Bitcoin is “the Slowest, Most Expensive, Least-Developed Currency”
Amanda B. Johnson, TheDailyDecrypt, explains the problems faced by users of the first cryptocurrency and why she calls for a
We have written a number of times over the past few months about the hardships faced by the bitcoin community and its end users. Keeping a focus on trading and technology, the subject mainly came up as background to stories about drops in the BTC/USD exchange rate, the rise of Ethereum as bitcoin 2.0 and the shift to institutional blockhain solutions.
To provide the perspective of an active bitcoin user that is actually hurt by its problems we turned to Amanda B. Johnson, host and writer of TheDailyDecrypt.com. She is known for managing her life and businesses only using cryptocurrency and recently made waves in the community by saying “Bitcoin Became the Slowest, Most Expensive, Least-Developed Currency.”
For how long would you say bitcoin end-users have had to deal with delays now?
Let’s start with the basics: the Bitcoin network can process 1 megabyte’s (MB) worth of transactions per 10 minutes. This is not due to an inherent limitation in its code, but rather due to a limit which its founder Satoshi Nakamoto said was intended to keep the blockchain to a manageable size in the short-term — a size that early users could host on their home computers.
Satoshi likely foresaw that Bitcoin would be run by professionals eventually, but in its early days, its infrastructure lived in the homes of hobbyists. And Satoshi never stated an exact date upon which the block size cap should be removed, or at least increased from 1MB.
The people whose computers process these 1MB transactions — Bitcoin’s miners — can set a minimum for which they’re willing to process payments (say $0.02 USD, or 0.00005 BTC at time of writing). The higher the fee you pay, the more attractive your transaction is to the miners, so it will get processed more quickly.
Now before occasional blocks started becoming full — which began happening a few months ago — all Bitcoin transactions made it into the current block, meaning you could count on receiving a “confirmation” of your payment no more than ten minutes after you sent it. But as Bitcoin has grown in popularity, it is common that more than 1MB’s worth of transactions are sent per ten minutes. That means your payment might not make it into this block, or the next one, or even the next 10 or 50 blocks, depending on the fee you paid in relation to other users. It is difficult to know what the minimum fee is to get your payment included in the current block, if not impossible. There may or may not be a software fix for such a thing in the future — software that can actually deliver price discovery — but if there weren’t an artificial block size cap, this wouldn’t be a problem to begin with.
Is it fair to say that looking forward this is only going to get worse in the next couple of months as some entrenched forces are in no rush to fix it?
No one likes to have a payment in limbo, or to have to make a shot-in-the-dark guess as to what the right fee is at any given moment. People are already beginning to use other cryptocurrencies more, both to save on fees, and to have certainty of timely processing. But Bitcoin is the “gateway” in many instances, meaning that while merchants nominally accept multiple cryptocurrencies, they convert most or all of them to Bitcoin at the end of the day. But that, too, is beginning to slowly change.
For anyone looking to make a Bitcoin payment in the foreseeable future, I can only say that you should double or triple what your wallet says is the “normal” fee if you want to increase your chances of making it into the current block. If timeliness is not important to you, don’t worry about upping your fee, but expect that it could take up to a week to confirm. This is a difficult recommendation to make across-the-board, however, as all wallets are different and run by different people — plus, the blocks are not always full. There’s no way of knowing what will happen tomorrow in terms of demand. But we know there’s a fixed supply.
Why would an average consumer that’s only looking to make transactions online choose bitcoin over paypal or credit cards right now?
In terms of simple ease of payment, there’s probably not a compelling reason. But there are other reasons to use Bitcoin (and other cryptocurrencies) — reasons that I still own and use Bitcoin myself. I have no bank account, so I need Bitcoin to order things online, like from Amazon, and to book travel and/or hotels. So for de-banked people like me, Bitcoin is still essential, though it will be preferable when the sites I use begin accepting cryptocurrencies which don’t suffer from processing delays. Which they will.
Do you think in 5 years bitcoin will be remembered simply as the first experiment that led to the emergence of blockchains?
Probably. And Casascius coins — those physical coins with Bitcoin payment addresses on them that were a novelty item in the early days — will probably be hot museum pieces that sell for the price of a small house.
You said that bitcoin is developmentally behind other cryptocurrencies and suggested switching, but wouldn’t the failure of bitcoin harm the chances of others to succeed as standalone currencies, rather than just technology used by banks?
The only way I think Bitcoin could “fail” — as in, break down completely, not just stagnate in development compared to other cryptos — is if its mining network were compromised. As of today, the Bitcoin network is the strongest supercomputer in the entire world, by orders of magnitude. This is what’s called its “hashing power.” “Hashes” are the names of the mathematical functions that Bitcoin mining machines make to secure its blockchain, and the network is currently mining in the exa-hashes ( 1018 hashes/second).
If Bitcoin is to “fail,” it would likely be because something happens which causes many of its miners drop out of the network, which would radically reduce its hashing power, and thus make an attack more affordable (it would currently cost many millions of dollars to attack the network — that is, to compete with Bitcoin’s exa-hashes). So a radical drop in price could de-incentivize some or many of Bitcoin’s miners to drop off. That’s why so many people say that an increase in block size is not only desirable in order to keep transaction processing timely, but ensure that Bitcoin’s price can keep climbing by making space for new users. If the price isn’t allowed to grow because the network isn’t allowed to grow, that may indeed present a security problem, as Leo Weese explains.
That would be a damn shame, but here’s the thing: in the bigger picture, it is absolutely fantastic that cryptocurrencies can fail. That means that it’s an actual market serving consumers, and the players which don’t serve well will die off. This is the exact opposite of the anti-consumer sphere that’s spawned bank bail-ins. And incidentally, it was bank bail-ins that inspired Satoshi to create Bitcoin in the first place. He embedded a newspaper headline about a bank bail-in in Bitcoin’s genesis block.
Any idea of what is going to replace bitcoin eventually? Will it be Ether, Dash or some other coin yet to be invented?
As Eric Sammons said recently, two years in cryptocurrency is like an eon — we have no idea what’s coming around the corner. But if I had to guess, I’d say it’d be Dash for the simple reason that Dash can do everything Bitcoin can do, but it has cryptographic governance, which allows its most vested users to fire — to actually stop paying — errant developers. Dash investors can then vote to re-allocate the payroll portion of Dash’s block reward (the new coins which are created in each block, same as Bitcoin) to a more suitable developer. Bitcoin investors have had no such recourse against their errant developers, who are not paid in Bitcoin, so there’s nothing for investors to revoke and re-allocate — hence the problem.
Bitcoin is “the Slowest, Most Expensive, Least-Developed Currency”
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