I wanted to share some thoughts on a seemingly overlooked innovation that has come to Bitcoin within the last year, called Bitpacs.
Bitpac stands for a Bitcoin Based Publicly Auditable Cooperative. Bitpacs are essentially normal bitcoin multisig wallets with the additional introduction of public auditability. Traditionally in a multisig setup, participants of the multisig are not disclosed. In a Bitpac multisig, participants are intentionally made public, which allows for transparent auditability. With this transparency, unique features, tooling, rules, and transaction crafting is possible. The goal of Bitpacs is to emulate the familiar DAO experience on other chains.
DAO’s are marketed as Decentralized Autonomous Organizations. However, Ethereum and other altcoin based DAOs only inherit the “decentralization” of their chain, so will not be as decentralized as the same experience built on Bitcoin. DAO’s are also not autonomous, as humans control and shape the decisions they make. The Bitpac definition is a more honest explanation of the tech involved and I think eventually will be a better experience for users.
Why should bitcoiners even care about DAO’s? As of Feb 18th 2024, DAO’s on Ethereum hold over $35 billion in treasury funds. There have been millions of DAO proposal makers and voters, and hundreds of millions of dollars have been transacted via DAO governance. (source) There is clear demand for on-chain governance and community management, Bitpacs allow this to come to Bitcoin.
How can Bitpacs actually work?
While Bitpacs don't directly utilize smart contracts on the Bitcoin blockchain itself, they achieve similar functionality as DAOs through a combination of multisig wallets and carefully crafted Bitcoin transactions. The structures possible with this encompass most of what a DAO does:
- Multisig ensures that no one is ever in unilateral control of any Bitpac funds, requiring the quorum threshold to spend anything.
- Signing thresholds that mandate how many signatures are needed to finalize a transaction (3 of 5 or 6 of 10 for example) can fine tune required voting thresholds in line with the defined Bitpac consensus requirements.
- Time constraints can be applied to voting rounds, ending the signing process for proposals that haven’t achieved a signing threshold by the end of a voting period.
- Gating membership of Bitpacs based on certain criteria can be done at the platform level, like unique assets held, bitcoin contributed to the treasury, or known wallet addresses, all of which can be verified on-chain.
- All of these dynamics that cannot be enforced through Bitcoin script or pre-signed transactions, and must resort to social enforcement, are transparently verifiable on-chain guaranteeing detection of Bitpac rule violations.
What do Bitpacs enable on Bitcoin?
Bitpacs unlock exciting possibilities for bitcoin users:
- Community-driven funding: Fundraising for public goods, projects, or charitable causes becomes more efficient and secure with Bitpacs. Contributors can trust that funds are used as intended, thanks to the transparent nature of the multisig.
- Decentralized governance: Bitpacs empower communities to make collective decisions regarding fund allocation and spending. Voting rights are distributed among key holders, ensuring a transparent and verifiable process.
- Increased trust and collaboration: By eliminating the opacity often associated with traditional financial systems, Bitpacs build trust and foster collaboration between individuals with shared interests, and doing so fully on-chain.
Some specific examples of Bitpac use cases include:
- Funding open-source development: Developers can create Bitpacs to receive community funding for their projects, with transparent spending records ensuring accountability to their backers.
- Managing community treasuries: Any organization can leverage Bitpacs for transparent management of their funds, allowing members to track spending, create proposals, and participate in decision-making.
- Crowdfunding: Bitpacs can be used as a means to crowdfund bitcoin from a group of supporters for a pre-established shared goal, company, investment fund, or project.
A major lesson for the industry over the last year has been how much innovation and experimentation can still be done on native Bitcoin without requiring any changes to the network. We have seen massive interest around BitVM, Ordinals, roll-ups, sidechains, layers, metaprotocols, all within bitcoins current consensus. There is clearly a cambrian explosion of developer and user interest coming to Bitcoin which will not slow down any time soon. Tens of thousands of new niche communities will be popping up on Bitcoin in the coming years. This doesn’t include traditional companies that continue to trend towards Bitcoin adoption over time. Bitpacs can agnostically offer community organization, treasury management, and on-chain governance to all of them.
The thousands of ideas being “built on Bitcoin” should have one thing in common, eventual settlement on the base layer. Different methods of governance will be experimented with over time, but this is why Bitpacs could be the superior model. Bitpac members have direct voting access to the treasury and transactions occur at the base layer; there is no side-chain, layer, or additional protocol that Bitpac members need to trust. Potentially this cycle, people will start to realize that Bitcoin block space is just as scarce as bitcoin the asset. As we trend further towards a hyperbitcoinized world, with nation states and institutions transacting, I think that Bitpacs representing large community or entity treasuries will be one of the few things that will justify occurring at the Base layer.
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Anybody can create Bitpacs on their own. @Tribe_btc is a centralized project I’m working on aiming to create a full tooling suite for Bitpacs. Tribe will be releasing our Bitpac documentation soon.
By Dillon Healy
BD / Partnerships BTC Inc. @dillonhealybtc
via bitcoinmagazine.com
