BitGo: Crypto Water Cooler — Dec 18
GM. It’s Wednesday, December 18.
Happy Holidays to our esteemed readers! The Water Cooler will return on January 8, 2025.
Newsmakers
Why Quantum Computing Is No Threat to Bitcoin
Once distant on the horizon, quantum computing came into sharper focus last week when Alphabet revealed how its new Willow chip had solved, in under five minutes, a complex mathematical equation that would have taken a “normal” supercomputer ten septillion years. That’s a one followed by 24 zeros—longer than the existence of the universe thus far. The feat showcased the immense power of quantum computing and elevated it to new levels in the public consciousness.
It also sparked fears about the security of Bitcoin’s encryption. However, breaking Bitcoin’s SHA-256 encryption with a quantum computer remains an immense challenge. Experts estimate you’d need 8,000 Willow chips or 13 to 317 million qubits—while Willow has just 105.
The astronomical amount of energy required to cool these chips alone makes an attack unrealistic, precluding all but the largest governments and corporations from even thinking about it. Even in the extremely unlikely event an attack succeeded, Bitcoin would fork and leave the attackers alone on their own ghost chain, having spent billions of dollars on chip production at a scale never before seen, just to control the network for a maximum of one block—or, roughly, ten minutes.
This doesn’t mean Bitcoiners should ignore the threat entirely. Avalanche founder Emil Gün Sirer opined that quantum computers could break the encryption on older Bitcoin wallets that use P2PK (Pay to Public Key) technology. It’s estimated that about 4MM BTC, or nearly 25% of the maximum supply of Bitcoin, is held in older P2PK wallets—including Satoshi’s stash. Even this type of attack seems unlikely but, to prevent it, a user can transfer their Bitcoin to a wallet that utilizes P2PKH (Pay to Public Key Hash) or to a qualified custodian such as BitGo.
Read more →Forbes
New Outcry Over Debanking Moves Issue Up Congressional Agenda
The inability of many firms to establish and/or maintain bank accounts has been a long simmering frustration in the crypto industry. Now it appears the topic will soon come before the new U.S. Congress, thanks to influencers who last week reignited the issue with fresh charges of a coordinated effort to debank the industry.
The catalyst was the newly released FDIC letters obtained by Coinbase pursuant to its legal dispute with banking regulators. The letters are related to a joint January 2023 letter from the FDIC, Federal Reserve, and Office of the Comptroller of the Currency cautioning banks against allowing “risks related to the crypto-asset sector that cannot be mitigated or controlled” into the banking system.
Some industry executives were quick to cite the letters as proof of a broad anti-crypto campaign, an allegation which regulators denied. Marc Andreesen of venture capital firm a16z told Joe Rogan that debanking has negatively impacted thirty out of one-hundred-plus companies backed by the venture capital firm. A roster of industry leaders amplified his remarks with some saying that the right to a bank account should be universal.
Other observers pointed out instances where letter writers’ comments were more indicative of a regulator lacking clarity and being reluctant to proceed without it. The New York Times shared the struggles of one debanked crypto startup, Eco. It also found that some claims about debanking “omitted crucial context or exaggerated the consequences.”
Coordinated effort or not, the central question of how to effectively manage risk remains. As private institutions, banks can’t be required to provide services to anyone. But they are responsible to regulators for complying with stringent rules to prevent financial crimes and to shareholders for not exposing the bank to undue risk. Getting clear on the rules of the road would go a long way toward helping everybody.
Read more →New York Times ($)
Crime, Restitution, and the Bitfinex BTC Saga
While law enforcement has gotten good at recovering stolen crypto, issues of restitution—who gets it, under what circumstances, and how much—are still being worked out. The case of 119,743 Bitcoin stolen from the Bitfinex exchange in 2016 shows how complicated that can be—and how much is at stake. The BTC was worth $71MM at the time of theft. Today it is worth $12B. With about 80% recovered, about $9B is at play with the U.S. Department of Justice (DoJ), Bitfinex customers, and Bitfinex itself each finding a basis to claim it.
Here’s what happened. Post-theft, Bitfinex suspended trading and reduced the holdings of all customers by 36.06% whether or not they were hacked individually. By way of compensation, they received BFX tokens and, sometimes, Recovery Right Tokens.
Over the next five years, the stolen BTC was laundered, at first in small amounts and then by the millions. In 2021, the DoJ searched the home of Ilya Lichtenstein and his wife, Heather Morgan, finding evidence that led to their 2022 apprehension on money laundering and conspiracy charges. Both pleaded guilty. Lichtenstein also admitted to the hack and helped the DoJ to recover 94,000 BTC.
However, crucially, neither was charged for the theft because the five-year federal cybercrime statute of limitations had ended. Because of that, the DoJ believes that Bitfinex and its investors don’t qualify as victims under the Crime Victims’ Rights Act or the Mandatory Victims Restitution Act. If that holds true, then the government would retain the recovered BTC.
However, the DoJ is still collecting statements. Bitfinex submitted one, claiming to be the sole victim because it already compensated customers. For their part, some customers are stating that the defendants devised their money laundering schemes before the hack, entitling them to restitution as victims of money laundering.
The DoJ will provide their official position by January 14. Parties may file objections through January 28. The court will also need to decide if the tokens given to investors by Bitfinex made them whole since their value is far beneath current BTC prices.
Read more →Reuters ($)
News In Brief
Business of Crypto
Recommended by LinkedIn
Regulation and Security
DeFi and Web3
Midweek Market Pulse
Total Market Cap: $3.74T – 7-day change as of Tuesday 12/17/24 12 PM EST: +10.3%
Another week, another new all-time high for Bitcoin (BTC, +11.1%), which propelled the broader crypto market to a 10.3% gain and a record level (by most measures) of $3.74T.
MicroStrategy continued its buying spree, spending over $1.5B on 15,350 BTC at an average price of $100,386. That landed the company on the Nasdaq 100 index, which means it will eventually be added to the Invesco QQQ Trust ETF, the fifth-largest ETF in the market. However, the company may be reclassified as a financial company, which would exclude it from the index. Intensifying focus on President-elect Donald Trump’s proposed Bitcoin strategic reserve also contributed to the rally.
Ethereum (ETH, +9.3%) broke $4K for the first time since March as whales added to their holdings. New data from Santiment shows that 104 ETH whales currently own 57.4% of all ETH. Wallets with between 100 and 100K hold an all-time low of 33.5% of ETH while holders with 10 ETH or less have just 9.2% of ETH, the lowest level in four years.
XRP (XRP, +25.3%) and Solana (SOL, +7.6%) rebounded strongly from last week’s selloff as did Cardano (ADA, +11.4%), Tron (TRX, +9.5%), and Avalanche (AVAX, +15.0%). Chainlink (LINK, +32.2%) posted a monster week, surpassing $29 for the first time in three years. Sui (SUI, +29.1%) hit a new all-time high and entered the top fifteen digital assets after announcing a partnership with Ant Digital (part of China’s Ant Group, best known for Alipay) to tokenize solar assets in China.
The Last Word
Quantum Computing
: A field of computer science that uses quantum mechanics to solve problems
/ Quantum computing uses quantum bits, or qubits, which can encode far more data than traditional bits.
About BitGo
BitGo provides the most secure and scalable solutions for the digital asset economy, offering regulated custody, borrowing and lending, and core infrastructure to investors and builders alike.
Founded in 2013 — the early days of crypto — BitGo pioneered the multi-signature wallet and later built TSS to improve upon other companies’ MPC offerings. Between multi-sig and TSS, BitGo offers the safest technology on the market and safeguards over 600 tokens across a wide variety of blockchains.
Over the years, BitGo has expanded from offering wallets into providing a full-suite solution that lets clients hold assets safely and then put them to work.
BitGo launched BitGo Trust Company in 2018, providing fully regulated, qualified cold storage to complement BitGo Inc’s original hot wallet solution. In 2020, BitGo launched BitGo Prime, which allows its clients to trade, borrow, and lend. Moreover, BitGo also provides access to DeFi, staking, NFT wallets, and beyond, and serves as the world’s sole custodian for WBTC, or wrapped Bitcoin.
Today, BitGo is the leader in digital asset security, custody, and liquidity, providing the operational backbone for more than 700 institutional clients in over 50 countries — a list that includes many regulated entities and the world’s top cryptocurrency exchanges and platforms. BitGo also processes approximately 20% of all global Bitcoin transactions by value.
For more information, please visit www.bitgo.com.
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