Savior Bitcoin was recently added as a legal tenderIn less than ten years, an open source, cypherpunk, brand-new currency system, without a public creator, and open to anyone in the world to participate in the use and construction, has gone from zero value to criminals The tool is now accepted by the government as legal legal tender. To say that this was a crazy ride is a strong understatement. Now, for the first time in history, a fully decentralized digital currency is recognized by a country as legal as its own currency.
That being said, the details of this wonderful announcement are somewhat devilish: the law specifically mentions Bitcoin (Bitcoin) Instead of the entire cryptocurrency, including the government partnership with Strike, Strike is a payment company based on the Lightning Network, which is the main off-chain scaling solution for Bitcoin. Due to the current expansion limitations of the first layer and the development status of the second layer, this historic adoption may cause some trouble.
I have been using cryptocurrency for about eight years and have not had a bank account for five years. I also run my own Lightning node, so I can compare and contrast the relative experience that Bitcoin and other networks can provide. Let’s explore in depth why the Salvadoran experiment can push the entire encryption field forward, although it may not move in the direction of Bitcoin first.
There may be hundreds of thousands of companies about to be forcibly joined.El Salvador’s new law does not simply allow and encourage the adoption of Bitcoin force All merchants accept it as payment:
“When anyone who obtains goods or services offers him Bitcoin, every economic agent must accept Bitcoin as payment.”
Whether they want it or not, this coercive behavior will trigger a large number of new merchants to join in to accept Bitcoin.This will cause hundreds of thousands of companies (and possibly more) to seek access to already Process This number in the entire ecosystem in about a day. Imagine that every merchant receives a bitcoin payment every day, doubling the number of transactions on the network that has exceeded its capacity, and creating a nightmare for the user experience. Of course, the goal here is to use the Lightning Network to put as little activity as possible on the chain. However, even this may prove difficult. That’s why, there are several different potential situations.
The first situation: the enterprise directly integrates Lightning
Let us first imagine a case where most companies directly join Bitcoin and use the network in a decentralized manner. On-chain fees fluctuate greatly, but usually in the range of a few dollars, if not higher. Even if customers are willing to pay these fees for smaller items, merchants must pay these fees to eventually transfer these funds, resulting in high fees (expected to increase significantly after the network is under additional pressure). This is not a situation that any merchant might appreciate.
The more likely scenario is that they join the Lightning Network, which in theory allows them to receive and send small payments for less than a cent. In fact, its structure and complexity can cause major initial entry problems.
First, using the Lightning Network requires opening at least one channel, which requires on-chain transactions. In turn, this will cause the aforementioned congestion and expense issues, and keep the infrastructure online at all times. In addition, if there is no channel, you cannot receive funds, which means that you need someone to lock your funds in your channel (which may require payment), or you have to open a channel to another node with your own money, and then Send the money through a channel to another source (for example, purchase, or send to a separate wallet/node controlled by you) to release inbound liquidity.
In short, companies must either be technically capable and initially have the amount of funds they expect to receive before rebalancing the channel, or they must pay the service provider. According to upper-class standards, the funds and technical know-how required to achieve this goal seem feasible, but most businessmen in developing countries can afford Raspberry Pi and a few dollars of additional start-up capital in order to receive Bitcoin. Is slim.
Case 2: The enterprise integrates through hosting solutions
Now, there is a second situation where companies only need to use a centralized custody solution to settle directly to their bank accounts in fiat currency. This of course solves many of the problems caused by direct contact with the Bitcoin ecosystem, although not all of them, in addition, it also introduces new problems.
First, if a service like Strike does open a lightning channel for all users, then each new user joining represents an on-chain transaction. Although this is less than the previous case, it still represents the entire chain capacity of X transactions or Bitcoin for Y consecutive days. Lest we forget that in addition to the Internet, Strike itself needs to expand, and a fledgling company will definitely face growing pains when it turns to join businesses across the country. Does anyone remember that an exchange like Coinbase went offline many times when faced with a large number of new customers? Imagine it will only get worse.
Also, let us not forget the whole reason this is considered helpful: many Salvadorans do not have bank accounts and have problems accessing critical financial services. The world where most companies only accept Bitcoin through these financial services faces the same challenges, which prevented them from being included before. How many Salvadorans lack the necessary documents to open a bank account? How can they instantly convert to fiat currency without a bank account? These problems not only still exist in the case of large-scale adoption, but also will be amplified by unfamiliar infrastructure and emerging services.
The possible situation is a mixture of the two situations, but mainly the second situation. This will inevitably lead to user experience and entry nightmare. Although more people are exposed to cryptocurrency, it will cause many of them to raise negative opinions and may seek alternatives.
Comparison with major crypto payment competitors
Let’s take a quick look at what the alternative might look like.I have the most experience sprint Because it is the currency I use every day, but any cryptocurrency with successful on-chain expansion-Bitcoin Cash (Bitcoin cash) Or Nano, if the latter solves the recent spam problem-it should provide a similar but not equivalent experience. Due to Dash’s incentive node master node network and emphasis on large-scale on-chain expansion, all transactions are completed within two seconds and only a few cents. Any merchant can create a wallet for free, without waiting time or putting pressure on the network (unless they use custodial solutions and are governed by the scaling problems of a centralized architecture). Any user can easily download the application, receive DASH and send it smoothly at a negligible cost, and payment is guaranteed immediately without the possibility of actual failure. Then the merchant can transfer these funds immediately, any number of times, and only a few cents. In addition, the DashPay username wallet (already publicly available on the testnet) that utilizes decentralized digital identities will soon improve the experience by eliminating confusing and long cryptographic hashes.
In contrast to the Lightning Network, every customer and merchant must pay on-chain transaction fees (merchants must solve liquidity issues) in order to operate in a decentralized manner. When using a centralized solution, there must be a certain degree of trust between all parties to ensure that the perfect conditions for a relatively smooth experience are met. The downtime of major hub nodes, the surge in congestion on the chain, the influx of new users, or the difficulty of service providers to maintain profitability can all lead to failure to route payments, increased fees, long waiting times, closure of key functions, or complete denial of customers. Remember, all costs must eventually be passed on to consumers, which means that many variables, infrastructure and capital investments involved in large-scale operation of lightning infrastructure will be passed on to end users.
Bitcoin opens the door
How will this exciting new chapter in the history of cryptocurrency unfold? It is impossible to know for sure, but if it makes extensive use of the Bitcoin Lightning Network, we may embark on a bumpy road in the short term. However, even if it fails, it may be successful because it will pave the way for all types of cryptocurrencies to be used in commerce and to be regarded as official just like currencies, which will inevitably continue global finance revolution.
Although the experiment in El Salvador will certainly accelerate forward, Bitcoin may not be able to easily handle too much usage at this point. Thankfully, hundreds of other cryptocurrencies are waiting to step in. Regardless of whether there is a bottleneck in Bitcoin, the encryption space will be good.
This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should research on their own when making a decision.
The views, thoughts, and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Joel Valenzuela A senior independent journalist and podcaster, he has not used cryptocurrency since 2016. He previously worked in the Dash decentralized autonomous organization, and now mainly writes and podcasts for the digital cash network on the Lbry decentralized content platform.