07 May 2025
This post originally appeared as a part of Spiral’s newsletter.
Tomorrow, May 8, I’ll be giving a talk at bitcoin++ about MEVPool and the best (but terrible) outcomes if MEVil proliferates on bitcoin. On a seemingly dissimilar but related note, last week, the bitcoin ecosystem was abuzz about another topic: Bitcoin Core standardness rules. I’ll let others dissect moderation policies and the (in)effectiveness of standardness as a deterrent to “bad” uses of bitcoin. Still, it’s worth discussing the impacts of restrictive standardness rules in the context of MEVil and their impact on mining centralization.
In case you don’t know, MEVil arises from bitcoin use cases that drive mining centralization by increasing the fixed costs associated with mining. MEVil might take the form of complicated smart contracts that force miners to become high-frequency traders in order to get competitive revenue (costing tens of millions in upfront costs unrelated to their mining operation), or as technologies that require miners to sign up with centralized parties to access high-value transactions and maximize revenue per hash.
These issues are no joke—mining is almost a perfectly competitive global industry with often quite compressed margins. An increase in revenue of 1% might not sound like a lot, but if your margin is only 5 or 10%, that might represent 10 or 20% more profit. In practice, this allows you to expand, increase your hash rate, reduce the margin for all miners, and put your competition at risk of bankruptcy.
It should go without saying that mining decentralization is one of the most important features of bitcoin, one which is at great risk, representing a major threat to bitcoin’s longevity.
Thus, anything that results in some miners persistently getting a few percent more revenue per hash would represent a significant risk to bitcoin’s longevity and its credible neutrality.
Today, miners get nearly all the transactions they include in a block from the public bitcoin peer-to-peer network, which provides a nontrivial (though not currently particularly high) portion of their income from the fees these transactions pay. As the block reward dwindles, these transactions will make up a more critical portion of miner revenue.
Some large miners have set up proprietary APIs or run custom software to allow transactions that generally do not propagate through the regular bitcoin P2P network to reach them. MARA’s Slipstream product is the classic example of this, where many “nonstandard” transactions can be submitted to them via an HTTP API and, for the right price, can be included in a block that MARA mines. There are also various patches to Bitcoin Core, which some miners have run. These can remove standardness rules and tweak the structure of the P2P network to receive additional transactions.
Luckily, the total revenue change created by these types of activities is trivial, at least at this time. Because few transaction creators wish to use nonstandard transactions, the impact on mining centralization pressure is minimal. Still, the fact that some miners have found it worth the cost to build these systems should highlight their substantial risk to bitcoin.
If Bitcoin Core were to restrict standardness rules further while the ecosystem creates more and more inventive uses for bitcoin (some of which may or may not be good for bitcoin as a currency), driving nonstandard transaction creation, centralization pressure from dwindling block subsidies would become immense. To compete, a small miner would have to hire engineers to build a Slipstream-like system, patching Bitcoin Core where appropriate (without introducing bugs!) and then convincing transactors to use their proprietary system for transaction submission. This would make it all but impossible for a new miner to get off the ground.
Certainly, there are many valid reasons why standardness rules exist. Some prevent DoS against the block creation logic or mempool (e.g., the limit on maximum transaction size and number of dependent transactions ensure that Bitcoin Core can efficiently manage the mempool and create a competitive block template). However, standardness rules to prevent types of transactions that many people want to create only serve to encourage proprietary relay systems. These may not be felt in the form of short-term mining centralization. But as the block subsidy decreases, they certainly would be, all but dooming bitcoin’s censorship resistance and neutrality.
19 Feb 2025
This post originally appeared as a part of Spiral’s newsletter.
If I’ve learned anything in my nearly 15 years of working on bitcoin, it’s that building trustless stuff on bitcoin is Hard (with a capital H). For the last 14 years, I’ve spent probably tens of thousands of hours trying to create the best user experiences for people who want to use bitcoin in a truly noncustodial way. Yet, every day feels like more of an uphill battle than the last.
In bitcoin’s early days, this meant transacting directly on-chain. As with every cryptocurrency, this works great for a while, but at some point, people realize that the utility in a censorship-resistant (or basically censorship-resistant) decentralized database devours more capacity than is available, even if you trade lots of censorship-resistance for centralization and scalability.
Of course, this isn’t news to anyone who’s been in bitcoin for a while or has at least done their homework. Bitcoin fought a long civil war, the Blocksize Wars, when it reached this point. But long before even that calamity, we were already exploring better ways to make payments on bitcoin. All the way back in 2013, I worked on payment channels as a step in that direction. After all, the ability to transact instantly is an infinitely better user experience than a few seconds, let alone ten minutes.
By the time the Blocksize Wars concluded and the dust gradually settled, Lightning had advanced payment channels and became the state-of-the-art option for noncustodial, scalable user experiences on bitcoin.
While all this was happening, custodial services came and went. Many exit scammed, taking customer funds with them. However, the pain from those experiences never fully overcame the generally poor user experience of noncustodial bitcoin, driving many consumers to continue to use custodians in spite of the risks.
Of course, that isn’t to say these bitcoiners are “wrong” or that there aren’t problems with self-custody UX beyond scalability. Private key management and security challenges abound, but so do a general lack of places to spend your bitcoin. A lot of us, most of us, just stack and hold. Add ten to thirty-minute confirmation times to this and highly variable fees, and it’s a wonder that anyone even bothers with self-custodial bitcoin.
The Lightning ecosystem is hardly better (I say this as someone whose life is working on Lightning). For many years, Lightning was considered a thing to be run on an always-online machine carefully managed by an attentive operator, trading liquidity with others and ensuring their channels are carefully maintained with only the best of peers. The time commitment alone made Lightning borderline inaccessible to everyone but the most committed pro-bitcoin masochists.
When Lightning did come to mobile apps with user experiences designed for humans, the protocol’s corner cases often made it janky and failure-prone. By the time many of these were resolved (with some likely to be resolved only this year), much of bitcoin had already made up their mind on Lightning, deciding that a good user experience simply cannot be built on its back. Worse, the high cost of developing noncustodial bitcoin solutions drove up fees on some Lightning wallets as vendors sought to cover costs, further tarnishing the community’s view of Lightning.
Instead, the bitcoin community has become enamored with newer custodial solutions, from Liquid (Blockstream’s multi-sig, custodial private blockchain) to ecash (blinded single or multi-sig custodians), Spark (Lightspark’s Statechains extension, which requires near-full trust in the operator(s)), even modern Ark variations (which rely heavily on the Statechain trusted-operator model to work around its substantial scalability constraints). Tons of engineering resources have gone into exploring what can be built with custodial solutions, with many of these systems providing excellent user experiences and privacy but at the cost of much of the censorship resistance that’s at the core of bitcoin’s soul.
Building bitcoin solely on the backs of these solutions will not provide a more robust future for bitcoin. Instead, it will force all bitcoin transactions into custodial solutions that make it impossible to imagine the kind of freedom that is bitcoin’s promise.
To be clear, custodial solutions will always have a place in cryptocurrency. If there’s one thing that the entire cryptocurrency space has learned over the past 16 years, from bitcoin to terrible memecoin, it’s Cryptocurrencies Do Not Scale. No matter how high you push your block size, how often you claim to have “solved scalability,” or how your system’s transactions will always be free, there will be fees, and those fees will dictate how “noncustodial” something is. Anything less than the cost of a transaction and the fee required to exit a trustful layer two system unilaterally will dominate the amount you seek to recover.
But this doesn’t mean we should give up on noncustodial or write off Lightning because attempts to run it on someone’s phone years ago were unusable.
If we care about the principles of bitcoin, we must bridge that gap. Mutiny started down a path (before their pivot away from bitcoin wallet software) that seemed compelling. Wallet software should seamlessly transition between the best option at each balance. For the class of bitcoiners with a balance too small to reasonably provide a self-custodial option, store their funds in one of the custodial solutions bitcoiners have spent so much energy building lately. For those with considerably more wealth in bitcoin, where a noncustodial option makes sense, migrate their balance to something non-custodial. Given the options today, Lightning, directly on a bitcoiner’s device, is the only viable option here and ultimately must play an important role in any wallet wishing to consider itself a standard-bearer for Bitcoin.