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Since Bitcoin hit its highest price of over $68,000 on November 10th, 2020 it lost more than 40% of its value and continues to decline. While many people think Bitcoin will return from its ashes like a phoenix for another time, I this it will be dead in the long run. But unlike crypto-detractors I do think blockchain and other cryptocurrencies like Ethereum, Solana, Tether, USDC, and others will change the world. If you want to know why read on.
Bitcoin is dead
Since the inception of Bitcoin (BTC) in January 2009 by Satoshi Nakamoto, it was called dead so many times that it’s a meme now. In the light of the Lehman Brothers’ collapse, the grand vision of Bitcoin was to be THE distributed money without any reliance on central financial institutions. Bitcoin came a long way to near to close that vision from being called “a Ponzi scheme” and “a Pyramid scheme”, to “a scam” and a “bubble” to get mainstream acceptance. However, one of its most important use cases – replacing money from banks – is still far from reality. As such, I don’t believe it can deliver its promise of replacing cash.
High transaction fees
The rise in the price of bitcoin triggered a massive influx of transactions, which has resulted in a corresponding rise in fees for all bitcoin transactions. The fees to more than $60 per transaction on April 21st, 2021 but it returned to lower levels (currently about $1.3 on March 2022). This high level of transaction fees will limit the broader use of the currency. With the inflationary nature of Bitcoin, the transactions fees are not likely to go down. Imagine paying an extra $1.3 to your bank every time you want to buy a cup of coffee!
In addition to high fees, the network capacity is also limited by the nature of the technology and as a result, the time to verify transactions will grow. On May 5th, 2021 the delay peaked at 55 hours to verify a transaction! Right now (March 2022), it takes about 12 minutes for transactions to be confirmed. Moreover, when the number of Bitcoins in circulation reaches the maximum limit of 21 million, miners will lose a significant incentive to mine and as a result, both the transaction fees and delay will increase.
While the quick and significant changes in the Bitcoin price make is a very good asset for speculations, it makes it very hard to be used for saving or doing daily transactions. Imagine that you want to pay your rent and the value of your money suddenly drops by 20% the day before your rent is due!
Even though it is very easy to send and receive Bitcoins across the globe, its rules and regulations are varied and sometimes sketchy in different jurisdictions. While many countries assumed supportive regulations toward cryptocurrencies, in some there are strict rules against their use. Unfortunately, in the United States, rules and regulations are not very clear and change from one state to another. With the recent Executive Order from President Biden, the situation might improve in the future.
Finally, and most importantly, the carbon footprint of Bitcoin, and all proof-of-work (PoW)-based blockchains, is enormous. Bitcoin blockchain requires an enormous amount of electricity to mine, which power companies generate by burning huge amounts of fossil fuels like coal.
Generating one dollar’s worth of bitcoin consumes as much electricity as powering one home for a month (although it varies). That means the carbon dioxide emissions from the energy required to produce one bitcoin are equivalent to those from 621,000 Visa transactions or 51,000 hours of watching YouTube videos.
Bitcoin’s core design is the problem. It was created to be slow, expensive, and difficult to scale. If you don’t believe me, download the blockchain yourself – it’s over 200 gigabytes of data!
For these reasons, I think Bitcoin will be in the same graveyard as the major phenomenal technologies of the past: Walkmans, Floppy Disks, Audio, Videotapes, and many others.
Crypto-assets exponential growth
In just eight years and despite all the troubles of Bitcoin, we have seen a powerful movement taking place in the world of finance. A completely new asset class has emerged, with a market value exceeding US $1 Trillion.
Tech leaders have learned that blockchain technology can be used to create far more than digital money. Blockchain technology allows for a decentralized, transparent, and secure means of exchange between two or more parties without the need for an intermediary. The concept of blockchain can be applied to a wide range of use cases beyond financial transactions because it allows for trustless interactions between parties that do not know each other but have a common interest in verifying a particular event.
The ability to create decentralized applications (dApps) with smart contracts allows developers to build a wide range of transactional applications that do not require centralized authorities or middlemen.
This potential has led to exponential growth in the number of projects looking to create dApps (decentralized applications) based on blockchain technology. These dApps are usually powered by their own native tokens (cryptocurrencies), which are used to store value and as a currency within the application. These tokens can then be traded on public exchanges.
Ethereum is the most popular blockchain for dApps and smart contracts. Ethereum was proposed in late 2013 by Vitalik Buterin, a cryptocurrency researcher and programmer. Development was funded by an online crowd sale that took place between July and August 2014. The system went live on 30 July 2015, with 11.9 million coins “premined” for the crowd sale. In 2016 Ethereum was forked into two blockchains, as a result of the collapse of The DAO project, thereby creating Ethereum (ETH) and Ethereum Classic (ETC). The value token of the Ethereum blockchain is called ether. It is listed under the code ETH.
Ether can be transferred between accounts and used to compensate participant mining nodes for computations performed. Ethereum provides a decentralized Turing-complete virtual machine, the Ethereum Virtual Machine (EVM), which can execute scripts using an international network of public nodes. “Gas”, an internal transaction pricing mechanism, is used to mitigate spam and allocate resources on the network.
Blockchain’s solutions for businesses
Blockchain’s ability to offer solutions for businesses is something that many experts have been talking about in great detail. Although the subject of blockchain has been one that has mostly been associated with the cryptocurrency industry, it seems like the technology is also capable of offering a lot of potential for many other sectors as well.
The potential that blockchain presents for business is something that has already been acknowledged by companies like IBM and Walmart. Both of these companies have already started working on blockchain technology for their own supply chains.
New crypto technologies have emerged to solve the problems of Bitcoin. Solana blockchain used a Proof-of-History system to reduce the required energy for managing the blockchain while maintaining its security. It is also much faster and can easily scale to 10,000 transactions per second (TPS) on the blockchain. The project is led by ex-Qualcomm engineer Anatoly Yakovenko and was co-founded by several other engineers from the chipmaker.
To eliminate the volatility in the blockchain value, many stable coins are proposed. The idea of these coins is to tie their value with a fiat currency, mostly the US dollar. In this way, the price of the digital currency is always $1 (or some other fraction), and they rely on a distributed network of miners to greedily maintain the balance in the network.
Bitcoin is obsolete, Crypto Has the Future
Therefore, Bitcoin is already obsolete technology. The reduction of its circulation, and value, is just a matter of time. However, blockchain technology is the underlying platform that will enable the future of the web and will continue to thrive.
This is the best time for anyone to start being involved in the new forms of crypto technology. If you remember the early 2000s of the internet and the dot.com crash, you know that cryptocurrency will continue to grow and deliver value for the people.
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