Bitcoin and the Future: What lies ahead for the world’s biggest cryptocurrency
The crypto world is still living in the aftermath of the great burst and bust of January 2018. As Bitcoin remains the barometer for market sentiment, recent months have seen less than exciting developments. After all, USD$8000 a coin seems dim when compared with highs of USD$19000 just four months ago. However, if you think that this time last year one Bitcoin was worth around USD$1700, the outlook doesn’t seem so grim.
Right now, Bitcoin’s first challenge will be to overcome this period of conservative market sentiment and it’s hard to tell when that will be. However, the coin’s market price has little to do with its underlying value as a technology. A lot has been happening in Bitcoin’s ecosystem development that could provide insight to its ability to endure in the future as the cryptocurrency of reference amidst great competition. If 2017 was a year of discovery and unprecedented growth for Bitcoin, 2018 might be its most technologically-interesting year yet. Here’s why:
SegWit and Lightning
Two major developments are laying the foundation for making 2018 a fundamental year for Bitcoin, from a tech perspective.
The first was the adoption of the Segregated Witness (SegWit) protocol in August 2017. Put simply, SegWit reduced the size occupied by the transactions in the blocks by ignoring signature-related information whenever possible. This considerably augmented the amount of transactions registered in each block, reducing transaction times and fees. Most importantly, it also made it easier to deploy second-layer protocols (read Smart Contracts) on the Bitcoin blockchain.
The second big development was the deployment of the Lightning Network. Touted as the solution for Bitcoin’s growing transaction fees, Lightning is basically a second-tier layer deployed on top of the Bitcoin blockchain, that allows for cheaper and nearly instant transactions. In a very simple way, it does this by creating a multi-signature wallet between two transacting parties that allows for mining-less fund interchange between the two users. Once the transactions are complete, the final result is the only thing registered in the blockchain. This also enhances privacy as the transactions between the two parties remain secret. Naturally, Lightning has the potential to solve some of Bitcoin’s biggest problems. While its implementation is still in the test phase, adoption and support seems to be strong.
Side-chains and the future
Side-chains are basically independent chains that are linked to the Bitcoin blockchain and operate their own native tokens linked to Bitcoin. These side-chains can have their own operating rules, independent from the Bitcoin protocol.
While there are a few different proposals for side-chain deployment on the network, the most popular one among miners seems to be RSK . RSK uses a strong federative system secured by Proof-of-Work. It uses the same code as Bitcoin which makes integration with miners seamless. Developers claim RSK can support up to 100 transactions per second, which is on par with Paypal.
Other proposals include Liquid Network and Drivechain, which propose alternative infrastructures for the deployment of side-chains.
Once in place, we could see a much greater number of projects launching on the Bitcoin blockchain.
Other important areas of research include Schnorr Signatures, Thumblebit, Bullterproofs and Confidential Transactions. All these protocols focus on improving transaction privacy and network efficiency, but are expected to take a considerable amount of time to implement. MAST, for instance, is an eagerly awaited protocol for the network, as it’s expected to redesign how smart contracts are written on the Bitcoin blockchain. By splitting the contracts into parts, it permits better privacy and transaction size, but it also allows for bigger smart contracts, as only part of the contract needs to be directly inscribed on the blockchain at each time. This will significantly improve smart contract development on the network.
What does this mean for the future of Bitcoin?
Deploying improvements to the Bitcoin ecosystem are ultimately dependent on developers’ decisions, with the input of the miners in the network, but consensus can be difficult to reach.
Lightning Network, for instance has been at the centre of a debate with a number of miners resisting adoption, even as it seems to bring Bitcoin into a new level amongst cryptocurrency capabilities.
The reason for this is simple: money. The Lightning Network takes many of the network transactions out of the blockchain, reducing the financial incentives for miners. It provides rewards for the nodes that sustain the network, but these aren’t as attractive as the ones offered by the current Bitcoin protocol or other protocols like RSK. Also, RSK offers a more convenient improvement, as it enables a seamless process of mining Bitcoin and side-chains. We could see a battle amongst miners, with many preferring to leave the support for the Lightning Network to other entities. The deployment of other capabilities in the network will no-doubt be faced with these common challenges of crypto democracy.
Either way, these developments are likely to shape the future of Bitcoin as we know it. SegWit and Lightning, which have seen robust adoption despite the miner debate, are already addressing the issues of scalability and high costs within the Bitcoin network. Further Smart Contract and side-chain capabilities are likely to also have a strong impact on Bitcoin adoption. Afterall, they will greatly expand developers’ capabilities to build on the Bitcoin blockchain and make use of the world’s biggest network of miners.
If developers continues to push for constant improvements of the network, then it seems likely that Bitcoin will continue to grab miner interest and maintain its dominance for the foreseeable future. That bodes well for investors, particularly as we see the New York Stock Exchange working to open a crypto exchange and platforms like Coinbase and Ledger offering better custodial services.
As far as we can see, Bitcoin will continue to be the leading star of the crypto world for quite some time.
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