Combined summary - Thoughts on scaling and consensus changes (2023)
The exploration of off-chain activity generation within the realm of cryptocurrency mining presents the potential for a paradigm shift in how transactions and operations are managed.
A proposed approach involves utilizing a peer-to-peer (P2P) network that could replace traditional federated models, such as fedimint. The challenge lies in ensuring the honesty of participants within this P2P network. One solution posits involving miners as P2P-mint participants, leveraging their proof of work shares and incentivizing good behavior, akin to the governance model of Bitcoin. This concept is under preliminary consideration and requires substantial development, particularly within the context of a P2P mining pool.
When assessing Bitcoin's value, it is essential to consider its scarcity, transparency of supply, permissionless transactions, and ownership over factors like block size constraints. Technological advancements enabling the processing of extremely large blocks (up to 1 TB) and an honest mining mechanism could enhance Bitcoin's utility and value without undermining its fundamental qualities. Such improvements could make Bitcoin more valuable by scaling and securing the system without compromising on its core principles.
Bitcoin's scalability issue, with the goal of supporting 1 billion users transacting weekly, brings forth the concept of establishing numerous "bitcoin banks" or off-chain entities. From federated sidechains to Chaumian ecash banks, these entities would manage most payments. Innovative solutions like coinpools employ time-sensitive smart contracts without relying on a trusted third party, representing cutting-edge research in Bitcoin scaling. As high transaction costs on the main chain are problematic, there is a move towards interacting more with semi-trusted off-chain services which act as community banks, offering liquidity and maintaining security through potential blockchain engagement. While increasing block sizes may lead to centralization, approaches like Utreexo could optimize UTXO storage and validation, though they don't fully address scalability. Establishing a network of distributed "banks" would enable effective ownership, auditing, and fraud detection, aligning with Bitcoin's role as an inflation-resistant base-layer currency.
To further develop Bitcoin's infrastructure, addressing correlated failures in second-layer solutions is vital. CheckTemplateVerify (CTV) is recommended for managing exits during congestion, and
OP_VAULT is highlighted for improving custody solutions' security and efficiency while being chainspace-efficient. Nonetheless, proactive security must be balanced with protections against hardware and software supply chain attacks. Layer 2 protocols like the Lightning Network rely on sound mempool and fee management policies. BIP324 is significant for maintaining Bitcoin's censorship resistance. Research into a "minimum viable coinpool" could reveal whether additional primitives beyond Taproot and CTV are necessary.
In summary, networking these off-chain entities and applying market pressures can enforce regulatory compliance. Infrastructure developers should focus on providing tools for safe operation, enabling swift Layer 1 exits, and facilitating custodial tasks. This aligns with Hal Finney's 2010 perspective on layer-building, which underscores the importance of auditability and freedom of movement within the Bitcoin ecosystem.