Our Bright Multi Bitcoin Future
How the emergence of Bitcoin Cash makes the whole ecosystem more robust and resolves the 2nd great transaction bottleneck in the project’s history
The First Bottleneck Was Mt. Gox
For those of us that were part of the Bitcoin community in 2013 & 2014, we witnessed the gradual break down and eventual collapse of Mt. Gox first hand. At the time Mt. Gox was by far the world’s largest bitcoin exchange with about 80% of the world’s bitcoin trading volume. This central point of failure and its collapse took the bitcoin community a full 12 months to recover from. Only in January of 2015 did daily transaction volume again exceed the 100,000 level seen in December of 2013.
During this 12 month recovery period the bitcoin community built better exchanges all over the world, with better trading engines, raised more capital to fund experienced engineering teams and generally solved this bottleneck by growing a healthy competitive landscape of exchanges who each had less than 20% market share globally. So during 2015, & 2016 when an exchange experienced a hack or their website went downtime, the market didn’t take a significant hit and blockchain transactions kept growing at a good pace.
The 2nd Bottleneck Was Reached in 2017
What we have seen in 2017 was the 2nd bottleneck. But this time it wasn’t exchange infrastructure, it was a bottleneck in the Bitcoin Core software itself. As a result of the 1 MB blocksize limit, transaction growth hit a hard cap of around 300,000 transactions per day at the end of 2016. During this 12 month period from December of 2016 to December of 2017, transaction growth stopped and transaction fees began to rise. The demographics of the transactions began to shift to which ever 300,000 transactions were willing to pay increasingly higher fees to get a timely confirmation.
As fees have risen for users of the Bitcoin Network, many use cases have migrated to other blockchain projects such as Ethereum and thus the total market share Bitcoin has as compared against all over crypto assets has declined from above 90% to under 50%. We are now in the extraordinary situation where fees on the Bitcoin network are measured in the $10 to $100 range. And as a result more transactions now take place on the Ethereum network as compared to all other blockchains combined.
How To Solve The 2nd Bottleneck
Bitcoin has a passionate community and many people have worked tirelessly during 2017 to solve this bottleneck using one of two approaches. The first being more efficient signatures to reduce the space needed for transactions in blocks, known as Segregated Witness + 2nd layer solutions. This resulted in the activation of SegWit on 23rd of September 2017. Since that time, about 12% of the Bitcoin Network’s transactions have moved over to this new format.
While this improvement has added some transaction growth allowing the network to recently reach 400,000 to 450,000 transactions per day, this increase has not kept pace with demand and as a result fees continue to rise and on December 8th the number of unconfirmed transactions reached 200,000 for the first time ever.
Bitcoin Cash AKA Bigger Blocks As A Solution
The 2nd approach to solving the current bottleneck has come in the form of some community members including miners, wallets, exchanges and other users advocating for increasing the block size beyond 1 MB. These efforts came to a head in August 1st when Bitcoin Cash hard forked off from the Bitcoin Core controlled network and implemented 8 MB block sizes on its network. The result is that the Bitcoin Cash network can handle on the order to 2,400,000 transactions per day. The recent Bitcoin Cash technical road map includes a stated intension to move the block size limit to 32 MB in May of 2018, which will increase the daily capacity of Bitcoin Cash to over 9,600,000 transactions.
The Bitcoin Cash / Bitcoin Core Fork As The Solution
In a sense the solution to the 2nd Bitcoin bottleneck has been very similar to the first. When a central point of failure is discovered, the community actively works to create alternatives to route around the problem. In this case, competition within the Bitcoin software versions themselves has been successful in driving improvements to the technology and allowed for experimentation with multiple solutions and even multiple Bitcoin communities.
With the creation of Bitcoin Cash there is now a place for all those use cases that require transactions to have lower fees and faster confirmations. With the addition of Bitcoin Cash to Blockchain.info wallets, Coinbase.com accounts, and BitPay merchant access coming in the next few weeks & months, there is finally a path forward to resume healthy growth in transactions.
A Bright Multi Bitcoin Future
When I wrote my article on why we should “Embrace The Coming Bitcoin Fork”, in October of 2016 I wrote that “The great bitcoin fork is coming and I for one believe both sides will be better off when it does”. I’m truly glad to see the end of the politics around this “scaling debate” and instead Bitcoin Cash & Bitcoin Core hodlers are now free to use which ever network better serves their needs. And as we move into 2018 this multi network reality will allow growth to continue as transactions can flow regardless of if one of the networks hits an issue or chooses not to serve a certain demographic of users.
I don’t know what the next bottleneck will be in the coming years, but I do know that the Bitcoin communities and the larger crypto community will find a way to work around it. With each challenge the Bitcoin software, infrastructure, and the communities themselves have become more robust and able to tackle whatever the world throws our way. The future is bright my friends. I’m happy to be on this journey with all of you.