As a researcher with a background in blockchain technology and digital currencies, I find the current state of Bitcoin’s velocity stagnation disconcerting, given its early promise as a peer-to-peer electronic cash system. The trend towards viewing Bitcoin more as “Digital Gold” rather than a medium for daily transactions is a significant shift that has important implications.
As a researcher studying the cryptocurrency market, I’ve observed that despite Bitcoin having been introduced over a decade ago with the goal of enabling peer-to-peer electronic cash transactions by Satoshi Nakamoto, its current transaction activity bears a striking resemblance to the early days of its existence. The number of Bitcoin (BTC) transactions taking place is moving at a pace similar to that seen 13 years ago. This insight comes from Ki Young Ju, the CEO of CryptoQuant, who drew attention to this stagnation in Bitcoin’s velocity.
Bitcoin Velocity Stagnates
Ju noted that the trend indicates a shift towards the digital gold narrative rather than widespread adoption for daily transactions. The concept of Bitcoin as “Digital Gold” has gained traction. Hence, institutions are increasingly holding onto the cryptocurrency as a store of value rather than utilizing it for frequent transactions.
The Bitcoin transaction velocity, as shown in Ki Young Ju’s chart, is currently at a pace comparable to that of 2011. This trend signifies a persistent slowdown in the Bitcoin market. Despite experiencing heightened activity on multiple occasions over the past 13 years, the Bitcoin velocity has returned to its 2011 levels based on CryptoQuant’s data.
Nick Tomaino, a former executive at Coinbase, looked back on the early stages of Bitcoin’s adoption. He mentioned that during this time, Coinbase successfully secured substantial funding based on the belief that Bitcoin would transform the payment sector and generate novel applications. However, the situation didn’t align with expectations as merchants such as Overstock joined the platform to accept Bitcoin payments. Yet, it became clear over time that the sustainability of Bitcoin as a means of payment remained uncertain.
Tomaino’s perspectives offer illumination on the obstacles that Bitcoin encounters as a means of payment. He underscores the absence of a persuasive business rationale for Bitcoin transactions in contrast to emerging contenders, such as Ethereum and decentralized applications. Furthermore, he accentuates the pivotal role Ethereum’s emergence has played in revolutionizing the crypto payments landscape.
Limitations Of BTC Payments
As a blockchain analyst, I delved deeper into the limitations of Bitcoin for making payments, focusing on its technical aspects. In contrast to Ethereum and other blockchain platforms, Bitcoin falls short when it comes to programmability. Two significant challenges emerged in this context: dealing with volatility risk and ensuring payment accuracy. These issues are pivotal for merchants contemplating cryptocurrency transactions.
Rynes pointed out that Ethereum’s smart contracts make it simple to exchange cryptocurrencies for stablecoins, thereby addressing merchants’ worries about price fluctuations. Moreover, Ethereum’s programmability ensures the automatic verification of payment amounts, eliminating the need for manual checks and adjustments for incorrect payments.
Instead of Bitcoin’s UTXO architecture allowing for easy implementation of comparable features on its blockchain, it poses obstacles. The Lightning Network provides possible answers for validation problems, but difficulties remain in handling liquidity and scalability. As a result, it has limited success in addressing Bitcoin’s payment inadequacies.
Rynes’ analysis further highlights the intricacy of making transactions with Bitcoin. It also stresses the importance of finding practical approaches that cater to merchants’ needs while preserving the essential features of decentralization and non-custodial control.
As a researcher studying the world of cryptocurrencies, I firmly believe that recognizing Bitcoin’s shortcomings in payment processing is crucial for fostering advancements in this field. However, I understand that some ardent Bitcoin supporters may disagree with me. They place their hopes on the growing progress of BTC payments through Layer 2 networks. Yet, it seems unlikely that mainstream adoption of first-layer Bitcoin transactions will occur soon.
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2024-06-11 12:10