[trident5000]

Because every transaction on layer 2 is not settled on the blockchain, its simply their cheap and fast ledger keeping track of frequent transactions. Rarely is there settlement.

Many dont understand Bitcoin was designed this way on purpose. L1 is for infrequent important transaction settlement. If it wasnt the chain would grow to a point where it could not be decentralized because the chain would be too big for hard drives and individuals to run nodes. It would naturally expand faster than memory advancement and centralize.

[rspeele]

Can you point me to current "layer 1" solutions that you anticipate Bitcoin replacing?

SWIFT and ACH don't seem to be it. Assuming a generous 3,000 transactions per block Bitcoin can do ~158M a year.

ACH does ~25B a year. It's harder to find numbers on SWIFT but it looks like at least 10 million per day, so ~3-4B a year.

Let's say I'm running a business. I have day-to-day transactions going through some higher layer network, but I expect some money "settled" in my account each month. That's 12 transactions a year. The US has around 30M businesses, so that's 360M settlement transactions a year. Already more than double what Bitcoin can do and we're not even talking about, say, having employees paid on the blockchain.

[trident5000]

I wouldnt even make that classification. SWIFT and ACH are not akin to L1 Bitcoin. Theres no way tech illiterate masses are going to physically move their btc on chain. For instance 95% of retail doesnt even move their btc off exchange. Their higher level "settlement" will be different from an institutional provider or exchange settlement where L1 is really used. SWIFT and ACH is used liberally (hence the high tx) because its used in many applications (like paychecks and high value purchases). That type of usage will never come to L1 btc. And that same system of SWIFT and ACH (or similar) will support BTC. Can think 3 layers if thats helpful.

[rspeele]

I guess my point is, can you describe what activity will take place on-chain? If it's just money moving between a handful of big banks, why should they use Bitcoin rather than a centralized scheme they all agree on?

For the rest of us, the next layers sitting above the Bitcoin blockchain can either be a truly decentralized, trustless layer with on-chain settlement, like Lightning Network, which might incur too many on-chain transactions to be practical. Or it can be a centralized, trusted layer, like Mastercard -- in which case, what's the point of having Bitcoin underneath it?

It goes right back to gold. Sure, we can back currencies with gold, but it's too impractical to move around for individuals and businesses to transact in. So paper currencies developed. They were backed by gold for a while, then ceased to be, and not much fuss was made about it because it changed nothing for the average user.

[trident5000]

The on chain activity will be rare nerds and major institutions infrequently moving funds.

"why should they use Bitcoin rather than a centralized scheme they all agree on?" because customers decide what they want to own and they dont seem to like the fed printing non-stop thing they keep doing.

LN will be for the rare nerds actually using the chain as payment and want cheap, instant, frequent transactions but on chain settlement periodically just as an institution would.

[rustybelt]

So does bitcoin then just become an alternative unit of account in the existing banking system? If so, what's the point? Especially when users have to eventually convert back to their local currency to pay taxes.

[trident5000]

I honestly dont know if BTC will really fully replace the dollar. Probably not. It will most likely be a value store that some people choose to spend.