Oddbean

I still don’t understand how covenants improve the situation for low value amounts. If I have $10 in my own UTXO or $10 in a shared UTXO, it will still cost me roughly the same amount in fees to transfer it on the L1 chain. Why does having more keys per UTXO make anything cheaper if it costs you the same amount in transaction fees? It doesn’t seem to matter if the covenant encodes a future payment to you if the payment amount is small and fees are high and rising over time. You’re still going to pay a significant amount in fees. I don’t agree that block space is practically unbounded. Sure we could increase it, but it’s like making more roads to decrease traffic. It just encourages more people to buy cars and fill the roads. Building more roads gives a temporary benefit but eventually the traffic is back to the original level or even worse. If we lower the economic cost of blockspace, people will just fill it with lower value data (like spam JPEGs) and we’ll reduce decentralization.

Using your shared UTXO example, let’s say we’re using CTV, and you are guaranteed 1/10 of the coin. Somebody has to publish that transaction to get the coins out. For a miner to mine it, the fee must be paid by one or more child transactions whose fees cover both themselves and the parent withdrawal TX. Now, if you’re in a hurry, then you’re the one who has to pay. But you could also coordinate with others to share the cost. This is indeed a problem. It’s an ongoing discussion to figure out how to make unilateral exit cheaper. The point I was making about block space is not about increasing size. Keeping a small block size is important for decentralization. It keeps the cost of running a node down so more people will do it. The point about block space being unbounded is that while the block subsidy will run out around the year 2140, there’s no limit to the number of blocks after that. In the fullness of time (centuries), block space continues to grow at 1MB+ per 10 minutes in perpetuity. Bitcoin rewards patience with lower fees. If you wait, you can move coin more cheaply.

Thank you for the detailed response. I’m still unconvinced that covenants offer a complete solution to the scaling problem. You will never know whether the amount you have in a shared UTXO will be “trapped” by proportionally excessive fees, or how long you will have to wait to retrieve it at reasonable expense, or how much you will receive when you do. I believe that changes to the core protocol carry high risk and therefore should not be partial fixes or merely helpful in some circumstances. We need to ask ourselves: 1) Can the issue be solved in any other way, other than a change to the core protocol? Have we waited long enough for other solutions to emerge? 2) If we must change the core protocol, what is the most limited change we can make that actually solves the problem? This is why I would wish for developers to be patient and continue researching the problem until a complete solution is found. It’s also possible that we may all be happy with other solutions that emerge.

Agreed that caution is warranted. I’d push back though on wanting/expecting a perfect scaling solution. It doesn’t exist. Scaling comes piecemeal. For example, SegWit transactions are denser than original transactions. Taproot transactions are denser still. Lightning introduced orders of magnitude more throughput, but with different tradeoffs (always online, coin locked in channels, etc.) These scaling improvements make better use of block space and increase privacy to boot. But they’re not the end of the story. Likewise, whatever comes next won’t be the last word on scaling either.

I’m not sure these approaches help. It’s like trying to plug a dyke with your fingers. Eventually the water comes in. Any efforts can merely delay the inevitable and risk negative effects like the inscriptions spam. Fees are going to increase. Trying to delay the reckoning so that we can buy coffee on L1 for a short time longer seems pointless to me. Why not recognize the inevitable and build for that future instead?

Because human nature is that they just can't leave well enough alone. Have to monkey with it. Have to mess it up. Impossible to just sit quietly and watch. Everyone wants to be a hero. But thank you for articulating clearly the silliness of their argument. A couple more cups of coffee on L1 indeed...