The people who operate Bitcoin and secure it for posterity are in a debate over how much data can be stored on its blockchain.

Why it matters: It's an ideological battle over what Bitcoin should be used for, with a growing number of network participants working to keep it just about money.

Zoom in: As Bitcoin node operators decide which software implementation to use to validate the cryptocurrency's transactions, they're staking a position on policy differences that dictate which rules to enforce on the blockchain.

• One choice, Bitcoin Core's latest version, opens the chain to storing a lot more data in a transaction.
• The other choice, known as Knots, keeps things basically as they are. These nodes won't accept more than a little bit of data in a given block.

Core has always been the most widely used implementation. It's written by the Bitcoin core developers, who are the closest thing the network has to a board, though its authority is much looser than that.

• Knots is growing quickly in popularity. About a quarter of the network is running it now, according to the team's reckoning.

Between the lines: In effect, there's a vote underway.

The tension began in April, with the filing of a pull request on Bitcoin Core's Github page.

• The proposer and supporters of the change want to remove what they see as arbitrary data caps in transactions.
• This, they say, will help the network remain policy neutral. For example, some Bitcoin privacy tools need more block space in transactions to function.
• Crucially, though, the Core team argues that the data limitation is pointless because users are finding workarounds anyway.

Friction point: The change could also open up more use cases running on Bitcoin, like other blockchain networks enjoy. Not just NFTs but also layer-2s and perhaps moderate smart contract-like functions.

• That's exactly what the Knots proponents are afraid of.
• Advocates for Knots seriously dislike other blockchain networks. The only use for blockchain technology, in their view, is to make unstoppable money.

The most eye-catching argument in the debate is the topic of Child Sexual Abuse Material: Knots proponents contend that by opening Bitcoin up to easily store more data, CSAM purveyors will use the network more for distribution, potentially exposing node operators to prosecution.

• In fact, research in 2018 found a tiny amount of content on chain that was likely illegal material.
• Indeed, some paranoid folks believe the update is a way to create a legal vulnerability for Bitcoin.

The bottom line: On a theoretical level, the whole idea of Bitcoin was to give people a way to exit from politically governed money.

• But it turns out you can't divorce governance from money, even if governance mechanisms look very different from typical political forms.

Go deeper

Zcash (ZEC) has been on a tear the last few months, but no one knows why.

Why it matters: Crackdowns on privacy-focused infrastructure over the past couple of years have negatively impacted liquidity for privacy coins, with some exchanges delisting them in certain global markets.

How it works: With Zcash, like other privacy coins, users can make transfers that are nearly impossible to track.

• Under the hood, it uses fancy math to keep everything in check — making sure every coin is where it should be and no one is spending the same money twice.

What they're saying: "Bitcoin is insurance against fiat. Zcash is insurance against Bitcoin," Naval Ravikant, founder of AngelList, wrote on X.

• It's considered one of the oldest and strongest privacy coins, alongside Monero (XMR), which uses different obfuscation technology.

Yes, but: Monero has basically been trading sideways over the same period since the end of April 👆, in the $300 to $340 range.

The bottom line: Zcash is still 90% down from its all-time high in 2016, but someone out there thinks privacy is making a comeback.

Crypto company Consensys has picked JPMorgan and Goldman Sachs to lead its IPO, Axios Pro has learned.

Why it matters: A friendlier policy environment has crypto companies more eagerly eyeing public markets.

Zoom in: Founded by Ethereum co-founder Joseph Lubin, the company initially focused on blockchain applications and software like the MetaMask crypto wallet. It has since entered the digital asset treasury space.

• It was last valued at $7 billion in 2022 from investors like ParaFi Capital, Marshall Wace, Third Point, SoftBank, and Microsoft.

Catch up quick: Consensys was sued by the SEC for allegedly engaging in the unregistered offer and sale of securities through MetaMask Staking, but the case was dropped this year.

• It laid off 7% of its workforce this year in a profitability push.

Context: Public market investors have rewarded many crypto IPOs this year, but not all.

• Shares of blockchain HELOC company Figure are up 72% over their IPO price, and stablecoin player Circle is up 331%.
• Gemini, however, is down over 30%

Consensys, JPMorgan and Goldman Sachs declined to comment.

If you need smart, quick intel on fintech dealmaking for your job, get Axios Pro Deals.

🍬 Several new spot crypto ETFs launched this week despite the government shutdown. (Bloomberg)

• This thread explains the legal loophole issuers and exchanges used.

🧮 The FASB voted yesterday to study the idea of treating the highest quality stablecoins as cash equivalents. (YouTube)

📰 Blockworks has shut down its news division, leaning into its data business instead. (The Street)

• (Shoutout to our BW friends that we hung out with outside the SBF trial. The Blockworks crew were true stalwarts. 🍀)

💳 Mastercard is in advanced talks to acquire stablecoin firm Zerohash. (Axios Pro)

📱 Messaging giant Telegram has launched a crypto-powered decentralized network for compute to an AI system. (Decrypt)

David Marcus runs Lightspark now, a payments company built on Bitcoin.

• Previously, he did high-level stints at PayPal and Meta (when it was still Facebook) and on the Coinbase board.

Fun fact: Lightspark has a way to send money that works just like email.