Thread by @Patrick_TanKT

@binance has paused #bitcoin withdrawals, but that doesn't necessarily mean the end is nigh (it may be nigh, but that's for other reasons).

bloomberg.com/news/articles/…

To understand what's going on, allow me a 🧵...

1. What is the Bitcoin mempool?

Every time someone "spends" #BTC, it first needs to be sent to what's called the memory pool or "mempool,"

BTC isn't transferred the way money is spent in the traditional sense.

2. Unlike Ethereum (which notionally works more like our regular bank accounts), Bitcoin uses what's known as UTXO or unspent transaction output.

Think of UTXO as what's left in your wallet, as opposed to what you are transferring out.

3. All BTC transfers use UTXO and sit in a mempool where transactions wait for confirmation from miners before they become an immutable part of the blockchain.

During periods of increased demand for transactions, the mempool can get congested, leading to slower transactions.

4. Delays in transactions are not new, and Bitcoin has had a long history and struggle with coping with large demands (so has Ethereum).

While experiencing a delay in confirmation of a Bitcoin transaction can induce some anxiety, it's a normal thing to expect on any blockhain.

5. To that end, @binance submitted a large number of transaction requests to the mempool with fees that were never going to get executed (too low) and that helps nobody, which is why pausing BTC withdrawals is reasonable - wait until the network traffic lightens up and off we go.

6. Scanning @binance's BTC wallets will reveal whether the exchange still has the Bitcoin, what's not clear is how many claims there are on it.

The risk of course is that by pausing withdrawals, unnecessary panic is induced, sparking your very own run.

7. Could @binance have done a better job of communicating this? Sure. Where's @PRHillmann when you need him?

So what's sparking this rush of BTC withdrawals?

8. It's probably this:

bloomberg.com/news/articles/…

9. Possible sanctions violations is a much bigger problem for @binance. Remember, if part of the M.O. for your exchange is doing business with people you probably shouldn't be doing business with, then those whose BTC you still hold are going to want it when the Feds show up.

10. Also recall that if @binance violated sanctions against Iran and (insert other parties here), that was likely to have been done in Bitcoin.

reuters.com/business/finan…

11. We know that it's likely to be #Bitcoin because of all the issues with #Bitzlato, the exchange that was seized for sanctions violations.

We also know that #Bitzlato had a bunch of overlaps with @binance and addresses that did nothing except repeat transactions between them.

12. Now that the US is actively investigating @binance for sanctions violations, if you're a sanctions violator, what's the most logical thing to do? Yank your Bitcoin of course, as much as possible.

13. If authorities are threatening to raid the bank that has been laundering money for you, what's the logical thing to do? Get as much of the cash out before the raid happens.

And that's the bigger story, not necessarily the pause in withdrawals.