COVID lockdowns, Ukraine funding, Israel funding It's rare to meet people that are against all three outside of Bitcoin. Shows how prone to propaganda normies are.
Turns out the halving event was a scambrian explosion. 2000 altcoins minted or being minted in just 14 hours using Runes.
image # Halving Fee Chaos The Bitcoin halving is an anticipated event, one of those Bitcoin holidays that happen every once in a while. Along with Soft Fork Activation and various financial instrument introduction days, it's one of those not-quite-predictable days that occur every few years which give Bitcoiners reason to pay attention and mainstream media to speculate. This year's halving was much anticipated, as halvings usually are, but we had a bit of an incident that requires some further explanation. The block subsidy decreased from 6.25 BTC to 3.125 BTC on block 840,000 as expected, but what wasn't expected was the 37.626 BTC in fees that came along with it. To give some context, that's easily the highest ratio of fees to block subsidy that Bitcoin has *ever* had. [One transaction](
The Mempool Open Source Project®
Explore the full Bitcoin ecosystem with The Mempool Open Source Project®. See the real-time status of your transactions, get network info, and more.
) paid nearly 8 BTC in fees by itself. ## More Fees It wasn't just block 840,000 that had high fees, over the next 5 blocks, we had fees of 4.486, 6.99, 16.068, 24.008 and 29.821 BTC respectively. The fees are the highest it's ever been. This situation in Bitcoin is unprecedented. Up to this point in Bitcoin's history a block whose fees were higher than block subsidy were pretty rare. There were a few in the 50 and 25 BTC eras, but these were mistakes by the user (usually forgetting to put in a change address) and almost all of the fee came from a single error transaction. In the 12.5 BTC subsidy era, there were a few transactions toward the end of 2017 when the cumulative fees exceeded the 12.5 subsidy. In the just-ended 6.25 BTC subsidy era, there were many blocks during the ordinals craze which exceeded the 6.25 BTC subsidy. Still, these were relatively rare, and most blocks even in the most recently completed era mostly didn't exceeded 1.5 BTC. Yet in this new era of 3.125 BTC subsidy, every single block as of this writing (block 840018) has had fees exceed the subsidy, some by many multiples. So what happened? Why was the halving block getting so much in fees? ## Runes The reason has to do with a new protocol called Runes. It's yet another colored coins protocol on top of Bitcoin that Casey Rodarmor designed back in [September of 2023](
Runes – Casey Rodarmor's Blog
). The main idea is to allow coin issuance on Bitcoin that uses the UTXO set natively. Now to back up a bit, colored coins have been around for a long time. The main idea is that you can "color" certain Bitcoin transaction outputs as meaning something in addition to the Bitcoin amount in the output. It could be another "asset" and issued as a token. The first implementation of such a protocol happened 11 *years* ago in 2013 and there have been many attempts since, including MasterCoin (renamed Omni), CounterParty, and more recently, RGB, Taro Assets and BRC-20. As Rodarmor states in his blog, his motivation for making another protocol is to bring some of the asset issuing from other chains to Bitcoin. To make the launch of this protocol more interesting, Rodarmor decided to start the issuance on block 840,000, leading to the chaos we saw. ## Simplification vs Game Theory Casey Rodarmor is also the creator of ordinals, and he took one of the concepts, which was to name assets using the capital latin alphabet on Runes. This is a normal fine choice, but what happens when there's a conflict? If two assets have the same name, how do we distinguish between them? To simplify things, the protocol just looks up what assets exist already and if the name conflicts with something that exists, then the new asset isn't issued. This indeed simplifies the client and gives a global unique name to each asset. Unfortunately, it also makes for some terrible incentives. ## Sniping Asset Issuance The first incentive problem is that if the transaction issuing the asset is sent out to the Bitcoin mempool, then as that transaction is gossiped to nodes around the network, other observers can snipe the name by getting the transaction in earlier. Now "earlier" in Bitcoin is a strict concept. Blocks are ordered and transactions within a block are ordered. Whichever comes first gets the symbol and the asset issuance. But if you want to squat on a good symbol name, you can just look for mempool transactions that are attempting to create a new asset and create your own with a bigger fee. That's the essence of sniping. What's really terrible about a situation like this is that *both* transactions will likely go into the block, but only the first will successfully issue the asset. The second will not issue the asset but *still pay the fee*. Miners generally order transactions by fee rate, so a higher fee likely means that they'll get to issue the asset. I say likely, because there's a second incentive problem here I'll discuss later. But game-theoretically, both participants are incentivized to increase fees continually to one-up each other. The dynamic is similar to the [One Dollar Auction](
Dollar auction - Wikipedia
), where participants end up making rational choices, but end up with an irrational result (like paying $1.50 for $1). Every loser pays lots in fees for nothing. ## Second order Game Theory Now given this first-order incentive playing out, it's not a surprise that a lot of issuers purposefully put in a very high fee initially to discourage anyone from trying to snipe the symbol. After all, if your sniping attempt fails, then you lose out on the fees you tried to snipe with. There's also a significant uptick in the usage of RBF for this reason, so that you have the option to one-up the sniper and the sniper to do the same to the issuer. Note that RBF isn't useful here to *get out* of paying the fee, as a replacement transaction has to pay more than the previous transaction in fees. Either way, the miner ends up with the fees. Now back to the miner's role. The miner can, if it so desires, give preference to the *lower* fee transaction by including it earlier in the block. Indeed, the incentive is to give miners off-band fees if possible to order transactions in such a way as to win by not revealing how much you've paid. Miners in this protocol have a lot of leverage. ## Conclusion Runes have resulted in some really high fees, though it's hard to know if the design was intentional or unintentional. What we do know is that Runes have been hyped up for the last few months and have been anticipated for a while, and certainly being one of the first assets issued under the protocol has some marketing value for the eventual goal of getting them listed on an exchange. Sadly, in addition to the normal scamming of altcoins being completely centralized, there is a deeper cost in terms of block space congestion, where fees of 1000 sats/vbyte are currently not enough to get into certain blocks. The Runes asset issuance has overridden almost every other use case at the moment. That said, the current rate of Runes issuance is completely unsustainable. Just in the first 18 blocks, there's been over $20M in fees spent, most of that in Runes issuance. At this rate, Runes issuers would be spending $150M a day or $1B a week. I honestly can't see them doing this for much longer than a month or two. In the meantime, it must be great to be a miner finding these blocks.
image # Halving Fee Chaos The Bitcoin halving is an anticipated event, one of those Bitcoin holidays that happen every once in a while. Along with Soft Fork Activation and various financial instrument introduction days, it's one of those not-quite-predictable days that occur every few years which give Bitcoiners reason to pay attention and mainstream media to speculate. This year's halving was much anticipated, as halvings usually are, but we had a bit of an incident that requires some further explanation. The block subsidy decreased from 6.25 BTC to 3.125 BTC on block 840,000 as expected, but what wasn't expected was the 37.626 BTC in fees that came along with it. To give some context, that's easily the highest ratio of fees to block subsidy that Bitcoin has *ever* had. [One transaction](
The Mempool Open Source Project®
Explore the full Bitcoin ecosystem with The Mempool Open Source Project®. See the real-time status of your transactions, get network info, and more.
) paid nearly 8 BTC in fees by itself. ## More Fees It wasn't just block 840,000 that had high fees, over the next 5 blocks, we had fees of 4.486, 6.99, 16.068, 24.008 and 29.821 BTC respectively. The fees are the highest it's ever been. This situation in Bitcoin is unprecedented. Up to this point in Bitcoin's history a block whose fees were higher than block subsidy were pretty rare. There were a few in the 50 and 25 BTC eras, but these were mistakes by the user (usually forgetting to put in a change address) and almost all of the fee came from a single error transaction. In the 12.5 BTC subsidy era, there were a few transactions toward the end of 2017 when the cumulative fees exceeded the 12.5 subsidy. In the just-ended 6.25 BTC subsidy era, there were many blocks during the ordinals craze which exceeded the 6.25 BTC subsidy. Still, these were relatively rare, and most blocks even in the most recently completed era mostly didn't exceeded 1.5 BTC. Yet in this new era of 3.125 BTC subsidy, every single block as of this writing (block 840018) has had fees exceed the subsidy, some by many multiples. So what happened? Why was the halving block getting so much in fees? ## Runes The reason has to do with a new protocol called Runes. It's yet another colored coins protocol on top of Bitcoin that Casey Rodarmor designed back in [September of 2023](
Runes – Casey Rodarmor's Blog
). The main idea is to allow coin issuance on Bitcoin that uses the UTXO set natively. Now to back up a bit, colored coins have been around for a long time. The main idea is that you can "color" certain Bitcoin transaction outputs as meaning something in addition to the Bitcoin amount in the output. It could be another "asset" and issued as a token. The first implementation of such a protocol happened 11 *years* ago in 2013 and there have been many attempts since, including MasterCoin (renamed Omni), CounterParty, and more recently, RGB, Taro Assets and BRC-20. As Rodarmor states in his blog, his motivation for making another protocol is to bring some of the asset issuing from other chains to Bitcoin. To make the launch of this protocol more interesting, Rodarmor decided to start the issuance on block 840,000, leading to the chaos we saw. ## Simplification vs Game Theory Casey Rodarmor is also the creator of ordinals, and he took one of the concepts, which was to name assets using the capital latin alphabet on Runes. This is a normal fine choice, but what happens when there's a conflict? If two assets have the same name, how do we distinguish between them? To simplify things, the protocol just looks up what assets exist already and if the name conflicts with something that exists, then the new asset isn't issued. This indeed simplifies the client and gives a global unique name to each asset. Unfortunately, it also makes for some terrible incentives. ## Sniping Asset Issuance The first incentive problem is that if the transaction issuing the asset is sent out to the Bitcoin mempool, then as that transaction is gossiped to nodes around the network, other observers can snipe the name by getting the transaction in earlier. Now "earlier" in Bitcoin is a strict concept. Blocks are ordered and transactions within a block are ordered. Whichever comes first gets the symbol and the asset issuance. But if you want to squat on a good symbol name, you can just look for mempool transactions that are attempting to create a new asset and create your own with a bigger fee. That's the essence of sniping. What's really terrible about a situation like this is that *both* transactions will likely go into the block, but only the first will successfully issue the asset. The second will not issue the asset but *still pay the fee*. Miners generally order transactions by fee rate, so a higher fee likely means that they'll get to issue the asset. I say likely, because there's a second incentive problem here I'll discuss later. But game-theoretically, both participants are incentivized to increase fees continually to one-up each other. The dynamic is similar to the [One Dollar Auction](
Dollar auction - Wikipedia
), where participants end up making rational choices, but end up with an irrational result (like paying $1.50 for $1). Every loser pays lots in fees for nothing. ## Second order Game Theory Now given this first-order incentive playing out, it's not a surprise that a lot of issuers purposefully put in a very high fee initially to discourage anyone from trying to snipe the symbol. After all, if your sniping attempt fails, then you lose out on the fees you tried to snipe with. There's also a significant uptick in the usage of RBF for this reason, so that you have the option to one-up the sniper and the sniper to do the same to the issuer. Note that RBF isn't useful here to *get out* of paying the fee, as a replacement transaction has to pay more than the previous transaction in fees. Either way, the miner ends up with the fees. Now back to the miner's role. The miner can, if it so desires, give preference to the *lower* fee transaction by including it earlier in the block. Indeed, the incentive is to give miners off-band fees if possible to order transactions in such a way as to win by not revealing how much you've paid. Miners in this protocol have a lot of leverage. ## Conclusion Runes have resulted in some really high fees, though it's hard to know if the design was intentional or unintentional. What we do know is that Runes have been hyped up for the last few months and have been anticipated for a while, and certainly being one of the first assets issued under the protocol has some marketing value for the eventual goal of getting them listed on an exchange. Sadly, in addition to the normal scamming of altcoins being completely centralized, there is a deeper cost in terms of block space congestion, where fees of 1000 sats/vbyte are currently not enough to get into certain blocks. The Runes asset issuance has overridden almost every other use case at the moment. That said, the current rate of Runes issuance is completely unsustainable. Just in the first 18 blocks, there's been over $20M in fees spent, most of that in Runes issuance. At this rate, Runes issuers would be spending $150M a day or $1B a week. I honestly can't see them doing this for much longer than a month or two. In the meantime, it must be great to be a miner finding these blocks.
There's deep danger to denominating in dollars.
# Privacy is a Social Good When we think about privacy, it's usually in the context of an individual being able to hide something, usually from the government, but also from lots of other entities. It's a security issue in the greater discourse because there are bad people that can and will use information about you to reveal embarrassing information, blackmail, or even steal from you. This is not just true of criminals, but also of companies and even governments. They can and do use information about you to propagandize you or demand taxes from you. These are, of course, understandable concerns and good reasons to want privacy. ## Status Games But there's another aspect of privacy which is just as important, perhaps more important than these and it's the social dynamic at play. Privacy, you see, is a necessary buffer between people to keep order. This is because people are, in the end social creatures and in every social group, there is a constant jockeying about for position, what I would call status games being played. The problem with status games is that they are by nature zero-sum. Whoever is at the top is usually both admired and envied, while whoever is at the bottom is generally pitied. This is especially true when the participants can change their position, whether through achievement, violence or politics. ## Envy and Resentment Too much clarity on the status of individuals in the group causes strife in the form of envy. This is not just for people at the bottom, whose envy of everyone above them is understandable, but also for those near the top, who likewise will envy people above them. A big enough group of disaffected people in a status game will cause some form of revolution. In other words, strictly ordered status games are not stable. Thus, too much information sharing is bound to cause bitterness and resentment which in turn causes unstable organizations because humans are very status-aware. Marxism tries to solve this by making everyone equal, but of course, this doesn't work because the entity which controls this equality ends up being higher status than everyone else. You cannot have full transparency and social order. There will be too many dissatisfied people. This is where privacy is important because it gives groups ambiguity about where each individuals stand. For example, most social groups in the US have as a default, social standing that corresponds with their level of wealth. The richer you are, the higher on the status ladder you are and the poorer, the lower. A very strict pecking order where everyone knew exactly how many assets everyone had would breed a significant amount of envy and resentment. Any group where this level of transparency was required would be unpleasant to be in strictly for that reason. We need a level of ambiguity to socially interact in a reasonable way. ## Decentralized Status Games That's not to say that everything is completely obscured. Most people that have money signal in various ways, with their clothing, car, topics of conversation and so on. They signal with various levels of loudness and reveal status information to the people that they're targeted at. One of the features of "old money" people is that they're very good at identifying other "old money" people while simultaneously hiding their wealth from people that are not as rich as they are. In a sense, this is a survival mechanism because envy, bitterness and resentment are not pleasant to deal with and oftentimes dangerous. Privacy is the ability to disclose information at our discretion, not someone else's and that's exactly what happens in groups to keep the peace. Privacy has deep social value because it gives individuals the discretion to reveal where they are relatively in status. That protects not just them from attack, but also protects the group from upheaval. The less envy, bitterness and resentment there is, the more cohesive the group can be. ## Conclusion Privacy is a necessary part of civilization because cooperation is hard and nothing destroys cooperation like bitterness and envy. And those two in turn are caused by too much clarity on status. Privacy is what adds ambiguity and empowers individuals to calibrate group dynamics. Privacy: it's not just for cypherpunks anymore.
ETFs are rent-seekers.
At some point in the future, I'd love to be a patron for good code.
There is no real privacy in a centralized system. The only chance we have at privacy is in a decentralized system.
The right way to do Nostr