If anything, the monthly Magical Crypto Friends show is a reflection on the state of the cryptocurrency market. In times of high overall gains, the four anthropomorphic friends talk about scam projects and argue in favor of Bitcoin. But when it all comes crashing down as the prices keep bleeding, industry giants like Bitmain slowly collapse, and the developers talk about BUIDLing, then the conversation turns to new accomplishments and the issues of the bitcoiners’ inner circle.
The fifteenth episode of Magical Crypto Friends arrives in a moment when the Bitcoin community faces somewhat of an identity crisis. As the Lightning Network keeps on growing, protocols like Mimble Wimble get their first implementations, and older projects like Litecoin take first steps towards adopting Confidential Transactions, bitcoiners find themselves arguing about their faithfulness for Satoshi’s invention. Some folks wonder how and if the fee market will keep the mining operations sustainable over time, while others frown upon cryptocurrencies that may threaten Bitcoin’s supremacy.
On the other hand, this particular episode shows that the series is maturing in terms of both debate style (it’s no longer about Bcash and having unanimous agreements, now the four members disagree more often) and production quality (it took them a year to add better graphics and film the show in overall higher quality).
Consensys and Bitmain layoffs
The prolonged bear market has been financially detrimental to many projects, and not even some of the biggest players were exempt from taking big losses. Consensys have laid off a significant percentage of their staff, while Bitmain found itself in the middle of a management crisis which led to poor sales, slow development of new hardware, and a chance of CEOs.
Whale Panda argues that at least in the case of Consensys, the growth was unsustainable and these layoffs were bound to happen. Riccardo Spagni also adds that to him, the case of Bitmain came as a surprise as he expected the company to be wealthier and be able to support its operations. Charlie Lee adds that the Chinese company might still hold large amounts of crypto, but its shrinkage might be due to a lack of diversification in fiat.
Unsurprisingly, this all leads to a series of Bcash comments and references to the large amount of BCH that Bitmain owns. In the midst of this spontaneous moment of meanness, Samson reminds everybody that the company has a debt to TSMC, which amounts to over $300 million. Since they have about $700 million in liabilities and they must pay their IPO investors, Bitmain must scale down.
The show’s host Whale Panda inquires about CEO Jihan Wu’s status, but at the time when the video went out it has been confirmed that Mr. Wu is no longer an executive of the company.
In regards to Consensys, Samson jokes that the layoffs are just part of the path to growth, which leads to a 2.0 version (thus referencing the positivistic Ethereum narrative). Fluffy Pony adds that they might be using sharding on their staff. Further comments are made in regards to ETH’s approach to transition to Proof of Stake, and how two segments of the network will coexist during the process, and Mr. Spagni remarks that such an approach is just like Bon Jovi’s song “Livin’ on a Prayer”.
Custodial Lightning wallets
Whale Panda brings up the issue of the bourgeoning development of custodial Lightning wallets. The consensus between Riccardo and Samson is that playing around with custodial services to learn how the technology works is alright, as long as small amounts are being used.
However, it’s the show’s moderator who implies that these custodial wallets might be a return to services like Blockchain.info, and they may become popular specifically thanks to their convenience and ease of use – which is more reckless than trading on the Lightning Network itself. Charlie Lee adds that Coinbase is still the most popular wallet thanks to its friendliness to new users and a series of features which don’t really make people long for true decentralization.
Samson Mow complements the argument with the hypothesis that closed-source wallets might also turn out to steal people’s funds, and these losses can potentially turn more people away than they educate. Charlie points out to the inevitability of scamming which takes place in the crypto world.
After Whale Panda brings up Wallet of Satoshi as an example of a custodial wallet that isn’t open source, the Litecoin creator reminds everyone that open-source solutions don’t always solve all problems and sometimes it’s hard to determine which source is being run. Or, as he phrases it, “open source is a false sense of security”.
Riccardo Spagni concludes that a key factor in determining the legitimacy of a custodial wallet project is the reputation of the founders.
The mining death spiral
Each time the price of Bitcoin drops to the threshold of minimum mining profitability, a lot of the hashing gets turned off in order to reduce costs. Consequently, until the mining difficulty readjusts itself to for the new network conditions, some users panic and forget about Satoshi Nakamoto’s system of incentives which was specifically designed to face these situations.