Crypto News
Bitcoin Beyond BIP-300: What Future Holds For ‘DeFi On BTC’
Does Bitcoin need any sidechains for its future? The DeFi community nowadays is split between “yes” and “no” as an answer to this question after the resurgence of a six-year-old proposal. Since the controversy around sidechains involves advanced crypto language, let’s cover the basics first and then take a deeper look into the pros and cons of the proposal as well as any potential solutions.
Before we delve into the specifics of BIP-300, it’s worth mentioning that there are alternative approaches to expanding Bitcoin’s utility that don’t involve sidechains. One such approach is merged mining, which allows Bitcoin’s Proof-of-Work (PoW) to be shared with more chains at no extra cost. This is not only economically viable but also creates a symbiotic relationship with Bitcoin rather than competing against it. For example, one manner of accomplishing this is to employ alternative economics like EIP-1559 on the merge-mined chains, which makes transactions more cost-effective.
The Bitcoin Improvement Proposal in question is the BIP-300, commonly known as Bitcoin Drivechains. Originally introduced in 2017, it basically proposes adding specifically designed sidechains, named “Drivechains,” on top of the Bitcoin blockchain. A Bitcoin Drivechain would operate as a blockchain connected to the main Bitcoin network and use BTC as the primary currency.
Another point to consider is miner incentivization. Merged mining offers essentially “free money” that miners can earn by doing something they are already engaged in. This not only benefits the miners but also adds an extra layer of security and viability to the new chains that are merge-mined with Bitcoin.
One side sees the proposal as a revolutionary step forward, while the other side argues it could open the gateway to scams on the Bitcoin network while leading to more scrutiny from regulators.
While the debate around BIP-300 continues, it’s essential to look at existing solutions that serve as a proof of concept for the values we’re promoting. After all, drivechains are surely not the only way to use Bitcoin’s PoW security for DeFi reasons. There are other layer-2 systems to expand Bitcoin’s use cases through immediate, secure, and scalable paths.
But then again, why is the community concerned about adding more sidechains to Bitcoin? Isn’t that what the Ethereum ecosystem does every Tuesday?
The Limitations Of BIP-300
The main issue lies with the BIP-300 allowing trustless movement of BTC between the main network and these Drivechains in a two-way peg (2WP). The hard truth of Bitcoin is that BTC on the main network can never truly leave the blockchain. The 2WP method instead creates an illusion of a transfer by locking the exact amount of BTC on the main network that’s “transferred” to a sidechain and then unlocks the equivalent token in the target chain. The same process works backward when BTC is “transferred” from a sidechain to the Bitcoin blockchain.
At this point, it becomes easier to see the limitations of the BIP-300 and understand the Bitcoin community’s concerns. For starters, implementing the two-way peg between the main blockchain and a sidechain could completely disrupt the economics and assumptions of Bitcoin.
Critics also argue that Drivechains could potentially cause a spike in Bitcoin-based scams as each sidechain would have its own version of BTC. And, as the last couple of years showed us, the increase in scam activity directly translates to regulatory crackdowns. Looking from the technical side, the BIP-300 would also require a soft fork on the Bitcoin blockchain, adding another layer of complexity along with potential points of failure to the equation.
Bitcoin Needs More Use Cases
While the concerns have valid points, it’s also a reality that Satoshi Nakamoto has created Bitcoin as electronic money, not as a store of value. This is why we need ways to utilize BTC within the larger DeFi ecosystem, or it would end up being too deflationary to really be used for anything more than a store of value.
So, the Bitcoin community needs a system that complements Bitcoin instead of competing with it by trying to create new alternatives. One such solution is building a blockchain merge-mined Bitcoin. Merged mining enables miners to mine multiple blockchains simultaneously without incurring additional energy costs. A merge-mined blockchain can take advantage of this by inheriting a significant portion of Bitcoin’s hashrate that is steadily growing without imposing extra energy costs on miners.
For BTC hodlers, moving BTC around the network can quickly become expensive in gas fees. With a Bitcoin merge-mined blockchain, the fee required to conduct transactions or execute contracts could be cut on the Ethereum network with EIP-1559-based economics. As EIP-1559 removes the fee market mechanism where the highest bidder comes first for processing transactions, native tokens of said chains have the potential to present gas fees incomparably cheaper for computation than spending BTC at each step.
It’s important to remember that the foundation layer is only the beginning: To utilize Bitcoin in more use cases, any L1 blockchain would require an additional layer to “interact” with the users —a layer-2 where a wide range of decentralized apps and services can be developed. By building a L2 ecosystem where dApps powered by Bitcoin can thrive without current limitations of sidechains would open the doors for a much bigger user base in a secure and scalable way. In the end, it’s not just about adding features to Bitcoin; it’s about enhancing the entire blockchain ecosystem for the betterment of global society.
This is a guest post by Jagdeep Sidhu. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
The crypto community was split in half when a proposal about Bitcoin sidechains was reintroduced. While the proposal aims to expand the utility of Bitcoin, its limitations cause controversy. A blockchain merge-mined with Bitcoin that also employs gas fee-friendly economics might hold the answer.
Crypto News
The US Should Establish A Strategic Bitcoin Reserve
This morning, the Bitcoin Policy Institute (BPI) released a 53-page report on the pros of the United States establishing a strategic bitcoin reserve (SBR).
In July, @CynthiaMLummis announced the BITCOIN Act, the first bill in US Congress to propose a strategic #bitcoin reserve.
In our most comprehensive report to date, we endorse the United States adopting a strategic reserve. Read the report here: https://t.co/xQJG2Ebksi pic.twitter.com/gq3yI7oJUO
— Bitcoin Policy Institute (@btcpolicyorg) November 4, 2024
The authors of the report touched on four key benefits of holding bitcoin as a strategic reserve asset:
- Economic and monetary stability — bitcoin is a hedge against currency debasement and debt instability
- Geopolitical competition — the US could gain a strategic advantage over other countries that are contemplating starting a bitcoin reserve and can reinforce the US’ influence over global financial standards
- Energy and climate — Bitcoin mining can be leveraged to accelerate the movement toward renewable energy
- Financial inclusion and human rights — the US can promote both the concepts of individual freedom and financial inclusion for both US citizens and those abroad
While I agree that the US’ establishing an SBR would have these benefits, I also think it would send a certain message loud and clear: We embrace change in the United States.
We can tell the world that we’re aware of Bitcoin’s numerous positive attributes and that we want to use them to our advantage.
In doing so, we can shift the narrative around Bitcoin from something to be feared and controlled to something that should be embraced and utilized, and we can stand behind a tool that can be used to increase the financial buoyancy of both people and institutions around the globe instead of standing in its way.
We can send a message to the world by doing so.
Crypto News
PAID IN BITCOIN: BTCPay Documentary Showcases Bitcoin as the Medium of Exchange at Bitcoin 2024 Conference in Nashville
BTCPay Server has just released a new documentary covering the use of bitcoin as a means of exchange this summer during the Bitcoin 2024 in Nashville. The documentary by Parker Worthington (@webworthy) takes a look at the behind the scenes set up of both BTCPay Server and Strike with merchants around the conference venue, documenting the use of bitcoin as a real payment tool during the course of the conference.
Watch the documentary below.
Watch the new documentary PAID IN BITCOIN about Bitcoin use at Bitcoin 2024 in Nashville.
Crypto News
I’m Grateful for Trump’s Embrace of Bitcoin
Co-founder of BTC Media eleven years ago, I am passionate about the future of Bitcoin – and in the spirit of free speech and democracy on this election eve – I feel compelled to share my first Bitcoin Magazine opinion article. Weeks ago our editor-in-chief, Aaron Van Wirdum, published his Take, “Trump Does Not Give a Damn About Bitcoin,” and he invited submissions of a counter-take.
Our company was founded on the mission of hyperbitcoinization. Since the beginning, educating Main Street on Bitcoin has been core to our values. We’ve made great strides. I believe Trump – as standing president – with pro-Bitcoin advisors, could significantly fast-track Main Street’s embrace of Bitcoin, create the world’s most pro-Bitcoin economy, and commute Ross Ulbricht’s sentence… a powerful trifecta.
The resounding skepticism found in Aaron’s TAKE is not a sentiment that I share; rather, I trust in Trump’s declared support for Bitcoin. His inner circle is full of fervent Bitcoiners and those who have signaled support for Bitcoin: his children, JD Vance, Elon Musk, RFK Jr., Tulsi Gabbard, Vivek Ramaswamy, Senators Lummis, Blackburn, Hagerty and Scott plus many, many more.
As a newcomer to the Bitcoin space, Trump, like many, is still learning. I recognize and appreciate his ever-student curiosity and desire to fully grasp the future of money. A U.S. president with exposure to Bitcoin, who surrounds himself with pro-Bitcoin advisors and policies, is certainly a more favorable alternative than the openly-hostile administrations of the past and present.
In Aaron’s TAKE, Trump was chastised for failing to transact his own bitcoin purchase at a campaign stop at PubKey – a Bitcoin bar in Greenwich Village; again, there is no stone to throw here. I was elated that Trump accepted PubKey owner Thomas Pacchia’s invitation to make a campaign stop (and as I understand it, that was an invitation extended to both V.P. Harris and Trump, with only Trump accepting). The transaction was a gesture, facilitated by the community, and was a well-received and celebratory moment for that small business and for the global network of Bitcoin businesses that have struggled for this level of acceptance by politicians.
Like others, you might be questioning if donations and votes are the driving force of Trump’s interest in Bitcoin. Does it actually matter what drives any of us as we strive for a common good? We are a diverse community with diverse reasons for embracing Bitcoin — whether a desire for financial sovereignty, an investment opportunity, a sudden inability to purchase basic necessities during a protest, a distrust in the existing financial system and, yes, even politicians seeking the Bitcoin community’s support through donations and votes.
The Bitcoin Community knows Bitcoin will flourish and thrive in spite of politics; however, not all issues are apolitical. At Nashville’s Bitcoin 2024 conference (and the Libertarian National Convention), Trump stated, unequivocally, that he will free Ross Ulbricht if given the opportunity as President. The Ulbricht family needs a miracle, and it is Trump who pledges to deliver it.
I had the golden opportunity to meet Trump backstage at Bitcoin 2024 (alongside two strong, intelligent women – his granddaughter Kai and her mother Vanessa). I found Trump to be warm, humorous, and sincere. I wholeheartedly welcome Trump to Bitcoin and appreciate bipartisanship support in freeing Ross and our mission of hyperbitcoinization.
I encourage you all to vote this Tuesday, and to join Bitcoin Magazine and Stand With Crypto for The Road to Election Day, live from Las Vegas, this Tuesday, November 5, 2024, beginning at 3 p.m. PST.
This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
As the U.S. faces the most consequential election of our lifetime, the Trump administration offers an unprecedented opportunity for the Bitcoin community.
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