“Bitcoin isn’t a medium of exchange.”Michael Saylor, January 2021
An “electronic cash system” is how Satoshi described Bitcoin in the 2008 whitepaper. Yet today nobody would describe it as such.
Bitcoin isn’t an electronic cash system. It isn’t fungible, it isn’t private and it it is so expensive to transact that any suggestion of sending Bitcoin to buy a coffee would be met with ridicule.
Layer 2 solutions like Lightning network (LN) were developed to address these shortcomings and scale the network. Yet adoption of LN is remarkably slow and almost three years after its first release has gained little traction.
An article published in December 2020 on Bitcoinlightning titled “Lightning Network Adoption Accelerates to New Heights in 2020”, and written to highlight companies now developing on LN, actually serves to demonstrate the lethargic rates of adoption.
“This week marks another significant milestone in the network’s development as the networks’ TLV (total locked value) peaked at $12.4 million. Importantly, the TLV represents the amount of Bitcoin currently in payment channels.”
So as of last month, LN payment channels held less than 500 bitcoins, roughly 0.0025% of all bitcoins in circulation. LN has been an abject failure and even today not a single major exchange (save Bitfinex) supports the protocol.
The number of bitcoin transacted across the network every month has not changed since 2012, and the confirmed transactor per day maxed out in 2017 after the SegWit fork and has not increased since.
Prior to the SegWit fork Bitcoin could process about 4 transaction per second (TPS), and now it can handle 7 TPS.
Besides a small bump in TPS, the only thing to change in Bitcoin since 2017 is the price.
Demonstrably useless at sending small transactions, Bitcoiners now promote the technology principally as a store-of-value or digital gold; an asset to hold forever and never spend. Not a currency at all.
In 2010 the average internet speed across USA, Europe and Asia was around 5 Mbps (megabits per second). Today the number is closer to 100 Mbps, a 20x increase during which Bitcoin scarcely doubled its TPS by initiating SegWit, simultaneously disenchanting much of its community by not simply making blocks bigger.
It is with no small degree of irony that Bitcoiners, who often describe themselves “libertarian”, look to governments and regulatory bodies to help pave the way for greater adoption and institutional investment.
A technology once regarded as disruptive has been swallowed whole by incumbents of the existing financial system. That a libertarian would cheer on hearing news from Goldman Sachs that Bitcoin is a good investment only goes to show how lost cryptocurrency has become.
The rise of COVID and the injection of vast sums of money to prop up an economy which is being sabotaged by the same world leaders doing the injection, has played well into Bitcoin’s new narrative as a store-of-value.
A new generation of institutional investors, accommodated by regulators, have effectively co-opted a technology which, once upon a time, was revolutionary. There are few things as distasteful as a billionaire shilling Bitcoin, but that’s where we are today.
One such billionaire, Michael Saylor, recently sank a fortune into Bitcoin and has unsurprisingly been advocating everybody follow suit. Saylor’s comments in a recent interview underline the paradigm shift in perceptions of Bitcoin’s utility.
“The term “cryptocurrency” is very confusing. Bitcoin isn’t really a currency. When people think currency they think Bitcoin needs to be a payment network or a medium of exchange, and it isn’t and it doesn’t need to be. It can’t be a currency with the current tax law, and therefor it isn’t a payment network and therefor all the rules around currencies are irrelevant. People will criticize Bitcoin for not being a currency or for not being fast enough, but they are irrelevant criticisms. If you just lock on to the idea that Bitcoin is digital gold and you’re just going to stack it up like virtual gold bars in cyberspace then it’s pretty obvious why you want it. It’s a better gold than gold.”
Back in 2013 Bitcoin was used as a currency or medium of exchange in the now notorious Silk Road marketplace. Alleged mastermind Ross Ulbricht received two life sentences and 144,000 bitcoins were seized and later auctioned. Billionaire Tim Draper bought many of them at auction.
When WikiLeaks began accepting Bitcoin donations in 2011 (after being cut off from PayPal), was it not a medium of exchange? Sadly, Julian Assange’s fate is little better than Ulbricht’s, if at all.
Just two months ago a further 70,000 bitcoins, worth one billion dollars and today worth two billion dollars, were seized from an alleged Silk Road hacker on November 3rd 2020. Details of the seizure are sketchy at best with Wired reporting:
“Somehow, however, the IRS has now found Individual X and demanded the forfeiture of the funds, which Individual X agreed to on November 3. It’s far from clear how the IRS tracked down the hacker, why the investigation took more than seven years, or exactly what legal means the IRS used to persuade Individual X to turn over the money […] the US government stands to be about a billion dollars richer.”
In 2008 Bitcoin was described as a “peer-to-peer electronic cash system.” In 2021 it’s now a business-to-business thermodynamic store-of-value.
By kowtowing to regulators and governments, Bitcoin may have shot itself in the foot and undermined its own value proposition. Believing that Bitcoin is a better gold than gold is a nonsense which could ultimately result in Bitcoin sharing the yellow metal’s fate. For the hoarding, not for the win.
If Bitcoin adoption and usage does not increase dramatically it will fade away. Bitcoin should not be treated like gold and hoarded because Bitcoin is not a precious metal, it’s a network – and networks need traffic.
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