A new era for Bitcoin: What will happen if the expansion is cancelled?

The cancellation of the block size adjustment to 2MB marks the end of a three-year effort between different political groups within Bitcoin to reach an agreement on the increase. Bitcoin core developers may feel that they have won the battle, but the silent majority will quietly leave and sell their Bitcoins, slowly bringing the price back down.

At the same time, it marks the beginning of a new era in human history. Everyone has the right to choose and exit freely.

The New York Agreement was cancelled

I am looking forward to the fork giving a lot of inspiration to the development of Bitcoin. More than 80% of miners have expressed support for 2MB blocks, and hundreds of Bitcoin exchanges and companies have signed agreements to support the expansion. Despite the corporate planning of 2MB blocks, most of the Bitcoin user community and the core development team are ready to reject the expansion, which will fork the Bitcoin network in the most destructive way.

The fork was a disaster for Bitcoin. Yet Bitcoin prices have reached all-time highs because uninformed investors are used to thinking that Bitcoin forks are "distributing candy," like Bitcoin Cash. But this fork is very different.

In the case of the SegWit2X fork, I don't think anyone can agree on which is the "real" Bitcoin. Big companies like Coinbase have agreed to support both coins. The launch of 2MB blocks, with no replay protection for users, will cause a lot of confusion and lost funds. As the first fork of Bitcoin, Bitcoin Cash has a clear plan and friendly business goals, and I expect Bitcoin Cash to be the big winner. The price of Bitcoin Cash has risen by nearly 100% in the past two weeks, attracting the attention of many investors.

Bitcoin will lose its market share

Bitcoin Lightning Network developer Joseph Poon recently said:

“When the party starts, you can choose to leave. You can try to change it, but the cleanest solution is to choose to leave. Many blockchains give individuals the freedom to choose, and part of that freedom is the ability to leave at any time. Make the choice you want at any time.”

The two major factions of the Bitcoin ecosystem are at an impasse. When individuals and companies can no longer find suitable Bitcoin transaction fees and scalability, the easiest solution is to leave. When these people leave, they will sell their Bitcoins as soon as possible.

‘Dumb money’ pouring into Bitcoin

People are excited about Bitcoin’s rise to nearly seven times its price at the start of the year. This has created a real party full of new faces and first-time investors. Reddit forums are full of posts calling on others to buy their first 0.1 BTC, hoping for a 10x annual return on investment.

One bullish piece of news driving the frenzy is that CME Group plans to add bitcoin futures this year, potentially providing bitcoin with billions of dollars worth of new investors. Wall Street hedge fund investors, however, are not interested. Even if hedge funds want to buy bitcoin, they may try to short it first to drive out weak holders. If they can do so by shorting the price of bitcoin all the way to $3,000 (where it was a few months ago), they could cause billions of dollars in losses to high-priced buyers.

Blockchain: A new type of entity

The blockchain is a new type of entity, just as the corporation with shareholders was a new type of entity invented 400 years ago. Today, corporations are able to lobby Congress and have many of the same rights as humans. We will see blockchains gain these rights in the near future as well.

I fully expect the market cap of all cryptocurrencies to grow exponentially over the next few years, but it is not a win-win situation. Today, financial advisors in the mainstream media are hyping Bitcoin as the “new gold,” but this cannot be the case. To understand how it is different, imagine that no one in the universe could create a new metal out of thin air that has the same properties as gold.

Expecting Bitcoin to own the majority of blockchain market share in the future is like expecting the East India Company to be as valuable as all other companies today.

Demand for Bitcoin and the emergence of the cryptoruble

The price of Bitcoin fell for most of 2014-2015. However, in 2016-2017, we saw an increase in demand for Bitcoin driven by ransomware, Ponzi schemes like the "MMM" scam, and Chinese citizens evading capital controls to transfer capital to other blockchain tokens ("ICOs"), etc.

Russia recently announced that it is developing its own "crypto ruble". If the redeemer cannot provide transaction history, the crypto ruble will be subject to a 13% tax on paper money in and out.

Since the CryptoRuble is more efficient and centralized than Bitcoin in processing transactions, I expect the CryptoRuble to attract the attention of ransomware, people fleeing high inflation, and Chinese citizens evading capital controls (especially during a Bitcoin bear market).

And with the Chinese government shutting down the Bitcoin China exchange last month and rumors that they may also develop their own cryptocurrency, it’s clear that there are big players ready to enter this market, and they don’t want to share their money with Mr. Satoshi.