This is an opinion editorial by Paolo Tasca, a professor, economist and founder of University College London’s Center For Blockchain Technologies and the Distributed Ledger Technology Science Foundation.
Bitcoin has held its place as the preeminent digital, stable and unhackable store of value for nearly a decade. However, every year, the debate continues as to whether bitcoin should evolve to become something more. Will “digital” gold also become the world’s currency? Can the Bitcoin blockchain be used to register assets with value? Is it necessary?
This conversation preceded the launch of Bitcoin Ordinals and BRC-20 tokens, which led to increased demand on the Bitcoin blockchain. And it’s understandable – Bitcoin’s unparalleled security and stability characterize it as a blockchain of value. Now that it is possible to store more and more properties there, people want. This is good news for store-of-value advocates, as the demand for bitcoin should drive up the price.
But more transactions also means more competition, and if you want your transaction to go through, that means more fees and longer confirmation times. This is not good for supporters who want bitcoin as a currency and the growing competition for block space has already affected the ability to register assets.
The Evolutionary Theory of the Economist
This problem is not new for Bitcoin. The deliberate restriction of block size and transaction capacity has pioneered great technology, such as the Lightning Network, and fueled debates about the adoption of colored coins, SegWit and other changes in Core.
And Bitcoin is no exception. When other blockchains came to the market, their ability to handle ERC-20 tokens, NFTs and other operations limited their popularity. Ethereum faces similar limitations, but it has been somewhat resolved with technical upgrades. However, this has led DApps to seek shelter in alternative chains. This led to severe interoperability issues, but the economist’s “evolutionary theory” was true: The market moves in the direction of maximum opportunity.
When viewed from an economist’s perspective, it is important to note that bitcoin’s utility as a store of value is still not widely adopted beyond our sector. In the early stages of the COVID-19 pandemic, for example, we wanted to see how the crisis (the kind designed for Bitcoin) would stimulate demand for cryptocurrency. What emerged instead was that, while some people bought HODL, others clearly preferred to keep their fiat currency and happily accepted fiat currency support payments. Although these fiat payments were, unfortunately, severely depreciated due to inflation, widespread global investment and adoption of bitcoin did not occur.
But what goes on behind closed doors? Bitcoin has entered the treasury 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 considering the future, the pandemic is actually an example of why we should be optimistic about the point Bitcoin has reached. Although it is not the global reserve (yet), it has succeeded. It took Google about 17 years from its founding, and 11 years from its IPO, to reach the $500 billion market cap. Bitcoin has been doing this for less than 12 years, and not selling our data to advertisers to do it. Not only that, but it has improved significantly while still being a proof-of-work blockchain. There are many other chains that are continually and expensively turned around, facing diminishing returns. Not Bitcoin.
However, we know that it is impossible for Bitcoin to develop as everyone wants. There is no way (yet) to make a blockchain a store of value, a means of transaction and a home for NFTs, tokens and other valuable assets. But if the market is looking for a one-stop blockchain for all these uses, then Bitcoin will be it or another blockchain.
Bitcoin’s Race To Lose
Of course, this “one blockchain to rule them all” mindset has drawn many people to Ethereum, and its dominance has yet to materialize. Bitcoin will learn from Ethereum’s mistakes and use this time to redefine its identity and purpose in the market. In fact, it will remain the first and most successful example of a widespread digital currency that can also solve the problem of trust. A truly decentralized, self-sovereign monetary system requires trust. Bitcoin provides that trust – and it does it well with distrust. Regardless of its development, this is the core of its value as a system.
And Bitcoin, being the freest market in existence, will actually continue to grow. Its independence drives its adaptability to changing market conditions, and that makes it, still, the blockchain of choice for many.
Of course, as a free market, we can only influence it through our daily actions. That is not a fault of Bitcoin. This is its best feature, and the surest predictor of its continued successful evolution.
This is a guest post by Paolo Tasca. The opinions expressed are their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.