Do you know what the Bitcoin future holds? The truth is that its future will entirely depend on how the crypto coin is being used, whether it will continue to be storage of value or medium of exchange.
Perhaps the biggest use case for the Bitcoin is that it is viewed as storage of value even when its price crashes. In theory at least, Bitcoin proves to be store of value although one cannot see it in the real world because of people’s greed. It is considered to be similar to “digital gold” as the co-founder of Apple, Wozniak, says. Compared to gold, Bitcoin is easier to store and far easier to transfer. One cannot forcefully take Bitcoins from you and the quantity remains known.
Value is something that is essentially created by human beings. Gold or diamond, for instance, cannot be put to any practical use, but one can only sell these provided someone will buy it. So, if there is not demand for buying the gold, there is no place to sell it. Bitcoins are valuable because the global society at large values it.
Another important use case in favor of the Bitcoin is its use as medium of exchange. So, can it emerge as the primary medium of transaction in the near future? This remains to be seen because as of now, the Bitcoin has not seen mainstream adoption. It is a digital currency, based on blockchain technology, designed to guarantee secure transactions. So, it has to sacrifice speed if needed to guarantee this security. To ensure that security is optimum the time taken for block creation is quite lengthy. This is why attacking the network is also a big challenge for hackers. But, at the same time, it also means that transactions are going to be slow.
Another problem concerning the blockchain network backing the Bitcoin is that every block has a limited space. The network is used by numerous people simultaneously and not all transactions can be fitted into blocks. Since computers verifying the network are designed to make profits, they will only include transactions with the largest fees. So, a situation emerges where people will continue to increase their fees to make the network acknowledge their transactions. High fees for transactions are acceptable when you are making a single transaction but they are not alright for daily purchases.
This is why the first scalability solution for Bitcoins came about with the launch of the SegWit. This software splits data related to transactions so that not all is stored on this blockchain. It also means that greater number of transactions can now fit into every block as each takes up lesser space. When all the Bitcoin addresses get moved to this format the network is going to be able to accommodate double the present capacity; and this is a positive development for Bitcoin’s future. With SegWit in place the transaction fees have come down and people can use Bitcoins for medium purchases too.
Core developers are scaling the network to lessen the number of smaller transactions and this is called the Lightning Network. This will allow users to create payment channels for making payments to single vendors. When the channels are opened they will load them with some Bitcoins and they can make free transfers until this channel is closed. Once closed, all transactions will be settled as a single one and the vendor will be paid. The Lightning Network will also keep micro-transfers off the blockchain. It will also make the network free and reduce fees for users.