The Future of Bitcoin
In my last post in medium I promised to talk about Bitcoin and why you should invest in it. I decided to work on this post to inform the readers about the terrible consequences Segwit2x hard fork could of had on the value of Bitcoin. Luckily the hard fork has been cancelled in order to keep the community united and prevent the scenario in which two or more Bitcoin ledgers occur.
Ledger refers to the blockchain technology in which the network relies. The blockchain contains a record of all transactions that have taken place in the network since the very first one. The whole record occupies 125 gigabytes of disk space as of the time of writing. Each transaction contains what we could call a digital fingerprint which is used with some cryptographic methods to produce the next digital fingerprint (in a chain) for the next transaction. In this way… is easy to verify if a transaction is valid or not by checking if the operations on the digital fingerprint record are computed correctly. The algorithm can easily calculate the right value that is to be expected and determine if the transaction is valid or was tampered with. Maybe later I talk more about cryptography.
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(Disclaimer) Please be aware Bitcoin is a highly speculative topic and this is not financial advice. Do your own research prior to buying. If you do invest, invest something you can afford to lose. Everything I share is my own opinion based on hours of research I have put.
Anyway, picture you are buying a house right now. This house is on sale at a smoking hot price in a conveniently located area and you are the realtor purchasing this home. You acquire records (think a Carfax for house of some sort) to get an understanding of everything that has occurred in this home. Unknown to you the history fails to report that the previous person that rented the place decided to fill the piping system with cement because he had a feud with the owner. The investment you are about to make is going to be very costly.
With blockchain technology you would not get an altered record that misses this key information. This is why blockchain is the technology of the future. You have to trust nobody other than the records. You need no third party (like a bank) to act as neutral agent (or escrow) so that the transaction is trustworthy and validated. This is what smart contracts build around blockchain technology are all about and the true power of not having a middle man involved is that it saves you time, conflict and fees the middle man will charge you and the person you are doing business with. You can read more about smart contracts in this other article I found.
What Are Smart Contracts? A Beginner's Guide to Smart Contracts
https://blockgeeks.com/guides/smart-contracts/
Note: A node in Bitcoin technology terms refers to any computer which is part of the Bitcoin network which understands the Bitcoin protocol. Nodes authorize and verify transactions. There is also full nodes also known as full validating nodes which keep the whole transaction history of the network in their hard drive. In this way… anybody who owns a full node can verify if a transaction took place or not. Nodes verify transactions between one another. Any node sharing transactions which are not legal (like in the case coins are double spent) will cause another validating node to block communication or ban temporarily the node committing the infraction. The banning period can go for a full 24 hours or permanently depending on the level of abuse. Please note that on the current Bitcoin protocol miners process the transactions that nodes verified to be valid. We will come back to this at some point. You could learn more details about blockchain nodes in this video where Andreas Antonopoulos shares some of his expertise on the topic:
Going back to the topic of Bitcoin now I want to talk briefly about why the technology was invented. On August 18, 2008 Satoshi Nakamoto registered the domain bitcoin.org and then went on to add a link to a white paper. In this white paper he went on to explain how the Bitcoin technology would work and how this new peer to peer (decentralized) electronic cash system could be used as a way to escape financial crisis. You could have a look at the white paper in the link below.
https://bitcoin.org/bitcoin.pdf
To give you some background information in the year 2008 the United States suffered a financial crisis that had negative impact at the worldwide scale. This catastrophic financial disaster comes only second to the Great Depression which occurred in 1929. Read this article by Kimberly Amadeo to get a better understanding of what caused the 2008 financial crisis and the impact it had worldwide.
What Caused the 2008 Financial Crisis and Could It Happen Again?
https://www.thebalance.com/2008-financial-crisis-3305679
As you will see it was the banking system we rely on and trust our future upon that caused this economic calamity. The Federal Reserve couldn’t do anything to stop the mess greedy bankers created. In the words of the creator of Bitcoin…
The picture above should give you a clear understanding of what debasing the currency means. Legend says people in Zimbabwe need to carry a barrel filled with notes to buy coffee.
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with hardly a fraction in reserve.”
Satoshi Nakamoto
So the purpose of Bitcoin is firstly to store value so you can be protected from other financial crisis to come and secondly… this is a payment system which is still maturing and being adopted by many businesses worldwide. The industry around Bitcoin is booming and this is one of the reasons Bitcoin prices has consistently gone up. I saw it hit $7,800 before it went back down to the $7,100–$7,300 price range after it was announced Segwit2x protocol update was no longer going to be taking place this November 16, 2017 at block 491,407.
Bitcoin adoption is growing so rapidly that the network is facing big problems that need to be solved going forward (if Bitcoin is to become a GLOBAL payment system) because in terms of storing wealth Bitcoin is already the best choice. I have come to this conclusion based on hours of research I have put into this.
The fact is thousands of altcoins have been released since Bitcoin has been successful. An altcoin is any crypto coin which is not Bitcoin, the term literally means "alternative coin". How many of these provided real value to the end user? Some did… but only a fraction. Many altcoins end up being what people call “shitcoins” which is a term to refer to a digital cryptocoin which is intended to trick people into investing in it but the real reward comes to the developers and other third parties that support the project early on. How does this takes place?
The developers purposely pre-mine the cryptocurrency early on when the operations are easy to resolve and in this way they accumulate lots of coins quickly. As more coins are mined the mathematical operations that need to be resolved in order to be awarded more coins grow exponentially in complexity and it becomes harder to mine coins. At this point they open the network for other users to start mining and they find ways to let investors purchase the coins for fiat currencies or other valuable and legitimate cryptocurrencies like Bitcoin. Note that mining requires investing in electrical power and the more complex the operations get the more power that is consumed. They then proceed to dump or do a massive selloff of the coins to the unsuspecting investors who expect to profit. The end result is many innocent and uninformed people end up losing their investment and the newly created cryptocurrency is worth nothing.
Note: As of the time of this writing it takes $900–$1000 worth of electricity costs for the latest hardware technology used in Bitcoin mining to produce one Bitcoin. Most common hardware (think your laptop or computer) is not profitable in mining Bitcoin because there is not enough hashing power to solve enough calculations to be awarded Bitcoins before the cost of electricity becomes too much to stay profitable. This is why there are so many digital cryptocurrency mining companies that sell hashing power packages. These companies are known to order the best hardware available in bulk often times investing 1 to 10 million (or more at a time) in order to increase their profit margins since buying in bulk results in lower overall costs per unit.
They also place their farms of servers in cold places (Iceland comes to mind) in order to keep electricity bills lower as cooling the hardware farms that mine all the Bitcoin is very expensive if you were to use air conditioning as a strategy. Some of these companies are now starting to add to their technology means to calculate which cryptocurrency is more profitable at a certain time and they operate with software which switches miners to the most profitable digital currency at the time. New semiconductor technology is also going to be used in order to turn excess heat created in the servers into power that can be reused used in homes to power home appliances and other electrical devices. If you are thinking of ordering hashing power keep in mind IP addresses from the US are automatically blocked. I know this information but being a US citizen I never joined any mining company because is against the law according to what I read. Blockchain technology is going to help build a better future for humanity.
One last thing to note is that as difficulty increases the miners have to invest more power to mine each new Bitcoin. This has to do with the calculations becoming exponentially more complicated to solve to process blocks of transactions. Bitcoin rewards also are cut by half as difficulty increases. This makes Bitcoin which is already a highly sought after asset to gain more value. The system was designed to avoid inflation which has depreciated the value of each USD by over 98% it’s original value compared to the times the dollar was backed up by the gold standard. The purchasing power of each dollar in your pocket decreases 2–3% each year that goes by. This is one of the reasons why gasoline in the 1930’s was worth 10 cents per gallon or the average price of a new car was $3,542 in 1970.
People made less money, but they could afford so much more with it. It was normal for men back then to generate enough income to provide for the whole household. Today couples struggle to generate enough income to pay all the bills. Some people like to claim the difference is that today we spend on other services like cable tv, cell phone plans and internet which weren’t services people used back then. This point of view is clearly erroneous when you look at the numbers. The cost of education in the United States has increased by 1,120% in 30 years and jobs are disapearing due to technology and automation. During my graduation last December 2016 I filled a questionnaire. Well over 75% of new graduates can’t find jobs and have to compete for low paying jobs these days. The worse part on all of this is that going forward it will become acceptable for internship programs to pay 4$ per hour. This is already happening in Australia and the United States has had discussions on the topic.
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Satoshi himself was known to mine over 1 million Bitcoins (of a total of 21 million that will ever exist) which have not been touched in close to 10 years. I want to clear up that he did not pre-mine them like some other developers have done. He mined Bitcoin in a time when few people were interested in this digital money and the difficulty was 1. To this day some people send more Bitcoin to this address as a way to thank Satoshi for creating one of the greatest inventions ever. Is not known what the future holds for all of those Bitcoins. Maybe they have forever been lost… or Satoshi will use them for something else. You could read this other post to learn more about all the Bitcoin that has been lost. The key concept to understand here is that the less Bitcoins that are in trade… the MORE VALUABLE it becomes.
The £625m lost forever — the phenomenon of disappearing Bitcoins
http://www.telegraph.co.uk/technology/news/11362827/The-625m-lost-forever-the-phenomenon-of-disappearing-Bitcoins.html
I started to believe in Bitcoin more than ever when I learned about an startup which lost over 50 million USD they had collected through fundraising. In order to safeguard their fundings the company decided to apply multiple levels of encryption on their key file. At some point during the process the key file became corrupted and all the Bitcoin still seats to this day in a wallet address nobody has been able to claim. Since Bitcoin is decentralized no bank or government authority can forcefully take your funds so is up to you to safeguard and effectively protect your assets stored with Bitcoin because the decentralized nature is very unforgiving of mistakes. This startup I speak of were EXPERTS in the security field and knew about digital forensic techniques. None of what they tried worked to recover the lost assets. John McAfee, who is a highly capable undividual (founder of McAfee Antivirus company) lost a number of Bitcoins because he mistakenly sent them to the wrong address.
You should first practice and educate yourself about how the payment system works prior to making any investment. Maybe later I find that article and add a link to the wallet that contains all the Bitcoins they lost so you can see for yourself. As you will learn in the article I posted above (if you read it) the chances of recovering these loses is simply not physically possible with our current technology. Maybe if we ever learn to harvest the power of the stars and galaxies we could recover all this Bitcoins but by then we will be so technologically advanced (if we actually make it there in the next thousands of years) that nobody will care about Bitcoin anymore.
Don’t take this information to mean NOBODY can take your Bitcoin. The most powerful ransomware ever developed tries to steal your private keys to allow the attacker to spend your Bitcoin any way they want. Anyone who has your private key owns your cryptocurrency. Adam Johnson for example flashed the QR code of a private key on a paper wallet on live television and had his Bitcoin stolen in less than 10 seconds. You could read this article to learn more:
Bloomberg anchor displays bitcoin on TV, immediately gets robbed by viewer
https://www.rt.com/usa/bloomberg-anchor-robbed-bitcoin-747/
Note: Some like to claim Quantum Computing will be able to break the Bitcoin protocol as early as the year 2027. However, further research I have made reveals this scenario is very unlikely to happen. Satoshi build the Bitcoin protocol to be robust and hold up to attacks. The attacker will have to spend so much resources to achieve this feat that it won’t be worth it for them to do it. You can read more about this topic in this other article:
Is Bitcoin at Risk as Google and IBM Aim for 50-Qubit Quantum Computers? - Bitcoin News
https://news.bitcoin.com/is-bitcoin-at-risk-as-google-and-ibm-aim-for-50-qubit-quantum-computers/
Moore’s law (the law which states computing power doubles every 18 months) is also starting to see a decrease. It’s predicted that by 2021 transistors will stop shrinking. By then, new technology will be put in place to achieve better computing power with less resources. You could read this article to get an idea of what to expect in the future. They say Moore’s law will live on but other sources (like MIT) expect it to die out. I much prefer the first scenario.
Transistors will stop shrinking in 2021, but Moore's law will live on
https://arstechnica.com/gadgets/2016/07/itrs-roadmap-2021-moores-law/
Everything that I’m sharing should help you understand Bitcoin is the ultimate storage of value we know of. I’m not biased. I only hold roughly $560 worth of Bitcoin because that’s what I can afford to hold. I need to get my online business running so I can get some more Bitcoin!
Now that we have established that Bitcoin should be seen as means to store value and SECONDARILY as a payment system I want to talk more about the Segwit2x fork, other soft forks, and more Bitcoin related topics. You should buy and hold Bitcoin. I will be updating this post at a later time as I need to continue my training. Check back soon!
PART TWO
As I write this (November 12) Bitcoin seats at a little over $6,000 in the GDAX exchange. I spoke about the fact that the Segwit2x hard fork could of had catastrophic consequences for Bitcoin. Let me explain why.
First thing we need to consider is the protocol update had a hard flag date that was originally calculated to be 3 months after Segregated Witness (Segwit) activated. Segwit (which is the previous protocol update to Segwit2x) was activated on block 481,824 the morning of August 24. This means Segwit2x did not undergo extensive testing in order to make sure it would not introduce any bugs that could compromise the integrity of the protocol and the functionality of the network.
An update with such little testing could of being catastrophic if it failed to scale the network as it was anticipated. It was just too risky. On top of this, the update did not include replay attack protection. This means that transactions made on the Segwit2x ledger could have been copied (since it contained the digital signatures of the sender and receiver) and reused in the regular Bitcoin transaction history to double spend the coins in the two different time lines and vice versa. The team behind Segwit2x wanted to force Bitcoin Core (original Bitcoin developer team) to do an update to account for replay attack protection… all with only 3 months time. You could learn more about replay attacks in this post Jimmy Song posted:
Replay Attacks Explained
https://bitcointechtalk.com/replay-attacks-explained-e3d6d2ea0ab2
The Segwit2x protocol update would also have given more power to the miners, exchanges, businesses and startups. That’s not what Bitcoin was created for. You don’t want big businesses to continue to own every aspect of your life… the decentralized nature of Bitcoin would have been impacted or totally lost.
Furthermore, node operators which help maintain the integrity of the network would have been affected by having to pay double the price for storing the transaction history of the network. The key update to the protocol of Segwit2x was to increase the storage space of each block from 1MB block to 2MB blocks so it was possible to store more transactions per block. Bitcoin miners are awarded a fee for each and EVERY transaction they process… so being able to process more transactions per block it was a no brainer why 85-90% of the mining pools behind Bitcoin were supporting this protocol update. I should mention some of the miners like F2Pool and Slushpool did not support the protocol update. You could learn more about mining pools in the article below:
10 Best and Biggest Bitcoin Mining Pools 2017 (Comparison)
https://www.buybitcoinworldwide.com/mining/pools/
Some developers in the Bitcoin community could see all these negative effects that they decided to split from the project and create Bitcoin Cash — a fork of the Bitcoin ledger pre-dating any of the segwit protocol updates in order to apply a different solution to the scaling problem. Part of their solution to the scaling problem was to turn to 8MB blocks to process more transactions. This means that Bitcoin which was hitting it’s theoretical limit of around 350,000 transactions per day in Bitcoin Cash terms could process 2.5 to 3 million transactions per day. This is more than plentiful if you consider the fact there is 2 to 3 million active users in the network that do most of the trading. Many such active users are bots programmed to flip Bitcoin for a profit. The Visa network can handle about 150 million transactions per day and MasterCard can handle 74 billion transactions per year but there are billions of credit cards out there in active use.
Don’t take this to mean Bitcoin Cash is the new Bitcoin. Is not. Bitcoin Cash has strong support from people in China but the team pushing forward Bitcoin Cash can’t compete with the team behind Bitcoin Core which has more developers and a bigger pool of talent. Furthermore… in a few days difficulty will rise in order to mine new blocks of Bitcoin Cash and the miners will flock in masses back to Bitcoin because it will be more profitable alternative.
There is also more technology currently being implemented which can help solve the scaling problems of the Bitcoin network. The Lighting Network which is currently in alpha phase of development is going to use the concept of Side Chains to allow transactions to happen between different legitimate cryptocurrencies like Bitcoin and Litecoin. The end result is literally millions to billions of transactions per second across the network and interchangeability across multiple cryptocurrencies. A network this powerful will eliminate the need to use exchanges and miners altogether.
Look back at what happened with Mt. Gox and Bitfinex exchanges which got hacked and lost the crypto funds of hundreds of thousands of investors. The Lighting Network will still charge fees per transaction but you won’t pay $50 per transaction as some have to pay nowadays when they use the Bitcoin network. Making a transaction through the Bitcoin network had never been so expensive (or slow) for that matter as some transactions nowadays take days before being confirmed and processed.
To conclude my friends… I’m no crystal ball or have clairvoyant powers but based on the information I have been able to find I can only recommend you to buy and hold Bitcoin. There will come the day when some selected cryptocurrencies (based on functionality and usage) will become the new norm for GLOBAL payment. It will be those who invest early that reap the most benefits. Imagine the day the network has 300 million active users, or a Billion of them. How much would 1 Bitcoin be worth then? Also, don’t just invest in anything. Support cryptocurrencies that were created for your best interest in helping you be free. Bitcoin tops that list. Thank you for reading my post. Now I gotta get back to building an online business!
If you liked this article you may also enjoy this one:
https://medium.com/@rrodr186/affordable-premium-services-for-your-brand-and-your-business-10a69ddf25a3
PS:
A strong Bitcoin is to the benefit of this community. Most altcoins go up or down based on the trends of Bitcoin. So there is a bright future for the Steemit platform and steem cryptocurrency.
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