Is Bitcoin About to Freeze Its Own Coins? The "Cat" Proposal Splits the Community

Summary: Concerns over security in Bitcoin and the crypto market are surfacing due to quantum computing. Simultaneously, a recent "Cat" Bitcoin Improvement Proposal (BIP) is sparking intense discussions among developers about categorizing millions of inscription-related outputs as permanently unspendable. This proposal aims to tackle blockchain bloat, raising essential questions about property rights and Bitcoin's foundational principles.

Key Takeaways

The "Cat" proposal aims to address the rising number of Unspent Transaction Outputs (UTXOs) in Bitcoin, which continues to cause issues for node operators.
It introduces Non-Monetary UTXOs (NMUs) that would make certain small outputs unusable, seeking to combat spam in the network.
Supporters argue this could reduce costs and enhance efficiency, while critics caution it may undermine Bitcoin's foundational values and lead to more significant risks.
The ongoing community discussion reflects a broader conversation about Bitcoin's identity and its stance on censorship resistance.

Understanding Bitcoin’s Bloat and the "Cat" Proposal

Every Bitcoin transaction utilizes coins from prior transactions, and the outputs represent Bitcoin amounts assigned to addresses. If an output is not yet spent, it is classified as an Unspent Transaction Output (UTXO), a portion of Bitcoin that can be used in future transactions.

The proposed plan responds to a significant increase in Bitcoin's UTXO count, which grew from around 80-90 million to over 160 million by 2023, largely due to Ordinals inscriptions and Bitcoin Stamps. Nearly half of these UTXOs hold less than 1,000 satoshis, with many now being used for storage instead of transactions.

This surge stems from practices like Ordinals, which add data to Taproot witness fields, and Bitcoin Stamps, which generate unspendable outputs via fraudulent bare multisig addresses. These techniques flout existing regulations intended to mitigate blockchain bloat, such as the OP_RETURN rule, which was designed to limit non-monetary data storage. Recent methods have taken advantage of new transaction formats, allowing arbitrary data storage.

The implications are significant: each node must access the entire UTXO set to validate transactions, increasing operating costs for miners and anyone managing multiple nodes. Bitcoin developer Mark Erhardt described the misuse of the UTXO set for Stamps as "probably one of the more egregious uses of blockchain," marking a shift in Bitcoin’s traditional focus on monetary transactions.

Delving Into the "Cat" BIP Proposal

The "Cat" proposal suggests creating Non-Monetary UTXOs (NMUs), which would be identified by indexers with a specific NMU bit. Outputs flagged as NMUs would become non-spendable and, therefore, excluded from transactions. Nodes would then prune these output types, effectively lowering storage requirements and costs.

As noted by Livecoins, "The Cat" aims to significantly reduce spam from Ordinals and Stamps in Bitcoin by freezing small UTXOs, ultimately removing these from circulation—an approach that may set an unprecedented precedent for demonetization of satoshis. The classification would depend on value thresholds, particularly targeting UTXOs under 1,000 satoshis during designated timeframes. When implemented, nodes would disregard these NMUs during transaction validation.

Proponents assert that this approach would deter spam effectively by avoiding continuous technical filtering, believing that the benefits would be extensive and long-lasting. Supporters like TwoLargePizzas emphasize that by clearly indicating Bitcoin's rejection of non-monetary bloat, "The Cat" could help prevent future spam issues. Nona YoBidnes emphasizes the substantial impact of spam, which constitutes 30-50% of all UTXOs, labeling the proposal as “a strong anti-spam message” for the network.

The BIP specifically targets millions of small dust outputs, all of which consume valuable network resources. For large-scale services, this cumulative burden translates into real infrastructure costs and longer synchronization times for newcomers.

Examining the Debate: Property Rights Versus Bitcoin’s Core Principles

Opponents of the proposal robustly articulate their objections, viewing it as a fundamental shift away from Bitcoin’s core values. Developer and privacy advocate Greg Maxwell argues that the minimal storage savings fail to justify "disabling UTXOs," which he likens to "asset seizure," thus compromising Bitcoin’s foundational principles.

Developer Ataraxia 009 warns that changing the consensus layer to freeze specific UTXOs might set a dangerous precedent, potentially enabling future coin confiscations. This resonates deeply within a community that places a high value on resisting censorship and asset seizure.

The core of the debate concerns whether Bitcoin should differentiate between transaction types at the protocol level. Supporters contend that inscription spam poses a significant threat, whereas critics caution that this could empower the network to assess the legitimacy of all transactions. If the protocol begins removing satoshis based on their intended use, there are fears that it could lead to wider interventions in the future.

This discussion also poses questions about Bitcoin’s identity. Is Bitcoin merely a monetary system, or does its resistance to censorship extend to all valid transactions? Proponents refer to the tradition of limiting data storage, while those opposed point out that Ordinals and Stamps still comply with current regulations.

Ongoing feedback from the community is shaping the BIP's draft review prior to any formal submission. The outcome will impact both technical decisions and how Bitcoin navigates the balance between its core values and operational necessities. Regardless of the “Cat” BIP’s fate, these discussions highlight the ongoing tensions between efficiency and principles as Bitcoin continues to evolve and confront emerging challenges.