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Sunday Review 05/05/2024 Observers

On May 4 we celebrated Hal Finney's 68th birthday. A software developer received the first Bitcoin transaction from the anonymous Satoshi Nakamoto. Having worked on projects very similar to Bitcoin and being part of the Cypherpunk community, Hal Finney is widely believed to be the real person behind the 'Satoshi Nakamoto' pseudonym.

Adding to this speculation are the facts that:

  • Hal Finney received the first Bitcoin transaction from Satoshi Nakamoto.
  • Hal Finney lived in the same town as the real person Dorian Satoshi Nakamoto, whose name he could have used for conspiracy.
  • Satoshi Nakamoto 'retired' from the Bitcoin project and stopped posting in the years when Hal Finney's health problems developed.
  • Hal Finney had himself cryopreserved in liquid nitrogen, (placing the passwords from Satoshi Nakamoto's bitcoin wallets in a truly cold storage).
    • Some minor but funny ones: unexplainable constants in Bitcoin code, such as the 4-year halving cycle and the 21 million cap had importance to Hal Finney: his birthday and 21km half-marathon that was his favorite running distance.

In one of his last posts, in 2013, Hal Finney publicly denied his connections with Satoshi Nakamoto:

Today, Satoshi's true identity has become a mystery. But at the time, I thought I was dealing with a young man of Japanese ancestry who was very smart and sincere. I've had the good fortune to know many brilliant people over the course of my life, so I recognize the signs.

Fast forward 10 years, Bitcoin has developed in one of the most attractive investment and speculation instruments, giving birth to multiple new concepts and industries with thousands of actors. Some of them we observed busy this week:

To compensate for the slash in their revenue, Bitcoin miners are finding new strategies to earn a living, such as Bitcoin hoarding, setting higher fees on Ordinals and L2 transactions, switching to AI computing, and moving their operations to low-cost energy locations.

While it was known that only dozens of companies control Bitcoin mining, recent research conducted by the network developers suggests that the sector might be even more centralized. The findings put the core principle of decentralization of the blockchain into question and raise serious concerns about the network's security.

Not really connected with those concerns, but rather explained by post-halving correction, BTC ETFs in the U.S. have registered significant net outflow for the first time since the last halving, with the Grayscale fund heading the downfall.

In Hong Kong, where local BTC ETFs were made available for investors earlier this week, the trade fell short of expectations from the very beginning. Despite the fact that China Asset Management is one of the companies offering an ETF, trading cryptocurrencies is illegal for Chinese investors, limiting the chances of the new financial products achieving stellar results.

Born in China but now a Canadian citizen, Binance co-founder and former CEO Changpeng Zhao was sentenced to four months in prison earlier this week. Karmically, four is a number CZ has been obsessed about for a long time, and it is also the number of billions the exchange had to pay to the U.S. government to settle the charges brought against it by the country's Securities and Exchange Commission.

Also accused by the SEC is TON network and its founder and CEO, Justin Sun. In trend with other crypto-related companies that have recently decided to push back the agency's regulation by enforcement strategy, Sun lawyers filed a motion to dismiss an amendment to the case made by the SEC that expanded on the accusations already on the table.

Meanwhile, the founders of Samurai Wallet, arrested earlier this week, are battling the accusations of the U.S. Department of Justices of operating unlicensed money-transmitting an unlicensed money-transmitting business, of being aware of the criminal nature of some of its users, and of marketing crypto mixers as a place for dirty business.

The DOJ is also on the tail of Tornado Cash crypto mixer, and this week, it filed a motion rejecting the notion, pushed forward by the legal defence of one of the co-founders of the crypto mixer and supported by the crypto community, that the charges it brought up infringe freedom of code.

In the U.K., authorities are opting for straightforward legislation instead, and recently, they have announced a set of new laws cracking down on crypto crime. Despite the overall criticism, the crypto community welcomed one of the measures that dictates that cryptocurrencies seized by the government would only be sold in the open market if they served the public good.

On the other continent, Nigeria's government's approach to cryptocurrencies hasn't been so clear. After suddenly making crypto exchanges illegal last month, authorities have now blocked over one thousand bank accounts associated with the digital assets.

The Nigerian government isn't entirely wrong in its argument that cryptocurrencies might severely impact its somewhat fragile currency, Naira. Stablecoins have notably grown due to offering an option to national money.

Tether has been the ultimate winner of this monetary phenomenon, with USDT being the world's largest traded stablecoin. The company is using its profits for portfolio diversification, and this week, the issuer announced an investment of $200 million in brain-computer interface Blackrock Neurotech. Tether has also published its quarterly report this week and we will present the key findings from it in the coming week.

The enterprise is not taking its eyes off its golden chicken and intends to keep growing in the crypto space by integrating into TON Network. Its new partner has been expanding its services with a digital identity tool in partnership with Human Code and integration with Telegram's ad platform.

Also innovating is Uniswap, which has launched a set of new products targeting newcomers into the crypto world. These include a self-custody mobile wallet, a Chrome browser extension, and an integration with Moonpay, allowing users to buy assets with bank cards.

The decentralized physical infrastructure network (DePin) Hivemapper, has already covered 200 million kilometers of the surface of the earth with the support of its global network of user drivers.

Yuga Labs, the NFT studio behind collections such as BAYC and MAYC and owner of the rights of CyberPunks, has not been so fortunate. "Yuga lost its way," admitted CEO Greg Solano before announcing that the company was reducing its staff.

Also disappointing to its followers is the restaking protocol EigenLayer who doesn't seem to recognize their efforts. Stakers, who are pivotal to the functioning of the project, will be allocated only 15% of the tokens of the project's Stakedrop, while the project team and investors will be getting 55% of the token supply.

Less disappointing to its supporters has been the announcement on May 02 of LayerZero airdrop. The cross-chain interoperability protocol that allows developers to build dApps across several blockchains will reward its early users with a set of ZRO token drops.

Crypto markets can be uneven in many ways, and while there are many users being let down by unfair division of gains, hacks and scams, others are giving reasons to celebrate and feel bullish about the project they believe in.

The Ethereum community is one of them. Following the Dencun update, gas fees on Ethereum went from $15.21 in March to $1.12 in April. In the ecosystem's native currency, Gwei, the price to pay for network transactions went from 41.25 to 10 in one year.

The news is especially suitable for layer 2, as the purpose of the network's update was to reduce the network transactions of these scaling solutions. The fee reduction immediately led to impressive traffic growth on one of the most popular Ethereum L2, Base.

On the conservative side, the International Monetary Fund launched a report revealing its enthusiasm about the chances of increased financial inclusion in the Middle East and Central Asia as 19 countries explore implementing Central Bank Digital Currencies.

CBDCs can help solve several societal issues, such as in Pakistan, where the government says a digital national currency would protect women from financial abuse. However, they can also present problems in matters of privacy protection. In Japan, the central bank has admitted it is exploring selling data collected via the digital yuan to third parties.

In our weekly Banking and CBDC weekend roundup, we discuss these and other developments in the regional central banks efforts to make their currencies digital. We also take a look at how Mastercard and Blockrock are approaching tokenization.