Peter Todd is one of the most prominent and long-standing developers in the Bitcoin ecosystem, playing a key role in its evolution over the years.

During his visit to Ukraine and his talk at the Incrypted Conference, he sat down with our editorial team to discuss lifting OP_RETURN limits, the challenges facing DeFi, why crypto demands a mature perspective, and what makes the mystery of Satoshi Nakamoto so compelling.

First of all, welcome back to Ukraine! How many times have you been here now?

Oh, quite a few times — both before and after the full-scale war began.

Alright, let’s dive into crypto. From what I understand, your proposal to increase — or rather remove — the limit on OP_RETURN has already been accepted and is set to be implemented?

A critical thing I want you to understand here is that this is not a consensus issue. We’re not talking about what defines a valid block. This is not the definition of a valid block. This is just what certain code is willing to transfer around the peer-to-peer network in mempools to eventually get to miners.

Back in Bitcoin’s very first days, you could actually put whatever you wanted into OP_RETURN — and as many outputs as you liked. The only real limitation was the size of the transaction itself — it had to fit within a block. Beyond that, there were no restrictions.

 And that’s always been true at the consensus level.

The OP_RETURN filter was added later by people who wanted to encourage people to use OP_RETURN in a certain way. Namely, they wanted to encourage use cases that were purely like putting a hash in timestamping. And I personally, in my OpenTimestamps project, OP_RETURN that way to do timestamping.

But sometimes, for technical reasons, people need to include more data in their transaction outputs. And they need more than the 80 bytes that Bitcoin Core previously allowed you to do. Also, in some cases, you want more than one OP_RETURN output — but the standard limit only permits a single one.

So people who were doing this started putting Bitcoin data into unspendable outputs — that means that data ends up in the UTXO set. The bigger the UTXO set is, first of all, the more expensive it is to run any node. The bigger the UTXO set, the more bloated and sluggish the network becomes.

By removing this limit, we’re actually giving people — who were going to misuse Bitcoin anyway — a cleaner, more efficient option. Let them use OP_RETURN. It’s cheaper and far less harmful to the network.

By the way, all of this has nothing to do with inscriptions. Inscriptions are stored in what’s called the witness space, which is four times cheaper because of the SegWit’s discount. Again, we can’t stop that. There’s no economic reason for them to use OP_RETURN at all. So the whole idea of filtering OP_RETURN is a separate matter — and a controversial one at that. 

But certainly, yes, Bitcoin Core version 30 — which is likely to be released in October —will remove all these limits, and you can do whatever you want.

And just to to come back to the issue of consensus vs. non-consensus: in my own fork of Bitcoin Core, called Libre Relay, you’ve already been able to relay whatever OP_RETURN you wanted. If you’re using my software, it will get to the miners also use my software or compatible fork of Bitcoin Core.

So does this really change that much? No. But at least to remove some roadblocks to hopefully encourage some people to use Bitcoin in a better way for all of us.

So, was it your proposal that ended up being accepted?

Well, it’s a funny thing because there’s two big things I’ve done with mempool policy. One is something called Full-RBF, and the second was OP_RETURN. And these have been 10-year projects.

I was the guy who proposed the OP_RETURN mechanism. To be exact, the idea of using OP_RETURN was floated before me, but I was the one who laid out the core concept in the Bitcoin Dev list. I think that was back in 2013 or so.

Over 10 years to go from the proposal to getting it in this bodged way of implementation, this limited way, to finally just saying: yeah, we should have just done what Peter Todd proposed 10 years ago. But sometimes it takes time.

Maybe that’s one of the less pleasant sides of decentralization — everything takes time.

Well, in this particular case, I think, it is because this is a marginal use case. It just took a while for people to recognize: «Maybe we should just do it this way».

It was the same story with Full-RBF. It was saying any transaction should be replaceable by any other transaction if you spend enough money. If you’re a miner and I broadcast a transaction, then I broadcast a different transaction that conflicts with the first one, well, obviously, you’re going to mind the transaction that pays you more money.

That was actually a controversial concept for a very long time. I created a fork of Bitcoin Core that implemented Full-RBF, and a handful of people were already using it. But only about two years ago did the broader realization set in: this is actually a good policy for everything.

Because as it turns out, protocols like the  Lightning Network (LN) can rely on it. For example, Full-RBF helps protect against attempts to sabotage transaction settlements.

Let’s say you and I have an LN channel, and you try to screw me, preventing me from closing it. Full-RBF makes that much harder — you can’t prevent my transaction from getting mined. The miners will always say: «Oh hey, that one has the higher fee — going to go put that in».

Next question — what do you think about DeFi on Bitcoin?

I’ve been asked that one before. My answer is pretty straightforward: a lot of what DeFi means to people, one of the biggest parts of so-called DeFi is lending protocols. I think it’s fair to say, within the Bitcoin community, the general view is that this kind of lending stuff often just doesn’t even make economic sense.

How do you issue loans without overcollateralization when there’s no identity verification?
And if you do require overcollateralization, then why even bother with a loan in the first place? Where’s the economic benefit?

Sure, maybe if you’re doing some crazy high-frequency trading, then yeah, in some cases this makes sense. But is this a big use case? I would argue — no.

Now, second issue is that transaction ordering is critically important in many DeFi protocols. Minors earn more money by carefully figuring out the right order or potentially by sniping someone’s DeFi thing with a different order.

This is a huge problem in Ethereum. Unless you have essentially a high-frequency trading firm (HFT), you’re not going to make money mining or staking. Simply because you’re not going to get advantage from ordering the transactions the right way, undercutting other people’s bids.

And do we want Bitcoin toto be that way? No, we don’t.

So you think other ecosystems might be able to pull off DeFi, but Bitcoin can’t?

There are two aspects of this. First, it’s not even clear that all this DeFi stuff really makes sense anyway. As I mentioned with lending — it’s not solving a genuine economic problem.

Second — it isn’t clearly good for us.

When I talk about real economic problems, so a good example of a complex financial product that does solve a real economic problem is futures markets. We’re in Ukraine right now. Here is a wonderful example of this. Before the full-scale invasion, grain futures prices shot way up. Why? Because it became clear that Ukraine and Russia are major grain producers, and the war could disrupt supplies.

People started buying futures at high prices to later sell them to those who really needed to buy grain — like bread manufacturers, all kinds of stuff.

What does this do? Farmers and investors see the high future prices for grain and understand: if I deliver my crop at that time, I’ll make a lot of money.

They go to banks and say: «You know who I am. Look at these futures prices of grain. Why don’t you lend me a million bucks and I’m going to buy more fertilizer and grow more grain?»

Every step of this makes economic sense. Yes, it’s complex financial products, but this is a genuine economic problem that was solved with complex financial products.

When the full-scale invasion happened, the grain supplies were disrupted, but thanks to extra was being grown, prices didn’t go up very much. You can make an argument that may have saved millions of people from starvation in poorer countries that can’t grow their own grain and really depend on these imports.

Is that DeFi? Absolutely not. At every step of this, centralized institutions are involved.

It is so difficult to imagine trying to force that on a decentralized chain. How do you enforce a contract that says, «Deliver this much grain at this exact time»? I can’t make math guarantee that. I need governments, lawyers, a court system. I’m sorry, but DeFi doesn’t solve these kinds of problems.

The problems it seems to solve aren’t really that interesting. It’s boring things like: «I want to send you a dollar». Fine — you can do that with Tether.

In fact, here it’s not that hard to find a computer store that’ll accept USDT on Tron to go buy a laptop. Well, what happens when I send them that USDT? They probably send off their suppliers and buy more laptops.

Is that technology? Yes. Is that innovation? No. It’s really, really boring.

Don’t you find projects like Alkanes interesting?

Well, there’s an academic community where a lot of academic people seem really interested in DeFi.

But, as far as I can tell, their focus tends to be on the technical side — the architecture of these systems. What they’re missing is whether these systems actually have economic demand in the first place that isn’t due to hype.

Obviously, there’s some cases where DeFi-ish things make sense. But does that mean we want to change how Bitcoin works just to chase after that market?

The much bigger market for Bitcoin is to be a reliable store of value. That seems to be what gets people interested in Bitcoin.

Yes, but things have changed drastically now. Bitcoin is no longer just a toy for a bunch of geeks. Institutional capital has arrived — and so has politics.

How could you avoid that if you’re creating something that actually works and actually stores value?

Whether we like it or not, institutions have a lot of money. And they have a lot of reasons to look for places to store value.

If you create «new digital gold» that really works well and start getting mind share — of course, the big players will come.

Do you think this will help Bitcoin?

If you care about Bitcoin because you want to go LARP as a crypto freedom guy, maybe this isn’t what you want.

But if you actually want a store of value, obviously, you want Bitcoin to be more widely used, even among people who you may not think are very interesting, very cool, or even ethical.

Do I think it’s great that Michael Saylor created this crazy financial product to turn people’s needs to invest in Bitcoin into this bizarre financial product? It’s a bit silly, but demand is a good thing.

And hopefully, regulations will change so that companies like that can simply buy Bitcoin directly.

And perhaps the more companies like BlackRock get involved, the smoother the user experience will become.

The thing is it’s very easy to make this user friendly in the sense that someone who isn’t interested in cryptography can easily buy something. We can easily make it possible under the right regulatory regimes for people to put their retirement savings for normal mechanisms into Bitcoin.

But that is the UX of buying a Bitcoin-backed token. It’s not the UX of buying Bitcoin nd holding yourself.

The UX for actually buying and securely holding Bitcoin on your own is a fundamentally hard problem to solve because it means that you have to be responsible. You need to be ready to write something down and keep it safe. And many people are simply too irresponsible to handle that.

That said, I’d say: we used to count on people being responsible. It’s not impossible — it’s just that cultural expectations have changed.

A good example: people used to comfortably carry large amounts of cash or keep gold and jewelry at home. It was just generally accepted — people owned valuables.

Now, many argue that you shouldn’t actually own anything. Everything should be rented or entrusted to a third party. And I think part of this push comes from people who want to be that third party and want to have that control or make that profit off the fees associated.

But it’s also a cultural thing: we’re expecting adults to no longer really be adults anymore.

Here in Ukraine, I think, culturally this type of thing is just less of an issue. Frankly, partly because things are more real. When Russian bombs can drop on your head, you realize there are real things in life — and you have to take responsibility.

Bitcoin with non-custodial solutions is very much an adult way of talking about money. It’s your money. You are the one who’s responsible. If you don’t write down your 12 words and keep them safe — you can get it stolen.

Now, certainly, we can help you make that easier, but fundamentally, you have to take some responsibility, and you can make mistakes.

So Bitcoin is only for adults, as you put it?

Well, children can use it too. But I wouldn’t trust a child with a million dollars worth of Bitcoin.

On the other hand, if you have a child, it’s a great way to teach responsibility. We’ve always had this idea — for example, you buy pets for children to teach them about responsibility. Teach them about taking care of something. And yeah, the worst case there is they managed to kill the pet.

Start learning what responsibility is. Personally, I loved climbing trees as a kid. I could have hurt myself falling. But that’s important — giving kids that kind of responsibility. That’s also why playgrounds shouldn’t be too safe. You need kids to go fall once in a while to recognize: «Okay, that hurts». There are consequences to things. 

And psychologically, this seems to make people grow into healthier adults.

So you’re saying people need to fall for some scam, lose money, maybe forget their seed phrase, to really understand all this? 

I don’t think I’ve ever been the victim of notable scam. But yes, I’ve lost Bitcoin a couple of times through my own mistakes.

And I accept that. It happens. I’ve never lost that much, never screwed up that badly. Besides, like I said — crewed up in tree climbing or I wouldn’t be here.

If you haven’t been scammed or lost big sums, what’s been your biggest screw-up or largest loss in crypto?

Probably, in terms of dollars – under $1,000. Nothing too much.

But the key point is this: I always know this is possible, and it changes how you think about things. If you have a credit card, and you can always just call it the bank and get it reversed, it changes how you think about things.

When the war started, crypto in Ukraine stopped being just some abstract term you’d heard about. People actually began using them — especially in those first weeks and months, when we received no aid and banking restrictions made it hard even to buy essentials like body armor.

To be fair, this has downsides, too. You can make the argument, maybe it was good that capital couldn’t leave the country. 

But there’s plusses and minuses to all this stuff. And overall, I always think what matters more is that you give people freedom to be adults about how you play this out.

Probably one last question: you’ve denied HBO’s claim that you are Satoshi Nakamoto many times. If the real identity of Satoshi were ever revealed, do you think anything would change? 

Technically, no. Is it important for narrative? The biggest advancement in the Bitcoin protocol, the thing that makes it special, is that the identity of Satoshi doesn’t matter.

Bitcoin is a decentralized system where who created that system just doesn’t matter.

I would not be surprised if Satoshi destroyed their own ability to prove who they are.

Because how can you prove you’re Satoshi? Because how do you know someone’s Satoshi? If they just pop up and make claims, but they cannot sign things, there’s no reason to believe them.

So maybe it’s better if it remains a mystery?

It’s a lovely mystery.

And one last question. If Bitcoin had never been invented, what would you be doing?

You mean — in life? Well, the obvious answer is: I would’ve stayed in analog electronics design. I quit my previous career because I saw Bitcoin and thought, «Oh, this is cool».

And unlike analog electronics, that is a new enough field, I could get my name known for interesting things. I could make a contribution to it. In analog electronics, people far smarter than me have spent far longer pushing every aspect of that field to the very limits. It was an interesting field to be in, but it was a statement. 

So I made the decision to move to something where I could make a bigger contribution.