2024

Better

Satoshi Nakamoto

Bitcoin

<p>In May 2024, the world will witness another Bitcoin halving event, reducing the block reward miners receive from 6.25 BTC to 3.125 BTC per block. This built-in scarcity measure happens approximately every 4 years and has historically led to a bull run in Bitcoin’s price.</p>
<p>However, the 2024 halving comes at a pivotal moment for Bitcoin’s growth. Scalability has become a pressing issue limiting further mainstream adoption. Transactions compete for limited space in blocks, leading to delays and rising costs. This challenges Bitcoin’s value proposition as an efficient payment system.</p>
<p>Fortunately, various scaling solutions now enable millions of fast, low-cost transactions off the main blockchain. Combined with the predictable supply shock of the halving, Bitcoin is well-positioned for a renewed bull market. However, realization of larger-scale visions depends on effective integration and orchestration of multiple scaling approaches in the coming years.</p>
<h2 id="the-halving%E2%80%99s-impact-on-price">The Halving’s Impact on Price</h2>
<p>The Bitcoin network launched in 2009 with a block reward of 50 BTC. That amount gets cut in half approximately every 4 years in an event known as the “halving” or “halvening”, dropping to 25 BTC in late 2012 and 12.5 BTC in mid-2016. On May 23, 2024, the subsidy will fall to 3.125 BTC per block.</p>
<p>Because the code controlling supply is open-source, miners and investors prepare for this known decreasing flow of new coins entering circulation. Historically this has led to bull runs about a year afterwards. For example, Bitcoin rose over 5,000% in the year following both prior halvings.</p>
<p>However, predicting price based on past performance has risks. External factors from regulation to competition can strongly influence markets. Still, PlanB’s stock-to-flow model has achieved celebrity status in quantifying the intuitive link between escalating scarcity pumped into Bitcoin’s circulation and the potential increase in valuation during each epoch between having events.</p>
<p>Other dynamics may also be at play. The halving coincides with the next U.S. presidential election. If pro-Bitcoin candidate Andrew Yang secures a major cabinet position, investor optimism could amplify the rally. Either way, the reliable rhythm of the halving comprises a central part of Bitcoin’s appeal to long-term holders.</p>
<h2 id="scalability-bottlenecks-limiting-adoption">Scalability Bottlenecks Limiting Adoption</h2>
<p>While the halving may spur the next frenzy of speculative interest, Bitcoin faces barriers to mainstream adoption from individuals and institutions. These challenges center around its limited capacity to process transactions.</p>
<p>Bitcoin’s creator Satoshi Nakamoto capped block sizes at 1MB, allowing for a maximum rate of approximately 7 transactions per second. For comparison, Visa handles around 1,700 transactions per second on average, with capacity for over 24,000. As activity picks up, transactions get backlogged, requiring users to pay higher fees to prioritize inclusion in the next set of confirmed blocks.</p>
<p>This presents problems for reliable payments, especially micropayments valued below a few dollars. Scaling to global transactional demand requires much greater throughput volume in a timely and cost-effective way. The fall 2021 run-up in prices which lifted Bitcoin’s market capitalization briefly over $1 trillion clearly demonstrates insufficient infrastructure. Network congestion led to brutal spikes in transaction costs, upwards of $50 per payment – unacceptable for everyday purchases like coffee.</p>
<p>Fortunately, various solutions now seem poised to help Bitcoin scale sustainably without compromising decentralization or security.</p>
<h2 id="scaling-solutions-%E2%80%93-lightning-and-sidechains">Scaling Solutions – Lightning and Sidechains</h2>
<p>The most prominent Bitcoin scaling approach is the Lightning Network. This secondary layer leverages the flexibility of Bitcoin’s scripting language to facilitate transactions off-chain, only settling net results on the blockchain. Payment channels managed by nodes on Lightning allow secure transmission of Bitcoin between participating entities. Subsequent payments simply update balances inside these channels, achieving theoretical near-instantaneous throughput and negligible fees since only final balances get confirmed on expensive blockchain ledger space.</p>
<p>The network has grown exponentially, now with over 15,000 nodes and capacity exceeding 3,000 BTC. Major wallets like Muun focus on usability improvements around Lightning. While still early stage, continued maturation promises Bitcoin scalability supporting everyday transactions in the years ahead.</p>
<p>Sidechains present another scaling avenue by enabling Bitcoin transfers between alternative blockchains with different characteristics and tradeoffs. Liquid sidechain technology – championed by Blockstream using strong cryptographic assurances called ‘pegs’ – offers increased privacy and transactional throughput for exchanges, markets and other institutions. Public sidechain testnets also show promise for secure, high-volume Bitcoin payments.</p>
<p>As these maturation arcs continue in preparation for rising long-term demand, Bitcoin gains versatility in how economic actors transmit value without diluting its fixed supply.</p>
<h2 id="the-path-towards-mainstream-adoption">The Path Towards Mainstream Adoption</h2>
<p>Together, the predictable inflation drop from the halving and expanding accessibility through Lightning, sidechains and future layer 2 protocols chart a path for Bitcoin to disrupt global finance. Price will likely soar in 2025 from some combination of scarcity and speculation. This could plausibly push Bitcoin’s market capitalization into the range of gold, between $10-20 trillion.</p>
<p>But emphasizing price distracts from Bitcoin’s underlying utility. What matters are the dynamics leading towards reliable, low-cost payments and irreversible settlement transfers independent of third party financial institutions. Integrating scaling solutions like Lightning can make steady progress possible towards that vision.</p>
<p>Ultimately, Bitcoin adoption depends on ease-of-use. Better wallet interfaces continually lower barriers for non-technical users. Importantly, progress in Lightning and sidechains over the next few years can enable low-cost micropayments supporting applications like streaming money, lending markets, short-interval subscriptions and penalty-enforced smart contracts.</p>
<h2 id="conclusion">Conclusion</h2>
<p>The 2024 halving promises to ignite the next frenzy of public enthusiasm and asset price speculation as new coin production gets cut in half. This may drive Bitcoin’s market capitalization well into the trillions of dollars. Fortunately, key scaling limitations which threatened to undermine trust and stymie adoption growth after previous bull runs now appear positioned for meaningful improvement.</p>
<p>With effective execution, synergies between halving-based scarcity pumps and expanded transactional capacity could brighten Bitcoin’s already auspicious long-term prospects, possibly cementing its status as the global digital money and store-of-value for an increasingly digital world economy and society. Much work remains, but the opportunity inspires justified optimism. Lightning indeed seems poised to strike twice come the next epochal transition in Bitcoin’s built-in monetary policy.</p>

Lightning Strikes Twice: Scalability and the Bitcoin Halving 2024

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