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The Bitcoin Company

Newsletter

 

Hey! Welcome to the first edition of our newsletter.

We’re so glad you made it.

Every two weeks we’ll jump into your inbox to help you understand Bitcoin – not only what Bitcoin is, but what it’s doing and what’s happening in the community around it. We’ll explain known concepts as well as new developments getting you up to speed on what the heck bitcoin is. Let us know what you think! We’d love your feedback.We also hope once you’re armed with this knowledge, you’ll be eager to spread the word of bitcoin with others. Or feel free to just forward them our newsletter!

By the Numbers

Data source: https://www.cryptocompare.com/

 

The above chart examines the relative performance of common assets and investments in the US and developed nations. At a glance you’ll find that bitcoin grossly outperformed other opportunities in the market this past year, however, a prudent eye may notice that bitcoin has been the worst performing asset in the past month.

 

Despite recent price action, we find the overall trend encouraging. We see the current drawdown as mostly inconsequential. It is likely this downward turn is related to events unassociated with the mechanics and functions of Bitcoin. Investor behavior is more likely to be triggered by current events or technical market imbalances, such as the Fed’s remarks on tapering bond purchases1, a new coronavirus variant2, or an unhealthy amount of market leverage3.

 

1https://www.cnbc.com/2021/11/03/fed-decision-taper-timetable-as-it-starts-pulling-back-on-pandemic-era-economic-aid-.html

2https://www.nytimes.com/article/omicron-coronavirus-variant.html

3https://www.reuters.com/technology/bitcoin-extends-downtrend-falls-121-47176-2021-12-04/

Sources from left to right:

  1. https://twitter.com/sats_per_dollar
  2. https://twitter.com/BtcThis
  3. https://bitcoin.clarkmoody.com/dashboard/
  4. https://bitcointreasuries.net/
  5. https://twitter.com/BitcoinStimulus
  6. https://pricedinbitcoin21.com/landing
  7. Clark Moody Dashboard
  8. https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2022-January/date.html

Build your Bitcoin Knowledge

Each issue we will define a new Bitcoin term or highlight an element relevant to the ecosystem. If you want to explore more on your own we recommend checking out

Clark Moody’s awesome dashboard here:

https://bitcoin.clarkmoody.com/dashboard/

Block Height

A blockchain is a chain of blocks that are linked together. They help to determine an order of transactional execution history. A blockchain can have hundreds, thousands, or millions of blocks…

and a single block (within a larger chain of blocks that make up a blockchain) contains transactions that have recently been executed and are to be added to the ledger which determines the balances of every participant and every address in the network. The order of the blocks and the transactions within them determines who owns how much bitcoin in the network. On average, every 10 minutes a new block containing transaction data is added to the Bitcoin blockchain by miners. Since January 3, 2009, at 6:15 pm UTC this process has happened 720,063 times… so the Bitcoin blockchain has 720,063 blocks, each with a few hundred or thousand transactions within itself.This number can be referred to as the height or length of the blockchain since blocks are effectively stacked on top of each other or linked together. Some Bitcoiners have taken to using the block height in place of standard Gregorian date and time to mark the occurrence of events as they happen… this is possible because of a mechanism within bitcoin called the difficulty adjustment, which ensures that on average, new blocks are found, or mined, and added to the blockchain, every 10 minutes. Since 10 minutes is just an average, any individual block could be found in 1 minute or 20 minutes, This irregularity of time between blocks makes its use impractical for scheduling future events.

 

Fight the FUD

Each week we will highlight a common (or obscure) critique of bitcoin and explain how to properly debate your uncle that thinks Bitcoin uses too much energy.

How Does Bitcoin Work Without Anyone in Charge?

TBC_ BIP infographic

Critics of Bitcoin often point out that the protocol hasn’t changed much since it launched and this is a fair critique. It is true that when updates occur the implementation process can take years. Updates on the Bitcoin Network are few and far between. This slower pace of change is a feature not a bug.

 

One of the most important guiding principles of Bitcoin development is referred to as the ‘human (bitcoiner) in a coma’ problem. The bitcoiner in this analogy is a hypothetical user that is unable to update their software for many years. With many other types of software the inability to stay up to date could be catastrophic. In other monetary protocols this might even result in a complete loss of funds!, but in Bitcoin a user running the same software from a decade ago could still interact with up to date users. When updates are proposed they undergo a strenuous review process to ensure that no users will be left behind.

 

In this week’s highlight story, you’ll learn about the most recent major upgrade to the Bitcoin network. First we want you to understand a little more about the change process and why it moves slowly - to protect wealth. The ‘human in a coma’ simply doesn’t work in conjunction with the ‘move fast and break things’ strategy that is all too common in today's digital world. The bright and shiny developments that you see occuring in other crypto projects come at a cost and although this cost is often purposefully obscure, it must not be forgotten.

 

For a deeper understanding of Bitcoin governance we recommend checking out this article and lecture from Pierre Rochard.

 

TBC Taproot graphic

Highlight Story:

Taproot

“This in essence means greater privacy for the network and again smaller and cheaper transactions.”

 

This is a special newsletter for those of us here at The Bitcoin Company. Not just because it’s our first edition, but because we have been waiting eagerly to talk about Taproot. It has been just over two months since the long-awaited upgrade was activated on the Bitcoin network and we want to keep the excitement going around this major improvement.

 

Taproot is the name of a proposal that was added to Bitcoin to improve scalability and privacy through some clever optimizations. Taproot was first proposed in January of 2018 and was extensively reviewed for over two years before the activation process started. It should be noted that most of the debate revolved around which activation method should be used and not the improvement itself. It is even more important that the review process for every change to Bitcoin is lengthy because - as we saw in 2017 - changes that are contentious can threaten network security.

 

So, what does Taproot do? Well, Taproot does many things, but one of the things we're excited about is a new type of signature scheme - Schnorr signatures - which allows users to create bitcoin transactions that are smaller in size and therefore cheaper and more efficient to verify. This is especially important for users and for businesses that regularly create large and complex transactions like those generated by multisignature wallets.

 

As an interesting aside, Schnorr signatures were actually possible at the time of Bitcoin’s inception and Satoshi may have considered using them, but chose not to because the necessary technology was patented until 2008 and was not part of standard cryptography libraries at the time.

 

Nonetheless, you may have seen people talking about Taproot as an upgrade that brings smart contracts like those found on other blockchains to Bitcoin – this is not entirely accurate... Although Taproot does improve Bitcoin’s scripting capabilities, enabling conditional and more complex transactions, its capabilities will continue to be limited by design. While perhaps counterintuitive, having Bitcoin’s native language less flexible is intentional and crucial to both minimize Bitcoin’s attack surface and to mitigate unexpected loss for the users who trust the Bitcoin protocol to store their wealth. Over time the functionalities that are attainable through a more robust scripting language can be achieved through clever, more secure, and gradual improvements to the protocol rather than a hail mary attempt at making anything possible from day one.

 

What Taproot does enable is users’ ability to create more complex transactions without introducing any new security assumptions or exposing users to more risky processes. In fact, a Taproot spend will appear on the blockchain just as any regular spend would while having the ability to encompass a wide range of complexity. This means a taproot transaction could range from a plain vanilla

peer-to-peer spend to one that involves many different parties, time requirements, or potentially event-based conditions. In essence this means greater privacy for the network, more user capabilities, and - again - smaller and cheaper transactions because a complex transaction will end up looking identical to a simple A→ B transaction.

While the efficiency and privacy gains to Bitcoin Core are certainly exciting, we find the long-term effects of Taproot will largely relate to capabilities in technology layers built on top of Bitcoin - such as the Lightning Network. Although the impact of Taproot on Lightning and the broader ecosystem are mostly theoretical at this stage and require some deeper technical knowledge. But! If you’re interested to learn more, check out some of these more advanced resources:

 

Now that we understand a bit about how Bitcoin changes and why Taproot is seen as an overall benefit, let's dive into activation and what has happened since.

Taproot activated as expected on November 14th 2021 at block height 709,632. This was a planned upgrade at which point users would voluntarily participate (or not). Essentially this means those that opted for Taproot could start utilizing its new type of transaction anytime within or after block as of block number 709,632 and those that did not could remain fully compatible making payments on the same Bitcoin blockchain as if nothing happened (remember our “human in a coma”). The activation was successful in that it occurred at the intended time without any unanticipated results and the network continued without downtime or a chain split.

 

While we find the Taproot activation was a successful event and much less dramatic than SegWit2x, it was not perfect. There were some speed bumps in the mining of taproot blocks by two mining pools who had signaled their readiness for the upgrade prior to actual activation on the network. This means that some people announced to the network they were ready for Taproot before the network was prepared to verify taproot transactions. This was resolved somewhat quickly as they each had mined blocks with Taproot transactions by block 710,494, or within five days of activation.

 

All in all, we find Taproot to be an overwhelmingly positive change to Bitcoin that we will continue to discuss in later editions of this newsletter. By the way, if you feel we missed anything, please reach out to newsletter@thebitcoincompany.com so we can improve and relay such info in future editions. And if you want to continue these conversations, hit us up on Twitter or Telegram!

 

TBC custom rollercoaster graphic

Hey! If you made it this far - that’s awesome! And don’t worry if some of it went over your head -

the newsletter is designed to get more technical the further into it you scroll. Plus - we’ve all been there on this journey… There’s a lot of information to take in and understand.

 

We will continue to explain some of these technical concepts in the most accessible way we can and if you just keep reading it, you’ll start understanding more and more each week. Definitely come find us on Twitter and Instagram and ask any questions you have - we’re here to help. Plus we’re building out some amazing educational content that we’ll be sure to send your way as soon as it’s ready to launch.

 

Thanks for sticking around and if you haven’t had enough,

check out some of our favorite resources from this week below!

Updates + Security Highlights

  • NYDIG $1 billion funding round values company at over $7 billion
  • Ledn $70 million Series B values company at over $500 million
  • Umbrel new releases adds self-hosted monitoring app Uptime Kuma
  • LN Markets updates derivatives trading application on Umbrel
  • Trezor firmware and application updates enables Taproot support
  • Lightning Labs releases github repository for bitcoin

Lightning Improvement Proposals (bLIPs)

  • Grayscale publishes Bitcoin investor survey study

 

Let us know if there are any projects you’d like us to keep a close eye on.

We’ll add them to our list here.

 

Content Highlights

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Join the Conversation

Tweet thread of the day:

 

a thread on bitcoin mining addressing the energy use of bitcoin and climate change

10:33 AM · Jan 13, 2022

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On this Day

In Bitcoin History

 

@dickerson_des-

What are your favorite #bitcoin resources to share with newbies?

4:40 PM · Jan 18, 2022

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Bitcoin History

8th anniversary of HODL post on bitcointalk

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Bitcoin Trivia

Who was the first person to tweet about Bitcoin?

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Technical read

of the week:

Jeremy Rubin ‘Advent Calendar’ blog series discusses Bitcoin smart contracting and OP_CTV

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Fun Fact

The Bitcoin network launched on January 3, 2009, but the whitepaper was publicly released on October 31, 2008.

Learn more