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This is an opinion editorial by Max Keidun, the CEO of peer-to-peer bitcoin exchange Hodl Hodl.

The bitcoin lending space has suffered from several major issues in recent months and years, from the fallout of the Terra/Luna crash, impacting Celsius and BlockFi, and now FTX as well, to liquidity crunches given the sustained price drawdown, varying accusations of market manipulation and more.

All of these have led to significant losses, bankruptcies and a complete reshaping of the lending market. Many users have lost faith in bitcoin-based lending products and the market appears to be at its historical bottom, both in terms of volumes and public confidence.

As usual, the mainstream media blamed these crises on Bitcoin itself. But is any of this Bitcoin’s fault? Does it make Bitcoin any less attractive? Does it even mean that we shouldn’t consider bitcoin as lending collateral? No!Bitcoin Is Super Collateral, It’s The Lenders Who Have Failed

While Bitcoin's code is law, custodial lending platforms are trusted third parties, owned and managed by private entities. Trusted third parties are security holes. This was true before Bitcoin, and it is still true today.

Furthermore, most bitcoin lending platforms are poorly conceived, poorly developed and poorly managed. This doesn’t necessarily imply bad code. The code can be well written, properly audited and verifiably secure, but there may still be poor incentives that emerge from the design of the lending platforms. If the focus is to treat bitcoin as if it were a yielding asset, we are likely in for trouble.

The longer the “bitcoin lending” industry goes on, the clearer it becomes that most involved do not really understand how yield is generated. And as the saying goes, if you don’t know where the yield comes from, then you are the yield. What it really means is that your bitcoin is being used as the principal for risky investments, and it is likely only a matter of time before the house of cards starts to collapse.

I believe that the proper focus for integrating bitcoin into intermediated lending is to appreciate how valuable and unique bitcoin is, and to treat it as something to be borrowed against: to understand that bitcoin is super collateral. But what makes it so unique?

We can identify twelve characteristics that make it so:Bitcoin Is Liquid

Bitcoin is an extremely liquid asset. It is traded 24/7, with no weekend breaks and no banking holidays. Massive liquidity pools across a variety of fiat currencies are available globally. For lenders, this means that if you want to convert your collateral into fiat, you can do it instantly — either because the borrower has been liquidated or because the loan was repaid from the collateral.

This also allows for the hedging of risks. Bitcoin may be the only kind of loan collateral which can be instantly and dynamically hedged: a serious competitive advantage.Bitcoin Is Programmable

Bitcoin enables the creation of programmable lending products and ownership mechanisms. Among other benefits, this feature allows us to solve the problem of trusted third parties by building non-custodial lending mechanisms and storage systems. For example, we can distribute collateral claims or create conditional logic for redemption that will be automatically executed by the Bitcoin network, not the whims of a centralized financial institution.Bitcoin Is Scarce

There will only be 21 million bitcoin.Your collateral is getting more valuable over time, which means there is less incentive for you to sell, and likely more lenders who are willing to accept it. Bitcoin Is Flexibly Transparent

Bitcoin allows us to enable selective transparency of your assets when useful, but also allows complete anonymity when desired. In a lending scenario, for example, you can easily prove to a lender that you own and control the collateral under consideration.Bitcoin Is Sovereign

Bitcoin is yours. You have keys to your bitcoin just like you have keys to your house and your car. Bitcoin is your personal property. If you use a house or a car as collateral, you won't own it — your lender would. With bitcoin, you can still conditionally own it during your lending agreement. In fact, with the right tools, you can not only use but continue to use this collateral during the period of the lending agreement.Bitcoin Is Secure

Bitcoin is protected cryptographically, economically and socially. It is sensible to think of Bitcoin's lowest-level network security expanding to the set of tools built on top of it. For example, you can distribute ownership of your collateral between multiple independent parties, use offline wallets and utilize many more security methods.Bitcoin Is Market Driven

Bitcoin is the essence of a market-driven asset. The price of bitcoin reflects the market almost instantly, and it's not determined by one or several individuals. It is extremely difficult to manipulate the price of bitcoin. Bitcoin costs almost the same in fiat in any part of the world and is determined by a global market. Bitcoin Is A Real-Time Asset

Not only can we track the price of bitcoin collateral in real time, but Bitcoin's blockchain allows you to track your collateral address in real time also. Any price fluctuation can be reacted to appropriately. As mentioned, there are no weekends or holidays, and the market is always open to everyone, so nobody will close the market on a Friday and open on a Monday with different prices.Bitcoin Is Objective

Bitcoin is honest. Bitcoin in Miami costs the same amount of fiat as it does in Lugano or Riga. Bitcoin doesn't care whether you like it or not. The price of bitcoin cannot be determined by your personal views or your forecasting capabilities. To borrow against bitcoin, you only need to have bitcoin. Your credit history, social score or anything else is irrelevant to the lender as long as you have the collateral to borrow against.

Take real estate, for example. The same amount of money can buy you different properties in different countries with the same levels of economic and social development. What makes the difference then? Why can you buy a mansion on the coast of the Mediterranean in Spain or Italy and, for the same amount of money, you won’t be able to afford a proper house in the Bay Area in the U.S.?

It’s due to humans' irrational valuation capabilities. Because real estate valuation is primarily based on human factors, banks evaluate your property as either too expensive or too cheap, depending on market conditions and their plans.

Or take stocks, for example. Your stocks in a certain company can have good underlying conditions and great potential growth opportunities, but suddenly the CEO of this company can tweet some stupid thing, and you are losing money or getting liquidated. Meanwhile, Bitcoin is fair.Bitcoin Is Global

Bitcoin is globally accessible and globally distributed. For lending, this means that you can borrow remotely from anyone in the world, and you can lend money using bitcoin as collateral to anyone in the world. Bitcoin is neither limited to, nor exclusively exposed to, specific local markets.Bitcoin Is Digital

In a digital age, with digital commerce, we need digital collateral. Bitcoin is already online. It's here, on your machine, your phone, your cold wallet. Bitcoin allows you to borrow remotely and instantly. There is no need to digitize bitcoin as you need to do with real estate, land, cars or any other assets. It's already digital. Bitcoin Is Decentralized

There is no single point of failure in Bitcoin. Bitcoin has been attacked multiple times, and yet it is growing and expanding globally. No committee or person is responsible for Bitcoin. Having decentralized collateral significantly decreases your dependence on single events and failures of companies or people. You are protected by a distributed network. Will Lending Ever Match Bitcoin’s Potential?

Powerful collateral requires powerful tools. Is it possible to build lending tools that will match bitcoins' value? In order to do so, we all need to take a step back and check Bitcoin's white paper.

After reading Bitcoin’s white paper, you will understand that in order to build a successful lending product (in fact, any type of Bitcoin product!), you need to meet three main criteria. If your product has all three, congrats you have passed the test. Let's call it “The Satoshi Test.”Your service should be non-custodial. Remember: not your keys, not your coins. When using custodial lending platforms, you are exposed to the risk of losing your collateral completely. Because, as soon as bitcoin hit platform wallets, they are no longer yours. This is exactly what happened to customers of the many lending and trading platforms that have failed in 2022.Bitcoin is a peer-to-peer, electronic cash system. Once again: peer to peer. Instead of acting like a middleman, you need to provide technical tools for individuals or businesses to operate with each other. Or you can be a business that will allow customers to directly interact with your platform. A good example is a platform that allows customers to buy bitcoin directly into their own cold storage. Your platform should be Bitcoin only, meaning that the only collateral you should work with should be bitcoin. Shitcoins are risky, and shitcoins' code is a ticking time bomb. By integrating many blockchains into your product, you are exposing the most valuable to the most vulnerable.

There is an extra criteria that could be met: anonymity. If you are building non-custodial, Bitcoin-only, peer-to-peer products, this can and will allow you to offer anonymity and better privacy for your customers because security is not full without anonymity and the data of your customers should be protected, as well as their funds.

A good way to pass The Satoshi Test is to utilize multisig. Multisig is a simple and secure yet powerful tool. It allows you to offer peer-to-peer interactions to users, leverage non-custodial escrows and use only Bitcoin. It also allows you to offer better privacy for your users.

Take, for example, a multisig setup with three keys where the consensus mechanism is reached by entering at least two keys. This is called “two-out-of-three Bitcoin multisig.” In that type of setup, you — as a technical tool provider — can become one of the key holders, but you won’t have full control over customer funds (because you only have one key!), thus ensuring that these funds won’t be moved and rehypothecated. For example, the lender will have one key, the borrower will have another one, and the provider will have the third key. This kind of setup will allow users to verify that funds are only used by them, and that all parties must act according to rules in order to reach consensus, and that no single party can act in a dubious and shady way.

In fact, there are already powerful platforms that use Bitcoin multisig and offer peer-to-peer interactions. These platforms can provide lenders and borrowers from all over the world with easy two-out-of-three multisig setups, where each side (including the platform itself) has one key. The multisig is created on Bitcoin’s public blockchain, meaning that you can check your collateral at any time through any block explorer. And the best part is that no funds can be rehypothecated because the platform itself only has one key that ensures that every involved counterparty is acting in a good and professional way. Proper Lending Platforms Might Be Useful For HODLers

Although the lending market at the moment is experiencing turbulence and contagion effects, it is a good time to educate yourself about proper lending platforms that might be useful for any true HODLer in the future. As soon as we enter the next bull cycle, there will be less incentive to sell bitcoin and more interest in holding it for the long term and borrowing against it. Be prepared, because bear markets don’t last forever. HODL and learn!

This is a guest post by Max Keidun. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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Russia is about to sign a pact with Iran – should the West be worried?

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Russia is about to sign a pact with Iran - should the West be worried?

In Moscow on Friday, a couple of days before Donald Trump’s inauguration as US president, two of the West’s main adversaries – Russia and Iran – will sign a strategic partnership pact.

It will deepen a relationship that has blossomed since Moscow’s full-scale invasion of Ukraine.

Should the West be worried? Not according to Russia.

“This agreement, like our treaty with North Korea, is not directed against anyone,” foreign minister Sergei Lavrov said earlier this week, referring to a similar pact Moscow signed with Pyongyang last year.

That treaty, however, included a mutual defence clause, with both countries pledging to come to the other’s aid if needed.

It instantly rang alarm bells in Washington, Kyiv, Seoul and beyond.

And now, little more than six months later, Ukraine says it has captured two North Korean soldiers on the battlefield – proof it claims that Russia has deployed thousands of Pyongyang’s troops to the frontline.

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It suggests the West’s fears were well-founded.

I expect the partnership with Iran will cause similar concern.

“Russia’s foreign policy major organising principle is now the prosecution of its war in Ukraine,” Alexander Gabuev, director of the Carnegie Russia Eurasia Centre, told Sky News.

“Every country is assessed through the lens of what this country can bring to the battlefield effort. How can this country help Russia withstand economic pressure? And how can this relationship be instrumentalised by hard men in the Kremlin to punish the West?

“Iran neatly fits into the category.”

FILE - Russian President Vladimir Putin, left, and North Korea's leader Kim Jong Un smile together in Pyongyang, North Korea, on June 19, 2024. (Gavriil Grigorov, Sputnik, Kremlin Photo via AP, File)
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Vladimir Putin with North Korea’s leader Kim Jong Un in Pyongyang last year. Pic: AP

The US and UK have already accused Tehran of providing Moscow with ballistic missiles and drones for use against Ukraine.

Both Russia and Iran deny the claim.

But defence is an area where the two countries will cooperate more closely as a result of this new partnership, which Mr Gabuev describes as the “symbolic icing on the cake”.

“The real cooperation is the underwater part of the iceberg, where Russia purchases drones, and designs for drones and missiles and various types of weapons that it needs for the battlefield in Ukraine,” he said.

“In return, Iran gets Russian technical expertise.”

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From Sept 2024: Blinken says ‘Russia has received Iranian missiles’

According to the Kremlin, the timing for the treaty signing is purely coincidental, and has nothing to do with Mr Trump’s inauguration.

“Let the conspiracy theorists entertain themselves,” said Dmitry Peskov, spokesman for Russian President Vladimir Putin.

Coincidence or not, the optics are convenient for Russia.

Read more:
Iran ‘sends hundreds of missiles to Russia’
How Russia’s links with Iran are growing stronger

Arms contract shows Iran has sold Russia ammunition for Ukraine war

The pact serves as a pointed reminder to the West that the world is changing, and that, in Moscow’s view, the US-led rules-based global order is crumbling.

Mr Putin often speaks of his desire to create a multipolar world, free from Western imperialism and the hegemony of America.

He wants to show that his attempts are working, despite the West’s efforts to isolate Russia.

First North Korea, now Iran – solidarity through sanctions.

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Russia sanctions: Fears over UK enforcement by HMRC

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Russia sanctions: Fears over UK enforcement by HMRC

Fears have been raised over the robustness of Britain’s trade sanctions against Russia after the main government department enforcing the rules admitted it has no idea how many cases it is investigating.

HM Revenue and Customs (HMRC), which monitors and polices flows of goods in and out of the country, says it had no central record of how many investigations it’s carrying out into Russian sanctions. It also said that while it had issued six fines in relation to sanction-breaking since 2022, it would not name the firms sanctioned or provide any further detail on what they did wrong.

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The disclosures were part of a response to a Freedom of Information (FOI) request from Sky News, as part of its wider investigation into the sanctions regime against Russia.

In recent months we’ve reported on data showing flows of goods, including dual-use items which can be turned into weapons, from the UK into Caucasus and Central Asian states. We’ve shown how luxury British cars are being transported across the border from the Caucasus into Russia. And we’ve shown the contrast between rhetoric and reality on the various rules clamping down on trade in Russian fossil fuels.

But despite the challenges facing the sanctions regime, information on the enforcement of those sanctions is quite scant. The Office of Financial Sanctions Implementation (OFSI) has so far only imposed a single £15,000 fine for breach of financial sanctions – in other words those moving money in or out of Russia or helping sanctioned individuals do so.

HMRC has so far issued six fines in relation to Russian sanctions, but it refused to name any companies or individuals affected by the fines – or to provide any further details on what they were doing to break the rules. And, unlike other organisations, such as OFSI, it has never said how many cases it is working on – giving little sense of the scale of the pipeline of forthcoming action.

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 Fines
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Fines

Asked by Sky News to provide such details under FOI legislation, HMRC said: “The number of current investigations which may involve these sanctions, regardless of the eventual outcome, is not centrally recorded.

“To determine how many investigations are within scope of your request would require a manual search of a significant number of records, held by different business areas. Not all investigations reach the level of formal cases being opened, but these investigations are still recorded as compliance activity which would need to be manually reviewed to provide an answer.”

Read more:
How UK firms help to keep Russian gas flowing into Europe
How UK-made cars are getting into Russia despite sanctions

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October: Are Russia sanctions working?

Mark Handley, a partner at law firm Duane Morris, has spent years monitoring the information released on sanctions cases. He said: “If you’re trying to organise an organisation like HMRC in terms of resourcing and all the rest of it, you would think that they might know how many investigations they have ongoing and how to staff all of those. So I’m surprised that they didn’t have that number to hand.”

HMRC also said it would protect the privacy of companies fined for breaking sanctions rules. The FOI response continued: “HMRC do not consider that disclosing the company name would drive compliance, promote voluntary disclosure or be proportionate.”

This is in stark contrast to other countries, notably the US, where companies are routinely named and shamed in an effort to drive compliance.

Enforcement
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Enforcement

Leigh Hansson, partner at legal firm Reed Smith and a sanctions expert, said: “The US loves to name and shame, and I think from a US compliance perspective, it’s actually done quite a lot in further enforcing compliance both within the United States and globally.

“Because once you see a company [has] been fined or they’re placed on the specially-designated nationals list, all the other companies in their industry call around going: ‘hey, am I next?’

“And they want to know what it is that the company did – how did they violate sanctions?”

“One of the things the United States does in these penalty announcements is they provide background on the things the company did wrong, but these are also the things the company did right… And the information that they publish is quite helpful.”

The absence of such disclosure in the UK means both businesses and the public more widely have less clarity on the rules – which in turn may help explain why the regime has been more leaky than expected, with goods still flowing towards Russian satellite states, despite the fact that sanctions prohibit even indirect flows of goods to Russia.

Mr Handley said one consequence of the secrecy from HMRC is that “you’re operating in a vacuum, at the moment. Because the government’s not giving you the information that tells you what kind of conduct gets you to a civil settlement as opposed to a criminal prosecution”.

“So, again, even if you’re keeping the name anonymous, you can help businesses and individuals behave better and properly by giving more information,” he added.

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Madeleine McCann suspect won’t face charges for foreseeable future, prosecutor tells Sky News

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Madeleine McCann suspect won't face charges for foreseeable future, prosecutor tells Sky News

The man suspected of abducting Madeleine McCann won’t face any charges in the foreseeable future, a prosecutor has told Sky News.

German drifter Christian B, who cannot be fully identified under his country’s privacy law, is expected to be freed from an unrelated jail sentence this year while police in three countries continue to search for evidence against him.

Prosecutor Hans Christian Wolters said: “There is currently no prospect of an indictment in the Maddie case.

“As things stand, the accused Christian B’s imprisonment will end in early September.”

Madeleine, aged three, was asleep with her younger twin siblings in the family’s Portuguese rented holiday apartment before mother Kate discovered her missing at around 10pm on 3 May, 2007.

Her parents were dining nearby on the complex with friends and taking turns to check on all their sleeping children every half an hour.

Madeleine’s disappearance has become the world’s most mysterious missing child case.

Undated handout file photo of Madeleine McCann who disappeared from a holiday flat in Portugal seventeen years ago. Her parents, Kate and Gerry McCann, released a statement on the 17th anniversary of her disappearance, saying "the absence still aches". Earlier this week, it was confirmed that up to a further £192,000 has been granted by the Home Office for the Scotland Yard investigation into Madeleine's disappearance. Issue date: Friday May 3, 2024.
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Madeleine McCann, who disappeared from a holiday flat in Portugal. Pic: PA

Philipp Marquort, one of Christian B’s defence lawyers, welcomed the prosecutor’s pessimism about bringing charges.

He said: “This confirms the suspicions that we have repeatedly expressed, namely that there is no reliable evidence against our client.

“We regret that we have not yet been granted access to the investigation files. We have not yet been able to effectively counter the public prejudice arising from statements made by the prosecutor’s office.”

Christian B, 47, is in jail and coming to the end of his sentence for the rape of an elderly American woman in Praia da Luz, the Portuguese resort where Madeleine disappeared.

In October, he was acquitted on a series of rape and indecent assault charges after a non-jury trial in Germany, in which several references were made to his status as the main suspect in the Madeleine case.

Read more from Sky News:
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File photo dated 30/04/17 of Kate and Gerry McCann, whose daughter Madeleine disappeared from a holiday flat in Portugal seventeen years ago. They have released a statement on the 17th anniversary of her disappearance, saying "the absence still aches". Earlier this week, it was confirmed that up to a further ..192,000 has been granted by the Home Office for the Scotland Yard investigation into Madeleine's disappearance. Issue date: Friday May 3, 2024. PA Photo. See PA story POLICE Portugal. Photo credit should read: Joe Giddens/PA Wire....
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Kate and Gerry McCann. Pic: PA

The prosecutor said he was awaiting the court’s written judgment before launching an appeal against the acquittal. He believes the trial judges were biased against the prosecution.

If successful, he could apply for a new arrest warrant for Christian B to keep him in custody until a retrial with new judges.

He said: “We hope that the Federal Court of Justice will decide before the end of the accused’s imprisonment. If the Federal Court follows our legal opinion, we could apply for a new arrest warrant for the accused’s offences, so that the accused would then remain in custody beyond September 2025.

Mr Marquort said the defence team would oppose the prosecution’s appeal against the acquittal.

Prosecutor Mr Wolters has said in the past that he believes Madeleine is dead and that Christian B was responsible for her death. The suspect denies any involvement.

The case against Christian B is purely circumstantial; he’s alleged to have confessed to a friend that he abducted Madeleine, he has convictions for sex crimes against children, he was living in the area at the time, his mobile phone was close by when the young girl vanished and he re-registered one of his vehicles the next day.

The prosecutor won’t say what evidence he has to convince him Madeleine is dead, but he admitted he is still trying to find forensic evidence to link Christian B to the girl.

Christian B is acquitted of sex attacks not related to the Madeleine McCann case
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Christian B coming to the end of his sentence for the rape of an elderly woman

Jim Gamble, former head of the UK Child Exploitation and Online Protection centre, said he had expected the prosecutor to charge Christian B soon.

“He’s implied the whole way through that he has something more than the public are aware of,” he said.

“He’s made fairly definitive statements about whether Madeleine is alive or dead so you would expect their strategy to have been to charge him sooner rather than later.

“From what he’s said today I wonder if we’re witnessing the re-positioning of something to manage the disappointment that’ll come.”

Mr Wolters, who is based in Braunschweig, Lower Saxony, is investigating the case with the help of Portuguese police and detectives from Scotland Yard.

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