September 18, 2022 | Issue 33 THE MERGE & A PUBLIC SERVICE ANNOUNCEMENT A historic week for crypto. In this issue of my newsletter, last week's issue, and in my Youtube videos, I have spent a lot of time discussing Ethereum's transition from proof-of-work to proof-of-stake. Why? The same reason why I just wrote a very long piece in Inman entitled Playing the long game? Here's what's next for crypto. In the article, I explain the events this Spring that triggered bankruptcies and the massive crypto selloff. I dive into the collapse of the TerraUSD stablecoin, Celsius, and Voyager. Agents who want to understand the crypto industry, will read articles and continue educating themselves. That's you! As crypto matures and homebuyers start using crypto, you will be prepared to comfortably discuss crypto. ● Caveat Agente – Beware of bogus buyers claiming to have crypto funds. Over the last five months, I have heard from six agents around the US about a scam where prospective buyers contacted the agent and said they wanted to use crypto to buy a $5M to $7M house. Not one was a legitimate buyer. The "buyer" usually makes initial contact via text and tries to move the the conversation to Whatsapp or LINE (a fast growing messaging app). The buyer is vague about their identity and not willing to talk on the phone because of their poor English. Here is how to determine if the buyer is real. Explain that you need proof of funds and ask for a screen shot of their crypto balance and their public wallet address. A public wallet address (a string of alphanumeric digits) allows anyone to see the crypto holder's account balance and the type of crypto. A real crypto buyer would happily provide their public address. If the buyer provides a wallet address, feel free to contact me and I can explain the next steps to verify their identity. Also, reach out with any questions. What is the scam? I don't know, but based on one agent's experience, I believe the scam is to get the agent to download software and share financial information. ● My Crypto YouTube Channel. This past week, I began sharing videos. It's been very cool talking about crypto on camera and incorporating visuals into the stories. It adds a new dimension and lets me deliver my story as if we're having a face-to-face conversation. Please check it out and subscribe. If there is ANY crypto topic that you would like me to cover, let me know. I'll dive in and share what I've learned with everyone else. Have a productive week and stay crypto curious! Rich Hopen firstname.lastname@example.org | 908.917.7926 PS. You can find all CNR newsletters here and my new YouTube Channel. PPS. This newsletter is supported by home buyers and sellers in NJ who retain me as their real estate agent. If you know of anyone looking to buy or sell a home, please reach out to me.
CRYPTO NEWS ▸ The Ethereum Merge Was Successful. Now what? The crypto world marveled at Ethereum's successful transition to the Proof-of-Stake model. The technical feat of the Merge was the "biggest event in crypto since the creation of bitcoin and Ethereum," according to the Wall Street Journal's quote from Jon Charbonneau, a researcher at Delphi Digital. This event was almost miraculous because it occurred as Ethereum was running about 3,500 applications and handling billions of dollars in crypto. The platform's operations were not disrupted. It's been analogized to changing rocket engines mid-flight or replacing the foundation of a large fully occupied office building. In addition to Ethereum cutting its energy use by 99.95%, the new network will be faster, cheaper, and attract more developers and investors. Perhaps one of the most significant changes will be that people who hold Ethereum's cryptocurrency, ETH, will be able to earn a yield by "staking." Staking is the process whereby the holder relinquishes control of their ETH for a set period of time and earns interest. The crypto is used to maintain the network. Bloomberg's Opinion columnist Matt Levine wrote in Money Stuff, "[T]his is cool: Crypto has rediscovered interest from entirely different principles. In traditional finance, you get interest on your money because you are lending it to someone else to build some productive business. In crypto, you get interest on your money because you are getting paid for maintaining the ledger." On the downside, offering a yield may also cause the Securities & Exchange Commission to characterize Ethereum as a security. Gensler said that staking may meet one of the legal factors under the Howey test because "the investing public is anticipating profits based on the efforts of others." Jake Chervinsky, Head of Policy for the Blockchain Association, said, ""[T]he people who actually understand US securities laws will tell you that the merge not only "doesn't" make ETH appear more like a security, but in fact was a significant de-risking event."
▸ White House Releases Framework for Digital Assets
The White House issued a report providing high level policy proclamations on digital assets. The "Fact Sheet" states that nine reports have been submitted to the President as mandated in a March 9th Executive Order.
The Blockchain Association's Executive Director Kristin Smith commented, “Today’s reports and summaries from the Biden administration’s executive order on digital assets are a missed opportunity to cement U.S. crypto leadership." Smith said the report focused on risks and did not include substantive recommendations on how the United Stated can promote the crypto industry to Americans. NLW, Host of CoinDesk's podcast The Breakdown, said, the Biden report is "neither 'comprehensive' or a 'framework.' [W]e really need Congress to be in charge of developing the framework for the responsible development of digital assets."
▸ Coinbase Shares Crypto Policy Efforts With Its 103 Million App Users Coinbase CEO Brian Armstrong is sharing the crypto policy positions of elected officials with Coinbase's customers. Coinbase customers who use the app will see how their elected leaders feel about the crypto industry. It gives the politician's "Crypto Sentiment" and offers advice on how to advocate for change. Brilliant!
CRYPTO CLASS – Can Bitcoin Transition to Proof-of-Stake? Ethereum's success switch from the the energy-intensive Proof-of-Work to Proof-of-Stake mechanism to ensure blockchain integrity will reduce Ethereum's energy consumption by 99.95%. This is great news for carbon reduction and addresses the common criticism that crypto is hurting the planet by contributing to global warming. Ethereum changed platforms, will bitcoin do the same? No, it's not feasible, according to many bitcoin maximalists. Also, in responding to accusations that bitcoin is bad for the environment, it's important to understand the type of electricity that's being harnessed and how bitcoin compares to other industries. Michael Saylor, Executive Chairman of MicroStrategy, a publicly-traded business intelligence firm, recently wrote an article explaining bitcoin's energy consumption – Bitcoin Mining and the Environment. Here is a summary of his main points along with some of my thoughts. 1. Bitcoin's Energy Use If a company's manufacturing process requires using a large amount of electricity, the cost of electricity will be a major factor in determining site location. However, it's only one of many factors. The executives will look at labor costs, workforce availability, real estate costs, tax laws, tax incentives, utility costs, and other factors. Electricity is the major operating expense for bitcoin miners and the lower the cost of electricity, the more attractive it is to bitcoin miners. Saylor said that miners tend to locate "at the edge of the grid, in places where there is no other demand, at times when no one else needs the electricity." Bitcoin miners usually pay 2 to 3 cents per kWH compared to retail and commercial consumers in major metropolitan areas who pay 10 to 20 cents per kWH. 2. Bitcoin Mining Can Benefit The Environment One-third of the world's energy power is wasted. Bitcoin mining can use "stranded natural gas" or methane gas to power its computers. For example, bitcoin miners in Texas set up operations on oil fields where excess natural gas is released into the environment. With bitcoin mining, instead of the methane being released into the atmosphere, it is captured and used. Miners can also set up operations at landfills and capture that methane.
Saylor pointed out that "No other industrial energy consumer is so well suited to monetize excess power as well as curtail flexibly during periods of energy shortfall and production volatility." Bitcoin miners can also locate where there is excess power due to low demand of near clean energy sources such as solar, wind, hydro, and geothermal. 3. Bitcoin Compared to Other Industries Almost sixty percent of bitcoin mining uses sustainable sources. Also, computers that power bitcoin miners became 46% more energy efficient over the past year. Saylor states that bitcoin is far less energy intensive than tech firms Google, Netflix, or Meta and one to two times less energy intensive than airlines, logistics, retail, hospitality, and agriculture. 4. Bitcoin Cannot Use Proof-of-Stake Saylor argues that if bitcoin mining moved to proof-of-stake, the security and control of the network would would be concentrated in a small group of software developers. This would be not be suited to an open, fair money or global settlement network. Supporting his argument, consider that since Ethereum has migrated to Proof-of-Stake, 52% of ETH is staked by only three entities, Lido, Coinbase, and Kraken.
INFLUENCERS - People to follow Cypherpunks - The Cypherpunks In 1992, three computer scientists started a mailing list that discussed cryptography, mathematics, politics, and philosophy. They believed that the Internet would become a battleground for freedom. Interesting, right?
RESOURCES – Books, websites, podcasts, interviews, articles, videos
Bloomberg sends out a bi-weekly email with crypto news written by top journalists. CRYPTO WORD – 51% Attack. If a malicious actor, or group of actors, controls over 50% of the total mining power of the blockchain network, it may be possible for them to disrupt the integrity of the blockchain.
OH, ONE MORE THING – Another great comic from The New Yorker...