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  • Writer's pictureTeresa Pace

Bitcoin must confront scalability concerns amid the momentum propelled by ETFs.

The endorsement of Bitcoin ETFs represents a form of mainstream validation, yet Paul Sztorc, a long-time advocate for Bitcoin, emphasizes the crucial need for careful consideration of scaling within the ecosystem. Sztorc, a supporter of the Bitcoin Drivechain concept, believes that the increasing mainstream acceptance of BTC necessitates enhanced scalability and functionality in its infrastructure.

In an extensive interview with Cointelegraph, Sztorc delved into the pros and cons of the notable approval of Bitcoin exchange-traded funds (ETFs) in the United States, along with the long-term consequences of institutional funds flowing into the ecosystem.

According to Sztorc, the approval of Bitcoin ETFs signals the health and validation of Bitcoin, reflecting its growing recognition. He notes that it is also a result of certain types of money that must flow through ETFs, describing ETFs as an "inevitable consequence of age." Sztorc acknowledges the custodial nature of ETFs, tied to reporting to government authorities, but points out that those relying on ETFs would likely not self-custody Bitcoin anyway.

Despite recognizing the potential entry point that Bitcoin ETFs offer for investors new to BTC, Sztorc expresses concern that the focus on their impact might divert attention from Bitcoin's fundamental metrics and performance, placing excessive emphasis on its market value.

On the topic of Bitcoin scaling, Sztorc, a co-founder of LayerTwo Labs, highlights that it remains a work in progress. LayerTwo Labs has been actively developing Drivechains for over four years, with Bitcoin Improvement Proposals (BIPs) 300 and 301 outlining the potential for the Bitcoin network to interact with layer-2 blockchains, commonly known as sidechains. Sztorc, the author of BIP-300, advocates for the functionality provided by Drivechains and has extensively discussed the intricacies of these BIPs at various Bitcoin conferences.

As significant events, such as the approval of Bitcoin ETFs, drive increased liquidity into the Bitcoin ecosystem, Sztorc raises concerns about higher transaction volumes. He references a statement from Bitcoin's pseudonymous creator, Satoshi Nakamoto, predicting either high transaction volume or no volume in 20 years. Sztorc emphasizes the need for additional functionality to address threats from altcoin competition, hard fork campaigns, and extension block campaigns, even as the Lightning Network has played a crucial role in facilitating low-fee, high-throughput transactions on the Bitcoin network.

BIP-300, according to Sztorc, is about introducing healthy competition into the ecosystem, allowing different software developers to compete. He asserts that sidechains provide an avenue for users to engage in various activities without requiring non-participating Bitcoiners to be concerned about the activities of a sidechain. As previously reported, BIPs have played a vital role in laying the groundwork for soft forks, enhancing Bitcoin's protocol functionality, and contributing to innovations like the Lightning Network.

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