The 2024 debate has been about the scalability of bitcoin self-custody versus ossification, with the premise being that an ossified bitcoin protocol like the current one is imperfect, but its strong monetary properties alone are enough to change the world for the better, so changes would introduce unacceptable risk. This article will discuss why, in fact, NO scaling bitcoin also puts those same monetary properties at direct risk.
Trying to give a neutral view, the arguments for change are about increasing transaction throughput in a way that does not burden nodes (as opposed to an increase in block size). There are several proposals for tactical extensions to Script, the set of tools that all wallets employ to lock up bitcoins so that only the owner can spend them. These extensions are new building blocks that can be used, among other things, to share UTXOs without having to trust a third party. If a UTXO can have many owners, each entitled to a portion of its value but in a way that they cannot steal from the others, and who can redeem it at any time without permission, then bitcoin sovereignty can support orders of magnitude more users on-chain, as well as on Lightning and other as-yet-unrealized upper layers.
Meanwhile, the Ossification stance is that the protocol as it exists today works and changing anything opens the door to potentially catastrophic unintended consequences. Sound, permissionless digital money is already revolutionary, and rather than accept any risk, scaling needs are better achieved through human institutions like bitcoin banks. Most people are intimidated by personal responsibility, and worse, there is technical overhead for self-custody, so they prefer a trusted third party anyway, even today. The belief is that market forces will organically keep these institutions in check, resembling the era of free banking on the gold standard. Hal Finney envisioned this world in the early days of bitcoin.
To be frank, this is a short-sighted, almost naive attitude. Although bitcoin has some gold-like qualities, it is not gold. Not to mention that free banking failed: for many years it was captured, subdued, chained behind the back, and finally shot dead. Whatever valuable assets the banking system is guarding, the incentives, actors, and forces are the same, so the same outcome should be assumed. At the extreme, the ability to settle in 10 minutes has no relationship to the strong incentive of the State to make non-recourse profits by exercising control over the banks. Worse, that time period began with gold as the holder: today, sound money is the exception, and several generations have grown up using government paper tokens as money, unaware of their inflationary nature, but worse, unaware even 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 have verified that it is actually made of gold atoms, then you are good to go. bitcoin is not that simple: you own a coin, and you have no choice but to buy a coin. secret that grants the ability to spend a UTXO, Yeah There is one in your direction, and You can get the mined spending transaction, at Your favorite chain. That last point is critical: your ability to select which chain you transact on. its the only thing that protects the monetary properties of bitcoin for youSo the only thing that gives your bitcoin a market value is other people appreciating those same properties, and we expect their numbers to increase over time, meaning the price tends to go up.
Gold was captured by paper gold, and paper bitcoin is similarly threatened by paper bitcoin. Devaluation, as with gold, is one risk. Lack of sovereignty, the basic “withdrawal request denied” scenario, is another. But far more pernicious is chain selection, by which I mean the integrity of consensus rules, such as the 21 million supply, not bitcoin vs. altcoin chains. Even if you have your own keys, if someone else decides which chain you are checking balances on and broadcasting transactions, you still have no idea what monetary properties you have subscribed to. So if most users, for practical reasons, exclusively use L2 and above, never touching the chain themselves, even in the honest belief that they are using trustless solutions and not just using a custodian, then almost no one is aware of what rules they are actually subscribed to.
For bitcoin to succeed, we need to expand sovereign use. Not just as an egalitarian dream, not to aid trade, but in mutual defenseEach user subordinated to a custodian does not have a significant impact on the preservation of monetary properties. But each user, at least supervision The chain, completely independently, out of its own interest and making economic decisions based on its findings, serves as another guardian of monetary properties, which benefits everyone. If this takes hold, trying to subvert the system is unsustainable. A Japanese admiral is credited with the famous quote, “You can’t invade the continental United States. There would be a rifle behind every blade of grass,” and while it’s likely apocryphal, the sentiment is undeniable and makes particular sense in bitcoin.
To make this less abstract, an analogy with gold: you knew that paper gold has a serious risk of devaluation, so you decided to transact only in physical, hallmarked gold. You used a few coins for the transaction and buried the bullions in the garden. You even checked the purity of a handful of each, having them chemically analyzed by a professional. Buried for safekeeping, it could be years before they are audited again. What you never realized is that during the analysis, the professional removed 1%, replaced the missing weight with tungsten, and kept the shavings for himself. Worse yet, the hallmark pulls the same scam before him, reserving a few “good” units for clients he knows will audit further. This may not even be his own choice, but forced upon him by the state.
Now, if almost no gold holders do their own verification personally (because it’s complex and expensive), then the incentive is for ALL authenticators to do so, since each benefits individually, and the shared business benefits them all collectively. Even if one breaks ranks and gives honest reports, their business will expand based on that demonstration of trustworthiness, which over time puts them in an even more favorable position to abuse it for profit. You’re dependent on the moral integrity of someone who directly benefits from scamming you, they know you probably won’t notice, and you’re powerless to do anything about it even if you did. Worth noting: this also describes world politics.
Even if you take every reasonable If you go one step further and use only hallmarked gold and reputable paper gold issuers, you are not really verifying the authenticity of the gold. Worse, the average person is dealing only in bank notes instead of gold. What is the quality of the bank's gold reserves? Do they even have any? How many people care? Without direct contact with the valuable asset and self-serving verification, the market becomes dependent on third parties with their own incentives, and individuals are left to fend for themselves. no idea What they have, the rules they actually adhere to. The market naturally separates itself from the base layer that provides value.
Imagine if you could buy a magic wallet that instantly verified every molecule of gold you put into it. You would check the validity of every transaction as it happens and be able to respond immediately if something goes wrong. You have full control of this tool, which is entirely passive, meaning it can only serve your interests. The wallet maker has no incentive to lie to you, as they cannot gain anything from it. Their personal benefit can only come from providing the best possible tool to protect their customers’ interests.
A bitcoin node is that magic wallet. Paper gold users are like those who entrust their bitcoins to a custodian and hopefully understand the risk. Paper IOUs cannot be validated by the node, so it is irrelevant whether they have one or not. The hallmarked gold transactor without a magic wallet thinks they are protecting themselves, but they are being scammed anyway: they are a bitcoin user who has their own keys, but does not have their own node. What seemed like independent entities that should be controlled by the market are actually bound together by incentives in an “us versus them” alliance, in an entirely predictable nightmare scenario of systematic abuse.
Taking the analogy to its limits, what happens when verification equipment is too expensive for the individual? In this case, we are thinking of the moment when block space becomes extremely expensive, rather than the node itself. We have already established that outsourcing verification entirely only incentivizes systematic exploitation. The only trustless solution is cooperation: multiple parties pooling resources to buy verification as a group. In bitcoin, this scales through UTXO sharing: we are still offloading some of the load, but maintaining sovereign control of our funds – in doing so, we have an active interest in maintaining the consensus rules, and thus contribute to the process of creating a new one. defending them for everyone.
If we work to technologically facilitate extremely broad access to and the interest in Sovereignty, through keys and nodes, allows us to entrench a broad and distributed collection of competing interests that makes subversion of monetary properties unsustainable. If we fail to technologically provide direct and highly distributed interests in what happens at L1, then most people will inevitably lose access to those monetary properties, as happened with gold. Scalability is not about increasing capacity to aid trade: it is actually about increasing defending.
This is a guest post by Owen Kemeys. The views expressed are solely his own and do not necessarily reflect those of btc Inc or bitcoin Magazine.
