Freezing Dormant Bitcoin: A Threat to the Crypto’s Core Value Proposition
The idea of freezing 5.6 million dormant bitcoin has sparked a heated debate among crypto experts, with some warning that it could trigger the worst single-day repricing in the coin’s history. This move is being considered to protect against the risk of theft through quantum computing, which could potentially compromise the security of the bitcoin network. As the discussion unfolds, it’s essential to consider the potential impact on the crypto market and the core principles of bitcoin, including its decentralization and censorship-resistance.
The estimated 5.6 million dormant bitcoin, worth roughly $440 billion, are held in wallets that have been inactive for over a decade and are vulnerable to quantum computing attacks. Some experts, like Jameson Lopp, a core Bitcoin developer, believe that freezing these coins is necessary to prevent them from being stolen. However, others, such as Samuel “Chad” Patt, argue that freezing any coins, even dormant ones, sets a precedent that could undermine the market’s confidence in bitcoin’s core value proposition.
The Risks and Consequences of Freezing Dormant Bitcoin
Freezing dormant bitcoin could have severe consequences, including an immediate repricing of the coin. This could lead to a significant loss of value, potentially triggering a wave of selling that would further exacerbate the price drop. Moreover, such a move could be seen as a violation of bitcoin’s core principles, including its decentralized and permissionless nature. As a result, it’s crucial to consider alternative solutions, such as better tooling and voluntary migration, to mitigate the risks posed by quantum computing.
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The Importance of Preserving Bitcoin’s Core Principles
Many experts, including Mati Greenspan and Khushboo Khullar, believe that freezing dormant coins would be a deeply flawed approach, as it would undermine bitcoin’s core principles of immutability, permissionlessness, and no central enforcement. Instead, they advocate for alternative solutions that prioritize the preservation of these principles. As the debate continues, it’s essential to consider the long-term implications of any decision and ensure that it aligns with the values and principles that underpin the bitcoin network.
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The debate follows weeks of discussion over how to respond to the potential threat quantum computing poses to the bitcoin network, particularly the estimated 5.6 million BTC. These tokens are held in wallets that have been dormant for more than a decade, in addresses that have not been upgraded and, therefore, are the most vulnerable in the event that quantum computing attacks become a reality.
A week ago, Jameson Lopp, a core Bitcoin developer and research analyst, told CoinDesk he would prefer to see the dormant bitcoin, worth roughly $440 billion, frozen by the network than left at risk of being stolen by future quantum hackers. He said he already sees those bitcoin as being lost.
Lopp and a team of other core bitcoin developers released Bitcoin Improvement Proposal 361 (BIP-361) earlier this month. The proposal contemplates phasing out bitcoin’s current cryptographic signatures, potentially freezing assets that fail to migrate.
‘Instant’ repricing
If that were to proceed, Patt said, “bitcoin’s repricing would be instant, not gradual and would be the worst single day in bitcoin’s history, but not because of a hack, but because the network will have proven its core value proposition is negotiable.”
The bitcoin maximalist said all fund managers, “who allocated on the censorship-resistance thesis, would be forced to unwind. Not by choice, but by mandate, because the asset no longer fits the risk profile it was purchased under.”
Read more: To freeze or not to freeze: Satoshi and the $440 billion in bitcoin threatened by quantum computing
Another bitcoin maximalist, Kent Halliburton, CEO and co-founder at SazMining, said he believes the intentions behind BIP-361 are good.
“However, you don’t defend Bitcoin by breaking its core promise of inviolable property rights,” he said. “We operate data centers on four continents, and our clients own every machine. That model only works because Bitcoin guarantees unconditional ownership.”
Halliburton said he believes, as many others do, that the quantum computing threat is real, but that there are better ways to deal with the risks it poses, such as better tooling and voluntary migration, “but not a protocol-level confiscation dressed up as a contingency plan.”
Deeply flawed
Khushboo Khullar, venture partner at Lightning Ventures and a bitcoin maximalist as well, said freezing dormant coins is a deeply flawed approach, despite appearing to be a pragmatic approach against quantum threats.
“It directly undermines Bitcoin’s core principles of immutability, permissionlessness, and no central enforcement. Such a move would require a contentious hard fork, violating the network’s decentralized ethos where no one can unilaterally seize or freeze anyone’s coins,” she said.
However, not all maximalists agree with Patt, Halliburton or Khullar, and instead believe Lopp’s proposal is sensible.
“It’s extremely challenging to build systems that are truly future-proof, and while Bitcoin has come quite close, quantum may pose a threat that requires tradeoffs participants won’t be happy with.” said Ken Kruger, founder and CEO of Moon Technologies.
“So far there’s no solution that doesn’t include compromise: freeze funds or let them be stolen? If solved elegantly, this could be a critical moment Bitcoin proves its resilience as a global monetary system,” he said.
Bitcoin could still evolve
Fernandes said he understands Patt’s and other maximalists’ points on precedent, adding that it is a real concern among the bitcoin community when discussing the network’s censorship-resistance ethos. In fact, he added, “I don’t think there is time; I think quantum will be upon us way faster than anybody thinks.”
“However, framing this as a question of purity misses the bigger issue: quantum risk is an existential threat to the system, not a philosophical debate,” Fernandes said. He believes bitcoin could evolve as it has in the past with SegWit and Taproot, upgrades designed to improve the network’s efficiency, privacy and scalability.
“The protocol isn’t ‘finished,’ it’s just conservative in how it changes,” he said. “But the risk of inaction far outweighs any concern about precedent or philosophical purity.”
Ultimately, Fernandes believes very few people within the community care in the long run, and that the majority of bitcoin holders, whether maximalists or not, are “more interested in preserving capital rather than preserving some vague notion about what bitcoin is ‘supposed to be.’”
Greenspan echoes what many of the maximalists ultimately prefer. “As with many cases in life, and especially with bitcoin, doing nothing is better than doing something.”
He concluded: “The Bitcoin community seems to feel strongly that freezing coins would be antithetical to bitcoin’s quintessential value proposition.”
Read more: How a quantum computer can be used to actually steal your bitcoin in ‘9 minutes’
