My previous writing explained how bitcoin’s usefulness as a settlement system is able to scale indefinitely in contrast to scaling bitcoin to serve low value participants which has a diminishing return at the cost of its security.

Understanding bitcoin’s usefulness as a settlement system and how such a utility IS mutually exclusive with the goal of scaling bitcoin’s transaction capacity to preserve and provide lower value transactions gives us a better understanding of the VALUE of the fee market that arises when the network’s transaction capacity is reached.

As this capacity is reached and exceeded an overflow queue called the “mempool” begins to fill up with transactions that are waiting to be validated. When the queue fills up impatient users can jump the line by increasing the transaction fee they pay.

This fee market allows the value of bitcoin’s network to grow and expand without having to trade-off its security for scaling purposes. Instead the trade-off is passed to the cost of using bitcoin which becomes relatively more costly than a “scalable” counterpart. However, this cost doesn’t necessarily decrease the value of bitcoin-in fact the argument here is such a mechanism necessarily puts a positive pressure on the value and therefore price of bitcoin.

A prevailing argument from a large faction of economically ignorant users suggests that as the cost to transact bitcoin increases “customers” become priced out and will be lost to other competing crypto-currencies.

The below graph is cited as evidence of this phenomenon sometimes dubbed the “flippening” (mostly in regard to an alleged impending threat by the ethereum project to take over bitcoin’s role as the crypto world reserve currency ie digital gold). Big blockers cry impending doom (aka FUD) and point to this graph as their empirical evidence:

Correlation does not imply causation Roger

However there is another simple and founded explanation for what phenomenon we can expect when bitcoin’s transaction capacity becomes so dear that low value users becomes priced out of using the network. And it just so happens to ALSO match the observed empirical evidence (and doesn’t involve impending doom).

Bitcoin as a settlement network, and money itself (whichever the medium) as a form of settlement, suggests that there might be times of increased usage (settlement) and also perhaps times of lower usage (ie settlement has occurred and is no longer needed at the time).

If the network reaches capacity for a significant period of time it is quite natural (and observable) that the lower value users (ie those that do not value bitcoin’s transaction capacity as much as others) will use alternative options to settle their differences.

In this case we can see that alternative cryptocurrencies function as an overflow mechanism themselves. As bitcoin’s network fills up with higher and higher value transactions the lower value transactions will naturally begin to pour over into different cryptocurrencies thus taking pressure off of bitcoin’s maxed-out capacity.

If enough users leave the network, the network won’t capitulate, rather the mempool will simply clear out and the average transaction fee will begin to decrease back to the previously accepted normal and the users will return (some perhaps won’t but some new ones will take their place too).

Moreover, if the pressure and race for transaction space is too great or sustained for a significant period of time eventually we should expect, not a drop in price from user dissatisfaction (how can something be so valued no one values it?), but rather an increase in price based on the increased demand which is evidenced by the increase in transaction fees paid to use the network.

A price shift of this kind would take some time and observing it would depend on complex factors which include the maturity of the markets and valuation systems (ie exchanges) but nonetheless we can see how bitcoin’s price and overflow queue give it a kind of breaker or regulation (regulation like a valve rather than a government) mechanism.

As the price increases bitcoin is able to settle greater amounts of value (with no worry about the cost of transacting such value since the relative fee is expected to always be small in relation to high value transactions) regardless of its ability to scale for everyday use by the average world citizen. This increase in price would also happen regardless if periodically and perpetually bitcoin lost its lowest tier of low value users and transactions to alternative currencies.

From this view we can see that, in effect, Roger Ver and his supporters are arguing that the low value transactions are worth more than the high value transactions. If bitcoin becomes so valued that those that don’t value it enough to pay to use it abandon it, how can this be said to take significant value from bitcoin’s network and add it to other networks?

If anything such a phenomenon would only serve to protect bitcoin’s global market share of stored value by giving it another buffer for overflow while it slow rises to compete with institutions such as the IMF for international level settlement status.

In light of the point made in this writing it is shown that there is no founded or sound economic argument to suggest that maxing out bitcoin’s capacity causes its market valuation to capitulate. The overflow will eventually simply clear itself out and if it doesn’t then the market cap and price of bitcoin will simply increase to reflect the sustained demand.