4 Challenges Bitcoin Must Overcome Before Mass Adoption Can Take Place
The bitcoin community is working hard to overcome these challenges.
Bitcoin continues to gain in popularity block by block, month by month. Bitcoin was still a technology reserved for a few cypherpunks at the beginning of 2010. By early 2020, there are fewer and fewer people who have never heard of Bitcoin.
The year 2017 has gone by with strong media coverage of Bitcoin following the historical rise of its price to $20K. Bitcoin has then moved from the innovator phase to the early adopter phase based on the adoption cycle of a technology.
Today, there are nearly 29 million Bitcoin addresses open. Since users can open multiple addresses on the Bitcoin Blockchain, it is difficult to estimate the exact number of Bitcoin users.
Nevertheless, one thing is certain: this number is still very small since potentially every inhabitant of the Earth could be interested in Bitcoin in the future. So there is an extraordinary growth potential for Bitcoin.
Before Bitcoin can hope to seduce all these additional users and achieve mass adoption by the general public, Bitcoin will have to face four major challenges in the coming years that I will detail in this story.
1. Improving Time To Confirm A Transaction
In order to be widely adopted by the general public as a global Peer-to-Peer payment system, Bitcoin must enable near-instantaneous validation of transactions.
It is unimaginable for a merchant to make a customer wait 10 minutes before the Bitcoin transaction is fully validated.
However, currently, the average time taken to fully confirm a transaction is between 8 and 10 minutes, as shown in the following graph:
Worse still, this delay is quite good when compared to the one observed on the Bitcoin Blockchain when trading volumes reached peaks as was the case in the second half of 2017.
The average transaction validation times approached 30 minutes at that time:
This number is an average, which means that it masks the fact that some people could observe even greater slowness.
Some users had to wait several hours for their Bitcoin transactions to be validated at the time.
The Bitcoin community is, of course, aware of these problems and is already working hard to find solutions.
The Lightning Network protocol that continues to be deployed little by little could be a solution to this problem.
As a reminder, the Lightning Network allows for the creation of micropayment channels whose only final result is written into the Bitcoin Blockchain, which would drastically reduce the volume of transactions on the network.
With a lower volume of transactions thanks to Lightning Network, transaction confirmation times could be drastically reduced.
In addition to the Lightning Network layer, work will also need to be done directly on the Bitcoin Blockchain to reduce transaction validation times in the future.
2. Supporting More Transactions Per Second For Bitcoin
Mass adoption of Bitcoin would imply an exponential increase in the number of transactions per second entering the network. Currently, the reference is the Visa payment system, which claims to be able to support up to 24,000 transactions per second.
Bitcoin is a far cry from Visa with its 7 transactions that can be validated at maximum per second.
To be honest, you have to admit that the comparison between Bitcoin and Visa is not totally appropriate since Bitcoin is a totally decentralized open system.
Visa, on the other hand, is a closed, centralized system. It is therefore much easier for Visa to perform in this way.
In any case, Bitcoin must meet this challenge in order to see its widespread use as a global payment system.
Here again, the Lightning Network protocol appears as a potential solution to this challenge.
With its micropayment channels, the Lightning Network should allow Bitcoin to handle many more transactions per second.
The exact number of transactions per second that can be validated on the Bitcoin Blockchain following the generalization of the Lightning Network is difficult to estimate.
However, we can consider that Lightning Network will make Bitcoin much more scalable as the number of nodes implementing it increases.
To give you an idea, Bitcoin could then support between 5000 and 1 million transactions per second.
That’s a huge gap but it gives you an idea of what the Lightning Network could mean for the future of Bitcoin and its mass adoption by the general public.
3. Reducing Transaction Fees When Transaction Volumes Are Higher
Miners make their computing power available to the Bitcoin Blockchain in order to secure the network and to allow the validation of transaction blocks.
In order to incentive miners to secure the Bitcoin network, Satoshi Nakamoto has implemented two things:
- A reward in Bitcoins awarded to miners who validate a block. This reward is currently 12.5 BTC and will decrease to 6.25 BTC at the third Bitcoin Halving scheduled for May 2020.
- Transaction fees.
Transaction fees vary according to different parameters such as the volume of transactions to be validated on the Bitcoin Blockchain, the size of the data contained in a transaction, …
You can also choose to make the validation of your transaction take priority over other pending transactions by increasing the amount of transaction fees you will pay.
Currently, the average fee for validating a transaction is around $0.3:
This figure may seem high, but it is not that high because transaction fees do not depend on the amount transferred at all.
On the other hand, the problem is rather when the volume of transactions reaches record levels, as was the case at the end of 2017.
At that time, fees averaged $34 per transaction:
Such high fees are clearly a problem for the mass adoption of Bitcoin in transactions and micro-transactions.
You can’t imagine paying so much to use Bitcoin as a medium of exchange or as a means of payment.
I think this is a major problem for the future of Bitcoin because when all Bitcoins have been mined in 2140, the Bitcoin Blockchain will have to be fully secured through transaction fees alone.
It is hoped that by then, Bitcoin will have been adopted sufficiently so that the fees from higher transaction volumes will compensate for the losses caused by the lack of reward for validating a block of transactions.
All this with an equilibrium price that should remain low enough for transaction fees on the Bitcoin Blockchain.
You have understood that this is a major issue for the future of Bitcoin.
4. Better Decentralization Of Computing Power On Bitcoin Blockchain
The Bitcoin Blockchain is secured by the computing power made available to the network by its users. These users are called miners.
At first glance, the distribution of the Hash Rate on the Bitcoin Blockchain seems rather balanced:
Nevertheless, this distribution is much more centralized than it appears.
First of all, it should be noted that most of these mining pools are located in China. Thus, China accounts for nearly 65% of the Bitcoin Blockchain Hash Rate.
In addition, the Bitmain company, which is a real heavyweight in this sector, controls several of the mining pools present in this graph.
Bitmain officially controls BTC.com, AntPool and ConnectBTC. Unofficially, Bitmain would also control BTC.TOP.
By combining the Hash Rate of these entities, Bitmain already exceeds 30% control over the global Hash Rate of the Bitcoin Blockchain. Bitmain also has a very strong relationship with ViaBTC.
All this with the knowledge that almost a quarter of the network’s Hash Rate appears as unidentified on this graph.
Many people therefore believe that this is a major security risk for Bitcoin with Bitmain being able to manipulate the network by taking control of more than 51% of Bitcoin’s Hash Rate.
In absolute terms, the risk exists.
Nevertheless, this risk must be weighed heavily. Indeed, Bitmain is the largest supplier of mining ASIC with a market share of more than 65%.
By manipulating the Bitcoin Blockchain, Bitmain would lose the confidence of the entire industry and it is clearly not in its interest.
The majority of Blockchain Bitcoin users would choose to withdraw their money, which would cause the Bitcoin price to plummet, but more importantly, a phenomenal loss of revenue for Bitmain.
The hypothesis of a hack by Bitmain therefore seems highly unlikely to me.
However, for the good health of Bitcoin, it seems essential to me that the distribution of the available Hash Rate be more decentralized.
This greater decentralization is a challenge for the future that the Bitcoin community will have to take up imperatively.
This requires greater competition between companies selling mining ASIC but also a better geographical distribution of the mining pools in order to guarantee optimal security of the Bitcoin network.
Bitcoin is a phenomenal success that has managed to reach 150 billion in market capitalization in just 11 years. Despite this, the number of Bitcoin users remains insignificant compared to the number of people on Earth.
Bitcoin, therefore, has even more phenomenal growth potential for the future. This growth potential can only be maximized through the mass adoption of Bitcoin by the general public.
In order for this mass adoption of Bitcoin to happen, the community must first successfully address the four major challenges I have just outlined in this story.
These challenges are not easy but considering what Bitcoin has already accomplished since its inception, nothing seems impossible for its future.