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BITPACS: emulating DAOs on Bitcoin

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I wanted to share some thoughts on a seemingly overlooked innovation that has come to Bitcoin over the past year, called Bitpacs.

Bitpac means a publicly auditable cooperative based on Bitcoin. Bitpacs are essentially normal Bitcoin multisig wallets with the added introduction of public auditability. Traditionally, in a multisig setup, the multisig participants are not disclosed. In a Bitpac multisig, participants are intentionally made public, allowing for transparent auditability. With this transparency, unique features, tools, rules and transactions are possible. Bitpacs’ goal is to emulate the familiar DAO experience on other chains.

DAOs are marketed as decentralized autonomous organizations. However, Ethereum and other altcoin-based DAOs only inherit the “decentralization” of their chain and therefore will not be as decentralized as the same experience built on Bitcoin. DAOs are also not autonomous, as humans control and shape the decisions they make. Bitpac’s definition is a more honest explanation of the technology involved and I believe will ultimately provide a better experience for users.
Why should bitcoiners even care about DAOs? As of February 18, 2024, DAOs on Ethereum held over $35 billion in treasury funds. There have been millions of DAO proposal creators and voters, and hundreds of millions of dollars have been transacted through DAO governance. (source) There is a clear demand for on-chain governance and community management, Bitpacs are enabling this to happen to Bitcoin.

How can Bitpacs actually work?

Although Bitpacs do not directly use smart contracts on the Bitcoin blockchain itself, they achieve DAO-like functionality through a combination of multisig wallets and carefully designed Bitcoin transactions. The structures possible with this encompass most of what a DAO does:

  • Multisig ensures that no one ever has unilateral control of Bitpac funds, requiring the quorum threshold to spend anything.
  • Signature thresholds that specify the number of signatures needed to complete a transaction (3 out of 5 or 6 out of 10 for example) can refine the required voting thresholds in accordance with defined Bitpac consensus requirements.
  • Time constraints may be applied to voting rounds, terminating the signature process for proposals that have not reached a signature threshold at the end of a voting period.
  • Joining Bitpacs based on certain criteria can be done at the platform level, such as unique assets held, bitcoins contributed to treasury, or known wallet addresses, all of which can be verified on-chain.
  • All of these dynamics that cannot be enforced via a Bitcoin script or pre-signed transactions, and must resort to social enforcement, are transparently verifiable on-chain, ensuring Bitpac rule violations are detected.

What do Bitpacs allow on Bitcoin?

Bitpacs open up exciting possibilities for Bitcoin users:

  • Community Funding: Raising funds for public goods, projects or charitable causes becomes more efficient and secure with Bitpacs. Contributors can be confident that funds are used as intended, thanks to the transparent nature of multisig.
  • Decentralized governance: Bitpacs allow communities to make collective decisions regarding the allocation and spending of funds. Voting rights are distributed among key holders, ensuring a transparent and verifiable process.
  • Increased trust and collaboration: By eliminating the opacity often associated with traditional financial systems, Bitpacs build trust and promote collaboration between individuals with common interests, entirely on-chain.

Here are some specific examples of Bitpac use cases:

  • Open source development funding: Developers can create Bitpacs to receive community funding for their projects, with transparent spending records ensuring accountability to their backers.
  • Community Treasury Management: Any organization can leverage Bitpacs for transparent management of its funds, allowing members to track expenses, create proposals, and participate in decision-making.
  • Crowdfunding: Bitpacs can be used as a means of crowdfunding bitcoins from a group of supporters for a common goal, business, investment fund, or pre-established project.

A major lesson for the industry over the last year has been the amount of innovation and experimentation that can still be done on native Bitcoin without requiring changes to the network. We have seen massive interest around BitVM, ordinals, roll-ups, sidechains, layers, metaprotocols, all within the current Bitcoin consensus. There is clearly a Cambrian explosion of developer and user interest in Bitcoin that is not slowing down any time soon. Tens of thousands of new niche communities will appear on Bitcoin in the coming years. This does not include traditional businesses that continue to move toward Bitcoin adoption over time. Bitpacs can bring community organization, treasury management, and on-chain governance to everyone in an agnostic manner.

The thousands of ideas “built on Bitcoin” should have one thing in common: eventual regulation on the base layer. Different governance methods will be experimented with over time, but this is why Bitpacs could be the superior model. Bitpac members have direct voting access to treasury and transactions take place at the base layer; there is no additional side chain, layer, or protocol that Bitpac members must trust. Potentially during this cycle, people will start to realize that Bitcoin block space is just as scarce as the Bitcoin asset. As we move towards a hyperbitcoinized world, with nation states and institutions transacting, I think Bitpacs representing large community or entity treasuries will be one of the few things that will justify their appearance at the level of the base layer.

Anyone can create Bitpacs themselves. @Tribe_btc is a centralized project I’m working on aimed at creating a complete tool suite for Bitpacs. Tribe will release our Bitpac documentation soon.

By Dillon Healy

BD / BTC Partnerships Inc. @dillonhealybtc

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