[sgeisler]

I'm not commenting on the 1M$ price prediction, but rather the technical challenges and possibilities.

> Last I heard bitcoin was not technically able to be used as a payment processor subsitutes. My impression then is the whole affair is a bit of a playing-chicken racket.

The fundamental features of Bitcoin are its limited supply [1], programmability and not being controlled by any single entity, not allowing policy enforcement on-chain. While it is true that on-chain (layer 1) Bitcoin transactions provide very limited throughput, there are other approaches to provide scaling that are built on top of Bitcoin (layer 2) using said programmability.

To date there are two major approaches for trust-minimized L2 systems:

1. Payment channel networks (Lightning [2]) that basically use the blockchain only when joining or leaving the network or on conflicts/fraud attempts. In theory millions of transactions can happen on Lightning without ever needing an on-chain transaction. The main limitation is the onboarding capacity, which (with Bitcoin's current limits) is not sufficient to make Bitcoin a global retail currency. There are also some logistical issues with running a Lightning node that make still trustless, but semi-centralized apps preferable (e.g. Phoenix [3]). Don't get me wrong, Lightning is awesome and the best solution for retail Bitcoin adoption we have right now, but I think if Bitcoin is going be used in retail by everyone globally then that will require other solutions. Luckily that won't happen over night.

2. Federations are another way to scale Bitcoin. Fundamentally they are just a group of entities that jointly hold Bitcoin in a wallet such that transactions can only be made if a quorum is reached (using m-of-n "multisig" wallets) and enforce certain rules on those coins.

One example of such a Federation is Liquid [4], which is a federated sidechain by Blockstream (full disclosure, I contract for them [6]). One can transfer in and out bitcoins to and from this sidechain and transfer the bitcoin-backed sidechain tokens. Such federations allow for easier upgrades (only federation members have to agree), so Liquid is used to test ideas that can't be implemented in Bitcoin (yet?) such as Confidential Transactions which hides transaction amounts through homomorphic commitments.

But other federations that don't run their own blockchain are also imaginable (e.g. based on chaumian e-cash). The fundamental idea stays the same: they create a more efficient, cheaper way to transfer tokens verifyably and fully backed by real bitcoins that are redeemable at any time. The fact that multiple entities enforce the rules and hold the collateral jointly makes them relatively resistent to few of these going rogue. While this sounds a lot like early banking verifyable backing and permissionless, potentially anonymous founding of such federations makes it more robust against regulatory capture imo.

So I think there is a good chance that Bitcoin will at least capture some of the market share of gold, and potentially some of the failing nation state currencies (they always fail eventually because it's too tempting to print your way out of recessions until it doesn't work anymore [5]). You can do the math on where that would put the price.

[1] Some economists disagree that it's a feature for a currency on the basis that it's bad for the economy as a whole. I'd argue that at least on an individual basis a money with little/none and predictable inflation is preferable.

[2] https://en.wikipedia.org/wiki/Lightning_Network

[3] https://phoenix.acinq.co/

[4] https://liquid.net/

[5] https://www.principles.com/the-changing-world-order/#chapter...

[6] If you are wondering if that's why I'm slightly critical of Lightning, it's not, it's just my personal opinion/observation (as is this whole post), Blockstream also develops a Lightning node implementation https://blockstream.com/lightning/

[loufe]

Thank you for the write-up, sgeisley, much appreciated. What is your personal opinion on the future of Bitcoin, if you don't mind me asking?

[sgeisler]

First and foremost I think it will stick around. It's too useful a tool and it would be very hard to kill. It's money for enemies, no one controls it, everyone can use it.

China might currently be the only country in a position to attack Bitcoin as a protocol (not from a legal angle) but I think it's not in their best interest to do so. They are a rising empire, eventually they will have far less problems with capital flight than others that are declining, so it might make sense for them to let it go on, potentially causing a speculative attack on USD [1]. China's dominance in mining is shrinking, so at some point that won't be a problem anymore imo.

If (which is a big if) a "speculative attack"-type scenario happens the hyperinflation and resulting turmoil will leave a shock and I hope [2] we could actually see new hard currencies emerge. Some of them might be BTC backed as it is a harder money even than gold (at the expense of being younger, not as lindy). If that happens in the form of federations as I mentioned or well-known centralized solutions: who knows? I'll work towards a future with many different, but freely interchangable, uncensorable, private and fully backed BTC-based "currencies". I still like gold in case we nuke ourselves into the stone age, but I try to be an optimist.

Even if Bitcoin doesn't become a predominant store of value (because it gets widely banned, unlikely at this point imo) I think it will at least establish itself as a means of breaking economic sanctions and fleeing failing states. While I don't mind the upside potential in price I'm primarily in it for the freedom, I think either way Bitcoin will increase personal sovereignty by giving people the option to opt out.

That being said, take my opinion with a grain of salt. I'm a libertarian working in that space and quite young. While I try to compensate by reading about history and economics (Dalio has been a great influence) my life experience is very limited. I just try to navigate the uncertainty of this world the best I can, preferably at my own terms.

[1] https://nakamotoinstitute.org/mempool/speculative-attack/

[2] I know that "hope" might sound cynical given the prerequisites, but given the direction we ("the west") are headed it seems inevitable. So the best I can hope for is a better state afterwards: given that too much debt and printing money got us into the dire situation we are in in the first place, my hope is to take this capability away from governments for the foreseeable future to hopefully enable a more sustainable, less leveraged growth.