Oddbean

Thinking a lot about our Not Your Keys, Not Your Bitcoin and the reality that for global adoption, most people won’t be able to afford to own UTXOs and transact on the base chain. That a high fee environment causes many issues for Lightning. Need to know more about scaling ideas but the big question is, how can anyone who wants to use #bitcoin be fully self-sovereign and not be priced out. Can you be fully self-sovereign without controlling a UTXO? Is this possible? Is anyone working on this?

I believe that holding your own keys is not that expensive. Forgetting an offline hardware signing device, you could just use an app on your phone, if you don’t have a phone roll some dice to generate your seed words that you store on paper. BUT, if you’re talking about affording the fees to transact on layer-1, then there may be people that can’t afford the fees (especially with Ordinal inscription speculation filling up the mempool). These people may be more in favor of asking their “bank” to hold their bitcoin, which provides them a layer 2 channel for cheaper transactions. The upside is that Banks won’t be able to fractional reserve re-hypothecate as they do now.

Here’s the answer: Nothing is free. There is a high cost to enable hundreds of thousands to run Bitcoin nodes and secure the network. So high in fact, that it does prevent there from being final settlement of all global transactions, or even one transaction per person per year, on the main Bitcoin network. But this is a reality which should not be tampered with. There are many great solutions which have different sets of trade offs to solve this problem. Liquid, Fedimint, Sidechains, Lightning, Ark, Channel Factories, Zero-Conf channels, Uncle Jim setups, etc. But frankly, before we can even start addressing this issue as a serious problem, you’d need to get 250M people who are demanding an annual sovereign Bitcoin transaction. That’s not the current reality. In the future, most people will interact with Bitcoin through Bitcoin banks, and semi-trusted organizations like Liquid, Sidechains, and Fedimints. There’s trade offs to this, but even with its drawbacks it’s still magnitudes better than the current world. Consider this - in fiat, you can take custody of a small amount of money (cash) but any meaningful amount of money essentially has to be held by a third party custodian like a bank or be someone else’s liability like government debt. With Bitcoin, it’s possible to take fully sovereign self custody of a large amount of money, but smaller amounts work best with some trust reinserted into the system. People with small amounts of Bitcoin have the economic guarantees of Bitcoin secured by people who have large amounts of Bitcoin. Ultimately, if you’re someone who is talking about this problem right now, you’re early enough that you’ll always have enough Bitcoin to transact on the base layer (fees are denominated in BTC not USD). For those who adopt last, they will likely be doing so without even knowing it. Their pension will be buying Bitcoin on their behalf, or their bank or credit card company will have moved to a Bitcoin standard without them explicitly asking for it. The worst thing we could do is try to change Bitcoin to accommodate tens of billions of transactions a year for people who don’t even demand them yet, and in the process destroy the distribution of the ledger and the robustness of Bitcoin itself.

Very well thought out response. Like the contrast of custody in fiat vs Bitcoin. I'd rather be able to custody most of my money myself and increase trust for the convenience of transacting in smaller amounts than the other way around. @DarthCoin really has the concept of layers in a bitcoin world down well.

To be really fair, I’d love to keep pushing the threshold down. Right now, anything less than 250k sats (the future median net worth) is impractical to interact with solely on-chain. Some of the stuff being worked on where you could run a full node using Merkel trees or some other form of cryptographic proofs has a lot of potential. I’m not encouraging that we become complacent and stop working on better sovereignty capabilities, I’m just arguing why it’s 1. Not a huge fundamental issue at the moment 2. Not something we should solve through short sighted changes like blocksize

Are there any projections on what fees on the base layer will become? Could it cost 100k sats or 1M sats to pay the transaction fee for a single input and single output transaction? Do people think it could go much higher?

It could (probably not 1M though) but only temporarily. You’ve got to remember that Bitcoin is scarce and finite, so there is definitely an upper limit to the fees that people would be willing to pay. I actually think that fees could go down in Bitcoin terms, but go up in USD terms. Median fee in 2050 might be 20 sats/vb but that might equal $250 dollars for instance.

Thanks - i expect it’s super hard to speculate, but do think there’s any way of estimating how many transactions people will want to perform? I was tempted to make a simulation of agents and use data like number of houses bought in the world, number of business sales, etc to get an idea of how many possible transactions there could be… But it gets super messy. I suppose it won’t be just bitcoin and other systems like you mentioned will take a lot of the load. Any chance you know someone who’s explored this in depth?

There are trillions of transactions which take place annually. Bitcoin can do about 200 million layer one transactions in its current form. FedWire is a interbank settlement network run by the federal reserve, which did 200 million transactions last year. That is the best comparison to Bitcoin in terms of volume and final settlement assurances (although it’s nowhere near as final, nothing in fiat is irreversible). You can use Bitcoin however you wish, so I’m sure there will be people like you and me who buy houses or cars on L1. In 50 years though, L1 will likely be dominated by financial service providers and banks settling between each other, or fedimints and other Lightning providers opening and closing channels. You definitely won’t be buying cars on L1, and you probably won’t even buy a house on it either.

When you’re wealthy enough, borders don’t matter to you. You have private jets, no customs, no TSA. Same concept here and same concept as ever. Wealth is power, and not everyone can be wealthy. People are working on this and if there is enough willpower to solve this problem, it will be solved. But as it currently stands, bitcoin reflects reality as it has always existed. If you have money, you get fucked less than those who don’t.

I dont see any way there can be self custody for small players in the future. There will probably be a fully reserved bitcoin bank that takes 1-2% on transactions. Send btc to other bank members for free. Similar to strike, binance pay or lightning Has to be super secure though or a Lotta people will get screwed Can't get away from conglomerates

An app that lets you privately hold money spread across multiple Chaumian mints in easy shared UX. Each mint could itself be federated. And then above a certain threshold of value, pull into self custody. That’s pretty sovereign. No single entity can rug your whole stack, your stack is privately spread across multiple custodians in multiple jurisdictions, and the payment UX is great. And certain mints can add extra sub-apps like interactive maps to find local merchants that accept bitcoin, or interact with Chat GPT by paying sats, or Nostr-related stuff, or data storage, etc.

I guess custodians are high risk when you don't have an easy way out: can't pull/send/withdraw more than $1k cash daily, or other similar restrictions. With the chaumian mints being described, one can swap his whole stack to a different mint in seconds. Thus bank runs are constant, not once in a generation. Thus, banks (mints) must behave accordingly. An important point is that self-custody is important for savings amounts, not so much for pocket money. On the other hand, a Californian's pocket money is savings (life-changing) for an African. When someone works for pennies and they manage after months (years?) of hard work to save 100$, it would suck to move it to self-sovereign on-chain wallet and pay 10% in fees due to mempool congestion. I guess there isn't a perfect solution (or I can't find it). But we're improving daily...

The reality is 71 sats is if you gave everyone in the world an equal amount of bitcoin. The truth is bitcoin will be for the rich. Some places with extreme poverty will adopt early and see benefits. But it actually is even more exclusive than the central bank. CBDCS are literally the only way that computer illiterate people can benefit from a totally digital currency. As evil as totalitarian government and surveillance states are. People who don’t use computers really are just that far behind the curve. Anyone can get an app with a debit card. But someone has to use their mind to take advantage of hiding their money in elliptic curve cryptography. It’s not for everyone.

No one will ever be priced out. That's you rich ppl thinking. Even the person that starts stacking at the top in 2025 will just hqve to keep stacking till 2028.. the person that starts buying in 2030 will have to wait the cycle. No will ever be priced out

We need to figure out how to compress many transactions in a chain of transactions involving many keys into one small transaction involving only two keys. I think BitVM may help solve this problem. Once it's solved (and with the help of sidechains and other methods) scaling grows exponentially beyond our needs as species. So yeah, many smart people working on it already, as we speak. Future is bright.

I believe half of our problems will be solved once bitcoin becomes the fundamental building block of our financial system. L1 doesn't have to be and will never be used by everyone, certainly not for small amounts. Majority of population can use trusted lightning custodians, and that's perfectly fine, as long as there's healthy competition between those custodians. I see L1 as a savings account for large sums or monthly/quarterly/yearly settlement layer where output UTXO(s) value is 99x higher than the fee paid for that transaction. The phrase "Don't trust, verify" doesn't scale. In reality it should be "don't trust, verify where applicable". The world isn't black and white. The element of trust is inevitable part of life. We just need to find the balance. I don't see bitcoin adoption to scale to every single person in the world without the trust.

Based on current block space it’s obviously not possible, it’s sad but that’s the hard truth and that’s also why we have layered money. Liquid btc, Rbtc, wbtc, lightning, RGB, Fedi will pickup the tap and still better than CBDCs since it has the bitcoin anchor.

Stacks is a solution to this dilemma. The Nakamoto upgrade with the development of sBTC (1:1 peg in/ peg out) will help move Bitcoin more affordably. Introducing sBTC and the ‘Nakamoto’ Release of Stacks https://stacks.org/sbtc-nakamoto Built for Bitcoin Builders | Activate the Bitcoin Economy https://sbtc.tech/ Read Bitcoin & Write to Bitcoin – Introducing sBTC With Stacks - YouTube https://m.youtube.com/watch?v=XHnLX-Kophg Enabling sBTC as a gas asset on Stacks - Core Blockchain - Stacks Forum https://forum.stacks.org/t/enabling-sbtc-as-a-gas-asset-on-stacks/15823 Just a few resources you can check it if you want to do some homework.

Here’s when the “be your own bank” narrative sounds great but it’s becoming increasingly deceitful. Accepting that Bitcoin base layer will be for big players only it’s a more honest narrative which will help get more people thinking and bettering scaling solutions.