Bitcoin Audible Read_905 - The Cost of Self Custody
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Sep 30, 2025 Can self-custody really stand the test of rising Bitcoin fees? This discussion unravels the hidden costs and complexities of enforcing on-chain claims, highlighting the blurred lines between custodial and non-custodial systems. Discover the intriguing dynamics of small off-chain balances and the 'Mexican standoff' they create. The idea of covenants as efficiency tools is explored, alongside insights into Layer 2 solutions and market adaptations like insurance and multi-sig. Ultimately, Bitcoin's future may prioritize high-value transactions over retail use.
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Enforcement Costs Define Self-Custody
- Enforcing ownership on-chain costs real fees that grow with transaction complexity.
- If enforcement costs approach the value held, that value effectively cannot be self-custodied.
The Mexican Standoff Of Small Balances
- Small balances in Layer 2s live in a Mexican standoff where nobody can cost-effectively seize or redeem them.
- These balances work only while parties cooperate; if cooperation breaks, the value can evaporate.
Fees And UTXO Sharing Multiply Exit Costs
- Rising fee rates and tree-like UTXO sharing both push non-cooperative exit costs higher.
- Even with protocol improvements, a single on-chain exit will remain expensive in high-fee environments.