Over the last 12 months, you’d be forgiven for thinking that Bitcoin has become the new black. It’s escaped the underground and is, at last, a household name.
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Now, for nothing more than a long number, you can book flights to the other side of the world, buy a new laptop, and play online games like poker.
If Bitcoin is the new black, then the technology behind Bitcoin, Blockchain is the new rock and roll and there’s nothing folks won’t try to do with it.
From smart contracts to tracking African conflict diamonds, Blockchain is currently number one in pretty much every feasibility study on the face of the planet. Some of these are a little left field, but there’s one model where the crypto tech makes a lot of sense and that is as a payment system.
Bitcoin’s not perfect, but it has endured since its conception in 2008 and if nothing it has proven to be incredibly resilient. The code has defied pundits, governments and regulations alike. Everything has limits however and attempting to use Bitcoin as a scalable payment system is a quick way to find them.
Two Schools of Thought
Before I go any further, I need to point out that there are many camps in the Bitcoin world. Many of them have different agendas, but if you want to split them down the middle, just bring up Bitcoin as a payment system.
One lot believe that Bitcoin should be treated more as a saving or investment like gold, while the other camp is all about making the payments system work.
The Problem with Power
The problem with Bitcoin as a payment system is lag and power. The blockchain is so complex that transactions take ages to happen and the sheer amount of power required is growing exponentially. Bitcoin transactions already take up to 10 minutes to occur, can you imagine how much that would rise if the entire planet started using it instead of say Visa?
One of the things Bitcoin got right from the start was its ceiling. It is by far the most mainstream cryptocurrency and its price is rising because of its illiquidity. As the value rises, those who are holding coins are clinging on in hope of bigger gains and as mining becomes harder and harder there’s a temptation for Miners to HODL – “Holding On for Dear Life.”
That said, it technically would work, but leading financial bodies have claimed it’s only feasible for transactions of over $1,200.
Is it Over?
Not by a long shot.
It may have its issues, but Bitcoin has arguably proved itself to be relatively future proof and has earned a decent amount of public trust. Because of its near household name, Bitcoin is perfectly placed to take on the money giants. If only someone could work out the technical issues.
Enter the Lightning Network.
The Lightning Network is an add-on network for Bitcoin and Litecoin. It’s a complex system to explain but essentially think of it as a dedicated translator. It works by interpreting what’s happening in a blockchain transaction, quickly determining the eventual outcome and then sending each user a technical IOU.
Another way to look at it, is like an accurate crystal ball. Because the Lightning Network has all the relevant data and understands the process, if Tim decides to send Lucy $10 via Bitcoin, it can very quickly work out exactly what’s going to happen and verify the transaction in advance. Then later, when the transaction actually occurs the Lightning Network simply ratifies its results and the transaction is added to the blockchain.
The Lighting Network is still in beta, but the results look promising and it’s a good work-around to tackle the problem of time and energy. There’s some resistance to it, however, especially from the Bitcoin camp. This is probably due to the way folks are treating Bitcoin as mentioned above, but also because it leaves miners with less to do and therefore with less money to make.
Litecoin however, is looking like the most likely candidate to adopt this system. This will, of course, give Bitcoin owners a chance to see how well it works before adopting it themselves.
There are a number of other systems and concepts dedicated to solving Bitcoin’s issue of power and time, but the mention of Litecoin suggests another route for Crypto to break into the payments market.
The Miner Strike
Bitcoin will always be the first digital/virtual currency, but it will not be the last. Its design is nothing short of genius, but it has started to show signs of its age. A new generation of possible successors has emerged with all the bells and whistles that its predecessor never had.
The two main players in this field are both next-generation coins which take inspiration from blockchain but are not tied to its limitations.
Raiblocks uses a system called block-lattice, which essentially means a network of Blockchains rather than just one. Raiblocks price has been rising steadily over the last few months as more and more people realise its potential.
IOTA is an acronym for the Internet of Things Application and it’s well named. IOTA utilises a miner-less system called the Tangle which allows for exceptional speed and fee-less transactions. The speed at which IOTA can move numbers around in addition to its fee-less transactions has earned IOTA some big fans. From German tech giants BOSCH to Microsoft, the IOTA team has shared the spotlight with some really big players.
The truth is if virtual currency ever becomes a truly scalable payment system its roots are likely to belong to one of these two currencies rather than Bitcoin, but we all know that the future is very difficult to predict especially when it comes to cryptocurrencies.