Hourglass V2 Update

The revised version proposes a restriction that limits the amount of Bitcoin that can be spent from such outputs to a maximum of one Bitcoin per block. This measure aims to enhance security and stability within the network and prevent potential market disruptions due to large, simultaneous liquidations. Details of the technical adjustments and the rationale behind the proposed changes are documented in the Hourglass Proposal V2. Additionally, the initial discussion that sparked this revision can be explored through the Bitcoin Development Mailing List Discussion, highlighting the community's proactive approach towards addressing vulnerabilities in Bitcoin's framework.

Critics of the in-protocol plunge protection mechanism argue that it contradicts Bitcoin's core principles by artificially restricting individuals' ability to spend their coins, thereby compromising its integrity and utility as a peer-to-peer electronic cash system. They emphasize the importance of preserving Bitcoin's unregulated and decentralized nature, ensuring it continues to function as an efficient medium of exchange worldwide. Despite these criticisms, the proposal underscores the community-driven nature of Bitcoin's security and governance mechanisms, where users collectively act to safeguard the network's integrity against threats like large-scale liquidations by malicious entities.

The debate also touches on the need for empirical data to support the proposed restrictions, suggesting that an analysis of actual on-chain statistics regarding P2PK UTXO spending could offer a more factual basis for determining appropriate block rewards. Furthermore, the introduction of a Zero-Knowledge (ZK) quantum-safe spending option within a broader Bitcoin Improvement Proposal (BIP) represents an innovative effort to enhance Bitcoin's security against emerging quantum computing threats. This approach would allow for the migration of UTXOs to quantum-resistant scripts before a set deadline, acknowledging the unique challenges faced by owners of old P2PK outputs who cannot produce a ZK proof of ownership.

Finally, the proposal mentions a potential adjustment to the restrictions based on the current block reward subsidy, suggesting that P2PK outputs could be limited to a percentage of the coinbase reward. This adjustment aims to align with the principle that modifications should consider the impact on the number of coins introduced into circulation. As the Bitcoin network evolves and all coins are mined, these rules may naturally expire, reflecting the dynamic and adaptive nature of the network's governance structure.