Governments don't like sovereign Bitcoin nodes and they're doing something about it
Nodes don’t need to be declared Money Services Businesses in statute; they only need to be declarable as such when convenient.
Governments love the “Honeymoon → Normalization → Harvest” playbook because the plebs always fall for it.
New financial tech follows the same arc: big sweeteners at launch, normalization once everyone is on board, and then the quiet fee/tax/regulation harvest.
Where Bitcoin is: We finished the honeymoon (ETFs, easy brokerage access). We’re deep in normalization (more rules, fewer wild spikes). Harvest is next (nickel-and-diming self-custody; paper exposure everywhere).
Don’t confuse a welcoming smile with permanent freedom. The incentives flip as soon as enough users are corralled.
Watch for “for your safety” rules that raise the cost of running your own node.
Governments have already played with the idea of painting Bitcoin nodes as Unlicensed Money Transmitters.
This happened in December of 2023, when Senator Elizabeth Warren argued that Bitcoin’s decentralized nature allows for unregulated activities, including operating as an unlicensed money transmitter.
She argued that without proper oversight, Bitcoin can facilitate illegal activities and evade traditional financial regulations.
Elizabeth Warren stated that Bitcoin is a “terrible currency” that primarily serves criminals and speculative investors. During a Senate hearing, she highlighted the lack of consumer protection in the cryptocurrency space, stating that honest investors are vulnerable to fraud.
This might shock you, but Elizabeth Warren has no idea what a Bitcoin node is. However, her bosses have a very good understanding of how Bitcoin works and they don’t like decentralization and non-KYC’ed coins very much.
The bill that Senator Warren proposed in 2023 aimed to mandate stricter reporting requirements by extending the Bank Secrecy Act (BSA) responsibilities, including KYC requirements, file reports on transactions involving “unhosted wallets”, and more.
This was just another predictive programming campaign. Similar to how MARA and F2Pool did transaction censorship and lost on fee revenue without any government officially forcing them to filter OFAC-sanctioned transactions.
I’ve also already written about how governments and large institutions are domesticating Bitcoin.
1) Why Ambiguity Around Nodes is the Control Surface
Governments don’t need a bright-line statute declaring “every Bitcoin node is a Money Services Business (MSB)”.
They only need plausible legal hooks they can activate selectively. In a low Gross Consent Product environment, stability is valued over legal purity: ambiguity + discretion = latent power. That power can freeze, frighten, or funnel behavior without outright bans.
The three main levers
Definition creep: Redefine parts of node activity as “financial intermediation” (transmit, validate, relay, settle).
Content liability: Treat relaying/storage as content distribution (malware, CSAM, sanctions-tainted data).
Perimeter coercion: Push obligations via clouds, internet service providers (ISPs), app stores, content-delivery networks (CDNs), and banks — no new statute required.
Result: You don’t need mass arrests. A few prosecutions and policy letters raise the perceived cost of running non-approved nodes; chilling effects handle the rest.
2) The Concrete Legal Hooks (usable tomorrow)
A. Money transmission / Money Services Business (MSB) framing
Language like “accepts and transmits value” can be stretched to cover public relays, public remote-procedure-call (RPC) endpoints, Lightning hubs, transaction accelerators, and even mining pools.
State money-transmitter-license regimes add capital, licensing, and audit burdens.
Bank Secrecy Act overlays bring Know-Your-Customer (KYC), record-keeping, and suspicious-activity reports.
B. Broker / reporting creep
“Broker” definitions expand to anyone providing digital-asset services for consideration → 1099-style reporting, identity collection, and data retention. Even if aimed at exchanges, node-as-a-service providers can be pulled in.
C. Content-liability route
Treat blocks or mempools as replication/distribution of contraband (e.g., CSAM, copyrighted payloads, malware). Strict-liability or facilitation statutes can threaten operators.
A DMCA-like takedown model adapted to chain data pressures “recognized providers” to filter or lose safe harbors.
D. Sanctions / national security
Office of Foreign Assets Control (OFAC) logic: relaying “sanctioned” encumbrances = deemed facilitation. Even without criminal charges, civil penalties and de-banking create compliance gravity.
E. Critical-infrastructure / data-retention overlays
Classify pools, major relays, and Layer-2 (L2) gateways as critical financial infrastructure → mandatory logs, uptime service-level agreements, and lawful-intercept interfaces.
3) How it gets Operationalized (No “Ban”; Just Rails)
Tiered designation
Approved node providers: Licensed, KYC-enabled, audited images in cloud marketplaces and telco edges.
Registered pools/relays: Policy-filtered templates (OFAC lists, OP_RETURN/ordinal limits, Travel-Rule metadata checks).
Attestation & allowlists: Transport-layer security (TLS) plus remote attestation (e.g., TPM/SEV). Exchanges and wallets peer only with attested nodes.
Policy knobs that follow
KYC / logging: Map peers, IPs, and timestamps; retain for a set period.
Takedown obligations: On notice (sanctions/content), refuse propagation.
Rate-limits / pricing: Throttle non-monetary payloads; prioritize “compliant” flows.
Template control: Pools adopt policy clients; miners earn more for “clean” blocks.
4) Why Bitcoin Core-v30-Style Policy Changes matter
Bitcoin Core v30 installed the “Problem” component of the “Problem → Reaction → Solution“ chain (Hegelian dialectic) that Elizabeth Warren’s bosses so desperately needed.
If default mempool policy widens data payloads (e.g., OP_RETURN from ~80 bytes to very large envelopes), the content-liability lever strengthens.
One documented wave of illicit payloads → a policy letter to clouds and ISPs:
“Treat non-attested Bitcoin nodes as potential content distributors”.
Overnight, most retail and enterprise nodes face terms-of-service risk and vanish, leaving only approved providers.
I’ve already written about how Bitcoin’s developers are attacking its sovereign/monetary use.
Bitcoin Core v30’s default policy made large arbitrary data easy. They lowered the operational cost of attackers and raised the political payoff for compliance clients and app-store/cloud choke-points. That’s not a protocol break; it’s a governance win against Bitcoin as a Medium-of-Exchange.
You might ask:
“Why does Core v30’s loosening of OP_RETURN large payloads matter?
State actors could attack the network before Core v30’s release, so how does Bitcoin Core v30 change things?“
Bitcoin Core v30 removed the long-standing ~80B OP_RETURN relay default, effectively making large OP_RETURN payloads easy by default and allowing multiple OP_RETURNs per transaction.
Before vs after (at the policy layer):
Before: Standard mempool policy discourages very large arbitrary data in policy (nodes won’t relay non-standard forms by default). You could still stuff data (e.g., Taproot/witness tricks), but you would have to work around policy filters, custom peers, or miner relationships — more work, more obvious.
After: Arbitrary-sized OP_RETURN payloads become “standard enough” to relay by default. That:
makes spam cheaper to coordinate operationally (no special peering, no boutique scripts);
reduces attribution (looks like “enthusiast data” rather than an obvious custom exploit - e.g. by a state actor);
and widens the “liability channel” (malware/CSAM-in-chain is one broadcast away for anyone with a wallet kit).
The effect under a Core v30-like default:
It’s easier for a deep-pocket actor to spam-attack: less custom infra, fewer “nonstandard” hurdles, more plausible deniability.
Possible Consequences: sustained high fee floors, node-operator legal risk, centralization pressure (compliance nodes, policy-pools), and stronger Medium-of-Exchange suppression (push to custodial/stable-coin/CBDC rails). That’s exactly the containment corridor the Controllers are pushing for.
So what about Bitcoin Core v30 makes the attack surface bigger?
A) Congestion efficiency:
OP_RETURN outputs are provably unspendable, so they don’t bloat the UTXO set — but they do bloat block bytes and mempool memory/bandwidth.
For a fee-floor attack, OP_RETURN is an efficient “pure byte” filler: maximum congestion, minimal future state; attackers aren’t “paying” with future UTXO pressure.
In other words, to push up the minimum fee (”fee floor”), an attacker can flood the mempool with transactions that use OP_RETURN outputs — these are just data bytes that fill blockspace and cause congestion, but they don’t create UTXOs (they’re provably unspendable).
So the attacker maximizes congestion per Satoshi paid today while leaving no long-term UTXO bloat to “pay for” later.
Let’s go over how this works exactly.
What’s normally expensive about Bitcoin transactions
Every time a Bitcoin transaction creates a new output, that output becomes a little “coin” sitting in the UTXO set (the list of all spendable coins).
Every node has to keep this list in memory forever until that output is spent.
So even a tiny output can create permanent storage cost on every full node worldwide.
That’s what people mean by “UTXO bloat”.
What makes
OP_RETURNspecial
OP_RETURN is an instruction that says:
“This output can never be spent.”
Bitcoin nodes recognize it as provably unspendable — meaning no script could ever redeem it.
Because of that, nodes don’t add it to the UTXO set at all.
It lives only in the block (as bytes of data), then it’s forgotten for future validation purposes.
So an OP_RETURN output:
Uses blockspace now
Uses bandwidth and mempool memory temporarily
Does not consume long-term state (no UTXO entry)
Why attackers like it for fee-pressure attacks
If someone wants to make Bitcoin look “busy” and push up transaction fees, they can flood the mempool with many small transactions that each contain big OP_RETURN outputs.
Each one:
Fills bytes (making miners compete for limited space)
Raises the effective fee per byte (“fee floor”)
Leaves no leftover UTXOs that nodes have to carry forever
So it’s “pure byte spam” — maximum temporary congestion, minimal long-term footprint.
Analogy
Think of Bitcoin blocks like shipping containers and the UTXO set like a warehouse inventory:
A normal output = a box that stays in the warehouse until someone picks it up (UTXO bloat).
An
OP_RETURNoutput = shredded packing material — it fills the container on the way out, but no one stores it afterward.
You can stuff containers with garbage (congestion) without expanding the warehouse (UTXO memory).
Net effect
An attacker using OP_RETURN:
Pays fees once (today)
Creates temporary network congestion
Avoids any permanent “state cost”
That’s why it’s considered an efficient fee-pressure or congestion vector, not a long-term storage attack.
In other words, if someone with deep pockets (e.g. State actor) wants a persistent 200–400 sat/vB floor to price out Medium-of-Exchange, they can try to buy it.
Concrete economics of a fee-floor attack
Rough vBytes per block ≈ 1,000,000 vB.
At 50 sat/vB, the cost to fill one block ≈ 0.5 Bitcoin.
At Bitcoin $114k, that’s ~$57k/block; ~$8.2M/day (144 blocks).
At 200 sat/vB, ≈ 2 BTC/block; ~$228k/block; ~$32.8M/day.
A major state could sustain this for weeks/months if the policy goal (cripple retail Medium-of-Exchange, force users custodial, create “Bitcoin hosts illegal content” headlines) is valuable enough.
Miners would happily include these transactions (fees up, revenue up); small-payments get crowded out; most users slide toward custodial L2s or stable-coins (CBDCs). That’s containment by price, not protocol.
B) If large arbitrary payloads propagate by default, it’s trivial to get contraband onto-chain.
Then you can run the playbook:
Nodes relay illegal content → node = publisher
Cloud-hosted nodes violate Acceptable Use Policies → mass evictions
App Stores delist non-filtering wallets
Net effect: chill self-custody and self-hosted nodes, push usage into KYC custodians.
C) Narrative cover for policy clients:
Once headlines say “the chain hosts harmful content”, pools adopting filtering templates (policy clients) get social and insurer cover: “We’re just blocking abuse”.
That’s the fast lane to politically steerable settlement — without a single consensus change.
D) Operational deniability for the attacker:
With big payloads accepted by default policy, spam waves look like speculative mania or “digital art” booms. It’s harder to finger a single adversary, easier to sustain the fee floor.
Note that you could still spam the network before Core v30, however, it was much more difficult. One way would be to use MARA’s Slipstream service but that makes things obvious, more expensive, and you’ have to comply with their Terms of Service (meaning fewer, if any, illegal payloads).
5) The Expected Behavioral Outcome
Home/DIY nodes decline (insurance, power, ISP, and legal fear).
Nodes concentrate within a few approved autonomous-system numbers (ASNs) and clouds using audited images.
Mining/pools converge on filtering templates; independents starve.
Wallet defaults route to compliant gateways (app-store pressure).
Medium-of-exchange (MoE) use throttled to traceable, KYC-only flows; store-of-value (SoV) paperization rises (ETFs, custodians).
Volatility becomes easier to manage via paper share and compliant rails.
6) Specific Perimeter Switches (these flip first)
App stores: Require KYC-capable wallet software-development kits; delist non-compliant clients.
Clouds: Only marketplace images that run policy clients; block raw peer-to-peer ports without attestation.
ISPs: Move “cryptomining/unauthorized distributed content” to business-only lines; residential terms prohibit relays.
Banks / payment processors: Refuse payments to known non-attested node hosts.
Domain and certificate authorities: Deny or revoke certificates for node front-ends lacking KYC modules.
7) Scenarios Over 12–24 Months (Effects and Tell-Tales)
A) Soft designation (most likely)
What happens: Joint “advisory” from financial-crime, telecom-privacy, and cloud-trust groups; “voluntary” standards.
Effect: 60–80% of visible nodes migrate to approved endpoints; Lightning/RPC providers register; pools publish filters.
Tell-tales: App-store policy changes; cloud image catalogs; bank acceptable-use-policy updates; insurer endorsements for “compliant” nodes.
B) Hard edge cases (case-law catalysts)
What happens: A few test prosecutions (unlicensed Money Service Business or content-distribution) against public RPCs/accelerators.
Effect: Chilling effects; self-hosters go dark; liquidity and fees skew toward gateways.
Tell-tales: Unsealed indictments; risk bulletins circulated by large intermediaries and insurers.
C) Critical-infra pull-in (tail risk)
What happens: A major incident (e.g., ransomware) → emergency order treating pools/relays as critical infrastructure.
Effect: Mandatory logging, filters, and attestations; de-facto permissioning.
Tell-tales: Emergency-powers language; insurer/rating-agency frameworks referencing “compliant nodes”.
8) What would Disconfirm this Trajectory
Binding court limits: Decisions treating relaying/validating as protected speech with robust safe harbors, preempting Money Service Business/content theories.
Protocol hardening: Social and technical moves that minimize arbitrary data on-chain, removing the content hook.
Distribution neutrality: App-store neutrality or alternative distribution ecosystems at real scale.
Bottom Line
In a low Gross Consent Product world, legal ambiguity is policy.
Nodes don’t need to be declared Money Service Businesses in statute; they only need to be declarable as such when convenient.
The perimeter — clouds, app stores, ISPs, and banks — will enforce the defaults.
This channel won’t kill Bitcoin. It will funnel it:
away from grassroots medium-of-exchange and toward licensed gateways and paper exposure.
More context: