Quantum computing remains a concern for the Bitcoin and cryptocurrency market as a security risk to the underlying cryptographic technology. However, a new concern has emerged with the controversial 'Cat' Bitcoin Improvement Proposal (BIP), sparking intense debate among developers over whether to permanently consider millions of outputs related to inscriptions as unusable.
This BIP draft raises important issues related to property rights and the core principles of Bitcoin as a countermeasure to the blockchain bloat problem. The community's response ranges from strong support to warnings that it could create risky precedents.
Bitcoin developers discuss "The Cat" proposal aimed at addressing UTXO spam.
All Bitcoin transactions consume coins obtained from previous transactions. The output of a transaction indicates the amount of Bitcoin allocated to a specific address. If the output has not yet been consumed, it becomes an unspent transaction output (UTXO).
In other words, UTXOs are part of Bitcoin that can be used in the future.
This proposal addresses the UTXO problem in Bitcoin, which has more than doubled to over 1.6 million in 2023, much of which is due to ordinals and Bitcoin stamps.
In recent years, the number of unspent transaction outputs in Bitcoin (UTXO set) has increased significantly, posing challenges for node operators and miners. According to draft discussions, UTXOs increased from around 80 million to over 160 million in 2023.
Currently, nearly half are below 1000 Satoshis, and many are used for storage rather than monetary transactions.
The main cause of this increase is ordinals that store data in the Taproot witness field and Bitcoin stamps that generate unconsumable outputs using disguised bear-type multisig addresses.
These methods evade rules like OP_RETURN that restrict non-monetary data. The 80-byte relay restriction imposed by OP_RETURN contributed to bloat suppression, but it has become possible to record arbitrary data by exploiting new transaction formats.
This impact is significant. Each node needs to load the entire UTXO set to verify transactions, increasing costs for miners and those operating multiple nodes.
Bitcoin developer Mark Erhardt described the use of UTXOs for stamps as "one of the more malicious uses of the blockchain from a technical perspective."
Historically, Bitcoin prioritized monetary transactions and imposed restrictions on data usage. Greg Maxwell, a Bitcoin Core developer, states regarding the OP_RETURN limitation, "The fundamental policy here is to encourage behavior towards conservative needs."
However, both ordinals and stamps circumvent these rules, pushing for stricter measures, namely the discussion on the introduction of 'Cat.'
"The Cat" BIP proposal details
This proposal introduces non-monetary UTXOs (NMUs) by allowing indexers to set NMU bits. This will identify inscription-related outputs, making them unconsumable and unusable as transaction inputs.
Nodes can remove these outputs, reducing storage burdens and costs.
"The new BIP proposal 'Cat' aims to fundamentally address spam from ordinals and stamps on Bitcoin by freezing Satoshis with consensus. This means permanently rendering millions of small UTXOs used for data storage unconsumable, removing them from circulation and creating an unprecedented situation of Satoshi's de-monetization," posted Livecoins, a popular account on X.
Classification is based on a value threshold, focusing on UTXOs of less than 1000 Satoshis during a specific period. Once this feature is activated, nodes will ignore these NMUs during transaction verification.
Supporters appreciate that it serves as an economic spam deterrent without repeated technical filtering. Supporters like TwoLargePizzas argue that the benefits extend beyond a one-time cleanup.
By explicitly stating that Bitcoin rejects non-monetary bloat, 'Cat' could serve as a future spam deterrent. Nona YoBidnes points out that spam accounts for 30% to 50% of all UTXOs, and this proposal sends a "strong anti-spam message" to the network.
BIPs target millions of unspent dust outputs, each consuming valuable resources. For large service providers, this cumulative burden translates to actual infrastructure costs, and the synchronization time for new participants' nodes also increases.
Issue: Property Rights and the Core Value of Bitcoin
Opponents claim that the proposal represents a dramatic change to the essential nature of Bitcoin. Greg Maxwell, a major developer and privacy advocate, points out that the justification for "invalidating UTXOs" for minor storage reductions is weak, characterizing it as "asset confiscation" that undermines Bitcoin's values.
Developer Ataraxia 009 warns that this change could be a "slippery slope." Freezing certain UTXOs at the consensus layer could open the door to future acceptance of coin confiscation.
This issue resonates strongly with communities that emphasize resistance to censorship and asset confiscation.
The focus of the discussion is whether Bitcoin should distinguish transaction types at the protocol level.
Supporters see it as an attack that should prevent inscription spam, while opponents warn that it could allow the protocol to exercise discretion over the legitimacy of all transactions.
If the network allows for the exclusion of Satoshis based on their use, there is a risk of developing more extensive interventions.
The debate further touches on the philosophy of what Bitcoin's essence is. Is Bitcoin merely a monetary system, or does censorship resistance apply to all legitimate transactions?
Supporters cite the tradition of data storage limitations, while opponents emphasize the fact that ordinals and stamps are valid under current rules.
The solicitation of opinions from the community continues during the draft deliberation, with a multifaceted evaluation taking place before the formal BIP submission. The final conclusions will affect not only technical choices but also how Bitcoin balances core values with practical operational needs.
Regardless of the fate of 'Cat', this discussion highlights the fact that Bitcoin is facing tensions between efficiency and principles as it continues to scale, along with new challenges.
