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Self-Custody Found Dead in Miami Condo - bluematt spiralbtc.substack.com/p/self-custody-found-dead-in-miami

1640 sats \ 12 comments \ @Scoresby 2 Oct bitcoin

zaps forwarded to @bluematt (100%)

BlueMatt still thinks self-custody is important

Between MSTR and the ETFs, it feels like a big wave of people who don't care about self-custody have come into Bitcoin. In addition, many of the solutions for using bitcoin as payments don't exactly live up to the decentralized, no-trusted-third parties vision. We don't want to lose sight of self-custody:

If we give up on decentralization, we lose the properties that make bitcoin bitcoin.

This is the foundation of Bitcoin: if it doesn't have censorship resistance, it doesn't have any value.

The state of self-custody

Surveying the Bitcoin landscape, BlueMatt doesn't like what he sees:

Maybe the most pernicious issue is trust. Not only is the ability to transact without trusted intermediaries a key goal of bitcoin, but increasing adoption of trusted systems drives centralization, **as trust does not scale. ** (emphasis mine)

I've heard people say things like "Trust is a scaling solution" before. I'm interested that BlueMatt is taking the opposite view here. He elaborates a little bit in the next sentence:

While it’s perfectly reasonable for many bitcoiners to use trusted intermediaries (leaning on trust, after all, makes many things more efficient), there will never be a world with many trusted options.

If by scaling, we mean more people thinking they are using Bitcoin, then perhaps trust does scale. But as far as Bitcoin is concerned 10 million new people using a new custodian looks like one new bitcoin user. In this sense, all those people being willing to trust their custodian didn't actually change the dynamics of Bitcoin. Trust doesn't actual scale Bitcoin, it just tricks us into thinking the system has scaled.

(Taking the opposite side of this argument, a little trust can make things so much easier...for instance, in the case of a state-chain, users kind of share pieces of a key to a utxo. The trust is that the statechain operator doesn't collude with other users to steal your bitcoin, you have to trust that the operator deletes records -- which is something you cannot prove. But by sharing the utxo in this way, users of the statechain can move many of their transactions off the bitcoin chain -- making them faster and cheaper.)

But it's worse than that -- trust begets more trust.

When counterparty trust is required, we inevitably see massive centralization as people prefer larger entities due to their accumulated social capital. This may leave some bitcoin in decentralized cold-storage, but when the only platforms through which bitcoin can be transacted are entirely KYC and AML, such bitcoin is effectively value-less; what is the point of a bitcoin in self-custody if you can’t use it?

You may remember when Wallet of Satoshi announced earlier this year that they were coming back to the US with a "self-custodial" app...except the app was using Spark as a backend, but even more than that it was set up in a way that the somewhat weaker decentralized properties of Spark didn't even really apply to WoS's users (#1020261).

There are a lot of wallets using more trusting solutions to provide convenient payment apps. The ecash wallets are one example of this (you trust the mint to always buy back your ecash tokens with sats), as is the Breez SDK (you either trust the liquid federation to let you trade LBTC for real BTC or you trust a Spark entity to not collude with other users to steal your sats). All these wallets provide a pretty good user experience, but is it worth it?

BlueMatt also addresses the reliance on LSPs. While perhaps less of sin against decentralization than the previously mentioned more custodial wallets, the fact is:

Every competitive mobile Lightning wallet relies on a centralized LSP.

I'll admit that I find the LSP model very convenient. I don't have to run a server. I don't have to think about channel management (as much). BlueMatt points out that it comes with risks -- when Phoenix pulled out of the US after the Samourai arrests, many users might have felt they were stranded. (Personally, I always used Phoenix via Tor and their announcement that they weren't servicing the US anymore didn't affect me -- however, it is the case that as the LSP they could have said we will only offer our services to KYC'd customers from now on, and shut all the channels that didn't KYC -- clearly a weak point in the system).

When the competition cuts corners, those who might not otherwise feel compelled to are forced to as well—the most trusted option is generally the most efficient.

@bluematt's post puts me in mind of @justin_shocknet's staunch defense of P2P Lightning as the only real, decentralized payments solution we've seen so far.

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202 sats \ 1 reply \ @anon 3 Oct

To the many bitcoin engineers working hard every day to build a future they believe in, how will you decentralize it?

This is an interesting way to end the article.

The majority of every-day people will never care about self-custody. They don't want or need it, and will never jump through the hoops.

In fact it is dangerous to sell people on self-custody when they don't value it themselves, because it often ends in a horror story of someone losing all their funds.

IMO, the "store of value" sales pitch is a massive LARP. Bitcoin is designed and built to be a payment protocol. It stores value for the purpose of payments, not your retirement account. There's zero protection against being hacked, phished, or losing your information.

Bitcoin is valuable because the code works as advertised and the tools are useful to those that need them. So the "builder's responsibility" really should be towards improving mining and payments, not self-custody.

As long as mining remains profitable and decentralized so that any transaction can find its way into a block in a reasonable amount of time, Bitcoin will be fine. Everything else is fiat games and kabuki theater.

100 sats \ 0 replies \ @Scoresby OP 3 Oct

As long as mining remains profitable and decentralized so that any transaction can find its way into a block in a reasonable amount of time, Bitcoin will be fine. Everything else is fiat games and kabuki theater.

I appreciate this take. My one question is how secure the consensus rules are if the only economic actors are large custodians?

If Bitcoin as a store of value is a larp, why not just use custodial bitcoin? Custodians have big budgets and can handle the infrastructure burden of lightning or other potential L2s. Why do we need self custody for payments? Presumably, if there were enough custodians to choose from, censorship wouldn't be a problem.

I don't really believe any of that last paragraph. Bitcoin needs widespread self custody to deliver on its censorship resistant value proposition as much as it needs widespread mining. And the store of value approach seems like the primary way we incentivize this. Thoughts?

222 sats \ 2 replies \ @justin_shocknet 2 Oct

I'm glad to see that Matt has been triggered by much of the Trustodial bullshit going on, notably fake L2's pretending to be Lightning... I've even had to throw him a few likes on Xitter recently.

But, he's also been one of the worst offenders in championing the normalization of mobile nodes, and it's precisely the delusion that mobile lightning are a workable thing that have brought us here. Literally every piece of trustodial bullshit and centralization is a workarounds for mobile node wallets. (See the bolt12 response I was literally just asked for moments ago #1245819)

I have for years pointed out that mobile nodes are unworkable, and that they are an attack on lightning by demonstrating it in the worst possible environment. They offer no utility for people that need to earn Bitcoin... and it is earning Bitcoin that is the gateway drug to self-custody and permissionlessness, and therefore decentralization.

Since mobile nodes are a dead end, and arrogant people like Matt have not-invented-here derangement syndrome, the "solutions" will continue to get more and more retarded with time.

LSP's

You might say that LSP's aren't a uniquely mobile thing, and that is true, but it's Matt's quote that prefaces that with mobile. Mobile nodes, existing only to sell services, are centralization toward specific LSP's.

Actual nodes designed as proper business tooling generally offer multiple LSP's in a marketplace, but can also offer more robust automation and discovery such that peers needn't be LSP's in the first place.

LSP's are less of a technical problem with mobile nodes, other than the fact that mobile nodes are inefficient and therefore the LSP's become so to, but rather they are the product of an an incentive problem that anyone pushing mobile nodes is guilty of contributing to.

17 sats \ 1 reply \ @Scoresby OP 2 Oct

offer no utility for people that need to earn Bitcoin

I came up against this in the early years of selling my posters. For the number of sales I was doing (not many), running a node on a server was not worth the effort. But I wasted a ton of time trying to figure out how to get a mobile lightning wallet to work for async receive.

For lightning to be a gateway drug, users need to be able to download a wallet and start receiving (even if the app isn't open on their phone).

240 sats \ 0 replies \ @justin_shocknet 2 Oct

Indeed, the juice needs to be worth the squeeze, and that directs all of our efforts in Lightning.Pub

The <1 minute, 1 line setup takes the effort down a bunch of notches
Using nostr instead of a regular web server to power website-based access takes it down a bunch more notches
Ability to share easily it disperses the costs of the "server" (old laptop, rpi, cheap vps) and the channel liquidity... and actually it can be a profit center depending who and how many people you share it with
Offers with webhooks make it relatively simple to hook into sales workflows, for example, a payment to an offer can pipe data out and trigger another application/service that actually fulfills the order
Bootstrap mode provides the convenience of custodial for those first receives, but with automation to keep it deminimis and decentralized (WoT roadmap)

102 sats \ 1 reply \ @Car 2 Oct

Bitcoiners migrating to use fully-trusted, often fully-custodial systems operated by anonymous third-parties is obviously absurd, which leaves every trusted system that sees use in practice compliant and antithetical to bitcoin’s principles. This may leave some bitcoin in decentralized cold-storage, but when the only platforms through which bitcoin can be transacted are entirely KYC and AML, such bitcoin is effectively value-less; what is the point of a bitcoin in self-custody if you can’t use it? You might as well keep your bitcoin on paper with an ETF.

💫 All this has already been decided. This is why you play a different game then the one that is being played.

Its wild to me that some people didn't see this coming in 2023 when the ETF was announced.

0 sats \ 0 replies \ @Scoresby OP 2 Oct

I'm somewhat slow on the uptake. You see

You might as well keep your bitcoin on paper with an ETF.

As the most likely future to which we are headed?

102 sats \ 3 replies \ @SimpleStacker 2 Oct

I'm a bit more optimistic than this.

I think the option to do self custody can itself have very powerful constraining effects on intermediaries, even if very few people use self custody: #1030571

This only works though if people are at least aware of self custody, and if it's not too difficult to do self custody. So we need to keep developing self custody tech.

To me, the tricky question is how we can fund self-custody development when that's gonna be a minority option which isn't well compensated in the marketplace.

112 sats \ 1 reply \ @standardcrypto 2 Oct

2 main solutions:

-- attack existing exchanges and custodians -- start exchanges and custody services with fake credentials and nice UI/Ux and exit scam users.

that will motivate self custody.

since many bad actors will continue to do this as long as we have big centralized exchanges and custodians, I have zero worries about the long term widespread and somewhat default adoption of self custody.

the only other thing is to keep it cheap enough to transact self sovereign, that is a technical and engineering issue but I think we are doing well enough there also.

0 sats \ 0 replies \ @Scoresby OP 2 Oct

since many bad actors will continue to do this as long as we have big centralized exchanges and custodians, I have zero worries about the long term widespread and somewhat default adoption of self custody.

Bitcoin really is for enemies! This is a very interesting way of thinking about it. A Is the friction of Bitcoin's self custody UX a feedback loop that promotes...self custody?

102 sats \ 0 replies \ @fourrules 2 Oct

The problem with optionality is that if it's not used then over time it can disappear within notice.

I can't imagine that happening in bitcoin, but it might happen without the mainstream noticing, even after a bitcoin standard.

0 sats \ 0 replies \ @035736735e 2 Oct outlawed

stackers have outlawed this. turn on wild west mode in your /settings to see outlawed content.