Disclaimer: I am not a financial adviser, only a nerd that fell in love
with cryptocurrency. Nothing I say in this post should be used for trading
or investing. This is only my perspective on the Bitcoin ecosystem.
Yes, I stopped adding Bitcoin to my cryptocurrency portfolio and will not add more in its current state. To be honest, I have not bought any Bitcoin for fiat currency since about 2016. Since then I only trade in and out of altcoins to grow my initial investment against Bitcoin.
But I have stopped that as well. There are two reasons why I stopped adding Bitcoin to my portfolio. The first one I ran across was the length of time I needed to wait just to have my transaction included into a block. I always keep my earned cryptocurrency on keys I control, not on exchanges.
Then there came the fees. At first, this was not a big deal. Two cents instead of one, then four instead of two. But at the time of writing this, the fees are touching thirty USD on average and that is insane. Bitcoin is supposed to be a peer-to-peer cash system, but with fees this high it becomes less and less useful.
What put me over the edge was not the fees or how slow the system had become, but the direction Bitcoin now takes. The future road map for Bitcoin looks less like the people-empowering currency I fell in love with and more like the current economic system.
Once I sat down and chose to learn about SegWit and the Lightning Network, I realized that Bitcoin is no longer what it was designed to be. SegWit aside, the Lightning Network looks to me like a way for a large company (or bank) to control the network.
The Lightning Network will work without a large company, and will make the transactions fast with almost no fees. This sounds great and even I fell for it at first. The issue I now see is twofold. I'll do my best to explain these two issues as simply as possible. Please do your own research.
Issues With Bitcoin
Centralization Via The Lightning Network
The first problem I have is that when we use the Lightning Network we will not be sending Bitcoin at all. Instead, we are trading IOUs on a separate channel based on the Bitcoin we own. This all happens off the Bitcoin blockchain and nothing gets pushed to the chain until the payment channel is closed by all parties involved.
In my mind, this will give big companies power over the transactions. It looks like we could end up with a few large institutions becoming the middlemen for all Lightning Network transactions. This is because each channel on the network has to hold enough funds to complete the desired transaction.
To learn more about this issue I suggest watching this video by Decentralized Thought. If the video is no longer listed at the time you are reading, then a simple web search should find similar information.
The Storage Space Argument.
The second issue I now have is the tiny block size. By holding the size of each block to one megabyte, the network is unable to add in more transactions. As Bitcoin gets more mainstream there is a need to process more transactions. This is why the fees to send Bitcoin are so high.
This should be a non-issue. Every year our technology gets better and better. This has led and will lead to cheaper and more efficient storage. In 1967, one gigabyte of storage space cost about one million United States dollars. Compare that to 2017 where each gigabyte is a mere two cents USD.
The main argument I hear about a coin like Bitcoin Cash is that increasing the block size is a temporary fix and in a few years we will need to increase the size again, all leading to fewer nodes and a more centralized cryptocurrency. I strongly disagree.
Over the past fifty years we managed to take the cost of one gigabyte from one million USD to only two cents. To say that increasing the block size will lead to a more centralized version of Bitcoin is to assume our effort to make cheaper storage space has come to a dead end.
In order to process the same number of transactions per second as a company like VISA, we would need each block to be 300 megabytes in size. This would mean that each year the blockchain would need an additional sixteen terabytes of storage space. At the time of writing this we are able to buy two eight-terabyte hard drives for 300 USD.
To me, this is already a non-issue since anyone making money from mining would be covering the cost today. As hard drive space gets cheaper, the price of Bitcoin [Cash] gets higher, and the transactions increase, the argument is null and void.
When we get to the point that all the Bitcoin [Cash] is mined and the miners now only make a profit off of the transaction fees, what would be the payout? A 300-megabyte block processing 2,000 transactions per second gives that block 1.2 million transactions in the ten minute average.
If each transaction only pays one cent USD in fees, the miner who solves the block independently would earn 12,000 USD. This already covers the cost of today's storage costs. Sounds like an incentive to keep adding storage space to me.
Decentralized Thought has a great video on this topic as well. It is always good to hear all sides as well, so please don't take my word for anything. It is always better to do your own research to form your own opinion than to simply take another person's word at face value.
Thanks for reading!
If you have any questions please ask and I will do my best to get you the answer. If you have input that may make something in this post more clear please share!
Great article JR. I enjoyed the video you shared on the Lightning Network too. Bitcoin may have been the forerunner, but it sure is becoming something that doesn't represent the goals of blockchain technology. I'm avoiding use of BTC entirely, sticking to LTC when I need to transfer funds to exchanges, etc. When buying other coins you have to go through BTC, but you're paying exchange fees and not BTC fees. I've been trying to explain that to people interested in crypto, and they don't really understand why I strongly recommend they don't buy Bitcoin for their first crypto... and when that's what they hear about all the time, they don't understand why I'm saying not to buy it.
Anyways, I had even thought if I just want to be happy with the gains I've got from BTC and sell all of my holdings, because it's hard to not feel that 2018 could be the year Bitcoin's shortcomings catch up with it. The summer of 2017 being such a boom with ICOs and altcoins, blockchains that do things much better are growing. When you're transacting in different exchanges and using different wallets, it quickly becomes obvious that BTC sucks! 5 hour transaction confirmation wait with a $30 fee is crippling, so I started using LTC to go from fiat to alts; low fees, maybe 10 minute confirmation wait.
TL;DR - You said "BTC is no longer what I 'bought into' " and that's exactly it. BTC is becoming very corporatized and centralized, and the moment they're going to improve it with something off-chain is when you lose the whole point of a blockchain.
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I'm not sure if I am reading what you wrote wrong or if there is a misunderstanding. Miners and node operators, those that keep track of the confirmed blockchain and pending transactions, are different. When you have a block that is 300MB that means every 10 minutes a miner has to download that per asic. Lets say a small operation has 100 units. Thats 29.29GB every 10 minutes. The slower your internet the further behind you are. Those without solid high speed internet speeds will not be able to keep up anymore. Large corporate operations will be able to work with that. Then take your node operators. Not only will they have to hold that in the mem pool (not all of it but some) but every 10 minutes they have to add all that to hard storage to maintain the history of the ledger. And thats the whole block chain. So a new node operator who starts many years/decades into it will spend months catching up. Provided they have the internet to do it.
I by no means disagree with the fact that bitcoin fees are crazy high and do need to be dealt with. I am not a programmer but I also dont see why a slight increase of block size while working on other solutions would not help.
I feel I am a fairly realistic person. I mine and rarely trade. Half of my portfolio is BTC, then about 30% is BCH then alt coins in the remaining 20%. And as someone who does regularly have to spend cryptocurrency I find myself converting into whatever is accepted by the merchant. With bitmain its BCH but with a lot of online cloud services its BTC. Also with keeping a diverse portfolio when the market shifts I take a little less of a hit (hedging).
Also with the video, I did see that and decided to dive a bit deeper into it. I’ve come to find it may be a bit questionable and misleading. Yes in sense that can be how it works but it doesnt take into account anything else being added such as atomic swaps and how a liquid market with bitcoin as the source works. I’ll see if I can find some of the stuff I’ve learned about the lightening network that may shed some light on a different view point.
And certainly if you have more about it I’d love to see. I’ve been following you on twitter for a while. I’ll be following on steemit too.
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Very enlightening . Thanks for sharing this great information. I've been having similar thoughts on btc.
This post has been deemed resteem & upvote worthy by your friendly @eastcoaststeem ran by @chelsea88 (not a bot)
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Glad to see a lot of my thoughts on this layed out in such a cohesive manner. BTC just doesn't do any of the things it's meant to do well and aside from people artificially propping it up there is no reason why it will retain value when newer coins can do a better job in every way.
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As much as it saddens me to say, I agree. BTC is no longer what I 'bought into' back in 2015. Thanks for the comment!
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My favorite friend Onek is a beautiful post
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