Jan 5, 2018 | Analysis | 0 comments
Saving bitcoin is paramount. Bitcoin was the best investment of 2017, along with a number of other cryptocurrencies. Saving bitcoin is of critical importance because it has struggled in the last few weeks while alternative investments in the crypto space have been rallying significantly. Bitcoin is perhaps easiest to obtain, while acquiring other altcoins requires additional steps that may alienate the average investor. We believe this is one of the most significant reasons that bitcoin has remained in the number one spot for so long, but as cryptocurrency is becoming more mainstream, the average investor is also now realizing that bitcoin has some real challenges that prevent it from being a top choice for a cryptocurrency with real world applications.
How can we go about saving bitcoin? While other cryptocurrencies such as Ripple are now contending for the top spot, if bitcoin can address its three largest issues, then it can regain its momentum. In this article, we discuss what we see as the three largest issues with bitcoin, and possible ways in which these issues can be solved. Should these issues be worked out, bitcoin’s momentum could return.
Bitcoin Has High Transaction Fees
The majority of bitcoin transactions require the use of a third party payment provider. The problem here is that as the value of bitcoin has grown in tandem with the volume of bitcoin transactions being processed, the cost to use bitcoin has become prohibitively expensive for most new users, and for real world applications.
In short, the fees are a massive issue, and prevent bitcoin from being used for everyday purchases. In fact, bitcoin fees are now exceedingly high, and are at the highest they have ever been.
It is a growing problem that must be addressed .
Source: Bitinfocharts
The average fee is now in the mid-$30 range. This means that on average, over $30 is being paid to move bitcoin. Some transaction fees are less, some are staggeringly higher, but the bottom line is that this is simply unsustainable if the ultimate goal is to have a means of barter that can be utilized for real world transactions.
In a recent story , we learned that a journalist was hit with nearly $15 in fees just to transfer $100 in bitcoin. Other cryptocurrencies do not face this issue as fees are minimal, or in some cases, non-existent . Bitcoin Has A Noticeable Lack of Speed
If you have never bought, sold, or transferred bitcoin you may not be aware, but the time it takes to register a transaction is extremely slow relative to other cryptos. Anyone who has used bitcoin for a transaction can attest to this. After new transaction is put out on the Bitcoin blockchain ledger, transaction can become visible quickly, but the actual movement of the currency can take many minutes .
Take a look at the average confirmation time:
Source: Blockchain info charts
As you can see, for the most part the chart hovers around 30-90 minutes, but there are spikes which can drive average transaction times to many hours. This is particularly true when there are a lot of transactions, or when there is a massive selloff in bitcoin. It is not uncommon for Coinbase, one of the most popular wallets, to be unable to process transactions during such times, in which case investors are at risk of losing hundreds or thousands of dollars in a short period with no way of selling. This isn’t always true, but it is true that the system is terribly slow, and as such it is an inefficient way to conduct regular transactions.
This delay causes an inconvenient wait for both the buyer and seller, and is a large reason why altcoins are becoming more popular. Difficult To Scale
In large part due to the high fees and the problems with transaction speeds, bitcoin has a scaling problem. There are simply real limits on the number of transactions that the bitcoin network is able to process.
One large reason is that the block size (about a megabyte) is limited, slowing things down. This caps how many transactions can be done per second (about a handful at most).
With this realization, the scaling up of bitcoin to be utilized to conduct real world transactions in retail, restaurants, service stations etc. is simply unfeasible. Addressing The Issue
There are a few things that bitcoin can do to help alleviate these problems. The first is “forking’ the network. The second is the segregated witness protocol (also referred to as SegWit).
Finally, there is the lightning network.
Let us discuss. Forking
There are so called hard forks and soft forks. A hard fork essentially takes a block chain and splits it into two. Many investors are opposed to this because of the impact on holdings in the short-term, but essentially this helps increase the block size limit. Perhaps the most well known example of a hard fork was the introduction of bitcoin cash . This was done to help scale up the utility of bitcoin.
This fork was done to expand the block size from 1 megabyte to 8 megabytes, therefore speeding up transactions, and increasing the volume of processed transactions per second.
A soft fork is a “change to the bitcoin protocol” which is a backward compatible approach to take old nodes on the blockchain and recognize them as valid. While this may sound technical, all it really means is that users and merchants continue using older nodes while miners and related companies have to upgrade to prevent losing the fork. In short, soft forks create tighter rules on the older software, whereas a hard fork changes the rules so that older software is made obsolete. Perhaps an example of a soft fork is best. The Segregated Witness (SegWit)
Source: CryptoCompare
Although the SegWit is an example of a soft fork, it is best described on its own. Few investors realize that this soft fork came out shortly after bitcoin cash in August of 2017.
It was thought adoption would be widespread, but it has been slow at best.
So, what is it? Well this solution essentially changes the definition of a block from 1mb to one million units. A witness ‘signature’ essentially moves the data to the end of the block units, and changes each byte to a one-quarter unit size.
The end result is that the acting size of the block becomes 1.8 megabytes in practice, boosting speed significantly (estimates are for about a 250% increase in speed if fully adopted). In addition, it is compatible with the lightning network, which is designed to reduce fees tremendously. The Lightning Network
Source: Quad7Capital.
com
The Lightning Network has been created to allow for transactions and micro-transactions to take place near instantaneously with massively reduced feeds. The technology, which is still undergoing testing, utilizes smart contract technologies to enable near instant micro-payments using cryptocurrencies such as bitcoin. The network speeds up the process by which bitcoin transactions are validated. As you may (or may not be aware) one of the reasons for the delays is that the curre.
