SLP Tokens: Parasites, competition, distraction or complement to P2P Cash? The opinions on the relationship between SLP tokens and Bitcoin Cash stretch quite a bit. Let's explore some of the different takes !
SLP tokens have gained a lot of traction since their introduction in the summer of last year. They have decisively won the race between different token specifications which was going on at the time. Logically there has been a lot of discussion about the tokens with some people debating whether they are complementary or parasitic to BCH.
A little on how they work: SLP tokens are added metadata in Bitcoin Cash transactions. This is done using the OP_Return field, you can think of it as embedding a transaction within a transaction. So let's first look at embedding arbitrary data and then look if there are differences with embedding SLPdata and what those are.
OP_return allows for a clean way of embedding arbitrary data into the blockchain because the output is provably unspendable it doesn’t add to the UTXO set.
OP_returns upto 40 bytes were made standard in 2014 as a solution to people storing data in ways that are more costly for the network. There’s an added message in the 2014 bitcoin core release (0.9.0) which is tells us their motivation:
“This change is not an endorsement of storing data in the blockchain. The OP_RETURN change creates a provably-prunable output, to avoid data storage schemes – some of which were already deployed – that were storing arbitrary data such as images as forever-unspendable TX outputs, bloating bitcoin's UTXO database.
Storing arbitrary data in the blockchain is still a bad idea; it is less costly and far more efficient to store non-currency data elsewhere. “
The bitcoin wiki on op_return says under the titel : “Many members of the Bitcoin community believe that use of OP_RETURN is irresponsible in part because Bitcoin was intended to provide a record for financial transactions, not a record for arbitrary data. ”
So the op_returns upto 40 bytes were made standard to offset the even worse alternatives for embedding data, it was seen in the BTC community as a necessary evil. Note that the 40 byte limitation is not a consensus rule but a standard relay rule.
For Bitcoin Cash network this standard relay rule is currently set at 223 bytes.
For BTC it is 80 bytes now and for BSV it is 100 KB
Datastorage on Bitcoin Cash was quite a hot topic in the last year, some of it due to innovation on BCH like SLP and cashaccounts. Maybe it was also in part because some people think/thought that blockchain is/was going to solve (censorship on) social media, this idea is also briefly mentioned on the roadmap. The project that comes to mind is Memo.cash, which uses op_return to embed its social media posts onto the BCH blockchain.
The main reason for the onchain datastorage fuss however was BSV which made filestorage one of its talking points (metanet) and there was news coverage like this BBC article about disturbing files uploaded to the BSV blockchain.
So you have the two extremes 'necessary evil' and 'internet on the blockchain'. The arguments from the BTC camp are not without merit here: 1) these transactions burden the network without any benefit for the coin/value (apart from the negligible fee) and 2) there are better alternative solutions which are specifically build for it.
It’s mainly the BSV proponents who will argue uploading large files is equally beneficial for the network and these transactions are just as legitimate because they pay a fee. Unsurprisingly with that mindset, BSVers have also done mainnet stresstest to the detriment of the network.
Some of the established thoughtleaders in BCH have called out the destructiveness of the 'there is no spam' meme. We have to be careful as a community what we encourage and BSV is showing us exactly what not to do. IMO BCH represents the nuanced middleground, this nuance comes at the cost that we currently don't have many effective memes/mindgerms.
This leads into the next question, are SLP tokens bad for the BCH network?
“Everything tokens can do BCH can do better so they are essentially sucking value away”
An example of a token about which this has been said often is SPICE. A token used for tipping to express your appreciation of certain content with built-in social media features.
Let’s take a look at the properties of tokens and why “BCH can do everything” is wrong
Tokens are their own assets so they have their own supply and need separate branding. If the token isn’t backed, the price resembles its utility and speculation of future utility. Because tokens have a distinct supply they will be way less liquid (and more volatile) than BCH.
What makes SPICE unique is its branding and that you earn spice by making ‘spicy’ content, this way spice whales aren’t BCH whales. So while tipping with BCH is perfectly viable it doesn’t have the things that makes a token unique. Right now you can speculate on the future success of spice as a tipping and social media system. It would not be possible to do this without its own token.
“Tokens have usecases but they don’t benefit BCH, they are just a burden on the network”
Embedding arbitrary data in an op_return does indeed pose a cost to the network and it’s right to say that tokens don’t benefit Bitcoin Cash if they do none of these 3 things:
1) Pull (human) capital into Bitcoin Cash: devs, evangelists, etc
2) Are traded against BCH and increase its liquidity
3) Come with Bitcoin Cash wallets.
These three positive (side)effects is why SLP tokens are not just parasites living off the BCH network but actually bringing value.
And to continue with SPICE as the example, it has been really successful already in sneaking badger wallets in places I didn’t hold possible. It was a true rage for a while on telegram and has introduced people to BCH changed their mind about it without a doubt.
HOLD UP someone might say, file storage also does 1 and 3! The main counter argument here is that the cost is way higher, with an SLP tx being 500bytes or so and a short audio file like a song 5MB easily. Luckily the op_return standard limit is placed low enough to not easily facilitate such transactions. Storing the hashes of your content and then using a specific file sharing system like IPFS would of course shift this cost/benefit ratio!
"Why do there need to be limits place on the miners, don't they act in the best interest of the network?" Yes they are incentivized to do a good job but as the miners on BSV showed, this isn't enough to prevent bad things from happening. They were making absurdly big blocks filled with spam and essentially DOS attacked the network. So clearly some limits are necessary. Miners acting in good faith will not facilitate transaction which they think are spam. The miners softcaping their software to 2MB blocksizes are acting in the best interest of the network. Unfortunately some people in the BCH community have it backwards and think this is malicious behavior of the miners.
So we have seen tokens have properties that make them suitable for other usecases than BCH. I also mentioned tokens can have three positive effects on Bitcoin Cash. Let’s continue with SPICE as example, it has properties BCH does not have and has benefited Bitcoin Cash indirectly. But then you see people are starting to do bets or sell merchandise with spice or just pay each other back and use it as valuetransfer without the tipping and social media. While it was maybe initially convincing that fun tipping with some other distribution isn’t something that is possible with BCH itself you start to wonder: why can’t spice become money, or focus on that as its primary usecase. Surely that would be competing with BCH!
This leads to some pretty difficult questions about what money is and it’s logical to wonder “Why is Bitcoin Cash better money than BCH tokens?”
So I asked Imaginary_username why BCH makes for better money than SLP tokens apart from adoption, which is negligible for both in the grand scheme of things, and he responded with some of the technical reasons:
Bitcoin Cash is better money because it
1)Actually easy to verify transactions trustlessly with SPV, does not take the whole DAG
2)Slightly cheaper to send
3)Can be used natively for fees
4)Can ‘sendtomany’ for more than 19 addresses in one transaction
5)Interacts better with other SLP tokens (for dividends and token DEXs)
I think 4 would be overcome by increasing the opreturn and 2 is negligible on its own but 1,3 and 5 are a pretty strong case to prefer the native currency (BCH) as currency over a P2Pcash token.
“The goal is P2P Cash for the world, why waste time with tokenizing airline miles?”
We have a very limited amount of resources as a community so why direct resources at anything else and away from P2P cash? Shouldn’t we signal P2P Cash first as a community?
Gabriel Cardona was the first to spread the meme of tokenization as the 100X multiplier in the BCH community. Instead of struggling with the resources we have now and shuffling them around like a zero sum game, the intent here is to vastly grow the amount of resources. Of course this requires initial investment and you see some previously notorious ‘P2P Cash’ developers shift their attention to tokens. This will probably not be because they think airline tokens are more important than hard money but because they are enabling leverage.
Just as the SLP spec, gabriel cardona uses Ethereum as an example for the billions that could be build on BCH in this great coinspice interview from october 2018. In the interview he also goes into the relationship between tokens and BCH.
We have to always remember the p2p cash roots of this movement and not substantially compromise cash for tokens. If tokens become successful, which is clearly what It looks like to me, the BCH ecosystem will attract lots of people for who are not here for P2P Cash. If this works out and tokenization leverages the resources, there should be an active effort to shift as much as possible back to Cash.
It’s important to remember how tokens can help BCH: pull in (human) capital, liquidity for BCH and adoption of BCH wallets. We should try and take full advantage of these and not just let them fill up our blocks and be traded mostly against BTC. We as a community should also try to prioritize things that enable a symbiosis between BCH and SLP tokens. The obvious example is dividend payments in Bitcoin Cash to token holders.
The tokambrian explosion has only just begun! Exciting times ahead.
A big thanks to Imaginary_username who explained a lot off stuff to me that later ended up in this post.
And thank you for reading! I'm curious to learn what other ppl think, if you have a comment, leave it below !