Bitcoin hardcore OGs hold secret annual meeting to discuss hot topics this year

"Satoshi's Roundtable" is an annual secret gathering of OG (original gangster, industry veterans) in the Bitcoin community. Attendance is strictly by invitation only, without designated speakers, and the specific location is not disclosed to the public before the event, earning it the nickname "Bilderberg Conference of the Cryptocurrency Community."

This year's Satoshi's Roundtable is the sixth gathering of this event, held in early February 2020 in Cancun, Mexico. After the meeting, Jameson Lopp, a hardcore figure in the crypto punk scene and CTO of keys.casa, documented the hot topics that piqued his interest during the gathering: fiat channels, Bitcoin ATMs, BIP 174, charity, etc.

Written by: Jameson Lopp, CTO of keys.casa, and founder of statoshi.info and bitcoinsig.com

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New year, new edition of Satoshi's Roundtable. Initiated by Bruce Fenton, current Executive Director of the Bitcoin Foundation, this annual "unconference" has become a New Year's celebration during the winter break. I have attended this roundtable in both bull and bear market environments. The atmosphere this year is very optimistic, as we are at the dawn of a milestone year.

ChainNews Note: "Unconference" is a type of open, equal, and free conference without distinguished guests, designated speakers, or scheduled breaks, offering a platform for open dialogue.

This unconference consists of eight different "stacks," and no participant can cover all topics. Below are some topics from the first day to give you a glimpse:

To learn more, I chose several topics that I am not familiar with. From the discussions I participated in, I gained the following insights.

There are two types of fiat channels for Bitcoin payments: push vs pull. "Push payments" are difficult to reverse and include wire transfers and certified checks. "Pull payments" include ACH (Automated Clearing House) and credit cards, which come with refund risks. Institutions often use push payments, while retail consumers typically use pull payments.

One challenge of accepting ACH payments is that it may take several days to confirm if the payment is valid. There are now some bank authentication services to help improve the verification process, but they require users to provide their bank login credentials, posing significant privacy and security risks. It should be assumed that any service requesting your bank login information may have the ability to view all your past transactions.

Rumors suggest that banks often flag transactions involving " Bitcoin" or "cryptocurrency" in the memo field, and savvy businesses may give themselves a name that doesn't sound like a financial institution. Of course, this tactic is only useful for very small-scale businesses to fly under the radar. If you are a Bitcoin ATM (BTM) operator with a large cash operation, you may face the risk of having your account frozen.

Many cryptocurrency exchanges process their credit card transactions through the EU instead of the US because in Europe, credit card payments are processed directly by the card's network, while in the US, these transactions must go through a commercial bank, adding extra scrutiny risks. Another method for handling credit card transactions in the US is to create a bank custody account for each of your users, funding it in a manner similar to " cash advances." The downside is that cash advances often come with a one-time fee of around 5%, and if not repaid promptly, can incur over 20% interest.

To prevent credit card fraud (someone using someone else's credit card to buy Bitcoin, then the payment is refunded when the cardholder notices and reports it lost or stolen), a simple method is to include a unique code in the authorization string to verify the true owner of the credit card. This authorization call does not charge the card and only requires the cardholder to log into their credit card account to find the unique code. Third-party services like Riskified provide refund guarantees.

Interestingly, there are rumors that Coinbase encounters very few credit card chargebacks, so once a dispute arises, Coinbase prefers not to argue with the customer because the more chargeback disputes there are, the greater the credit card processing risk for the platform.

Stablecoins provide another way for new users to get involved, but custody issues with stablecoins can also bring additional default risks. In many cases, people do not understand the custody arrangements of collateral. For example, when a custodian declares bankruptcy, can the collateral ensure that it will not be confiscated? This may not be legally protected.

Another warning concerns DAI, as it offers unlimited leverage, which may function similarly to auction rate preferred shares, which is where the well-known bond management firm PIMCO stumbled around ten years ago.

I'm not familiar with this concept, so I did a bit of research:

Auction rate securities determine interest rate fluctuations through periodic auctions held every 7, 28, or 35 days. During the auctions, holders have the option to sell their securities. By early 2008, these auctions typically did not attract enough buyers. When the auctions failed, bondholders faced severe interest rate cuts due to the lack of liquidity of these securities. To prevent auction failures, some Wall Street institutions began repurchasing unsold bonds. However, when the 2008 financial crisis hit, banks were forced to strengthen their capital reserves, they pulled out, no longer the last straw, and the market collapsed.

Coincidentally, events in the DeFi space following the conclusion of the Satoshi Roundtable reminded me of this warning; it seems that someone found a way to manipulate the market through the complex interactions between multiple DeFi systems.

2 / The complete details and post-mortem of bZx have not been fully disclosed. However, the community believes that the following transaction was the trigger:

https://etherscan.io/tx/0xb5c8bd9430b6cc87a0e2fe110ece6bf527fa4f170a4bc8cd032f768fc5219838

- The mischievous single transaction involved using flash loans to borrow 10,000 ETH from dYdX, half of which was invested in Compound and the other half in Fulcrum.

3 / - The 5,000 ETH deposited in Compound was used to borrow 112 WBTC.

- The other 5,000 ETH on Fulcrum was used as collateral to short WBTC.

- Then the 112 WBTC was sold on Uniswap to suppress the WBTC price.

- Profits from shorting WBTC on Fulcrum were cashed out, then used to repay the flash loan on dYdX.

One advantage of Bitcoin ATMs (BTMs) is that they are less dependent on traditional banking channels; users interact with cash and Bitcoin, two anonymous assets, without concerns about intermediary scrutiny. However, BTM operators still face many challenges.

Many BTMs offer both buying and selling of Bitcoin, allowing for a two-way transaction flow. Savvy operators may even adjust rates to encourage arbitrage, stimulating users to help the machine rebalance. Some even propose a " worker bee rebalancing system," informing Bitcoin users they can move cash from one BTM to a nearby BTM for profit. Early BTMs faced difficulty in obtaining cash transport services, but by 2020, companies like Brinks and Guarda had begun providing similar services.

From actual BTM operators, we learned that buying amounts make up about 90% of BTM transactions, while selling amounts only make up 10%. It is evident that BTMs have little price elasticity in demand, meaning that if BTMs raise fees from 5% to 20%, operators believe this would not drive away customers. This explains why you see a significant price spread (buy/sell price) in many BTMs - because they can.

Another factor could be that BTMs do not display price spreads or fees to users; customers just want to put in X dollars and do not care about the actual market price. BTM operators engaging in stablecoin transactions also notice significantly lower transaction amounts, which can be explained to some extent by the prominence of fees when purchasing a crypto asset denominated in USD.

Optimistic BTM operators believe that in the long run, the cash flow from buying and selling will stabilize, with regulatory uncertainties and decreased business risks leading to lower fees.

Regarding Anti Money Laundering/Know Your Customer (AML/KYC) regulatory requirements, different BTM operators have diverse practices. For transactions below $300, some BTMs require almost no customer information, while others set limits at $3000. This is mainly based on state laws rather than federal laws and depends on the speed and strictness with which operators comply with regulatory requirements. With fierce competition in this field, some BTM operators may report others for having lax ID requirements for customers.

Demand for altcoins is low, with Litecoin mentioned as having the highest demand, possibly due to its faster transaction confirmation times. Unfortunately, integrating the Lightning Network on BTMs is not very feasible as the average transaction size exceeds the protocol's actual limits.

An oddity we heard is that traditional banks are increasingly disliking ATMs because they are unprofitable. However, on the other hand, due to the saturated ATM market, it is said that some ATM operators have started venturing into the BTM business. ATM installation contracts are typically territorial and come with years-long lock-in periods, but these contracts do not cover BTMs, so if operators extend their business to BTMs, they can expand their territory and place BTM machines next to competitors' ATMs.

As an emerging business, many BTM transactions actually come from high-crime inner-city areas in the US. BTM machines facilitate various scams and crimes, and operators must address corresponding issues; they receive numerous requests from law enforcement, which they typically resolve promptly and comply with regulations. Some common crimes include:

• Romance scams targeting older women, asking them to wire money overseas.
• Pretending to be the IRS/law enforcement, demanding payment to avoid imprisonment.
• Money laundering through carding. Individuals purchase credit card information on the dark web, use these cards to purchase goods at a significant discount, then sell them to a buyer. The buyer goes to a BTM to exchange cash for Bitcoin, then sends it to the criminal, who converts it back to cash and uses the profits to purchase more stolen credit card information.
• Suspected high-profit drug trafficking proceeds stored in Bitcoin by some gangs, and there are claims that gangs smash BTMs on rival gang turf.
• There have been several BTM theft cases in recent years.

The Northamptonshire Police are investigating three men who robbed a Costcutter convenience store. One threatened the cashier with a knife, while another used a sledgehammer to separate a Bitcoin ATM from the store's wall. They made off with the Bitcoin ATM. (Details)

In Vernon, Canada, two men broke into the Simply Delicious food store and stole cash from the Bitcoin ATM in the store. They took two cash boxes, containing about $4,000, but left behind a third cash box with $50,000! (Details)

Thieves brazenly broke into an empty Bitcoin ATM, completely ignoring the nearby traditional ATM filled with cash, leaving the store manager in Philadelphia puzzled. (Details)

Early Bitcoin transactions were conducted through over-the-counter markets, which themselves had a trust rating network built in. Now, many over-the-counter transactions take place in private chat rooms where members must be vouched for to gain access. "Soft guarantees" mean someone vouches for themselves through their reputation. "Hard guarantees" mean someone promises to financially back any transactions a vouched member fails to fulfill. Thus, it seems we have regressed from a strictly trust-based network to a network maintained by private trading groups' administrators.

Typically, reputations are built through others' testimonies, where someone attests to whether you can or cannot be trusted based on your consistency in words and actions. Interestingly, attempting to create a global reputation score through a trust network is practically impossible as it could be susceptible to a sybil attack, which indeed has occurred in Bitcoin over-the-counter transactions. However, you can create personalized ratings based on reputations shared among people.

Assigning everyone a global reputation score is also terrifying as it could be manipulated by the masses. For example, one person could anger the world over a controversial post or action, tarnishing their reputation for life. Conversely, a wolf in sheep's clothing could deceive the public, amassing a high reputation from followers, and when they harm an innocent person, they may go unpunished as a hint of negativity quickly gets drowned out. Therefore, it's best not to create a global reputation scoring system but rather to weigh scores based on the reputations of those giving testimony in a trust network.

We should also abandon the notion that an identity has only one reputation. An identity can have an infinite number of reputations, depending on the types of interactions with others. For instance, a terrible taxi driver may not be a lazy gardener - your reputation should differ across different services.

Sovereign identity is something controlled by you personally, not relying on authority. In an online environment, this is a reasonable explanation for an identity. However, in the physical world, many lack identification issued by authorities, such as refugees fleeing a country. These individuals urgently need such an identity system.

Self-sovereign identity systems include:

• Blockstack
• Handshake
• ION

Blockchains are essentially strange public key databases; their true value lies in providing a way to unlock without the need for a trusted third party. However, any identity system that aims for widespread adoption requires the ability to handle billions of public keys and the routine operation of these keys. Haphazardly placing such large-scale data in a decentralized network is likely to lead to many problems.

How self-sovereign identity systems cope with scalability challenges is an interesting topic.

For the past five years, I have been working on developing Bitcoin multi-signature wallets, and the lack of a standard has been a nightmare. The good news is that BIP 174 proposes a standard involving how to serialize partially signed transactions. Each hardware and software wallet seems to have its unique serialization, incompatible with that of other wallet software. As a result, before PSBT (Partially Signed Bitcoin Transactions), multi-signature wallets that could use various wallet software were practically impossible to create, potentially leading to a single point of failure.

At Casa, we have already deployed PSBT as part of our Coldcard integration work, and we hope to see other hardware manufacturers follow suit!

Source: https://xkcd.com/927/

PSBT allows us to separate the transaction structure (and all its complexities) from the actual transaction signatures, which should be relatively simple and straightforward. The PSBT workflow allows transactions created using different software to achieve non-interactive signatures, where anyone collecting enough PSBTs can merge the generated partially signed transactions into one fully signed transaction.

The PSBT format also has a nice additional security feature that allows you to pass XPubs and derivation paths along with transaction information, enabling signature software to verify if changes have been returned to the target wallet.

In the future, we expect the scalability of PSBT to support unique features of various wallets, but first, we must get everyone to support the standard!

Another ongoing effort is to increase PSBT support for hardware devices in Lightning transactions, but some non-standard attributes of Lightning transactions require more work from hardware manufacturers.

Almost everyone in this field wants more Bitcoin, so designing a financial instrument to generate income from Bitcoin is more attractive than using fiat currency. It is widely believed that fully custodial products will become more competitive in the future, and competition will primarily revolve around the yield rate.

I personally have a cautious and skeptical attitude towards services that generate income because I used a similar service in 2016. There was a way to earn money by lending Bitcoin to margin traders on Bitfinex. As a result, when Bitfinex was hacked, the losses were shared among all users, with each losing 30%. Although I was never a Bitfinex user, I indirectly had some funds there, so I was affected. They say there's no reward without risk. I believe that over a long enough time frame, recent forms of different lending systems will likely experience similar events.

A particularly interesting fact is that through my broker's financing and securities lending system, I started lending my Grayscale Bitcoin Trust GBTC, despite its annualized returns being only 1% to 2%. However, all these loans are fully collateralized by several mainstream banks, and