Five major issues facing Bitcoin in 2016

Author: Geneva

As the year draws to a close, many community websites have posted predictions about the development of Bitcoin in 2016. There are many different opinions, and I will summarize my views here. In 2014, I also made predictions about the development direction of Bitcoin in 2015, and the results were significant. In any case, I have learned some experience: ask more and talk less.

Rather than simply predicting her development based on my own opinion which may not be comprehensive, I would like to raise 10 simple questions here for everyone to consider.

This week I will temporarily raise my five questions about Bitcoin. Next week I will conduct a more comprehensive analysis of the environment of the entire blockchain industry.

1. Can Bitcoin’s uncertainty be resolved?

Although the transaction volume of Bitcoin continues to rise, the limit of 1 million area also brings considerable difficulties. It is still uncertain whether the upward trend will be maintained in the next year and how it will grow. Any attempt to modify the rules of Bitcoin may bring unpredictable and even negative effects.

One of Bitcoin’s earliest founders has defined Bitcoin as a failed experiment.

This also makes us understand that an important issue we face this year is no longer whether the scale of Bitcoin can be expanded but whether Bitcoin can develop peacefully.

Today, there are four ways for Bitcoin to scale: through a fast network, through sidechain development, through third-party-supported off-chain transactions, or through regional expansion.

Whether the development of the fast network and side chain is not suitable for the current environment, more technicians believe that the involvement of third-party transactions is contrary to the original intention of Bitcoin development. No offense to supporters, but this approach does not sound like a real feasible solution, but more like an unrealistic fantasy.

This means that by mid-2016, we could see two scenarios: one is a pause in Bitcoin development to focus on regional expansion, and the other is the growth of small Bitcoin transactions. Both scenarios have their own risks.

So here is my question: will the Bitcoin Core blockchain size limit be reduced in the new year or will it stay at 1 million?

2. Will the reduction of the reward mechanism affect the price?

Assuming everyone remains calm about the scale of Bitcoin’s regional presence, and that Bitcoin’s resilience is established before the technology and network forks are ready (a big if), what will Bitcoin’s price action look like in the coming months?

Since its release, Bitcoin's reward mechanism has been reduced twice - from 25 BTC per zone to 12.5 BTC per zone in July 2016. All other conditions remain unchanged, which seems to be the reason why some small users have jointly withdrawn from the market, and this incident has had a great impact on the price of Bitcoin. The conditions for using Bitcoin are becoming more and more restricted, and the fees for users to use Bitcoin transactions have increased. Some economists have analyzed that if the price of Bitcoin fluctuates, the majority of users are actually the beneficiaries, because the relaxation of the market cap can promote the circulation of the market, the growth of the transaction range, and the improvement of stability.

However, what specific impacts have been brought about by the reduction of the reward mechanism in the past three months, and what will happen in the future?

3. Can the Bitcoin platform successfully attract the attention of investors?

The negotiations between technology companies and investors are actually the process of building a "platform", but it seems that there is no clear platform in the Bitcoin industry. In 2016, there are only two platforms worth noting: Coinbase and 21 lnc.

(Both platforms are favored by industry investors, so it seems that the development problems of the entire platform can be analyzed from them)

Of the two companies, 21 lnc appears to have the advantage of being on the legal edge and will not be at risk if third-party app developers use it improperly.

In fact, 21 lnc does not need to worry about improper use by users: their company's operating mechanism is not to use Bitcoin transactions, but to create new Bitcoins by selling hardware. From the fees required by regulations to the potential expenses of employees, daily expenses are controlled to near zero.

On the other hand, the Coinbase team will be in trouble if any application uses Coinbase as the platform behind the wallet to facilitate money laundering or other illegal transactions.

That is to say, 21 lnc may need to worry about the economic problems caused by the gap.

CEO Balaji Srinivasan himself admitted: "The essential reason for the success of Bitcoin as a basic resource of the system is that compared with buying Bitcoin at market price and transferring it to the website for use, using Bitcoin by embedding it in the application is faster and more valuable.

Early feedback from these vulnerabilities suggests that users need to consider the advantages of regulatory edge cases that may arise from using Bitcoin through applications rather than just setting up a wallet.

So in general, using Coinbase may be riskier and more costly from the perspective of the alliance, while using 21 lnc will also face expensive issues.

4. Will there be a powerful application software?

Let's go a step further than looking for viable platforms and simply look for interesting applications.

One criticism of the industry is that Bitcoin is still a risky currency for basic financial services.

Compared to Bitcoin, credit cards offer better protection, rewards, and user experience for users, a phenomenon that applies to all sectors, except for gray markets such as gambling or drugs, or illegal transactions.

Beyond speculation, there are advanced non-Bitcoin applications in nearly every case study in developed economies: Venmo for P2P payments, TransferWise for cash transactions over the internet, and so on.

Unless the software application can achieve uniqueness in Bitcoin, I doubt whether it can become an interesting Bitcoin application.

Consumer applications have been of an uncertain nature so far, will 2016 be any different? We will have to wait and see.

5. Will the transaction be automatically transferred to Bitcoin payment?

Micropayment has been a proven Bitcoin application for seven years.

As early as 1996, cryptography expert Nick once emphasized the "user psychological adaptation problem": Do we have enough psychological ability to really pay attention to the tiny difference of 0.05 to 0.1 US dollars in a single payment?

Is it worthwhile to invest time and effort in developing platforms to support Bitcoin payments when there are only a few hundred active users in the Bitcoin industry worldwide? This is actually a chicken-and-egg problem. (Even the smartest speculators do not get much from Bitcoin wallets.) Then there is the issue of regional scale, which, if not resolved, will make small payments by users uneconomical.

But when it comes to trading, these key issues don't seem so serious.

For one thing, computing problems become less difficult with computers, and using virtual currencies like Bitcoin to authenticate identities and connect devices for transactions between devices will become more natural and commonplace.

Implanted software can, to some extent, eliminate the user's choice difficulties when using Bitcoin, and naturally solve the demand problem: with a reasonable supply relationship, the energy required to develop a device user is obviously much less than that required to develop a real person user.

JPM compiled from

Coindesk, 5 Big Questions for Bitcoin in 2016, by Ryan Selkis.