From “The Withdrawal Issue”, Shinobi discusses the nature of Bitcoin scaling and the choice between trusted third parties, or upgrading Bitcoin to remove the need for them.
Self custody is an essential requirement when using Bitcoin to fully benefit from all the properties that make Bitcoin valuable in the first place. To be able to truly transact without permission, benefiting from the censorship resistance of the network, you have to control your own keys. You can’t outsource that to someone else, you can’t trust the neutrality or honesty of a custodian, you must solely have direct control of corresponding private keys to your UTXOs.
So what is the solution here? That is pretty much the root of the tug of war between the old big block versus small block divide that has been going on since the beginning of Bitcoin. Taking custody of your own bitcoin by having them sent to key pairs you control is a foundational aspect to Bitcoin, but so is being able to actually validate that a Bitcoin UTXO controlled by a key you possess was really created on-chain.
The same dynamics will bleed into whether or not a user can even open and maintain a Lightning channel in the first place . If it’s going to cost $10 to transact on-chain, then you are immediately on the hook for 20$ –assuming fee rates don’t get even worse– for opening and inevitably closing that channel. If you have to close non-cooperatively, even with no HTLCs in flight, it is $30 because that closure takes two transactions.
Lightning is essentially a unilateral agreement between two users in which either can enforce on-chain at any time, as long as they pay attention to the blockchain. But you cannot change the channel participants in that agreement without going on-chain and paying the necessary fees. Because of how the penalty security mechanism works , you cannot create those agreements between more than two people either.
There is no way around that; either new functionality needs to be added to the blockchain or we as a collective of different groups of users need to accept that is how this is going to go. More trust creeping in at the edges for lower value use cases and lower net worth users. Ultimately no technical filter will be good enough to stop people from doing dumb or non-monetary things with the Bitcoin network. The only filter that will successfully stop anything from being done on Bitcoin is economics. And that filter is equally created and equally affects every use of Bitcoin. It’s time to stop trying to fight externalities driven by economic demand and try to counter them through improving efficiency.
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