructure to automate receiving funds without doing something naive like posting a single address for everyone paying you to reuse. However, this necessitates running a server that is constantly available online. While the project has drastically lowered the bar of understanding required, it is still a high burden for a user who simply wants to be able to passively receive money.

The same holds true for Lightning except worse. An invoice is only good for a single payment. Unlike an on-chain address, which can be reused even though it’s horrible practice, a Lightning invoice cannot be used. Once the invoice has either been paid or expires the Lightning node in question will deny any attempt to pay it. This dynamic led to the creation of the LNURL specification, as well as Lightning Addresses built on top of it. LNURL is a protocol for connecting to an HTTP server through a static IP that can be shared once in order to grab an actual Lightning invoice to pay from the server. Building on top of that, Lightning Addresses are a naming scheme on top of LNURL structured similarly to email addresses: John@[domain of LNURL server].

All of these solutions have downsides. The requirement to run an extra piece of software (an HTTP server) that remains online all the time in addition to your Bitcoin wallet or Lightning node; making a request to the BTCPay/LNURL server leaks the sender’s IP address to the recipient; relying on TLS Certificate Authorities.

Just Use DNS

HTTP server tooling like LNURL when paired with Lightning Address use domains to resolve the connection to the HTTP server. Similarly BTCPay Servers are all configured with domains rather than using raw IP addresses. Matt’s insight is why not just cut out the dependence on HTTP and use the Domain Name System itself?

DNS allows you to associate TXT records with a given domain name, creating small human (or machine) readable records that can be queried from DNS servers. In combination with Domain Name System Security Extensions (DNSSEC) DNS TXT records provide a mechanism that can be used in order to query payment information without the overhead and burden of running an HTTP server, as well as offer a bit more flexibility and openness. DNSSEC provides a number of tools for cryptographically signing DNS entries, including TXT records, with the DNS keys inherent in the hierarchical structure of DNS. This provides a guarantee that the TXT record you are querying is the record signed by and distributed to lower level DNS servers from the local root server/key.

This gets to the real benefit of DNS as a means for fetching payment data: say goodbye to the requirement of having to run an HTTP server. A TXT record can encode an on-chain Bitcoin address (though the BIP specifically recommends AGAINST doing this if you are not capable of regularly rotating new addresses to prevent address reuse), but more importantly it can also contain a BOLT 12 Lightning Offer.

These records can be fetched from any DNS server, your own local one, your ISP, even a public server like Google or Cloudflare. From this basic point, one shortcoming of HTTP based solutions is solved; you are no longer leaking your IP address to the person you are trying to pay. Now, in the case of using your ISP’s DNS or a public server like Google or Cloudflare without a VPN or Tor you are revealing your IP address to them; the BIP clearly encourages support for DNS resolution over a VPN or Tor for specifically this reason.

Combining this proposal with BOLT 12 removes the need for running ancillary software that presents a very real security concern for unsophisticated users, and allows the ownership of a domain alone to give users everything they need to have a mechanism to locate payment information with a simple human readable identifier. BOLT 12 requires no HTTP server, handling the actual invoice delivery over onion routed connections directly through the Lightning Network, and supports Offers, a static identifier that can be used to find an onion route to that Lightning node. The problem is the Offer is encoded as a massive random seeming string like an invoice itself, making it a horrible human readable/usable identifier except through the use of QR codes or copy and pasting.

By storing an Offer in a DNS TXT record, all a user needs in order to make a payment is someone’s domain to type into their wallet so it can fetch the TXT record, fetch the BOLT 12 Offer, and then make the payment. They don’t need to host any server or run any software other than their Lightning node, the DNS system handles everything for them as far as hosting their BOLT 12 Offer someone that users wanting to pay them can find.

Is this a perfectly trustless system? No. Is it much better than HTTP based systems? Absolutely. The problem with issues like this is that there is a certain expectation of UX and behavior that most people have as far as digital systems are supposed to work in their minds. Without replicating that UX, large groups of people will simply use alternatives that do meet that UX expectation. Given that reality, in attempting to fit Bitcoin into the box of those UX expectations, the design goal should be to meet those user needs with the minimal amount of trust interjected, the minimal amount of burden placed on the users, and the minimal potential for loss of privacy in new ways. I think Matt’s BIP checks all of those boxes in comparison with existing solutions.

Matt Corallo recently proposed a BIP for Bitcoin, DNS Payment Instructions, with the goal of utilizing the DNS system to fetch information to make Bitcoin payments.

Crypto News

You Should Not Wear This Bitcoin Shirt — Here’s Why

Published

3 hours ago

January 14, 2025

admin

Follow Nikolaus On &Xopf; Here For Daily Posts

Everyone has their own unique sense of style, but if you are wearing Bitcoin merch like the shirt in the X post below out in public — you should probably stop doing so.

This Bitcoin shirt is cringe as fuck.

Have fun getting 7 dollar wrench attacked. pic.twitter.com/zRlT2CFrIg

— Breadman (@BTCBreadMan) January 11, 2025

I agree with this post in that this shirt is cringe as fuck and will only bring unwanted attention.

Most people don’t understand Bitcoin and the lingo adjacent to it. If you’re wearing this out in public, the majority of people are not even going to understand it and will move on with their day, completely forgetting about it. So if you’re wearing the shirt, you’re not really flexing as hard as you think.

But some who will see you wearing it will know what it means, and this may lead to bad consequences.

Wearing a shirt that broadcasts to everyone that you own a full bitcoin (or basically $100,000, at the time of writing, in the form of a bearer asset) will likely just put a target on your back.

Don’t believe me?

This past November, the CEO of the Canadian company WonderFi was kidnapped and held for ransom. And more recently, a Pakistani crypto trader was kidnapped and forced to pay $340,000 to the kidnappers from his Binance account.

I’m not trying to scare anyone, but these things can happen, and you should at least avoid putting yourself in such a situation.

These criminals may or may not know how Bitcoin works, and it’s probably worse if they don’t. Because they might think you have it all on one exchange, or that you have your private keys located in one place that is easy to obtain, therefore thinking you are probably an easy target. And if you tell them you physically cannot give up your coins, and they don’t believe you, things could get ugly quick.

I’m not saying to never talk to anyone about Bitcoin ever or to be 100% secretive about it — I mean, I’m a public figure in this space and have thought through how to best limit the chances of something bad like this happening to me. The security of your bitcoin is important, but also is your personal security. Luckily for me, I am an American and have my second amendment rights. Protecting my Bitcoin from a potential $5 wrench attack is a lot easier with a firearm.

Upgraded my bitcoin security today by buying a Glock 19

— Nikolaus (@nikcantmine) December 26, 2020

If you are a proud owner of one full bitcoin, it’s fine to celebrate it, as that is a feat that most people on the planet will never be able to achieve.

My advice to you, though, is to celebrate it in a way that is more private, like with no one more than your family and very close friends that you trust. You can post online on X or Reddit anonymously about it if you really want to have a deeper conversation about it or to get the dopamine from all the other anons congratulating you on the accomplishment.

Don’t tell people how much bitcoin you own, and definitely don’t wear shirts that disclose it. Just stay humble and stack more bitcoin.

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

You Should Not Wear This Bitcoin Shirt — Here's Why You are putting a target on your back by wearing merch like this.

Crypto News

Bitcoin DeFi Is Finding Product-market Fit With Runes

Published

4 hours ago

January 14, 2025

admin

Over the past year, the Bitcoin Renaissance has brought significant attention to BTCfi, or “Bitcoin DeFi” applications. Despite the hype, very few of these applications have delivered on their promises or managed to retain a meaningful number of “actual” users.

To put things into perspective, the leading lending platform for Bitcoin assets, Liquidium, allows users to borrow against their Runes, Ordinals, and BRC-20 assets. Where does the yield come from, you ask? Just like any other loan, borrowers pay an interest rate to lenders in exchange for their Bitcoin. Additionally, to ensure the security of the loans, they are always overcollateralized by the Bitcoin assets themselves.

How big is Bitcoin DeFi right now? It depends on your perspective.

In about 12 months, Liquidium has executed over 75,000 loans, representing more than $360 million in total loan volume, and paid over $6.3 million in native BTC interest to lenders.

For BTCfi to be considered “real,” I would argue that these numbers need to grow exponentially and become comparable to those on other chains such as Ethereum or Solana. (Although, I firmly believe that over time, comparisons will become irrelevant as all economic activity will ultimately settle on Bitcoin.)

That said, these achievements are impressive for a protocol that’s barely a year old, operating on a chain where even the slightest mention of DeFi often meets with extreme skepticism. For additional context, Liquidium is already outpacing altcoin competitors such as NFTfi, Arcade, and Sharky in volume.

Bitcoin is evolving in real time, without requiring changes to its base protocol — I’m here for it.

After a rocky start, Runes are now responsible for the majority of loans taken out on Liquidium, outpacing both Ordinals and BRC-20s. Runes is a significantly more efficient protocol that offers a lighter load on the Bitcoin blockchain and delivers a slightly improved user experience. The enhanced user experience provided by Runes not only simplifies the process for existing users, but also attracts a substantial number of new users that would be willing to interest on-chain in a more complex way. In contrast, BRC-20 struggled to acquire new users due to its complexity and less intuitive design. Having additional financial infrastructure like P2P loans is therefore marking a step forward in the usability and adoption of Runes, and potentially other Bitcoin backed assets down the line.

The volume of loans on Liquidium has consistently increased over the past year, with Runes now comprising the majority of activity on the platform.

Ok so Runes are now the dominant asset backing Bitcoin native loans, why should I care? Is this good for Bitcoin?

I would argue that, regardless of your personal opinion about Runes or the on-chain degen games happening right now, the fact that real people trust the Bitcoin blockchain to take out decentralized loans denominated in Bitcoin should make freedom lovers stand up and cheer.

We’re winning.

Bitcoiners have always asserted that no other blockchain can match Bitcoin’s security guarantees. Now, others are beginning to see this too, bringing new forms of economic activity on-chain. This is undeniably bullish.

Moreover, all transactions are natively secured on the Bitcoin blockchain—no wrapping, no bridging, just Bitcoin. We should encourage and support people who are building in this way.

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

Bitcoin DeFi Is Finding Product-market Fit With Runes BTCfi is on track to compete with other ecosystems.

Crypto News

We’re Repeating The 2017 Bitcoin Bull Cycle

Published

4 hours ago

January 14, 2025

admin

The 2017 Bitcoin bull market was a wild ride, with prices soaring from under $200 to nearly $20,000. As we look at the current market, many are wondering if we might see a similar surge again. In this article, we’ll explore the data and trends that suggest we could be on the brink of another massive bull cycle.

Key Takeaways

The current Bitcoin cycle shows strong correlations with the 2017 cycle.
Historical data indicates potential for significant price increases.
Investor behavior patterns are mirroring those from previous cycles.

Understanding Bitcoin Bull Cycles

Bitcoin has had several bull cycles, each with its own unique characteristics. The most notable was in 2017, where the price skyrocketed. Now, as we analyze the current market, we see some interesting parallels.

The recent price action has been choppy, with Bitcoin hitting a new all-time high above $108,000 before retracing to below $90,000. However, it has since rebounded, and this fluctuation is not uncommon in bull markets.

Comparing Current Cycle to Previous Cycles

When we compare the current cycle to previous ones, particularly the 2017 cycle, we notice some striking similarities. The following points highlight these correlations:

Cycle Length: The 2017 cycle peaked at 168 days from its low, while the 2021 cycle peaked at 160 days. Currently, we are 779 days into this cycle, suggesting we have a significant amount of time left.
Price Action Correlation: The correlation between the current cycle and the 2017 cycle is at an impressive 0.92. This means that the price movements are closely aligned, indicating that we might be following a similar trajectory.
Investor Behavior: The MVRV (Market Value to Realized Value) ratio shows a strong correlation of 0.83 with the 2017 cycle, suggesting that investor behavior is also mirroring past trends.

The Role of Halving Events

Bitcoin halving events have historically been significant markers in the price cycle. The last halving occurred in 2024, and as we look at the current cycle, we see that it closely follows the pattern established in 2017. The halving events in both cycles occurred within a similar timeframe, which could indicate that we are on a similar path.

Future Predictions

Looking ahead, if the current cycle continues to follow the 2017 pattern, we could see a significant price increase throughout 2025. While some predictions suggest prices could reach as high as $1.5 million, it’s essential to approach such forecasts with caution. A more realistic peak might align with historical trends, potentially occurring in late 2025.

Conclusion

In summary, the current Bitcoin bull market shows strong correlations with the 2017 cycle, both in terms of price action and investor behavior. While we may not see the same explosive growth as in 2017, the data suggests that we could be in for an exciting ride in the coming months. As always, it’s crucial to stay informed and make decisions based on thorough analysis.

If you’re interested in more in-depth analysis and real-time data, consider checking out Bitcoin Magazine Pro for valuable insights into the Bitcoin market.

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always do your own research before making any investment decisions.

We're Repeating The 2017 Bitcoin Bull Cycle Explore the potential for Bitcoin to repeat the 2017 bull cycle. We analyze price action, investor behavior, and future predictions for Bitcoin’s market trajectory.