DrZhivago on Nostr: My thesis on UTXO size depends on Bitcoin's adoption. We are currently in an era of ...

My thesis on UTXO size depends on Bitcoin's adoption. We are currently in an era of abundance for UTXOs. At some point in the not so distant future, they will become scarce. Leaving many people in trouble with economically unviable BTC dust. This will lead to centralization of holders on the base chain, with decentralized holders on a second layer or sidechain or what-have-you. Centralized holders will be able to make high fee bids, but it is also possible that they may not need to, as traffic is pushed off the base layer.

So for now fees are able to be nominally high in BTC and nominally high in USD. However as the demand increases and supply diminishes, I expect BTC fees to be nominally lower and USD value to be nominally higher. Very few people will ever custody .5+ BTC. Very few entities will be able to pay fees in the .5+ range. So fees will have to go one of two directions:

Centralized entities and/or federated groups compete for large amounts of blockspace with high amounts of BTC. (Whale wars)

Centralized entities and/or federated groups do not have to compete for blockspace with high amounts of BTC, because BTC becomes so concentrated in the hands of a few on the base layer, that blockspace actually becomes more abundant again. BTC continues to accrue value when measured against every other asset, but this also means less BTC is needed to represent high value. So fees may actually nominally reduce in the long-run, but the perceived value of those fees dramatically increases. (Concentrated Abundance)

Most of the world will never know what it means to custody .01 BTC personally. It is simply too scarce of an asset. There may only be 1.5 Billion UTXOs the size of .01 BTC (considering lost BTC). We are heading towards a population of 10 Billion. So most of the world will never transact on the base layer. This may not happen in our lifetimes, but it is inevitability going to play out this way. The adoption of BTC is what determines the pace of base-layer exclusivity. The more BTC is adopted, the faster people get priced out of the base layer.

I expect this to play out over the next 10 years, and by then we will know the direction we're headed. Either Whale Wars or Concentrated Abundance. If we go into Whale Wars, .5 BTC may not be a high enough UTXO. If we go into Concentrated Abundance, .5 BTC will be way too much for a UTXO. For now I think .01 or .05 is sufficient. You can always consolidate UTXOs if things start going crazy. Individuals such as you and I will have to cooperate in federations either way, which will combine UTXO sets. Individual transactions will become economically unviable in both versions of my future guesses.

It's hard for us to imagine a world of abundance because we have been living in scarcity for so long, and our current institutions/behavior reflect that. Our standard mode of operating is being challenged. Guessing future UTXO sizes is a guess on human behavior, and we are a fucking insane species.