- The Bitcoin trilemma helps clarify why the blockchain has very low transaction speeds
- Enhancements in scalability can enhance performance and promote BTC adoption
The latest Bitcoin [BTC] halving occurred on 19 April 2024. The blockchain’s mining reward was slashed to three.125 BTC, lowering provide and forcing miners to optimize their {hardware}. It additionally strengthened the shortage of Bitcoin, making it a viable various as a retailer of worth.
Michael Saylor, co-founder and former CEO of MicroStrategy [MSTR], realized how he may use this mechanism to his firm’s benefit through the earlier cycle. In reality, he sees it as a hedge in opposition to inflation.
To safe his treasury in opposition to inflation, he isn’t afraid to make use of leverage to purchase extra Bitcoin. “The one use of time is to purchase extra Bitcoin. Take all the cash and purchase extra Bitcoin. Then take all of your time to determine what you’ll be able to promote to purchase extra Bitcoin,” he stated in January 2024. The king of cryptos is up by almost 115% since then.
His legendary conviction helps the concept increasingly more establishments would add BTC to their treasuries.
Past being an funding and inflation hedge, what do customers anticipate from the blockchain? What developments progressed in 2024, and what does 2025 probably have in retailer for BTC’s on-chain customers?
Bitcoin trilemma
The three key facets of a blockchain are scalability, decentralization, and safety. Scalability refers back to the capability to course of transactions, decentralization is the distribution of decision-making and management throughout the blockchain, and safety is the community’s capability to defend in opposition to fraud and assaults.
One in every of Bitcoin’s main challenges is scalability. Its Proof of Work mechanism and the ever-growing hash charge imply that Bitcoin is extremely safe as a community. Decentralization can also be not one of many main drawbacks, though, over time, Bitcoin mining has change into extra centralized as a result of emergence and development of mining swimming pools.
Supply: CoinLedger
The Bitcoin blockchain can deal with about 7 transactions per second (TPS) whereas Ethereum [ETH] and Solana [SOL] stand at 15 and a pair of,600 TPS, respectively. That is the blockchain trilemma. The idea highlights the trade-offs between safety, decentralization, and scalability.
With a purpose to have a excessive throughput, networks need to sacrifice safety or decentralization and decide to have fewer nodes to allow the next TPS. In the meantime, extremely decentralized networks wrestle with effectivity and pace.
Options to the scalability drawback
Over time, the recognition and variety of customers on the Bitcoin community are prone to enhance. This is able to result in larger consumer demand, and will additionally spark a necessity for the blockchain to boost its utility and worth to a consumer.
As a Layer 1, Bitcoin is constructed to have a low TPS and a restricted variety of use instances in comparison with chains like Ethereum or Solana which boast a sturdy decentralized finance (DeFi) ecosystem. To attain scalability and assist extra advanced purposes, the community has to look in direction of Layer 2 options.
Layer 2 options are constructed on high of an present blockchains and don’t want a network-wide consensus to deploy, not like Layer 1 options. This makes them a extra versatile and engaging answer possibility.
A number of the present Layer 2s are Lightning Community, Stacks, and Merlin Chain. Stacks goals to convey sensible contracts to Bitcoin with out altering the unique protocol. Initially referred to as Blockstack, it was rebranded in October 2020. Stacks is a Bitcoin Layer for sensible contracts, extending the community’s utility to incorporate sensible contracts, DeFi, NFTs (non-fungible tokens), and dApp (decentralized software) functionalities.
Lightning Community and its potential in 2025
Lightning Community was proposed in 2015 and has been operational since 2018. It goals to extend transaction speeds and scale back prices by permitting transactions to happen off the primary blockchain.
And but, it faces some challenges. The Lightning Community permits customers to switch by creating channels between them that may stay open for additional funds. It slashes the transaction payment, bringing it to the area of $0.001 from the present $2.8 price per transaction, and permits its completion in seconds.
LN had round 15,000 and almost 54,000 cost channels as of August 2024, with a channel liquidity of simply over 5,000 Bitcoin. It has seen the implementation of assorted new wallets reminiscent of Muun and Phoenix that enhance the consumer expertise. Rising adoption throughout Asia, Africa, and Latin America makes e-commerce extra viable. LN utilization is boosted by entities reminiscent of Bitrefill, a cryptocurrency reward card retailer, and OpenNode, a cost processor that allows retailers to just accept BTC as cost.
In 2025, Lightning Community’s enlargement to make use of stablecoins for cost aside from BTC would assist obtain mass adoption. This integration with stablecoins can result in real-world funds utilizing crypto stablecoins and might enable international trade transactions to be settled nearly immediately anyplace throughout the globe.
Past Layer 2s
The way forward for Bitcoin Layer 2 options is filled with potential, however there’s a additional evolution potential. Layer 3 options constructed on high of Layer 2 scalability intention to boost interoperability and application-specific performance.
Layer 3 can allow customizable performance by tailoring for particular wants, and optimizing efficiency and effectivity. They’ll seamlessly join totally different blockchains and totally different Layer 2 options, thereby increasing the probabilities of blockchain know-how.
One instance of a Bitcoin Layer 3 is Impervious, the browser constructed on high of Bitcoin. It’s decentralized, and all knowledge transmitted is completed so privately, leaving no house for knowledge surveillance. It’s also censorship-free.
It makes use of the Lightning Community to course of transactions, which implies that messaging and sharing paperwork might be carried out nearly immediately and later submitted to the blockchain. This is able to levy a payment for every transaction, however privateness could possibly be value it.
One other instance of a Layer 3 answer exterior of Bitcoin is Cosmos. It was designed to deal with the cacophony of blockchains by integrating them into an “web of blockchains”. It provides safe knowledge switch between unbiased blockchains, and sharding is used for scalability. This enhances the potential for dApps by enabling the usage of belongings and functionalities from totally different blockchains.
Learn Bitcoin’s [BTC] Price Prediction 2024-25
Bitcoin Layer 2 options can reshape the utilization of the blockchain. By boosting decrease transaction charges and sooner speeds, it fosters adoption by the general public even for micropayments and informal spending. Developments alongside this path would imply that Bitcoin is not only a retailer of worth, however would even be a sensible medium for trade – Because it was initially envisioned.
