One of the most debated topics in the cryptocurrency market right now is whether Bitcoin is a failed project or not. During the bull cycle of 2017, Bitcoin had to fight for its survival. The blocksize wars took place debating if the blocksize of Bitcoin should be raised to help it scale with faster and cheaper transactions. Ultimately the camp backing smaller blocksize for Bitcoin that allowed everyday people to run their own nodes and help secure the Bitcoin chain won out. The large blockers would eventually fork BTC and create Bitcoin Cash.
It was decided at that time that Bitcoin Layer 1 should focus on being the most secure and decentralized blockchain. It would be used for settlements, and not everyday transactions like buying a coffee or other everyday expenses. The goal was to scale Bitcoin by building layers on top of it. Its layer 2, Lightning, would allow Bitcoin to scale and be used for everyday purchases. With the ability to scale to millions of transactions per second in the future, and the cost being nearly free. Eventually, additional layer 2s and layer 3s would be built to scale Bitcoin as much as needed. But layer 1 Bitcoin would remain the way it is for the most part.
For a few years, all news surrounding Lightning had disappeared and very few people were actually using it. This caused many in the market to call the Lightning network a failure. But in 2021, Lightning made a roaring comeback out of nowhere. All of a sudden usage and development were soaring. Then El Salvador announced that they would be using Lightning when they made Bitcoin legal tender in their country. Lightning was back, and better than ever. For a moment, it appeared that the small blockers during the blocksize war had made the correct decision about how to scale Bitcoin.
But then this year, Ordinals, (NFT inscriptions on Bitcoin) and BRC20 tokens took the market by storm. All of a sudden all of the get-rich-quick degens from altcoins had made their way to Bitcoin. This caused blocksize demand for Bitcoin far greater than anything we ever saw during the bull cycles of 2017 or 2021. Suddenly there was a real demand for Bitcoin.
At first, this seemed like a wonderful thing. After all, one of the real questions about Bitcoin’s future is how it will pay miners after the Bitcoin halving has reduced the new Bitcoin created to a tiny amount. Suddenly with all of the demand for blocks, there were enough fees to even overtake mining rewards. If this could continue in the future, it would have solved Bitcoin’s main question and help keep it secure for decades into the future.
But there is also a new problem that has resulted from these higher fees.
With demand for block space going through the roof, it has also dramatically increased the cost to open up Lightning node channels. If you remember above, small blockers' main plan was to scale Bitcoin by using Lightning. But if fees are too expensive, resulting in a much smaller number of people running their own Lightning channels. That would force most users to rely on centralized Lightning custody wallets. Significantly making Lightning more centralized, which is against the entire philosophy of Bitcoin.
There is a dilemma brewing in the Bitcoin market. Perhaps during the next few years, we will see another Blocksize war surrounding Bitcoin. Maybe they will need to slightly increase the block size. Another option is that they will be forced to innovate. Everything that has happened this year on Bitcoin has been because of new innovations and developers. There possibly has never been this much excitement or attention on Bitcoin’s development. This will likely lead to new developments or improvements that we didn’t even think were possible. Lightning is also still very young, and will see great improvements as it continues to get more attention as well.
I would definitely disagree with the idea that Bitcoin has failed. In fact, I would argue that its ecosystem has never been more exciting. Sometimes it is great to run into problems. Developers will find a way to make it work, and continue to improve the Bitcoin ecosystem.
How about you? Do you think Bitcoin has failed?
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