Could Bitcoin Fees Increase Again? – Cointelegraph Magazine

To use the Lightning Network, a Bitcoin user must first deposit a certain amount of Bitcoin into the network – although the process can be simplified through a centralized Lightning wallet provider. After that, you can trade back and forth with other users as long as you have enough funds. Transactions are virtually instantaneous and cost pennies, not dollars.

David Markus, CEO and co-founder of Lightspark – an enterprise gateway provider for the Lightning Network – believes that Bitcoin can be “TCP/IP” for real-time value transfer on the Internet.

“The opportunity to reinvent how trillions of dollars of value move every day and make it always on, cheap, open and real-time is incredibly exciting.”

The lightning network has millions of cases

But while Lightning is great in theory, it's not so great in practice.

Some, including Bitcoin analyst and casual fan Eric Wahl, argue that the complexity of the Lightning network encourages the use of wallets for casual users — especially in high-fee environments, which is at odds with Bitcoin's self-sustaining and decentralized system.

Wall recently demonstrated just how tough the Lightning Network is over the course of two days, where Bitcoin evangelist Brad Mills lost a bet with Wall about the price of ETH that he tried and failed several times. 438 dollars

The Lightning Network suffers from a lack of merchant adoption and user awareness. According to data from 1ML, there are currently 59,511 public payment channels and approximately 14,670 lightning nodes in the network.

Currently, there is about $200 million locked up in Bitcoin on the network (the ATH of $234 million was hit). In the year Before Bitcoin's price spike in August 2023, only $78.2 million was officially transferred on the Lightning network, according to financial services firm and Bitcoin technology company River. However, the 6.6 million transactions in that month was a 1,212% increase compared to the same month in August 2021, so it is growing from a small base.

But to put the numbers into perspective, credit card provider Visa averaged more than $1 trillion in monthly payments last fiscal year, with more than 4.3 billion cards issued worldwide.

And although it could theoretically handle millions of transactions per second, according to River's report, it was only doing 2.5 transactions per second, which is lower than Bitcoin's on-chain average.

“The Lightning Network, despite its promise, has faced capital shortages and security risks. These factors are why it is not yet an effective payment gateway for Bitcoin, as we predicted,” argues Eli Ben-Sasson, co-founder and president of Starkware.

Instead, Ben-Sasson believes that zero-knowledge proofs (or exact proofs, as he likes to call them) are the missing part of the equation.

Zero knowledge Bitcoin can make payments.

Ben-Sasson is a household name in Ethereum scaling but he was a Bitcoiner before ETH was invented. At the 2013 San Jose Bitcoin Conference, he discussed developing Bitcoin with former Bitcoin Core devs Greg Maxwell and Mike Hearn.

He believes that upgrading Bitcoin to use ZK-proofs can solve network congestion and high fees on the Bitcoin blockchain.

“Bitcoin has the potential to be a great payment method, but there's a big ‘but'. It can't achieve this unless it has cryptography that can be easily scaled,” he argues.

“As long as resistance to remedial measures continues, it will not be a viable payment method.”

Newly established startup ZeroSync – sponsored by StarkWare – is developing ZK-enabled devices that allow users to verify the state of the Bitcoin network without downloading the blockchain or trusting a third party.

There are also Bitcoin L2 networks that have recently released white papers that intend to measure Bitcoin using EVM and/or ZK technology. If they work, it can definitely be useful for Bitcoin payments.

But Bitcoin may require a contentious hard fork to interact with the technology to scale properly with ZK-evidence, and that seems unlikely to happen, Ben Sasson said.

“We have been discussing STARK proofs since 2013. Every day we show what you can do in terms of running Ethereum, and you can make Bitcoin widely used, including as a payment method. This is not happening because of the ideological conservatism in the Bitcoin community.

Alex Gladstein, chief strategy officer of the Human Rights Foundation, told the magazine that he doesn't see it taking off, noting that Zeke's technology is unlikely to gain the critical mass support of the Bitcoin community because it affects the ability to audit Bitcoin's supply. ” and makes transactions more.

Gladstein “does not think base-layer Bitcoin will be used for small payments” but expects people to use Bitcoin as a “savings account” and as a settlement cover for businesses, countries and large institutions.

“For retail or small payments, people do one type of transaction and use things like Federated eCash, Guardian Lightning, Neobank,” he added.

So, if the Lightning network is yet to launch and Bitcoiners are not interested in adding ZK-proofs, what other options are there?

Hal “Bitcoin Run” Finney had an idea

Early Bitcoin pioneer Hal Feeney saw all this happening and came up with his own solution. He posted that “Bitcoin-backed banks” could issue their own digital currencies backed by Bitcoin.

“Bitcoin itself cannot allow every financial transaction in the world to be distributed to everyone and included in the blockchain. There needs to be a lighter and more efficient secondary payment system,” Feeney said on the Bitcointalk forum in December 2010.

Playing the same role as gold did in the mid-1940s and 1971, Bitcoin saw itself as a reserve currency for banks.

“Bitcoin-backed banks will solve these problems. They can act as banks before repatriating currency,” he added.

“I believe that this will be the ultimate fate of Bitcoin, a “high-powered money” that will serve as a reserve currency for banks that issue their own digital cash. The majority of Bitcoin transactions occur between banks to settle net transfers.

Finney, who died in 2014 as a legend in the Bitcoin community, said that bitcoin transactions between private individuals would be rare.

However, if the 10-year delay in approving spot Bitcoin ETFs, last year's banking collapse and the much-discussed Operation Choke Point 2.0 in the United States are any indication, major banks will face an uphill battle to even consider holding large positions. Bitcoin.

Kathleen Long's Custodian Bank, which seeks to bridge the gap between crypto and the US dollar payment system, is in a court battle over the Federal Reserve's denial of its Fed Master Account. The case is supported by the Wyoming Attorney General and a decision is expected around March.

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Anyone want to pay with Bitcoin anyway?

Efficient electronic payment systems in developed economies have reduced the demand for Bitcoin payments. Two studies from the US Federal Reserve and the Reserve Bank of Australia have confirmed that 2% of adults will actually pay for something using cryptocurrency in 2022. PayPal, QR or Buy Now, Pay Later services are some of them.

But there are encouraging signs in emerging economies. El Salvador, which famously passed Bitcoin legislation, has seen a slow start to Bitcoin payments.

But things are slowly changing. In November, Bitcoin wallet and API platform Blink partnered with Distribuidora Morazán to launch a pilot program that will pay 1,000 merchants for Bitcoin by 2024.

And in a survey of 1,280 respondents by a researcher at the University of Central America in El Salvador, he found that 12 percent of the local population had used bitcoin at least once to pay for goods and services by 2023.

Meanwhile, recent data from the BTC map has recorded a 174% increase in bitcoin acceptance providers worldwide, reaching 6,126 merchants by the end of 2023.

Former Cointelegraph reporter Joe Hall, in a recent X post, explained that there are pockets in the world, like Cuba, where people prefer to communicate with Bitcoin – volatility and all – rather than the local currency.

Cuba's inflation rate is around 40%, while another Bitcoin-supporting country, Venezuela, is as high as 439% by 2023. Holding cash in Bitcoin is a great alternative to fiat, which is rapidly losing value.

Maxwell Abbey, director of public relations for Wallet of Satoshi, told the magazine that bitcoin is not only a means of payment for people affected by money printing and inflation, but also a vital one.

The bottom line is that Bitcoin was born, and humanity has now achieved something previously impossible: its basic money supply is outside the control of any individual, group or country.

“An irresistible temptation to debase the currency has been prepared and made impossible.”

The rise of the stablecoin

There are significant risks involved in accepting Bitcoin payments with stablecoin payments and central bank digital currencies. And the poor often turn to cheaper layer-1 blockchains like Tron. Tether on Tron accounts for 37% of stablecoin transactions in emerging markets.

Gladstein sees stablecoins as only a temporary solution. “In the end, business, I think, will be denominated in BTC,” he argued.

Regardless, Bitcoin is here to stay as “digital gold,” the world's reserve currency, or the backing for bank-issued currencies. And it will be used to pay for things, but to what extent remains an open question.

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Felix Ng

Felix Ng first started writing about the blockchain industry through the lens of a gambling industry journalist and editor in 2015. Since then, he has moved on to cover the blockchain space full-time. He is very interested in blockchain technology, an innovation aimed at solving real-world challenges.