As the largest cryptocurrency by market value, the effectiveness of Bitcoin (BTC) as a currency of exchange remains a matter of debate. Unlike paper money, which is infinite in nature and must be controlled by a central bank, Bitcoin is closer to gold in the sense that it is trading money with a limited offer of 21 million.
However, the supply ceiling is not the main stumbling block for BTC as a medium of exchange, but rather the volume of transactions. While Satoshi Nakamoto viewed Bitcoin as a peer-to-peer electronic money system capable of facilitating online payments without a central counterparty, an average of seven transactions per second is hardly a measure of scalability.
In fact, scalability is one of the three important calculations required for the success of any monetary system as a medium of exchange, along with acceptance and liquidity. There is an argument about the increasing spread of Bitcoin around the world at several levels in the global economy.
Price volatility, with bitcoin peaking at $ 58,000 and then just below $ 30,000 during the first two months of 2021, may indicate long-term liquidity problems. However, it is important to note that the current period has been marked by an upward rally that began in October 2020. Finally, some analysts expect that Bitcoin’s volatility will fluctuate as more institutions take market positions.
What do the critics say?
Bitcoin’s scalability problem is even older than the network itself. When the system was first proposed in 2008, James A. Donald said of Satoshi Nakamoto: “As I understand your proposal, it looks like it is off the scale.”
This clever post has been at the center of some of the most controversial and controversial discussions in the Bitcoin ecosystem. The debate over how to solve the problem led to several hard forks.
These days, when Bitcoin experts cannot categorically reject the value proposition of a BTC store, scalability seems to be a unique fruit from which some bitcoin counterparts can be created. Speaking at the DailyJournal’s General Assembly in 2021, Berkshire Hathaway Vice President Charlie Munger indicated that Bitcoin will never become a global trading medium due to price volatility.
It is no surprise to a 97-year-old billionaire investor that he is anti-bitcoin. In fact, along with Warren Buffett, the president of Berkshire Hathaway has been responsible for some of the most important negative comments among bitcoin. Munger once criticized bitcoin investors for celebrating the life and work of Gauda’s Iscariot.
Munger, like Buffett, belongs to the class of Wall Street critics of Bitcoin who have often argued that Bitcoin has no intrinsic value. As the price of BTC has continued to rise steadily over the past decade and attract significant institutional interest, it now appears that critics have simply left the argument for expansion.
Even among ordinary cryptocurrency users, Bitcoin’s inability to scale to the underlying protocol level also seems to be a major problem. In a speech at the Future of Money conference in February, Mastercard Executive Vice President Ann Kearns stated that BTC is not suitable for her cryptocurrency payment plans.
According to Cairns, “Bitcoin does not work as a payment instrument […] It is very volatile and takes a long time to complete transactions.” As Cointelegraph previously reported, Mastercard recently announced plans to offer support for marketing cryptocurrencies to the network.
The number of Lightning Network nodes is growing, but slowly
Combined with a blocking time of 10 minutes, 1 MB block size acts as the actual limit for transferring transactions to the Bitcoin network. The controversy over block size in 2017, which eventually led to the Bitcoin Cash partition, proved that Bitcoin advocates insist on the ethics of 1 MB block size.
Now that “big blockers” like BCH and Bitcoin SV are firmly entrenched in their Bitcoin fork, the question remains how to increase BTC without changing anything at the protocol level. From bitcoin banks to side chain protocols and even teams with deferred settlement infrastructure like the Lightning Network, there are several development projects underway to make Bitcoin more suitable for small transactions such as paying for coffee.
At a high level, these metering solutions involve creating unreliable centralized organizations (sorry for the inconsistency) or Layer 2 networks that maintain light versions of the BTC ledger to handle actual “currency” transfers without having to maintain a complete bitcoin ledger. These side chain applications then send the settlement settlement transaction data to the physical Bitcoin network.