This article seeks to examine the likely impact of Bitcoin' segwit activation, its pending segwit 2x activation in November, along with the addition of the lightning network and rootstock and its likely impact on altcoins.
Oh how the world can change in just a few short months in the hyper-active world of crypto. Rewind 4 months to March 2017 and the crypto market cap was just over 23 billion dollars for all coins. Out of that amount, over 20 billion dollars of the market cap was made up of Bitcoin. Dash had 300 million, ethereum 1.6 billion and litecoin had 192 million. Bitcoin's market dominance was near complete.
Since that time, Bitcoin experienced problems with clearing transactions that led to delays and high prices. When Litecoin activated segwit etc, their transaction times were bettered and their price increased. Ethereum's smart contract features led to increasing use, the greater emergence of the ethereum alliance and companies building on the platform. The increased privacy on certain altcoins also increased their use.
In a few short months, the price of altcoins exploded and bitcoin's market dominance seemed to come unhinged. In June 2017, Bitcoin had a market dominance of less than 50%. Ethereum alone had a market cap of over half of bitcoin's.
Bitcoin users were entirely aware of this and there have been many proposals to add features to the Bitcoin Blockchain, including speed, privacy and smart contract capability. However, the speed and clearing issues have not been remedied due to internal fights among the power players in the industry. Many say that this is what has led to the fork that is coming on August 1, where a group of bitcoiners are forking to a new chain that will operate at a much faster speed. Some industry insiders speculate that Bitcoin cash is not only a trial balloon by the miners, but also a "hammer" that the "big blockers" can use as a greater threat in their negotiations regarding the main Bitcoin chain.
Segwit will activate and in all likelihood segwit 2x will as well. We will then almost certainly see the implementation of the lightning network and rootstock.
The lightning network is set to allow "lightning fast transactions", it does this by processing most of the transactions off of the main chain and only processing the last transaction in each batch on chain. This has 2 main effects:1.faster transactions; and 2.privacy on the main chain, since only the last transaction in the batch is listed on the main chain.
Rootstock will permit smart contract applications to be built on Bitcoin via a side chain. In theory, permitting Ethereum type functions within the Bitcoin system.
The real question becomes what happens to the altcoin market once (or, if) these changes come into play. When one looks at the systems themselves, they do not appear to have features that are all that different from the Bitcoin system, apart from the unique features noted earlier (speed, privacy etc). If Bitcoin is able to effectively mimic those features, then what incentive is there for people to continue to use Dash, Litecoin or Ethereum?
So the question becomes why Bitcoin has been so slow to implement these changes? One of the big reasons is it's inability to be quick and nimble: the small fish can maneuver more quickly and easily than the large whale. Bitcoin must attempt to reach consensus among a group of users, developers and miners who all have disparate interests and motivations. Given that there is no set mechanism for deciding on when changes can or should be made, there is even debate about the appropriate framework for deciding how to decide whether to make a change. The current list of features in altcoins are unlikely to be the last ones and bitcoin's lag in response is likely to continue into the future. There is also an ever-present risk that Bitcoin will continue to have forks of its chain, thereby reducing the network effect and confidence and clarity in the chain.
The result is a decision making system that is disorganized, uncertain and just about as opaque as they come. There is also a feel in some sectors that a group of miners or developers (or both) are exercising disproportionate control over the direction of the chain. This confusion, inability to maneouver in a timely and organized manner, and feeling of centralized control by those furthering their own interests at the expense of the user, is the sole feature that may hold Bitcoin back from returning to the market dominance that it once enjoyed.
Bitcoin does not appear to have any ability to modify its governance structure at this point, because it would be impossible to get all of the Bitcoin players and actors to agree. As such, it appears as though they will have continued difficulty stepping on one another's toes and tripping over each other's feet.
At this point, Bitcoin's loss appears to be Ethereum's gain. Ethereum has been able to make changes more quickly and appears set to move towards a proof of stake system to assist with some of the congestion and cost issues that it has been struggling with as well. In the future, there may be other players such as Tezos or EOS that begin to chip away at Bitcoin and even Ethereum due to their superior governance structures and corresponding ability to maneuver to meet market demand in a timely way. These two newer coins will provide for a democratic voting system to make changes quickly and with a defined procedure.
If you asked any seasoned stock investor whether they would invest in a company with no defined decision making process and no clear mechanism for resolving disputes, the answer would almost certainly be a resounding no. However, due to these issues within Bitcoin, it is very difficult to understand how it ultimately grows and obtains enough long term consensus to compete with more organized and efficient systems.