Locations
First BTM to Houlton installed in November! Check it out at Bills and Binks Dispensary, 73 Bangor St, Houlton, ME 04730.
Note: T&T Smoke Shop in Rumford has closed down. We are currently seeking a new location in Rumford.
From: Magic Internet Money
By Jesse Berger
Revolution: Proof > Trust
“Don't Trust. Verify.” -Bitcoin Proverb
Bitcoin is a revolutionary advance in money. It tears down the primitive barriers preventing us from freely exchanging, measuring, and securely storing value on our own terms. Its trust-minimizing breakthrough reduces our dependence on rent-seeking middlemen, or “intermediaries,” to safeguard funds and process payments, and it also reduces their ability to censor the transmission of our proprietary data. With no need for permission from any financial institution, anyone can independently complete a transaction with their own digital signature – their “private key” – and everyone can verify its existence on the network’s public ledger.
As a promising communications technology, Bitcoin’s arrival may one day prove to be as significant as the printing press or the Internet. By upending our relationship with trust, it redefines the fundamental premise of money, and while it was designed primarily for that purpose, it is also fueling change relating to commerce, data, and governance.
Bitcoin has established new intellectual common ground in the realms of money, cryptography, computer science, engineering, economics, game theory, psychology, sociology, law, and more. It is a paradigm shift for the concepts of property rights, trust, and cooperation. The full implications of its advent, while hotly debated, discussed, and researched, will not truly be understood for many years, if not decades, much like the Internet.
Trust-Based System: A central authority dictates the issuance of data and/or value, regardless of its validity. Communication channels are monopolized by the central authority, which arbitrarily determines the rules governing its use.
Proof-Based System: Network users cooperate to distribute data and/or value, confirming its validity with multiple sources. Communication channels are accessible to all users, who mutually enforce an agreeable set of rules.
This month, more than a few prominent "crypto" personalities and businesses have been toppled by an old-fashioned bank run. Oh, the irony! FTX and the several other companies that either have filed or will soon file for bankruptcy protection seem to have suffered from the same basic problem. Whether by outright fraud or due to an ephemeral liquidity drought, these companies had more claims against their assets than could be satisfied with the salable value of those assets. Traditional banking has devised a method of distributing the pain of a bank run throughout the system via money printing (i.e., monetary devaluation and the dilution of savings) by the lender of last resort. Bitcoin has no such lender of last resort, only a finite quantity of unspent transaction outputs. And either you possess the private key to unlock an amount of these, or you don't actually own any bitcoin. Sadly, many people are currently learning this the hard way.
Cutting through the sensational stories of fraud, regulatory capture, shoddy oversight, and venture capitalist faces covered in egg, this episode highlights the importance of bitcoin as an asset generally and, if we may say, BTMs as a means of procuring it. Bitcoin is far easier to self-custody than most assets. Generate a public-private key pair on your computer, hardware wallet, or wallet app, and then add bitcoin to an address associated with this private key. This simple process gives you complete possession of the bitcoin, and it is the same process that you follow when purchasing bitcoin from a BTM. On the other hand, the vast majority of exchanges do not require or even prompt users to withdraw bitcoin to self-custody upon purchase. Instead, the exchange increases a user's account balance by the amount of bitcoin the user has purchased. In the case of FTX, it appears that customers had account balances totaling ~70,000 bitcoin which the failed exchange didn't actually have, a devastating outcome for those who thought they were being thrifty savers only to find out that they are general unsecured creditors in a bankruptcy proceeding.
In the wake of these recent events, some bitcoin custodians have provided "proof of reserves" to put customers' minds at ease. Effectively, a private key holder can sign a message using the private key, which proves possession of the key without exposing it and without spending the bitcoin associated with it. Knowing that the counter-party entrusted with your bitcoin actually has bitcoin is better than taking their word for it. But it still only tells you half of the story, because having some bitcoin is not the same as having all the bitcoin required to cover liabilities (those liabilities being the account balances of all users of the exchange). There is no way to prove liabilities. A financial audit is about the best that can be done. Therefore, one can never be assured that a bitcoin-denominated IOU is as good as bitcoin in one's own custody. It is unfortunate that we have even come to distinguish between custodial and self-custody bitcoin in the first place. Bitcoin in someone else's possession on your behalf is not bitcoin, and the elimination of custodians is a core component of bitcoin's revolutionary nature.
As a final thought experiment, consider that while your bitcoin node can tell you at any moment exactly how many bitcoin exist, there is no way to know the total number of bitcoin that people think they own. Undoubtedly, this latter number exceeds the former. Situations like the implosion of FTX highlight this fact and will result in more people demanding bitcoin in their on-chain address as opposed to their exchange account. This trend has the same effect as a supply reduction, as demand that was once absorbed by the supply of both bitcoin-denominated IOUs and actual bitcoin ceases to chase the former. This dynamic has the potential makings of an epic short squeeze, and if it comes to pass you'll be glad that you have been buying actual bitcoin when you visited your local BTM.