The closest I've ever come to being a shitcoiner
Back in 2024, I spent a lot of time looking at ecash. Ecash is cool -- it has all these neat properties like potentially better privacy and maybe being a bearer asset like cash and being so lightweight that almost anyone can run a mint and cypherpunks have been working on ecash since long before bitcoin. Development in Cashu and Fedimint was in full flower and there weren't many viable alternatives like Ark or Spark.
@TonyGiorgio wrote a post in January of 2024 called "Fedimint is Self-Custodial" #395461 which was the catalyst for a particular fascination of mine: trying to determine what sort of thing an ecash token actually is. Is it like a gift card? #397764 or a repurchase agreement a la the Fed's repo window? #565172 Is it a token you buy? #554143
It was clear to me that ecash tokens were not bitcoin, but at that point in Bitcoin culture if a token wasn't bitcoin, it could only be a shitcoin -- and yet I didn't think using ecash was shitcoining. I think this was because I associate shitcoining with scamming and degenerate trading and pump 'n dump schemes while ecash was clearly trying to do payments.
I got so interested in the idea that I believe @Car felt compelled to block me and I recall a number of fiery conversations with @justin_shocknet.
Justin was right
There were many points about which we disagreed, but I believe one of the most significant was that I tried to defend the use of ecash as less trusting than simply relying on a custodian. About this, I was most certainly wrong. Here is Justin explaining it to me:
Why the change of mind
That last bit in Justin's comment gets at it. I wanted to think about a mint in isolation or as a complete system, but this is obviously not the case. Ecash mints are an attempt to glue a non-bitcoin system onto bitcoin and so evaluating as some whole thing on its own was not particularly relevant to users who were interested in sats.
This was made painfully clear by the recent Liquid hack. There are 15 "geographically distributed" Liquid functionaries in their federation and at least 11 of them are required to finalize blocks. And yet, almost the entire amount of bitcoin in the Liquid Network was withdrawn and block production was halted.
In that moment, calling a Liquid wallet self-custodial was pretty clearly demonstrated to be wrong. If you have a L-BTC balance in ACQUA Wallet, Manna Wallet, or Misty Breez you can't move your sats (and you may not actually have any sats). Doesn't sound very self-custodial.
This interaction with @Roy_Breez was very enlightening:
We've been calling these things self-custodial, but the users can't use their money and possibly don't even have it any more.
Okay, but Coldcard users also lost funds out of their wallets...
This may seem like a pedantic point, but it really drove it home for me. The key difference between Coldcard users and Liquid users that makes one self-custodial and the other custodial is that when you open a Liquid-based wallet right now, it still shows your balance...you just don't have it. Both Coldcard users and Liquid users have experienced theft -- but the latter still have their L-BTC and that makes all the difference. Because what value does L-BTC have if there's no BTC in the Liquid Federation wallet? (or even if there's not enough BTC there?)
I wanted to be able to call things like ecash tokens and L-BTC something other than a shitcoin because I thought there was a way for them to be used in lieu of bitcoin, but the reality is that such an approach muddies the water. If we are going to call a bitcoin wallet self-custodial, the bitcoin wallet shouldn't show you a balance when there isn't one.[1]
Where does this leave me and my fascination with ecash and other fake L2s?
I don't think L-BTC is a shitcoin. But it is more accurate to call Liquid custodial. Same goes for ecash, Ark, Spark, and all the other fake L2s.
And for you jerks who will observe that a bitcoin node that is not yet updated could also display a balance that isn't there, go look at Bitcoin Core: they have a pretty big warning that says your balance may not be accurate when you aren't synced to the current chaintip. ↩
I don't understand liquid and ecash being custodial (which they are) makes arkade or bark all of a sudden custodial. spark is weird because the way all of the wallets implement it make it custodial, but at a protocol level can be used in a hand wavy non custodial way (i.e. the wallet in NZ that implemented client-side storage of user leaf data)
the reason people call these things non custodial is for legal reasons anyways but that's a whole other argument that i don't really feel like having right now
this post doesn't present any argument as to why spark, arkade, or bark are custodial. spark is custodial in most implementations because you have to call server (1 of 3 nodes) to get your leaf data. agreed.
but what's the argument against bark and arkade?
The issue is that they run on centralized servers, consequently they are the only party able to coordinate exits. Plus the code is not fully FOSS.
But now that there's a open SSP things may change soon.
If I may, the centralized server isn't what makes something custodial. Before ark there wasn't really a way to spend bitcoin in co-operation with a central server without the server being the custodian. That's the problem which ark solves. There are tradeoffs, 100%, I would never deny that but the centralized server is one potential option for scaling solutions. I don't see a future in which every bitcoiner with a spending wallet is using ark, nor do I see one ark server being the only sheriff in town.
Ultimately the reason I see ark as self-custody is because your coins all have a direct route onchain through presigned multi-sig transactions. It's not like Liquid where you are holding the keys to L-BTC but the underlying value is tied up in a potentially hackable contract. There are asterisks but without sounding too wanky it's a bit of a new paradigm, like how "trust-minimized" became a thing.
I agree with a lot of what you say regarding the language being diluted to fit marketing, it's been rampant in recent years and bitcoiners need to take a stronger stance on what terms mean. Obviously it's harder for me to engage in that debate now that I work on bark but I'll still give my 2 cents.
Thank you for chiming in!
My interest in Ark was sparked by non-custodial prediction markets, see #1554539. Would love to hear your thoughts on it, if you have any and time!
You confused Spark and Ark.
Sure, ASP is not SSP. But are not Ark apps running on a single centralized server too?
SSP is different from the statechain entity fwiw. the statechain entity (SE) coordinates reassignment of spending keys in spark. this is a federation of three companies and that code is open source.
SSP is an additive service that makes spending arbitrary amounts easier, and facilitates lightning payments, through atomic swaps. i.e. when you use a "spark lightning wallet" all your payments go through the SSP service (i think this is bad). you could use spark w/o the SSP, but the UX would really suck. SSP makes spark more trusted as well because lightspark is the previous owner in every leaf so your trust assumption is lightspark+lightspark run federation to not rug you.
ark relies on a central server, yes. but all user funds are held in a n-of-n multisig where they have full control over spending (your leaf is server+you to spend plus you get the presigned exit to spend the leaf if server goes offline). now, when you receive offline, you must update your balance to get your newly received funds into a new n-of-n multisig... which is really complicated so you have this trust in server until you "update" your balance on bitcoin.
but if you deposit from bitcoin, into the ark, and then just do payments... the server can't rug you per se. trust us always in receiving offline and that intermediary period where your offchain balance isn't yet reflected on bitcoin
note that ark server can't really steal... it must collude with previous owner to double spend you if have not updated your balance on bitcoin by entering new n-of-n multisig
@Scoresby, it seems to me you’ve been convinced by someone because they called you "retarded" often enough.
And I'm a coward for only speaking up after I saw @januszgrze's comment. It's just so tiresome to read fAkE eL TwO in any context all the time.
I hope this isn't the case.
I do think that there is a problem with current language around self custody.
As to fake L2s -- I think they're awesome, but I'm not convinced of the importance of bending the term self-custody to fit.
Yeah, afaict, the problems most stackers have with Liquid, Ark, Spark, ecash, etc. are not technical in nature. It’s mostly just about how something is marketed, because that’s where non-technical people can chime in the most (related to the Law of Triviality?).
I don’t think this leads to very interesting discussions, though. “Fake L2” is not a technical argument against something. It’s just an appeal to some authority (Justin) on what it means to be an L2, as if it matters more in practice what you call something than how you actually use it or what trade-offs it has.
In the case of Liquid most recently, I think it does matter. There were a number of wallets that claimed to be self-custodial bitcoin wallets, but which were liquid wallets. None of those work right now and if users have funds in them, the funds are somewhat fuzzy in nature.
I'll grant you the point on Fake L2s. Using that term wasn't useful.
I think they exploited a technicality: it’s self-custodial because you’re holding the keys to L-BTC, but that’s surely not how most users understood it, and they might have counted on that. If that’s the case: 100% fuck them. This is disgusting behavior.
Originally I was just going to make it about liquid and ecash and not mention spark and ark, but I ended up throwing them in at the end there because I wanted to get to what I think was the problem in my own mind.
More and more in Bitcoin, I see people using unilateral exit as the self-custody test. But self custody clearly means at least this much more:
We might say that the Coldcard victims got rugged and an eclipse attack on your node means you can't transact, but onchain bitcoin presents the strongest resistance to these risks, and it seems to me that even Ark weakens these (as does Lightning).
So why should ark be custodial and lightning not? I'd say because lightning is a permissionless network, while joining an ark is a permissioned entity. That seems to me to be enough of a difference to make me more cautious about the self-custodial properties than I once was.
As to Spark, it really seems more like a legal convenience than anything.
(Also to be clear, I love ecash and have no problem with using custody in circumstances where it makes sense).
Many such cases, but I hope I'm clear when I talk about these things as principles.
I'm the last person to judge someone over bugs. I know better than anyone that shit happens.
I do judge on a lack of principles and first-order thinking, and there's plenty of that going around.
This is engineering, not magic. If you understand Bitcoin at all you must marvel at how it was engineered and how nothing can simply paper over the little UX nits that allow it to actually work. Same goes for Lightning.
This is a misnomer and gets to the heart of the matter. There were shitcoins before scams started shitcoining. The scammers had to get the launch a token idea from somewhere.
Litecoin? Not a scam, but a shitcoin never-the-less.
Doge? No scam, just shitcoin.
Monero? Arguably a scam, but mostly a shitcoiners wet dream.
So why are these shitcoins if they're not scams?
Simple: They're not Bitcoin.
Ok well what does that mean?
They lack Bitcoin's security properties (hash rate for one example), they are a different network (smaller network effect), they are a different unit (not the world reserve currency).
They make trade-offs to do things differently than Bitcoin does them. That's what ETrash does, Liquid, fake L2's in general... they take the thing that makes Bitcoin Bitcoin and undo it such that it is no longer Bitcoin for one reason: to appease lazy and/or stupid people.
If you think Bitcoin's properties are shit and refuse to adapt, you shitcoin with something like Liquid.
Not wholly related but I'm curious what your take is on JWW's recent (renewed) crusade against HWWs wholesale, core wallet only philosophy and general argument that anything else is part of a criminal/mafia global rug pull industrial complex?
I don't follow him or know what he's on about these days, but I lean anti-HWW myself.
I don't think they're all criminals, but HWW's inherently present new surface risk.
That last point is to say they do have their uses so I'm not fully against them, but I don't think I've ever recommended one to anybody and can't imagine a scenario in which I would. Someone even asking for a recommendation precludes being able to recommend one to them specifically.
I've had large firms approach me for consulting on their custody infrastructure that would make Liquid look like peanuts, and when you map that out end-to-end you realize HWW's introduce more problems than they solve.
Agree re: shitcoins. Most scams came with the ICOs and then with the tokens and supply/AMM manipulation. Before that there was mostly retardation. However, when a non-scam Somethingcoiner comes to you and is narrating how their coin > Bitcoin then they're either stupid or malicious predators. So they should still die silently and hup hup that process. I don't mind if they exist. I do mind predatory marketing.
As for liquid: its always been a custodial side chain. Its like holding your sats on an exchange as they're as much IOU as coinbase custodied coin or bitgo wrapped shit. BUT, APPARENTLY THEY FUCKED THE CONTROLS. I'm still more shocked about that than about the inflation bug. That's the real fuckup here, to me.
Problem with Liquid is they market it as an L2
They could have marketed as a risk-minimized exchange but even that would be dubious since the controls they fucked up still exist as a SPOF
I always expected it'd be an API/Sig coordination failure, ZK stuff is always hyped by crypto-theater kids so for things around that to be the root cause wasnt first on my list but not entirely out of left field either.
I wasn't even aware that they marketed it as an L2 nowadays. I remember it being a sidechain in the beginning. I never really read the marketing materials though, so yeah, that is bad. You shouldn't pimp your chain. That's exactly what a lot of the shitcoiners do.
Re: ZK. Wasn't even that. This was the same class of bug as the 0.14 one in Core. Fucking up optimization of not having to do the compute. Pretty common, ask the x86 industry: they're the experts at fucking up caching.
Are checking accounts scams? Versus, for example, multi-level marketing (who sell you tokens on the promise that you'll be able to sell them to others at a profit).
I don't really see L2s as a scam. It's just fractional reserve banking. As long as you understand what you're getting into, it's fine. You own a claim on bitcoin, backed by the promise of the issuer, not any actual bitcoin.
I suppose if they don't properly disclose that they are a fractional reserve bank, then that's a problem.
Darth should come back. I love seeing "so and so was right" posts.
Justin's point in his comment on this post makes sense:
So, I'm not arguing that we should abandon things like ecash and spark or even liquid, but I think I understand them as custodial services now -- which is more or less what you may be saying when you say they are fractional reserve banking.
Indeed, they should be seen as custodial services.
Maybe I'm missing some of the debate here, because I always thought of them as custodial services. I don't follow the industry as closely, nor some of the technical claims, so I probably wasn't listening to certain inflated claims the L2 founders were making, trying to pretend that their L2s are self-custody (which they aren't and never were).
Even Lightning I'd say is not 100% self custody, but it limits the problem of trust to peer-to-peer relationships.
Lightning is like one person keeping a running tab with another person. And the network is formed out of these individual person-to-person tabs.
The other federated solutions are like one person keeping a running tab for many other people. They become the custodian and the trust requirements are higher.
Here are three liquid wallets. All describe themselves as self-custodial.
Having not followed the chatter much, on what basis did they call themselves self custodial? Is it because you can unilateral withdrawal?
I think so, but clearly you can't do unilateral withdrawal because the network is paused right now and because there isn't enough btc for all the l-btc. So they were wrong on that count.
I was looking into this a bit because of the SN Spark Wallet. (I don't follow the chatter, but I try to look into whatever service I use before I start using it).
The claim of unilateral withdrawal on Spark is fairly technical surrounding the creation of timelocked multisig transactions. But I came away with the thought that under certain network conditions, unilateral withdrawal is indeed feasible. But it depends on your software implementation to properly store and broadcast that transaction in time. I think you need to trust the L2 network's watchtowers too.
Based on my understanding of the Liquid hack, there's likely a disconnect between what the software implementation shows as your available balance and the underlying timelocked transactions that make up the unilateral withdrawal claim, i.e. the sum of the displayed wallet balances exceed the sum of the unilateral transaction claims.
All this to say, the trust assumptions are extremely technical. If you don't understand it, you should probably treat these L2s as custodial. Even if you do understand it, you'd understand that the self-custody claims only apply under certain technical assumptions and conditions.
That's where I'm a bit confused. As I was reading into Spark, my understanding is that you should have a signed multisig (unbroadcast) TXN that you can broadcast to the mainchain in order to initiate the unilateral withdrawal, in a way that doesn't depend on other Spark counterparties. Not sure if Liquid works similarly. But again, it depends on either you knowing how to broadcast this TXN, or your wallet software being able to.
That's my (limited) understanding, anyway.
I think you are accurate in your understanding of Spark. However, I'm pretty sure that Liquid never made such promises (despite wallets being built on liquid claiming to be self-custodial).
As far as I know, Liquid federation could always stop the chain or prevent your liquid transaction from being moved.
Yes sure, because you can self-custody LBTC. That's what lbitcoiners did not get until yesterday.
🤢🤮
L-BTC is the same as CASHU or Fedi, a token pegged to BTC. Call it whatever you like, but it is not Bitcoin.
The concept is eactly the same as the ones called wrapped BTC tokens used on alternative "smart" contract layers.
People need to really learn the hard way, wait for catastrophes to happen before starting to consider the consequences.
As long as the greatest risk (counterparty risk) is present, I wouldn't touch it with a ten-foot pole.
For the record I muted you and Boog for year, then you started posting good content, then I unmuted you. 🫡
also worth mentioning, I think these services are fine for certain use cases but they usually take 3-4 years to cook and bake to even have that use case, things just move incredibly slow in Bitcoin especially when it comes to new payment technology the devs work on, always best to just wait and see, you don’t lose any sats that way💫
Can't cook the bad out of bad principles.
Fake L2's are what they are. Lightning is how it is because real constraints exist and are immutable.
You can believe in engineering or you can believe in magic, engineering has limits, the way Bitcoin works has limits.
They may get better at sweeping things under the rug, or coming up with new narratives, but underneath the laws of gravity still apply. They will always be fake and make un-Bitcoin tradeoffs.
let these things play out it takes care of itself, in this case liquid had one use case which was swaps, so if you just used for that you likely were fine, but likely didn’t use after boltz left, with ecash I’m still waiting for a use case I see none yet
Swaps to what though? to Bitcoin ofc. Could have just stayed on Bitcoin.
I think Liquid's use case was always stablecoins, Tether largely funded it/bootstrapped it IIUC.
It's fine for that, stables are centralized anyway.
ecash is the most frustrating because it takes an otherwise good principle and ruins it with crypto-theater.
A mint and a pub are very similar, keep the inevitable trust decentralized and localized. Use nostr to solve the networking problem. They bury this lead though with crypto non-sense.
They just couldn't help themselves from going full retard with crypto-theater and false privacy claims, extra complexity for no gain, and being generally communists.
been many a time I had to use boltz for Bitcoin ↔️ Lightning
i honestly don’t get the fascination with ecash but I know the cool kids like it
You never had to use Boltz since Lightning is Bitcoin. You could have just closed or opened a channel.
The swap in that case was convenience (and in some cases cost savings).
well crap I learned something new 🤣
sure, but my epiphany is that they are clearly custodial services.
they always were, this is what everyone was trying to tell you a few years ago but the bitcoin media industry was too loud for anyone to believe what a lot of people on the ground were seeing and talking about at the time, apparently even the ceo of fedi didnt know
https://twiiit.com/obi/status/2097700260910952790
all part of the process! it was signal that helped me figure out where I was going awry. (although I wouldn't have known had you not told me)
Ark - when properly implemented - is not custodial.
As a liquid and ecash user I never put in more than I can afford to lose.
Perhaps that is how most people handled such wallets. I get the impression though that the trend has been towards normalizing holding balances in things like Liquid or Spark or ecash, and it's healthy for us all to have a little paranoia around that.
If unilateral exit back to btc isn't possible on my own, shitcoin imo
Too bad @DarthCoin is no longer here. He would love rubbing our faces into this shit show. Custodial bitcoin is a shitcoin pegged to BTC. Aka "paper Bitcoin".
i just saw him post the other day, is this the new joke
to troll him?
No, to admit he was right.
I don’t know which network is worse, Liquid or Spark. I personally use Blitz Wallet which runs on Spark.
It may be that it is a trade off you are willing to make. My point is mostly that where I once was on the fence about the nature of such tokens, I now see them as clearly custodial. Custodial services can serve a purpose, though.
Yeah, I hold at most a few thousand sats, never held a dangerously large amount of bitcoin. I do think that Spark/Liquid/Cashu is better than keeping your funds at an exchange but the gold standard for bulk storage will still be onchain bitcoin on a hardware wallet.
Personally, I think it is.
What I liked most about this post is the change of mind. It is easy to defend an idea once you have spent a lot of time on it. Being able to look at new events and say “I was wrong about this part” is much more valuable to me than trying to win an old argument.