paranoidcoder on Nostr: Progressive Self-Custody A concept that I’ve been thinking about more and more ...

Progressive Self-Custody

A concept that I’ve been thinking about more and more recently. As Bitcoin becomes more widely adopted, onchain fees will continue to rise. As onchain fees rise, people will naturally become priced out of using the base chain. If Bitcoin is to truly become global money, there must be a path to self custody for every user, not just the rich ones.

We can theorize about how people should acquire sats in a non-custodial manner, but the reality is that most will get their Bitcoin through centralized exchanges. Best practice is to move your coins into self custody as quick as possible, but when transaction fees are higher as they’ve been lately (Coinbase estimated a $7 fee yesterday) then the fees can considerably cut into your purchase. Lightning offers dramatically less fees, but most implementation that users are utilizing are centralized non-custodial solutions which aren’t much, if any, of an improvement in terms of self-custody.

A desirable solution could be to withdraw your coins to a Bitcoin layer 2 after purchasing, and then transfer the funds to the base chain once you have accumulated enough for the transaction fee to be worth it. The main issue is that there aren’t many exchanges that allow users to withdraw to Bitcoin layer 2’s. However, Aqua Wallet has proposed an interesting solution to this problem. By utilizing Boltz, Aqua users can receive Bitcoin on the Liquid layer 2 via a Lightning transaction. Once enough funds are saved up, the user can then use Boltz directly to make an on chain transaction to swap Liquid Bitcoin to the main chain.

This approach is considerably more self-custodial than most of the popular Lightning solutions, and as more layer 2’s come online and gain popularity, I expect Boltz will support them in the same manner. While on chain fees are getting higher, the future is still bright for self custody.