Bitcoin fossilization issue

Bitcoin developers are once again discussing ossification versus innovation in the protocol. This debate has been going on for years, but has now reached a fever pitch as the debate over charters rages on. What needs to be considered is whether core developers should push a new soft fork to allow covenants. Several covenant proposals are now in circulation, ranging from narrow to broad in scope.

Charters allow Bitcoin users to share unspent transaction outputs (UTXOs). Today, individual users can access their own UTXO. However, as the cost of transactions on the base layer increases over time due to increased transaction fees, it will be more expensive for individuals to incur Bitcoin transactions. If multiple people can share a UTXO, they can split the transaction cost across that pool, allowing more user access to the underlying layer.

A simple implementation of the covenant would be a payment aggregator, which allows a group of users to share UTXO and thus allocate shares between each other seamlessly. Another application of vaults is vaults, which would allow you to recover bitcoins after sending them, by temporarily placing the bitcoins in a vault where they remain for a set period of time before finally arriving at their destination address. Perhaps the most extreme soft-fork proposal at the moment is OP_CAT, the serialization operator in the Bitcoin script. Satoshi disabled this in Bitcoin’s early years to intentionally limit Bitcoin’s scripting capabilities. This is on the table as well, which will enable charters along with all kinds of innovations.

The case for charters comes from those who want to expand Bitcoin into new use cases through new second layers and revive innovation in the Bitcoin ecosystem, allowing new use cases to be developed which in turn will attract new users and thus new demand for Bitcoin. This all sounds great in theory, and who would ever be against innovation?

But the truth is more nuanced. Innovation can come at a cost, believe it or not. Bitcoin is about to attract trillions of dollars more capital from institutional investors. This capital, more than anything else, is looking for the safest and most secure digital assets. This capital will do more to increase demand for Bitcoin in the long term than any innovation we can expect in the future. This capital will be at risk if innovation at the base layer has unforeseen unintended consequences.

The last two major Bitcoin upgrades (SegWit and Taproot) were marketed to help accelerate network development (by solving the transaction scalability problem) and allow more complex financial transactions on Bitcoin. For good or ill, they have opened the door to arrangements and engravings, the main use of which has been to bring NFTs to Bitcoin. Even the most ardent advocates of Taproot and SegWit couldn’t have anticipated the arrangements and engravings. This certainly attracted new requests from artists who wanted to transfer their images to Bitcoin as data, but it proves my point that there are always unintended consequences from innovation.

It is good that this innovation happens on second layers or even on altcoins, but the base layer is the foundation of the entire system. It is essential to keep this foundation strong. This ultimately reflects my belief that the primary purpose of Bitcoin is to make sound money. Safety arises from the impossibility of changing the viewing schedule. The biggest difference between the Bitcoin blockchain and the FOMC is that the FOMC changes its mind every six weeks, while Bitcoin’s schedule has remained the same since its inception.

Neither developer suggests changing the supply schedule, but also calls for soft forks to be taken away from Bitcoin’s main value proposition: that it is immutable and immutable. It’s a slippery slope that’s not worth the risk. Since the “soft fork” proposals do not directly advance the sound financial aspects of Bitcoin, it is not worth the risk.