Pinotio’s Weekly Recap — August 25th 2021
Helium rewards tank while token moons, Bitcoin Lightning PLUS DeFi Debacles
Summary:
- Helium rewards rate is down, but price is up!
- How Bitcoin lightning works
- My take on the Uniswap Flipside debacle
Helium rewards tank but but price is up
Those unfamiliar with the Helium Network may wish to read this short primer.
Helium hotspots earn rewards for providing network coverage. Rewards are paid out in Helium tokens and primarily depend on two factors:
- The overall rate of rewards issued by the Helium protocol (which halves every two years — the last halving was August 1st 2021)
- The number of other hotspots in your area. Generally, the fewer hotspots in your area the more rewards you will earn (unless there are no other hotspots, in which case your hotspot cannot mesh with the network).
Over the past month, the rewards rate has fallen rapidly for most hotspot owners (more than half in my experience) because i) of the recent protocol rewards rate halving and ii) there is incredibly rapid growth in the rate of hotspots installed. About one year ago, when I installed my first, there were about 5,000 hotspots globally. Right now there are 140,000! Just about a month ago, there were only 90,000!
On the plus side, the Helium token price has gone up quickly too $20 — so hotspot earners are still doing ok in dollar terms. I wouldn’t count on price stability though.
How Bitcoin Lightning Works
I’ve been running my Lightning node for about a month now and — I’m not going to lie — it’s very difficult to make it run at break-even, never mind at a profit. I’m working to pull together a short guide (here’s the guide so far). Today, let me just describe a little about how channels work — by means of an example.
Consider that both Mary and I each own a Lightning node. If I want to be able to route transactions to and from Mary, then I need to set up what is called a channel. To do this, I start by making a bitcoin transaction that moves funds from my bitcoin wallet into what is effectively a smart contract that opens and operates the channel. For example, it would be typical for me to open up a channel of 2M satoshis (0.02 BTC) to another node owner (called a “peer”). Opening a 2M satoshi channel reduces my bitcoin balance (in my personal wallet) by 0.02 BTC.
Now, you can think of the channel as an abacus between me and Mary. On my side there are 2 million beads, representing satoshis. Quite simply, to send satoshis to Mary, I can execute a contract to slide beads over to her node. She can also slide beads back to me.
At any moment, Mary or I can decide to close the channel. If this 2M satoshi channel is closed, the original 0.02 BTC that I transacted on the blockchain is split proportionally to how many beads are on each side of the channel and BTC is sent to my wallet and to Mary’s wallet respectively. For example, if half of the beads have been pushed to Mary, then I will receive 0.01 BTC and she will receive 0.01 BTC when the channel is closed.
The key thing about this abacus (channel) is that Mary and I can move funds between us (within the 2M limit) without having to execute a slow and costly transaction on the Bitcoin blockchain itself each time. Mary and I are simply keeping tabs with each other within a smart contract.
We can extend this thinking and have Mike open a channel from his node to my node. Now, if Mike wants to push funds to Mary, he could choose to first push funds to me, and then I push them across to Mary. This is the idea of Lightning. It uses a network of nodes to push liquidity around. At any point, if there is a dispute, node owners can “cash back out” to Bitcoin.
Disputes and DAOs: Uniswap and Flipside
There is a lot of talk in 2021 about decentralised autonomous organisations (DAOs), which are organisations that operate with no central governing body or appointees. While it sounds appealing in theory, there are many challenges in practise that are being discovered. In my governance report from last week there were quite a few juicy stories. Vitalik Buterin wrote extensively about the challenges of one coin one vote systems for governance. Meanwhile, a grant proposal by a service company (Flipside) to the Uniswap protocol provided an example of how difficult to fairly and effectively fund community initiatives.
That’s it for this week, folks! Thanks for reading.
