Since 2009, BTC has made great strides as the first decentralized currency, boasting global popularity and millionaire investments. Its journey, however, hasn't been seamless, with major limitations obstructing its widespread use. High transaction fees and a scaling quandary are the primary factors contributing to BTC's shortcomings, despite its mainstream standing.
The Bitcoin network faces a scaling issue that arises due to its architecture, which restricts the number of transactions it can process each second. As of now, the network can only manage seven transactions every second. The network's limitations are causing a backlog of transactions, resulting in sluggish confirmation times and substantial transaction fees.
Bitcoin has another major obstacle, an issue widely-known to be its high transaction fees. The limited capacity of the network triggers competition among users to confirm transactions, which in turn results in inflated costs. Transaction fees went higher at the height of the Bitcoin craze in late 2017, surging to $55 for each transaction. Although the fees has reduced since then, it still remain a burden for many users, especially for those dealing with smaller transactions. For June, the average cost per transaction is estimated to be around 3.331 USD/tx. This can be as ten times high depending on the crypto exchange where the transaction is being made.
It's curious how the Bitcoin community seems to have embraced the scaling problem as part of the network's framework, despite the issues it creates. Once a burning concern, the high transaction fees have faded from the forefront of people's minds. One might wonder what caused this shift, with no one paying attention anymore.
The development of alternative Scaling Solutions
The emergence of alternative scaling methods has given most BTC enthusiasts less reason to fret. SegWit came into play in 2017, aiding block processing by permitting more transactions to take place. It brought down charges and dealt with the backlog of transactions to a certain extent. Sadly, its approval was incomplete due to a lack of complete acceptance from the Bitcoin community, causing a tardy endorsement.
The Lightning Network offers a solution for faster and cheaper transactions off-chain. However, its usefulness has been restricted due to significant bottlenecks. Furthermore, both solutions require extensive adoption from users and corporations to get optimal results.
These developments, especially the Lightning Network have been the hope of the Bitcoin community that the scaling problem will eventually be resolved. But there seems to be no end to when the Lightning Network would be fully adopted. The Lighting Network can only be used by businesses, and it's also a kind of centralized transaction network, which reduces its potential usage.
The Hodling Trend
The general disinterest in the scaling problem and high transaction fees can also be attributed to a larger trend towards Hodling. The term "Hodling" is derived from the misspelling of "holding" and is used to describe the practice of retaining Bitcoin for an extended period of time instead of using it for transactions. Numerous Bitcoin pioneers have acquired substantial wealth by holding onto their assets and are reluctant to relinquish their cryptocurrency. This has led to a decline in the number of transactions being completed on the network, which has further diminished concerns regarding the scaling issue and fees.
The Ever Increasing Value of BTC
Ever since its initial release, BTC has experienced an unrelenting increase in its price. The value of BTC has been consistently on the rise, with no signs of slowing down. This digital currency has become a highly sought-after asset for investors worldwide. Its value continues to escalate as more people invest in it, and its popularity grows.
This persistent trend has overshadowed concerns regarding scalability and exorbitant transaction fees. The majority of BTC holders are hesitant to make transactions with their holdings, instead choosing to keep holding unto them in anticipation of further appreciation.
That is one reason why the Bitcoin Network is still manageable today. But the downside of this is that BTC could never become a universal currency for ordinary use. The high transaction fees and traffic congestion associated with BTC provide little motivation for the everyday user to adopt it as a payment method. Even with the integration of the Lightning Network, the issue of elevated transaction costs persists. However, it is worth considering that most individuals are currently uninformed about the challenges confronting the Bitcoin Network, so this may not pose a significant problem in the future.
The Store of Value Narrative
Most individuals who are deeply involved in BTC today are motivated by its potential as a reliable store of value. A store of value is a type of currency that is purchased with the expectation that it will increase in value over time. Although a currency that experiences a price hike following its debut can be considered a store of value, this is not always the case. BTC has successfully lived up to its reputation as a store of value. As a result, scaling and transaction costs are of little concern to most investors, as they are holding onto their Bitcoins for the long-term.
However, the store of value narrative has also done a lot of damage in the crypto space. Those who enter the space hoping to get rich quick have lost a lot of money during a huge market crash. The store of value narrative only favors those who enter BTC early, and those who are willing to hold for a long time.
With BTC being solely looked upon as a store of value and as an investment for speculators, it has no place as a universal medium of exchange for ordinary users. Hence, the issues of scaling and high transaction fees are of less importance to BTC whales since they have all the money they need to buy, hold and transact BTC when they want to.
Conclusion
The Bitcoin Network can definitely be used to make payment transactions faster and with lower fees. It is still early to make a definitive statement on whether BTC and its community are heading on the right track to solving the scaling and the high fees problems. It is possible that the majority of people holds their BTC as a store of value, and don't really care about the scaling problems. But, that's not to say the scaling and high transaction fees are not a problem.
The improvement of the Bitcoin Network to become a universal payment network will be a long-drawn process. The advantages of using the network have to be clearly understood by the mainstream market before BTC can truly become a universal currency. Until then, the majority of BTC maxis will continue to hold onto their assets expecting it to further appreciate in value over time.