Bitcoin – cheap payments or decentralized settlement layer?

I’ve been meaning to write this for a while, to counter some misconceptions that are out there. The main misconception is that the current Bitcoin developers are against growth.

In my opinion, nothing could be farther from the truth. To the contrary, they are the ones that understood early that to retain decentralization properties, we *need* to ensure that growth is done correctly. That, unfortunately, means that most growth needs to happen off the main chain. Blockchain is a tremendous technology. It is, however, well known that one of the things it does not do well, is scale.

So, what to do? Well, there’s tremendous growth opportunities outside the main chain. We simply need to accept that not everything belongs on the main chain. Once we accept this, most things that todays developers are doing are pretty logical.

One of the thing that we have to understand that has to go, is cheap and small transactions. Those are simply a waste of good block space. Does this mean they don’t belong in a bitcoin-based economy? Of course not! This is the main case for LN, which is finally progressing nicely.

Another thing we need to let go, is the dream of “every use-case on the main chain”. I am here talking about stuff like, cryptokitties, tokens, etc. These are technologies that have a tremendous possibilities, and I am all for them. But we can not forget our number one goal: decentralized money!

But I think I am skipping stuff. We first need to agree on what decentralization is, in relation to bitcoin. In *my* opinion, it’s for each and everyone of us to be able to fairly easily to verify the soundness of our money!

Does this necessarily include that each and every one of us need to be able to verify the soundness of every coffee cup spent? Of course not! Do we need to ensure the soundness of cryptokitties? Even less! So, we need to make sure that the barrier to verify the soundness of the money is kept low, at the same time as we allow more use cases base on it. We have already talked about Lightning Network, which will aggregate small, instant transactions – we trust the smart contracts to verify the soundness of what’s in the Lightning Networks channels. If you’re not using Lightning Network, those coins are simply in multisig addresses on the main chain, with some smart contracts attached to them.

The next I will talk about is sidechains. In my opinion, this is where projects like and cryptokitties belong. Sidechains are still *tied* to the main chain, they are cryptographically guaranteed to be backed by on-chain funds, just like Lightning Network. A sidechain, however, is much more transparent than LN. Each and every transaction on it is registered in a blockchain. So, why not the main one? Well, it’s rather simple: We need to make sure that we make it as simple as possible for people to verify the soundness of their money! That means that people who’re not interested in should not be burdened with having to download transactions, and people not interested in cryptokitties shouldn’t have to download that. There’s even heavier use cases for side chains, for example trading and inter/intra-business transactions. The important thing in the bitcoin economy, though, is for everything to be anchored to verifiable funds on the main-chain, and for as many people as possible to verify the soundness of the main chain.

So, where does this leave us? Well, that means we have room for growth! There’s a lot of on-chain transactions today that are better off done on sidechains! The whales that send money to/from multiple exchanges many times a day, will probably be happy to pay for speedier transactions at the cost of some decentralization. I’ll not be happy about them ruining my decentralization! So, we need to give them this alternative! The same will have to happen if larger corporate actors are going to use bitcoin to a larger degree. They’ll need products and services that make sure not all of their internal bookkeeping ends up on the mainchain!

I believe a lot of people understand this, today. It’s just that they are not the more vocal crowd. They vote with their money, though, which is why Bitcoin is still king. It’s the only coin where the developers truly understand that the key to sound money is to make sure people don’t have to validate more than what they need to, but still being able to validate the sum of the whole bitcoin economy!

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