"What is Bitcoin's future?"

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In this post, we are going to consider Bitcoin's likely path going forward based on the past 14 years of its history, and the current state surrounding this groundbreaking technology. While we are not going to pretend to know an unknowable future, pondering over coming events can be a useful thought exercise, if done critically. This blog post aims to discuss Bitcoin's potential future by examining three of its main components: the health of its network, its adoption as a currency, and its use as a store of value.

• Introduction

As we venture into a new era of finance, digital assets are making a lasting impression on our perceptions of savings and investments. The question, "What is Money?" remains one of the most intriguing inquiries of the 21st century. Bitcoin, the trailblazer in this domain, has grown organically without external funding or endorsement, and has made remarkable progress since its inception in 2009. Its market capitalization has consistently soared to new heights year after year. So, what lies ahead for Bitcoin?

• Hashrate and network security

As Bitcoin evolves, it becomes crucial to comprehend its hashrate and the ensuing implications for network security. By analyzing quantitative data, we can gain valuable insights into the network's computational power growth and its future prospects. In 2009, during Bitcoin mining's early days, the network's hashrate stood at a mere 0.02 gigahashes per second (GH/s). Fast forward to April 2023, the hashrate had surged exponentially to approximately 350 exahashes per second (EH/s), according to data from blockchain.com.

This remarkable growth in the computing capabilities supporting the Bitcoin network can be attributed to several factors, including rapid advancements in mining hardware. Additionally, the growing number of miners joining the network, driven by the economic incentive to protect it, contributes to this expansion. The increasing hashrate's impact on network security is significant. A higher hashrate makes it considerably more difficult and costly for malicious actors to execute attacks, such as double-spending or initiating a 51% attack. This cost serves as a potent deterrent for potential attackers and underlines the Bitcoin network's resilience.

In the coming decade, technological advancements are expected to further enhance mining efficiency, and as long as the value of Bitcoin continues to incentivize new participants, the hashrate should maintain its upward trajectory. This growth will further reinforce the strength and dependability of the Bitcoin network. However, it is essential to consider the potential consequences of a decrease in Bitcoin's value. A decline could indicate a weakening of the underlying network, as the economic incentives that have fueled its growth may become insufficient and hamper further expansion or even signal its eventual downfall. While this is not the most likely outcome, acknowledging this possibility is crucial in understanding the various factors that may shape Bitcoin's future.

• Adoption as a currency

The Lightning Network (LN) has been a critical factor in making Bitcoin transactions faster and more cost-effective. This second-layer solution, built atop the Bitcoin blockchain, enables instantaneous and low-fee transactions by establishing off-chain, decentralized, peer-to-peer payment channels. While the world is gradually recognizing Bitcoin's primary use case as a currency for everyday transactions, it is crucial to assess the current landscape and project future growth based on quantitative data.

As of April 2023, just three years after its inception, the Lightning Network's capacity exceeded 5,000 BTC (approximately $160 million), boasting over 16,000 active nodes and more than 70,000 channels, according to data from 1ml.com. This growth highlights the increased usage of Bitcoin for smaller transactions, which were previously impeded by longer processing times and higher fees.

Retail purchases and the remittance market stand to benefit significantly from this layer-2 solution, and these areas are witnessing increasing traction for Bitcoin. Bitcoin's borderless, 24/7, and low-cost nature offers an appealing alternative to traditional remittance services, which can impose fees as steep as 10%. For example, in Nigeria, Africa's largest economy, Bitcoin-based remittances have experienced exponential growth in recent years.

These figures and examples illustrate the growing adoption of Bitcoin as a currency for everyday transactions. As technological advancements continue to address scalability and transaction fee challenges, we can expect the adoption rate to quicken, further cementing Bitcoin's status as a practical and widely accepted means of exchange. One remaining challenge is the limited profitability of running LN nodes for individuals, which can be technically demanding and time-consuming. Since the LN does not require intensive computing power, the most needed advancements in this area involve software development and improvements in UX/UI, allowing individuals to more easily run and manage their own nodes.

• Store of value

Although Bitcoin's purported role as a store of value has significantly contributed to its popularity and growing prominence in the financial landscape, critics such as Warren Buffett, Frank Giustra, and Peter Schiff have expressed their doubts. The narrative that Bitcoin is digital gold, serving as a safe haven asset to hedge against economic uncertainties, currency devaluation, and inflation, remains theoretical for now. To better understand this, let's first define a store of value. According to Wikipedia:

"A store of value is any commodity or asset that would normally retain purchasing power into the future and is the function of the asset that can be saved, retrieved, and exchanged at a later time, and be predictably useful when retrieved."

Given this definition, it may be premature to label Bitcoin a store of value. However, it possesses the characteristics to become one and is likely to evolve into a prominent store of value in the coming years, decades, and centuries. Gold, for instance, experienced significant volatility in its early days, both geographically and over time.

Although it might be too soon to call Bitcoin a store of value, it has been the best investment over the past decade, by orders of magnitude. While past price performance does not guarantee future returns, Bitcoin's value proposition and features continue to solidify, supported by fiat currencies' artificial debasement and the strengthening of its network.

Bitcoin's potential as a superior store of value lies in its predictable issuance schedule and its hard cap, fixed at 21 million units (further divisible into small yet finite denominations). Unlike central banks worldwide, Bitcoin's monetary policy cannot be altered arbitrarily at the stroke of a pen, and it is designed to protect the owner's purchasing power through its absolute digital scarcity. Bitcoin's salability across space and time, security, transaction speed, and resistance to counterfeiting are unparalleled and safeguarded by the most advanced and decentralized computing network known in the observable universe.

Bitcoin's inherent network features, increased institutional adoption, resilience during economic turmoil, and rising market capitalization all indicate a promising future for Bitcoin as a digital gold alternative and a reliable means to preserve wealth. It is likely only a matter of time before it becomes the standard saving technology.

That's it for today, we hope you enjoyed the read! Make sure to get in touch with us by using the "Contact us!" button at the top of this page if you have any questions or comments.