In January 2016, fellow Bitcoin developer, Mike Hearn, dropped the bomb — Bitcoin has failed. While “failing” might be a bit overdramatic, his reasoning is far from an overstatement. Hearn explained why Bitcoin and its community has failed like so:
What was meant to be a new, decentralized form of money that lacked “systemically important institutions” and [was] “too big to fail” has become something even worse: a system completely controlled by just a handful of people. Worse still, the network is on the brink of technical collapse. The mechanisms that should have prevented this outcome have broken down, and as a result there’s no longer much reason to think Bitcoin can actually be better than the existing financial system.
What happened? Essentially, Bitcoin’s blockchain is full. An artificial capacity cap of one megabyte per block, utilized as a temporary kludge a long time ago, has not been removed and results to the network’s capacity to be almost completely exhausted.
As an effect, over 95% of Bitcoin mining hashing power is controlled by a handful of people.
But What About The Blockchain?
Bitcoin is to blockchain what currency is to money. Just because a certain currency has failed, doesn’t mean money has failed.
The whole concept behind the blockchain is exciting as well (with or without Bitcoin). While traditionally, financial firms keep track of their assets in separate databases, they would need to share just one via the blockchain, which would result in instant trades with less risk. This is advantageous for anti-money-laundering and other regulations as well, since the blockchain provides a record of all past transactions.
Let alone how happy PR people will be! Banks often have the (deserved) reputation of living in the past and having difficulties catching up with the times (hell, I can’t even figure out the e-banking features at my bank). Investing in the blockchain makes banks look highly innovative, which even if done in a mediocre way, can be a quite good marketing stunt.
However, when it comes to more than PR, using the blockchain to its full potential will require some time. The enormous number of transactions done by banks nowadays is impossible to handle by today’s distributed ledgers. However, it will eventually get there.
Oh, and before you ask why Bitcoin cannot be used by financial institutions —
It is all down to the number of transactions processable per second. Bitcoin’s blockchain network is only capable of processing about six or seven transactions per second.
To put this into perspective, Visa can process 65,000 transactions a second.
It is predicted that widespread use of the blockchain will happen in about five to ten years.
However, here’s another exciting thing about the blockchain — It can be used for far more things than cash. The blockchain can actually facilitate the transfer of value of anything digital. We might send each other invoices and contracts in the future which would have a fully secure and visible digital record of the transaction and all the data that is associated with it. I find that pretty exciting!
Elio is a open source designer and founder of Ura Design. He coordinates community initiatives at SitePoint as well. Further, as a board member at Open Labs Hackerspace, he promotes free software and open source locally and regionally. Elio founded the Open Design team at Mozilla and is a Creative Lead at Glucosio and Visual Designer at The Tor Project. He co-organizes OSCAL and gives talks as a Mozilla Tech Speaker at various conferences. When he doesn’t write for SitePoint, he scribbles his musings on his personal blog.
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