We dispel misconceptions about New York’s mining moratorium bill
Bitcoin’s new update makes it more resistant to censorship
Checking in on El Salvador
No, New York Has Not Banned Bitcoin Mining
This Wednesday, the New York State Assembly voted to put a 2-year moratorium on issuing air permits to fossil fuel-based electric generating facilities that supply behind-the-meter energy to cryptocurrency mining. In effect, this is a temporary halt on new facilities that would resemble the Finger Lakes-based Greenidge plant, a former coal plant that was resurrected as a natural gas plant in 2020 to power bitcoin mining. Existing plants like Greenidge would not be subject to the moratorium and could renew their permits as long as they do not seek to increase the energy consumed. To take effect, the bill still needs to be passed through the New York State Senate, during which it may see amendments, and then signed into law by Governor Kathy Hochul.
This bill has been framed in the media as a ban on crypto mining. It is not that. The limitations in the bill are directed towards power plants, not bitcoin miners, and those limitations are highly conditional. The legislation is worth keeping an eye on for its portent of harsher crypto regulation in the future, but now is certainly not the time for any panic.
Bitcoin Becomes More Censorship-Resistant
This Monday, the reference implementation of the Bitcoin network, Bitcoin Core, was upgraded to version 23.0. This is an important reminder that Bitcoin is still, at its heart, a collection of software programs, the most important of which is Bitcoin Core, and those programs are periodically upgraded by a community of open-source developers collaborating from around the world.
Perhaps one of the more important updates in this release makes Bitcoin more resistant to censorship. Historically, Bitcoin nodes have communicated with each other as default through port 8333. Ports allow internet traffic to be segregated like lanes on a highway, facilitating more efficient communication for specific applications. For example, SMTP (email) is sent through port 25. The issue with sticking to a specific port is that internet service providers (ISPs) can easily censor their traffic. With that in mind, the latest update allows new Bitcoin nodes to more easily utilize non-default ports, thus making it harder for ISPs to censor Bitcoin internet traffic.
Many of the other updates brought by Bitcoin Core 23.0 are geared towards the developers who build on the network rather than end-users. For example, many of the upgrades bring improvements and modifications to remote procedure calls (RPCs). RPCs represent the various message and request types sent by nodes to the network. The most recent changes to RPCs improve the way developers and direct users can interact with the network but do not change anything for the majority of indirect users that exist further up the chain. Full release notes on Bitcoin Core 23.0 can be found here.
Checking in on El Salvador’s Bitcoin Experiment
This week, a second country, the Central African Republic, adopted bitcoin as legal tender. While an interesting development in and of itself, we wanted to check in on the first country that adopted bitcoin as legal tender, El Salvador. It has been nearly 8 months since El Salvador made bitcoin an official means of payment for goods and services, and now, after a rocky rollout, we have some long-term government data as well as survey work by the NBER. Before we get into the analysis, we need to highlight a big caveat — this analysis is focused on the official government wallet, Chivo, and does not include other Bitcoin or Lightning wallets, which have been popular alternatives.
Our conclusion from looking at the public data is that despite some initial technical glitches with the country’s homegrown wallet, Chivo, initial uptake was strong, likely driven by the $30 incentive to download the wallet. However, usage since the initial launch, including usage for retail purchases as well as remittances, has been light. The NBER survey found that 54% of Salvadorans had downloaded Chivo, lower than the two-thirds statistic reported by the government, and only 20% continue to use the app, despite incentives such as a $0.30 per gallon subsidy for gasoline purchases. Only 20% of companies report accepting bitcoin as a means of payment, and 5% of citizens have paid taxes with bitcoin.
Remittances, one of the big potential use cases for Chivo, have been light following the launch. Total remittances through Chivo have been running in the range of $9M – $10M per month for 2022 (~1.5%-2.0% of total), though the data does not distinguish between dollar transfers and bitcoin transfers through the wallet. Based on the NBER survey data, it seems likely that most of the Chivo remittances are in dollars. The current average cost of sending $200 from the United States to El Salvador (the path that ~95% of Salvadoran remittances take) is 3.7%, while Chivo is free. Like with the gas subsidies, it is unclear why more Salvadorans are not taking advantage of these benefits.
This story is still being written, however, and bitcoin as a medium of exchange continues to be an increasingly important narrative going forward. Rest assured, we will continue to update our analysis on this story going forward.
Market Update
Bitcoin fell this week by 3.0%. Stocks fell alongside bitcoin, with S&P 500 down 2.4% and the Nasdaq Composite down 2.3%. Gold fell by 2.8%. Bonds were mixed. Investment grade corporate bonds increased by 0.3%, high yield corporate bonds fell by 0.3%, and long-termTreasuries increased by 0.2%. Real yields and inflation expectations were mixed.
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