Forget the price rout – Bitcoin and Ethereum fundamentals are moving forward
The death of bitcoin is at hand if you believe what you read in much of the mainstream media.
However, alongside the portent of doom there are usually more positive tones to be discerned in the briefings and commentary from financial experts when it comes to distributed ledgers as opposed to much of the stuff built on top of the technology.
In an interview with Bloomberg, the governor of the Bank of England Mark Carney reprised his “bitcoin is a failure as money” position he imparted in a recent speech.
However, one very striking sentence stood out he did say that bitcoin “points the way in many respects to the future of money” and he went on to say that it represented a “challenge to central banks and those who oversee payments systems and markets”. So maybe not so worthless after all.
You may too have come across reports of Stefan Hofrichter’s comments in which he proclaimed that bitcoin “ticks all of the boxes” of a classic bubble and is “one that is probably just about to burst”.
Hofrichter is the head of global economics and strategy at Allianz Global Investors and any dispassionate reader of his blog post would have noted that he too went on to differentiate blockchain from the supposed weaknesses of bitcoin and other current crypto. It is worth citing what he wrote, because no one else seems to be:
“Despite our concerns about bitcoin, its underlying blockchain (or distributed-ledger) technology clearly has potential merits – not least of which is blockchain’s ability to reduce significantly the costs of verifying transactions and networking. This is prompting a range of financial institutions, including central banks, to explore blockchain more closely and to evaluate practical applications – including conducting financial transactions.”
So forget about the naysayers and the bleeding red in your portfolio if you bought bitcoin above $10,000, and instead take comfort in the value proposition that is blockchain.
But wait, does it really make sense to right-off bitcoin quite so soon?
Forget about the price for a moment and focus on the fundamentals. Aside from price volatility, the inadequate scaling ability of the network is the chief barrier to it becoming an efficient means of exchange.
Lightning Network and Plasma Cash to the rescue
But in addressing and solving that problem rapid progress is now being made.
This week saw the Lightning Labs implementation of Lightning Network go live in beta form.
As it happens, Lightning Labs has also just completed another funding round and Jack Dorsey of Twitter is in there as one of the major investors. That’s encouraging and shows that Silicon Valley’s best and brightest are still on board with bitcoin.
And let’s not leave out SegWit, which is now being used in 30% of transactions on the bitcoin network.
It’s also worth mentioning that this week Peter Thiel, the PayPal co-founder, let it be known that he is continuing to build his position in bitcoin but is not so keen on the 2,000 other coins/tokens in the crypto-verse. Thiel is very much in the Gold 2.0 camp.
Whether or not it works as a means of exchange, he reckons it will be a hedge against the world going over the cliff edge – it’s the apocalypse theory of value.
“It’s like bars of gold in a vault that never move, and it’s a sort of hedge of sorts against the whole world going falling apart,” said Thiel, and when you look at what’s happening in the US, where investors are worrying about the “Three Ts” of Tariffs, Treasuries and Trump, he might have a point. By the way, Thiel is a Trump supporter.
To conclude, don’t get hung up on the price and follow the progress on fixing the fundamentals.
Plasma Cash is another interesting development in that regard, this time relating to the Ethereum network, It takes the LightningNetwork approach of payment channels moved off-chain but it goes much further by using “child blockchains” to do the computational heavy lifting for smart contracts, with the root chain only getting involved if required by fraud proofs .
Ethereum co-founder Vitalik Buterin proposed at a conference in Paris on 9 March that Plasma Cash should be the way ahead for an Ethereum scaling solution. Watch this space.