I wanted to share some thoughts on a seemingly overlooked innovation that came to bitcoin over the last year, called Bitpacs.
Bitpac stands for bitcoin-Based Publicly Auditable Cooperative. Bitpacs are essentially regular bitcoin multi-signature wallets with the added introduction of public auditability. Traditionally, in a multi-signature setup, the multi-signature participants are not revealed. In a multisig Bitpac, participants are intentionally made public, allowing for transparent auditability. With this transparency, it is possible to create unique features, tools, rules, and transactions. Bitpacs' goal is to emulate the familiar DAO experience on other chains.
DAOs are marketed as Decentralized Autonomous Organizations. However, ethereum and other altcoin-based DAOs only inherit the “decentralization” of their chain, so they will not be as decentralized as the same experience built on bitcoin. DAOs are also not autonomous, as humans control and shape the decisions they make. Bitpac's definition is a more honest explanation of the technology involved and I think it will eventually be a better experience for users.
Why should bitcoiners care about DAOs? As of February 18, 2024, DAOs on ethereum have over $35 billion in treasury funds. There have been millions of DAO voters and proposal creators, and hundreds of millions of dollars in transactions have been made through DAO governance. (fountain) There is a clear demand for on-chain governance and community management, and Bitpacs allow this to come to bitcoin.
How can Bitpacs actually work?
While Bitpacs do not directly use smart contracts on the bitcoin blockchain, they achieve DAO-like functionality through a combination of multi-signature wallets and carefully designed bitcoin transactions. The structures possible with this cover most of what a DAO does:
- Multisig ensures that no one has unilateral control of Bitpac funds, requiring a quorum threshold to spend anything.
- Signature thresholds that mandate how many signatures are needed to finalize a transaction (3 out of 5 or 6 out of 10, for example) can adjust the required voting thresholds according to the requirements defined by the Bitpac consensus.
- Time limitations may be applied to voting rounds, ending the signing process for proposals that have not met a signature threshold at the end of the voting period.
- Bitpacs membership based on certain criteria can be done at the platform level, such as unique assets held, bitcoins contributed to treasury, or known wallet addresses, all of which can be verified on-chain.
- All of these dynamics that cannot be enforced through bitcoin scripts or pre-signed transactions, and must resort to social enforcement, are transparently verifiable on-chain, ensuring violations of Bitpac rules are detected.
What do Bitpacs allow in bitcoin?
Bitpacs open up interesting possibilities for bitcoin users:
- Community-Driven Funding – Raising funds for public goods, projects or charitable causes becomes more efficient and secure with Bitpacs. Taxpayers can trust that funds are used as intended, thanks to the transparent nature of multi-signature.
- Decentralized governance: Bitpacs allow communities to make collective decisions regarding the allocation and spending of funds. Voting rights are distributed among key holders, ensuring a transparent and verifiable process.
- Greater trust and collaboration: By removing the opacity often associated with traditional financial systems, Bitpacs build trust and encourage collaboration between people with shared interests, and do so completely on-chain.
Some specific examples of Bitpac use cases include:
- Open Source Development Funding: Developers can create Bitpacs to receive community funding for their projects, with transparent spending records ensuring accountability to their backers.
- Community Treasury Management – Any organization can leverage Bitpacs for transparent management of their funds, allowing members to track spending, create proposals, and participate in decision-making.
- Crowdfunding: Bitpacs can be used as a means to crowdfund bitcoins from a group of supporters for a pre-established goal, company, investment fund, or shared project.
An important lesson for the industry over the last year has been how much innovation and experimentation can still be done on native bitcoin without requiring any changes to the network. We have seen massive interest around BitVM, Ordinals, roll-ups, sidechains, layers, meta protocols, all within the current bitcoin consensus. There is clearly a Cambrian explosion of developer and user interest in bitcoin that will not slow down anytime soon. Tens of thousands of new niche bitcoin communities will appear in the coming years. This does not include traditional businesses that continue the trend toward bitcoin adoption over time. Bitpacs can independently offer community organization, treasury management and on-chain governance to all of them.
The thousands of ideas being “built on top of bitcoin” should have one thing in common: an eventual settlement at the base layer. Different governance methods will be experimented with over time, but that is why Bitpacs could be the superior model. Bitpac members have direct voting access to the treasury and transactions occur at the base layer; There is no additional sidechain, layer, or protocol that Bitpac members must rely on. Potentially, in this cycle, people will start to realize that bitcoin block space is as scarce as the bitcoin asset. As we move towards a hyperbitcoinized world, with nation states and institutions transacting, I believe that Bitpacs representing large communities or treasuries of entities will be one of the few things that warrants happening at the Base layer.
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Anyone can create Bitpacs on their own. @Tribe_btc is a centralized project I'm working on with the goal of creating a complete toolset for Bitpacs. Tribe will be publishing our Bitpac documentation soon.
By Dillon Healy
BD / Associations btc Inc. @dillonhealybtc
