Will Bitcoin Collapse Under the Weight of Its Own Success?
Stephen Pair of Bitpay wrote a blog about Bitcoin mining fee recently. Is this an issue that needs to be urgently addressed?
All eyes are on the Winklevoss Brothers trust and the Securities and Exchange Commission, hereinafter SEC. There are some that are of the view that a negative decision on the trust by the SEC would lead to damage for Bitcoin.
However, the real problem that Bitcoin is facing at the moment is not what the SEC is going to do about a trust but the very nature of the currency itself. Bitcoin may become a victim of its own success.
So let us see if Bitcoin is a star that is bound to collapse under its own weight.
The sludge in the pipeline
Bitcoin has been struggling to process transactions quickly enough and what is more, the cost of processing transactions has been rising significantly.
Recently Marketwatch.com observed:
“Regular users are waiting longer and longer for their transactions to be confirmed. Average confirmation time on Feb. 3 was nearly eight hours, though it’s typically closer to 90 minutes.” Further commenting on the problem of rising fee, “The total value of all transaction fees paid to the virtual miners who power the Bitcoin network rose to 270 Bitcoins, or about $320,000, on Wednesday, March 8, 2017, its highest level in nearly a year.”
Stephen Pair, Co-Founder and CEO of Bitcoin Payment Services company Bitpay wrote a blog talking about how their miner fee expenditure has risen 35-fold.
In his blog, Stephen writes, “If we factor out our transaction growth of nearly 3x, it is still nearly a 12-fold increase. The fees aren’t just rising, they’re rising exponentially. At some point, an equilibrium will be reached and we will discover the true value of having a transaction secured by the most powerful computing network mankind has ever deployed.”
Lack of consensus in the Bitcoin community
The problem of scalability has not been solved as of yet even though efforts to solve the issue have been underway for quite some time.
One of the proposed solutions to Bitcoin’s slow processing speed is called SegWit, short for segregated witness. This solution depends on moving transaction data to secondary networks that would help decongest the Bitcoin Blockchain. While adoption for SegWit has been rising, the number of blocks signaling SegWit support are hovering between 25 to 30 percent at the time of writing.
There was also a proposed increase in the size of individual blocks but that proposal has not reached anywhere so far either.
Stephen Pair expressed his surprise about the current scenario in the blog post, “In 2011, I would have never imagined we’d still be living with a 1mb block size limit in 2017. At the time, most people expected that the limit would be increased a few times until we started to experience real scaling limits imposed by physics.”
Market forces will determine a solution
There are a number of possibilities to solve the scalability issues that are afflicting Bitcoin. There are possibilities according to Pair that range from off-chain, on-chain and mining-secured solutions. Pair thinks that fight is really between on-chain and off-chain transactions.
He emerges as a Bitcoin optimist and thinks that it will be market forces that determine the future of the cryptocurrency rather than any hardline ideological stance from the Bitcoin community members.
At the moment, there is a lack of clarity on what lies in the future of Bitcoin, maybe something like the lightning network could get the off-chain party rolling.
In his final thoughts Pair states:
“Markets and economics will eventually overwhelm any ideological stance community members hold. Miners may be compelled to increase the block size limit leading to a disorderly hard fork experiment.”
Bitcoin is now at a crossroad where it has to take shape for the future. The question is whether it wants to keep being relevant as a payments network or does the digital gold status it seems to have attained, the final destination for it.