4 challenges Bitcoin has to face before potential mass adoption – Bitcoin 2020

Bitcoin continues to gain popularity block after block, month after month. Bitcoin was still a technology reserved for a few initiates in the early 2010s. At the beginning of 2020, people who have never heard of Bitcoin are increasingly rare. The year 2017 went by with a lot of media coverage of Bitcoin following the historic surge in its price towards $ 20K. Bitcoin then went from the phase of innovators to that of early adopters based on the adoption cycle of a technology. Today, there are almost 29 million open Bitcoin addresses. Since a user can open multiple addresses on the Bitcoin Blockchain, it is difficult to estimate the exact number of Bitcoin users.

However, one thing is certain: this number is tiny since potentially every inhabitant of the Earth could be interested in Bitcoin in the future. So there is extraordinary growth potential for Bitcoin.

Before it can hope to attract all these additional users, and achieve mass adoption by the general public, Bitcoin will have to meet 4 major challenges in the years to come which I will detail in the following.

1. Improvement of the confirmation time of a transaction

In order to be widely adopted by the general public as a global Peer-to-Peer payment system, Bitcoin must allow almost instantaneous validation of transactions.

It is unimaginable for a merchant to make a customer wait 10 minutes before the transaction settled in Bitcoin is completely validated.

Yet this 10-minute time limit is something that was knowingly defined by Satoshi Nakamoto when creating Bitcoin. When this delay drops too long below 10 minutes, the difficulty to undermine a block of Bitcoin Blockchain transactions is automatically noted in order to keep the monetary creation of Bitcoin under control.

This 10-minute delay is ultimately fairly well calculated when compared to that observed on the Bitcoin Blockchain when the volume of transactions reaches peaks, as was the case in the second half of 2017.

Average validation times for a transaction have already approached 30 minutes in the past. This delay is an average, which means that it masks the fact that some people could observe even slower delays.

Some users had to wait several hours before their Bitcoin transactions were validated at the time.

The Bitcoin community is of course aware of these issues, and is already working hard to find solutions.

The protocol Lightning Network which continues to be deployed little by little could constitute a solution to this problem without having to touch this 10-minute period.

As a reminder, the Lightning Network allows you to create micro payment channels of which only the final result is entered in the Bitcoin Blockchain which would drastically relieve the volume of transactions on the main network, and therefore speed up the confirmation time for a merchant.

With a lower transaction volume on the Bitcoin Blockchain, the 10-minute limit becomes a no-problem

You will therefore understand that the generalization of the Lightning Network protocol is therefore something essential for the future of Bitcoin.

2. Bitcoin must be able to validate more than 7 transactions per second

Mass adoption of Bitcoin would de facto imply an exponential increase in the number of transactions per second on the network. Currently, the reference is the bank payment system Visa which announces that it can support up to 24,000 transactions per second.

Bitcoin is far from Visa with its 7 transactions that can be validated at most per second.

To be honest, we have to admit that the comparison between Bitcoin and Visa is not entirely appropriate since Bitcoin is an open, fully decentralized system.

Bitcoin and VISA, the war on the number of transactions
One day these two will confront each other very directly

Visa is a closed centralized system. It is therefore much easier for Visa to display such performances.

Either way, Bitcoin has to take up this challenge in order to see its widespread use as a global payment system.

Again, the Lightning Network protocol appears as a potential solution to this challenge.

With its micro payment channels, the Lightning Network must allow Bitcoin to be able to handle many more transactions per second.

The exact number of transactions per second that can be committed, reflecting the maximum capacity of Bitcoin when the Lightning Network is generalized, is difficult to estimate.

We can however consider that Lightning Network will make Bitcoin much more scalable as the number of nodes implementing it increases.

To give you an idea, the Bitcoin could then support between 5,000 and 1 million transactions per second.

That’s a huge gap, but it gives you a good idea of ​​what the Lightning Network could mean for the future of Bitcoin and its mass adoption by the general public.

3. A reduction in transaction costs when the volume of transactions becomes very large

Miners provide the Bitcoin Blockchain with their computing power in order to secure the network and allow the validation of transaction blocks.

To encourage miners to secure the Bitcoin network, Satoshi Nakamoto has planned two things:

  1. A Bitcoin reward allocated to minors validating a block. This award is 12.5 BTC currently and will drop to 6.25 BTC during the third Bitcoin Halving scheduled for May 2020.
  2. Of 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, etc.

You can also choose to make the validation of your transaction priority over others pending by increasing the amount of transaction fees that you will pay.

Currently, the average fees to validate a transaction are around $ 0.85:

Bitcoin transaction fee variation

This figure may seem high, but it is not that much because the costs of a transaction absolutely do not depend on the amount transferred.

Pub

On the other hand, the problem is rather at the moment when the volume of transactions reaches records as it was the case at the end of 2017.

At this precise moment, we could observe fees reaching on average $ 55 per transaction:

Such high fees are clearly a problem for mass adoption of Bitcoin in micro-transactions.

You can’t imagine paying so many fees to use Bitcoin as a means of exchange or as a means of payment.

In my opinion, this is a major problem for the future of Bitcoin since when all Bitcoins were mined in 2140, the Bitcoin Blockchain will have to be fully secured via transaction fees only.

Hopefully, by then, Bitcoin has seen sufficient adoption for fees from larger transaction volumes to compensate for the losses caused by the lack of rewards for validating a block of transactions.

All this with a break-even price that must remain low enough for the transaction costs on the Bitcoin Blockchain.

You have understood that this is again one of the great challenges of Bitcoin for the years to come.

4. Better decentralization of the Bitcoin Blockchain Hash Rate

The Bitcoin Blockchain is secured by the computing power made available to the network by its users. The latter being called the minors.

At first glance, the distribution of the Hash Rate on the Bitcoin Blockchain seems rather balanced:

Global distribution of computing power on the Bitcoin blockchain

However, this distribution is much more centralized than it seems.

First, you should know that most of these pools of miners are located in China. So, China accounts for almost 65% of the Bitcoin Blockchain Hash Rate. To be more precise, Chinese entities control more than 65% of this Hash Rate e (not 80%, as the boss of Ripple again tried to make believe this week).

In addition, the company Bitmain, which is a real heavyweight in this sector, controls several of the pools of minors present in this graph.

Bitmain officially controls BTC.com, AntPool and ConnectBTC. Unofficially, Bitmain would also control BTC.TOP.

Bitmain's industrial premises
If you doubt Bitcoin is an industry, Bitmain will remind you

By combining the Hash Rates of these entities, Bitmain already exceeds 30% control over the overall Hash Rate of the Bitcoin Blockchain. Bitmain also has very strong relationships with ViaBTC.

All this knowing that almost a quarter of the network’s Hash Rate appears as unidentified on this graph.

Many people therefore think that this constitutes a major risk for the security of Bitcoin with Bitmain which could be able to manipulate the network by taking control of more than 51% of the Hash Rate of Bitcoin.

In absolute terms, the risk exists.

However, this risk should be weighed strongly. Indeed, Bitmain is the largest provider of mining ASICs with a market share of over 65%.

By hacking the Bitcoin Blockchain, Bitmain would lose the trust of the whole industry, and it’s clearly not in his interest.

Most investors in the Bitcoin Blockchain would choose to withdraw their money, which would cause the price of Bitcoin to collapse but above all a phenomenal shortfall for Bitmain.

The hypothesis of a hack by Bitmain seems to me therefore highly unlikely.

However, for the good health of Bitcoin and since only the numbers can give us real guarantees, it seems essential to me that the distribution of the hash rate available is better decentralized.

This greater decentralization is a challenge for the future that the Bitcoin community will have to meet imperatively.

This requires greater diversification of companies producing mining ASICs, but also a better geographic distribution of mining pools in order to guarantee optimal security for the Bitcoin network.

Finally, miners joining the Bitcoin network should seek to join smaller mining pools as a priority in order to better distribute the Hash Rate of Bitcoin between the different players.

Conclusion

Bitcoin is a phenomenal success that has managed to reach 180 billion market capitalization in just 11 years. Despite this, the number of Bitcoin users remains insignificant compared to the number of inhabitants populating the Earth.

Bitcoin therefore has before it an even more phenomenal growth potential for the future. This growth potential can only be maximized by mass adoption of Bitcoin by the general public.

In order for this mass adoption of Bitcoin to take place, the community will first need to successfully address the 4 big challenges that I have just detailed in this article.

These challenges are not easy but given what Bitcoin has already accomplished since its creation, nothing seems impossible for its future.

4 challenges Bitcoin has to face before potential mass adoption – Bitcoin 2020
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