As Bitcoin Scales, We Need Better Custodial Solutions

The recent surge in Bitcoin transaction fees has sparked a heated debate among the cryptocurrency community. The reason for the rise in fees is the increased use of non-fungible token-like “inscriptions” and the BRC-20 token standard on Bitcoin, which has caused normal fee rates to become comparatively absurd. This has led to a lot of frustration and anger among Bitcoin users, who are used to lower fees.

The underlying issue is the scarce blockspace on the Bitcoin blockchain. The question of whether Bitcoin can handle the increased demand for blockspace has been a point of contention for years. While solutions like Segregated Witness (SegWit) have been introduced to address transaction malleability and other issues, there is still no clear solution to the problem of high transaction fees.

Some argue that the Lightning Network is a solution to the problem. While the Lightning Network can provide fast and cheap transactions, it requires initial transactions to be sent on layer 1 of the Bitcoin blockchain, which can be expensive. This has led some to suggest third-party custody as a way to avoid the high fees on layer 1. However, this goes against the original purpose of Bitcoin as a peer-to-peer version of electronic cash.

The trade-offs between custodial and non-custodial solutions need to be carefully considered. While custodial solutions may be easier to use, they come with a loss of financial self-sovereignty. As such, we need to be more open to discussing custodial solutions and their potential trade-offs. Ultimately, we need more clarity and options to make informed decisions about how we use Bitcoin.