Ep. 761 Bitcoin Has a BIG Problem Nobody Wants to Talk About

Paul Stortz argues that Bitcoin’s success has encouraged complacency: a project that rose from about $0.10 to $100,000 and roughly $2 trillion in market capitalization increasingly behaves as if it has already won. He says Bitcoin culture shifted from making the network succeed to assuming its success was assured. He sees the same confidence in slow development: SegWit took about 26 months from proposal to activation, and Taproot took 40 months or longer. Bitcoin Core releases still arrive about every six months, but he describes the project as risk-averse, short on leadership, and inclined to take the path of least resistance.

Stortz’s sharpest criticism is that Bitcoin’s dominant scaling option, Lightning, does not work as advertised. He says bidirectional payment channels and HTLCs have serious limitations, and estimates that fewer than 0.5% of the world’s population could open and maintain a channel. When Layer 1 fees are high or volatile, he argues, enforcing an HTLC dispute can cost more than the value a user could recover. He also alleges that some custodial Lightning apps provide app credit without opening channels or giving users bitcoin, while presenting the service as Lightning. He favors a stable, conservative Layer 1 with faster, riskier layers above it, including clearly identified custodial services and sidechains.

He says Bitcoin-linked sidechains could offer features resembling Monero or Solana while using BTC rather than issuing their own tokens. In his account, Blockstream’s 2014 sidechain paper treated a federation as temporary, but federation-based Liquid became the lasting model. Liquid relies on 15 key holders to control BTC moving in and out, he says, so users have limited recourse if the federation does not cooperate. On the incident discussed, the host said several million dollars may have been involved and roughly 4,000 BTC may remain unrecovered; Stortz said a hacker returned 3,400 BTC and predicted the person would keep 600 BTC.

Stortz contrasts Liquid with Drivechain, his proposal for connecting separate chains to Bitcoin. He says miners would oversee the process publicly and transparently, though more slowly, and could be replaced if they stopped doing the required proof of work. He published the idea in 2015; Layer Two Labs, which he says began around 2022, developed example software and an activator but did not win adoption of BIPs 300 and 301. He attributes resistance to Drivechain, OP_CAT, and OP_CTV to misunderstanding and conformity, and says Bitcoin now struggles to adopt both hard forks and soft forks. He also argues that Ethereum handles Layer 2s more flexibly because it does not insist they must be payment channels.

Layer Two Labs also works on eCash, which Stortz presents as a more confrontational alternative to changing Bitcoin from within. He describes its Layer 1 software as essentially identical to Bitcoin Core, with Drivechain, OP_CAT, and quantum-resistant signatures added through a separate, optional activator. He calls this “softwork” ignorable and reversible, and claims it has brought Bit 300 to Bitcoin without changing Bitcoin Core code. He says an eCash hard fork was scheduled for October 31, with Bitcoin holders able to receive eCash automatically, but acknowledges that Bitcoin supporters strongly dislike the idea. He also expects a quantum-related upgrade debate to be psychologically painful, noting that Michael Saylor’s opposition to changing Bitcoin conflicts with his expectation that developers will make a quantum-related fix.

Stortz sees a trade-off between direct ownership and intermediaries. He says ETFs offer a closer pass-through to Bitcoin than treasury companies, while direct ownership avoids ETF agency costs but requires users to secure private keys. Treasury companies, in his view, add overhead without a clear comparative advantage: their shares are not claims on a fixed amount of bitcoin because companies can issue more shares. He says their MNav rose from 1 to 2 and later returned to 1, and argues it could ultimately be 1 or zero rather than the 10 or 20 suggested by one CEO. ETFs may suit people who want a specialist to manage custody, but intermediaries bring agency, tax, access, and paperwork risks. He regards learning to use a full node and generate keys as part of owning money, while acknowledging that Bitcoin has not made those practices easy.