The co-founder of Bitcoin Vietnam told CoinFox why the adoption of Bitcoin Classic is urgently needed.

Dominik Weil. The Bitcoin network processed yesterday the highest amount of transactions on record so far - and while this is for sure a reason to celebrate and the sign that Bitcoin is far from "dead", the network situation is getting more critical day by day.

As I have previously mentioned, we were feeling the pain already, and it has - as expected - just got worse since then.

Just three of several cases yesterday:

- One of our major traders on VBTC suffered waiting for almost one hour before a deposit into his exchange account was confirmed; he had never before experienced such a problem over the last months and it required a lot of explanations from our side to clarify the causes of this occurrence. To say the least, he was not excited that incidents like this are becoming an ongoing problem since confirmation delay adds huge additional risks for his arbitrage trading strategies.

If he decides ultimately that the risk/reward ratio for arbitraging price differences does not pay off anymore, we will lose one of our most valuable clients due to the clogged network status.

- Yesterday we had one case of the “Cryptowall” infection; the victim (completely new to Bitcoin) was in a panic since a ton of valuable private & business-related files were now inaccessible to her. While we did our best to assist her, it took roughly 70 minutes until the transaction to the hacker got confirmed by the network. We had a tough time convincing the victim to keep her panic in check and explaining that it was just the network which was clogged up... Well, apart from the bad first impression of Bitcoin which she got from being hacked and demanded ransom payable in Bitcoin, now she also had to experience that a Bitcoin transaction takes much longer than a usual bank transfer (bank transfers in Vietnam are pretty fast and arrive quite often within one hour at the recipients’ bank account).

How can you tell people - given these very, very limited network capabilities - that this is kind of “the money of the future”?

- When we were trying to refill our almost depleted hot wallet yesterday, it took around 50 minutes until the transaction confirmed. In the case of sudden big withdrawals, one might be faced with the risk that customers can't withdraw their Bitcoins anymore without delay (which can cause all kinds of trouble to them, depending on their specific use-case). To counter this risk, we would be forced to increase our holdings in our hot wallet, which in turn increases the risk for us as a business in case anything bad happens to us and our hot wallet gets emptied without our consent.

These are just three cases in the last couple of days - and other exchange/wallet/payment processing businesses in the Cryptosphere are certainly facing similar issues.

These problems do not go away by labelling these operations as “spam transactions” (they are all fee-paying transactions with a value of several hundred up to several thousand USD).

The Bitcoin Network currently works on its capacity limit - and further growth can't be handled by the network in its current status. This is a very dangerous precedent for several reasons:

- Since Bitcoin is not able to handle any more transactions than now and the growth potential is basically hitting the ceiling as we speak, while the demand for P2P-cryptocurrency transactions keeps going up, Bitcoin is opening up the opportunity for alternative implementations to win over the initial network effect which kept Bitcoin as the more or less uncontested number one of cryptocurrencies over the last years. Current Bitcoin startups (exchanges, wallets, payment processors etc.), which built their infrastructure and business models for “mass adoption” and massive growth of the Bitcoin user base, will have to come to terms with the fact that mass adoption/further growth of the Bitcoin user base is not going to happen.

Margins in the Bitcoin business are very tight and one is facing serious competition from inside the Bitcoin space as well as from the legacy financial system (be it registered financial institutions or the whole variety of underground / dark market operations). The majority of the players in the current Bitcoin ecosystem are still burning their investor’s cash, which was given them with the belief that these companies can become dominant players in the world where Bitcoin plays an absolutely integral part of how business and financial transactions are done.

If the current network capacity crisis remains unsolved, we will see a tremendous slow-down in investment in these basic Bitcoin infrastructure companies, while a lot of current players in the ecosystem will either have to cut back their cost structure dramatically or fold their business completely (since there might be no way to become long-term profitable if user growth is capped at the current stage).

Alternatively: if some serious competition to Bitcoin develops (and with every day of a congested Bitcoin network the likelihood for such an occurrence is increasing), these companies will explore/expand/switch to the protocol implementation that would best serve the original vision of Satoshi of a global P2P network without any intermediaries.

What we are currently experiencing is the attempt to convert the Bitcoin network into a pure settlement layer for the sake of layer-2-solutions, which will necessarily lead to a huge disruption in the current Bitcoin ecosystem. Most of the current startups that created this existing ecosystem build their products, marketing and business plans around Bitcoin as the global P2P payment system as it is described by Satoshi Nakamoto in the white paper.

If Bitcoin vanilla is now converted into a system which is explicitly NOT made for the end-consumers to access directly, the whole ecosystem will have to change dramatically.

Given that none of these layer-2 solutions are yet delivered, have proven to work in practice and are gaining adoption by the market participants, we think that this is a highly dangerous route to choose.

To make it clear: we are not against additional layer-2/off-chain solutions, which might help to reduce the on-chain transaction load, but we think that these solutions should develop in addition to on-chain scaling and prove themselves to be more efficient/faster/cheaper (or whatever benefit you can think of as a reason to choose them over on-chain transactions) in the market space, rather than being forced upon the users/ecosystem by artificially limiting the possibility to conduct on-chain transactions.

For these reasons, we decided to remain supportive of the Bitcoin Classic project for the time being.

Alexey Tereshchenko