The past and future of Bitcoin: Where are we going?

The journey we have traveled

01. Birth of Bitcoin (January 2009)

We know that Bitcoin was launched in January 2009. At first, only a small number of people understood the concept of Bitcoin. In the next three years, Bitcoin has received more and more media attention, although compared to today, Bitcoin's attention is still negligible. At that time, 99% of people who had heard of Bitcoin ignored it, but there is a reason.

After all, Bitcoin is still in its infancy, still a crazy and distant idea, and its meaning is difficult to understand. Even most people who recognize the potential meaning of Bitcoin are skeptical – knowing that many people have tried to create non-sovereign digital currencies.

Therefore, given Bitcoin's limited history and limited economic value, it is understandable that people initially disregard Bitcoin (and it is not unreasonable).

02. Bitcoin is equivalent to the US dollar (February 2011), after which its price rose to $100 (March 2013) and then rose to $1,000 (December 2013)

The rapid rise in bitcoin prices quickly turned people's mouths into "the things that don't work" into a "tulip". Suddenly, scholars generally "thought" about one thing that happened in the Netherlands 300 years ago – the "Tulip Bubble."

At this point, people were seriously lacking in understanding and appreciating the decentralization and elastic properties of Bitcoin. Most experts simply said that Bitcoin would obviously "fail". It turns out that they are wrong.

With the rise of Bitcoin, the infamous dark-net market “Silk Road” is also emerging, which provides a good evidence for the new saying that “Bitcoin will only be used by criminals”. But this statement is still wrong.

03. Bitcoin “crash” from $1,000 to $200, “blockchain technology instead of bitcoin” (2014-2016)

Those who are skeptical about Bitcoin believe that the price decline of Bitcoin proves the correctness of their skepticism: "Look, it's another tulip bubble, I told you so long ago," "Since the Silk Road website Already closed, no one will use Bitcoin." This view is still wrong.

It is worth noting that the “crash” of bitcoin prices has led to a major shift in the narrative of the industry, turning to the recognition of “blockchain technology rather than bitcoin” . This view is primarily based on the power of blockchain technology to try to separate this technology from the digital assets built into the blockchain network.

Again, this idea is still understandable, albeit still wrong – it is true that at this point in time, for almost everyone, even insiders, this may be the case. Powerful new technologies can be difficult to understand.

This has led to the competition of “blockchain technology” in various industries, from the healthcare industry to the energy industry.

04. Bitcoin resurgence & more "cryptocurrency" became the public focus (2017)

After 2-3 years of “blockchain technology rather than bitcoin” and the development of hundreds of pilot projects and PoC (proof of concept), the implementation of “blockchain technology rather than bitcoin” has not achieved breakthroughs. Results .

There are many reasons why these efforts have failed to produce significant value, but the most important ones are three main reasons :

1). Open networks are more powerful than closed networks – you can see the intranet and the Internet.

2). The native digital assets of the blockchain are key components that make these chains functional and practical;

3). The "private chain" is actually a database architecture that existed before Bitcoin – it is not something innovative.

At the same time, bitcoin has come back – it has never disappeared – but as more users grow, more deals, better security and more infrastructure than ever before Support, Bitcoin has returned to the public consciousness .

Over time, the broader market and industry began to recognize and accept the fact that open networks outperform closed networks —a public blockchain network like Bitcoin that anyone can participate in, anyone can Building in the network is the root and core of the blockchain opportunity. People are beginning to realize and accept that Bitcoin and "cryptocurrency" will not disappear .

This has also led to a mainstream craze for finding and launching "better bitcoins." Of course, if Bitcoin is the first version of the blockchain/cryptocurrency, then we can do better, right? Again, this is not an unreasonable idea.

Around this time and in the years that followed, there was a rush to create a new network of public blockchains that made some trade-offs to optimize one (or more) specific functions. In the meantime, we saw the introduction of a blockchain platform optimized for various features such as transaction speed/throughput, privacy protection and expressiveness.

Many of these experimental blockchain platforms/projects are funded through ICO, which increases interest in introducing experimental blockchain platforms with different trade-offs and optimization characteristics. Although there are many good efforts and some really interesting technical optimizations, most of the projects are unwise experiments, and their trade-offs are poor compared to what already exists – and because of the complexity of the industry, the need With a certain amount of professional knowledge to understand, so it is difficult for most outsiders to distinguish between good and bad in a big environment.

The purpose of these pilot platforms/projects that were launched and tested was to find out if their optimizations were attractive enough to eventually surpass Bitcoin in terms of adoption and usability. However, each of them sacrifices a certain characteristic to optimize another feature – everything must be lost.

05. The trade-offs/optimization of the new blockchain platform failed to stand out (2017–2019)

The launch of these new blockchain platforms with different trade-offs and optimizations marks the beginning of a battle called “standard chain” – who is the standard underlying blockchain network for future programmable currencies. Many times, industry insiders and outsiders are focused on using technical tradeoffs as a leading indicator of the potential to become a programmable currency.

Of course, it turns out that this is a too narrow scope of assessment – history has repeatedly proven that standards are rarely determined by "best technology."

It turns out that Bitcoin is a "from 0 to 1" moment, and the market has subsequently confirmed this. Some of the newer blockchain platforms offer minor improvements (from "1 to 1.1"), but most of them only make poor trade-offs (from "1 to 0.5") on the value of Bitcoin.

In general, two thresholds must be met when assessing whether any of these blockchains or cryptocurrencies can exceed Bitcoin's probability:

1). “Are your trade-offs really an improvement on Bitcoin?” But most blockchains/cryptocurrencies—if not all—have not passed this test;

2). “Is your 'improvement' enough to overcome Bitcoin's network effects, reputation, distribution, security and first-mover advantage?” Despite a lot of optimization experiments, no chain has been able to successfully provide enough power. The advantage is comparable to the network effects, reputation, distribution, and security that Bitcoin has built (and is rapidly expanding).

As a result, most of these new chains (many of which have great new "breakthrough" consensus algorithms) are equivalent to China's ghost towns: seemingly beautiful designs and construction, but lacking organic demand. (Remarks: With the advancement of urbanization, more and more new urban areas with high standards and high standards have emerged. These new urban areas are too vacant, rarely inhabited, and dark at night, and are known as “ghost towns”. ")

The road to the future

01. From horizontal competition to vertical construction

Although the previous stage marked a horizontal competition to become the basis for supporting future programmable currencies, the market will continue to focus on a single (or at most two) winning agreements. In general, even the industry's internal players greatly overestimated the possibility of the new chain surpassing Bitcoin.

In fact, this is not a close competition: in the next 10 years, the possibility of Bitcoin occupying the largest market share is very high . Past experience tells us that no one cares about other mail protocols that are second only to the SMTP protocol.

This is an era in which winners occupy most markets, and Bitcoin is the leading leader based on any indicator.

why? Because Bitcoin has more users, more value, more visibility, more advantages, the best support infrastructure, and can be said to be the most cautious set of "trade-offs" in the public blockchain field ( Emphasis on security, long-term scalability, and fully predictable monetary policy).

The bigger challenge for Bitcoin's competitive blockchain platforms is that securities regulators in the US and other countries have made it clear that legally, through financing (whether ICO or IEO) and launching a brand new district Blockchain platforms/tokens are subject to regulatory uncertainty and have non-compliance risks – to some extent, this gives Bitcoin (non-essential) regulatory advantages.

The dominance of Bitcoin is reflected in the chart below – although we can add more to the table to illustrate this. In an era when winners occupy most markets, based on the first-mover advantage and network effect of Bitcoin, it is objectively difficult for any competitive blockchain platform to surpass Bitcoin.

Market value comparison of blockchain/cryptocurrency platforms (as of May 22, 2019) Source | OnChainFX

Bitcoin occupies 100% of the total cost of cryptocurrency transactions: 92%, data source | OnChainFX & CoinMetrics

In short, bitcoin has been inconspicuous from the beginning, and has now gone a long way: just six years ago, few people have heard of bitcoin, including those that basically bitcoin Emerging digital assets are seen as "tulip bubbles."

In contrast, in the spring of 2019, 89% of Americans have heard of Bitcoin at least, and the younger generation is catching up: 60% of 18-34 people are familiar with Bitcoin, and 59% think Bitcoin is " A positive and innovative financial technology, 48% believe that most people will use bitcoin in the next 10 years is "very likely" or "possible", 42% said they will use it in the next 5 years Bitcoin shopping is "very likely" or "possible". Data Sources:


02. So where do we go from here?

Based on these facts, Bitcoin will continue to move forward.

This is not to smash the design efforts behind all the new blockchain platforms that have been launched, but to emphasize that the next phase of construction will produce layers, protocols, applications and services that will actually be used in the next 10 years. In contrast, most blockchain platforms do not have any meaningful economic appeal ("ghost towns").

Related development and construction activities will move from launching a new, less distinctive chain to improving the winning agreement and building on the stack .

In many ways, this phase is already in progress: Lightning Networks is a second layer/protocol built on the Bitcoin blockchain for fast, low-cost point-to-point bitcoin transactions. Similarly, there are dozens (if not hundreds) of companies and developers building infrastructure, applications and services for Bitcoin.

Source |

As this vertical construction unfolds, we will continue to see the emergence of more support infrastructure and a rich ecosystem of applications and services that will promote the broad capabilities of Bitcoin as a programmable currency. The industry began with financial assets (bitcoin) and financial infrastructure (the Bitcoin blockchain), and in the next few years it will continue to find the best practicality as a (non-sovereign) programmable currency.

Importantly, this shift will take years to complete: we are still in the onboarding phase of Bitcoin – which is why the exchange has been the most profitable cryptocurrency company to date, just like the Internet. Service providers were the same as the most profitable Internet companies.

Of course, these phases are not strictly sequential: although we are only in the first or second round of the user boot phase, the Bitcoin stack and its supported applications and services will appear at the same time and speed up the entire user boot. stage.

Bitcoin has continued to undergo many " stage changes " in the coming years. In other words, Bitcoin will continue to transform from a volatile, speculative commodity to a more widely recognized programmable currency.

03. A new development

With the advent of the Bitcoin stack, an important dynamic factor is at work: changes to the bitcoin base-layer are relatively slow, well-designed, and cautious — supported by the Bitcoin network More than $100 billion in assets, any changes to the base layer need to be treated with great care.

In contrast, building Bitcoin stacks has different dynamics : developers can quickly innovate and iterate because these protocols, layers, applications, and services are all optional and won't The underlying network is at risk and does not require consensus across the network.

From the design point of view, Bitcoin itself is difficult to change, but anyone can freely build and innovate on the Internet. Therefore, although it is very difficult and cumbersome to make changes to the Bitcoin protocol itself, the speed and scope of innovation in the Bitcoin stack will be greatly accelerated and the scope will be more extensive .

This is like the need to be extremely cautious about retrofitting jet engines, and there is little risk in designing a new in-flight entertainment system. Indeed, once basic flight safety is assured, a more comfortable flight experience with better entertainment and fresh food will increase the attractiveness of the flight. As people become more familiar with Bitcoin itself, enhancing its functionality will drive the wider adoption of Bitcoin, which will eventually provide a fertile ground for its vertical development .

Thanks to Derek Hsue and Aleks Larsen for reviewing and recommending this article.

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