⚡ StackSats Saturdays | 2021 Week#3

👨‍⚖️ Can governments ban bitcoin? 🤝 P2P exchanges, 📈 Crypto growth cycle

🤔 What is a P2P crypto exchange?

Peer-to-peer (P2P) crypto exchanges allows buyers and sellers of cryptocurrencies to trade without a centralized entity as the middleman. P2P exchanges uses smart contract escrow, users are able to buy and sell crypto tokens with each other in the fastest and most efficient way possible. You can either post offers or respond to offers already on the website.

Examples of P2P crypto exchanges:

It is one of the underrated method to make exchanges between fiat currencies and cryptocurrencies easy and improves the overall trading experience for cryptocurrency traders. Unlike stock-like exchanges and centralized Bitcoin trading websites, P2P crypto exchanges allows you to trade directly with another person. This makes the process customizable, lean and fast, as there is no corporate overhead. You can get your bitcoins instantly. Choose the payment method and exchange rate freely, the transaction is completely based on your preference. Both traders can easily set the payment method and location, and communicate with each other to successfully finish the trade.

🤔 Bitcoin began in 2009. Are we just in the beginning/middle of its growth cycle?

PHASE 1: The period 2009 to 2011 was the early “Experimentation Phase” for bitcoin (i.e., deceptive). Here the software is released to the public, and most technologists and hackers started playing with the code. During this phase, there was no apparent value to the currency yet. Mining bitcoin was easy and could be done by a single person on a MacBook or PC.

PHASE 2: 2011 marked the beginning of the “Early Adopter Phase” (still deceptive). There was a lot of early hype and press around Silk Road (where you could buy drugs). The value went from less than $1 to over $30, then crashed. This spurred the first generation of Bitcoin companies to build basic infrastructure: wallets, merchant processors, mining operations, exchanges, etc. (i.e., the early User Interfaces).

PHASE 3: 2012 through mid-2014 marked the beginning of the “Venture Capital Phase.” Folks like Marc Andreessen, Google Ventures, Benchmark and others began investing in Generation 2 Bitcoin companies. In 2018, venture capitalists invested $1.3 billion in blockchain companies, and thousands of bitcoin companies have received funding since.

PHASE 4: The “Disruptive Phase” began in 2014 when Wall Street entered the Bitcoin market. Here we began to see institutional money acknowledging digital currencies as an asset class. They started trading it, investing it, and creating products around it. In 2020, institutions such as Fidelity and PayPal launched Bitcoin funds, and companies like Square and Microstrategy have even started buying Bitcoin with their own capital. With the entry of these larger players, Bitcoin has become more regulated and is moving away from the frenzied rallies and instability seen in its earlier phases.

PHASE 5: Finally, the “Mass Global Consumer Adoption Phase” is starting. This is where Bitcoin becomes a major player in the global economy. Just last year, JPMorgan released the first US bank-backed cryptocurrency, the “JPM Coin,” further legitimizing the technology. Goldman Sachs is also expected to release its own coin soon. As consumers feel it is easy, safe and secure to use Bitcoin, the technology’s exponential growth begins.

🤔 How can governments ban Bitcoin?

Governments throughout the world are restricting cash more and more. Why? It’s not that cash is paper. It’s that cash eliminates state tracking. The purpose of cash in a digital world is to prevent the state from creating a financial panopticon.

Trillions of dollars in precious metals and offshore banking thinks censorship resistance is pretty important

- Gold ($11 trillion)

- Offshore banking (£13 trillion)

Governments could not successfully ban the consumption of alcohol, the use of drugs, the purchase of firearms, or the ownership of gold.

A government can marginally restrict access, or even make possession illegal, but it cannot make something of value demanded by a broad and disparate group of people magically go away.

When the U.S. made the private ownership of gold illegal in 1933, gold did not lose its value or disappear as a monetary medium. It actually increased in value relative to the dollar, and just thirty years later, the ban was lifted.

Not only does bitcoin provide a greater value proposition relative to any other good that any government has ever attempted to ban (including gold); but by its nature, it is also far harder to ban.

Bitcoin is global and decentralized. It is without borders and it is secured by nodes and cryptographic keys. The act of banning bitcoin would require preventing open source software code from being run and preventing digital signatures (created by cryptographic keys) from being broadcast on the internet.

And it would have to be coordinated across numerous jurisdictions, except there is no way to know where the keys actually reside or to prevent more nodes from popping up in different jurisdictions. Setting aside the constitutional issues, it would be technically infeasible to enforce a ban of bitcoin in any meaningful way.

Even if all countries in the G-20 coordinated to ban bitcoin in unison, it would not kill bitcoin. Instead, it would be the fait accompli for the fiat system. It would reinforce to the masses that bitcoin is a formidable currency, and it would set off a global and hopeless game of whack-a-mole.

There is no central point of failure in bitcoin; bitcoin miners, nodes and keys are distributed throughout the world. Every aspect of bitcoin is decentralized, which is why running nodes and controlling keys is core to bitcoin.

The more keys and the more nodes that exist, the more decentralized bitcoin becomes, and the more immune bitcoin is to attack. The more jurisdictions in which mining exists, the less risk any single jurisdiction represents to bitcoin’s security function.

A coordinated state level attack would only serve to build the strength of bitcoin’s immune system. It would ultimately accelerate the shift away from the legacy financial system (and legacy currencies), and it would accelerate innovation within the bitcoin economic system. With each passing threat, bitcoin innovates to immunize the threat. A coordinated state level attack would be no different.

And more practically, any attempt to ban bitcoin or heavily regulate its use by any jurisdiction would directly benefit a competing jurisdiction. The incentive to defect from any coordinated effort to ban bitcoin would be far too high to sustain such an agreement across jurisdictions.

If the United States made the possession of bitcoin illegal tomorrow, would it slow down proliferation, development and adoption of bitcoin and would it cause the value of the network to decline intermittently? Probably. Would it kill bitcoin? No. Bitcoin represents the most mobile capital in the world. Countries and jurisdictions that create regulatory certainty and place the least amount of restrictions on the use of bitcoin will benefit significantly from capital inflows.

👀 Highlights of the week:

  • Man Accidentally Threw Away Hard Drive With 7,500 Bitcoins, Offers City $72 Million to Search Landfill. (Bitcoin.com)

  • Bitcoin In 2021: A New Hope. (Bitcoin Magazine)

  • Mt. Gox Creditors Will Soon Claim $4.9 Billion in Bitcoin. (CryptoBriefing)

  • Some Asian Traders Are Using Polkadot to Predict Bitcoin's Future. (CoinDesk)

  • After Ethereum, 'next stop will be higher risk alts,' says Bitcoin investor Raoul Pal. (Cointelegraph)

  • Bitcoiners in 2021. (r/Bitcoin)

  • IMF Survey Overwhelmingly Supports Bitcoin As “Money”. (Bitcoinist)

  • Why Silicon Valley Doesn't Get Bitcoin. (Dan Held)

  • Paxos adopts Chainlink oracles to further adoption of PAX and PAXG tokens. (CryptoNinjas)

  • Ethereum Searches Reach All Time High. (Trustnodes)

PS - Joined our community on Quora yet? A bunch of Bitcoin ₿elievers sharing, learning and looking out for each other.

Not financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Do your own research.