Just a few issues get beneath my pores and skin within the Bitcoin area: when folks say “Satoshi mentioned” after which misquote him, or when folks say that Bitcoin was designed to be gradual and/or costly… The subsequent one is tangential to gradual and costly, however “I run my very own node” additionally requires a lot psychological deprogramming, and subsequently, it persists.
How about “Bitcoin doesn’t do sensible contracts.” That one has largely been buried with the arrival of Ordinals, Fractal Bitcoin, and a bunch of different issues shaking up the BTC economic system over the past two(ish) years.
All that to welcome you to my subsequent collection! “Hodling Breaks Bitcoin,” the place I’ll go into the economics and social dynamics of the varied spill-over detriments of not utilizing Bitcoin as a digital money system.
Right this moment, we are going to cowl one of the egregious: when folks say, “Bitcoin will not be personal.”
Privacy is commonly thought-about a core precept that should be carried out in Bitcoin (usually when discussing BTC) to guard customers from surveillance and censorship. Nevertheless, privateness is essentially misunderstood by most gamers within the dialogue. Opposite to the favored narrative perpetuated by BTC maximalists, Bitcoin will not be inherently personal if it’s only used as a store of value or “HODL” asset. In actual fact, for Bitcoin to realize true privateness, it should be used as an digital money system with billions of each day transactions. This isn’t simply an opinion however a direct studying from Part 10 of the Bitcoin white paper, which explicitly particulars how Bitcoin achieves privateness by way of frequent, pseudonymous transactions.
Nevertheless, that imaginative and prescient is way from actuality in as we speak’s BTC panorama. The small block philosophy and the strain to make use of custodial options to entry the convoluted Lightning Network have completed extra to strip away privateness than to protect it. When customers are funneled into centralized exchanges that require KYC/AML compliance and subsequently use custodial wallets, any notion of inherent privateness goes out the window. As an alternative, we’ve got a BTC that’s surveilled, managed, and more and more resembling the very monetary system it was designed to disrupt.
The unique imaginative and prescient: privateness by way of utilization
Satoshi Nakamoto’s original vision for Bitcoin was a decentralized, peer-to-peer digital money system the place transactions flowed freely, unencumbered by third-party intermediaries. In Part 10 of the white paper, Nakamoto outlines a mannequin for privateness that depends on producing new key pairs for every transaction, guaranteeing that identities usually are not linked. The important thing right here is within the quantity—billions of transactions transferring by way of the community, creating a lot noise that figuring out anybody person turns into impractical, and even when a single public deal with is doxed, the breadth of any particular person’s holdings can solely be speculated upon, however by no means confirmed.
However there’s a catch: this mannequin solely works when Bitcoin is used as a real money system, circulating constantly as worth is exchanged. If customers merely “HODL” and by no means really transact, then the privateness mannequin breaks down. Linking UTXOs (or Unspent Transaction Outputs) again to particular person customers turns into trivially simple with out ample transaction quantity. Privateness is not only an possibility in a money system; it’s a function that emerges from the very nature of how that system operates, nevertheless it needs to be operated in an effort to profit from it!
The malicious retooling of Bitcoin
But, right here we’re in 2024, and the Bitcoin that Satoshi described is a distant reminiscence for small blockers. Excessive charges and low transaction volumes have created a state of affairs the place privateness will not be solely eroded however practically unimaginable. The strain to consolidate UTXOs when charges are low—as a result of excessive charges make it uneconomical to keep up a lot of small UTXOs—additional degrades privateness by making transactions simpler to hint. That is the unhappy irony of BTC maximalism: it clings to the thought of small blocks and excessive charges, claiming it ensures decentralization and safety, nevertheless it finally ends up degrading privateness, making customers extra susceptible.
Worse nonetheless, the proliferation of KYC/AML necessities and custodial options like Coinbase (NASDAQ: COIN) and the favored Lightning Community wallets implies that most customers usually are not even controlling their very own keys. On this setup, privateness is an phantasm at finest. Transactions will be frozen, accounts will be blocked, and each motion is monitored. The transfer to Layer 2 options like Lightning—regardless of the guarantees of scalability and velocity—solely exacerbates this concern. It’s a bait-and-switch; the promise of privateness in Bitcoin has been changed by a surveilled, gated system that resembles a digital model of conventional banking.
The true incentives: velocity over HODL
Bitcoin, as initially designed and solely really carried out within the BSV blockchain, incentivizes saving, however not in the way in which that Bitcoin maximalists interpret it. Bitcoin needs to be saving within the sense of prudently managing sources and wealth by way of a sturdy and environment friendly money system. The very concept that one ought to “HODL” and by no means spend misses the purpose solely. A forex that doesn’t transfer, that doesn’t flow into turns into ineffective each in an financial sense, but in addition in with the ability to profit from the inherent function set of Bitcoin.
In brief, a physique of water that doesn’t circulation turns into stagnant.
If Bitcoin is to be the revolutionary instrument it was designed to be, it should have velocity. It should circulation by way of the economic system, passing from hand handy, pockets to pockets, as a medium of alternate. With no high volume of transactions, your entire privateness mechanism of Bitcoin fails together with the financial safety mannequin—finally. Once we solely HODL, we create an setting the place all our transactions are mapped, all our addresses are linked, and all our actions are monitored. Privateness dies in stagnation.
A name for actual Bitcoin privateness
We should return to the rules of Bitcoin as a cash system if we wish to protect its promise of privateness. This implies pushing for bigger blocks, decrease charges, and extra transactions as an idea that we worth, but in addition utilizing that system in the way in which it was designed! It means rejecting custodial wallets and centralized exchanges that strip away the privateness and autonomy that Bitcoin was designed to supply. Bitcoin is a instrument that incentivizes us to avoid wasting correctly, however we should do not forget that saving correctly consists of utilizing Bitcoin because it was meant for use: as a medium of alternate.
The way forward for Bitcoin will depend on our willingness to let it circulation. If we proceed to stifle its utility by holding it in tight palms, hoping just for its worth to rise with none exercise, we are going to destroy the privateness we search to protect. It’s time for small blockers to rethink what they need Bitcoin to be—a stagnant retailer of wealth or a dwelling, respiratory system of financial freedom.
Fortunately, as new folks come to Bitcoin, they see what we’ve got been saying for a decade now in regards to the want for giant blocks, unbounded scale, distributed computation, sensible contracts, and the worth of Bitcoin the way in which it was at all times envisioned.
What different issues brought on by HODLing that you want to me to cowl?
Watch: Breaking down options to blockchain regulation hurdles
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