Making Sense of the Bitcoin Bear
Today is Saturday, the fourth of August, 2018. BTC just plummeted to $7k today, a big disappointment to investors who were hoping to (finally) see a bullish recovery, or at least a major correction.
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Bear Mode All Year
This is not just volatility du jour, folks. BTC has been in bear mode all year. And it’s especially disturbing when rumors of Starbucks accepting bitcoin are brewing.
What in the blazes is going on?
The hard truth is that Bitcoin had lost its way years ago when its community was bamboozled into accepting that it should no longer be trying to grow into a worldwide “Electronic Cash System” as had always been the goal… as the title of its original whitepaper had intended.
The last few years have been a bizarre journey hallmarked by propaganda, censorship, and cult-like thinking. The August 2017 fork into Bitcoin Cash was a silver lining in this story — at least some of the community recognized the madness. Thankfully BCH preserved the ledger to continue to be used as unrestricted peer-to-peer cash.
The Problems With Lightning Network
BTC on the other hand, chose to intentionally restrict its blockchain throughput, and is attempting to scale on a second layer known as the Lightning Network (often abbreviated as “LN”).
To say there are problems with this approach is putting it nicely, at least in my view. For example, one article alone lists 27 issues with it. My biggest gripe with LN has always been the fact that it’s no longer a P2P system; it necessarily requires large hubs to function.
I understand that not everyone sees things the same way, but let’s imagine for a moment that Starbucks wants to adopt BTC and starts accepting payments on the Lightning Network.
How’s this actually going to work? For starters, LN is barely usable today even for nerds. To use it, you have to download the entire BTC blockchain, rull a full software node, plus a lightning node on top of that, and then you must keep it online 24/7 or else you will lose your money.
Moreover, even if the user-friendliness issues are solved, and even if there’s enough room on the blockchain to onboard users without ridiculous fee spikes, what will the network look like? Is everyone just going to open a bi-directional payment channel with Starbucks?
At best, I can imagine that Starbucks will become a huge Lightning hub, and perhaps there will be another mega-hub like Coinbase that can onboard customers.
At that point, is it even Bitcoin anymore — you know, the peer-to-peer permissionless system that we all signed up for, and was supposed to change the world? Or is it just a few corporate giants sharing a ledger?
In the course of human events, sometimes awareness is gained as potentialities are about to emerge as realities. In other words, as the rubber is about to hit the road, we suddenly gain the perspective to envision things more clearly as we ask “how is this going to work now?”
Prices of cryptocurrencies have historically correlated to transaction volume, and rightfully so: it makes sense that the more usage it gets, the more valuable it becomes.
Trading Volumes Give BTC Its Value
Currently, BTC has 10 times more transaction volume than Bitcoin Cash (BCH), which corresponds to its price being 10 times higher. However, this is not so much due to everyday commerce, but rather because BTC is the base cryptocurrency on so many trading exchanges. In addition, Tether (USDT) is a U.S. dollar proxy instrument that is also based on the BTC blockchain.
Between BTC and Tether, the BTC blockchain gets plenty of action. Yet, beyond trading there’s little actual economic activity. Much of the real growth, innovation, and mindshare has left for other blockchains.
It’s possible BTC hangs on and eventually manages to get its act together, and there’s a lot to be said for the network effect and the scarcity of 21 million coins, even if it does become a centralized corporate system.
However, awareness of BTC’s allegiance to such a bizarre and contorted roadmap is ripening. It could be a primary reason behind the lack of confidence we’re seeing, and why there’s still more bears than bulls at the party.
Is BTC’s bear market permanent? Do you agree or disagree with this opinion on Bitcoin progress? Share your thoughts in the comments.
Note: The above article reflects the opinion of Jonald Fyookball and not Bitsonline editorial policy. Views expressed are the author’s alone.
Images via Pixabay