Unbreaking testnet4

In a recent discussion within the Bitcoin Development community, an interesting approach was proposed concerning the modification of the Unspent Transaction Output (UTXO) set to potentially localize changes to the blockchain. The idea revolves around adjusting the spendable amount of bitcoins based on a formula that takes into account the current block height (or target height in the case of time-locked transactions), the height at which the UTXO was created, and the rate of halving. Specifically, the spendable amount would be calculated as the original amount divided by two, raised to the power of the difference between the current height or locked height and the UTXO height, all over the number of blocks after which halving occurs. This method implies a bitshift equivalent for simplicity.

However, this proposal encounters significant hurdles due to the implementation of timelocks. Timelocks, especially those based on longer timestamps, complicate the predictable degradation of coin value over time. This is because it becomes challenging to determine the exact amount that will be available when the timelock expires, given the dynamic nature of block creation and the potential crossing into a new epoch before the transaction is confirmed. Furthermore, this concept poses a risk to the functionality of lightning channels, as it interferes with the predictability of transaction amounts essential for their operation.

Overall, while the initiative to innovate within the Bitcoin protocol is evident, the practical complications associated with timelocks and the maintenance of lightning channels suggest that this method may not be feasible without further refinement or consideration of its broader impact on the network's operations.