Original title: "CAN BITCOIN BE A PRODUCTIVE ASSET?"
Written by: Pascal Hügli
Compiled by: Chris, Techub News
Bitcoin is experiencing a big change changes, people have different views on its nature. Some see it as a currency for daily transactions, others see it as a modern equivalent of gold as a store of value, and still others see it as a decentralized global platform for securing and verifying what happens Transactions outside the blockchain. While these views all reflect the characteristics of Bitcoin to some extent, Bitcoin is increasingly establishing itself as a digital base currency.
Operating similarly to holding physical gold, acting as an inflation hedge, and providing a monetary unit similar to the U.S. dollar, Bitcoin is redefining the concept of a monetary base asset. Its transparent algorithm and fixed supply of 21 million coins ensure that it is not a monetary policy that can be changed at will. In contrast, traditional fiat currencies such as the U.S. dollar rely on centralized authorities to manage their supply, which raises questions about their predictability and effectiveness in an era of volatility, uncertainty, complexity, and ambiguity. doubts.
This comparison is especially noteworthy because Nobel Prize winner Friedrich August von Hayek criticized centralized monetary decision-making in his work "The Pretense of Knowledge". Bitcoin’s transparent and predictable monetary policy contrasts with the ambiguity and potential unpredictability of traditional fiat currency management.
For staunch Bitcoin supporters, the unchangeable supply of 21 million coins is “sacred.” Changing this would fundamentally change Bitcoin, making it something completely different. As a result, skepticism about leveraged Bitcoin is widespread within the Bitcoin community. Many believe that any form of leverage is similar to fiat currency practices and undermines Bitcoin’s core principles.
This suspicion of leveraged Bitcoin is rooted in the distinction between commodity credit and circulation credit described by Ludwig von Mises. Commodity credit is based on real savings, while circulation credit lacks such support and is similar to an unsecured IOU. Bitcoin supporters believe that leverage will create "paper Bitcoins", which are economically risky and unstable.
Even nuanced views within the community are wary of leverage, agreeing with figures like Caitlin Long, who has been warning of the dangers of leveraged Bitcoin. The collapse of leveraged Bitcoin lending companies such as Celsius and BlockFi in 2022 has further reinforced the concerns of Caitlin Long and others about the risks of leveraged Bitcoin.
The crypto market experienced a major turmoil in 2022 similar to the collapse of Lehman Brothers, triggering a widespread credit crunch that affected various players in the crypto lending space. Contrary to expectations, most crypto lending activity is not peer-to-peer, and there is considerable counterparty risk, as customers lend funds directly to platforms, which then use the funds for speculative strategies without adequate risk management.
It can be seen from these events that leveraged Bitcoin not only brings huge economic risks, but also poses a threat to the stability of the entire cryptocurrency ecosystem.
The summer of 2020 saw the rise of a number of DeFi protocols, offering promising avenues for revenue generation. However, many of these protocols lack sustainable business models and token economics. They rely heavily on inflation of protocol tokens to maintain attractive yields, resulting in an unsustainable ecosystem that is disconnected from basic economic principles.
The cryptocurrency credit crunch of 2022 has highlighted various issues with centralized yield instruments, highlighting risks such as transparency, trust, and liquidity, market, and counterparty risk. Additionally, it highlights the pitfalls of centralized and off-chain risk management processes, which, when applied to blockchain-based “banking services,” can bring about the same flaws as traditional banks.
So, despite the optimism during the 2020/21 bull market, a lack of these processes saw many institutions collapse including Voyager, Three Arrows Capital, Celsius, BlockFi and FTX. The inability to transparently and independently implement the necessary checks and balances often results in over-regulation and repeated failures and fraud, reflecting the historic challenges of the traditional banking system.
How should we deal with this situation? In light of this 2022 event, a growing number of Bitcoin supporters are asking the question: should we accept Bitcoin income products, which carry too much risk. Despite legitimate concerns, it is unrealistic to expect Bitcoin income products to completely disappear.
With the development of the Bitcoin ecosystem, questions about Bitcoin income products are becoming more and more common. An increasing number of projects are building financial infrastructure and applications directly based on Bitcoin. Will this re-ignite the problems we've already witnessed in the broader crypto space?
Probably so. That's the nature of the game. Since Bitcoin is a permissionless protocol, anyone can build on it, including those who wish to build financial products based on Bitcoin. And finance cannot avoid the need for credit and leverage.
It is a historical fact that in any prosperous society, the need for credit and income will naturally arise and act as a catalyst for economic growth. Without credit, it is difficult for underdeveloped economies to escape the shackles of survival. Only through access to credit can more complex and productive economic structures be formed.
To realize the vision of the Bitcoin economy, supporters recognize the need to develop credit and revenue mechanisms on top of the Bitcoin protocol. Although Bitcoin is often praised as a form of currency, the reality is that for it to function effectively as a currency, it requires a local economy to support it.
This highlights the importance of Bitcoin income products in promoting the growth of Bitcoin-centric economies. Such an ecosystem uses Bitcoin as its digital base currency while leveraging yield products to drive adoption and usage.
The Bitcoin-driven financial system will inevitably be built in layers. From a system perspective, this is not much different from today's financial system, because in the existing system, there is an inherent hierarchical structure within monetary assets. In order to properly understand the inevitable trade-offs that result from this layering, a high-level framework is needed to differentiate between Bitcoin implemented on different layers.
When it comes to Bitcoin returns, it is important to understand that these options can be built along a "triple trust spectrum". The main aspects to focus on are:
Evaluate Bitcoin assets and Bitcoin income products based on the nature of Bitcoin , providing a valuable framework for assessing their consistency with Bitcoin philosophy. Assets and products that score higher on this spectrum are typically more trust-minimizing, relying less on intermediaries in favor of transparent and resilient code.
This shift reduces risk because dependencies are moved from off-chain intermediaries to code. Transparency in code increases system resilience compared to intermediaries that must be trusted.
This development deserves further exploration, and the direction of creating native Bitcoin returns should become the standard and ultimate goal of the Bitcoin community.
Bitcoin income products are divided into four categories based on their alignment with the Bitcoin blockchain consensus:
No consensus: This category represents centralization Platform, its infrastructure remains off-chain. Examples include centralized platforms such as Celsius or BlockFi, which have full custody of user assets, exposing users to counterparty risk and reliance on intermediaries. While these platforms leverage Bitcoin, their revenue strategies are primarily executed off-chain through traditional financial mechanisms. Although a step towards Bitcoin adoption, these platforms are highly centralized, similar to traditional financial institutions, and are often unregulated.
Independent Consensus: In this category, the infrastructure is decentralized and is represented by public blockchains such as Ethereum, BNB Chain, Solana, etc. These blockchains have their own consensus mechanisms independent of Bitcoin and do not explicitly rely on Bitcoin's consensus.
Inherited Consensus: Here, the infrastructure is decentralized, represented by Bitcoin sidechains or Layer-2 solutions with distributed consensus. These sidechains have their own consensus mechanisms, but they are designed to align more closely with the Bitcoin blockchain. Examples include federated sidechains like Rootstock, Liquid Network or Stacks.
Local Consensus: This category relies on Bitcoin’s local consensus mechanism as the underlying security model. It is not a standalone blockchain or sidechain, but utilizes off-chain state channels cryptographically linked to the Bitcoin blockchain. The Lightning Network is a prime example of this approach, providing a high degree of trust minimization by relying entirely on Bitcoin's consensus.
The closer a Bitcoin Yield product is to Bitcoin's native consensus, the more aligned it is with Bitcoin and the more trust-minimizing it is generally considered to be. However, there are subtle differences between the independent consensus and inherited consensus categories, where the degree of decentralization and security of the infrastructure varies.
Overall, consensus-free yield products have the lowest levels of decentralization and trust minimization, and although consensus security and decentralization considerations require further analysis, local consensus is considered to provide the highest Trust minimization level.
来源：https://bricktowers.medium.com/how-to-properly-understand-bitcoin-as-a-productive-asset-8d1ac9a3b813
When considering the assets used in Bitcoin income products, the degree of alignment with Bitcoin can be divided into three main categories.
Non-Bitcoin: This category includes solutions that use non-Bitcoin assets, which results in lower alignment with Bitcoin. For example, Stack's stacking option uses Stack's native currency STX to generate Bitcoin returns.
Tokenized Bitcoin: The assets used here are tokenized Bitcoins, improving their alignment with Bitcoin compared to non-Bitcoin assets. Tokenized Bitcoin can be found on public blockchains such as Ethereum (WBTC, renBTC, tBTC), BNB Chain (wBTC), Solana (tBTC), and others. Additionally, tokenized Bitcoins are hosted on Bitcoin sidechains with inherited consensus mechanisms, such as sBTC, XBTC, aBTC, L-BTC, and RBTC.
Native Bitcoin: Assets in this category are on-chain Bitcoin without any tokenized version, providing the highest level of alignment with Bitcoin. Various CEX solutions and Babylon’s Bitcoin staking protocol use Bitcoin directly. Babylon aims to extend the security of Bitcoin by adopting a proof-of-stake mechanism for Bitcoin staking. Additionally, projects like Stroom Network leverage the Lightning Network to enable staking, which users can use within the broader DeFi ecosystem by depositing Bitcoin and minting wrapped tokens such as stBTC and bstBTC on the EVM-based blockchain , thereby earning Lightning Network revenue.
来源：https://bricktowers.medium.com/how-to-properly-understand-bitcoin-as-a-productive-asset-8d1ac9a3b813
When looking at the income side of Bitcoin income products, the problem of Bitcoin alignment will also appear, resulting in a similar situation to the asset side Categories: Non-Bitcoin, Tokenized Bitcoin, and Native Bitcoin.
Non-Bitcoin Revenue: Babylon provides revenue by making Bitcoin a pledged asset on the PoS blockchain, enhancing the security of the blockchain through Babylon's staking mechanism.
Tokenized Bitcoin Yield: Stroom Network provides income in the form of lnBTC tokens. Sovryn operates on Rootstock, lending and borrowing using tokenized Bitcoin (RBTC) as revenue. On Liquid Network, the Blockstream Mining Note (BMN) offers yield in the form of Bitcoin or L-BTC upon expiry, providing accredited investors with access to Bitcoin hashrate via the EU-compliant USDT token.
Native Bitcoin Earnings: Stacks offers a variety of options, including earnings paid in tokenized Bitcoin in some earnings apps. However, with Stacks’ stacking option, earnings accrue in native Bitcoins. Similarly, some centralized exchanges offer centralized yield products that pay users native Bitcoin as yield.
来源：https://bricktowers.medium.com/how-to-properly-understand-bitcoin-as-a-productive-asset-8d1ac9a3b813
When thinking about the ideal Bitcoin income product, the best standard product should combine the following three Attributes: native Bitcoin consensus, native Bitcoin assets, and native Bitcoin income. Such a product would align nearly perfectly with Bitcoin.
Currently, such solutions are still under development. One of the projects being actively developed is Brick Towers. Their vision for the ideal Bitcoin yield product embodies near-perfect Bitcoin alignment by integrating native Bitcoin consensus, assets, and yields. Brick Towers focuses on Bitcoin as a long-term savings solution and aims to provide customers with a trust-minimized and native way to leverage Bitcoin.
Their planned solution revolves around generating native yield on Bitcoin, leveraging Brick Towers’ automated services to power other nodes in the Lightning Network. Optimize capital efficiency and minimize counterparty risk by solving economic utility problems through optimization algorithms that strategically deploy capital to meet the liquidity needs of other network participants.
This approach not only promotes the growth of the Lightning Network, but also enhances the utility of Bitcoin as an asset while providing customers with a seamless and secure way to earn income from Bitcoin holdings. Importantly, Brick Towers’ solution avoids the use of wrapped coins, further reducing risk and reinforcing their commitment to the Bitcoin native ecosystem.
To sum up, Brick Towers’ vision is to provide a high-trust and native Bitcoin income product through the combination of native Bitcoin consensus, assets and income, ultimately enhancing Bitcoin as a long-term savings solution utility.
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