It’s incredible that a whole industry based on trust has been erected around a tool that was created to completely remove it from the equation. The contagion event from this year makes it obvious that many people have not heeded Nakamoto’s warning. Many people, your Uncle Marty included, have been warning others as vehemently as possible to not interact with centralized exchanges that claim to be able to keep your bitcoin safer than you can, lenders who promise to provide you yield if you allow them to lend out your bitcoin and financial products that market themselves as great ways to get bitcoin exposure without the “hassle” of having to actually interact with the protocol. That’s why this rag exists; “Marty’s Bent” started as a way to educate you freaks about how Bitcoin works, why it’s important and what you can do to realize the power of this revolutionary technology by using it correctly.
Many have taken the advice to heart, but many others have not — as is evidenced by the popularity of BlockFi, FTX, Genesis, GBTC and the like. Not heeding the warning has led to tens of billions of dollars worth of perceived value being evaporated in the span of a couple of weeks. People are now waking up to discover that the bitcoin they thought they owned either never existed or was squandered away by a third party they trusted — a very expensive lesson.
The dust is currently still whirling around winds that seem to be getting more turbulent, but it will eventually settle. When it does, I believe the winners who come out the other end are those who have heeded the warning that “trusted third parties are security holes” and implement trustless-ness into their product stack. Particularly those who would like to offer financial services and products with bitcoin. The winning companies will be those who learn to leverage Bitcoin’s native properties, particularly the ability to construct multisig wallets. The era of giving your bitcoin to a company providing you bitcoin-centric financial services without multisig solutions should be coming to an end. There is no reason for Bitcoiners to interact with the black-box solutions that have dominated the market to date.
The future of financial products on a bitcoin standard is multisig quorums that distribute risk among stakeholders who control different keys. Companies already exist that have provided the market with the standard for secure and responsible products that leverage multisig quorums. Bitcoiners need to have certainty that if they are using their bitcoin as collateral to receive dollar liquidity via a loan product, they are actually going to get their bitcoin back when they pay off their loan. Multisig quorums that allow the person taking out the loan to hold a key in the quorum provide this certainty. Since the borrower holds a key in the 2-of-3 multisig quorum, they have visibility into the wallet that is escrowing their collateral. They can know for sure that their sats are not being rehypothecated and that they will be there at the end of the loan when everything is paid off and their collateral is set to be released back into their custody. This is a beautiful thing. More than that, it’s revolutionary.
This is the future of finance. It’s not the vision of “DeFi” as put forth by the degenerates creating a token-bartering economy in the land of shitcoins. It’s distributed risk among different counterparties that provide certainty to users and eliminate single points of failure. The companies who internalize this and bring about this future are going to win.