As a means of actual currency, bitcoin has zero chance of scaling up in its present form. Solving this critical bitcoin problem is of paramount importance You see, bitcoin is currently useless for anything but larger transactions. For retail, and other micro transactions, there are several reasons bitcoin is simply impractical. First, it is abhorrently slow relative to other cryptos. Anyone who has used bitcoin for a transaction can attest to this. After new transaction is put out on the Bitcoin blockchain ledger, transaction can become visible quickly, but the actual movement of the currency can take many minutes. This isn’t always true, but it is slow. recipient within a few seconds. But in some cases, it can take a number of minutes for the transaction to travel across the network and reach the recipient’s connection, causing an inconvenient wait for both the buyer and seller.
What these delays open bitcoin up to is double spending risk, conflicting transactions, and ultimately theft. While this sounds sinister, there are no regulations here to protect you. It is a risk. Of course, this is alleviated by using a third party payment provider, however, this is where fees become a massive issue. In fact, bitcoin fees are now exceedingly high. A recent CNBC story pegs the average fee at $28 being paid to move bitcoin, and even cited a journalist that spent $15 to move $100 in bitcoin. That is unacceptable and makes it difficult to ever bring this to scale for real world purposes. Factor these fees in with the average time being 78 minutes for a bitcoin transfer to go through and you can see the problem. Other cryptocurrencies do not face this issue
Solving This Critical Bitcoin Problem
So what is the solution for Bitcoin to make it able to be used more efficiently and to be scaled up to a more global scale? There is the concept of the Lightning Network. The Lightning Network would potentially allow for transactions and micro-transactions utilizing Bitcoin to take place instantaneously, or at least significantly faster. This network utilizes smart contract technologies to enable near instant micro-payments using cryptocurrencies such as bitcoin.
Essentially what the Lightning Network will do is vastly improve upon the process by which bitcoin transactions are validated. We recommend reviewing the academic paper in detail.
As it stands now the process requires that computers solve puzzle-like math problems before the transactions can be recorded on the blockchain ledger. This is why it is prone to double transaction errors, fraud and more. It is also why transactions ‘take forever’ compared to other technologies. It is inefficient.
You see the computing power required is massive and that is why just a single transaction can take many minutes or even hours to go through. But the Lightning Network will drastically improve the speed as it will require that participants agree to transact on a separate, offline channel. Following this the blockchain would update to reflect the external transaction.
Essentially this will cut down on the needed computing power, and will cut down the fees of wallet providers, as they are not needed for the transaction.
According to what is on the developers’s website, they purport that the drastically improved speed would enable it to “be used at retail point-of-sale terminals, with user device-to-device transactions, or anywhere instant payments are needed.”
While the technology has been tested many times, its implementation has been pushed back a number of times. That said, it is likely the network could come on line in 2018, which would give bitcoin a much need leg up relative to altcoins.
What we think investors need to know is that the Lightning Network records transactions using its native smart-contract scripting language. With this approach, it is possible to create a secure network of participants which are able to transact at high volume and high speed.
We highly recommend investors investigate this technology, as it has the potential to be a major catalyst for bitcoin that we believe is not priced into bitcoin, even after the amazing run prices have been on.
As it stands now, bitcoin is extremely inefficient, and scaling is a drastic weakness. We prefer both litecoin and IOTA as the technology is faster and more efficient with little, or in the case of IOTA, without fees. Adoption of the Lightning Network has the potential to significantly cut down on transaction time and the associated fees with bitcoin transactions. If successfully implemented, it is likely that Bitcoin would be more competitive from a theoretical and practical standpoint relative to other payment platforms. Longer-term, it has the potential (and we stress potential) to alter the entire way we go about peer-to-peer transactions.
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