21m Savage

Bitcoin Today and Moving Forward

Bitcoin already has several nicknames (digital gold, the honey badger of money, magic internet money, etc.), but I’d like to propose another that acknowledges the unstoppable force of nature that Bitcoin has proven to be over the past few years: 21m savage.

Artwork by Cryptograffiti

The scaling debate has riddled the Bitcoin community since 2014. The 1MB block size that was initially coded into the protocol translates to a network that can only process ~4 transactions/second, which prevents Bitcoin from working well at scale as a fast, cheap payment network. This has led to infighting, many attempts to change the protocol that were ultimately thwarted and high profile developers loudly exiting the community and declaring Bitcoin dead on the way out.

Meanwhile, newer and shinier cryptocurrencies like Ethereum and Zcash emerged. These cryptocurrencies seemingly offer everything that Bitcoin offers plus more (a Turing-complete scripting language for ETH and an encrypted blockchain for ZEC). They also seem to be supported by more cohesive communities led by benevolent dictators (Vitalik for ETH and Zooko for ZEC). Given all of these factors, one might assume that Bitcoin may be on the decline.

That assumption would be dead wrong though. Bitcoin has a few things that no other cryptocurrency has and the past few years have proven the genius of Satoshi’s design:

1.) No one central party controls Bitcoin 2.) The lack of a founder and undisputed leader means that the protocol is extremely difficult to change (even seemingly obvious changes like the block size take years to change) 3.) People around the world can use the protocol with a high degree of confidence that its core features (total coin supply of 21 million, a block reward that decreases by half every 4 years) won’t change

Bitcoin is the purest cryptocurrency that uses cryptography and incentives to achieve social scalability. That social scalability is achieved because you’re not putting any trust in any central party when you use Bitcoin *and* you can be fairly certain that the protocol will not change much over time. Bitcoin has no competition in that respect today and the strongest brand and network effect as a result of this social scalability.

BIP91

That leads us to Segwit and BIP91 (Bitcoin Improvement Proposal #91). Segwit is a protocol change that increases the scalability of the Bitcoin transaction network. The community has rejected the change up until now for a variety of reasons, but the miners are now indicating that they are ready to make the change via BIP91. If over 80% of miners signal support for it over ~ 2 day period, the change will be activated. As of writing, over 80% of miners are signaling for BIP91. It looks like the change that much of the community has been supporting for years may finally be made.

Why now?

The miners have rejected this change for years, but they recognize that if they don’t now, users will take things into their own hands with a User Activated Fork, which would be likely to split Bitcoin into two. Most agree splitting into two chains hurts everyone involved — the network effect and brand that Bitcoin has today would be diminished in the case of a split. Miners share similar incentives to users and developers in that respect and all participants are ultimately driven by incentives. So miners now appear to be supporting a change that will clearly be good for the price of Bitcoin.

If the change is made (which is still far from guaranteed), this would prove that changes are very hard to make in Bitcoin, but not impossible. This is a great thing for Bitcoin.

Risk averse store of value vs. risk-seeking platform for innovation

I agree with Wences Casares that everyone should invest 1% of the their wealth in Bitcoin and hold it for 10 years. It is very easy for anyone to do that today on Coinbase. Bitcoin is the primary digital asset to bet on for the next decade and is likely to be the reserve currency for the whole asset class.

I also believe that as a platform for innovation, Ethereum is the platform to be paying most attention to. Ethereum has proven the ability to quickly adapt and has the most expressive programming language and vibrant developer community today. It’s not either/or with Bitcoin and Ethereum; they will continue to be complementary for the next decade and beyond.

And an entire digital asset class, which may one day be the most important asset class on the planet, will follow Bitcoin and Ethereum’s lead.