Oddbean

You are collating two things 1. Everyone can own their own UTXO 2. Use it for everyday transactions 1 is important, 2 is not. Most people should use e-cash for everyday use. A UTXO would be used in a similar fashion to moving money into a high interest term deposit - where you hold the majority of your money but only make a transaction once a month to once every few years, depending how wealthy you are. A lightning channel to the eCash would allow the balance that's held by the custodian to be minimal. If a transaction fee exceeds the $10 -100 range even this breaks down.

Here's my math involving 8 billion people: If we assume 7000 tx's per block, then the 144 daily blocks gives 1 million transactions. Most blocks will have less than 7k tx's, but let's go with this high tx figure for now just to explore the math. If we divide 8 billion people by 365 million tx's per year, we arrive at almost 22 years per tx in terms of bandwidth, which impacts the tx fees. Granted, a certain percentage of the world's population are children who will not need to spend from a savings UTXO on L1. Then there may be a certain percentage that don't use Bitcoin at all. Finally there are hodlers that have a 5, 10 or 15 years horizon for their savings. If I am optimistic, 1 L1 tx every 10 years should be affordable for most people, so that leaves L1 as primarily a savings layer, while L2-L3 offers cash functions via decentralized banks/nodes.

22 years between average transactions is a bit long. However, we are decades away from having that many people using it. By then a 10x block size increase may be trivial, which would bedrop it to 2.2 years, which is a decent savings frequency.

Well, it's more an indication of bandwidth, which in turn impact fees. It is ability to pay the fees that impacts how often people can use L1. A block size increase would be negative since it would reduce the decentralization aspect, demonstrated in the Block Wars. Without a strong decentralization, the store of value will change to reflect the worsened security; downward. Besides, an increase in bandwidth will still cause the mempool to be filled up with anything the market is willing to spend XYZ on in regards to tx costs. The ability and willingness to pay for expensive transactions is the primary driver of fees.

We will see by that time. I think the L1 bandwidth is fine for the purpose of SoV. At the end of the day, tx fees will be what market participants are willing and able to pay. I see self custody as a spectrum, starting with people withdrawing their sats from exchanges and other centralized and government-controlled platforms. Game theory will provide efficient and secure options for everyday transactions on L2-L3. Bad actors will lose users and fees. Good actors will benefit with more users and better fees. Not everyone will want or need to use L1 and high base layer fees will drive innovation toward Lightning and sidechains to solve scaling. I define scaling as providing Bitcoin for 8 billion people. In my view that scaling will happen primarily above L1. L1 fees will find their equilibrium in supply and demand considerations of the market participants.

Bad actors only get caught out if it it feasible to self custody. If the fees are so high that it's not possible then any custodian can make a killing by running a fractional reserve and bankrupt good actors. Bitcoin gets captured by the banks, just as if the block size was too large for non specialised people to run a node. If this happens I think Bitcoin will fail to dominate and we have an ecosystem of shitcoins

I see it in a similar way except that larger transactions will be prioritized meaning that small transactions might wait even longer than 22 years. I view bitcoin as a replacement for FedWire. Exchanges, ecash federations, countries and whales will use L1. Everyone else will use L2s etc.

What prevents people from having their own UTXO now? There are more bitcoin addresses than stars in the universe. It seems to me that the limitation is not UTXO addresses but rather transaction fees to receive some sats.

Yeah, but a $10 transaction fee will stop daily transactions but it would be ok for transaction greater than $1000, which most people can afford. If fees exceed $1000 transaction would need to be greater than $100000 which would exclude most people.

It's the number of transactions that can generate a UTXO with Bitcoin in it. There are a limited number of transactions per block. This can't increase, more demand raises the price and makes it unaffordable for some people.