This is an opinion piece by Paolo Tasca, professor, economist and founder of the Center For Blockchain Technologies at University College London and the Distributed Ledger Technology Science Foundation.
Bitcoin has retained its place as the quintessential, robust, and tamper-proof store of digital value for nearly a decade. Yet every year the debate continues over whether bitcoin should evolve into something more. Can “digital” gold also be the currency of the world? Could the Bitcoin blockchain be used to store valuable assets? Should he?
This conversation culminated with the launch of Bitcoin ordinals and BRC-20 tokens, further attracting demand for the Bitcoin blockchain. And it’s understandable – Bitcoin’s unparalleled security and stability have made it known as the blockchain of value. Now that it’s possible to store a growing range of assets there, people want to do it. This is good news for store of value proponents, as demand for bitcoin is expected to drive the price up.
But more transactions also mean more competition, and if you want your transaction to be successful, that means higher fees and longer confirmation times. This isn’t ideal for supporters who prefer bitcoin as their currency, and growing competition for block space is already affecting the ability to register assets.
The economist’s theory of evolution
This dilemma is not new for Bitcoin. Its intentional restriction of block size and transaction capacity pioneered great technology, like the Lightning Network, and sparked debates over the adoption of colored coins, SegWit, and other changes in technology. base.
And Bitcoin is no exception. When other blockchains came to market, their ability to handle ERC-20 tokens, NFTs, and other operations limited their popularity. Ethereum faced similar limitations, but solved them somewhat with technical upgrades. However, this has led to DApps finding refuge in alternative chains. This led to serious interoperability issues, but the economist’s “evolutionary theory” proved true: the market evolves in the direction of maximum opportunity.
From an economist’s perspective, it’s crucial to note that bitcoin’s usefulness as a store of value is still not widely embraced beyond our industry. During the first phase of the COVID-19 pandemic, for example, we were curious to see how the crisis (the one Bitcoin was designed for) would drive demand for cryptocurrency. What emerged instead was that while some people were buying and HODL, others clearly preferred saving in their fiat currency and happily accepting support payments in fiat currency. Even though these fiat payments have unfortunately been heavily depreciated due to inflation, the widespread global investment and adoption of bitcoin has not materialized.
But what happens behind closed doors? Bitcoin enters the cash reserves of many institutions, banks and countries. They realize its value and are already using it as a hedge against the next financial or global crisis.
When looking to the future, the pandemic is really an example of why we should be optimistic about where Bitcoin has reached. Although he is not (yet) the world reserve, he has succeeded. It took Google about 17 years since its inception and 11 years since its IPO to reach a $500 billion market capitalization. bitcoin did this in less than 12 years, and did not sell our data to advertisers to do so. Not only that, but it has come a long way while remaining a proof-of-work blockchain. There are many other chains that iterated continuously and expensively, facing diminished returns. Not Bitcoin.
However, we know that it is impossible for Bitcoin to evolve into what everyone wants it to be. There is no way (yet) to create a blockchain that can be a store of value, a mode of transaction, and a home for NFTs, tokens, and other valuable assets. But if the market is looking for a single blockchain for all these uses, then either Bitcoin will become one or another blockchain will.
Bitcoin’s race to lose
Of course, this “one blockchain to rule them all” thought has led many people to Ethereum, and its dominance has yet to materialize. Bitcoin could learn from Ethereum’s mistakes and use that time to redefine its identity and purpose in the market. For some, it will go down as the first and still the most successful example of a generalized digital currency that also solves the problem of trust. A truly decentralized and sovereign monetary system needs trust. Bitcoin provides that trust – and does it brilliantly with the absence of trust. Either way, that’s at the heart of its value as a system.
And Bitcoin, being the most free market that has ever existed, will indeed continue to evolve. Its independence drives its adaptability to changing market conditions, and this is what still makes it the blockchain of choice for many.
Of course, as a free market, we can only influence it through our daily actions. This is not a fault of Bitcoin. It is its best characteristic and the surest predictor of its ongoing successful evolution.
This is a guest post by Paolo Tasca. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.