The dichotomy for Bitcoin is that it is being torn apart by opposing influences.
On the one hand it could be considered as a store of value, digital gold in real terms, or the internet equivalent of cash, which might be used day to day to buy things when we go shopping.
So far the concept that Bitcoin should be more like a form of digital gold, has prevailed.
That’s reflected in the velocity of any cryptocurrency and is an essential component. What percentage of the coins are traded, rather than sat upon, what volume of the money base changes hands daily.
Typically it’s just 4%, so the majority of cryptocurrencies are being held by speculators.
The more Bitcoin is used, the more transaction fees you can get back, creating an eco system of shared wealth.
One solution, that could turn a clunky store of value into a means of cheap and quick payments, is tilting Bitcoin’s future towards one where people use it to pay for things instead of hoarding it.
The fix is called the Lightning Network, and the Bitcoin world has awaited its release for years.
It takes an approach that neatly sidesteps the intractable fight over lifting the cap on the number of transactions that the bitcoin network can handle.
Bitcoin has struggled with growing transaction volumes. It currently processes about three transactions per second, in contrast to more than 3,600 transactions that the Visa network completes every second.
One way to increase Bitcoin’s transaction capacity is to increase the size of its “blocks,” which are bundles of transactions that Bitcoin miners add to the Bitcoin blockchain every 10 minutes.
But that approach has been contentious because the block size was set at the start by bitcoin’s mysterious creator, Satoshi Nakamoto, and critics of the approach say changing it would fundamentally alter Bitcoin’s character, opening it up to greater centralisation.
Building On Top of Bitcoin
Instead of joining the fight to change the size of Bitcoin’s blocks, the Lightning Network is a separate protocol that sits atop the bitcoin blockchain.
It’s one type of “Layer Two” solution that observers believe will help remove the bottleneck in Bitcoin’s transaction capacity.
One analogy used by the Lightning Network’s developers is that it’s akin to the hypertext transfer protocol, or http, which delivers this article to you.
While http handles the delivery of web content, it sits atop the TCP/IP protocols, which take care of routing all the internet’s bits to their appropriate destinations.
The Lightning Network was first described in a White Paper in 2015, but software implementing its ideas remains at the “alpha” stage.
The development of the protocol is taking years and the project faces serious doubts about it ever alleviating Bitcoin’s transaction bottleneck.
The team is working as quickly as possible on a beta release. But I suggest you don’t hold your breath!