Alright, now it’s time to dive into Charles Hoskinson’s latest mission – Cardinal Protocol. Bitcoin on Cardano, custody-free? Sounds like a win, right? Robert Kiyosaki’s “people’s money” finally receiving a DeFi passport? Maybe. Let's not get ahead of ourselves. This time it really could be different, or it really could be just another flash in the pan.

Bitcoin DeFi - Opportunity Or Trap

The prospect of taking Bitcoin UTXOs and using them to generate yield on the Cardano blockchain through Cardinal Protocol is obviously super sexy. Imagine lending out your Bitcoin, not through some shady centralized exchange, but through a transparent, verifiable system using MuSig2 multi-signature. No more Mt. Gox nightmares. That's the promise.

DeFi, even with the best intentions, isn't without its pitfalls. Impermanent loss, smart contract vulnerabilities, rug pulls – these are all very serious dangers. Are average Bitcoin users truly ready to enter such uncharted waters? Or are they going to be misled, drawn in by what they think is the promise of high yields, and ultimately get burned.

Think about it. Your everyman Joe has finally saved up some sats! Now, he’s off to the races as far as lending, borrowing, staking and farming on platforms like MinswapDEX or SundaeSwap. It’s similar to handing a new driver a Formula 1 racing vehicle. Yes, the promise is great, but so too is the promise of calamity.

UTXO's Future - Inclusion Or Exclusion

This is where Cardinal Protocol, developed by IOHK, comes into play with this new “Wrapped UTXO” concept. Initially, you collateralize with your own Bitcoin UTXO. Then you get a wrapped version of that on Cardano which you can use in DeFi. That seems fairly straightforward, but is it really that cut and dry? For someone who doesn’t even fully get how Bitcoin works, Cardano’s smart contracts are really intimidating.

The argument here supposedly is that this is all about financial inclusion, democratizing DeFi and bringing it to the masses. What if instead, it merely jumps ahead and breeds a different kind of exclusion altogether? What happens when the only ones who can realize the true benefits are those who already have the money advanced? They have the expertise to know what risks are at stake or the children in developing countries. They face unpredictable internet availability, and they don’t have the education to succeed in this post-pandemic future.

It’s akin to providing somebody a fishing pole and failing to teach them how exactly to fish. Are we really empowering people, or just providing the feel-good factor of empowerment?

  • Upside: Increased utility for Bitcoin, potential for higher returns.
  • Downside: Increased risk of loss, potential for exacerbating inequality.

Here’s where the magic happens – and the true danger lurks. Using Ordinals as collateral for loans is an innovative new use case in DeFi. Remarkably, this innovation enables them to be traded/auctioned across separate blockchains.

Ordinals Collateral - Genius Or Gambling

On one side, it’s a genius approach to realize the potential of these digital artifacts. Now picture being able to collateralize your unique Bitcoin Pizza Ordinal and use the proceeds to start a new business. That's pretty cool.

It is quite literally gambling with digital collectibles. The speculative value placed on Ordinals is extremely subjective and volatile. Are we dooming the next generation to financial despair by advising them to tap into these assets? Innovation, or new digital casino WaPo’s longread on the subject explores.

The Unexpected Connection: This reminds me of the dot-com boom. The frenzy was akin to everyone rushing to invest in anything with “.com” in its name, without considering the business model behind it. Are we making the same mistake all over again with DeFi and Ordinals?

Cardinal Protocol is undoubtedly a bold move. It has the power to transform the world of Bitcoin DeFi and to further empower the individual by providing more control over their assets. It carries significant risks. Before we declare it a victory for the people, we need to ask ourselves some tough questions:

Hoskinson’s vision for what a truly great blockchain could be is audacious, indeed, but the technology itself is remarkable. The real test for Cardinal Protocol will be going beyond technocratic solutions to truly empower the people. Will it truly empower them, or will it just create opportunity for new exploitation? Let's hope it's the former. Renew America’s commitment to learning from the past! With your help, we can create a DeFi ecosystem that’s more inclusive, transparent, and rewarding for all. If we do nothing—we do nothing—we set ourselves up for the same kind of crisis. Bitcoin and smart contracts will be the engines of that chaos this time around. That would be a tragedy.

  • Are we truly making DeFi accessible to everyone, or just creating a new playground for the wealthy?
  • Are we adequately educating users about the risks involved?
  • Are we prepared to deal with the inevitable scams and exploits that will arise?

Hoskinson's vision is ambitious, and the technology is impressive. But the true test of Cardinal Protocol will be whether it truly empowers the people, or whether it simply creates new opportunities for exploitation. Let's hope it's the former. Let's hope we learn from the past and build a DeFi ecosystem that is truly inclusive, transparent, and beneficial for all. Because if we don’t, we're just setting ourselves up for another financial crisis, this time fueled by Bitcoin and smart contracts. And that would be a tragedy.