Build the Rails

The title of the Bitcoin White Paper is: “Bitcoin: A Peer-to-Peer Electronic Cash System.” The Abstract of the paper starts with, "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” If you only read the title and the first sentence of the White Paper, you could have a very clear idea of what Satoshi Nakamoto aimed to create. They aimed to create a method of payment that could be utilized without the reliance of any financial institution. In 2009, right after the horrors of the Great Recession and the government bailouts of the crooked Wall Street institutions, Bitcoin aimed to be an outlet from relying on the institutions that had broken the trust of society.

The White Paper, also in the Abstract, explained the proposed (genius) solution for the double-spend problem that needed to be solved in order for a peer-to-peer network to survive. Stated in its entirety, "We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.”

A full paragraph outlining how the system can work effectively with the removal of “trust” all through the establishment of the Time-Chain backed entirely by the proof-of-work nodes who run the network.

At its core, Bitcoin operates exactly as it was intended to. Anyone can buy and hold Bitcoin, regardless of having a bank. Anyone can send Bitcoin to anyone they want to and once their transaction is processed by the proof-of-work nodes, it will be considered successful. However, the reality of the Bitcoin network, is that it cannot scale to match the demand for the world’s population transacting on it all at the same time. Each block of transactions taking approximately 10 minutes to process is not feasible for any business to ever consider adopting as a viable payment method. Imagine going to your local coffee shop and waiting for a block to process before your payment is confirmed.

That is not reality.

However, I will argue that Satoshi knew this, and knew the reality of what would need to be developed in order for Bitcoin to live out its intended goal of being a widely used peer-to-peer cash system. It is evident that scaling was discussed in the original forum discussions Satoshi and other early adopters had (I recently read The Book of Satoshi by Phil Champagne and found it fascinating). Hal Finney, the first person to receive a Bitcoin transaction, said the following about the scaling limitations of Bitcoin and voiced early ideas about the future of Bitcoin banks:

With this all in mind, I believe Satoshi created Bitcoin as a direct combatant to the Federal Reserve, the controller of the dollar, not as a direct combatant to Visa, Mastercard, or other payment intermediaries. With this understanding, Bitcoin performs excellently against the Fed. The supply of Bitcoin is completely transparent, vetted, and secured via the continually established proof-of-work time-chain. Bitcoin preserves its value through the strict supply rules and is set up to run for the next millennium as a way for users and adopters to preserve their value into the future.

The problem of scaling Bitcoin to the masses is a problem that logically came about as a result of Bitcoin gaining popularity. This problem is not any “bug” or “issue” with the code because I believe Satoshi never planned to have any intended solution force a rewrite of the code for the Layer One Bitcoin Network. Bitcoin was meant to be left largely as is. The solution will come from innovators building the necessary scaling tools on top of Bitcoin, just like how Visa, Mastercard, and other fiat intermediaries operate on top of the Federal Reserve.

Looking at history and what happened with gold, it is easy to see how this will play out with Bitcoin. Before gold became the established world reserve currency, it was an item that monarchs and other wealthy people cherished because of its scarcity and appeal. Alchemy has its roots in pursuing a “Philosopher’s Stone” where lower metals could be transmuted into gold. People wanted gold. People valued gold. Yet, at its core, gold is a metal found impure in nature with no uniform metrics of size, purity, or value. Even with these fundamental issues, gold was still adopted as an item that people valued and desired. Scaling gold came from society creating the necessary rails and systems that perpetuated ease of use for gold. The Roman government minted the ‘Aureus,’ which became the basic gold monetary unit of the world from the middle of the third century BC to the middle of the third century AD. The reason it was so successful was that the minted coin fixed issues of impurity with the gold that would be found in nature, it created a uniform pricing metric where one coin was worth one coin meaning goods and services could be priced effectively, and made gold effectively divisible through this new unit of exchange.

Society took the item they valued, gold, and created a system where it could be widely used and accepted by everyone for goods and services.

With Bitcoin, I expect the same action to occur.

People recognize the value of Bitcoin and will only continue to turn to it as their preferred unit of exchange. For it to become the main payment option of the world, the necessary payment rails need to be created to effectively make Bitcoin scalable to the billions of transactions that occur a day. These solutions would aim to offer instant settlement times, with low fees.

The Lightning Network is currently one such solution that offers users the chance to instantly pay with Bitcoin with little to no fees. The Lightning Network is a “Layer 2” solution where users are not directly interacting with the Layer 1 Bitcoin Network, but are still using Bitcoin to settle transactions “off-chain.” The easiest way to understand this would be to go back to the coffee shop example from above. Using Lightning, a coffee shop could receive payment for their coffee instantly with customers paying little to no fees. The coffee shop could conduct its full day of business using Lightning. At the end of the day, if the coffee shop wanted to process all of its transactions on Bitcoin Layer 1, they could close their “payment channel” and all of the day’s transactions would be broadcast to the Bitcoin network as one consolidated transaction.

The Lightning Network is just one possible idea of how Bitcoin can be built to scale as a payment method but the main point I aim to make is that if the value of using Bitcoin as a payment method is real, builders will come to make this possible without changing the underlying structure of what Bitcoin is.

Bitcoin at its core performs its action as an opponent to the Federal Reserve perfectly. To combat Visa, Mastercard, and other payment intermediaries, the builders and innovators must continue to show up and build the necessary rails to make purchasing with Bitcoin a reality for everyone.

If the demand is there, the market will build it.

The demand for Bitcoin is here, the market is bringing the builders.

Bitcoin will scale to the world’s demand as the builders build the rails.

Stack SATs.

The views and opinions expressed here are for entertainment purposes only and should, in no way, be interpreted as financial or investment advice. Always conduct your own research when making an investment or trading decision, as each such move involves risk. I am not a financial advisor and do not claim to be qualified to convey information or advice that a registered financial advisor would convey to clients as guidance. Nothing contained in this e-mail/article constitutes, or shall be construed as, an offering of financial instruments, investment advice, or recommendations of an investment strategy. If you are seeking financial advice, find a professional who is right for you.