2024.12 Vol.2

The Sovereign Stack

I did a dive into the crypto behind ecash and its simplicity is really great. But how could something with such different guarantees fit in the bitcoin ecosystem? The term “layer” is a bit abused as different tech explorations look for the right balance building on bitcoin. Exactly what counts as a layer is still up in the air. The lightning network is the most successful so far and a distinction it makes is that either party of channel can always unilaterally exit. If a user cannot pull their funds out of a layer back to their complete control, it might not be a layer.

Ecash involves a custodian so there is definitely not a unilateral exit path. So probably no chance to describe ecash as a layer, but maybe it is part of a stack? Ecash and lightning mirror (if you squint a bit) some of the traditional finance machines. Ecash mints are kinda similar to banks and lighting channels sound a lot like the ACH (Automated Clearing House) network between banks. But the banks and ACH are based on the centralized fiat dollar. You can’t just go starting a new bank and join the ACH network, only the big players are allowed in. Whereas ecash mints and lightning channels are bottom up, grassroots network. Anyone willing to pay the cost of a UTXO and manage a server can be the mint. This naturally leads to a more decentralized, robust network.

I spent some time working on trying to make the lightning network’s “last mile” challenges hidden from end users. While I believe the cost of using the lightning network will continue to go down with upgrades, I don’t think it will ever reach a point where every user is running a node on their phone. Even if “virtual” UTXOs become a thing and simpler channel management with PTCLs, there are still costs which most users will probably not want to deal with. But does the bitcoin ecosystem need everyone using the same stack? Maybe the full sovereign stack becomes a bitcoin node, with a lightning node, and an ecash mint. A sovereign individual or company is willing to run this stack and maybe even turn a small profit off of it. Not everyone needs to run this, just enough.

downsides

While ecash has some strong privacy benefits, it is not a perfect system. It shares some of the network metadata leaks I have wondered about in the past. It is hard to do something in a network without giving away your return address! While the ecash protocol (e.g. cashu) keeps data hidden from the mint, the mint could still collect the metadata of who is talking to it.

This does appear to be a general weakness of the stack. It would be powerful to find an implicit, general privacy solution rather than count on stuff like an external, centralized VPN (which is kicking the can on who you are trusting).