ETFs are Just a Custodial Abstraction of Bitcoin \ stacker news ~bitcoin

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ETFs are Just a Custodial Abstraction of Bitcoin

2262 sats \ 10 comments \ @kepford 12 Jan bitcoin

After marinating on many comments on "ETFs are just a custodial layer 2" my thinking on the semantics of L2s has changed. Language is fluid and anarchic. There are no rulers in language. Language is very much a social consensus. This is why communication falls apart when we can't agree on the meanings of words or at least understand what meanings others attach to words. My goal is to communicate effectively and learn from what others share. @Lux and @kr spurred new thoughts about how to classify the ETF in relation to bitcoin L2s.

My post yesterday was not about whether or not people should buy the ETF, is it good or bad, or are you dumb if you invest in one. It was about how to think about it in relation to other bitcoin related products, projects, and protocols.

ETFs are not new. There are ETFs for many assets. Lets think about Gold. Gold is physical. Unlike bitcoin you can't really have a second layer to gold in the way we have L2s for bitcoin. Lightning is connected to the main chain. Gold ETFs are an abstraction. They are paper agreements. You do not have physical control over the gold. You do however have a contract. ETFs allow people an easy and "legal" way to trade/speculate on something. Bitcoin fixes this. You do not need to need to depend on authorities, law, or trust third parities. Acquiring, holding, and transacting bitcoin is not hard. However, it is different from what most people are familiar with.

Increasingly I think about bitcoin as a new element. A digital element that has utility and value. With that in mind, in a free society people will come up with all kinds of ways to interact with it. They will come up with scams, investment mechanisms, and products. Depending on your economic world view this is what the ETF is. It is the existing tradfi world adopting bitcoin. Clearly there is a market for the ETFs. But, none of this makes the ETFs a L2 like lightning. I now think referring to them as L2s muddies the waters and will lead to a lot of confusion.

I think @TheBTCManual said it best.

I like to think of it as a social layer, to me an uncle jim node is a social layer, you agree with a 3rd party and you have a contract and would need to go the legal route for disputes since don't have ties to the chain in some way to settle the dispute.

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10 sats \ 1 reply \ @galt 14 Jan

Layer 2 is about spending, gold notes and LN are all about making gold and BTC easier to spend, ETFs do none of that they only give an exposure to the price of BTC

0 sats \ 0 replies \ @kepford OP 14 Jan

Good point.

31 sats \ 5 replies \ @Undisciplined 12 Jan

you can't really have a second layer to gold in the way we have L2s for bitcoin

That's definitely true from a technical standpoint. Conceptually, though, gold notes were very similar to an L2, right? Hypothetically, there was a lump of gold somewhere that corresponded to the gold referenced in the note. Of course the unsolvable problem was issuing multiple notes on the same gold.

449 sats \ 4 replies \ @kepford OP 12 Jan

It's a social layer.

33 sats \ 3 replies \ @Undisciplined 12 Jan

I'm fine with that terminology. Just trying to get concepts and terms straightened out, too.

449 sats \ 2 replies \ @kepford OP 13 Jan

What I think is that the ETF is more like a gold note. Legally the ETF manager you buy from is required to acquire btc. This is enforced by a social layer. Not a cryptographic one. Banks that issued gold notes could cheat. ETF managers could as well. Governments could take the gold in the banks. They could also take the BTC on Coinbase.

Is see the two as very similar. That is if I am understand them correctly. However this illustrates to me the wisdom of self custody.

Stay humble, stack sats

10 sats \ 1 reply \ @Undisciplined 13 Jan

I agree. One notable difference between gold notes and the ETF is what investors are entitled to.

If you caught someone forging gold notes, they would be required to compensate you in the amount of gold specified.

If you catch an ETF manager cheating, they would be required to compensate you in fiat (and probably less than the amount you'd need to actually buy the quantity of Bitcoin they were supposed to be holding).

26 sats \ 0 replies \ @kepford OP 13 Jan

Yep. Good point.

10 sats \ 0 replies \ @jakoyoh629 12 Jan

100 %

41 sats \ 0 replies \ @Lux 12 Jan freebie

To exchange unlimited for limited responsability is to exchange freedom for slavery.