We were disappointed that BitGo will discontinue their support of Bitcoin SV after BSV’s “Genesis” hard fork on February 4, 2020. However, we do not expect BitGo’s decision to materially affect current BSV liquidity with exchanges because BitGo indicated to us that its customers had relatively small amounts of BSV transaction volume. Exchanges with more of BSV’s trading volume presumably use alternatives to BitGo’s custodial services.
BitGo informed us that the main reason for its decision is the planned sunsetting of P2SH support in the BSV protocol, indicating it does not wish to incur development costs to support the change. nChain’s team offered to do key parts of necessary development work for BitGo, except for the integration work itself. Nevertheless, BitGo still demanded a large amount of guaranteed revenue in order to support the Genesis hard fork (removing P2SH), but interested BSV stakeholders found BitGo’s approach to be unsavoury and declined to meet BitGo’s monetary demand.
P2SH (pay-to-script hash) was a later addition to the Bitcoin protocol after Satoshi left the project by then Bitcoin Core developers in order to address perceived issues with bare multi-signature transactions; however, P2SH brought with it significant privacy and security issues of its own and also breaks the smart contract capabilities and transparency model of Bitcoin’s original design. We believe it is far better for Bitcoin’s future to remove P2SH now, in order to ensure business users of Bitcoin will be legally compliant and to ensure the economic survival of companies like BitGo who provide custodial solutions for the Bitcoin ecosystem.
It is unfortunate that the various Bitcoin ecosystems have grown accustomed to using the obscure P2SH method of doing mulit-sig transactions, which was motivated by the desire of prior Bitcoin Core developers to hide contract details until after the associated coins have been moved. This causes a significant problem: it removes the visibility and thus the legal enforceability of smart contracts in Bitcoin. In Bitcoin SV, the legality and auditability of smart contracts is part of the security model of the network, and therefore the BSV ecosystem has developed other transparent forms of multi-signature transactions and contracts. Indeed, the new multi-signature model supported on Bitcoin SV does it in a way which is auditable, transparent, and thus enables business users to be legally compliant with common rules about transaction record-keeping and other requirements. BitGo should want to support cryptocurrency usage in a way that better ensures all ecosystem participants are acting lawfully.
Going forward, P2SH is no longer necessary in BSV in order to create multi-signature transactions, and indeed needs to be deprecated in order to discourage improper use. This also promises to make multi-signature transactions easier to implement on mobile devices, as the current P2SH method requires the redemption script to be kept by the future spender indefinitely, which is difficult to ensure. Bitcoin SV, representing the original Bitcoin project, is striving to return the protocol and platform to its original use case and capabilities. As part of this restoration to Bitcoin’s original functionalities in BSV, it is inevitable that some of the existing (misguided) ways of doing things need to be corrected and potentially damaging features unwisely added into BTC’s protocol need to be removed. Thankfully, the Bitcoin ecosystem is still young in its adoption lifecycle. While there may be temporary inconvenience for existing businesses to adjust to BSV’s path, it is far better to correct these deviations in the protocol now – before greater adoption occurs – to create a greater long term value proposition for the BSV network.
For these reasons, BitGo’s decision to discontinue support of BSV due to our deprecation of P2SH is short-sighted; we expect BiGo will end up on the wrong side of history.
As BitGo’s decision to end BSV support may affect its customers and also potential enterprises who wish to use a custodial solution for BSV, we recommend that business customers that hold BSV seek other workable solutions besides BitGo. Other custodial service providers that support BSV include:
We are also in discussions with additional options.
Furthermore, many wallet projects currently in development will support the new more secure mulit-signature model which will be unique to Bitcoin SV. There are several alternatives to P2SH-based multisig which are currently available and that can be implemented with no more difficulty than existing solutions. nChain stands ready to assist anyone in industry that need to implement a replacement technology that is superior to P2SH, and we encourage you to reach out to nChain’s team to learn more.
Founding President, Bitcoin Association