Oddbean

I think it's a great breakdown. And ultimately, the answer partially comes down to 1) trust+incentives and 2) grouping. However, I would add one more important variable to your bitcoiner kinds analysis: the desire to have a UTXO, or the lack thereof. Engineers/developers often start with the scaling problem assessment by saying, "okay assuming all 8 billion people want to use bitcoin non-custodially..." which might not be a valid assumption. So to recap your list: "There are three kinds of bitcoiners. A. Those who can afford any fee. B. Those who can afford a UTXO, but not often. C. Those who can't afford a UTXO." I would expand that by saying there are six kinds. There are each of those three categories, and then also a yes/no for each of them for whether they want a UTXO in the first place. (And in reality, a bit more nuanced than that, as there are certain contexts where they might want a UTXO or not, or levels of desire to have a UTXO.) We don't yet know what percentage of people will want to have some sort of cryptographic control (and thus ultimate responsibility) over their money, either for personal reasons, or situational reasons, etc. For many people, a custodian with proof of reserves and external auditors and rule of law in a good jurisdiction, and someone to call for support if there's a problem, is what they want. And, maybe an ecash wallet run by a federation of power users they trust as their daily spender wallet if they (hopefully) value privacy. Others are power users by choice, or they're in a more uncertain/hostile environment where they need to become a power user, and thus they want to acquire some or all control over their funds. So I tend to look at the problem set in terms of optionality. Ideally there should be plenty of reasonably easy-to-use methods for people to gain more control and/or privacy over their funds. The solution set is already quite large and growing, and every fee spike incentivizes and accelerates more scaling for those solutions. And even with more expressivity, there are still inherently limits on being able to enforce scaling layers back down to the UTXO for the smallest users of those layers, which means there will always be a use for the social layer, and the various trust/incentive/grouping economies of scale that come with that. Division of labor.

(Hi, Lyn, long time fan!) I'd push back on this, a little. There are definitely cases where I won't have a UTXO, but all the cryptographic solutions I've seen to handle others' failure (malice or incompetence) devolve to me obtaining a UTXO. In times (and places) of high trust people may forgo this security, but if you can afford it, why would you? "Verify, don't trust" is our entire motto at Blockstream, and while I am not my employer, it resonates. In my mind, forgoing cryptographic protection for your Bitcoin, if enough people do it, is akin to detaching your issued currency from gold. Seemingly a minor technical detail which has no immediate effect, perhaps. Obviously nobody would be foolish enough to do that, though! 😬

Long time fan from my side too! To answer your question of why people might forgo this security if they can afford it, I think there are several reasons. The main one is responsibility and convenience. If you're ultimately responsible for maintaining keys or similar cryptographic material, then that's a significant responsibility and not everyone wants it. Some people just want a bank to hold it, to insure it, to have someone to call or help them login or whatever the case might be. Especially when we're not talking about a huge amount of money. Additionally, we can think of this for other areas. -Some people would rather rent than own a home. -Some people don't want to bother with knowing how their car works at all. -Some people want to just buy a computer rather than assemble one themselves. -Some people don't want to grow any of their own food. There's generally a division of labor, prioritization of attention or concerns, etc. For many of us in this industry, we prioritize control over our money, our communication methods, etc. And we like to spread the importance of this to others, but for all we know we might only reach a similar % of people holding their own money as people growing their own food, for example. I'm not really sure. If I think back to 15 years ago when I graduated college, had tons of student debt and a little bit of cash in the bank, monetary sovereignty was not my priority. The state coming to take my little checking account or my well-audited bank rugging my funds was not high on my list of concerns or likely scenarios. The version of me now takes that more seriously. But I wouldn't look back and say that the less financially well-off version of me was locked out of doing so; the benefits of doing so just weren't huge compared to everything else. And in a world of tools like ecash and so forth, I think people across jurisdictions will have a lot more options in the future for how much privacy they want, how much security they want, what jurisdiction they want it in, etc. Speaking of Blockstream, I was on the record back in 2022 saying we can't judge Liquid's attractiveness in a low-fee environment, in defense of Liquid when people criticized it for not being heavily used. There's clearly a useful trade-off there among multiple metrics, and in a low-fee environment it just wasn't a priority for a lot of people. It got a bit more attention and implementation amid these more recent fee-spikes. And there are teams looking to make optimistic fraud proofs or other things to make federated trust models even better, without requiring more base layer expressivity per se. You're orders of magnitude more technical than me of course, but my emphasis here is on the economics and incentives. Prior to fee spikes, there was all this design space just not being explored or funded as much. And when they were explored and funded, people didn't use them much, which didn't exactly encourage people to spend money or time on the next exploration. Necessity is the mother of invention, and so now there's a bunch of well-funded teams building all sorts of stuff. Fees and constraints tend to do that. Which again is not to say I'm against expressive changes, but rather that there's still a lot of design space which can be accelerated in a high-fee environment, and there's still a lack of clarity on which solutions people will gravitate to or what percentage of people will value certain privacy or security details.

Sorry for the delay, I've been dwelling on this a little. I think that self-custody is easier than many alternatives, unlike with cash: I use Green wallet myself which shows how you can have support while still having ultimate control. I believe Casa have a similar product for larger custody. I hope to see this kind of offering mature, and be attractive beyond the DIY crowd: Bitcoin insurance will be necessarily limited, there are going to be more high profile custody disasters. Also, there's a possibility of generational attitude change: if fiat becomes noticably worse, many people will expend effort looking after their money. However, that's somewhat of an aside. The question was not those who choose not to custody, but those who can't. What guarantees can we give them, if we can't give them a UTXO? I think, and hope, we can do better than "you all need to trust one of these few people". But I agree this will only get its due attention when enough people are in that group: for now, the low hanging fruit is improving lightning and other L2s which can simply fall back to a UTXO each.

The way I look at it is a lot of people will be pushed off chain eventually. The 2nd layers will come with less benefit of the decentralized transactions on the base chain, but they will still be able to send money in a generally trusted way and still reap the benefits of using a money which can’t be debased. Currently people are stuck with shitty fiat or proof of stake networks which also have the same issues as fiat