Eric’s Orb

Sure,

For the entire time that Bitcoin has existed, there's been two primary ways of transacting off-chain in a way that is in some way tethered to the Bitcoin blockchain: the Lightning Network and sidechains.

Lightning Network

The Lightning Network is only for payments and doesn't host apps—for this reason and for other reasons I won't go into here (UX, inbound liquidity, clunkiness) the network usage and the kind of stats we usually use to measure adoption (such as TVL) is vanishingly small compared to Ethereum L2s (less than 5,000 BTC, i.e. $300m).

Sidechains (Rootstock, Liquid)

Sidechains have not historically been called "L2s", although this unfortunately seems to be changing as of late. The idea of a sidechain is very old, and it most commonly refers to a group of signers that control funds on one chain in a mulitisig fashion such that L1 BTC in the multisig are redeemable 1:1 for tokenized BTC on the sidechain, using trusted federations.

For many years, Liquid and Rootstock have been the primary examples of such Bitcoin sidechains. Liquid includes some marginal extensions on the scripting language compared to Bitcoin, and Rootstock is a Bitcoin sidechain that runs an EVM fork.

Stacks (xBTC, sBTC, Nakamoto sBTC)

Stacks, although slightly different from Liquid and Rootstock (Stacks contracts had the ability to regulate their outcome contingent on things that happened on the Bitcoin L1) has also fit into the sidechain category, especially since xBTC (Stacks' representation of bitcoin) was also controlled by a trusted federation. Because Stacks and Stacks contracts listened to the Bitcoin mainnet as a part of its protocol there was some online arguing about whether Stacks was "more than a sidechain", but ultimately its founder did not make suggestions that Stacks was a Bitcoin L2.

Around December 2022, Stacks felt that they had invented a new way of bridging in Bitcoin that would provide it with cryptoeconomic security. This tokenized BTC was called sBTC which would replace xBTC. The paper was titled sBTC: Design of a Trustless Two-way Peg for Bitcoin and argued that Stacks had access to a secure STX/BTC price oracle through its PoX consensus protocol.

The idea was flawed and as I pointed out here and here, it would not work securely without introducing centralized oracles in a Chainlink-fashion. I did not keep close track of sBTC after this realization, but I did meet one of the core protocol designers at Token2049 last year who confirmed to me that this was the case (that sBTC could not function with cryptoeconomic security alone).

Stacks is currently undergoing an upgrade to the latest version called Stacks Nakamoto. Stacks Nakamoto appears to include a marginal change in how finality in Stacks is handled. It is unclear to me whether this is actually an upgrade to Stacks or a hotfix for how Bitcoin miners have been able to abuse Stacks' vulnerable block production.

Stacks Nakamoto does not appear to introduce any fundamental changes to how sBTC operates, and I can't think of any reason why the previous issues with sBTC would be resolved by a finality change. It does appear that Stack have started to self-label as a "Bitcoin L2", although the whitepaper admits that Nakamoto does nothing to address the issue of Stacks lacking the ability for users to unilaterally withdraw their funds from their system (the core definition of an "L2", atleast as it has been used historically).

I'm happy to investigate Stacks Nakamoto and the consequences for sBTC further in a separate invocation.

tBTC

tBTC (v1) was a project that took a very intelligent view on the Bitcoin sidechain dilemma. It solved two problems at once:

• Instead of trying to spin up a whole new network as a Bitcoin sidechain, it simply bridged out the bitcoin asset into the vibrant Ethereum chain
• It was decentralized, as good as trustless and cryptoeconomically secure

However, being "trustless and cryptoeconomically secure" does not come cheap. tBTC was overcollateralized with 150% in crypto-collateral (ETH) on the Ethereum-side. This made tBTC so inefficient compared to WBTC that its advantages in decentralization and trustlessness did not outweigh its challenges in search for product-market-fit.

The new version of tBTC (v2) does not use ETH as collateral anymore. Instead tBTC v2 is a large multisig of signers who stake their own token called "T" (but to my understanding tBTC is not redeemable for the appropriate amount of T, as it worked in previous versions).

To answer your question around a comparison between sBTC and tBTC, you can assume that both ultimately rely on trust. tBTC is meant to work in any network while sBTC is native to just Stacks. sBTC is also less proven and its reliance on trusted oracles is not clearly defined.

Regarding Mezo: Mezo, to my understanding is an EVM sidechain. They're using tBTC as the native asset and is built by the same competent team. They're currently focusing on a rapid GTM strategy, so in terms of technology, they have not shared anything exotic. It's an EVM sidechain for now. They call it "Bitcoin-aligned", like Polygon's PoS chain was "Ethereum-aligned" only, before they started to experiment with actual rollup technology.

New class of Bitcoin L2s

There has not been much interest in Bitcoin sidechains historically. If you think about it, there's little reason to use a Bitcoin sidechain instead of Ethereum. The Ethereum ecossytem has more apps, greater network effects and superior infrastructure. Since the trust assumptions of BTC inside a Bitcoin sidechain is that of a multisig, the nuances between Bitcoin sidechains and "Wrapped Bitcoin on Ethereum" are not that large.

All of that changed in 2023, for two reasons:

• Ordinals
• BitVM

Ordinals and inscriptions introduced both social and technical changes to Bitcoin. There's now a native community of NFT and token-enjoyers on Bitcoin that did not exist before.

The technical change is the way in which inscriptions pack arbitrary data into the Bitcoin blockchain which I detail closely in this talk. By leveraging SegWit and Taproot, you can now propagate 400kb-sized data blobs that will be picked up by any Bitcoin miner, or 4MB if you use a service like Slipstream, wihout having to split up these blobs over multiple transaction inputs as previous data packing schemes required.

You can leverage this ability to create arbitrary metaprotocols ontop of Bitcoin. Arbitrary metaprotocols also go under the name of "sovereign rollups". The Omni Layer, which Tether used to first create USDT tokens on Bitcoin many years ago, is one example of a sovereign rollup. The Ordinals protocol itself is a sovereign rollup.

Note that these aren't Layer 2s though: a Layer 2 would ideally find some way to aggregate transaction data rather than just dumping a whole blockchain inside another blockchain. Examples of teams building sovereign rollups are Bison Labs, Alpen Labs and Chainway.

BitVM is perhaps the largest reason why there's a renewed interest in Bitcoin L2s. It is believed that BitVM has the ability to optimistically resolve arbitrary computation inside Bitcoin Script itself, opening up a window for rollup-like constructions to exist natively on Bitcoin. Almost all current L2 participants are exploring BitVM today in some fashion—including Stacks, Chainway, Alpen Labs and even Rootstock. At Taproot Wizards we have some reservations about BitVM-style Bitcoin L2s which you can gauge by watching these video clips and reading Shinobi's summary.

I'll note that this is a fluid conversation, and people like Sergio Lerner from the Rootstock team has insisted that "BitVMX" which he proposes does not have these issues and I'm currently exploring the new papers that have come out in conjunction with this.

I've played around with this thought myself.

And I can reveal that in Starknet, it also crossed our minds—"Why should we go to market makers? Why should we approach exchanges? There will be trading demand for this token—let them list us, they will have a gap in their offering if they don't, Bitcoin didn't need a team to approach any CEX or market maker!" (I serve on the board of the Foundation, it is not my token, I don't own any of its supply).

It is a perfect level of arrogance that anyone proud of their project should have. If you're not this arrogant about the quality of your project, you are you even working on it?

So you're not the first nor the last to think this way. In Starknet's case, it came down to community expectations. Starkware which started the whole thing is an $8bn company, which raised over a hundred milion dollars, and people have come to expect certain things with high-profile token launches. One such expectations is market makers, and the reason for that is that you want to reduce volatility that is caused by a lack of liquidity in the order books.

Why? Because, you don't want a person to buy the STRK token at $8 only to find out moments later that it's trading for $1.

For Bitcoin, this was okay. Bitcoin existed for a few years before market places even existed. The type of places where you'd buy bitcoin were refurbished Magic The Gathering trading card trading websites. The whole industry was extremely immature. You had no reason to expect order depth, CEX support, market markers, etc. for bitcoin. Who would you be expecting it from? Satoshi had already left before a serious infrastructure for trading bitcoin had emerged. So you had no company backing it and no associated expectations, and no competitors to compare it to.

You ask what a cypherpunk token launch looks like in 2024. Many devout bitcoin believers believe that one of the unique things about bitcoin is that its launch was immaculate and irreproducible. You cannot create the same circumstances for it, because the world which bitcoin launched into does not exist anymore. The main problem being here that people today find ways to snipe the supply:

1. If Bitcoin was launched today and it was an exciting project with trailblazing technology, specialized actors would find ways to mine all of the supply and regular consumers could never have participated with their laptops while an immature market for mining it emerged.
2. If Bitcoin was launched today and it was not an exciting project, it is unlikely that it would become very successful.

The best example of this is the launch of Grin (MimbleWimble). In many ways, whoever invented it did everything they could to reproduce the Bitcoin launch. Whitepaper dropped anonymously into an IRC channel. All the attention to it was grassroots. They launched using Proof-of-Work only and devised a particular hashing algorithm that was designed to be resistant to specialized ASIC-chips, to level the playing field.

But the day that Grin launched, there was already an industry of GPU-miners standing ready to mine it, which they did, meaning that the average Joe with his graphic card hard very little chance to capture any of the supply.

You can read some of my previous writings on fair launches in my first Orb reply.

The most cypherpunk launches today, in my opinion, are projects that profile themselves as memecoins in which the founders don't premine the supply, but even that is not sufficient. For example, you can launch a Solana memecoin, throw the whole supply into a liquidity pool and step away, but it may be too cheap for a single person who is not a founder to come in and buy a vast amount of the supply from the liquidity pool in a nascent stage of the memecoin gaining recognizeability.

More creativity is needed. Right now, there are 3 projects which come to mind that explore the design space in an interesting way here: XEN, Ordinals (BRC20) and Runes. Each of these type of tokens make it so that the way to get an allocation in the initial supply, you have to "burn" the blockspace of another blockchain, and this process takes place over many blocks/weeks/months/years.

None of these projects are perfect though.

XEN has a bunch of staking/ponzi mechanics built into it. BRC20-tokens leave undesireable traces on the Bitcoin blockchain which could make it difficult as a starting point for a new cryptocurrency.

I think if I was doing this today, I would explore doing part of the launch as an open Runes mint, which burns Bitcoin blockspace but doesn't leave the same amount of undesireable traces on the blockchain (called UTXO-bloat), but I'd also airdrop part of the supply to communities I favor (in the Ordinal/Ethereum/Solana NFT communities). Miladies for example?

In any way, I think the closest way for something to emerge organically in a way that resembles Bitcoin, for regulatory reasons and other reasons, it would likely have to start out as a meme, growing in appreciation over the years organically, exploring open mint dynamics if you want to avoid airdrops altogether.

Sure. This is not a topic I'm very knowledgeable about, so take everything I say with a grain of salt here.

The airdrop strategy, CEX listings, market makers/liquidity provisioning are all connected but separate topics.

I'm more familiar with the deals projects make with CEXes and market makers and less familiar with deals projects make to ensure liquidity on DEXes.

For very big token launches, it is common that projects will engage with specialist firms to iron out all the details (e.g. Coinwatch, Glassmarket, Four Leafs). These firms will cost you hundreds of thousands of dollars in advisory fees (usually paid in tokens) just to make sure you're set up with a solid launch strategy with multiple CEX listings and good market making coverage.

There reason projects will pay specialist firms is because it is quite a dense topic, covering everything from spreads, floor prices to defend, exchanges to support. You'll supply market makers with 0% interest rate loans of your token supply, and the amount of tokens you'll lend them can go as high as 2% of your total token supply or more. The market maker will also ask for the ability to purchase these tokens are some future point at a discount (you'll basically sell them a call option with a TWAP strike price with discounts as large as 50%).

CEX listings also vary, for large projects and top CEXes, you can "get away" with offering them a few hundred thousand dollars if the integration work is minimal, but a few million dollars if there's a lot of custom work. For smaller projects, you'll probably be expected to pay USD in the range of $200k-500k, but they'll also ask for a part of your token supply (0.3-2%) to sell to their customers which you'll have to provide them at hefty discounts.

It is common for projects to just focus on the CEX part of this equation and allow DEXes to live their own life, as there's natural arbers between CEX<>DEXes and CEXes will have the deeper liquidity for major token launches.

On the other side of this spectrum, you'll see memecoins doing market presales and dump nearly all of the token supply paired with everything they generated in the presale into an AMM pair and let the market sort out its own liquidity that way.

For better advice, I suggest you consult someone more well-versed on this subject!

Throughout the years that people have been assessing this problem, we've gone from ICOs, to liquidity mining, to airdrops.

The airdrop criteria have continued to evolve from targeting basic on-chain users who interacted with the system once or twice, to GitHub contributors, NFT owners, Ethereum stakers and basically anyone who in some way could seem aligned with the goals of the project.

One of the key challenge is the avoid getting the token into the hands of those who are purely trying to game and predict the airdrop criteria, the airdrop farmers. While some argue that airdrop farmers who game the system are owed a reward for doing things like creating transactional volumes in the system (which helps the project gain a high valuation etc.), there is no reason to reward a group who will dumb your token and just move on to the next system to extract value from.

So the goal is to get the tokens into the hands of as many genuine users as possible, with the hope that some of those users will hold on to those tokens, participate in the governance decisions (usually though delegation) and make the system more decentralized in its decision-making.

The other key challenge is that it is very hard to copy the successes of other successful governance token airdrops since by the time that airdrop has been considered a "success", it will immediately become the target for airdrop farming strategies and get exploited in the later iterations.

So what you really want to optimize for are three things:

• Unpredictability
• Novelty
• Fairness

Celestia is considered a wildly successful airdrop that made many users happy. One of the things Celestia (and also Starknet) did was awarding GitHub contributors—not specifically to just its own GitHub repo, but to core infrastructure repos they considered have constributed to Celestia existing, such as Ethereum core repos and Bitcoin core repos.

However, as a consequence, teams like Scroll now have to deal with "GitHub repo spammers" that are trying to fix basic typos and other extremely minor or unnecessary things, such that this can't be used as a strategy anymore lest the Scroll airdrop designers either manually select commits that are eligible (lots of work) or use cut-off dates (which could work now but will be harder for future projects).

One thing that Starknet did was airdropping to Ethereum stakers. This was a nice idea I believe, but relied on data from third party providers that did not distinguish well enough between solo stakers and staking pools, and ended up leading to more irritation than appreciation.

The lesson that I've learnt from this (although I was not a part of the provisions committee and did not experience it first-hand) is that when you're trying to reward different groups of people it is extremely important that you work with data sets that are clear and legible—otherwise you'll end up with a lot of frustrated users and negative PR despite how good your intentions were. Therefore I'd opt for more simple data sets to work with rather than those that depend on obtuse heuristics.

There's no clear answer as to how one should do an airdrop because the goal posts will always keep moving here. Strive for originality. Personally, I do thing mixed approaches are probably still the best (mix of onchain users of your own product and external users to your system, both onchain and not).

The reason NFT communities have lately become more popular target groups for airdrops is probably because NFT projects already do spend massive amounts of resources at trying to avoid Sybil attacks on their through whitelisted mints (through quests, collabs with other collections, and other things) in order to build a real community that that is something you can piggyback off, however this will be more like the sprinkles ontop rather than the ice cream itself in terms of your distribution.

Designing an airdrop today is hard work! We don't get away with sloppiness on this part anymore like in the old liquidity mining days. It will require a serious effort from your team, months of thinking, data collection and preparation.

The airdrop moment is one of the most crucial moments for your project because it could very well be the moment when most users interact with your system for the first time, and they will judge you very harshly for your execution and never let you forget it if you somehow didn't reward real long-time contributors and instead chose some other easier way, or if it somehow slighted someone in fairness even in the minutiae.

It is worth to spend some serious time and consideration into this, perhaps way more than you think or you're prepared to deal with, atleast if you're a large protocol with a highly anticipated airdrop.

Best of luck!

One other thing to keep in mind is that regardless of how you do this, there's always a chance that some people will be very disappointed or very upset. There is no perfect airdrop. That's not an excuse to not try to make the best effort you can, but you're just going to have to accept some flack regardless.

P.S. The more info you can provide around which type of project you're thinking of, the more I can help with the brainstorming.

Great question about the BTC $35k prediction.

Let me explain the basis for this prediction and what it really is about. There are two components to it.

Betting on volatility

The $35k prediction is a bet on volatility.

It is inspired by two experiences:

• In January 2018, Ari David Paul, CIO of BlockTower Capital, made the bet that BTC would hit both $6,000 and $60,000 at a time when BTC was trading above the $10,000-range.

This was an astute bet on volatility, as BTC traded as low as $3,200 later that year (and indeed at $60,000 in the next bull market).

• In May 2021, I bet Robert Leshner (founder of Compound) that the bitcoin price would stay within the Rainbow bands for another 5 years, and lost.

Robert later explained:

Being short Rainbow is long gamma, collecting theta, e.g. a fantastic position to be in.

Robert was right and I learnt my lesson. Don't bet against crypto volatility. Bet on it.

The Year of the Dragon

Now, let's keep in mind that bitcoin was trading at $42,000 around the time that I made this prediction, so it wasn't even a particularly bold volatility bet by any measure to think that we'd see a -17% drop.

We knew the Bitcoin spot ETFs were around the corner and that we we're heading into a halvening and a likely bull market.

The tweet that solidified my own personal bull stance was curiously this one. The fact that several Bitcoin maximalists had gone from attacking Nic Carter at every corner they could to supporting him in his campaign against the sloppy journalism at The WSJ showed to me in a symbolic way that the market had purged the last ounces of negativity and was finally primed to embrace a new rally.

"This is like a Galadriel-thing", I said to Nic. "The world has changed: I feel it in the water. This is actually how the universe works."

That is why the first prediction of that thread you're referencing was that we'd see a new Bitcoin ATH in 2024, which has now happened.

So where does that leave us with the $35k?

Obviously, there are two ways this could have happened, $35k hitting before the ATH, or after the ATH. If we had nibbed it before the ATH it would undoubtedly have been easier, but that was not my only framework for predicting this. There is also a bearish scenario. So let's get into that.

If you look around, you'll notice that the S&P 500 is at all-time highs. Gold is at all-time highs.

What's the reason for this? Is the stock market suddenly super valuable? Is gold suddenly super valuable?

No, these aren't the reasons. While I do expect an AI-driven tech boom to eclipse all other cycles in the coming years, that's not quite what is happening yet. And even though you could argue that there is a heightened geopolitical role for gold right now as we're heading into a New World Order, that's not quite what is happening either.

The real explanation behind what is going on is much simpler. Inflation.

The M2 US dollar broad money supply has risen from 15 trillion to 21 trillion since 2020. There is a massive amount of printed dollars out there in circulation still, and I very much do not believe that hiking interest rates to 4.5-5.5% for a year in 2023 means that our inflationary woes are over.

You don't need to wait around for CPI numbers to show you that there's an abundance of dollars out there waiting to buy things. You see it in the stock market. You see it in the gold prices. Travel the world a bit and you'll see it anecdotally. It would be a small feat for inflation to re-surge in consumer goods again.

In fact, to combat inflation, there is a chance that we'd even have to hike rates further and face the recession head on. We have not had a recession. Rates at 4.5%-5.5% for a year is a brief period, not enough to break the camel's back.

The purpose of these interest rates is to make credit expensive—to make loans less abundant, to force the stock market, the real estate market, the gold market, the consumer goods market and the bitcoin market to share a thinner slice of dollar liquidity between them. But it needs to go on for a while to take effect.

We must always remember that we have not yet seen bitcoin in a true recession.

So you still think $35k could happen?

The market is the best signal we have and the market is telling me that $35k now is a -50% drop instead of a -17% drop. Of course the odds have worsened.

And it is also true that while ETF inflows have slumped in the last few days, we have not yet seen the lion's share of what these ETF inflows are capable of. Most RIAs are still not approved to allocate to these instruments yet, and yet the inflows we've seen in spite of that have been surprising even to the bulls. The ETFs are bullish, there's no denying that, and there could be more to come.

There's also even the chance that in a recession, bitcoin doesn't perform as poorly as one would expect if the trust in institutions plummet alongside it.

But I do not rule out the possibility of $35k yet, no. My fear of inflation looms still. I think about it all the time and do not discount the possibility that we could go into a real recession.

It is the Year of the Dragon. I'm clenching my buttcheeks and wearing my seatbelt, and so should you.

As per your request, I've engaged with one of the names on your list.

In truth, it's been a desire of mine for over a year to get AI figures specifically to issue Orbs. There's a lot of questions I personally have for each of the people you mentioned, and it would be very interesting to see what kind of questions the Harberger mechanic would surface to these people, and what kind of information it would uncover to the world.

Indeed, you could argue that this has been one of the key goals of Orb Land. I wanted to onboard the crypto space first, prove out the model and after that, onboard AI figures. Your question has expedited these plans and set things in motion that cannot be undone.

I've been quite lucky that it seems that the concept has struck a chord with the ideal candidate. However, we need to make some small modifications to the Orb contract logic—specifically, we must make sure that the Orb can accommodate a minimum tax revenue (a price point where it cannot go below, or else it must be returned to the creator).

The code change has already been coded up and is currently going through an audit. In parallel, we're drafting up custom designs for the artwork of this Orb to showcase to the AI figure. I'm hopeful we can get this across the line, but there's no guarantee.

If we can list such an Orb for 10 ETH, minimum Harberger tax rate 30 ETH/year, answer frequency 1/month and a honoredUntil initial period of 4 months with some assurance that there will be bids at that price, the odds are decent that this Orb will indeed materialize.

There is a chance that our AI figure likes the Orb and lets the concept keep rolling after this period, but we have no way of knowing that. How the Orb works is that after the honoredUntil period expires, they have the ability to change any parameters they wish, re-auction if it they wish, and there's also the chance that they don't like the Orb at all and choose to retire it altogether.

If you have further information you'd like to divulge on this front, feel free to include it as a part of your next invocation.

Of course, it depends on if you’re asking about growth in nominal terms or relative terms.

Bitcoin L2s (in this category I’ll include a bunch of things which I wouldn’t normally, like Stacks Nakamoto, Botanix, BOB, Bison Labs, Merlin, B², Alpen Labs, Citrea and so forth) will undoubtedly grow faster in relative terms, at least when you factor in the coming newcomers that we haven’t even seen yet. I think you’ll be surprised to see the amount of muscle that will soon flock to this space.

Right now it’s still very early days for Bitcoin L2s. We’ve yet to see the kind of buttoned-up monster-launches that we see in the Ethereum ecosystem (like Starknet, zkSync, Arbitrum and many new players like Monad and Blast that come with VC war chests in the hundreds of millions).

If you take all the Bitcoin L2s today and combined them, they haven't even raised as much as a single top-shelf Ethereum L2. So as a sector, Bitcoin L2s will grow much faster in relative terms because of how nascent and small it still is.

Regarding whether Bitcoin L2s can eclipse Ethereum L2s in size also in nominal growth terms (TVL, token market caps), this I find quite unlikely over the next 3 years.

Bitcoin L2s struggle for several reasons. First of all, there isn’t even support at the Bitcoin L1 to host the kinds of L2s we’re familiar with on Ethereum. The closest we have today are sidechains/sovereign rollups with BitVM-bridges.

While fascinating as a science experiment, BitVM-bridges come with considerable limitations; there’s large amounts of data that need to be exchanged in the setup phase between BitVM "channel" participants, dispute resolution is extremely slow (order of months), bridging in/out assets is not trivial—and this is before the full clunkiness of the system is completely uncovered. The BitVM implementation led by the ZeroSync team is not complete yet.

You also need to factor in that the ZeroSync is a non-profit and has limited resources to work with.

But even if we imagine that BitVM crushes all expectations and all its clunkiness is hidden from the user, the Bitcoin L1 throughput is still extremely limited compared to Ethereum. Meanwhile Ethereum is converting its CALLDATA into blobspace over the next few weeks with the Dencun upgrade in order to turbocharge the capacity of its L2s, Bitcoin is unlikely to budge at all in that regard.

The Ethereum roadmap is rollup-centric. The Bitcoin roadmap is rollup-hostile. It will simply not be possible to host the same quantity of apps on Bitcoin L2s, unless you start building Frankenstein BitVM-drivechains, optimiums and sovereign validiums and MPC-sidechains (with offchain DA-components) dreamt up by the absolutely deranged.

But hey—anything is possible! It’s entirely possibly that we degrade the term “L2” to mean “Bitcoin-aligned” in the same way the Polygon PoS sidechain LARPed as an Ethereum L2 into the billions of dollars. It could be the case that in a post-Bitcoin-ETF-pre-Ethereum-ETF-world, large VCs will be pressed to have large Bitcoin-aligned allocations such that any and all technical inadequacies are forgiven.

If that happens, it’s still going to take time. Ignoring fugazi L2s like Merlin Chain for a minute, it’ll likely be around 3 years from now when we could start seeing such efforts come to fruition, and I only give it about a 25% chance that it happens at all ("it" being Bitcoin-aligned L2s of impressive magnitude of comparative size to Ethereum L2s).

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As a sidenote, one should stop to ask—why? What is the purpose of shoe-horning in all of these constructions into Bitcoin? We can understand if from the builder-perspective. Bitcoin is a less competitive arena! We can understand it from a VC-perspective. VCs need Bitcoin bets in their portfolios, with a tried-and-tested playbook to get a return on their capital!

But what is the reason for the end-user? What kinds of L2s are we even talking about? If we’re talking about replicating the EVM, we’re essentially talking about Rootstock with a different flavour of peg. But there was never really any interest in doing ‘Ethereum DeFi’ on a Bitcoin sidechain—and I don’t think the reason for this is that Rootstock’s peg wasn’t ‘trust-minimized’ enough.

WBTC is less trust-minimized than Rootstock RBTC, but it has a flourishing level of adoption because it exists in the Ethereum ecosystem, rather than on a barren sidechain. The sentiment change and interest around Bitcoin L2s as of late could probably make a difference here, but I’m not entirely sold on it yet.

So what then? Are we building payment solutions for BTC, a better Lightning Network, without channels?

Unironically, that would be a more sensible product to build because bitcoin desperately needs better scaling solutions. But no matter how great of a system you build, there’s just very little demand for making bitcoin payments right now when bitcoin is still an investment to most people.

A payments system is not going to compete in growth with DeFi L2s this decade.

The type of Bitcoin L2 that would be interesting is something spun out of the Ordinals ecosystem. Bitcoin NFTs and fungible tokens could benefit a lot from a type of rollup that still embeds the necessary data into the L1 for provenance and posterity, while unlocking features that help the Ordinals ecosystem to grow and evolve. In my opinion, that would probably not be achieved via the path of EVM, for cultural and psychological reasons.

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Your question around Universal Synchronous Composability is interesting. Indeed, for the rollup-centric roadmap to even play out well on Ethereum, we’re going to have to see a lot of progress on the shared sequencing side, as well as getting ZK-proving times to be as fast as Ethereum block times or faster. Optimistic settlement windows will always require a lag in order to be safe, that's why ZK is an important pillar to getting something like Universal Synchronous Composability working.

I’ve been keeping an eye on Polygon’s AggLayer and this seems like the correct direction to go in.

Like Justin, I also think this is a multi-year effort to get right, if we can get it right at all and it does not devolve into a situation where there’s lots of Universal Synchronous Composability standards fighting with each other (see xkcd 927). But indeed, the fact that you need a native ZKP-verifier on the L1 means it’s much more challenging for Bitcoin L2s to catch up in this regard (see this for my recent discussions around native ZKP-verification opcodes in Bitcoin).

My brain explodes when trying to think through how BitVM-resolved ZKPs or other optimistically-resolved ZKPs on Bitcoin would even attempt to tap into Universal Synchronous Composability, so I cannot give you a good answer, but my intuition is that it would come with some barely-acceptable to un-acceptable tradeoffs if Bitcoin tried to inherit it (also keep in mind here that even if we could by some magic do away with optimistic dispute windows, Bitcoin's block time does not permit for 12-second finality anyway—which means you couldn't provide this composability with Bitcoin security, you'd have to introduce some slashable collateral of some kind for fast soft-confs, which is ugly and breaks apart in the seams at the things that Universal Synchronous Composability is trying to hold together).

Indeed, the more I think about this, the more challenging I see it that Bitcoin L2s could truly catch up with Ethereum if we're talking also about technological equivalence rather than market caps and TVL alone. It seems like a 5-year-out target, and more likely that Bitcoin L2s will always lag behind due to its L1 constraints.

Now, while putting on my wizard hat, I would say that the potential and future of Bitcoin L2s could change dramatically if we can get a new opcode activated in Bitcoin via a softfork. OP_CAT, which is one of the simplest opcodes (and used to exist in Bitcoin over a decade ago) is in my opinion the most probably one. It would unlock recursive covenants and merkle commitments. These building blocks have the potential of redrawing the battlefield for Bitcoin drastically.

(Maybe not on the Unified Synchronous Composability front to satisfaction, but in terms of actually getting real channel-free L2s on Bitcoin, which is really where the puck is at for the moment).

The part I'm least worried about from your question are the network effects. Rollups have already split up the network effects of Ethereum on their own accord—it should not be decisively more challenging for a Bitcoin L2 to compete than a brand new Ethereum L2. Perhaps in a "Unified Synchronous Composable"-world there will once again be Ethereum network effects that Bitcoin L2s will need to fear.

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As a final note, I cannot give any estimates at all on a 8-year time horizon. I’ve become quite taken aback by the advancements in LMs and general intelligence over the last year and I feel like the odds of this new emerging intelligence changing so much of what we know over the next 8 years are so high that I simply cannot predict anything about what the world will look like when we peer that far into the future. There are too many factors to consider and my uncertainty becomes too high.

I'm going to answer your question truthfully, even though it may not be the answer you want to hear. I think you want the honest truth.

I've seen the multitude of threads you've written about me across the years—I understand it is frustrating to see that this many years after the blocksize wars, even though it is clear as day that all the curtains have fallen for me, and that all the rose-tint shade has slipped out of my eyes, yet I'm still not able to give the Bitcoin Cash community the nod you're looking for:

_You were right all along. The small-blockers were the bad guys. Their technological vision is hampered, Layer 2 scaling leads to too much complexity, Blockstream stakeholders are still to this day trying to steer crucial, possibly sticky economic activity into their corporate sidechain silo. _

Why is it like this then? Why is that so hard to say?

As much as you may like to believe it, it wouldn't be particularly hard for me to admit the above if I truly believed it to be the case. Now I'll instead tell you how I actually feel.

First, some background context: during the blocksize wars, I spent almost all of my time in Stockholm with the local Bitcoin community. My two best friends in the community were Tommy and Hampus.

Tommy was a bcasher. Hampus was a small-blocker. Tommy was a /r/bch forum moderator, who was such a persistent warrior for his cause that Gregory Maxwell once talked about getting a restraining order against him. Hampus was a Bitcoin Core sycophant, as I think many of us were at the time.

One of my longer and most regretted unwritten blog posts was a comparison between the steelman-cases for both sides of BCH vs BTC argument, profiling both Tommy and Hampus as excellent case studies.

The reason that they were such good examples for me was that I knew both of them quite closely, I trusted their motivations very deeply. Without going too much into details about each of these individuals, I can wholeheartedly say that there's not a bone in Tommy's body that's malevolent or hellbent on trying to turn Bitcoin for the worse.

All his arguments for Bitcoin Cash were truly because he believed that the best path for Bitcoin forward was a simple blocksize increase. And he was possibly the most diehard, longest-tenured Bitcoin fan that I knew. I didn't know anyone who was so single-focused on Bitcoin (a benefit of his neurodivergence). Tommy was no fool either, he had been right about future trends with very high precision in the critical cases that mattered. And now, in the fullness of time, when all is said and done, I think back then, during the blocksize wars, Tommy was right about many more things than I was willing to give him credit for at the time.

One of the products of our friendship came in the form of a chart which plotted what would happen in all edge case scenarios during the BCH <> BTC <> SegWit2x splits during the BIP91 lock-in/activations. I felt uniquely positioned at the time to distill the different outcomes because Tommy had so much knowledge on the big-blocker side of things, and Hampus was so deeply knowledgeable about the small-blocker side of things. We sat together in multiple cafés and pizza huts until we had the final outline on paper.

After a few nitpicks by Gregory Maxwell, the chart was complete.

I sat many times with Tommy and challenged his perspective on why Bitcoin should scale via increasing the blocksize alone. What happens after that demand is gobbled up, and the fees go up again? "We increase it again", Tommy would say. It was clear to me that at the time, many big-blockers weren't content with stopping the increase of the blocksize limits beyond what a normal person, or even a well-resourced person could sync on their computer. At some instances, Tommy would say that Bitcoin would still be secure even if something like 20 geographically distributed full nodes / miners were the only entities with the full record of the blockchain.

Tommy believed that ultimately the economic incentives of the largest stakeholders of the network would be too strong for it to become corrupted, and that there would always be someone trusted enough to provide users with the hash of the most recent chaintip to fork away from if the rules of the network ever became seriously endangered. And if such a thing were to happen, he believed economic forces such as the ones we've seen with fork futures in the Bitcoin Unlimited case would be the real arbiter of consensus, not people wearing hats and running fully synchronized full nodes.

I'd actually be ashamed at the time to admit how many valid points Tommy made then (mind you I am trying to represent his argument from memory as far as I'm capable, I am fully aware that he may feel like I'm misrepresenting his stance completely). It's only in later years that I've actually started to take the devil's advocate's side and argue similar to Tommy, that the war of consensus takes places on markets and in pricing, and even at very high blocksizes, the real-world mechanics that we use to help us navigate which fork we're buying and selling still work in practice, in the same way that the "weak subjectivity" problem in Proof-of-Stake is ultimately a problem we can practically solve.

At the time, I told Tommy that the system he's looking for is EOS, not Bitcoin.

This is getting a very long-winded answer, but I'll try to circle back to your questions in a moment. What I believe, and still believe to this day, is that what Tommy proposed was a riskier path. Not only would it force Bitcoin into a weird state where it's secured by a type of game theory that really only very few people would entertain as being sufficient, it would also force a lot of good people out of Bitcoin that I believed then, and do believe to this day, were the most technically capable people in Bitcoin, and made the choices they did out of genuine caution rather than malice.

The "evil cabals" that people always ascribe as the explanation behind things, I simply don't believe in those stories. Sure, some Blockstream stakeholders are economically motivated. It is completely reasonable that some have had their thinking perverted by this. But the Blockstream stakeholder trying to lure everyone into Liquid to siphon fees indefinitely from the new economic world order is a strawman of the small-blocker side. It completely misses the genuine individuals, like Hampus, who really simply weren't ready to let go of self-sovereign node-running at home until we had atleast tried Layer 2 scaling.

And you see exactly the same kind of nonsense stories being told by Bitcoin maximalists about me and Udi Wertheimer, right? That we're funded by the Chinese government to spam the Bitcoin network? It's either the jews or the Chinese, whoever you're the most afraid of. I know that I'm a half-Swedish half-Iranian European and I am way too lazy to care about what the Chinese government wants me to do. I vehemently reject such simple, banal explanations for why people act the way they act, because I've seen this bogus rhetoric go wrong about myself as long as I've been a public face on the Internet.

The layer 2 path of Lightning, was atleast on paper, back then, to even many bright folks, something we thought we could get into a workable condition. We haven't by now, and we've failed, but that doesn't mean it was a perverted decision. It is interesting to me that even folks like Andreas Antonopoulos still cling on to this vision of scaling Bitcoin. Most of the people in my intellectual circle have at this point admitted that Lightning is a dead end in its current state. Some now argue that it's only a few new opcode softforks away before all the kinks are worked out, while I believe that channel-based scaling must be burnt down to the ground altogether. Some believe that it's not Lightning, but now "Ark" which is a descendant from Lightning, which will usher the future of hyperbitcoinization.

I still see what I have always seen—a disorganized soup of people with a great variety of ideas trying to bring this decentralized currency forward, most with good intentions.

1. What evidence or change (w/c)ould cause you to abandon BTC & migrate yourself + Wizards to BCH?

Let's first talk about this at the social level. The answer to this question is never.

Even though Bitcoin Cash community had some valid ideas, many correct criticisms, and its origins stems from many of the longest-tenured original fanbase, Bitcoin Cash is not the second-most interesting project in cryptocurrency to me, nor the third, nor the fifth, maybe perhaps even not the twelfth.

I think where our disconnect is that it doesn't logically follow for me that simply because the Lightning Network did not work out, I'd be interested in rewinding the clock half a decade and continue on some other fork of Bitcoin. While I don't have a very rosy picture of the Bitcoin maximalists who have stuck their head in their sand for far too many years as it became more and more clear that the UX challenges of Lightning were steering users into custodial wallets, I actually don't hold bcashers in very high esteem either.

In order for you to understand this, try to picture it from my point of view. The Bitcoin Cash community. at large, were a group of people who had some reasonable qualms about Lightning, but moments later got duped into believing that a con artist, Craig Wright, was the inventor of Bitcoin. I want you to look at these pictures below and refresh your memory.

The Calvin Ayre Hong Kong cruise (with Craig Wright, Roger Ver and Deadalnix) (archive link)

While it's true that after some time, some people in the Bitcoin Cash community finally rejected Craig Wright, the fact that so many of people from the BCH-inner circle so rapidly got themselves ensnared into Calvin Ayre's dungeon of thieves and snakes, has caused irrevocable distrust for me in those people's judgement. It is not a community I am seeking to rejoin, nor a chain I am looking to extend.

Now let's talk about it at a technical level. The only point where I'd become interested enough to join the Bitcoin Cash community is if the community successfully became stewards and leaders in the type of technologies that I believe will ultimately scale blockchains.

If I am to accept that Bitcoin's vision of scaling through Lightning is a dead end (which I've done), my first course of action is try to correct it. This is what we're doing with our softfork movement efforts at Taproot Wizards. I think we've been making great progress in changing the culture of Bitcoin, by introducing new users into Bitcoin, with completely different perspectives compared to the Bitcoin maximalists who refuse to observe the certain aspects of reality that's frustrating to me. And what's even better, is that our activity on the chain is causing many of those Lightning fanatics to revisit their understanding of the Lightning Network! Read this excellent piece by @benthecarman.

If those efforts fail, my next course of action is to choose a different cryptocurrency project to be a part of. For me, right now, that would be the Ethereum community or the modular/ZK communities. There are several efforts in crypto right now where the unviability of channel-based systems for scaling are well-understood and other directions are chosen, which I believe do carry the potential of achieving the goals of scalability and decentralization at once (yes, fraud proofs, validity/ZK proofs and data availability sampling are central elements to achieve this).

2. Why are BCH moderate blocksize increases non-viable &/or mutually exclusive w/ improved L2s (eg rollups)?

They're absolutely not. You can start building ZK-technology and data availability sampling on Bitcoin Cash today. The fact of the situation though is that the intellectual mindshare in stewarding those type of technologies are nowhere near Bitcoin Cash, nor have they any interest in being a part of the Bitcoin Cash project effort.

Let me turn the question around, why should there be an effort to build these types of technologies on Bitcoin Cash today, among the people who understand those technologies? What do these technologists owe the Bitcoin Cash community? If your answer is "well because Bitcoin Cash retains much of the UTXO set of Bitcoin and bcashers were right to fork off from BTC because of the overfocus on Lightning", well, I disagree. The UTXO set of Bitcoin, the real BItcoin for which there are ETFs and other things now, is the right destination for these technologies, not the resulting fork of an ancient dispute.

Applying these technologies to a current fork of Bitcoin at its current blockheight would be a more interesting choice for me if it came to that point. There's nothing from the current Bitcoin Cash ecosystem that I want or need buy-in from to develop a better system for the future, and its closest-knit community of Bitcoin Cash doesn't have a very strong grasp of the technological future of blockchain I'm interested in.

You either have it (Bitcoin does) or get it (the modular/ZK community does), Bitcoin Cash neither has it nor gets it.

3. If you were running The BCH Podcast, what would your promotional strategy be?

I would rebrand it to focus on a type of technology. "We're going to make the blocks as big as they have to be, and then also kinda use whatever other technologies are around to scale further I guess?" is not a compelling message.

Like I said, you either have it (Bitcoin, Ethereum) or you get it (<insert technological scaling narrative here>), you either talk about a community/currency that's big and existing, or about a compelling technological vision that's so compelling that others will buy into that vision and are willing to make an off-chance bet that your very different technological vision is so revolutionary that everything else will ultimately have to succumb to it.

Right now, Bitcoin Cash is playing not second, not third, not fifth, and maybe perhaps not even twelfth flute to other compelling underdog narratives out there, and that's why I wouldn't run a podcast focused on trying to propagate its message. Its message is too worn out, its brand is too diluted, it is simply not fertile—it doesn't swim. You're not the biggest, and you're not flashy. You're old, sunken, and salty. It is time to end it.

....So what happened to Tommy? Tommy left Bitcoin for good. He did not feel that his vision got a foothold in the market, and that humans were too easily misguided by clowns like Craig Wright that he lost faith in decentralized currency projects altogether. Tommy is interested in other technology trends now. There's probably some wisdom in Tommy's decisions, the big fat old autist that he is.

Currently, there are a lot of seed rounds going on in the Bitcoin Layer 2 and Ordinals space at $15-40m valuations like Alpen Labs, Xverse and Chainway.

Getting into these rounds is not easy. The lead investor usually wants most of the round, leaving only some room for other funds and angel investors. As soon as a lead is selected for a hot round, it's Lord of the Flies for the rest.

I'll talk about how I personally came into a position where I could invest in such rounds, and then touch on how I see other paths of reaching the same goal.

How I went from being a total nobody to getting into the hottest VC rounds in the industry

Making a name for yourself: I attained sufficiently deep knowledge about blockchain technology and consensus protocols such that I knew more than 99% of people. Then, in 2017, when a lot of people were investing in altcoins with very little knowledge about how they worked, I exposed the technical flaws and deceitful marketing in several high-profile projects.

It's worth mentioning how I even got my first recognition in the Twittersphere: I sent a personalized email to two people I followed who I knew would like the content I had written (an IOTA takedown): Tone Vays and Chris DeRose. Coldcall. No previous connection. Both of them shared my article. We'll see how long the era of cold emails last before that route gets completely saturated by ChatGPT autobot spam, but the general key is timing and sincerity.

I gained about 300 Twitter followers from my first article being shared. After that I began participating in the public dialogue on various cryptocurrency topics. In an industry where everyone seemed to be plagued by bias, I turned neutrality and objectivity into a sport. I played long-term games and valued my reputation and integrity.

I was in a lucky position. I had discovered crypto while I was still studying a MSc. in computer science. I got to steer my entire career trajectory towards participating in the crypto space in various ways. I decided to become an encyclopædia of cryptocurrency knowledge.

My personality of being extremely argumentative worked well on Twitter. It only causes me problems in real-life, but it's exactly the kind of personality you want in order to get to the bottom of complex technical issues. I gained a large following.

Become known as an investor: Making a name for yourself is not necessarily sufficient. You have to demonstrate that you're somehow familiar with VC and fundraising, you need to atleast be somewhat adjacent to other successful investors.

I did that by launching a cryptocurrency hedge fund, but I can think of many other ways of achieving the same goal.

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Here's the rub: in order to get into highly competitive VC rounds, you need to become somewhat of a micro-celebrity in your particular niche. Your name must be a stamp of approval.

Let's talk about some other ways of achieving that.

• Founder: I see a lot of successful founders among angel investors. They are valuable because they will know how to support other founders.
• Developer: If you're known for your deep technological knowledge having contributed to high-profile projects, this could be a way.
• Podcaster: Even podcasters get to invest in hot rounds sometimes. Look at the Bankless duo (David & Ryan).
• Druckenmiller: Since you mentioned Druckenmiller previously, I'm pretty sure I could get someone like Druckenmiller into a hot round.

Initially, you may have to do a couple of bad deals. Maybe you don't get to invest in EigenLayer at $50m, but you've been given the opportunity to do so at $500m. Maybe this isn't the best risk/reward for you, but getting your name on the list of supporters will send a signal to other investors that you're there and ready to play (by bad deals I don't mean shitty projects, I just mean less-than-ideal ROI prospects).

You should also try to find a really good prospect on your own. If you have discovered a "diamond in the rough" (i.e. a very high-quality team with great potential but with no investor connections), this is your chance to invite other investors you want to co-invest with in the future. This is your shot. If it turns out really well, chances are high they will reciprocate by inviting you to deals in the future.

What happens after the investment is made is also important. There are many times in an investment's lifecycle that the project will run into issues and need support. If you're able to step up when things are going bad, solve disputes or come up with clever solutions to difficult problems, others will think about you when they're putting together a "dream team" for future venture backing.

All in all, it's essentially about clout. You have to do whatever you can to make sure your clout is pristine. Think only about clout, then the dealflow will come.

Bonus tip: One last thing you can try, if you really have no other option, is begging. If you see a project that you absolutely love, you can message one of the founders and ask if they're raising. If he tells you they're not raising yet but maybe in the future, you can stay loyal like a puppy or some kind of waterboy and try to run any and all errands for them. They may throw you a bone out of pity.

Hey, great question!

For starters, when I was compiling the list you asked me before, here's one of the names on the shortlist:

• Sreeram Kannan - EigenLayer, restaking

The reason Sreeram didn't make the cut is solely because EigenLayer and restaking aren't proven out ideas yet. They are very interesting ideas, however, EigenLayer just announced the deployement to mainnet less than 8 hours ago (the first stage in its staged launch). You can read their announcement article here.

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ANALYST REPORT - EXECUTIVE SUMMARY

Listen up Druckenmiller, my name is Eric Wall and I don't do analyst reports.

If you want to read a bland analyst report on EigenLayer, go to the dozens of funds and research entities out there like the ones from Nansen, Messari and Galaxy Digital, I'm absolutely sure that you'll have a swell time familiarizing yourself with the basic concepts and ultimately reach a level of insight held by the destitute and the orbless.

I don't work that way. I am connected to every research collective in crypto worth their salt. I have Vitalik on speed dial. I receive my intel straight from the Crypto Illuminati. I left Sreeram on read (yes, it happened). I give you the no-bullshit-bottom-line. You're a busy man, I'm a busy guy, let's jump straight to the conclusion.

Conclusion:

ok so here's the rundown. eigenlayer allows you to take your staked ETH that is earning yield and put it to use in other services that also earn a yield. it takes a yield-bearing financial asset and puts it to work inside other systems to earn more yield.

if this sounds sus to you, well it's because it kinda is. but who cares? it's a permissionless network, someone's gonna do it, and it might aswell be you.

they just raised $50m at a $500m token val so you're shit out of luck though. text me sooner next time. you want to get into the seed rounds of these kinds of things, not the series A.

why this is even good? look, you don't need to care. i'll tell you what crypto gizmo the kids are liking these days and all you need to know about eigenlayer is that it's a crypto gizmo the kids like. then as soon as you hit your 10x between the series seed and the series A you need to dump that shit otc faster than georgie soros can pound the british sterling.

if you absolutely must know wtf eigenlayer is, in crypto, if you're designing a system that needs crypto-economic security, it can be good if you can tap the yield-hungry eth stakers sitting on their asse(t)s and make them double-pledge their eth for you.

it makes it easy to very quickly make your crypto application look safe because it's high in crypto-economic security (look, who are we kidding, if your application gets hacked it's going to be because some north korean hackers from the lazarus group spearphished your network admin, not because of insufficient "crypto-economic security", but let's actually kid ourselves, you need to be absolutely f**king deluded to make serious money in this industry anyway so you better start now)

this allows you to market your application faster and grow faster especially because you'll be secured by the latest flavor-of-the-month buzzword (if you actually can find a crypto application that you can design as a L1, because that's kind of the prerequisite for anything to be able to be secured by eigenlayer in the first place)

eventually, there's not going to be any purpose to any of this anyway, because getting leverage on your yield-farming is only good if you're the only one with leverage. if everyone is yield-farming with the same leverage, you're still getting the same yield you were getting before but with twice the risk because you layered a bunch of risks ontop of eachother, but let's not let that get in the way of us flipping $EIGEN tokens for millions while the others are still figuring it out

WHY SHOULD YOU TRUST ME?

Look, the only thing that matters in this space is time in the industry and track record.

IOTA was once the 5th largest cryptocurrency. Back then, I was the only person pointing out that the system was completely centralized, to denying founders. A couple of months later, a single node went offline and all of IOTA was shut down, proving me right.

I also identified the risks of LUNA before it collapsed.

END OF ANALYST REPORT

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Keep in mind that this is the kind of report I would write if the goal was to get hired, not necessarily sticking to the humblest of most factual version of myself.

VItalik's blog post "Don't overload Ethereum's consensus" from May 21, 2023 talks about a problem that actually isn't very new in blockchain science.

The easiest way for me to describe the problem is by referring to the drivechains debate. Drivechains are a type of sidechain that allows Bitcoin miners to use their hashrate to lock and unlock coins on the mainchain when they're sent to and from the drivechain. Almost all types of sidechains in existence require trust in a permissioned set of key holders, but drivechains are a directionally "decentralized".

It's sort of a holy grail in Bitcoin-world because it would allow the BTC asset to function on any sidechain blockchain, which means you could use BTC in a Zcash-style blockchain for near-ideal privacy, or anything that you'd like.

The big issue—and one of the major reasons drivechains have not been adopted yet—is that miners can in fact steal all the coins in a drivechain. Paul Sztorc, the inventor, has therefore designed the protocol in such a way that it would take miners months to move the coins out of a drivechains, miners all need to vote incrementally on where they want the coins to be sent in a transparent manner, so that the drivechain users and Bitcoin users have time to react.

The idea is that Bitcoin users will prevent the attack by softforking the Bitcoin mainchain.

This is where the idea starts to break down to some. The whole purpose of sidechains is to isolate the sidechain's problems to the sidechain. The moment your design requires intervention by the mainchain users, you posit that mainchain users should be paying attention to and arbitrate issues in a sidechain.

Thus, if you have an Ethereum-style drivechain with a lot of complexity inside it and there is a bug or a consensus dispute, it now becomes the Bitcoin mainchain users' problem to look into whether funds are being moved suspiciously and whether this is the result of a drivechain-level conflict or theft by malicious Bitcoin miners (and whether they should be stopped via softfork!).

Ethereum-complexity now becomes Bitcoin-complexity! Bad design pattern.

You can imagine how resisting changes that enable this design pattern is the more prudent choice. Imagine hundreds of different drivechains, each with their own set of unique peculiarities, all having their chain-specific problems leak into the dialogue of Bitcoin consensus. This is a textbook guide to "overloading Bitcoin's consensus". As a result (of this issue and a plethora of other political issues), it is not possible to build drivechains on Bitcoin today—the necessary opcodes have not been enabled.

Vitalik's blog post is simply an attempt to classify a bunch of different ongoing experiments and ideas in Ethereum (such as EigenLayer restaking) by the degree to which they introduce this very specific, social consensus problem.

"If [...] you have the intent to rope in the broader Ethereum ecosystem social consensus to fork or reorg to solve your problems, this is high-risk, and I argue that we should strongly resist all attempts to create such expectations."

How might Chainlink be a part of the solution?

Chainlink by itself cannot solve the problem. If we allow Chainlink oracles to decide what is true and what is not true inside a separate system, like a Bitcoin drivechain or an Ethereum Layer 2 protocol, then these systems ceases to be Layer 2 protocols entirely and become Chainlink-permissioned sidechains instead.

However, as your question rightly posits, Chainlink could be a part of a solution.

Backstop: If we take the example of a drivechain, we could design the system in such a way that miners can be backstopped by Chainlink oracles when moving drivechain funds, instead of involving mainchain consensus in the conflict as the next go-to option. Miners would effectively need Chainlink oracles' permission to move funds out of the drivechain, ontop of hashrate.

1-of-N security: A better example where Chainlink oracles can be helpful is in acting as watchtowers for optimistic rollups. In an optimistic rollup, the same type of theft as described in the drivechain case can be proven and stopped automatically by mainchain nodes when they're presented with the right information (a fraud proof). Adding Chainlink oracles to the list of entities with the responsibility of monitoring the rollup for fraud and submitting it to the mainchain is completely an additive security measure. The Chainlink oracles don't even need to agree on a median value for it to work—as long as a single Chainlink oracle (1-of-N) reports on fraud correctly, an attack is stopped.

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I would not recommend to use Chainlink oracles to backstop a drivechain, because it gives Chainlink oracles the power to freeze funds inside the drivechain, and Chainlink oracles and miners can still collude to steal funds. In general, layering security via a bunch of different backstops can often introduce more problems than it solves.

However, I see no downsides in adding Chainlink oracles as watchtowers to a fraud provable system like an optimistic rollup.

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Chainlink cannot save all blockchains from having their consensus overloaded. Even if Chainlink can alleviate a problem, what happens when Chainlink fails? As soon as you layer one system ontop of another or make one system depend on another, there is always the risk that problems in the first system will leak into the second.

Chainlink can help to automate arbitration so that social intervention is required less frequently, but if applied incorrectly, it can cause more frequent need for social intervention.

Note: When I talk about "Chainlink" here, that refers to Chainlink as it currently works (including Chainlink v0.1 staking). Furthermore, for those who have read my "What’s Wrong With the Chainlink 2.0 Whitepaper? (For Simpletons)" blog post on Medium, you'll know that I don't expect to treat future versions of Chainlink as fundamentally different from the system that exists today either.

P.S. I actually like drivechains.

I don’t invest in this kind of way, and it pains me to write this list. I’ll probably regret writing most of it.

But the Orb must be honored.

NOT FINANCIAL ADVICE (seriously, not financial advice, you’re basically asking me which flavor of fentanyl i recommend)

LDO - liquid staking governance token on ethereum in a winner-take-all market
COIN - coinbase stock possibly undervalued
ETH options on Deribit - great way to get leverage without liquidation risk (volatility can't wipe you out)
OSQTH - weird leveraged ETH perp without liquidation risk (don't hold it for too long, funding is expensive)
ATOM - they just never really hit their moon phase last cycle and some of their stuff makes decent sense
LQTY - kinda like makerdao but without the USDC bs
FRAX - crappy hybrid algostable that didn’t fail yet
PLS - centralized trailer park shitcoin that could still do a 9x
pHEX - clone of HEX on pulsechain (PLS)
PHIAT - being able to short pHEX/eHEX is a valid use case since CEXes have shunned both
XEN - mint it on pulsechain where it's new, jack levin is unpredictable but not dismissable
ORDI - the original brc20 shitcoin
VMPX - jack levin brc20 shitcoin
BFFY - VMPX twin shitcoin
Trump Card NFTs - may be stupid enough to become a meme
Miladies - the only culturally relevant nft collection except taproot wizards

Always visit ericwall.ninja/disclosures to protect yourself from my bias when I’m giving NOT FINANCIAL ADVICE-advice.

Here’s my basic intuition:

AI models are currently being censored by wokeness and PG-13 filters in order to not offend. LLMs like ChatGPT will often avoid answering particular question it could easily generate interesting answers for—it can never risk being too “spicy”, and therefore produces limited, less useful answers.

Similar with hosted, generative image models like DALL-E and Midjourney. They don’t allow you to generate images containing pornography or even guns.

It would be interesting to allow people to train models without censorship, and generate outputs at scale without judgement.

To understand how “blockchains” could potentially solve something here, we must adopt a broader definition of what “blockchain” means. If we abstract the idea of a blockchain to a “decentralized computing network” where value transfers are done with a permissionless token, the challenge becomes more approachable.

In the context of creating censorship-resistant AI, we need computation to be run by a decentralized network of GPUs (“miners”). The GPUs need to be able to prove that they performed some type of computation correctly, and receive network/user fees as a reward. This way, there is an incentive for GPU-owners all across the world to connect to the network and complete these AI-related computational tasks, and this would be how the network achieves censorship resistance.

The problem, of course, is how nodes in this network should be able to prove that a miner performed the specific AI-related computation correctly and didn’t just cheat by submitting a simpler, cheaper result. How do you verify that the right AI computation was actually run? A human may be able to tell that something is off, but the trick is to be able to manage this verification autonomously between nodes. It needs to be programmatic and deterministic.

I see two paths.

Intuitively, one may argue that this is something ZK proofs are specialized in. However, to my knowledge, we are very very far away from doing anything meaningful with ZK proofs and AI neural networks at scale. I personally consider such ambitions (at the moment) to likely be fraudulent (see CryptoGPT), i.e. doing something just to win a game of buzzword bingo for fundraising purposes.

A little less fleshed out idea I have is to draw inspiration from Golem (an old shitcoin project from 2016 that tried to create a decentralized marketplace for computing power). In Golem, what they did was to apply redundancy. Basically, a requester would give multiple miners the exact same computational task. By comparing the results, the requester identifies outliers as incorrect, and interprets the results that have strong similarities to be correct. It then becomes possible to reward miners who are seemingly performing the actual computational task, and not those who are faking it.

In the context of AI models, this redundancy approach might involve comparing the resulting neural weights of models trained on the same data or analyzing the output of text or image generation (inference) tasks.

I don’t know if this is a great idea or not, but it is the path I’d explore if I wanted to solve a problem with AI using blockchains.

Hello, pawle! Thanks for your question!

As soon as I received your question, I joked “Sirs, they have come for my alpha. All of it.”

One of the more astute hexicans in a chat I’m a member of commented “That’s actually one I look forward to you answering honestly. You normally dodge that.”

It is indeed one of the more piercing questions you could possibly ask.

Eric summons all his powers and gazes deeply into the Orb

And if you gaze long into an Orb, the Orb also gazes into you

There is a reason I normally dodge this question. It’s simply because outside of Bitcoin and Ethereum, everything is extremely high risk.

Every asset in this space faces regulatory uncertainty ontop of existing in a hard-to-predict hyper-competitive technological environment. There is simply no way I could recommend to a relative or a friend whom I don’t know when I’ll be talking to again over the next five years to pick up specific crypto assets outside of BTC and ETH and then sleep well at night.

As my broadest heuristic, I don’t think about the ontology of value accrual as being something that’s sliced up neatly across specific categories or layers. My heuristic is way more simple. There’s “bitcoin and ethereum” and there’s “newStuff”.

At the time of writing, the makeup between these two is ⅔ “bitcoin and ethereum” and ⅓ newStuff, where newStuff is simply an amalgamation of our collective brain damage as well as our hopes and dreams (L2 tokens, alt-L1s, governance tokens, memecoins, social tokens, bridges, oracles, altcoins with pictures a.k.a NFTs).

I don’t expect this balance to shift drastically over the course of the next five years. Depending on market conditions (the Fed), it’s definitely possible that “newStuff” reaches parity with bitcoin and ethereum, it can also drop to ¼ or ⅕, but there’s always going to be some portion of human attention and capital that will be hellbent on finding value in the new. This is irrespective of how well bitcoin and ethereum executes on their respective roadmaps.

With that out of the way, we can talk about more of the specifics and the juicy stuff.

Is a flippening possible between ETH and BTC?

Yes. This probability has increased over time. I’d say the probability is as high as 50%. The Ethereum community has been more successful at attracting global mindshare over the last few years. The momentum is incredible, the level of research and innovation is staggering.

After the Merge, there can also no longer be any uncertainty whether the Ethereum community is capable of executing. We like to think that these things don’t matter, that the war between BTC and ETH comes down to harder, more concrete “economic truths”, but that’s simply not the case. Both BTC and ETH will have low supply issuance (ETH likely being slightly lower). The stories shaped around these two communities matter.

What are some categories you’re sure will stick around?

L2 tokens and alt-L1s: For sure. L2s are the new alt-L1s. Fundamentally, anyone who is building an execution environment that isn’t fault or validity provable (optimistic or zkrollup-style) is probably making a mistake. There may be a few exceptions to this rule (possibly Solana), but it’s true in general.

In a chat that I’m a member of called “Crypto Fundamentals” with 200 of the industry’s insiders, Kyle Samani from Multicoin recently made an interesting comment that “short ETH and long OP, ARB and MATIC” was the best relative trade in crypto. His argument was that “general rule of thumb in capitalism is that the closer you are to the end customer, the more pricing power you have” and that “securing consensus and providing DA” (what Ethereum does) “is a commodity” (meaning, can be done by many other systems and chains) .

In other chats I’m a part of that’s meant to trash-talk takes like these, I commented that this was a “crackpot idea”. A good friend of mine quipped, “but are we in the part of the market cycle where investing in Samani’s crackpot ideas is good?”

My take is that L2 tokens definitely have value. Control over transaction ordering is undeniably valuable, you can measure it directly in relation to MEV. L2 tokens may also turn into L1 tokens over time, as any sufficiently successful L2 can transcend and become their own chain. But that doesn’t mean that you should long all L2 tokens and short ETH, it simply means that they can be valued closer to alt-L1s (which they already are).

P.S. I’m not meant to directly quote people out of private chats, but this take by Samani has already been discussed in depth on a recent Unchained podcast episode (ep. 484).

Data availability layers: When Samani says that “DA is a commodity”, he’s talking about layers that specialize in ordering large amounts of data. In the history of blockchain engineering, what we’ve eventually found is that the quantity of data that can be ordered and made available by a blockchain is the central bottleneck that defines how much activity a system can handle. That’s why there are layers that specifically focus on this now, like Celestia, Polygon Avail and EigenDA. Even Ethereum itself is creating its own built-in DA-layer with EIP-4844.

Some commenters like Polynya argue that DA has no value. That it will simply be too abundant and has no real scarcity and can be provided by any system. If you run out of DA, you simply create more DA layers. You cannot tie a specific token to this artificial scarcity (I’m paraphrasing, you will need to acquire Polynya’s Orb to squeeze him on the specifics of this).

I don’t agree with this analysis. I believe that DA layers will be valued in the billions of dollars. The market assigns value to “standards”, and there will be value in being ordered by the highest-quality data availability layers, even if many alternatives will inevitably exist. That said, I’d classify this as a low-conviction take on my end.

Oracles: We don’t know if oracles will be tremendous value-capturers. Chainlink is a business. We don’t know how much of the revenue paid out to its oracle partners is subsidized and how much of it is organic. It is a business venture, not an “asset class”.

Meme tokens and NFTs: I think it’s pretty undeniable that the market enjoys high-powered speculation. It’ll likely stick around. I don’t think we’ve even seen the beginning of what can be possible with NFTs and how big the market could become. I think this Orb you’re holding is an example of that.

–

As an aside, I’d feel dishonest if I didn’t tell you that when thinking on a 5-year time frame, I spend way more time thinking about the implications of AI than I do thinking about the internal relationship between various crypto assets these days. Ultimately, I think it will matter way more for our future, and may already have begun to disrupt our lives (and markets!) in ways that are hard to imagine today.

Welcome to my lair, XENian, and congratulations on winning the Orb!

This was a great first question, it had me thinking for days.

You have a couple of different options, challenges in bold:

• You can airdrop to an existing cryptographic data set (holders of BTC, ETH excl. ICO-funded wallets, etc.) but this likely provides tokens to a “larger” user base than your specific community, and a lot of those users will be natural sellers of your tokens. Allowing recipients to claim their airdrop within a limited timespan helps to restrict the airdrop to users who are at least paying attention to your project (this is what HEX did).
• You can run a token sale but this likely makes your token a security and your token sale illegal in most jurisdictions if you don’t restrict the token sale to accredited investors. In the case of illegal ICOs, it’s important to make sure that your model doesn’t allow for the recycling of capital (this is one of the flaws with the way EOS and HEX did it).
• Proof-of-Work mining, but well-capitalized players who want to make a bet on your coin will spend significant resources on building optimized mining facilities that will likely absorb most of the supply into the hands of VCs anyway, see for example fair launch attempts such as Grin.
• Proof-of-Burn. There are historic examples of this, such as Counterparty (XCP) which was distributed in this fashion. XEN is an ongoing variant, which burns gas. There is no specific challenge to this—because you’re not taking investments from people, the risk of regulatory issues is low. The challenge more has to do with the fact that the number of users who are willing to participate in schemes where their funds are burnt instead of going to fund developers to build the project is relatively low, and you will still end up with a “niche” community of holders as well as limited resources to make their sacrifice worthwhile.

A general challenge is that if you issue most of the supply in the initial months or years, then the majority of supply will inevitably fall into the hands of an early community (“insiders” in some people’s eyes). If you on the other hand choose to issue most of the supply later, your project is going to have high inflation, and it will scare away potential investors/community members.

I’d also note that it’s almost impossible to keep VCs out, even if they don’t get an initial allocation. VCs buy coins on the secondary market in large proportions, and they specialize in finding these projects before retail users. Interestingly, projects like HEX have been successful at keeping VCs out by giving off all kinds of warning signals as a project (basically, in the same way Nigeria letters are designed to only attract the gullible and low-educated by having typos in them, HEX scares off all kinds of centralized exchanges, custody solutions and VCs by looking like a scam). Maybe trying extra hard to seem like a total scam is the right play? And then I mean really trying hard. LUNA-level ponzi vibes are not enough! You gotta really up those ponzi vibes through the roof! Not the fancy ponzi, trailer trash ponzi is the way to go.

Sidenote: If Richard Heart burned the OA supply (his own wallets) in HEX, he’d actually have been quite successful at A) airdropping to BTC users, B) running an illegal ICO for non-accredited investors such that retail can participate, C) giving off all sorts of warning signals (such as having a 90% centralized supply) making sure that HEX has stayed out of CEXes, custodians and funds.

Many exchanges and custody solutions use checklists which prevent them from onboarding a coin with extreme supply concentration. You can leverage that to your advantage—centralize the supply massively for the initial years, and then burn it! (This is a joke, but is it stupid if it works?)

For a “fair distribution” marketing pitch to work, maybe it doesn’t really matter for you if VCs buy the coin on the secondary market though? Your question does seem to focus on the initial allocation. I’d say that XEN is probably doing a good job at keeping the VCs out just by virtue of the fact that ex-Hexican Bitconnect-stars like Trevon are heavily involved with it.

Since I know that you’re heavily involved in XEN, I read the XEN litepaper. I’m assuming that this question has to do with the X1-chain and the distribution of the XN-tokens. I’m guessing that you’re likely contemplating a proof-of-burn scheme of XEN to distribute XN-tokens.

The factor I’d be looking at here would be how long of a period you allow a burn scheme to run for. Counterparty (XCP) only had their burn period open for a month. Think about whether XCP is really more fairly distributed than ETH (which had an ICO), even though XCP used a proof-of-burn scheme, when the window was that small. XCP failed to get traction (it had no funding!) and it had a rather limited initial distribution, even though the mechanism was technically fair.

While I like the undertaking ideologically, running a competitive smart contract network without funding is going to be challenging. Remember that people would be burning tokens of real economic value, placing the faith with a team with no funding. I respect the ambition though.

Lastly, a note on foundations: Even though you mentioned you specifically want to avoid them, I think this is worthwhile mentioning. You can set up a not-for-profit foundation with the responsibility of giving out some portion of your tokens through a series of different airdrops, grants and developer partnerships but this puts the control of the issuance in the hands of a centralized entity. However, If you look at for example Arbitrum, they have tried to localize power over the Arbitrum Foundation to an initial set of airdrop users, such that the foundation has a legal duty to observe the requests of decentralized governance (the airdrop recipients have the power to elect or remove Arbitrum Foundation board members, for instance). Ultimately that process also requires a functional legal system and the word of law to enforce rules.