Why Bitcoin Will Never Be the Currency of the Future
In light of the multitude of comments posted after CCN published an op-ed I wrote, I offer further explanation here.
We at Pyrofex share the visions of the most ambitious cryptomaniacs. We believe that crypto is the future of currency and that in 20 years we will all be using crypto to split the bill, pay our babysitters, and fill up at a gas station. The advantages of an economy based on crypto, as opposed to traditional fiat, are clear to us. Using crypto frees us from entrenched financial institutions, opening the door for free-market forces on financial tools and derivatives. Transactions are cheaper, faster, and peer-to-peer, so we will save time and money throughout the entire economy. The list goes on and on.
Nakamoto made a monumental leap forward with the invention of Bitcoin. He is to currency what the Wright brothers are to air travel. His contribution was extraordinary, but just like you don’t fly overseas in the Wright Flyer, the cryptocurrency that powers global economies will not be bitcoin. As of now, bitcoin works more like gold — it has value, it’s mostly liquid, but it’s not a currency. This is remarkable and good, but we’re looking for something that can truly replace cash or credit cards.
One of the reasons that bitcoin is not a full-scale currency now is that it cannot process transactions fast enough to even come close at handling the transaction volume of a full economy. This isn’t a problem that will go away if we tweak the network a bit, or add some things to the bitcoin protocol. Proof-of-work consensus mechanisms have inherent scalability bounds, proved mathematically, such that they will probably never get much faster than they are now. Some serious advancements in network connectivity, Internet reliability, processing power, and bandwidth across the world need to happen before we can hope to run anything genuinely large-scale on either the Bitcoin or Ethereum blockchain.
Second-layer solutions fail to adequately answer the scalability question.
Second-layer solutions, like the Lightning Network, may help improve scalability, but none has yet to do so in a way that does not compromise the fundamental values of blockchain, such as decentralization, trustlessness, and peer-to-peer interactions (i.e., no third party).
The Lightning Network, in particular, introduces some serious, negative market forces to the bitcoin economy. On paper, the idea of opening transaction channels and doing most transactions off-chain may seem reasonable to some. If people are willing to manage their transactions in that way, it scales to easily handle tons of transactions; it could very well scale to handle a full economy.
The problem is that people don’t transact in this way. If I had one grocery store, one pharmacy, one restaurant, one movie theater, and one gas station where I bought everything from, it might make sense for me to have running tabs, put money in them every month, and draw from that sum each time I go to the store. The problem is that this isn’t how it works. I constantly transact with a variety of business, both online and in person. It wouldn’t make any sense at all for me to put money into these sorts of charge accounts with individual grocery stores, gas stations, online retailers, etc. because the stores I transact with are constantly changing. Tying up money that way is a hassle. It’s impractical and highly inefficient.
The Lightning Network works like banks but without regulations to protect people.
In practice, were I to be on a Lightning-Network economy, I would transact with a single liquidity provider who would have connections with the myriad of stores that I interact with. I would deposit money into an account and the liquidity provider would allow me to transact easily and quickly.
This is precisely how banks work right now. The difference is that these Lightning Network “banks” are unregulated, and this is a serious problem. Crypto is in many ways the Wild West of finance. This is simultaneously exciting and frightening. The Wild West was full of opportunity, but also a place where outlaws and bandits could go; it was largely ungoverned and therefore people were free to extort others in the cruelest of ways. In this Wild West of finance, if we aren’t careful about the market forces we introduce into our currency system, we will allow agents to freely extort other members of the network without repercussions. Banks, historically, have been one of these kinds of bodies — regulations on them exist for good reason.
What about the spirit of decentralization that got us all interested in crypto in the first place?
Furthermore, these “banks” represent a degree of centralization, which goes against the core principles of cryptocurrency and defeats the purpose of setting up a blockchain in the first place.
Instead of offering second-layer solutions like the Lightning Network, tinkering with Bitcoin’s superficial details, we at Pyrofex opine that the only real solution is to dig into the mathematical foundations of consensus itself. For a while, an infamous mathematical result known as FLP Impossibility had the mathematical community wondering if it was possible to do better than Bitcoin without sacrificing safety or centralization. But recent research has shown mathematically that there are consensus solutions far superior to that of Bitcoin.
Our solution: C∆
We ourselves have been hard at work researching the theory of consensus. Our latest product, the cryptocurrency platform C∆, shows that consensus requires far less work than we traditionally believed. Most consensus algorithms get bogged down by a mountain of unnecessary work caused by attention to unnecessary details. But the consensus algorithm in C∆ uses the minimal necessary information to form consensus, and can thus outperform Bitcoin by at least three orders of magnitude. C∆ is the jet plane to Bitcoin’s Wright Flyer.
It may very well be true that infrastructure, compute power, broadband, etc. will improve sufficiently in the next few years to make bitcoin less egregiously slow. But whatever the network, there will always be cryptocurrencies that can handle more transactions at a higher throughput than Bitcoin. Bitcoin will likely maintain its role similar to gold, as a store of value and not so much a currency. I mean, why use bitcoin when you could use a cheaper, safer, more efficient currency platform that can process transactions at speeds orders of magnitude higher?
