The release of the BitVM whitepaper has once again brought the issue of Bitcoin scalability to the public eye. From Satoshi Nakamoto's release of the whitepaper to the present, application scalability remains a core theme in the Bitcoin community, arguably the most crucial aspect.
However, after more than a decade of development and various attempts from sidechain and script to layer 2, there is still no universally accepted solution.
In contrast to the thriving ecosystem of emerging public chains like Ethereum, the scalability progress of the project that holds the top spot in marketcap seems to have remained lukewarm. This appears somewhat counterintuitive, prompting the need for exploration and analysis.
Two Types of Scaling
Currently, Bitcoin's scalability solutions can be broadly categorized as upgrade-based and non-upgrade-based, with the latter further divided into script and layer 2.
Upgrade-based scalability primarily revolves around whether it gains mainstream support within the community. Any changes to the monetary properties and significant alterations require a fork. An example is BIP300/301 proposed by LayerTwoLabs, allowing the Bitcoin mainnet to support various application chains for scalability.
The non-upgrade approach relies on existing Bitcoin script and sidechain solutions. Script relies on the consensus regarding data generated on the Bitcoin mainnet. Examples include Ordinals and RGB based on the Lightning Network.
Ordinals involve simple data submitted directly to the Bitcoin mainnet, but this can congest the network with invalid data and has limited scalability. RGB, on the other hand, involves extensive data and occurs off the Bitcoin chain, raising concerns about ledger security and extensive data verification.
Sidechain solutions require the transfer of Bitcoin from the mainnet to another chain, using superior technology on the new chain for scalability. The two-way peg of Bitcoin in sidechain solutions necessitates third-party assurance for Bitcoin security, often implemented through multi-signature schemes, introducing centralization concerns.
Issues with the Current Scaling Approach
Observing the scaling landscape, Bitcoin's upgrade scalability faces challenges, script single-data scaling has limitations, multidimensional data scaling poses ledger security issues, and sidechain solutions with Bitcoin 2-way peg entail centralization risks.
These approaches attempt to address the limitations imposed by Bitcoin's UTXO and technical architecture, restricting scalability and hindering the full realization of Bitcoin's value.
Simultaneously, they aim to enhance network transactions by increasing Bitcoin applications, generating fees to incentivize miners and addressing Bitcoin's economic model issues related to its fixed supply and halving every four years, which may lead to insufficient incentives and network sustainability and security issues.
However, none of these scalability solutions can resolve Bitcoin's challenge of being unable to adjust its supply according to market demand, hindering its use as a settlement currency for daily payments.
Proposals such as the one put forth by Bitcoin community member Peter Todd, suggesting a 0.1% or 1% currency inflation tax, focus solely on increasing the supply of Bitcoin and do not address scalability.
In terms of sustainability, it heavily relies on the prosperity of Bitcoin applications to increase transaction fees. On the front of daily payments, it relies on unrealistic upgrade ideas.
Moreover, unless the mainnet is continually upgraded, there is currently no perfect solution to any of Bitcoin's problems, and none can simultaneously address all three issues(scalability, sustainability, and supply adjustment) effectively.
Bitcoin's Currency and Protocol
It's inevitable to ponder why, after 15 years of development, there hasn't been a viable solution for Bitcoin's challenges. Is it truly an unsolvable problem, destined to cast a shadow over Bitcoin's future?
Beyond recognizing these three fundamental issues, it's crucial to adopt a first-principles approach. By breaking down Bitcoin into its basic elements—currency and protocol—we can analyze and deconstruct each aspect to find the most optimal path forward.
If we deconstruct Bitcoin into currency and protocol, we discover that the limitations in technical architecture are protocol issues, while the inability to adjust the supply according to market demand is a currency issue.
The sustainability and security problems plaguing the network are fundamentally currency issues as well. Yet, attempts have been predominantly made to solve these problems from a protocol perspective—through upgrades, forming new consensus, or temporarily adopting other superior protocols—resulting in addressing symptoms rather than root causes.
When we recognize that Bitcoin is fundamentally a combination of currency and protocol, it prompts us to decouple the two for analysis.
From the protocol perspective, the essential requirement is a decentralized and secure design similar to the Bitcoin protocol. This entails the ability to run full nodes on regular computers and prevent 51% attacks. This forms the foundational condition.
On this foundational condition, we need to consider the blockchain trilemma of decentralization, security, and scalability. After decentralization and security are established as absolute foundational conditions, we must reconsider Bitcoin's UTXO design, adopting a more flexible account model, supporting various advanced scalability technologies, and allowing Bitcoin to circulate more flexibly within the protocol and expand unhindered outside the protocol.
Simultaneously, the protocol's complexity should match or even surpass Bitcoin's while remaining simple.
Bitcoin's fixed total supply of 21 million, divisibility down to one hundred millionth, the smallest unit being a satoshi, the PoW mining mechanism, mining difficulty adjustment every two weeks, a block reward halving every four years, and the absence of a foundation or disappearing founder—these conditions constitute the entire currency attributes of Bitcoin.
The challenge then becomes how to address the issue of an unadjustable supply leading to unstable purchasing power, preventing it from serving as a means of large-scale daily payments, while still maintaining Bitcoin's fixed supply and unchanging rigid output.
As BTC's issuance model cannot be altered, the solution lies in having a more suitable currency take on the role of daily payments.
Bitcoin One-way Transfer Scaling Solution
Hacash's proposed Bitcoin one-way transfer solution adheres precisely to the first principles of separating Bitcoin into protocol and currency. We can gain a rough understanding of both aspects, but before that, let's first comprehend what Bitcoin one-way transfer means.
In simple terms, Hacash's one-way transfer of Bitcoin involves moving Bitcoin in a single direction from the mainnet to a black hole address. Hacash automatically issues Bitcoin back, maintaining the same addresses and private keys.
This implies that Bitcoin's ownership undergoes no changes, and the process does not rely on any third-party management. The operation is straightforward, requiring only the transfer of Bitcoin to an address generated without a private key.
From a currency perspective, Hacash's protocol introduces two additional PoW coins: HAC and HACD. With the one-way transfer of Bitcoin, the protocol now supports three PoW coins. Applying first principles, since Bitcoin's issuance model cannot be altered, the role of daily payments must be assumed by a more suitable currency.
How does Hacash address Bitcoin's currency issues?
Let's delve into Hacash's HAC and HACD. HACD has a limited supply, indivisibility, uses PoW mining and bidding mechanisms, features continually increasing difficulty, limited daily output, and can be halted at any time.
HAC has an unlimited supply, unlimited divisibility, primarily employs a PoW mining mechanism, undergoes daily difficulty adjustments, has block rewards that initially increase and later decrease, and can increase supply through BTC one-way transfers while decreasing supply through the minting of HACD.
We can understand HAC through the logic of gold supply: when the price of HAC rises, it stimulates the one-way transfer of BTC, increasing HAC, and through HACD minting and BTC collateral lending, increases circulation. When HAC prices drop, they are used to competitively destroy HACD and redeem HACD and BTC to reduce circulation.
By one-way transferring Bitcoin to Hacash's new protocol to issue a new currency, HAC, Hacash resolves the problem of an unadjustable supply leading to unstable purchasing power, preventing it from serving as a daily currency.
Moreover, Bitcoin's currency attributes and ownership remain unchanged. Additionally, the sustainability issue of Bitcoin is addressed by the unlimited supply of HAC and the continually increasing difficulty of HACD.
From a protocol perspective, Hacash is mainly structured into a three-layer architecture.
The first layer supports running Hacash full nodes indefinitely on regular computers and employs the beacon fire protocol to prevent 51% attacks, aligning with Bitcoin's decentralization and security.
In terms of scalability, the entire Hacash technical architecture adopts an account model, supports various scaling technologies, and is designed to be technically simple. It features readable contract designs without the need for programming experience, optional privacy, equity account models, and one-way BTC transfer technology.
The second layer is a settlement network for channel chains, supporting high-speed payments in HAC and BTC.
The third layer is an application ecosystem scaling layer based on the first and second layers, supporting various Rollup technologies and multi-chain protocols.
The one-way transfer of Bitcoin implies that Bitcoin can utilize all levels of technical solutions in the new protocol, addressing the limitations of Bitcoin's technical architecture restricting its scaling.
Why Can BTC be One-way Transferred?
By breaking down the problems of Bitcoin into currency and protocol from first principles, using Hacash's one-way Bitcoin transfer as an example, we have arrived at an effective solution.
However, one crucial questions still need consideration: Will BTC holders continue to one-way transfer to Hacash?
Considering the answer to the question, we find that the one-way transfer process is solely and individually controlled by each Bitcoin holder. It is entirely voluntary and transparent, not enforced, and addresses and private keys remain unchanged. The remaining condition relies on providing sufficient value to incentivize Bitcoin holders
- Problem Resolution: To address the issue, it is essential to first ascertain that the new protocol can genuinely solve the three significant problems of Bitcoin without introducing new challenges. From a rational standpoint, it becomes worthwhile to transfer BTC.
- Win-Win Situation: In a win-win scenario, as BTC is one-way transferred, the quantity of BTC on the original protocol decreases, leading to an increase in value that aligns with the logic of BTC as a store of value. Simultaneously, the new protocol acquires BTC, enhancing the overall value of the protocol.
- Continuous Incentives: Taking Hacash as an example, the transferred BTC is used to issue additional HAC, providing a risk compensation for the transfer of BTC to the new chain. This follows an incentive gradient – the earlier the transfer, the greater the incentive. As more transfers occur and risks are mitigated to a certain extent, incentives gradually decrease, eventually issuing 1 HAC for every 1 BTC. Additionally, HAC, as a PoW-supported currency, can also reduce supply, generating additional benefits to continually stimulate holders.
- Minimal Impact: If the new protocol achieves ultimate success, the overall value will surpass that of Bitcoin's original protocol, enhancing the intrinsic value of BTC. In the event of the new protocol's failure, only a few, at most a few hundred BTC, would be destroyed. This is insignificant compared to the permanently lost BTC in Bitcoin's history, posing no threat to the value of Bitcoin and requiring no concern.
- Security and Reliability: There is no need to worry about the long-term operational maintenance of the new protocol after BTC is transferred. In the most extreme case, one can run a full node indefinitely on a regular computer, ensuring perpetual maintenance.
Pros and Cons of One-way Transfer
The process of transferring BTC one-way to Hacash for scaling is solely and individually controlled by each holder of Bitcoin. Everything is voluntary and transparent, with no external coercion, and both the address and private key remain unchanged. This avoids the implementation difficulties associated with complex BTC upgrade scaling schemes.
Additionally, in terms of non-upgrade scaling, it addresses the challenge of balancing strong scalability and ledger security, as well as the centralization management weaknesses in the 2-way peg of BTC in sidechain.
Furthermore, in terms of sustainability, one-way transfer relies not only on protocol application fees to incentivize users but also on the infinite supply of HAC.
More importantly, Hacash's one-way transfer resolves an issue neglected by other scaling solutions—Bitcoin's significant volatility and its inability to function as daily medium of exchange.
It can be said that one-way transfer of BTC to Hacash achieves optimal solutions in terms of BTC scalability, decentralization, ledger security, feasibility, sustainability, and monetary issues.
However, due to the limited mainstream attention on Hacash's protocol, skepticism persists, necessitating more widespread promotion.
Moreover, once a portion of the Bitcoin community recognizes the feasibility of the one-way transfer solution, the substantial transfer of BTC is likely to face strong opposition from vested interests and maximalists within the Bitcoin community. This opposition may involve misinformation campaigns and even upgrades to prevent the occurrence of one-way transfers.
Not everyone approaches these issues from the first principles of Bitcoin, leading to a potential ideological and political struggle within the Bitcoin community, possibly resulting in a division.
While one-way transfer aligns with the first principles of Bitcoin, the development of an effective solution requires starting from scratch and gaining broader understanding and acceptance. The impact of one-way transfer on Bitcoin's future depends on every Bitcoin holder, those concerned about Bitcoin, and enthusiasts of non-sovereign cryptocurrencies. Time will be the ultimate arbiter.
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