While using bitcoin in other chains as part of decentralized finance structures and in the hands of exchange-traded fund (ETF) custodians like Coinbase might seem a victory for the ecosystem, it has other less favorable implications. Duo Nine, the founder of Your Crypto Community (YCC), has warned about the problems the non-utilization of these large silos of liquidity can pose for the operativity of Bitcoin in the future.

Nine stated that now, investors are incentivized to purchase and not use their bitcoin or to use it in other chains in part of decentralized finance (defi) applications. However, for this purpose, the native bitcoin must be kept immobile in bridge addresses as their wrapped counterparts are earning yield. This is the same scenario that bitcoin used as exchange-traded funds (EFTs) face, given that these sit in the wallet of a custodian without moving on-chain.

He stressed that this constitutes a vampire attack predicted by Satoshi Nakamoto in the Bitcoin whitepaper, explaining that introducing third parties between Bitcoin and its holders makes it lose the main benefits of its value proposition.

Nine described how this attack vector worked. He detailed:

You “siphon” liquidity and value from one chain or protocol and move it to another, together with its users. The attacker puts all that value into their own pocket! Congratulation BlackRock, you won!

This disarms the Bitcoin operativity budget, given that it diminishes the fees paid to miners. The logic behind this argument is that the Bitcoin network will have to rely on fees instead of the dwindling block subsidy as time passes. While this is still far off, Nine recommends exercising self-custody and utilizing the Bitcoon network to transact and use bitcoin.

Read more: Self-Custody Is More Than a Feature

Writer’s take: While this is a real problem, it is unlikely to affect miners and the sustainability of the Bitcoin network soon. However, Nine has a point, and this situation is poised to keep aggravating as more bitcoin is held by institutions and ETFs as a store of value. Ironically, in an extreme future, the ultimate success of bitcoin might mean the death of its network.

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