There are some people still waiting for Bitcoin’s “killer app”, yet they may be underestimating it entirely. Bitcoin in and of itself is the killer app, it is an autonomous transferable store of value. In a world where savers are being punished with negative interest rates, capital controls and a war on cash, this feature alone is enough to drive people towards adopting Bitcoin.
The Bitcoin community is in a heated block size debate over scaling the network and progress is being stifled as a result of politics. Rather than keeping the debate about its technical merits, some people on both sides of the camp would rather turn this into political shitshow of ad hominem attacks and conspiracy theories.
Bitcoin’s 1 MB blocks limit the amount of transaction data that can be stored and therefore inhibiting the network’s ability to scale and handle a boost in user adoption. Everyone agrees that Bitcoin needs to scale but there are differences of opinions in how to do it.
I am not a developer who is contributing to Bitcoin’s source code so my knowledge and opinion on the debate is limited, therefor I’m not going to weigh in on all the technical details. Here is a quick overview of the main issues.
That said, as a bitcoin investor I want to offer my perspectives on what appears to be Bitcoin’s primary use case.
Bitcoin Space is a Commodity
Bitcoin is a hybrid financial system that is a decentralized network, public ledger, software, currency and investment vehicle. In its early days it was possible to send low value micro-transactions with relative ease. Once more participants started using the network, the limited supply of bitcoin increased the price and made the fees too expensive to conduct micro-transactions.
Some people argue that we need to scale the network to reduce fees and make it feasible to send smaller payments. I personally think this is a poor use of the network that doesn’t factor in the true costs of keeping things secure and decentralized.
It costs millions of dollars for miners to secure transactions on the network and requires volunteers to incur the expense of running nodes as a donation. Data stored on the blockchain is a commodity in and of itself, which has real world costs. I consider it to be a form of digital real estate.
The network certainly needs to scale but not at the expense of decentralization and node operators. Some would argue that most internet data plans can already accommodate more bandwidth for bigger blocks but there are many rural areas even in first world countries who have limited internet speed and data plans.
In its current state, bitcoin can still be used as a currency to pay for goods and services, just as long as you’re willing to pay a fee that generally ranges from 15-30 cents. Bitcoin will not work effectively to send fractions of a penny over the network because the cost will be greater than the transaction. Zero fee transactions usually won’t get confirmed by miners.
Bitcoin as an Investment and Store of Value
Bitcoin’s best use case has been as an investment vehicle and store of value. Given all the economic turmoil happening, the world needs a user controlled form of digital gold more than it needs a network that can buy a $2 cup of coffee.
As far as micro-payments are concerned, we may be able to use smart contract payment channels or perhaps bitcoin can be used alongside alternative cryptocurrencies. There are many altcoins that can easily accommodate micro-transactions for dirt cheap. $500 bills and gold bullion can both be used as a medium of exchange but are inefficient for purchasing small items like a pack of gum. There appears to be a global trend aimed towards eliminating high denomination paper notes and bitcoin may be able to satisfy the niche of peer-to-peer higher value cash transactions.
The world currently has many online payment options and Bitcoin is still much cheaper than most of them. What the world doesn’t have is an abundance of autonomous and easily transferable stores of value. Most investment vehicles are centrally controlled by financial institutions that come with a lot of red tape and friction. Although bitcoin can still be used for day to day transactions, the average Bitcoin enthusiast seems to be accumulating and hoarding them as an investment.
Some investors are interested in bitcoin as a non-correlated asset class to diversify their portfolio as a hedge. In today’s global economy it’s exceedingly difficult to find non-correlated investments, which makes bitcoin very appealing.
Like any investment, bitcoin has its bull and bear cycles yet has a proven track record of being a long term store of value. This trend may persist until we hit a point of market saturation but the increased liquidity in the markets may have a stabilizing effect on the price. Countries with hyper-inflation like Argentina, could benefit by keeping bitcoin on cold storage as a long term savings account. This is an immediate use case that provides tons of benefit with limited transactions.
Bitcoin is also the best way to pay people online and conduct international business. It’s much cheaper and faster to send BTC payments to someone online than any other international payment method. Bitcoin can handle larger financial transactions because the markets have the liquidity to accommodate conversions. This benefit alone makes bitcoin the killer app of the century and a highly underused resource.
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