Why Bitcoin Needs To Change

At first glance, it might appear that a decentralized protocol for money should eventually “ossify”, or stop changing. This is an appealing view as bitcoin needs to be predictable and secure in order to be the best money. When we save our life’s work in bitcoin, we want to be certain that the wealth generated by such work will still be around decades or even centuries from now.

Altering the consensus rules can feel risky because our trust in bitcoin grows as time goes on and as bitcoin successfully fends off constant attacks from all sides. When we make changes to the protocol, this can feel a bit like replacing bitcoin’s armor with something new and untested, leading us to worry about the introduction of unknown vulnerabilities.

However, we should resist the temptation to think too narrowly in this manner, as the risks of changing bitcoin turn out to be far outweighed by the risks of not changing bitcoin, especially in the long term. 

Bitcoin is not just a dead set of consensus rules. It is a living super-organism made up of millions of people and their collective wisdom, energy, and spirit, inhabiting an ever-changing environment. Humanity has gotten as far as it has because of its incredible adaptability to new environments. In fact, all of the most successful species are those that overcame new challenges and adapted to their environments better than others. Species that were unable to adapt to changes quickly went extinct. This requirement that life be adaptable to novel environments constitutes the driving force behind evolution.

In addition to this general law of nature that ossifying a living system is a bad idea, ossifying bitcoin with its current consensus rules is especially risky. This is because bitcoin does not have the ability to scale to a global userbase without experiencing centralization so extreme that it would block bitcoin’s mission of replacing the fiat standard with something significantly better. Bitcoin must remain decentralized if it is to achieve this mission; otherwise it will become corrupt, rendering it unable to fix any of the problems fiat money and central banking have caused. That is to say, bitcoin already has some gaps in its armor, and patching them is less risky than indefinitely leaving them as they are.

Currently, bitcoin users are feeling huge pressure toward relying on trusted third parties, both to process payments and even to take custody of their bitcoin. As bitcoin’s userbase grows, transaction fees will soar, and the percentage of bitcoiners trusting such centralized institutions will only increase because transacting on-chain and running a functional lightning node will become more difficult.

Covenant proposals (such as LNHANCE) should drastically reduce reliance on trusted third parties as they allow the creation of a simpler Lightning protocol, along with new protocols and features to scale custody and payments to a global userbase, such as vaults, timeout trees, payment pools, and Ark.

If we fail to activate covenants, users (especially new ones) will increasingly be forced into trusting third parties to process payments and to store their bitcoin. If a large enough percentage of payments and coin supply are handled by trusted third parties, these organizations become single points of failure that allow bitcoin to become captured by the legacy financial system (or its replacement), damaging bitcoin’s ability to remain incorruptible, and changing it into something that I would shudder to call “bitcoin”.

As a result, there will come a point in the near future where any fork of bitcoin that introduces covenants in an elegant way will have a market value that is greater than that of the current bitcoin chain, because bitcoin’s market value is dependent on the degree to which it provides uncapturable, incorruptible, sovereign money for everyone.

To recap: since bitcoin is a living system, it would be unwise to stop updating it at any point in the future, as the very laws of nature dictate that an organism that ossifies and stops adapting to its environment is doomed to extinction. Given this, bitcoiners should always remain open to the possibility of making changes that progress and protect bitcoin’s primary mission of being money that offers everyone the same protections, far into the future. Since covenants can help bitcoin fix two big vulnerabilities (centralization of custody and payments), activating them in an elegant way is an important step in bitcoin’s slow, yet necessary evolution.