Bitcoin's Past and Future: Where Are We Going?

After all, Bitcoin is still in its infancy, still a wild and far-flung idea whose implications are hard to fathom. Even most people who recognize its potential are skeptical of it—and remember, many people have tried to create non-sovereign digital currencies before.

So, given Bitcoin’s limited track record and limited economic value, it’s understandable (and not unreasonable) that people initially dismissed Bitcoin at this point.

02. Bitcoin was equal to the U.S. dollar (February 2011), then its price rose to $100 (March 2013), and then to $1,000 (December 2013)

At this point, there was such a severe lack of understanding and appreciation for Bitcoin’s decentralized and resilient properties that most experts simply stated that Bitcoin was clearly going to “fail.” They were proven wrong.

The rise of Bitcoin and the rise of the infamous darknet market Silk Road have also provided good evidence for the new narrative that Bitcoin is only used by criminals. But this narrative is still wrong.

03. Bitcoin "collapses" from $1,000 to $200, and the saying "blockchain technology, not Bitcoin" emerges (2014-2016)

It is worth noting that the Bitcoin price “crash” has led to a major shift in the industry’s narrative towards recognizing “blockchain technology rather than Bitcoin.” This view mainly draws on the power of blockchain technology and attempts to separate this technology from the digital assets built on the blockchain network.

Again, this is still understandable, albeit still wrong—and admittedly, at this point in time, it’s probably true for almost everyone, even those in the industry. Powerful new technologies can be hard to understand.

This has sparked competition for blockchain technology in various industries, ranging from healthcare to energy and more.

04. Bitcoin makes a comeback & more “cryptocurrencies” come into the public spotlight (2017)

There are many reasons why these efforts have failed to generate significant value, but three main reasons stand out :

1) Open networks are more powerful than closed networks - just compare a corporate intranet to the Internet.

2) The blockchain’s native digital assets are the key component that makes these chains functional and useful;

3) “Private chain” is actually a database architecture that existed before Bitcoin - it is not something innovative.

Meanwhile, Bitcoin has staged a comeback — it never went away — but it has returned to the public consciousness with more users, more transactions, better security, and more infrastructure supporting it than ever before .

Over time, the broader market and industry began to recognize and accept that open networks outperform closed networks - public blockchain networks like Bitcoin, where anyone can participate and anyone can build on them, are the root and core of the blockchain opportunity. People began to realize and accept that Bitcoin and "cryptocurrency" are not going away .

This has also sparked a mainstream rush to find and launch a “better Bitcoin.” Of course, if Bitcoin was the first version of blockchain/cryptocurrency, we can do better, right? Again, this is not an unreasonable thought.

Around this time and in the years that followed, there was a rush to create new public blockchain networks that made tradeoffs to optimize for one (or more) specific features. During this period, we saw the launch of blockchain platforms that optimized for a variety of characteristics, such as transaction speed/throughput, privacy protection, and expressiveness, to name a few.

Many of these experimental blockchain platforms/projects are funded through ICOs, which has increased interest in launching experimental blockchain platforms with different tradeoffs and optimization features. While there are many well-intentioned efforts and some truly interesting technical optimizations, most projects are ill-informed experiments with poor tradeoffs relative to what already exists - and because the complexity of this industry dictates a certain level of expertise to understand, it is difficult for most outsiders to distinguish the good from the bad.

The purpose of these experimental platforms/projects being launched and tested is to figure out if their optimizations can gain enough traction and eventually surpass Bitcoin in adoption and utility. However, each of them optimizes one characteristic at the expense of another - there are always trade-offs.

05. Trade-offs/optimizations of new blockchain platforms fail to stand out (2017–2019)

Of course, this has proven to be too narrow an assessment – ​​history has repeatedly shown that the standard is rarely determined by “best technology”.

Bitcoin proved to be the “0 to 1” moment, and the market subsequently validated it. Some newer blockchain platforms offered smaller improvements (from “1 to 1.1”), but most simply made poor trade-offs in the value of Bitcoin (from “1 to 0.5”).

In general, there are two thresholds that must be met when assessing the probability of any of these blockchains or cryptocurrencies surpassing Bitcoin:

1) “Is your set of trade-offs truly an improvement over Bitcoin?” Most blockchains/cryptocurrencies — if not all — fail this test.

2) “Is your ‘improvement’ enough to overcome Bitcoin’s network effects, reputation, distribution, security, and first-mover advantage?” Despite extensive optimization experiments, no chain has yet successfully provided advantages strong enough to match Bitcoin’s established (and rapidly expanding) network effects, reputation, distribution, and security.

Therefore, most of these new chains (many of which have great new “breakthrough” consensus algorithms) are the equivalent of China’s ghost towns: seemingly beautifully designed and built, but lacking organic demand. (Note: With the advancement of urbanization, there are more and more newly planned and high-standard urban new districts. These new urban new districts are figuratively called “ghost towns” because of their high vacancy rates, few people living in them, and pitch black at night)

In reality, it’s not a close race: Bitcoin is very likely to take the largest market share in the next 10 years . Past experience tells us that no one cares about other mail protocols after SMTP.

This is an era where winners take most markets, and Bitcoin is the clear leader based on any metric.

Why? Because Bitcoin has more users, more value, more popularity, more advantages, the best supporting infrastructure, and arguably the most careful set of “trade-offs” in the public blockchain space (emphasizing security, long-term scalability, and fully predictable monetary policy).

The greater challenge facing competing blockchain platforms to Bitcoin is that securities regulators in the United States and other countries have made it clear that, from a legal perspective, raising funds (whether through an ICO or IEO) and launching a brand new blockchain platform/token is subject to regulatory uncertainty and non-compliance risks - to some extent, this gives Bitcoin a (non-essential) regulatory advantage.

Bitcoin’s dominance is reflected in the chart below — although we could add more to the table to illustrate the point. In an era of winner-takes-most markets, it is objectively difficult for any competing blockchain platform to surpass Bitcoin due to its first-mover advantage and network effects.

In contrast, in the spring of 2019, 89% of Americans had at least heard of Bitcoin, and the younger generation is catching up: 60% of people aged 18-34 are familiar with Bitcoin, 59% believe that Bitcoin is "a positive innovative financial technology", 48% believe it is "very likely" or "likely" that most people will use Bitcoin in the next 10 years, and 42% say they are "very likely" or "likely" to use Bitcoin for shopping in the next 5 years. Data source:

https://medium.com/blockchain-capital-blog/bitcoin-is-a-demographic-mega-trend->

02. So where should we go from here?

This is not to discredit the design efforts behind all the brand new blockchain platforms that have been launched, but rather to highlight that the next phase of construction will produce the layers, protocols, applications and services that are actually used in the next 10 years - in stark contrast to the vast majority of blockchain platforms that do not exist with any meaningful economic traction ("ghost towns").

Related development and building activities will shift from launching new chains with little differentiation to improving winning protocols and building on their stacks .

In many ways, this phase is already underway: the Lightning Network is a second layer/protocol built on top of the Bitcoin blockchain for fast and cheap peer-to-peer Bitcoin transactions, and similarly, there are dozens (if not hundreds) of companies and developers building infrastructure, applications, and services for Bitcoin.

Importantly, this transition will take years to complete: we are still in the onboarding phase of Bitcoin — which is why exchanges have been the most profitable cryptocurrency companies to date, just as ISPs were the most profitable internet companies.

Of course, these phases are not strictly sequential: while we are only in the first or second inning of the user onboarding phase, the Bitcoin stack and the applications and services it supports will emerge in parallel and accelerate the entire user onboarding phase.

Bitcoin has and will continue to go through many “ phase shifts ” in the coming years. That is, Bitcoin will continue to transform from a volatile, speculative commodity to the basis for a more widely accepted programmable currency.

03. A new development dynamic

In contrast, building the Bitcoin stack has a different dynamic : developers can innovate and iterate quickly because these protocols, layers, applications, and services are optional and do not put the underlying network at risk or require consensus of the entire network.

Bitcoin itself is designed to be difficult to change, but anyone is free to build on and innovate on the network. So while making changes to the Bitcoin protocol itself is extremely difficult and cumbersome, the speed and scope of innovation in the Bitcoin stack will be much faster and more widespread .

It’s like modifying a jet engine requires extreme caution, while designing a new in-flight entertainment system involves little risk. Indeed, once basic flight safety is assured, a more comfortable flight experience with better entertainment and fresher food will increase the appeal of flying. As people become more familiar with Bitcoin itself, enhancing its functionality will drive broader adoption of Bitcoin, ultimately providing fertile ground for its vertical development .

Thanks to Derek Hsue and Aleks Larsen for reviewing and commenting on this article.

Original link:

https://medium.com/@Bitcom21/the-past-future-of-blockchain-where-were-going-and-why-2b26acb45091