Bitcoin Should Look Beyond Succeeding As Domestic Payment System
Bitcoin, the pioneer of the crypto realm has turned a decade old this January. The past year’s crypto market bloodbath has taught a very important lesson that people should focus on the technology underneath rather than the by-product.
Bitcoin saw its market capitalization fall by a massive 81% incurring huge losses to big & small investors alike. As the Bitcoin network expands, the basic problem with its network is becoming more visible by the day. Be it progressively slow transaction speed of 7 transactions per second or comparatively significant transaction fee. The two big factors which Bitcoin promised to eradicate when it was launched in January 2009.
Bitcoin was invented with a motto of providing faster transaction at negligible transaction fee for the developing nations where centralized banking systems were out of reach for underprivileged.
However, as time progressed and Bitcoin gained movement both in terms of prices and popularity, its shortcomings are becoming more evident every day. A recent study indicates that it's high-time for Bitcoin to realize it cannot succeed as a domestic payment system, and it should rather focus on working on its strength of becoming an international payment system.
Bitcoin Loses Heavily against the current domestic financial system
An economic analysis of the Bitcoin Payment System by Gur Huberman, Jacob Leshno, and Ciamac Moallemi compares the Bitcoin Payment system against the traditional methods of banks.
The study suggests that Bitcoin is no way near the traditional systems because of its decentralization aspect. The study suggests, the current Bitcoin system would incur higher charges than that of Banks
The mining aspect also adds to the cause as smaller transactions get delayed. The main reason being the flawed incentivization process, which gives importance to heavy and larger transactions over the smaller ones.
The paper concludes that the current Bitcoin system would never be able to get as far as the traditional banking systems are more affordable and easily available.
However, that does not mean an end of road for the pioneers, as it still maintains its status quo when it comes to international transfers. Bitcoin Payment system is still more efficient than the existing giants like Visa and SWIFT, as the network provides for faster transaction at comparatively minimal cost. The Bitcoin Payment System proves more beneficial for larger sums of money.
Is there no room for Improvement?
The ideological point of view might make any of you back Bitcoin even after the shortcoming are on display, for everyone to see. Those who baked the Bitcoin for its stand against the traditional system of centralized banks and their monopoly over people’s money, still believe there is room for improvement.
Their point of view is worth arguing as there have been many development processes in the past and quite a few running currently to improve upon the obvious limitations.
Lightning Network is one such step aiming to sort out scalability problems with the current network. The lightning network would act as a side-chain, which would ease the burden to a certain limit paving the way for faster transactions.
The Lightning network is currently under development and once complete it would surely enhance the heavily burdened Bitcoin Blockchain. Optimists on the libertarian side believe, just like the Lightning network, many other scaling solutions can help the network give a run for their money to most of the competition