A lot of conversation in the Bitcoin community is about block size and the fee schedule. On one side, we have the BTC community who believe the original Bitcoin is the only Bitcoin. Their goal is to move the narrative of Bitcoin from peer-to-peer cash to a global settlement layer. On the other side, there are big blockers of Bitcoin Cash and Bitcoin Satoshi’s Vision. From my perspective, Bitcoin and Bitcoin Cash are functional blockchains that legitimately try to optimally allocate resources and scale while Bitcoin SV is a chain that has essentially rolled Bitcoin back to a primitive version and increased the block size to 128 MB without understanding the limit as of now. Bitcoin Cash blocks are currently 8-32 MB as this isn’t too big to be redundant, but not too small to send transactions fees on an upward spike. Again, this is simply my perspective on the coins.
In this article, I’ll point out the arguments for Bitcoin as both; a global settlement layer and a peer-to-peer electronic cash system. This entire argument is meant to boil down to whether Bitcoin is a true store of value and ‘digital’ gold as most of the community claims it to be. For the sake of this argument, I’ll refer to each by their tickers (Bitcoin as BTC; Bitcoin Cash as BCH)
Global Settlement Layer
In August 2017, BCH forked off the BTC blockchain because of long-standing disagreements. The BCH faction wanted to follow the ideals set forth by Satoshi for developing P2P cash; the BTC community wanted to scale Bitcoin into a store of value. As a global settlement layer, BTC would have multiple layers on top of it with their own trustless verification and consensus mechanism. For example, the layer 2 solution in the form on the Lightning Network (LN) uses Hash Time Lock Contracts as a form of trustless transacting and consensus.
As a settlement layer, BTC would differentiate itself by being secure, immutable, and completely transparent – completely unlike settlement layers of today. As a decentralized database upon which we base global transactions, it would mean nobody could cheat anyone, nor can they hide any transactions they wish to conceal for the public eye. This will create a shift in the power narrative of finance, allowing individuals to no longer suffer from asymmetrical information with regards to financial capabilities. By building a settlement layer, everyone would have to build on the BTC chain, but this something difficult to do considering the community’s preference for infrequent updates. The real problem is that it will be difficult for a decentralized settlement layer to gain widespread adoption as the financial institutions that exist today will be extremely reluctant to shift from a method of transacting that preserves their oligopoly.
If Bitcoin was to truly evolve into a global settlement layer, it would have to build capacity to host thousands upon thousands of layer 2 protocols. How would this be possible when the current limit on transactions with a 1.4 MB block size is a mere 3,000 transactions per block (10 minutes)? The answer is both simple and tricky. Simply put, the layer 2 chains are meant to be scaling solutions in themselves. With verification and consensus taking place on a separate layer, it creates room for the main chain to not get clogged with the increasing number of users transacting. But at the same time, as a layer 2 protocol, it means these transactions will eventually have to be confirmed on the main BTC blockchain to be valid – something that prove very difficult once the number of transactions on the various layers starts to exponentially rise.
All of these transactions on the second layers will slowly move down to the main chain and end up clogging it. The mempool is bound to exponentially increase and render the main chain unusable in itself. The entire point of a global settlement layer is for downward transactions to get cleared quickly as well. In order to truly be a settlement layer, BTC will have to implement a transaction size reducing protocol like SegWit and bloXroute or they’ll have to increase the block size. On the flipside, if the channels on Lightning and the other layers of BTC stay perpetually open, there is no need for it to be cleared on the main BTC chain.
My personal view is that in order for this model of scaling to work, the consensus and verification mechanisms on the various layers must be immaculately designed. Not to take anything away from the brilliant work done by the Lightning developers, but the protocol can be optimized. Thankfully, they are working on making Lightning more efficient and user friendly, starting with the launch of their recent non-custodial Lightning app.
Peer-to-Peer Electronic Cash
While Bitcoin is developing itself to become a global settlement layer, Bitcoin Cash is trying to create a peer-to-peer system that keeps the perception augmented by Satoshi in the Bitcoin whitepaper intact. The focus of Bitcoin Cash is to create a self-sustaining financial system where the users are supreme and no central authority has sufficient power to truly change the rules of the network – just like BTC.
This goal aligns with the initial cypherpunk and anarcho-capitalism principles that Bitcoin was invented based on. With an aim to harbor financial inclusion and create a more open, transparent, and less corrupt financial system, Satoshi Nakamoto coded Bitcoin and set forth the initial thought principles by which it would be guided.
BCH has been met with extreme hostility from the BTC camp, under allegations of trying to “scam” newcomers into buying BCH over BTC. As all stories do, this is one has two sides with merits and criticisms on both ends – but that’s for another post.
The goal of BCH is to create a system of P2P transactions for people like you and me to easily exchange value with one another. While BTC is trying to revolutionize the global economy by becoming a global settlement layer, BCH targets the ground layer of a decentralized economy by introducing a system with zero confirmation (instantaneous) transactions with a near zero fee. To think of it in a context that is comprehendible relative to the current economic system; BTC is the entirety of the banking system while BCH is USD, EUR, and GBP. One provides a base for settling transactions from across the world on one immutable ledger, while the other provides a mechanism for regular people to transact with high efficiency and low cost.
Translating the Mess
In conclusion, it should be fairly obvious by now that maximalists on either side are being intellectually dishonest by being overly biased with one coin and refusing to acknowledge the potential for a decentralized economy, backed by various cryptocurrencies and utility tokens. To be frank, BTC maximalists are much more biased and unwilling to see a fresh perspective than BCH maximalists. In fact, a main criticism of BCH from both BTC and BSV proponents is their lack of apprehension to altcoins – especially Ethereum.
If you aren’t being open minded in an industry of nascent technology and rampant innovation, you are missing out on the big picture due to false narratives fed to you by a group. While it is true that most altcoins are indeed useless, the objective of maximalism to deem all altcoins worthless and BTC as the only worthy chain for development. In short, a working product and continued results, no matter how gradual, are signs of development and the willingness of the core team to actually create a high efficiency end product for their users.
In short, BTC and BCH can both co-exist as they exist for different reasons. BTC’s answer to high efficiency, low cost P2P transactions is the Lightning Network. In all honesty, the Lightning Network is neither as fast nor as reliable as the BCH chain. This is because of the dust limit criticism put forth by Peter Rizun, detailed in the layer 2 scaling post.
So as an uncertain yet opinionated conclusion, my view is that BTC as a settlement layer represents the entire banking system or the main underlying database for SWIFT. BTC is a store of value because it is a piece of key financial infrastructure, but to liken it to gold simply for this seems to be an inadequate argument from my point of view.
ReverseAcid Monthly Recap
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Crypto Analysis Series
- Part 1 - Basic Attention Token and How It's Revolutionizing the Internet
- Part 2 - Golem Network Token as a Potential Giant Killer
- Part 3 - Augur and the Future of Decentralized Predictions Markets
- Part 4 - Dogecoin - Such Meme, Much Value
- Part 5 - Zilliqa
- Part 6 - IOTA
- Part 7 - NEM
- Part 7 - NEM
- Oracles and their Inherent Censorship Problem
- Steem - A Fertile Ground for dApps Growth
- The Advent of Cryptoeconomics - Why Traditional Economics Is In Danger
- Why Do Smart Contracts Need a Blockchain
- Layer 2 Protocols: Functionality as a Mode of Micropayment
- Layer 0 Protocols: The Key to Scaling Crypto for the Masses
- Diving Deeper into Zero-Knowledge Proofs (Part 2)
- Bitcoin’s Innate Problems: Volatility and Mining Centralization
- Legislation and Taxation of Cryptocurrencies - A (Very) Brief Outlook
- CME Futures and Dealing With Volatility
- Two Men on an Island - An Introduction to Zero-Knowledge Proofs and What Follows (Part - 1)
- Why Unveiling Fake Volume is Essential for Market Growth
- Understanding the Difference Between an ‘Open-Community’ and ‘Closed-Network’ Blockchain
- Operational Difficulties in Running a Cryptocurrency Exchange
- Dharma Protocol: Tokenized Debt and Funding Through Decentralized Systems
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