The most successful cryptocurrency on the market, Bitcoin, skyrocketed its value in 2017 but at the same time, problems are starting to emerge. Originally, the virtual money were created so transaction fees enforced by banks and other institutions can be avoided.
The most successful cryptocurrency on the market, Bitcoin, skyrocketed its value in 2017 but at the same time, problems are starting to emerge. Originally, the virtual money were created so transaction fees enforced by banks and other institutions can be avoided. The idea of Satoshi Nakamoto was to make life easier for people when they have to make small payments.
The technology behind Bitcoin relies on peer-to-peer networks, which use difficult to break algorithm. This decentralized system allows users to transfer money without mediators. Despite his intention to escape transaction fees, Nakamoto designed digital currency that still requires transaction fees. If you like to make Bitcoin transaction in 10 minutes you have to pay $19 just to make sure the transaction happens. Smaller fee of $3 means that your money will be send for around 24 hours. So again, it is pointless to use this cryptocurrency for small payments.
Steam, a videogame marketplace, is no longer accepting Bitcoin payments because of that issue. According to Erik Norland of CME group, if problems of that kind continue to occur, they may eventually lead to Bitcoin’s slowdown.
What causes Bitcoin’s high transaction fees? Peer-to-peer networks that back the cryptocurrency are way behind the capacity of modern day digital infrastructure. They can approximately process up to seven transactions per second at best, but the usual rate is 3.3. In comparison Visa, report 3.674 transactions per second.
Blockchain entrepreneur Preethi Kasireddy, states that the main constraint of digital currencies is scalability. How does transactions happen then? “Miners” run the software in which networks occur, thus processing transactions. Miners’ adding of new batches of confirmed transactions to the digital ledger, determines Bitcoin’s capacity. Now this happens every 10 minutes.
Sirer found that even though the hardware is getting faster, Bitcoin’s networks are unable to take advantage of it. Similar scaling issues are disrupting Ethereum as well. Maybe this is why the cryptocurrency enthusiasts are doing their best to develop a new digital currency, which is easily scalable. Startup Waves use Bitcoin-NG, and according to them, its network can process thousands of transactions per second.
Even though, no other currency is to dethrone Bitcoin from the top, some newly rich investors suggest that Bitcoin is more likely a store of value rather than a currency. That said, is it necessary for Bitcoin to continue skyrocketing? Others, like Warren Buffet argue that, underlying that Bitcoin is too fluctuating to be a store of value.
The main problem is that upgrades are difficult to implement because Nakamoto designed a decentralized system.