My #Bitcoin thought of the day: abstraction killed the gold standard.

How does this relate to Bitcoin? For now, mere mortals can still use on-chain transactions semi-regularly. However, once the price goes up an order of magnitude (or two), transaction fees will likely become so high that very few will be able or willing to afford regular transactions on level 1.

This will be a dangerous transition for Bitcoin, because in this setting, fewer people will run their own nodes. You could argue that people will still need a node to go with their lightning node, but when opening/closing channels is very expensive, managing your own LN node will also take a big hit. As a result, most Bitcoin end users (all but the biggest players) will likely transact in custodied layer 2 or layer 3, i.e. several layers of abstraction removed from Bitcoin.

We should be mindful that abstraction was a key element in the failure of the gold standard. Physical gold became pieces of paper representing stored gold, which became pieces of paper printed at will; people adopted the abstraction of the pieces of paper over the years, and didn't notice the bait and switch when the time came.

Could the same thing happen to Bitcoin? It could if we are not careful, if people forget what Level 2/3 sats represent. Luckily, Bitcoin has the advantage of being much more easily auditable than gold. Nevertheless, auditABLE does not mean regularly and systematically auditED. Level 2/3 sats should always map to the base layer, and we should always demand easy verification of this by the end users.

Never forget layer 1!

Cheers #nostrplebs