Will users be forced to use custodians to use Bitcoin in the future?

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Avatar for francis105d1
1 year ago

I must start this article with the following statement: I believe those who invest in cryptocurrencies should hold and safeguard their private keys without needing a third-party custodian. It doesn't matter if that custodian is a State service or the private sector. You will lose any advantage Bitcoin would have offered you the moment you use custodians. I must add that it doesn't matter how short the usage of a custodian is; the fact that your coins may touch a single custodian may put your privacy at risk and the actual assets being transacted. If your coins go through a custodian for one second, you are subject to seizure for any reason and will generate paperwork for the tax man.

I run a Lightning Network node using LND and behind Tor for privacy. I must say that I feel like I am being forced to be custodians even when I do everything possible to avoid using them. For example, I run my node, so I don't have to rely on custodians like the Wallet of Satoshi. Still, I run my full node on my old laptop for security reasons and because it is also a good idea to have a single computer holding my money. Because of that, I need to access my node from my other internet-connected devices. If I go and use the node laptop, I can generate an invoice with zero value, and I can use that invoice to exchange whatever asset I am going to trade. But my setup requires that I use a second or third device, the most popular software is Zap Wallet, but that wallet doesn't allow for zero-value invoices. If I want to exchange other altcoins for LN and pay the minimum fee of 0.5%, I must go to my laptop and create the invoice from there. Zap can't offer me that solution; I can pay a higher fee of 1% and have an exact amount sent to my node, and I can create fixed-amount invoices from any location.

You may think that Zap Wallet, a popular GUI wallet to run over LND, will have that feature, but you need to find other workarounds to do a simple task. Still, the easiest solution will be to use a custodian, and once the exchange is made, move those funds to my node, and I would avoid paying a higher fee and having to use my node laptop. You could also use something like SSH or something like that, so at the moment, a custodian is for me because it is much easier to do.

Now we have NFTs, and websites appear where you can upload your images and post them for sale using Bitcoin LN. At least, that is what they claim. Still, when you read the fine print, you will realize they are using Lightning Addresses which Bitcoin supporters called Lightning Email Addresses. No one will be the wiser and tell you that those services are indeed just custodian-fixed addresses where people can send you multiple payments. It is like on-chain addresses; the only difference is that it is a custodian.

I feel like even when you go into the trouble of running your node if you want to use other features that are decentralized in different networks, like NFTs and repetitive payments, you must use custodians. When it comes to Lightning Network, the whole thing is orientated to be a hub for custodians that will offer what other chains provide but in a centralized manner instead of permissionless and decentralized.

I am starting to wonder at what point running your own LN node will be pointless and painful at the same time. I am asking what other services in the Bitcoin and Lightning Network are just custodians disguised as decentralized services waiting to unmask themselves to those willing to see.

The next step will be to ensure privacy tools like Tornado Cash do not taint your coins. You will need to have to register and only use custodian solutions.

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