It\u2019s a fair question to ask why this might pose a problem at all. Hal Finney certainly didn\u2019t seem to imply so in his own aforementioned post. <\/p>\n

Returning to the Bitcoin Standard, Ammous dedicates a significant amount of the book\u2019s opening chapters to discussing the history of the gold standard, its strengths, and most importantly its weaknesses. Crucially he identifies the Achilles heel: Gold was simply too expensive to secure and difficult to transact with in meaningful quantities. <\/p>\n

As a result, paper money technology first came to be used as convenient IOUs for gold, which itself was stored in centralized locations specialized to the task of guarding and transferring large amounts of gold as needed. Over time as technology improved and commerce became more global, these centralized custodians only continued to grow, until they were all eventually captured by States through regulatory power and later outright fiat, which completely severed the new fiat money from the underlying gold backing. <\/p>\n

In projecting the future for Bitcoin in its current state, we can see a very similar outcome unfolding. There might not be a cost issue with the storage<\/em> of bitcoin using private keys and mnemonic phrases, but in our hyperbitcoinization scenario the ability to transact<\/em> with self custodied bitcoin quickly evaporates for all but the institutions and the super wealthy who can afford the fees, even when using Lightning. <\/p>\n

The consequences are much the same as they were under a gold standard. Platforms like Coinbase or Cashapp will take center stage, given transactions within their custodial platforms have zero marginal cost as they are just tracked in a central database. Cross platform payments can also be aggregated between these platforms with Lightning channels or on-chain payments extremely cost effectively. The result is a landscape that is not all too dissimilar from the state of the gold standard in the early 20th century, with most supply held by large custodial institutions which States could trivially influence, coerce, and capture. <\/p>\n

To return to the question of the biggest threat to Bitcoin: In this future, there\u2019s zero necessity in attacking the base layer if the only ones that can actually use it are large known entities with everything to lose. <\/p>\n

To be sure, substantial differences from the original gold standard would in fact exist. Transactions being natively digital, proof of reserves being possible, and the supply being completely transparent are notable improvements over the gold standard. Still, none of these differences impact our self custody conundrum in any way. As far as the vision of Bitcoin being a censorship resistant money, once the vast majority is held by trusted third parties, there is nothing stopping States from strictly enforcing transaction monitoring, asset seizures, and capital controls. There is also nothing stopping them from enabling and even encouraging fractional reserve policies in the interest of prudent economic management. <\/p>\n

Crucially, in the event of these actions, the vast majority of users would have no ability to opt out by withdrawing funds to their own custody.<\/p>\n

It\u2019s not all bad. In this scenario, bitcoin the monetary unit still appreciates by leaps and bounds. Everyone who\u2019s humored me this far with their attention will still likely stand to financially benefit immensely in this future. <\/p>\n

But is that it? <\/p>\n

Is the vision of Bitcoin as a foundational tool for censorship resistance, and separating money and State, dead? <\/p>\n

If we continue to deny, or worse encourage, the current trajectory, then there\u2019s zero doubt that it is. But it doesn\u2019t have to be. <\/p>\n