In the last two months of the year 2020, the price of bitcoin has matched and surpassed its 2017 all-time high. But unlike the previous time, the general feeling is not that we find ourselves in a bubble that is about to pop. On the contrary, it feels like major investors and hedge fund managers are just discovering that Bitcoin can help them protect their savings against the inflationary tendencies or the US dollar.
We’re living truly exciting times, when famous and influential people like JK Rowling and Elon Musk tweet about Bitcoin and far exceed the reach of professional evangelists. Then Paul Tudor Jones allocates a small percentage of his hedge fund to buy some bitcoins because it “reminds him of gold in the 1970s” and sets a powerful precedent that many investors would follow. Then Microstrategy CEO Michael Saylor decided to use his company’s cash holdings to buy bitcoins worth of $475 million (40.824 BTC) and went as far as raising $600 million more to more than double the BTC stack.
Yes, this is great news for Bitcoin because its price appreciation against the US dollar (and pretty much all fiat currencies) seems to be inevitable and backed by serious financial players. The phenomenon has definitenly been boosted by the unfortunate emergence of the Covid19 pandemic, during which governments and central banks have greatly inflated their currencies to finance the arbitrary closing of private businesses.
And while gold has a serious precedent for confiscation with Executive Order 6102, Bitcoin transcends the material world and poses a significant threat to the governments’ ability to seize assets by force. This is a serious reason why big investors are giving Bitcoin a chance so early in its life cycle – we shouldn’t forget that in 2008 it was still in the phase of a paper that a few computer geeks were passing along on their mailing list.
But the US government might still ban Bitcoin, right? Well, I wouldn’t be so sure now that Joe Biden is on his way to become the head of the executive and his second largest campaign donor was the CEO of FTX – Sam Bankman-Fried has reportedly donated to Biden $5.2 million. Now it’s even less likely for the Biden administration to start a war against cryptocurrencies or derivatives, though we shouldn’t be surprised if we see more regulations on on-ramps and off-ramps (buying and selling BTC for fiat will certainly become harder).
Sounds good, right? But let’s not forget about the real heroes: Bitcoin Developers
Bitcoin is not the same simple network that it was in 2017. Today you can do a lot more with the coins and use them in ways that previously were not possible or practical. And all of these advancements are owed to the hard-working developers who never abandoned the project and underwent rigorous research all throughout the bear market.
No smart contracts on Bitcoin? There’s a sidechain that’s meant to move Ethereum smart contracts to Bitcoin and it’s called RSK. Looking for base layer contracts? Taproot is in activation phase and will soon enable conditional time-locked transactions on the Bitcoin blockchain. They will make Bitcoin even more programmable as money. To better understand how Taproot works, read Aaron van Wirdum’s extensive coverage.
And then there’s the Lightning Network – by far the greatest innovation in Bitcoin. This second layer enables instant, inexpensive, and highly scalable transactions. Anyone who opens a channel with another node has access to lots of other network participants and has the power to connect between participants and further extend the connections.
Not only that Lightning exceeds Visa’s throughput capacity (more transactions per second), but it’s also more private – the routing system very much resembles Tor’s and makes it very hard to deanonymize transactions. So now, at the cost of two on-chain transactions (opening and closing the channel) we get privacy, scalability, speed, and low costs.
Lightning also enables participants to build further stacks on top of it – the so-called “layer three”. The most popular implementation is RGB, which allows Bitcoin to support lots of “Ethereum-like” features such as tokens and actually scalable smart contracts which are stored and managed by the clients.
RGB was envisioned by Giacomo Zucco and Peter Todd, and may just be the Ethereum killer which uses a better form of money and a network that can become more decentralized with just inexpensive Raspberry Pi computers. To find out more about the project, watch this interview that I’ve recorded with Giacomo Zucco in the summer of 2019:
Then there’s Blockstream’s Liquid sidechain. Finally released in 2018, this pegged chain is designed for exchanges and big traders that transact large amounts of bitcoins every day. It’s essentially a federation of exchanges which validate transactions while enabling enable low fees and fast validations (a transaction is considered final after only 2 minutes).
With Liquid, traders can move from one exchange to the other to leverage price volatility a lot faster than their peers who rely on base layer transactions. And exchanges can also settle their balances in a way that’s both more private and more accountable.
Liquid’s governance is definitely more centralized than Bitcoin’s and Lightning’s. But at the same time, it enables a useful use case that may incentivize whales to transact at lower costs and with greater privacy (confidential transactions are enabled by default to hide the transacted amounts). On the other hand, the peg-ins and peg-outs take a certain number of confirmations and some federation members require KYC/AML procedures – so you should definitely consider the trade-offs.
Not all Bitcoin development has to be flashy or ground-breaking, though. Compared to 2017, today we have a greater degree of SegWit adoption: almost half of the network participants use it. Furthermore, the node software optimizations enable more transactions to get stored in the mempool, so that users can still send 1 sat/byte transactions during times of high block space demand and wait until their priority finally arrives. Also, visual blockchain explorers such as mempool.space are extremely helpful in understanding fees, block space bidding, and everything about this bourgeoning dimension of the Bitcoin economy.
And speaking of nodes, their number has increased exponentially since 2017. Today we have all sorts of simple DIY guides for every user, as well as retail solutions that come with all the software pre-installed. It’s easier than ever to be sovereign on the Bitcoin network by verifying and storing your own transactions.
Mining Bitcoin is also a more decentralized venture, with more than a dozen of pools undergoing the operations more efficiently than ever. Core developer Matt Corallo has taken significant steps towards finding a way to empower individual pool participants, and proposed Betterhash as a way to further decentralize mining. Slush Pool, the world’s first mining pool, has already adopted the new standard.
Last but not least, the Bitcoin security branch has matured to the extent that hardware wallets are affordable and intuitive to use by newbies, multisig setups are easier to perform, and standards such as Shamir Secret Sharing have been added. The wallets themselves got better and their developers have learned how to integrate more features without making everything look complicated. All of this is great news for mass adoption.
The 2021 bull market will happen thanks to these significant Bitcoin developments
At this point, it’s easy to worship the investment decisions of Paul Todor Jones and Michael Saylor. But at the end of the day, they are mere speculators who regard their purchases through the lens of USD valuation.
And if it wasn’t for the cypherpunks who followed their mantra regardless of the price action and kept on writing code, we wouldn’t be speaking of such great network fundamentals and exciting investments. It’s they who deserve our appreciation, not the players who speculate the bull run and will probably cash out their positions to move it to other ventures.
With this article, I would like to thank all the Bitcoin Core developers, Lightning Network developers, sidechain developers, wallet developers, infrastructure engineers, guide/FAQ writers, business developers, miners (especially the ones who kept running even while they were no longer profitable), ethical exchanges, educators, artists, social media evangelists, and early adopters of everything Bitcoin-related.
Without their efforts, we wouldn’t have made it this far – and it’s their everyday work in the space that increases adoption and makes the network more decentralized.
Donate to Bitcoin Takeover!
If you enjoyed this article, please make a BTC donation to this address: 3QoRjoaU5xGMka6ib4bj9eu2zV9SQifF7K
And if you’d rather send the transaction via Lightning Network then please use Tippin.