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News Overview 7/26: Tesla, Finnish Customs, Polygon, SEC and BMC

Tesla surprisingly sold three-quarters of its bitcoins. Finnish Customs has concluded a years-long Bitcoin sale process. Polygon launched zkEVM, which is a major development in the field of Ethereum Layer 2 solutions. The SEC is attacking several cryptocurrencies as well as Coinbase. The Bitcoin Mining Council released a new report on Bitcoin mining.

Tesla sold 75% of its bitcoins

This week’s overview starts with a news bomb dropped by Tesla. The world’s leading electric car manufacturer announced last week that it had sold 75% of its bitcoins. The sale price was $936 million. The news was released in conjunction with the Q2-2022 report.

Tesla’s bitcoin selling came as a surprise to those following the industry. Why did the company give up almost all its bitcoins? According to Elon Musk, the uncertainty caused by the lockdowns in China required Tesla to strengthen its cash position.

Let’s briefly summarize Tesla’s Bitcoin holdings. At the beginning of 2021, the company acquired 48,000 bitcoins for $1.5 billion. Many may have forgotten that Tesla sold 10 percent, or 4,800 bitcoins, already back in the spring of 2021 at a price of $272 million.

This means that Tesla had 43,200 bitcoins before last week’s announcement. If 75% of that was sold, it means 32,400 bitcoins. This would leave Tesla with 10,800 bitcoins on its balance sheet worth around $230 million. Even after the sales, Tesla’s position is still the second largest among public listed companies. Only Microstrategy is ahead of it.

Elon Musk has reportedly not sold any of his bitcoins. It is difficult to say whether Musk would have dumped Tesla’s bitcoins either if the decision had been his alone. The billionaire has not ruled out the possibility of Tesla making further Bitcoin acquisitions in the future.

Tesla’s sales don’t matter much in the big picture. Many believed that Tesla’s example would attract other publicly-listed companies to become Bitcoin holders, but this never materialized. Public companies are not yet ready to become Bitcoin investors on a wider scale.

Probably the three major reasons are ESG, regulation, and accounting. Bitcoin power consumption is a problem for companies whose decisions are driven by ESG criteria. Regulation in the sector is also creating uncertainty. Changes in the price of Bitcoin also create accounting headaches.

Finnish Customs bitcoins have been sold

The years-long process by Finnish Customs is officially over! Customs’ famous bitcoins have now been sold. This was confirmed last week.

Finnish Customs, Tulli, has already had 1889 bitcoins in its possession since a drug seizure in 2016. Tulli has been planning to sell bitcoins since 2018.

For one reason or another, the process has taken a very long time. This spring, it moved to a higher priority when MP Mikko Kärnä proposed a donation of bitcoins to Ukraine. This triggered an inquiry, which was acknowledged all the way up to president Sauli Niinistö.

Legal challenges prevented a direct donation of bitcoins, so they had to be sold in euros. Local operators Coinmotion and Tesseract were chosen for the task. The sales started at the end of May.

Taloussanomat reported last week that Tulli received 46.5 million euros from the transactions, which can be calculated as an average price of 24,616 euros per BTC. This is considerably lower than the peak last autumn, but at least the sales did not hit the bottom of the bear market. The proceeds of the sale have already been paid to the government of Finland.

Tulli’s Bitcoin transactions have sparked angry comments on social media platforms. Many would have liked to see the bitcoins transferred to the government’s balance sheet, where their value could have multiplied in the years to come. Ukraine could have been supported with euros from additional budgets and left bitcoins alone.

It seems that this scenario was not possible at any stage. Tulli’s bitcoins would have been sold anyway. Ukraine’s need for help was the closest thing to getting policymakers to do something about it.

Tulli still has 90 bitcoins and (small amounts of?) other cryptocurrencies, but there have been no court decisions on these criminal cases. Even these coins are likely to be sold.

Polygon launches a zkEVM platform

Polygon is one of the most popular Ethereum scaling solutions. Last week the project announced a major technological breakthrough called zkEVM. This is an important step in the technological development of so-called Layer 2 solutions. Let’s first give the news some background.

Ethereum is the leading smart contract platform on the market. The problem is that it has limited capacity. This won’t be solved by the upcoming The Merge update either. Even the introduction of sharding is probably not sufficient to solve all scaling needs.

This is why Ethereum needs support from Layer 2 solutions. Bitcoin also uses a Layer 2 solution, known as a lightning network. Ethereum’s leading Layer 2 solutions are Arbitrum and Optimism.

Both Arbitrum and Optimism use Optimistic Rollups technology. The idea is to bundle a lot of transactions together and then send the information about them to the Ethereum chain for approval. This makes it possible to leverage Ethereum’s security while providing scalability on top of Layer 2.

A competing technology is ZK-Rollups. Its use has so far been limited to simple transactions, not smart contracts. The launch of Polygon will change that. The Hashoshi channel video below provides a good overview.

The letters ZK refer to Zero Knowledge technology. In short, ZK enables the same things as the above-mentioned Optimistic Rollups but without the transmission of transaction data. In other words, ZK allows you to send a simple acknowledgment that the data is valid, without sending the data itself.

EVM is the Ethereum Virtual Machine. It is the processor that executes all the smart contracts on the Ethereum platform. Therefore Polygon’s zkEVM is a Layer 2 smart contract platform based on ZK technology and compatible with EVM.

Many projects have been trying to get the zkEVM platform off the ground and have been working on the technology for a long time. It is also worth noting that, in addition to Polygon, Matter Labs and Scroll also published similar news. However, it seems that Polygon is clearly ahead of the game technologically.

This news about zkEVM will trigger changes in the Ethereum Layer 2 race. Optimism & Arbitrum are seen more as interim solutions that zkEVM platforms will likely replace in the future.

SEC aggressive on cryptocurrencies

The US Securities and Exchange Commission (SEC) has been in the news many times for Bitcoin. It has become familiar to many, especially since the Ripple trial, which has been going on for 1.5 years. It is the entity that currently oversees the US crypto market.

The SEC is waging war on cryptos around one and the same theme: the definition of security. Why is this important? If an investment instrument is a security, it is subject to a completely different set of laws. Moreover, securities cannot be traded on cryptocurrency exchanges.

The US is one of the world’s most important countries in the cryptocurrency sector. Its legislation has implications for the whole sector.

The SEC has hit ten different cryptocurrencies in the past week. Nine of these are related to Coinbase.

Former Coinbase product manager Ishan Wahi has been charged with insider trading. He knew in advance which cryptos Coinbase would list and tipped off his friends who bought them before the announcement. Coinbase’s new cryptocurrencies often increase in price at the time of release.

The SEC is leading this investigation, but the agency has filed a separate complaint against Coinbase. It claims that the nine coins involved in the case are in fact securities. A total of 25 cryptocurrencies were the subject of insider trading. By what logic, then, did the SEC choose nine of these? Hard to say.

Coinbase has denied the allegations in a blog post. The SEC’s action seems undeniably strange – yet again.

In addition, the SEC has already sued the LBRY protocol in the past for the same reason (securities). This case has remained little publicized. The LBRY protocol runs the Odysee service, a decentralized alternative to YouTube.

The SEC vs. LBRY case will be resolved in the coming 1-2 months. If the SEC wins and the LBRY token is declared security, it could also be a hard blow to the Ripple case, as well as many other cryptocurrencies created through ICOs.

Bitcoin Mining Council published its Q2 report

The Bitcoin Mining Council (BMC) released its Q2-2022 report last week. Let’s go through some of its main points.

The name BMC may be unfamiliar to many readers. The BMC is a community founded in May 2021 to promote transparency and knowledge about Bitcoin mining. Since its inception, it has been run by Michael Saylor.

BMC has published a report after each quarter since Q2-2021. You can view the results of the latest report in a PDF file on the BMC website. There is also a presentation by Michael Saylor on YouTube.

Although the BMC has gained a huge number of new members, it only covers 50.5% of Bitcoin’s mining power. There are currently 45 major mining companies involved. At its inception, the BMC included 23 companies with a hash rate of 32% of Bitcoin mining.

In practice, the BMC surveys its members every quarter, in particular on the use of sustainable energy sources. It then estimates what the figure would be for the Bitcoin network as a whole, based on a variety of data.

The main points of the report are:

  1. Bitcoin only uses 0.15% of the Earth’s energy and produces 0.09% of carbon emissions.
  2. The hash rate of the Bitcoin network increased by 137% year-over-year but the power consumption has increased by 63%. This means the energy efficiency of miners has increased by 46%.
  3. Bitcoin mining is the world’s leading sustainable energy industry. BMC estimates that 59.5% of global Bitcoin mining is done with sustainables.

A year ago, the share of sustainable energy sources was 53.5%, an increase of six percentage points. Sustainable energy sources include hydro, wind, solar, nuclear, and geothermal. Carbon credits are no longer included in this list.

Bitcoin mining is moving in the right direction! It’s getting more efficient every year and is using more and more sustainable energy sources.

Photo by Milan Csizmadia on Unsplash