I still don’t understand how covenants improve the situation for low value amounts. If I have $10 in my own UTXO or $10 in a shared UTXO, it will still cost me roughly the same amount in fees to transfer it on the L1 chain. Why does having more keys per UTXO make anything cheaper if it costs you the same amount in transaction fees? It doesn’t seem to matter if the covenant encodes a future payment to you if the payment amount is small and fees are high and rising over time. You’re still going to pay a significant amount in fees. I don’t agree that block space is practically unbounded. Sure we could increase it, but it’s like making more roads to decrease traffic. It just encourages more people to buy cars and fill the roads. Building more roads gives a temporary benefit but eventually the traffic is back to the original level or even worse. If we lower the economic cost of blockspace, people will just fill it with lower value data (like spam JPEGs) and we’ll reduce decentralization.

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Using your shared UTXO example, let’s say we’re using CTV, and you are guaranteed 1/10 of the coin. Somebody has to publish that transaction to get the coins out. For a miner to mine it, the fee must be paid by one or more child transactions whose fees cover both themselves and the parent withdrawal TX. Now, if you’re in a hurry, then you’re the one who has to pay. But you could also coordinate with others to share the cost. This is indeed a problem. It’s an ongoing discussion to figure out how to make unilateral exit cheaper. The point I was making about block space is not about increasing size. Keeping a small block size is important for decentralization. It keeps the cost of running a node down so more people will do it. The point about block space being unbounded is that while the block subsidy will run out around the year 2140, there’s no limit to the number of blocks after that. In the fullness of time (centuries), block space continues to grow at 1MB+ per 10 minutes in perpetuity. Bitcoin rewards patience with lower fees. If you wait, you can move coin more cheaply.