Riding The Wave News Summary 74
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Table of Contents
Tweets
UK forces crypto exchanges to report suspected sanction breaches
Ethereum’s Vitalik Buterin “Worried” About Bitcoin’s Future for Two Reasons
Bitcoin's Price May Crash After Ethereum's 'Merge,' Researcher Says
One Misconception and Severe Design Flaw of the Ethereum Merge
Tweets
UK forces crypto exchanges to report suspected sanction breaches
Crypto exchanges must report suspected sanctions breaches to UK authorities under new rules brought in amid concerns that bitcoin and other cryptoassets are being used to dodge restrictions imposed in response to Russia’s invasion of Ukraine.
Official guidance was updated on 30 August to explicitly include “cryptoassets” among those that must be frozen if sanctions are imposed on a person or company. As well as digital currencies, such as bitcoin, ether and tether, cryptoassets could include other notionally valuable digital assets such as non-fungible tokens.
The rules, set by the Treasury’s Office of Financial Sanctions Implementation, will mean crypto exchanges are committing a criminal offence if they fail to report clients designated for sanctions. Under the rules, crypto exchanges must immediately act if they suspect that one of their customers is under sanctions, or if they suspect a breach of sanctions – giving them similar obligations to professionals such as estate agents, accountants, lawyers and jewellers.
Situations like these are horrible in that they force exchanges to either go out of business or require KYC (Know Your Customer) style policies to protect themselves from breaking the law. It also puts crypto in the difficult situation of trying to figure out when an asset is considered legal to buy. If it was owned by a confirmed Russian-owned address, how many transactions must it go through before it is no longer illegal to buy?
Ethereum’s Vitalik Buterin “Worried” About Bitcoin’s Future for Two Reasons
In a September 2 interview with economics writer Noah Smith, the Ethereum creator said that he is “worried [about Bitcoin] for two reasons.” He explained that he thinks Bitcoin could face problems in the long-term future owing to its fee model. Bitcoin currently distributes coins to miners as payment for securing the network, but as the protocol has a hard supply cap of 21 million, eventually the network will rely on transaction fees alone for security. Buterin told Smith that this is a problem because Bitcoin is “not succeeding at getting the level of fee revenue required to secure what could be a multi-trillion-dollar system.” The amount of fees Bitcoin generates to other protocols has long been a hot topic of discussion in the crypto community. According to Crypto Fees data, Bitcoin averaged about $225,000 in fees over the past week, trailing DeFi mainstays like Aave and Uniswap. The biggest fee generator is the protocol Buterin created, which took in around $2.7 million over the same timeframe.
Buterin said that he also has fears for Bitcoin because “Proof-of-Work provides much less security per dollar spent on transaction fees than Proof-of-Stake,” arguing that it would be problematic to have a $5 trillion network that costs only $5 billion to attack. Buterin also pointed out that Bitcoin switching away from Proof-of-Work would be “politically infeasible.”
Overall I dont think this is a realistic view of Bitcoin’s reward mechanism and its flaws. If fees weren’t high enough in 50 to 100 years, I’m sure the network wouldn’t die out and would instead make adjustments to resolve the issue, whether that be an adjustment of the total amount in circulation, a movement of lost wallet tokens back into circulation or some other mechanism it wouldn’t just die out. The community would vote with their wallets.
Bitcoin's Price May Crash After Ethereum's 'Merge,' Researcher Says
Kyle McDonald, an independent researcher, predicts that the Bitcoin network may be "regulated away," causing the price of bitcoin to collapse.
He recommends selling bitcoin now. The reason is that after the Ethereum blockchain switches to a drastically less energy-intensive method of validating transactions, known as "proof-of-stake," investors and regulators may realize that the energy-intensive method that both Bitcoin and Ethereum use now, called "proof-of-work," was never really necessary.
Speaking on CoinDesk TV's "First Mover" program on Friday, McDonald cited the "climate crisis" and Bitcoin's massive use of energy. He said that because “Bitcoin doesn’t have the coordination like Ethereum to leave proof-of-work,” it could be “the first to be regulated away.”
It’s extremely common to see people concerned about Bitcoins energy usage due to climate change, but they often neglect that the issue is what method we use to create the energy, not what it is used for. The energy also isn’t wasted, it is consumed to provide higher security, and it both raises and lowers based on the amount of competition that is happening for the mining reward.
One Misconception and Severe Design Flaw of the Ethereum Merge
As we are approaching the Merge in Ethereum, I hear a quite repetitive narrative about it having about 400,000 validators after going full PoS as there are allegedly this many owners of at least ETH 32 (USD 49,500), which is the minimal stake size. But that is plainly wrong. Moreover, anyone would be able to run a node without any ETH.
As a CEO of a company that makes its bread by validating on more than 50 different blockchains, I can see thousands of people launching nodes, but I can't see all of them ensuring nearly 100% uptime. Soon many of them will get their fingers burned by slashing, lose their money, and eventually become completely demotivated or financially incapable of starting all over again.
It means that the PoS incarnation of Ethereum won't have nearly as many validators as some expect. Moreover, I don't expect the number of nodes to be significant enough to satisfy those with a serious decentralization kink. But, of course, there will be more node operators than the proof-of-work (PoW) could ever afford.
Those efforts are at risk of being eclipsed by a very ominous presence: major centralized exchanges as validators.
Exchanges as validators are a flaw
hold over 32% of staked ETH. With Ethereum switching to PoS, the risk from exchanges will only increase.
POS (Proof of Stake) definitely has advantages over POW (Proof of Work), but this current approach which sacrifices Ethereums decentralization, is a huge downside. The exchange participation is particularly alarming due to how easily they are regulated leading to an indirect route for governments to control Ethereum post merge.
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