The Definitive Guide To Bitcoin Smart Contracts

December 5, 2024

Lorenzo Academy

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While bitcoin was originally launched with a simple focus on becoming a global, peer-to-peer digital cash system, the cryptocurrency landscape has expanded far beyond that initial use case since those early days.

Many of these additional use cases have been developed on alternative blockchains with more expressive scripting languages, such as Ethereum and Solana, as Bitcoin Script is rather limited in terms of overall functionality.

Through the use of smart contracts written in some of the more expressive cryptocurrency scripting languages, alternative blockchains have been able to attract millions of users who are interested in more than watching number go up or making uncensorable transactions.

But what are smart contracts exactly? And why has all of this development taken place outside of the bitcoin network? Is it possible that bitcoin will be able to adopt all of these alternative use cases of blockchain technology? Let’s take a closer look at the growing intersection between bitcoin and smart contracts.

Understanding Smart Contracts

A smart contract is any sort of contract enforced by code rather than the traditional legal system or some other centralized authority. This code is usually deployed on a decentralized, blockchain-based network. Smart contracts were first discussed by well-known cypherpunk Nick Szabo way back in 1994, roughly 20 years before the concept would be popularized by the launch of Ethereum.

Smart contracts can range from the simplest of implementations to high levels of complexity. For example, it could be said that a standard bitcoin transaction is a smart contract. Once a bitcoin user has signed a transaction with their private key, the transfer of that bitcoin to another address is enforced via the blockchain. On the other end of the spectrum, decentralized finance (DeFi) protocols on various blockchain networks can combine a collection of different smart contracts into larger applications such as the creation of synthetic, derivative-based tokens and decentralized exchanges with automated market makers.

It should be noted that the term smart contract has expanded to include practically any use of cryptography in the world of finance over the past decade, as many platforms have used it as more of a buzzword to attract investment than anything else. For example, it could be argued that so-called smart contracts that involve some trusted third party (usually in the form of an oracle) as part of their design are not true smart contracts, as the enforcement of that contract is essentially in the hands of the third party. In other words, the intended outcome of the code execution is not necessarily the final law of the land in those scenarios.

Advantages Of Smart Contracts

So, why would someone use a smart contract on a blockchain rather than a traditional agreement backed by the local legal system? Some of the key potential advantages of smart contracts include:

No “trusted” third parties: Smart contracts in their truest form do not involve any trusted third parties for dispute resolution. As Szabo once wrote, trusted third parties are security holes, and they can create issues in terms of costs, censorship, and more. This lack of third parties is also the base feature that enables several other advantages of smart contracts.
Increased transparency: With a smart contract published on a public blockchain, the rules of the contract and how those rules are enforced are free for anyone to verify. This can lead to increased transparency where it does not exist in equivalent systems which do exist in traditional contracts. For example, the entire world can view all of the trades that take place on a decentralized exchange like Uniswap.
Increased privacy: It may seem like a contradiction for smart contracts to offer both transparency and privacy, but smart contracting systems can be built with different goals in mind. A core philosophy of smart contracts on bitcoin is to leave as little information on the blockchain as possible, which enables a greater degree of privacy for those involved in those contracts. For example, it would be advantageous if blockchain observers were unable to tell if an on-chain bitcoin transaction was a standard payment or the opening of a Lightning Network channel. Additionally, some smart contract designs, such as CoinJoin, are specifically built to improve user privacy.
Immutability: Once a smart contract has been deployed on a blockchain, it cannot be altered (unless allowed for by the initial design of the smart contract). This allows all parties to know exactly how the rules of the contract will be implemented in all potential outcomes. Of course, it should be noted that smart contracts are only as immutable as the underlying blockchain, as illustrated by the reversal of the hack of the DAO (aka Genesis DAO) on Ethereum via a hard fork back in 2016.
Increased speed and efficiency: While traditional contracts can involve manual paperwork and legal proceedings, smart contracts can be finalized instantly once the triggers for ultimate resolution have been met.
Lower costs: Depending on the use case, smart contracts issued on blockchains can offer lower costs than the alternative options. For example, it is oftentimes cheaper to send a transaction via a stablecoin rather than a bank wire. That said, a smart contract will not be a cheaper option in every scenario, as interactions with public, decentralized blockchains can be much more costly than a centralized database. Much like smart contracts themselves, blockchains have become a buzzword-fueled technology that people sometimes turn to out of desire rather than necessity.
Borderless: Smart contracts are issued on blockchains, which operate on a global, permissionless basis via the internet. This means any two parties from around the world can come to an agreement on the terms of a contract — even if they reside in different jurisdictions which traditionally had not worked well together.

Bitcoin’s Limited Scripting Language

Contrary to popular belief, smart contracts exist on bitcoin today. The reason many people associate smart contracts more with other blockchains such as Ethereum and Solana is that bitcoin’s limited scripting language means there is a limit to what can be accomplished on the base blockchain.

In Ethereum, there is basically no limit to what can be accomplished in terms of writing decentralized applications, as developers can write their smart contracts from scratch. In bitcoin, the primitives for each smart contract are effectively added over time on an as-needed basis after they’ve been proven useful and worth it in terms of security tradeoffs.

For example, the OP_CHECKLOCKTIMEVERIFY (CLTV) and OP_CHECKSEQUENCEVERIFY (CSV) opcodes were added to bitcoin because they could be used as building blocks for the Lightning Network, which was seen as a key scaling breakthrough for bitcoin payments. On the other hand, complex, smart-contracts-based applications such as Uniswap and Maker simply cannot be built on the base bitcoin blockchain today, as the tools needed to develop them do not exist in Bitcoin Script.

It should be noted that the limitations on Bitcoin Script were intentionally implemented by bitcoin creator Satoshi Nakamoto. Bitcoin originally launched with additional opcodes, such as OP_CAT, that are no longer active on the network because Satoshi deactivated them due to security concerns. Some of the issues that bitcoin is able to avoid with this design decision include the prevention of stablecoin issuers from garnering unwanted control over the network and potential issues related to miner extractable value (MEV).

That said, some smart contracts can be written on bitcoin today via various mechanisms. Here are some of the more notable types of smart contracts that can be written with the current form of Bitcoin Script:

Multisignature addresses: A multisig address is a bitcoin address that, as indicated by the name, requires multiple signatures to send a transaction. For example, a company or organization could require two-of-three executives to sign off on every transaction from the treasury. This is a type of smart contract that exists at the base of many bitcoin applications and enables features such as improved wallet security, federated sidechains, and the Lightning Network.
Time-locked transactions: Time-locked transactions are used to prevent the spending of some specific bitcoin prior to a certain time in the future. For example, someone could use this type of smart contract to prevent themselves from spending their savings until a later date or preventing a loved one from spending their inheritance until a certain block height. CLTV and CSV are two opcodes that enable this smart contract functionality, in addition to the nLockTime parameter. These opcodes are also key building blocks of the Lightning Network and cross-chain atomic swaps, where cryptographic proofs are used to prove that an off-chain spending commitment has been made.
Meta protocols for tokens: While token offerings did not really take off until they were implemented by Ethereum, the reality is various meta protocols for issuing alternative assets on top of bitcoin have existed since around 2013. Originally referred to as colored coins, meta protocols for token issuance on bitcoin did not gain much use until the invention of Ordinals and Inscriptions in 2023. That said, Tether USD, which is by far the largest stablecoin in the world by market cap, was originally issued on a bitcoin meta protocol known as Mastercoin (now Omni). Other meta protocols for issuing both fungible and non-fungible tokens (NFTs) on bitcoin include Stamps, RGB, Taproot Assets, Runes, and Counterparty.
Discreet log contracts (DLCs): DLCs are bitcoin’s answer to the oracle problem for smart contracts, where a third party must be trusted to decide the outcomes of bets between two or more parties. This mechanism enables a large amount of privacy and scalability for these sorts of bets, as the vast majority of data is handled off of the blockchain. Notably, the oracle(s) for the smart contract does not necessarily know the details of the bet. DLCs can be used to create financial derivatives on both the base bitcoin blockchain and the Lightning Network.

It should be noted that multiple bitcoin smart contracts are also sometimes combined to create more advanced, upper-layer protocols. For example, both multisig addresses and time-locked transactions are used to create the Lightning Network.

Bitcoin’s Vision For Private, Efficient Smart Contracts

Despite the reality that bitcoin can be difficult to change at the base protocol layer, several alterations have been made to the network’s consensus rules over time to enable additional smart contract functionality. For example, while multisig addresses are extremely common on the bitcoin network today, they were not available in the original version of the protocol.

In 2021, an improvement known as Taproot was added to bitcoin in an effort to enhance the privacy and efficiency of smart contracts. Indeed, this improvement was a major step forward in terms of the design goal of minimizing the amount of information related to smart contract execution that is forever stored in the bitcoin blockchain. In addition to having an extreme focus on safety and security, bitcoin smart contracts tend to be implemented in an off-chain manner where privacy and scalability can be maximized.

The Taproot upgrade coincided with the addition of Schnorr signatures to bitcoin, which allows multisig transactions to look no different than traditional, single-sig transactions on the blockchain. This means that, for example, an opening or closing of a Lightning Network channel will look the same as a normal on-chain transaction where Bob is simply sending some bitcoin to Alice. This makes it difficult to understand the true meaning behind on-chain interactions by bitcoin users, in addition to lowering the amount of block space that needs to be used through the use of signature aggregation.

Additionally, the use of Merkelized Abstract Syntax Trees (MAST) makes it so that only the executed form of a smart contract is revealed on the blockchain. While there could be a number of potential different outcomes of a particular smart contract, MAST improves privacy and scalability by only publishing the data that is relevant to the end result of smart contract’s execution. However, it should be noted that more data is revealed when there is some sort of off-chain smart contract dispute that needs to be resolved by reverting to the blockchain.

Taproot also made it easier to introduce new opcodes in the future, which could be used as building blocks for more expressive smart contracts. Tapscript was introduced via the Taproot upgrade, which also came with the OP_SUCCESSx opcodes. These are effectively placeholders for future opcodes to be seamlessly added to bitcoin.

With all that said, it should be mentioned that Taproot was the last soft-forking change that was made to bitcoin. It has become more difficult to make these sorts of changes to bitcoin as time has progressed, as the network’s protocol rules slowly move towards ossification. As the bitcoin user base grows and becomes increasingly diverse, it may become even more difficult, if not impractical, to coordinate changes to bitcoin’s scripting language.

Bitcoin Smart Contracts On Secondary Layers

As part of bitcoin developers’ desire to limit interactions with the base blockchain layer, a multi-layer approach to scaling the cryptocurrency to billions of potential users has been thought of as the correct path forward for many years. Notably, Ethereum has also pivoted to this focus on Layer 2 (L2) networks over the past few years.

Much of the financial activity that involves the bitcoin asset does not necessarily need the high degree of decentralization and censorship resistance provided by the base bitcoin blockchain, so it makes sense to let users opt into secondary networks built on top of that base layer via smart contracts.

The most prominent L2 network on bitcoin today is the Lightning Network, which is currently mostly focused on the payments use case. While the Lightning Network itself is built on a number of different bitcoin smart contracts, this L2 does not offer much in terms of enabling additional smart contracting capabilities. However, the Lightning Network does allow smart contracts that exist at bitcoin’s base layer, such as tokenization and DLCs, to operate in a faster and cheaper off-chain environment.

In terms of the expansion of bitcoin’s smart contracting capabilities, most of that activity has taken place on federated sidechains up to this point. Liquid is a sidechain that closely resembles bitcoin itself with a variety of additional features and opcodes. Another sidechain comes in the form of Rootstock, which is compatible with the Ethereum Virtual Machine (EVM), meaning any Ethereum app can be deployed on the sidechain.

While both Liquid and Rootstock have enabled more experimentation when it comes to using bitcoin in smart contracts, adoption of these platforms has been rather minimal. This could be due to a variety of reasons such as a dislike of the federated sidechain security model or the fact that fees on the base bitcoin blockchain are still relatively low in the grand scheme of things. Of course, many smart contracting systems reintroduce some form of counterparty risk anyway, usually in the form of a trusted oracle. Then again, there is also a general preference for simply hodling bitcoin and not reintroducing financial risk among many bitcoin users.

Due to innovations such as Babylon and BitVM, alternative sidechain security models are now possible, which has led to the development of proof of stake (PoS)-based models. It remains to be seen as to whether these new forms of L2 bitcoin networks will be able to gain more traction than previous sidechain iterations, but the level of L2 experimentation is bound to increase in the coming years.

Of course, the case can also be made that other Layer 1 blockchain networks, such as Ethereum and Binance Smart Chain, can also be seen as L2 networks for bitcoin. In fact, the amount of bitcoin that has been ported over to Ethereum via the Wrapped Bitcoin (WBTC) ERC-20 token dwarfs the combined size of Lightning Network, Liquid, and Rootstock. Some networks operate in a gray area between sidechain and alternative cryptocurrency networks, such as Stacks, where a new native cryptocurrency exists alongside a focus on the use of bitcoin as money.

Popular Applications Of Bitcoin Smart Contracts Today

While it’s technically possible to build decentralized applications via smart contracts on bitcoin today, the reality is that there are not many popular examples that can be pointed to as successful projects right now. WBTC is a popular token used in some of the largest and most well-known DeFi projects, such as Uniswap and Aave, but there has yet to be an example of product-market fit when it comes to building these sorts of apps directly on top of bitcoin itself.

That said, there are three notable bright spots to look at when it comes to the use of bitcoin smart contracts to build decentralized applications so far: Sovryn, the Lightning Network, and Ordinals.

Sovryn

Sovryn is the one bitcoin app that enables basically everything one would find in the sorts of apps built on Ethereum. Originally deployed on Rootstock, Sovryn is also expected to be deployed on Build on Bitcoin in the near future. The DeFi app has anything and everything a bitcoin user could want in terms of DeFi activity, including a decentralized exchange, a collateral-backed stablecoin, NFTs, borrowing, lending, a decentralized autonomous organization (DAO), staking, and more.

Sovryn peaked at roughly $160 million of total value locked (TVL) in the protocol back in November 2021, and it has about half of that amount locked in the DeFi app at the time of this writing.

Lightning Network

While the Lightning Network has long been touted as the major L2 development for bitcoin so far, the level of success it has actually achieved up to this point is up for debate. While there are more payments taking place on Lightning Network than many payment-focused altcoins, there are clearly some issues that still need to be worked out. Indeed, many of the most popular and noteworthy Lightning-enabled wallets, such as Wallet of Satoshi and Chivo Wallet, operate in a completely custodial manner.

The relatively low amount of bitcoin that is locked up in the Lightning Network at any one time is often pointed to as proof of its failure when it comes to adoption, but the reality is TVL is not a very useful metric for measuring the success of a payments protocol. Much of the activity in Lightning is currently built around low-value transactions related to Nostr and gaming, and these sorts of use cases do not require much bitcoin to be on the network, especially when considering that the same bitcoin can be reused for multiple payments within intentionally circular economies.

Ordinals And Inscriptions Projects

Based on the temporary spikes in transaction fees that have been found on bitcoin over the past year or so, Ordinals and Inscriptions have garnered a large amount of attention and controversy. While some bitcoin users see Ordinals as a healthy integration of the NFT concept for bitcoin, others see the large amount of block space taken up by Inscriptions as nothing more than spam.

In addition to NFT-esque Ordinals collections, there have also been many meme tokens that have launched via this process. As of April 2024, bitcoin is now the largest blockchain for NFT sales volume, according to CryptoSlam, and the Ordinals concept has been the key driving force behind this phenomenon.

The Future Of Smart Contracts On Bitcoin

It can be extremely difficult to make changes to bitcoin, but there are some developments in the works to bring additional smart contracts to bitcoin via soft forks. Additionally, there are a large number of upper-layer network developments in the works that will work fine with the base bitcoin protocol as it exists today. Improvements will also no doubt be made to the Lightning Network, sidechains, and other bitcoin smart contracting systems that already exist today.

While most smart contract activity takes place on Ethereum and its Layer 2 networks right now (even the activity involving bitcoin), a merger between bitcoin as an asset and smart contracts as a technology could alter this current paradigm over the long term.

Will New Opcodes Be Soft-Forked Into Bitcoin?

The basic rules of the bitcoin network were definitely “set in stone” to some degree when the network originally launched back in January 2009. However, slight alterations to the protocol have been made from time to time via backwards-compatible soft forks. Multisig addresses, smart contracts related to the Lightning Network, Segregated Witness, and Taproot all came to bitcoin via this methodology, and there are a number of proposals floating out there in the ether in terms of new smart contracts that could be added to Bitcoin Script.

Covenants

Bitcoin covenants would allow users to better set conditional rules on how, when, or where some bitcoin can be sent. For example, a covenant may only allow some bitcoin to be spent to some specific addresses after a specific period of time has passed. The ability to effectively enhance control over and add restrictions to bitcoin spending conditions could enable a wide variety of different use cases and improve smart contracting systems that already exist on bitcoin today.

There are several covenant proposals that have been published by various bitcoin developers over the past few years. Some of the most well-known covenant proposals for bitcoin include OP_CHECKTEMPLATEVERIFY (CTV) and OP_CAT, the second of which was available in the original version of bitcoin before it was deactivated by Satoshi. The merits of many different covenant proposals have been debated by bitcoin developers, as there is a desire to get the right balance between increasing programmability without adding too much complexity that could increase bitcoin’s attack surface. Additionally, there are those who say the addition of covenants is simply not worth the security tradeoffs, as there are no proven use cases.

Potential Use Cases Of Covenants

One of the key use cases of covenants that has been discussed for a long time is the concept of vaults, which would offer an extra layer of protection against theft and hacks. The basic idea is that bitcoin held in a certain address can only be spent in a predetermined way that would disincentivize an attacker. For example, it could be required that funds be sent to an intermediary address before being sent to any address of a user’s choosing, with a timelock also being added to that intermediary address to allow the rightful owner of the bitcoin to prevent a theft attempt. Simple versions of vaults are possible on bitcoin today; however, they can be made more efficient and secure if bitcoin were to have covenants.

Covenants could also enable several improvements for existing Layer 2 bitcoin networks such as the Lightning Network and sidechains. In terms of the Lightning Network, covenants could enable improvements, such as channel factories, which allow Lightning users to interact with the base bitcoin blockchain on a less frequent basis, thus lowering total costs. For sidechains, covenants may be useful for improving the security and efficiency of various two-way pegging mechanisms. There also exists the potential for improvements to privacy-focused protocols such as CoinSwap, the development of congestion control, and improvements for other L2 networks that already exist today such as Ark and Mercury Layer.

Drivechains

As previously covered, sidechains already exist on bitcoin; however, current implementations rely on a security model based around a federation of signatories behind a multisig address. There are also proof-of-stake-based models, such as Lorenzo Appchain, coming online, but drivechains would offer a third option where the funds on the sidechain are controlled by the bitcoin miners.

Drivechains are an extremely controversial proposal at this time, but some segments of the bitcoin user base believe that they are the best possible solution to the two-way peg problem and will offer the highest degree of censorship resistance for sidechains. Detractors feel as though drivechains alter the game theory at the base network level by putting large amounts of bitcoin in the collective hands of miners. That said, the end goal here is to enable low-trust bitcoin sidechains for greater levels of experimentation with smart contracts and other use cases.

Notably, a version of drivechains could be implemented today via BitVM; however, it would be made much more secure with the introduction of two Bitcoin Improvement Proposals (BIPs): BIP 300 and BIP 301.

Simplicity

Simplicity is an advanced, high-level scripting language for bitcoin developed by Blockstream that offers formal verification and more expressive smart contracts. Integrating Simplicity into bitcoin has been referred to as a potential “final soft fork” by Blockstream CEO Adam Back, as it could potentially allow the base protocol to ossify.

In a bitcoin world with Simplicity, bitcoin smart contract developments would work more like they do in the Ethereum world, where developers are free to write any smart contract they wish. Simplicity also offers formal verification, meaning smart contracts can be proven to behave exactly as they are intended before they are used, which can limit security issues and bugs. This feature does not exist in Ethereum’s Solidity scripting language, where a large number of error-prone smart contracts have led to billions of dollars worth of losses over the years. The addition of Simplicity to bitcoin would be seen as extremely controversial today, but it is expected to be added to the Liquid sidechain at some point in 2024.

Better Bitcoin Sidechains

Going forward, sidechains will be a key area to watch in terms of smart contract development on bitcoin, as these L2 networks are able to offer much more experimentation. It’s likely that a large number of new sidechain concepts will be tried as bitcoin continues to scale out via a multi-layer approach, and it’s unclear if the majority of activity will take place on federated sidechains, drivechains, or PoS-based models like Lorenzo and Botanix.

The key issue that still has plenty of room for improvement is the two-way peg that enables bitcoin to move back and forth between the base chain and L2 networks. Over a long enough timeline, it’s possible that some sort of system based on zero-knowledge proofs will be the ultimate pegging mechanism for these secondary bitcoin layers.

The Lightning Network Will Continue To Develop And Expand

The Lightning Network is still rather basic when it comes to its feature set; however, that’s bound to change in the near future. Two of the latest developments on the Lightning Network that could lead to greater levels of adoption are Taproot Assets and DLCs. Stablecoins have been a key area of adoption in the cryptocurrency market over the past few years, and the bitcoin ecosystem has missed out on this opportunity ever since on-chain fees rose and Tether USD (USDT) slowly moved to alternative networks.

With Taproot Assets (and other, similar protocols), stablecoins can be issued on bitcoin and sent over the Lightning Network, making it a faster and cheaper alternative to some of the other blockchain networks like Ethereum and Tron. With DLCs, use cases such as dollar-pegged holdings and trust-minimized derivatives can be enabled on Lightning.

As mentioned previously, the addition of a covenants proposal or Simplicity to bitcoin could also help make the Lightning Network become more efficient in terms of its use of the base bitcoin blockchain, and there is still a large amount of work to do in terms of scaling this L2 network to potentially billions of users around the world.

Going forward, it’s possible that the Lightning Network will act more as a glue that allows users to instantaneously swap between various L2 bitcoin networks at basically no cost. That said, the Lightning Network is seen as the L2 that has the fewest trust assumptions in terms of how funds on the network are custodied at the base layer, as Lightning transactions are simply self-custodial bitcoin transactions that have yet to be broadcasted and included in a block.

There are also technologies similar to the Lightning Network that are coming online and could offer alternative options for specific use cases. Fedimint is an ecash system based on federated bitcoin custody (similar to Liquid) that enables anonymous transactions that are fast and cheap. Additionally, Ark is an even newer concept that could solve some of the liquidity and privacy issues found with Lightning.

The Lightning Network still has a number of limitations in its current form and is definitely not a silver bullet in terms of scaling bitcoin to the global population. Instead, it is one of potentially many tools that will allow anyone to use bitcoin while maintaining some degree of decentralization and censorship resistance.

Bitcoin Is Ready For A Smart Contract Boom

The future is now when it comes to smart contracts on bitcoin. There are already a number of tools available to those who wish to deploy smart contracts on top of the world’s most valuable cryptocurrency network, and these tools are bound to become more powerful and secure in the coming years. Thanks to the emergence of Ordinals, BitVM, and other recent breakthroughs, there has never been as much excitement around building decentralized applications on top of bitcoin as there is today.

The idea of building everything around bitcoin rather than splintering the cryptocurrency user base into many different, incompatible systems has existed since at least the release of the original sidechains white paper all the way back in 2014, and now the tools to realize that vision are coming online. There is no reason everything cannot be built on top of bitcoin as the core source of truth and smart contract dispute resolution.

Some bitcoin smart contract projects have been around for a few years now, but there will be an explosion in development activity thanks to platforms like Lorenzo Protocol building out new L2s on top of the world’s most secure blockchain. And since Lorenzo’s appchain is compatible with the EVM, it is easy to port over existing applications and write new smart contracts built specifically for bitcoin.

Appendix: Resources for Further Exploration

Ark Deep Dive: https://www.arkpill.me/deep-dive
Babylon Bitcoin Staking White Paper: https://docs.babylonchain.io/assets/files/btc_staking_litepaper-32bfea0c243773f0bfac63e148387aef.pdf
Bitcoin Optech: https://bitcoinops.org/
BitVM 2: https://bitvm.org/bitvm2
Bitcoin Covenants Wiki: https://covenants.info/
Drivechain: https://www.drivechain.info/
Lightning Network Documentation: https://docs.lightning.engineering/
Liquid Documentation: https://docs.blockstream.com/liquid/technical_overview.html
Lorenzo Protocol Documentation: https://lorenzo-protocol.gitbook.io/lorenzoprotocol
Ordinal Theory Handbook: https://docs.ordinals.com/
RGB Documentation: https://rgb.tech/docs/
Rootstock Documentation: https://dev.rootstock.io/
Stacks: https://docs.stacks.co/
Taproot Assets Documentation: https://docs.lightning.engineering/the-lightning-network/taproot-assets
The DAO: https://gyazo.com/6b875ea63bc2d1241818ee3544ec9420

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More fromLorenzo academy

December 10, 2024

Bitcoin - Core Concepts

What Is Bitcoin Mining?

Bitcoin mining is the engine driving the world’s largest decentralized financial network. But how does it work, and why does it matter? This article dives into the intricate process of mining, detailing how miners validate transactions, secure the blockchain, and introduce new bitcoin into circulation. From the evolution of mining hardware to its environmental controversies, we explore the pivotal role mining plays in Bitcoin’s ecosystem and its implications for the future of global finance.

What Is Bitcoin Mining?

Bitcoin has reshaped our understanding of currency, transactions, trust procedures, and value systems at large. The backbone of this new trustless cryptographic exchange is a process known as " mining." But what exactly does mining mean in this context, and why is it so crucial to the innovation of the bitcoin network?

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This article elaborates on the world of bitcoin mining, expanding on its mechanisms, significance, and controversies.

Understanding The Bitcoin Ledger And Mining

After a bitcoin transaction is initiated, it must be verified and added to the decentralized ledger.

In a traditional financial system, some authority verifies transactions and updates its central ledger. In this new decentralized system, there is no authority to manage the ledger of transactions; therefore, a novel method for recording transactions is required. This is the duty of miners.

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After passing initial verification, a bitcoin transaction enters a pool where it waits to be picked up by a miner and included in a block—a digital record of recent transactions. Miners can't include every pending transaction in the block they submit, therefore they pick the transactions offering the highest fees.

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With transactions selected, miners seek to add their block to the blockchain, aka the bitcoin universal ledger.

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This happens through a process called mining, hence the participants are called “miners.” Let's break down this process in more detail.

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Bitcoin Mining: A Proof Of Work

The process of adding a block to the blockchain is called mining because it involves work on the miner’s’part, and they are rewarded for this work with bitcoin. This is a bit like “discovering” or “unearthing” the bitcoin because it is the only way for new bitcoin to be minted.

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The "work" of mining is a competition of solving complex computational puzzles. By solving these puzzles, miners verify “blocks" and link them to a chain of previous transaction entries, earning the fresh bitcoin and transaction fees for their work.

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The competition among miners is as much about computational power as it is about speed. The process is essentially a brute-force guessing game. Miners attempt to find the correct hash—a specific string of characters—through trial and error. The miner with the most computational resources typically has a better chance of discovering the correct hash first.

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The first miner with the correct hash wins the right to add their block to the blockchain. This method is known as the proof-of-work consensus mechanism.

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Consensus mechanisms enable network participants to agree on the current state of the ledger. Different mechanisms use various methods to decide who gets the privilege of adding a new block to the blockchain. In the proof-of-work system, this right is granted to the miner who first solves the mathematical puzzle by finding the correct hash.

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After finding this hash, they broadcast their solution to the entire network. If everything checks out, the new block is added to the blockchain, and the successful miner receives a reward in the form of newly minted bitcoin, plus any transaction fees.

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The Mining Process Step-by-Step

Transaction Collection: Miners gather pending transactions from the network's memory pool and assemble them into a candidate block.
Block Validation: They ensure transactions are valid, unspent, and comply with the network's rules.
Proof-of-Work Calculation: Miners compute the hash of the block header until they find a hash that meets the network's target.
Block Broadcasting: Upon finding a valid hash, the miner broadcasts the new block to the network.
Verification By Nodes: Other nodes verify the block's validity. If accepted, the block is added to the blockchain, and the miner receives the block reward.

Securing The Network

Visualize miners continuously adding blocks of data to an ever-growing chain, each agreeing on which block is correct—this is the essence of proof-of-work security. To further clarify, it helps to break down the mechanisms of mining that keep the network secure.

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The puzzles miners solve involve hash functions—mathematical algorithms that convert input data into a fixed string of characters. The hash for each block is generated based on both the transactions within that block and the hash of the preceding block.

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This means that altering any transaction in an earlier block would change the hashes of all subsequent blocks, which would be immediately noticeable to the network of miners who previously agreed on the correct chain. All nodes in the network accept the longest valid chain of blocks as the true blockchain.

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The only way a malicious actor could attack such a network would be by controlling 51% of the hash rate. The hash rate represents the total computational power of the bitcoin network. With over half the hash rate, the attacker can mine blocks faster than the rest of the network combined.

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Because bitcoin nodes follow the longest valid chain, by consistently adding blocks, the attacker can make their version of the blockchain the longest, causing the network to accept it over others. A higher hash rate, therefore, increases network security, making it more resistant to attacks.

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The bitcoin network is the largest and most distributed blockchain in the world; acquiring sufficient mining equipment to exceed 50% hash rate involves astronomical costs. Further, once such an attack is carried out, the value of bitcoin would plummet due to it being compromised.

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Mining, therefore, secures the bitcoin network by making an attack almost completely impossible computationally, and always impractical economically.

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Evolution Of Mining Hardware

In bitcoin's early days, mining could be performed using a regular computer's CPU. New hardware soon became needed because the bitcoin network adjusts the mining difficulty every 2,016 blocks (targeting approximately every two weeks as the intended average) to ensure that blocks are added roughly every 10 minutes.

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If miners collectively are solving puzzles too quickly, the difficulty increases; if too slowly, it decreases.Due to this, as the bitcoin network becomes more popular, the computational resources needed to compete in mining grow alongside it.

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Today, mining is predominantly conducted using ASICs (application-specific integrated circuits), specialized hardware designed explicitly for mining bitcoin, offering significantly greater efficiency and higher hash rates.

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Due to the increasing hardware costs of running a mining operation, mining pools have sprung up to continue allowing everyday bitcoin users to participate in network security.

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Solo mining involves a miner working independently to find blocks, which is akin to winning a lottery. Mining pools allow miners to combine their computational resources, providing more consistent and predictable rewards. Participants in a mining pool contribute their hash power and receive a portion of the rewards equivalent to their computational contribution.

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The Great Energy Controversy

Bitcoin mining is energy-intensive due to the computational power required as the mining difficulty increases. Estimates suggest that bitcoin's annual energy consumption rivals that of some small countries. The exact figure fluctuates based on the hash rate and energy efficiency of mining hardware.

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Environmental concerns are the main controversy behind bitcoin mining. Environmental activists argue that this extreme energy can lead to significant greenhouse gas emissions because most electricity for mining comes from fossil fuels.

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Bitcoin advocates typically respond to these concerns by pointing out three things:

Renewable Energy: An increasing number of mining operations are powered by renewable sources like hydro, solar, and wind energy. The value created by bitcoin mining can further push innovation and capital in green energy sources.
Energy Efficiency: Advances in ASIC technology aim to reduce energy consumption per hash. As bitcoin mining technology advances, energy consumption will decrease.
Layer 2 Solutions: As more bitcoin transactions come off the native chain, congestion and computational demands on the PoW network will be alleviated.

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The Future Of Bitcoin Mining

Bitcoin mining is a foundational component of the bitcoin network, ensuring security, validating transactions, and introducing new bitcoin into circulation. While it presents opportunities for profit and technological advancement, it also poses significant challenges, particularly concerning its environmental impact.

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As mining moves forward, the balance between reaping the benefits of this groundbreaking technology and mitigating its drawbacks will define the trajectory of bitcoin and its role in the global financial system.

December 7, 2024

Bitcoin - DeFi

Bitcoin & The Move Ecosystem: An Overview Of Key Players And Implications

Dive into the groundbreaking convergence of the Move ecosystem and Bitcoin DeFi.

Move is one of the more interesting developments in the cryptocurrency space over the past few years, as it addresses some of the key security issues with digital assets that have been found in previously existing blockchain programming languages.

While Sui and Aptos are the two key Layer 1 cryptocurrency networks that have integrated the Move programming language, there are also rising attempts to bring this technology to the Ethereum and Bitcoin ecosystems. While Ethereum has always tended to quickly adapt any new blockchain technology as it appears, this new Move ecosystem is emerging around the same time as various bitcoin liquidity layers on top of bitcoin, which makes it possible for Bitcoin Finance (BTCFi) to join in on these new capabilities.

So, who are the key players in the Move ecosystem, and how will bitcoin make its way into this emerging area of DeFi? Let’s take a closer look at Move and how it can merge with BTCFi.

What Is Move?

The Move programming language was originally developed by Meta for the Diem (formerly Libra) project. It is built to support secure asset handling in digital transactions. Inspired by Rust, Move offers a resource-based type system where assets behave as unique, non-clonable resources, ensuring that they have a single owner and are protected from duplication, which is a common vulnerability in blockchain environments. With these capabilities, Move addresses many limitations faced by existing blockchain languages, particularly Solidity, which underpins Ethereum and has a number of known security vulnerabilities such as reentrancy attacks.

Although Diem was discontinued due to regulatory pressures, Move’s foundational elements survived and found new life in new cryptocurrency projects like Sui and Aptos. Move also includes an efficient virtual machine, known as MoveVM, which is optimized for high performance, parallel execution, memory management, and compiler optimizations to enhance transaction speeds and throughput. Additionally, it provides modularity and composability, making it a straightforward tool for developers to create, connect, and deploy smart contracts.

Move’s strong type system and formal verification also make it particularly appealing for developers prioritizing asset security. By integrating these features with a modular design, Move empowers developers to create sophisticated decentralized applications on multiple layers of blockchain environments. Additionally, Solidity-based contracts can be deployed alongside Move-based contracts without any modifications, which enables seamless compatibility between the two ecosystems.

Key Existing Projects In The Move Ecosystem

While still somewhat nascent, a number of projects built around the Move programming language have already been deployed, and many others are in the works. These projects include Layer 1 cryptocurrency networks like Sui and Aptos, an Ethereum Layer 2 network called M2, and Sui’s liquidity protocol known as Navi.

Sui

Sui is a Layer 1 blockchain designed for seamless, high-speed digital asset transactions. Initially contributed to by Mysten Labs, whose team members include former Meta engineers from the Diem project, Sui reflects lessons learned from Diem’s development.

The architecture of this cryptocurrency network enables sub-second finality and low transaction costs by processing transactions in parallel. This approach not only improves scalability but also allows Sui to handle complex on-chain assets, as its object-based model, which includes improvements over Move’s original design, supports more dynamic digital asset management. In fact, Sui has extended the Move language into Sui Move, which notably enables new features specifically for NFTs.

Sui’s consensus mechanism is rather complex and uses a combination of delegated proof of stake (DPoS), Byzantine fault tolerance (BFT), and directed acyclic graph (DAG) to make sure all nodes are on the same page with transaction ordering in a way that maximizes low latency and high throughput. The BFT-based protocol consensus is known as Mysticeti and is the main vehicle for consensus generation, while DAG and DPoS are used for specific tasks. The key innovation here is to use a combination of different consensus mechanisms for different needs in order to maximize efficiency.

Since its mainnet launch, Sui has shown notable growth with millions of active accounts and billions of transactions. In particular, the gaming niche has been a key area of focus for this network’s growth.

NAVI

NAVI is the main liquidity protocol on the Sui blockchain, which enables users to borrow assets or provide liquidity in return for yield in a manner similar to the well-known DeFi app Aave.

While it has many similarities with Aave, NAVI also comes with additional features and goes beyond what other liquidity protocols have offered in the past. For example, NAVI is designed with advanced features like automatic leverage vaults, which enable users to automate strategies related to their leveraged positions, and “Isolated Market,” which limits the risk associated with newly listed assets. Additionally, it offers dynamic collateralization ratios that move based on market demands.

Aptos

Aptos is another Layer 1 blockchain aimed at delivering high-speed, scalable, and developer-friendly solutions for decentralized applications. Launched on October 12, 2022 by Avery Ching and Mo Shaikh, Aptos is capable of reaching up to 160,000 transactions per second with under one-second finality. Much like Sui, this efficiency stems from the use of the Move programming language.

A key attribute of Aptos is its Parallel Execution Engine (Block-STM), which allows multiple transactions to be processed concurrently and avoids delays caused by single transaction failures. This further increases transaction throughput and reduces latency. Aptos’s consensus mechanism is somewhat similar to Sui’s, using a combination of BFT and proof of stake (PoS); however, Aptos uses traditional PoS as opposed to Sui’s use of DPoS.

Since launch, Aptos has rapidly grown, attracting strong community engagement and significant institutional support, including over $350 million in funding from investors like a16z, FTX Ventures, and Coinbase Ventures.

Cetus

Cetus stands out as the leading DEX in the Move ecosystem, renowned for its concentrated liquidity protocol that enhances trading efficiency while delivering a seamless user experience. By fostering a flexible and robust liquidity network, Cetus accommodates a wide array of assets and use cases. Its permissionless architecture further empowers users, developers, and applications to easily integrate and leverage its protocols.

Key Features include:

Deep liquidity pools enabling low-slippage trades
Permissionless architecture for developer flexibility
Comprehensive support for diverse assets

Movement Labs

Blockchain development firm Movement Labs has raised funding from the likes of Polychain Capital and Aptos Labs to accelerate the integration of Move solutions within Ethereum’s ecosystem. With its Ethereum Layer 2 network known as Movement, Movement Labs aims to enable a theoretical transaction capacity of over 160,000 transactions per second while simultaneously improving smart contract security.

Movement uses its own Move-EVM (MEVM), which allows users from both MoveVM and EVM-based systems to use the Layer 2 network. This feature significantly reduces the risk of attacks such as reentrancy and arithmetic errors, which have plagued many Ethereum-based protocols. The Movement network’s infrastructure will also offer the flexibility to launch custom rollups that are secure and compatible with Ethereum.

Through their specific approach to developing with Move, Movement Labs hopes to merge the massive Ethereum user base with the power of the Move programming language.

Bringing BTCFi To The Move Ecosystem With Lorenzo

Lorenzo Protocol is at the forefront of integrating Bitcoin and BTCFi into the Move ecosystem as the first omnichain Bitcoin liquidity layer within the MoveVM landscape. This innovation allows Bitcoin liquidity to seamlessly flow through the Move ecosystem while leveraging liquid staking solutions to enhance potential returns for Bitcoin holders.

By collaborating with key projects featured in this article, Lorenzo bridges Bitcoin’s history of decentralization and security with Move’s advanced architecture, tailored to meet DeFi’s evolving demands. While Bitcoin remains a cornerstone cryptocurrency, its legacy technology and limited scripting capabilities hinder its application in modern decentralized systems. Lorenzo overcomes these limitations by unlocking Bitcoin’s potential for use in DeFi.

The simultaneous rise of Move-based DeFi platforms and Bitcoin’s integration into this ecosystem, driven by projects like Lorenzo, represents a significant evolution in blockchain technology. Platforms like Sui, Aptos, and Movement are merging Move’s enhanced security features and efficient processing capabilities with Bitcoin’s established market presence.

This convergence showcases how blockchain technology continues to evolve, combining Bitcoin’s reliability with Move’s cutting-edge features to create a more secure, efficient, and interconnected DeFi landscape. As Bitcoin liquidity becomes more accessible and Move’s ecosystem expands, we are likely witnessing the foundation of a more interoperable and widely adopted decentralized financial future.

This union of Bitcoin’s trusted asset status with next-generation blockchain technology could be pivotal in driving mainstream DeFi adoption.

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December 6, 2024

Bitcoin - Core Concepts

Who Owns The Most Bitcoin? View The Biggest Whales

An overview of the world's top Bitcoin holders, spanning individuals, companies, and countries.

True ownership is the core value proposition of cryptocurrencies. Without a decentralized solution to ownership, property can only owned via a trusted third party such as the government.

Bitcoin, the first cryptocurrency, was created to bring ownership out of the hands of a central authority and back into the proverbial hands of the owners themselves. Since its inception, owning bitcoin has become the gold standard of self-custody, and millions of people around the world have clamored to hoard some themselves.

Bitcoin has attracted a diverse range of investors, from individuals to corporations to governments. Bitcoin ownership, however, is far from evenly distributed. A small number of wallets hold a large portion of the total supply, which could have serious implications for the market.

For this reason, the question of who owns the most bitcoin has always been a topic of great intrigue, especially considering bitcoin’s role in the future of decentralized finance and the world at large. This article will categorize the major global bitcoin holdings and elaborate on the entities that control them.

Individual Holders

Satoshi Nakamoto

No discussion on bitcoin ownership can begin without mentioning Satoshi Nakamoto. Nakamoto is believed to have mined around 1.1 million bitcoin in the early days of the network.

Mysteriously, these coins have remained untouched since Nakamoto disappeared from the public eye in 2010.

Holding about 5% of the total supply, Nakamoto is estimated to be the largest bitcoin owner, controlling coins worth over $30 billion, as of November 2024. Despite this massive fortune, Nakamoto has never spent nor transferred these coins a single time, adding to the enigma surrounding bitcoin’s creator.

This immobility of Nakamoto’s stash reassures the cryptocurrency community that these holdings won’t suddenly flood the market, an undeniable risk when a single entity controls so much of the supply.

The Winklevoss Twins

Cameron and Tyler Winklevoss, famously known for their legal battles with Mark Zuckerberg over Facebook, became some of bitcoin’s earliest and most vocal proponents. Their belief in the long-term potential of bitcoin has cemented their position as some of the most influential figures in the digital assets space.

The twins reportedly bought 70,000 BTC in the early 2010s, and their holdings have grown substantially since then. This investment helped them establish Gemini, a regulated cryptocurrency exchange that is one of the largest in the world.

Tim Draper

Venture capitalist Tim Draper is another significant individual holder. Draper is the founder of Draper Fisher Jurvetson, Draper Venture Network, and Draper Associates, just to name a few.

He purchased 30,000 BTC in 2014 from the U.S. Marshals auction, following the Silk Road seizure, and invested in over 50 cryptocurrency companies, including Coinbase, Ledger, Tezos and Bancor. His initial bitcoin investment alone has grown substantially, making him one of the richest bitcoin billionaires.

Michael J. Saylor

Michael Saylor, CEO of MicroStrategy, has become one of the loudest proponents of bitcoin. His company’s decision to use bitcoin as its primary reserve asset has led to the accumulation of 279,420 BTC, the largest amount held by any publicly traded company (more on this below).

Outside of his company, Saylor also has stated that he personally holds around 17,000 BTC, making him one of the largest individual holders. Saylor is a bitcoin evangelist in the strongest sense and sees bitcoin as the best (if not only) long-term store of value.

Changpeng Zhao (CZ)

As the founder of Binance, the world’s largest cryptocurrency exchange by trading volume, CZ is another core deity in the cryptocurrency pantheon.

While his personal bitcoin holdings aren’t publicly known, his net worth is estimated at roughly $96 billion. At a minimum, CZ’s early investment in bitcoin (when he sold his apartment to buy bitcoin in 2014) is publicly known, and alone makes him a billionaire.

Mr. 100

Although many large whale wallets are anonymous, none are more infamous than “Mr. 100.”

Since November 2022, after the collapse of FTX, this wallet has consistently received 100 BTC, almost daily, amassing 52,996 BTC (valued at over $3.5 billion) as of 2024. This accumulation spree has made the wallet the 14th-largest holder of bitcoin globally — one of the largest held by an individual, if “he” is one. Blockchain intelligence suggests that the wallet may be used for managing Upbit’s cold storage, although this has not been officially confirmed.

Corporations: Investment vs. Custody

When investigating the largest corporations that hold bitcoin, it is important to divide between those who invest in bitcoin and those who hold it on behalf of users, such as cryptocurrency exchanges.

Company Investments

MicroStrategy

MicroStrategy has led the corporate adoption of bitcoin as a treasury reserve asset. The company holds 279,420 BTC, which represents a significant portion of the company’s balance sheet. CEO Michael Saylor has convinced his investors that bitcoin is the ultimate store of value and has continually raised money to make large bitcoin purchases. This bold strategy has positioned MicroStrategy as the penultimate institutional holder of bitcoin.

Tesla, Inc.

In early 2021, Tesla made a significant move by purchasing $1.5 billion worth of bitcoin. As of 2024, Tesla holds 10,500 BTC, valued at around $698 million. Tesla’s decision to invest in bitcoin was part of its broader strategy to diversify its holdings and provide liquidity for future transactions. Tesla even briefly accepted bitcoin as payment for its vehicles. However, the company suspended this initiative, citing environmental concerns related to bitcoin mining.

Galaxy Digital Holdings

Galaxy Digital, founded by former hedge fund manager Mike Novogratz, is a financial services firm with three operating businesses: Global Markets, Asset Management, and Digital Infrastructure Solutions. Galaxy currently holds 17,518 BTC, worth over $1 billion, and plays a key role in institutional bitcoin adoption by supporting businesses and infrastructure.

Marathon Digital

A major bitcoin mining company, Marathon Digital holds 13,716 BTC, primarily obtained through its mining operations. Marathon focuses on becoming the largest bitcoin mining operation in North America, leveraging low-cost energy sources to fuel its massive bitcoin mining infrastructure. Although Marathon occasionally sells bitcoin to pay for operations, it keeps a significant amount of its balance sheet as an investment vehicle.

Largest Bitcoin Custodians

Coinbase

Coinbase, one of the most popular cryptocurrency exchanges in the U.S., is the largest custodian of bitcoin. Coinbase is a core entry point for both retail and institutional investors, it even helps manage funds for the U.S. government. The company now holds approximately 1 million bitcoin as part of its operational reserves and user assets.

Binance

Binance is the world’s largest cryptocurrency exchange by trading volume and holds significant amounts of bitcoin in custody on behalf of its users. As of 2024, Binance controls 643,546 BTC, spread across several wallets. These holdings are managed as part of its trading and exchange operations. Binance’s size and global reach make it the international key player in the bitcoin ecosystem.

Bitfinex

Bitfinex, one of the oldest advanced cryptocurrency exchanges, retains a loyal user base of retail and institutional investors. The company has been reported to hold approximately 204,338 BTC as of 2024. Despite past regulatory challenges and security breaches, Bitfinex remains one of the largest bitcoin custodians, providing liquidity to the market and facilitating large scale trading.

Robinhood

Robinhood, the popular U.S.-based trading platform, reportedly holds 118,300 BTC in a single wallet, making it one of the largest custodians of bitcoin. Robinhood’s bitcoin custody includes assets held on behalf of its users, many of whom are retail investors who prefer the convenience of using a traditional brokerage platform for cryptocurrency trading.

Companies that have ETF products

Since the creation of bitcoin ETFs, much of bitcoin has fallen under the control of institutions that provide these products. Many of these entities are traditional banking giants positioning themselves as safe points for entry into the cryptocurrency world.

The largest BTC holders among the ETF titians are:

BlackRock: 357,548 bitcoin

Grayscale: 221,841 bitcoin

Fidelity Investments: 174,926 bitcoin

Ark Invest / 21Shares: 45,008 bitcoin

Governments

United States

The United States government holds the largest amount of bitcoin, totaling 213,297 BTC, valued at approximately $14.82 billion. These assets were primarily obtained through cryptocurrency seizures related to criminal activities. For example, a significant portion, about 69,000 BTC, came from the dismantling of the Silk Road alone.

China

Despite its ban on cryptocurrency trading and mining, China remains a significant holder of bitcoin. The Chinese government holds approximately 190,000 BTC, valued at around $13.2 billion. Most of these funds were seized from the PlusToken Ponzi scheme, one of the largest cryptocurrency frauds.

United Kingdom

The United Kingdom has also accumulated a substantial bitcoin reserve through law enforcement seizures, amounting to about 61,000 BTC. Much of this bitcoin was confiscated as part of a money laundering operation involving cryptocurrency exchanges operations in bad faith on U.K. territory.

El Salvador

Unlike other countries that primarily hold bitcoin through seizures, El Salvador has proactively purchased bitcoin as part of its national financial strategy. El Salvador became the first country to adopt bitcoin as legal tender and has been regularly purchasing bitcoin since. The country holds 5,800 BTC, valued at approximately $400 million.

Ukraine

Ukraine has received a significant amount of bitcoin through donations to support its defense against Russia during the ongoing conflict. So far, the government has received 651.3 BTC, while the Come Back Alive Foundation has received 685.1 BTC. These donations are actively used to fund war efforts, leaving a current balance of 186.18 BTC.

Bitcoin Total Supply

After detailing all the major holders of bitcoin, its important to put these holding in the context of the current total supply.

40% of bitcoin ownership falls into the above categories of identifiable participants such as individuals, companies, miners, governments, and dormant supply.

14% of the total supply is dormant, assumed to be lost or inaccessible. This includes Satoshi Nakamoto’s mined coins, comprising 5.2% of the total BTC supply.

Exchanges control 11% of the total supply, with Binance and Coinbase leading the pack at 3.12 and 4.51% respectively.

Mining companies alone control about 9%, with Marathon being the largest holder.

ETFs compose 3.63% of the total, led by BlackRock and Greyscale.

Public companies control only 1.18%, the top being MicroStrategy and Tesla.

Governments control only 1.16% of the total supply. The U.S. is by far the largest holder with a 0.92% share in the total supply.

Whale wallets of individuals control about 20% of the total supply, although this number is difficult to calculate. None of the top identifiable holders even reach half a percentage point of the total supply

Although the bitcoin supply may seem to be controlled by only a few powerful wallets, the data shows that the picture is not so bleak. No single entity controls more than 5% of the supply, and even these companies are not beholden to the wishes of a single person. At the end of the day, the bitcoin network is likely safe from the massive sales that would send the price into a tailspin, and the core holders of bitcoin are resolute holders, if not dedicated to the cause.

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