Will Bitcoin scale up to be a serious method of exchange? Will younger, nimbler competitors seize control of not only the non-currency blockchain applications but even the functioning as the digital currency that Bitcoin creators envisioned?
Roger Ver and Jihan Wu took their best shot at forcing change to Bitcoin this past week. After the faction arguing for larger blocks decided not to fork, these two guys coordinated pulling lots of Ver’s money out of BTC and into Bitcoin Cash / Bcash (BCH) in a short time frame, along with pulling lots of Wu’s mining power. This has become the norm.
Bitcoin Cash price shot up, briefly passing ETH in total market capitalization, and having an impact on Bitcoin proper.
BTC saw a corresponding sharp drop in price along with a huge backlog of transactions, but quickly recovered to resume making new all-time highs. BCH seems to have settled into a stable trading range, and now Bitcoin Gold has made a run up, making the top half dozen with a market cap exceeding 5 billion USD.
How to make sense of this fragmented crypto market?
Let’s begin with Bitcoin proper. I believe Bitcoin is destined to become the de facto digital gold. It is the original implementation of digital money, and it’s the digital “gold standard” for the function of storing value. This clunky old rust bucket of a blockchain will persist for years to come – probably outliving the end of block rewards as miners continue to collect valuable fees just as planned.
Bitcoin currently looks volatile and risky, but as the dust settles the price will stabilize and it will become the place for safe money in the crypto space. To become a widely used medium of exchange however, transactions will need to be processed off-chain. It is painfully obvious to all but the miners and the impatient.
In the underlying struggle about how to do digital payments, it’s unclear what the best strategy is for many businesses. Bitcoin’s design limitations on transaction speed and fees are unacceptable to many in businesses that depend on transaction volume, and to those who want Bitcoin to be able to be used for small, fast payments.
The advocates of increasing Bitcoin’s block size to solve the scaling issue are short-sighted. Even with unlimited block capacity and reduced block discovery times, Bitcoin will never be as fast as the blockchains designed for speed. As we saw with Bitshares and now others, models like delegated proof-of-stake model with transaction sharding or other techniques can enable handling volumes of transactions that blockchains using traditional POW consensus mechanisms cannot.
These so-called shortcomings of Bitcoin will be accomplished via specialized blockchain architectures.
The question is, will these blockchains be standalone blockchains communicating via APIs or some new protocol, or some sort of sidechains, storing only their hashes on the main blockchain? It’s a competition, and I’m giving the edge to distinct blockchains communicating via inter-blockchain protocol.