A recently published article in Deribit Insights reveals a potential systemic risk factor for Bitcoin.
The article was written by independent crypto researcher Hasu and focuses on the custody of BTC by third parties, particularly banks.
It all starts from the fact that, to date, no more than 4,400 transactions per block can be recorded on the Bitcoin blockchain, i.e. every 10 minutes or so, and that expansion of this capacity is not planned (unless using additional layers such as Lightning Network).
Hasu reveals that in reality this limit is exceeded mainly thanks to the use of offchain tools, such as banking custody services of BTC, and that the growth of this banking layer is beyond the control of the protocol, to the extent that it could become a systemic risk.
For example, one such tool could be the app of Bakkt, which will allow its users to exchange BTC without having to register transactions on the blockchain, making transactions fast and cheap.
In the future, it is very likely that most BTC exchanges will be offchain, and according to Hasu, most of these could take place at the level of bank custody.
The long-term stability of this scenario is linked to the fact that users can decide at any time to change custodian, but if this is not possible, or if it is slow, difficult or expensive, the power of control at this level will reside in the banks themselves, and in governments.
This could cause significant increases in the cost of exiting this system, as happened for example in 1933 and 1971 to gold.
Governments versus Bitcoin
In other words, governments would have the opportunity to harness the financial freedom that Bitcoin offers through banking control of the custody instruments of a large number of users.
In fact, Hasu points out that if a top layer becomes too large compared to the capacity of the bottom layer, people lose the ability to return to the bottom layer quickly and cheaply.
However, the researcher also proposes two possible solutions to minimize this systemic risk.
First, users could be discouraged from using bank custody services for BTC on a large scale by means of a narrative aimed primarily at new users.
This is probably already in place, although it does not seem to be having much success.
Secondly, a way could be found to keep the transition from the higher levels of custody to the basic level quick and easy, for example by allowing several users to share transactions so that more can be placed within the blocks.
To date, this risk seems real, albeit still very limited, while the two solutions proposed still seem a long way off.
There is time to intervene, and it is not even certain that the systemic risk could turn into a real and concrete problem.
However, there is still a lot of work to be done to make Bitcoin an asset really affordable for everyone, so that it is both safe and easy to use.