I wanted to share some thoughts on a seemingly overlooked innovation that came to Bitcoin over the past year, called Bitpacs.
Bitpac stands for publicly auditable cooperative based on Bitcoin. Bitpacs are essentially multi-signature Bitcoin wallets with the added introduction of public auditability. Traditionally, in a multisig setting, multisig participants are not exposed. In Bitpac multisig, participants are intentionally made public, allowing for transparent auditability. Through this transparency, it becomes possible to provide unique features, tools, rules and transaction formulation. Bitpacs' goal is to emulate the DAO experience familiar to other chains.
DAOs are marketed as decentralized autonomous organizations. However, Ethereum and other altcoin-based DAOs only inherit the “decentralization” of their chain, so they will not be as decentralized as the same experience built on Bitcoin. DAOs are not autonomous either, as humans control and shape the decisions they make. Bitpac's definition is a more honest interpretation of the technology involved and I think in the end it will be a better experience for users.
Why should Bitcoin users care about DAO? As of February 18, 2024, the Ethereum DAO holds over $35 billion in treasury funds. There were millions of DAO proposal makers and voters, and hundreds of millions of dollars were transacted through DAO governance. (Source) There is a clear demand for cross-chain governance and community management, and Bitpacs allows that to come to Bitcoin.
How does Bitpac actually work?
Although Bitpacs do not directly use smart contracts on the Bitcoin blockchain itself, they achieve similar functionality as DAOs through a set of carefully designed multisig wallets and Bitcoin transactions. Possible structures with this include most of what DAO does:
- Multisig ensures that no one unilaterally controls any of Bitpac's funds, requiring a quorum limit to spend anything.
- Signature thresholds that define the number of signatures needed to finalize a transaction (3 out of 5 or 6 out of 10 for example) can adjust the required voting thresholds in line with Bitpac's specific consensus requirements.
- Time limits can be applied to voting rounds, terminating the signing process for proposals that do not reach the signature threshold by the end of the voting period.
- Bitpacs membership linking can be done based on certain platform-level criteria, such as unique assets held, Bitcoin contributed to the vault, or known wallet addresses, all of which can be verified on-chain.
- All these dynamics that cannot be enforced through a Bitcoin script or pre-signed transactions, and which have to resort to social enforcement, can be verified transparently on-chain ensuring that violations of Bitpac rules are detected.
What can Bitpacs do on Bitcoin?
Bitpacs opens exciting possibilities for Bitcoin users:
- Community-Based Funding: Fundraising for public goods, projects or charitable causes becomes more efficient and secure with Bitpacs. Contributors can trust that funds are being used as intended, thanks to the transparent nature of multi-signatures.
- Decentralized Governance: Bitpacs empower communities to make collective decisions regarding money allocation and spending. Voting rights are distributed among keyholders, ensuring a transparent and verifiable process.
- Increase trust and collaboration: By removing the ambiguity often associated with traditional financial systems, Bitpacs build trust and foster collaboration between individuals with shared interests, and do so fully across the chain.
Some specific examples of Bitpac use cases include:
- Open source development funding: Developers can create Bitpacs to receive community funding for their projects, with transparent spending records ensuring accountability to their backers.
- Manage Community Coffers: Any organization can leverage Bitpacs to transparently manage their funds, allowing members to track spending, create proposals, and participate in decision-making.
- Crowdfunding: Bitpacs can be used as a means of crowdfunding Bitcoin from a group of supporters for a common goal, company, investment fund, or pre-determined project.
The main lesson the industry has learned over the past year has been how much innovation and experimentation can still be done on the original Bitcoin without requiring any changes to the network. We've seen huge interest in BitVM, Ordinals, blockchains, sidechains, layers, and meta-protocols, all within the existing Bitcoin consensus. It is clear that there is a Cambrian explosion in developer and user interest in Bitcoin that is not slowing down anytime soon. Tens of thousands of new niche communities will emerge on Bitcoin in the coming years. This does not include traditional companies that continue to trend towards adopting Bitcoin over time. Bitpacs can offer them all with community organization, treasury management, and online governance.
Thousands of ideas “built on Bitcoin” should have one thing in common, which is the final settlement on the base layer. Different approaches to governance will be tried over time, but this is why Bitpacs could be the superior model. Bitpac members have direct voting access to the treasury and transactions take place on the underlying layer; There is no sidechain, layer, or additional protocol that Bitpac members need to trust. In this cycle, people will likely start to realize that Bitcoin block space is just as rare as Bitcoin. As we move more towards a hyper-bitcoin world, where states and national institutions transact, I think Bitpacs that represent large community or entity vaults will be one of the few things that justifies happening at the base layer.
–
Anyone can create Bitpacs on their own. @Tribe_btc is a central project I'm working on with the goal of creating a complete toolkit for Bitpacs. Tribe will be releasing our Bitpac documentation soon.
Written by Dillon Healey
BD / Partnerships BTC Inc. @dillonhealybtc
