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Standard Sats against Fedimint Hype
650 sats \ 43 comments \ @notgeld 11 Sep 2022 bitcoin
This is interesting how people promoting Fedimint actually mention all properties of the Standard Sats open source software. Let's look at direct quotes:
Instead of being your own bank, you can be your own community bank. — Obi Nwosu
Then, the author of Trezor blog continues:
Fedimint recognizes that some people within any community are more bitcoin-savvy, and therefore more suited to safeguard the group’s bitcoin than others. This core collective of people will do the heavy lifting of hosting the wallet, processing transactions, securing keys, and ensuring privacy is protected. Hence, their role as “guardians.” The remainder of the community are known as the users.
Standard Sats works exactly like that: the bitcoin-savvy uncle Jim deploys Core node, Eclair LN client, a couple of plugins maintained by Standard Sats: fiat channels plugin and hosted channels plugin, and a hedging service which uncle Jim links to his exchange account. Why he needs an exchange account? That's simple, for hedging bitcoins he receives into Fiat Channels of his brothers, sisters, and nephews.
All hype around Fedimint ignores this simple problem: custodians will need to hedge their market risk if they mint "stable" e-cash. They inevitably land some of their funds in centralized exchanges as long as decentralized solutions aren't ready.
On the other hand, if uncle Jim is alone in the village, with whom he will manage to form the Federation? Interesting question. He eventually might be trusting some dudes he knows overseas and it will be unbelievably good if one of the Fedimint's servers will be controlled by a developer like Fiatjaf. But there is no guarantee.
Standard Sats is not a bunch of software that may run as a back end. It is also a user-facing fork of Simple Bitcoin Wallet. Everything is ready for testing. In addition to Fiat Channels, which work with LN natively, users can send and receive on-chain transactions, and this is important that they can open real Lightning Network private channels with sats!
Everybody is welcome to try custodial channels with synthetic USD, EUR, and "dead" fiat currencies as well, for example, Deutsche Mark or Latvian Lat pegged to EUR.
https://standardsats.github.io/
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224 sats \ 6 replies \ @f321x 11 Sep 2022
Fedimint has nothing to do with fiat and therefore doesn't need any hedging on exchanges. Read David Chaums paper if you want to understand what Chaimian e-cash is. The e-cash will just be satoshis in the case of Fedimint and the wallets with Fedi support will look like normal lightning wallets and only show satoshis.
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0 sats \ 5 replies \ @notgeld OP 12 Sep 2022
Fedimint has nothing to do with fiat and therefore doesn't need any hedging on exchanges.
Exactly like just Hosted Channels working with sats and nothing more.
The e-cash will just be satoshis in the case of Fedimint and the wallets with Fedi support will look like normal lightning wallets and only show satoshis.
Simple Bitcoin Wallet works exactly this way.
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0 sats \ 4 replies \ @f321x 12 Sep 2022
Hosted channels don't have federated custody, sbw is the best example (dev in war, future of node uncertain, see twitter). Much more unlikely to happen with Fedimint.
Also with Fedimint you have less resource hungry wallets (no pathfinding on the phone) with same or better privacy (don't know exactly).
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0 sats \ 3 replies \ @notgeld OP 12 Sep 2022
Only if Federation is distributed geographically. In that scenario it will be either trusted setup or local "community" bank should become relatively large.
If you talk about the Host which is owned by Uncle Jim who went to fight, it will likely mean that all villagers went to fight.
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0 sats \ 2 replies \ @f321x 12 Sep 2022
You can choose your federation, if some of the members get unreliable you can withdraw your sats. If you chose the wrong HC and the host rugpulls it's too late
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0 sats \ 1 reply \ @notgeld OP 12 Sep 2022
Yes. How I could distinct one federation from another? Wouldn't you suggest that people will use big-brand federations eventually and it ends up with Liquid-like network?
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0 sats \ 0 replies \ @f321x 12 Sep 2022
That's up to you, there will be big federations and small ones run by enthusiasts.
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447 sats \ 9 replies \ @steepdawn974 11 Sep 2022
The biggest flaw in the Fedimint narrative is that there will be all these community fedi mints. The underlying assumption is that users prefer a distributed, potentially anonymous federation over single centralized is just wishful thinking and has no bearning in reality.
Running a bitcoin core or an LNbits node for a few friends is one thing, but Fedis are taking actual custody over people's money. This is a completely different ball game. No one would just entrust their money to a bunch of Anons on the Internet who you might not get hold of if something goes wrong.
If I am forced to give up custody of my coins and entrust them to a third party, then I am much more likely to go with one professional player that knows what they are doing, instead of a "group of friends" who might have the best intentions but not the resources or skills to guarantee availability, security, disaster recovery, customer suport etc. etc. Like, if you want a profesionally operated federation, why not use Liquid?
All that means that at the end of the day only professional, known player (most likely incorporated companies) can offer viable Fedimints. And there goes your decentralization. They'll be very easy targets for regulators as they'll have a phone number and the people behin them; they are probably required to get money services businesses or even banking license and of course fall under KYC/AML rules.
Congratulations, we have built banks 2.0.
So, I doubt we will see any of the benefits that the Fedimint hype trainer folks promise us.
I am truly confused how that sort of custody is suddenly OK, while Hosted Lightning Channels on the other side receives all the "oh but it's custodial" FUD.
Of course, HCs have trade offs and they are well documented, but they offer very decent amount of privacy, are proven and available today, and are natively on the Lightning network and not some extra software stack on top
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476 sats \ 0 replies \ @dpc 7 Nov 2022 freebie
The biggest flaw in the Fedimint narrative is that there will be all these community fedi mints. The underlying assumption is that users prefer a distributed, potentially anonymous federation over single centralized is just wishful thinking and has no bearning in reality.
Why would anyone NOT prefer a federated solution over a custodial one?
This whole critique paints Fedimints in most dis-favorable light, yet tries to compare it with a solution that is effectively worse on every single metric (HC), justifying it by Fedimints not being "perfect".
Yes Federations are not some golden bullet, and federated custody is a compromise comparing to a zero-custody solution, but in exchange the users gain: entirely anonymous and private off-chain solution, great scalability, great on chain anonymity set, possibility of amazing UX, and possibility of integrating of all sorts extra technologies and solutions.
I have nothing against HCs, and I find them useful and promising, and wish well open Standard Sats in all applications where they work well, but I think in this post and in some comments, not only authors have very narrow vision of possible use cases, but also commit serious logical errors.
I am one of Fedimint devs. I see plenty of possibilities for them, so I quit my previous job to work on them full time in August, and I honestly think they are the most promising and needed Bitcoin project right now. I think we have great documentation that is really honest about the tradeoffs. If you still have any questions, feel free to hit me up on Twitter (@dpc_pw) or join the Telegram group and talk it out. We're very busy building the project, so please be patient but we love to engage and educate with interested people.
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22 sats \ 0 replies \ @fiatjaf 12 Sep 2022
This is an important point: while in general custodial solutions are seen as usable for small amounts only, in the case of Fedimint they are being advertised as the main and only method people will have to use and hold Bitcoin, and then the narrative kinda breaks.
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20 sats \ 2 replies \ @rijndael 12 Sep 2022
I see the model as trying to make something like Bitcoin Beach be turnkey, and with better privacy and less custodial risk. Less “get together with some friends and run a bank”, more “a bank for your town/community”
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10 sats \ 1 reply \ @fiatjaf 12 Sep 2022
However the Bitcoin Beach and Bitcoin Lake folks do actually like the fact that users of the system are known and have usernames, which is incompatible with the perfect privacy of chaumian ecash.
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0 sats \ 0 replies \ @rijndael 12 Sep 2022
I wonder if they'd still pick that if they had the option of a Chaumian ecash system?
It seems like the place where you really want attribution is on the system operators. In the "community bank" model, you want to be able to go find the operators if they collude and abscond with the bank's money. It's not obvious to me that you need that kind of attribution for users/customers of the bank.
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0 sats \ 0 replies \ @fiatjaf 12 Sep 2022
I think Fedimint is good because they're making complicated federation code available publicly to be run by anyone, but I am skeptical that the "perfect privacy" is actually a thing people want. Lightning privacy such as provided by hosted channels is enough, specially because the sheer majority of transactions of Fedimint users will be through Lightning to and from external entities, not inside the federation itself.
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0 sats \ 2 replies \ @om 12 Sep 2022
Like, if you want a profesionally operated federation, why not use Liquid?
That is exactly what I want but with 2s instead of 2m delays and more privacy. I think it would be awesome if the Liquid guys would run a Fedimint too.
They'll be very easy targets for regulators
That's why Liquid is "politically diversified".
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0 sats \ 1 reply \ @notgeld OP 12 Sep 2022
It is 1 minute delay in Liquid.
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0 sats \ 0 replies \ @om 12 Sep 2022
But finality in achieved in 2 blocks.
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100 sats \ 3 replies \ @patrick 11 Sep 2022
Standard Sats works exactly like that: the bitcoin-savvy uncle Jim deploys Core node, Eclair LN client, a couple of plugins maintained by Standard Sats: fiat channels plugin and hosted channels plugin, and a hedging service which uncle Jim links to his exchange account. Why he needs an exchange account? That's simple, for hedging bitcoins he receives into Fiat Channels of his brothers, sisters, and nephews.
The big deal here is the need to use the exchange.
Also, I'm not sure why you think fedimint is for stablecoins. That's definitely not the main use case I've heard Obi (or anyone else) talk about. They tend to talk about onboarding new users and scaling bitcoin on a new layer (and maybe adding some extra contracting functionality down the line).
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0 sats \ 2 replies \ @notgeld OP 11 Sep 2022
For that use case replace everything with Hosted Channels and sats on LN. It will be the same.
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100 sats \ 1 reply \ @patrick 11 Sep 2022
For which use case? Just the onboarding? Sure, hosted channels will be a nice way to onboard, but we'll be limited in our ability to extend functionality later to just what is available on lightning.
This knee-jerk reaction to anything new is generally a good thing but it can go too far.
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0 sats \ 0 replies \ @notgeld OP 12 Sep 2022
This knee-jerk reaction to anything new is generally a good thing but it can go too far.
It was reaction on pretty much hype around Fedimint while people actually describe properties of multiple projects Standard Sats, LnBits, LndHubx, Galoy software, while not considering that Fedimint is not ready at all and in addition has its own limitations.
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26 sats \ 4 replies \ @om 11 Sep 2022
Why he needs an exchange account? That's simple, for hedging bitcoins he receives into Fiat Channels of his brothers, sisters, and nephews.
That is far from simple. The only simple way to "hedge" the received bitcoins is to immediately sell them for fiat. That way Uncle Jim's family has claim on Uncle Jim's claim on the exchange-owned fiat. In this scenario the smartest relatives of Uncle Jim will figure out that they can just sign up for the exchange themselves.
But you're doing something much more complicated.
All hype around Fedimint ignores this simple problem: custodians will need to hedge their market risk if they mint "stable" e-cash.
Fedimint doesn't mint stablecoins at all, at least for now. I'd imagine Taro will be the first.
On the other hand, if uncle Jim is alone in the village, with whom he will manage to form the Federation?
Cities will most likely mint Fedi coinage first and then villagers will adopt them. But even a one-man Fedimint is a privacy-respecting Chaumian mint. How's Standard Sats for privacy?
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30 sats \ 3 replies \ @notgeld OP 11 Sep 2022
The only simple way to "hedge" the received bitcoins is to immediately sell them for fiat.
Or buying perpetuals.
How's Standard Sats for privacy?
The same or better because there is no token. User may create single-use identities for channels and invoices always signed with random key, Tor is an option. And yes, these all available now for trying.
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25 sats \ 2 replies \ @notgeld OP 11 Sep 2022
Basically, users could exchange hosted/fiat channels states and private keys with single use seals and it might be working as e-cash.
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25 sats \ 1 reply \ @om 11 Sep 2022
OK, screw fiat, I want more of this. Is it like Fedimint but with LN backing? What happens to users' e-cash if the channel closes?
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35 sats \ 0 replies \ @notgeld OP 11 Sep 2022
Honest operator redeems balance in sats onchain.
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25 sats \ 3 replies \ @KenyaCoin 11 Sep 2022
I'm familiar with the concept of Standard Sats, but not the details.
A Kollider contract is for $1 units, right?
A merchant using Standard Sats will not have sales occur in whole dollar amounts. What occurs when there's a payment worth $12.85 received?
Transactions under a dollar even will occur. Is there really a Kollider contract created for a $0.25 transaction?
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25 sats \ 2 replies \ @notgeld OP 12 Sep 2022
A Kollider contract is for $1 units, right?
I think this is right.
Is there really a Kollider contract created for a $0.25 transaction?
No, hedging service has to manage and track cumulative position.
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40 sats \ 1 reply \ @KenyaCoin 12 Sep 2022
Sure, but doesn't my question persist? The cumulative amount to be hedged increased by just $0.25, right? Or does the hedging just not sync in real-time?
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25 sats \ 0 replies \ @notgeld OP 12 Sep 2022
In particular case for $0.25 it will be not in sync, right. Since it will need next $0.75 to come for buying an additional contract in hedge position.
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40 sats \ 5 replies \ @nout 11 Sep 2022
  1. As others also pointed out - Fedimint doesn't have fiat on it (at least initially), so you don't need hedging. Standard Sats is clearly solving for a different usecase, but there are some similarities with both having a trusted 3rd party (or 2nd party). Standard Sats is a cool project nonetheless.
  2. The risk in Fedimint is if more than half of your federation guardians are rugpullers - as far as I can tell they can easily withdraw all BTC without any limitations as long as they have enough signatures.
    • With StandardSats I believe you can at most block the sats, right? You can't withdraw all BTC from hosted channels that you are hosting, or can you?
  3. You seem to be comparing StandardSats and Fedimint on technical and philosophical aspects, but it's really important to also compare on end-to-end user experience and brand aspects. Those are surprisingly important. Many failed open source projects learn this the hard way...
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101 sats \ 0 replies \ @notgeld OP 12 Sep 2022
As others also pointed out - Fedimint doesn't have fiat on it (at least initially), so you don't need hedging.
Just Hosted Channels do that, too. It was much of the guesswork to talk about stablecoins but I should mention that in the original interview they also talk about volatility. The very case of Fedimint is just straight way to tokes while Standard Sats practically eliminates tokes.
With StandardSats I believe you can at most block the sats, right? You can't withdraw all BTC from hosted channels that you are hosting, or can you?
Yes. There is exit-scam risk. Host may shut down node, close channels and thus taking user's sats.
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10 sats \ 3 replies \ @itsrealfake 11 Sep 2022
important to also compare on end-to-end user experience and brand aspects.
can you expand please?
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122 sats \ 2 replies \ @nout 12 Sep 2022
User experience and brand are the key to actually gaining the traction and a user base. And this does not mean nice colors, this means thinking from the onboarding steps of how you get the app, how do people recommend it to each other, how do people get support when they get stuck, how many new concepts people have to learn to use it, how many manual interactions are required to use it, etc.
Each added friction prevents a fraction of all users from successfully onboarding.
Now we will have to wait to see how it works out with Fedimint or with StandardSats, but the thing to highlight with Fedimint and especially Fedi is that it has multiple good things going for it:
  • It pushes the setup to have at least 3 guardians (it doesn't sound like that StandardSats has any suggestion or even a default for this. Defaults matter.).
  • It makes it clear that you are selecting a person/group (not some online service) during onboarding
  • According to Obi, it will be provided on Umbrel, Nodl, etc.
In the end... Fedimint is one step better than centralized exchanges, but is strictly not better than you taking custody over your coins. It definitely introduces risk of rugpullers starting mints - so that has to be taken into account.
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0 sats \ 1 reply \ @notgeld OP 12 Sep 2022
It pushes the setup to have at least 3 guardians
Single operator runs Standard Sats Software. There is a problem yes. But there is no reason to think that it is easier to select group of guardians instead of one.
It makes it clear that you are selecting a person/group (not some online service) during onboarding
Sure. What guarantees that the group isn't the same entity?
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0 sats \ 0 replies \ @nout 12 Sep 2022
It seems that the plan is to build social guarantees for that - in the UX it will pushing users to only join mints where you know the members of the guardian group from previous social connection. (I'm guessing this based on the interview with obi fwiw)
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1 sat \ 4 replies \ @btcschellingpt 11 Sep 2022
Thanks for the info on Standard Sats - I did not know about this :-)
Your point about "custodians will need to hedge their market risk" highlights an important distinction - Fedimint isn't pegging back to fiat currency values - the chaumian ecash from a Fedimint (let's call them f-sats) are interoperable with the Lightning Network and are just another form of sats - albeit with a different set of trade-offs to both L2 (Lightning) and L1 (onchain). What the USD/GBP/JPY/AUD do against BTC is irrelevant.
The Standard Sats capability of hedging could be pretty useful in some economies where the holders literally cannot financially tolerate the current volatility of BTC. Is that hedging automated or manually managed by the Uncle Jim?
The shared problem of multiple custodians in either approach is a harder one at this early stage of Bitcoin - but great to see new options arriving to be explored!
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0 sats \ 3 replies \ @notgeld OP 11 Sep 2022
Fedimint isn't pegging back to fiat currency values - the chaumian ecash from a Fedimint (let's call them f-sats) are interoperable with the Lightning Network and are just another form of sats - albeit with a different set of trade-offs to both L2 (Lightning) and L1 (onchain).
Meanwhile in the post they talk about volatility. And likely issuance of stablecoins is the purpose. It might explain why VC invest in Fedimint.
Is that hedging automated or manually managed by the Uncle Jim?
Automated. But it can do both ways.
The shared problem of multiple custodians in either approach is a harder one at this early stage of Bitcoin - but great to see new options arriving to be explored!
That's the point. Standard Sats have single custodian and coordination problem in Fedimint is wildly ignored. It might be just several big exchanges issuing e-cash eventually.
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0 sats \ 2 replies \ @om 11 Sep 2022
coordination problem in Fedimint is wildly ignored
what?
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0 sats \ 1 reply \ @notgeld OP 11 Sep 2022
Given: uncle Jim who wants to run local Fedimint node. But he wants to distribute liabilities among his peers. He needs to find someone else or may be even several other people who may go into rabbit hole with him together.
Likely uncle Jim will fail to do that. Do you know any examples of people running Elements sidechain somewhere, besides Liquid?
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0 sats \ 0 replies \ @om 12 Sep 2022
Ah, that one.
The question should be posed like this: "who would the community trust?". Then the problem disappears.
The Montelibero community that you're testing in has coordinated to emit a stablecoin which is overbacked by bank accounts and regularly audited. Might be actually better than Tether. This is exactly the sort of community that would benefit from Fedimint more than from solo uncle Jim setups.
Do you know any examples of people running Elements sidechain somewhere, besides Liquid?
No but if it had 1s blocks, better privacy and Liquid would be congested than it would surprise me if that didn't happen.
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0 sats \ 1 reply \ @lntxbot 11 Sep 2022 freebie
You said Deutsche Mark?