The debate in 2024 was about expanding Bitcoin’s self-custody versus hardening, with the assumption that the hardened Bitcoin protocol as it stands today is imperfect – but its sound monetary properties alone are enough to change the world for the better, so changes would impose unacceptable risks. This article will discuss why that is indeed the case. no Bitcoin Scaling also This puts the same cash holdings at direct risk.
In an attempt to give a neutral overview, the arguments for the change revolve around increasing the transaction rate in a way that doesn’t burden the nodes (as opposed to increasing the block size). There are various proposals for tactical extensions to Script, the toolkit that all wallets use to lock up Bitcoin so that only the owner can spend it. These extensions are new building blocks that can be used, among other things, to staking UTXOs without having to trust a third party. If a single UTXO can have multiple owners, each with a claim to a portion of its value but in a way that they can’t steal it from others, and that they can retrieve it at any time without permission, then Bitcoin’s sovereignty could support orders of magnitude more users on-chain as well as on Lightning and other yet-to-be-realized higher layers.
Meanwhile, hardliners argue that the protocol as it exists today works and that changing anything at all opens the door to potentially catastrophic unintended consequences. Permissionless, sound digital money is already revolutionary, and rather than accepting any risk at all, we would be better off meeting the scalability needs of human institutions like Bitcoin banks. Most people are afraid of personal liability, and worse, there is the added technical cost of self-custody, so they prefer a trusted third party anyway—even today. The belief is that market forces will keep these institutions in check organically, similar to the era of free banking on the gold standard. Hal Finney envisioned this world in the early days of Bitcoin.
This is, frankly, shortsighted and almost naive. While Bitcoin has some similarities to gold, it is not gold. Not to mention the failure of the free banking system: over many years, it has been hijacked, subjugated, chained up in the back, and finally shot dead. Regardless of the valuable assets held by the banking system, the incentives, actors, and forces are the same, and so the outcome should be assumed to be the same. In the extreme case, the ability to settle in 10 minutes has nothing at all to do with the strong incentive of the state to make a profit without resorting to exercising control over the banks. Worse, that period of time began with gold as the dominant currency: today, sound money is the anomaly, and multiple generations have grown up using government paper tokens as currency, unaware of their inflationary nature—but worse, unaware of the problems.
Bitcoin is not gold. The monetary properties of gold are determined by the laws of physics, which no one can change. If you own a coin, and you know it’s really made of gold atoms, you’re safe. Bitcoin isn’t that simple: you own a gold coin. Secret who grants capacity To spend UTXO, if There are any in your address, And You can get the extracted spending transaction, on Your favourite Series. The last point is very important: your ability to choose the series you deal on. is the only thing which protects the monetary properties of Bitcoin for you. Therefore, the only thing that gives your Bitcoin a market value is that other people value these same properties, and we expect their numbers to increase over time, meaning that price trends are heading upward.
Gold has taken over paper gold, and Bitcoin is threatening paper Bitcoin as well. Devaluation, as with gold, is one risk. Lack of sovereignty, or the basic “withdrawal request denied” scenario, is another. But most damaging is chain choice — by which I mean the integrity of consensus rules like the 21 million supply, not Bitcoin’s chains versus altcoins. Even if you hold your own keys, if someone else decides which chain to validate balances on and broadcast transactions to, you still have no idea what monetary properties you’ve signed up for. So if the majority of users for practical reasons use L2 and above exclusively, and never touch the chain themselves, even in the honest belief that they’re using trustless solutions and not just using a trustee — then almost no one will know what rules they’ve actually signed up for.
For Bitcoin to succeed, we need to expand its sovereign use. Not just as a dream of equality, not just to help commerce, but in mutual defenseNot every user subject to the custodian has any meaningful influence on the preservation of the monetary holdings. But every user at least Watching The chain – completely autonomous, acting in its own interests, and making economic decisions based on its findings – acts as another guardian of monetary property, to the benefit of all. If this takes hold, attempts to undermine the system become untenable. A Japanese admiral is famously credited with saying: “You cannot invade the US mainland. There will be a gun behind every blade of grass.” While this may be apocryphal, the sentiment is undeniable – and it makes particular sense in Bitcoin.
To make it less abstract, let’s take a gold analogy: You know that paper gold carries a serious risk of losing its value, so you decide to only deal in stamped physical gold. You use some coins in your transactions, and bury the bars in the garden. You even have a handful of each tested for purity, having them chemically analyzed by a specialist. If you bury them to preserve them, it could be years before they are audited again. What you never realize is that during the analysis, the specialist discarded 1%, replaced the missing weight with tungsten, and kept the sharpeners for himself. Worse still, the brand owner is doing the same trick, allocating some “good” units to customers he knows will scrutinize them very carefully. This may not be of their own choosing, but may be imposed by the state.
Now I realize that if almost no gold holder does the verification themselves—because it’s complicated and expensive—the incentive is for all the verifiers to do it, because everyone benefits individually and the shared speculation benefits them all collectively. Even if one breaks ranks and reports honestly, his business will expand based on that proof of trust, which over time puts him in a position where he can be abused for profit. You are relying on the moral integrity of someone who directly benefits from your deception, who knows you probably won’t notice, and who has no power to do anything about it even if you did. Note: This also describes world politics.
Even if I took all reasonable Using stamped gold and paper gold from trusted issuers does not guarantee that the gold is genuine. Worse still, the average person only deals in paper money instead of gold. What kind of gold reserves does the bank have? Do they have any reserves? How many people care? Without direct contact and selfish verification of valuable assets, the market becomes dependent on third parties with their own incentives, and individuals become unable to afford these assets. No idea What they carry – what rules they really adhere to. The market naturally separates from the core layer that provides value.
Imagine if you could buy a magic wallet that instantly verifies every ounce of gold you put into it. You verify the validity of each transaction, as it happens, and you can respond immediately if something goes wrong. You are in complete control of this tool, and it is completely passive, meaning it can only serve your interests. The wallet manufacturer has no incentive to lie to you, because they have nothing to gain from doing so. Their personal profit can only come from providing the best possible tool to protect their customers’ interests.
The Bitcoin node is that magic wallet. Paper gold users are like those who entrust their bitcoins to a trustee, and we hope they understand the risks. Paper debt securities cannot be verified by the node, so its presence or absence is irrelevant. The gold trader without a magic wallet thinks he is protecting himself, but he is being scammed – he is a Bitcoin user with his private keys, but he does not have his own node. What seemed like independent entities that should be regulated by the market are in fact united by incentives into an “us versus them” coalition, in an all-too-predictable nightmare scenario of systemic abuse.
Consider the breaking point. What happens when verification equipment becomes too expensive for an individual? In this case, we are thinking of a future when block space becomes too expensive, not the node itself. We have already shown that outsourcing verification entirely incentivizes systematic exploitation. The only trustless solution is collaboration: where multiple parties pool resources to buy verification as a group. In Bitcoin, this is scaling via UTXO staking: we still get rid of some of the burden, but we maintain sovereign control over our money, and so have an active interest in maintaining the consensus rules, thus contributing to Defend them for everyone.
If we work to facilitate very broad access to technology And interest in Through sovereignty, through keys and contracts, we can establish a wide and distributed set of conflicting interests that make the undermining of monetary property untenable. If we fail to provide a broadly distributed direct interest in events on L1, most people will inevitably lose access to that monetary property, as happened with gold. Expansion is not about increasing the ability to aid trade: it is actually about increasing the ability to compete. defense.
This is a guest post by our guest Owen Kimes. The opinions expressed here are entirely his own and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.