Can BTC payments return?

BTC may not be the go-to digital currency for most in the world today due to scaling limitations, but there is still hope it will.

BTC payment naysayers point to the network’s slow transaction speeds and enormously high fees during periods of demand. They also note that its volatility.

In the early years, there was a movement toward Bitcoin payments. BitPay reported in 2013 that over 10,000 merchants accepted BTC through their service.

Things started to change around 2017 amid that year’s massive bull run. BTC’s average transaction fee went from about $0.35 in January to nearly $55 in December 2017.

A Bloomberg report around that time found that Bitcoin merchant acceptance was “low and getting lower.”

Joseph Poon and Thaddeus Dryja in their 2015 white paper “The Bitcoin Lightning Network” suggested a solution: Bitcoin layer-2 network focused on scaling for payments.

Many of the traditional arguments against BTC payments were seemingly solved after the Lightning Network was launched in 2018. However, it developed its own problems.

The network is a layer-2 solution for Bitcoin built on top of the Bitcoin blockchain to solve the scaling problem with lightning-fast transactions and low fees.

Each small BTC transaction is accounted for on the layer-2 network. The Bitcoin mainnet and its high fees only come into play when one party decides to “settle the bar tab”.

To utilize the Lightning Network, a BTC user must first deposit a certain amount of Bitcoin onto the network. After that, they can transact back and forth with other users as long as there are enough funds. Transactions are practically instant and cost just cents.

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

Some, including Bitcoin analyst Eric Wall, argue that the complexity of the Lightning Network for ordinary users promotes the use of custodial wallets , which goes against the Bitcoin ethos of self-custody and decentralization.

The Lightning Network also suffers from a lack of merchant adoption and user awareness.

Ben-Sasson discussed scaling BTC with ZK tech with former Bitcoin core devs Greg Maxwell and Mike Hearn at the San Jose Bitcoin conference in 2013.

He believes upgrading Bitcoin to use ZK-proofs could address network congestion and high fees on the Bitcoin blockchain.

“Bitcoin has the potential to become a fantastic payment method, yet there is a big ‘but.’ It simply cannot achieve this unless it embraces the cryptography it needs to scale,” he argues.

For as long as it continues to resist scaling solutions, it won’t become a viable payment method.”

A startup ZeroSync has been developing ZK-proof-powered tools that allow users to validate the state of the BTC network without downloading the blockchain or trusting a third party for verification.

There are also emerging Bitcoin L2 networks that have recently released white papers intending to scale Bitcoin using EVM and/or ZK tech. If they work out, it could certainly be a boon for Bitcoin payments.

But to scale Bitcoin properly with ZK-proofs would likely require a contentious hard fork to enable it to interact with the technology, and that seems unlikely to happen.

What other options are there?

Early Bitcoin pioneer Hal Finney came up with his own solution. He postulated that “Bitcoin-backed banks” could issue their own digital currencies backed by Bitcoin.

“Bitcoin itself cannot scale to have every single financial transaction in the world be broadcast to everyone and included in the blockchain. There needs to be a secondary level of payment systems which is lighter weight and more efficient,” said Finney on the Bitcointalk forum in December 2010.

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

Bitcoin transactions between private individuals will be rare, added Finney.

Source: Coinytelegraph.com