Is Bitcoin About to Freeze Its Own Coins? “The Cat” Proposal Divides the Community

Quantum computing remains a concern for Bitcoin and crypto markets, posing a security threat to its underlying cryptography. However, a new threat emerges as a controversial Cat Bitcoin Improvement Proposal, sparking heated debate among developers about labeling millions of inscription-related outputs as permanently unspendable. The draft BIP seeks to address concerns about blockchain bloat, raising key questions around property rights and core Bitcoin principles. Community responses range from strong support to warnings about setting a risky precedent. Bitcoin Developers Debate BIP The Cat: Proposal to Combat UTXO Spam from Ordinals and Stamps Every Bitcoin transaction spends coins that came from previous transactions. The outputs of a transaction represent amounts of Bitcoin assigned to addresses. If an output hasnt been spent yet, it becomes an Unspent Transaction Output (UTXO). Essentially, a UTXO is a chunk of Bitcoin you can spend in the future. The plan addresses the recent doubling of Bitcoins UTXO, set to over 160 million entries in 2023, much of which stems from Ordinals and Bitcoin Stamps. In recent years, Bitcoins Unspent Transaction Output set has grown significantly, posing challenges for node operators and miners. According to the draft discussion, UTXOs rose from about 8090 million to more than 160 million during 2023. Now, nearly half contain fewer than 1,000 satoshis, with most serving as a form of storage rather than for monetary transactions. This increase is primarily due to Ordinals inscriptions, which place data in Taproot witness fields, and Bitcoin Stamps, which create unspendable outputs through fake bare multisig addresses. These methods circumvent rules like OP_RETURN, originally created to discourage blockchain bloat by limiting non-monetary data. OP_RETURNs 80-byte relay policy reduced bloat, but recent techniques exploit new transaction formats to store arbitrary data. The impact is significant. Each node must load the entire UTXO set to validate transactions, driving up costs for miners and for anyone running multiple nodes. Bitcoin developer Mark Erhardt described Stamps use of the UTXO set as probably, from a technical perspective, one of the more egregious uses of blockchain. Historically, Bitcoin has prioritized monetary transactions and limited data usage. Bitcoin Core developer Greg Maxwell said of OP_RETURN limits, Part of the idea here is shaping behavior towards conservative needs. However, both Ordinals and Stamps bypass these rules, which fuels arguments for stronger measures, such as The Cat. Inside The Cat BIP Proposal The proposal introduces Non-Monetary UTXOs (NMUs), flagged by indexers with an NMU bit. Inscription-related outputs identified in this way would become non-spendable, making them unavailable as transaction inputs. Nodes would prune these outputs, reducing storage needs and costs. New BIP proposal The Cat aims to radically combat spam from Ordinals and Stamps on Bitcoin: by freezing satoshis through consensus. The idea is to permanently make millions of small UTXOs used to store data non-spendable, removing those sats from circulation at the cost of creating an unprecedented precedent for the demonetization of satoshis, wrote Livecoins, a poppular account on X. Classification depends on value thresholds, focusing on UTXOs under 1,000 satoshis during certain windows. When the feature activates, nodes would ignore these NMUs during transaction validation. Advocates argue this deters spam economically, as it avoids ongoing technical filtering. Supporters, such as TwoLargePizzas, believe benefits extend well beyond one-time cleanup. By making it clear that Bitcoin rejects non-monetary bloat, The Cat could deter future spam. Nona YoBidnes points out that spam makes up 3050 percent of all UTXOs, calling the proposal a powerful anti-spam message for the network. The BIP targets millions of dust outputs left unspent, each using valuable resources. For large-scale services, this cumulative burden means real infrastructure costs and slower node sync times for newcomers. Debate: Property Rights and Bitcoins Core Values Opponents present strong arguments, calling the proposal a drastic change to Bitcoins core properties. Greg Maxwell, a leading developer and privacy advocate, sees modest storage savings as little justification for disabling UTXOs and calls it asset seizure, undermining Bitcoins values. Developer Ataraxia 009 warns the change represents a dangerous slippery slope. By freezing certain UTXOs at the consensus layer, the door could open for future coin confiscation. This issue resonates with a community focused on resistance to censorship and asset seizure. The discussion centers on whether Bitcoin should discriminate between transaction types at the protocol level. Supporters see inscription spam as an attack to be stopped, while critics warn that this could empower the protocol to judge the legitimacy of any transaction. If the network is willing to remove satoshis based on their use, some fear broader interventions may follow. The debate also explores Bitcoins identity. Is Bitcoin just a monetary system, or does its censorship resistance extend to all valid transactions? Supporters cite the tradition of limiting data storage, but opponents note that Ordinals and Stamps are still valid under current rules. Community feedback is ongoing during the drafts review, before any official BIP submission. The result will influence technical decisions as well as how Bitcoin balances core values and operational needs. Regardless of The Cat outcome, the discussion highlights tensions between efficiency and principle as Bitcoin continues to scale and face new challenges.