Wednesday marked 10 years since Satoshi Nakamoto wrote the first whitepaper on bitcoin. A decade later, we still don’t know the author’s real name, but it’s clear cryptocurrencies have come a long way since Nakamoto described the first viable one.
The many phases of bitcoin
Canaccord Genuity analyst Michael Graham released the latest edition of his “Crypto University Series” report this week. He spoke with Adamant Research Editor-in-Chief Tuur Demeester, who explained the phases bitcoin has gone through over the last 10 years and where he sees it going in the future.
The current phase he sees is what he calls the "infrastructure phase," which he believes began in 2013. At that time, enthusiasts were starting to become more professional in their development efforts. We also began to see hardware designed specifically for bitcoin, like ASIC mining systems and the Trezor wallet.
Demeester believes this infrastructure phase could last several more years as developers focus on "building out the core layer of the bitcoin stack," Graham explained. These efforts are aimed at solifying the store-of-value use case for the cryptocurrency. Although bitcoin was first used for payments, Demeester doesn't see payments being a strong use case for it in the near future due to continuing volatility.
Bitcoin's "proof-of-work consensus algorithm"
While other experts and analysts have argued that newer cryptocurrencies are likely to be more useful going forward, Demeester sees bitcoin as "by far the most secure blockchain that exists today."
He explained the so-called "proof-of-work consensus algorithm," which he said tries to fix the digital world's "double-spend problem." In solving this issue, bitcoin creates a ledger which everyone who tracks the transactions can see. The ledger also prevents transactions that shouldn't occur on the network from going through.
He equated bitcoin to "a voting network, in which miners control a certain percentage of its network's hashrate and in return approve a proportionate number of blocks," Graham explained.
Challenges in scaling bitcoin
One of the big issues facing bitcoin enthusiasts is scaling the technology, and Demeester discussed solutions for this as well. He highlighted Lightning as arguably the most important solution. Graham describes Lightning as "a second-layer mechanism that temporarily locks bitcoin onto another layer for transacting purposes but ultimately unlocks the bitcoin to be settled on its main chain."
One of the big problems inherent in using bitcoin for payments has been the slowness of processing. This is why others have argued that other cryptocurrencies will be more viable forms of payment because processing times on their networks are faster. However, it sounds like Lightning could fix this serious issu.
According to Demeester, Lightning is a major advance in scaling bitcoin because it enables millions of transactions to occur each second while also retaining the scarcity of the digital coins and preventing double-spending. There is one downside to Lightning, which is that it sacrifices a bit of security in order to speed up transaction processing, but he sees the solution as an important step in the effort to turn bitcoin into a valid payment option.
He also discussed Blockstream's liquid sidechains as a potential scaling solution for the cryptocurrency. He explained that sidechains are actually separate from the main chain of bitcoin, but they do offer a number of properties which enable them to serve as a sort of settlement network on top of bitcoin. Demeester also believes sidechains could one day make it possible to issue assets in a way that's similar to how the ERC-20 standard operates on the Ethereum network.