The Bitcoin Vision
Firstly, we need to state what exactly could be “the Bitcoin vision” for the future. This is my understanding:
- Phase 1: Bitcoin goes through a price discovery phase over a number of years. Whilst it keeps increasing in value, it’s primarily used as a store of value. We’re here now.
- Phase 2: The Bitcoin price starts to plateau, volatility decreases substantially, and it becomes more logical to use it as a medium of exchange. Previously if you bought something with Bitcoin, waited a year or two, then calculated the cost of those goods currently – you found it had got significantly more expensive in that time period. Ergo, buying stuff with Bitcoin, without immediately replacing the Bitcoin, didn’t make sense.
- Phase 3: Either
- A: Bitcoin becomes the dominant global settlement layer, and, via second layers, becomes the global currency that goods and services are priced and bought in.
- B: Bitcoin becomes the dominant global settlement layer, but other cryptocurrencies are used for daily transactions.
- C: This scenario seems unlikely to me, but, mentioning for completeness. Bitcoin becomes the dominant global settlement layer, but other currencies (including government backed fiat) are used for daily transactions.
I’m not saying I support the above, just stating it’s one popular vision for Bitcoin’s future. Despite all my reservations with Bitcoin, there could be some huge pros to the above scenario.
In essence, the fiat monetary system we currently use is broken, and a decentralized replacement could have huge upside for humanity. In particular, it would be easier to price people’s time with a currency that can’t be expanded ad lib (written more about in ‘Money is Time’).
Where could Monero fit in?
Bitcoin currently has a number of large flaws, including:
- Lack of privacy when transacting
- Lack of fungibility
- Lack of on-chain scalability (each block is limited ~2MB of data – which equates to around 2,600 transactions maximum per 10 minute block)
- High on-chain fees for making transactions
- Ability for miners to reject individual transactions (censorship), using a black-list, due to lack of fungibility
As long as these issues persist, there will be an opportunity for a coin, such as Monero, to fill the gap.
In particular, privacy and fungibility are critical.
What could this mean for Monero?
The 5 items above can be thought of as a simple, but non-exhaustive checklist of features to follow in Bitcoin.
If the Bitcoin project is able to solve/ameliorate the above issues through upgrades or layer 2 solutions, it will gradually reduce the utility Monero has over Bitcoin.
Any hints currently that Bitcoin may solve these issues?
The Bitcoin ecosystem is large, and it’s difficult to be aware of everything going on, but this is what I’m aware of currently:
There’s an upgrade on the horizon called Taproot (see TaprootActivation.com) – which will create a new type of Bitcoin transaction called P2TR (Pay to Taproot). With these transactions, it will not be possible to see on-chain if a transaction is multi-signature, or not.
This would theoretically allow you to use a protocol such as CoinSwap (which utilizes multisig to improve transaction privacy) and you would not be able to discern on the blockchain that the transaction used multisig.
What I’m unsure about is how exactly this will impact the privacy of these transactions, and if this will be adequate.
Layer 2 Solutions
There are a large number of layer 2 solutions in the works, including Lightning.
If they’re good enough, they could partially ameliorate issue #3 – on-chain scaling, by allowing people to cheaply transact on these second layers.
They would also potentially improve privacy issues in some ways, but introduce new privacy issues in another.
Definitely something to watch out for.
If you’ve concerns over the future viability of Monero in a “Bitcoin World” – then staying abreast of improvements in the Bitcoin ecosystem, and how they affect the 5 issues mentioned above is important. As long as these issues persist, Monero isn’t going anywhere.