Real scaling solution for Bitcoin – Bitcoin Magazine
This is an opinion piece by Knut Svanholm, author of “Bitcoin: Sovereignty through Mathematics. “
Bitcoin skeptics often claim that bitcoin does not scale. They say that bitcoin’s on-chain transaction capacity of around seven transactions per second is too low, especially compared to the most common credit and debit card networks. These networks are centralized databases that can perform more than one hundred thousand transactions per second. The standard Bitcoin answer is that these critics have not heard of Layer 2 solutions to the scaling problem, such as the Lightning Network. While it is true that Layer 2 is likely to solve the problem in the end, it is not a fast enough solution in the case of a fast hyperbitcoinization. After all, if all base layer transactions are new Lightning nodes, only seven new nodes can be started per second, right? In truth, critics and most Bitcoiners do not see the bigger picture here. Both groups lack the forest for all the trees. Let’s think about this.
We live in a world where fiat money dominates the world economy. Each country on earth has a national currency or uses a mint (printed) in another country, such as the euro or the US dollar. What these currencies have in common is that they are all inflationary, which means that central authorities have the right to issue new units of them. As those who have studied bitcoin or economics know, the prices of these currencies rise continuously over time. Bitcoin is often compared to gold, as the cost of extracting gold is relatively unaffected by changes in the price of gold. But this analogy is wrong. Bitcoin is not gold. The cost of extracting bitcoin correlates with the price of bitcoin, but the issuance rate for new bitcoin does not. This fixed issuance rate is a completely new phenomenon and exists only in bitcoin. No other item behaves this way. Prices rise over time to a fiat money standard, but transactions are fast. Prices were relatively stable below the gold standard, but gold was very expensive to transport. Bitcoin is cheap to transport and absolutely limited, which means that prices denominated in bitcoin will continue to fall over time.
As technology evolves faster and faster, prices should fall. The only reason they do not do so is money printing or “monetary policy”, as those with access to printers call it. Nothing about bitcoin allows this to happen. The long-term implications of absolute scarcity of money are very difficult to understand for people who have only ever known fiat economies. We simply can not wrap our heads around ever-decreasing prices. No one can imagine what such a society would look like. But one thing is for sure – transactions per second are a value that is important for the old system, not the new one.
The “Zeitgeist” films from about a decade ago were an attempt to describe what a future without money could look like. They explained how deficient our old institutions are, from religious institutions to political and legal institutions and, perhaps most importantly, the shared reserve banking system. Then they naively suggested that if the world stopped spending money, we would usher in a new era of peace and prosperity. However, these films lacked an explanation of how to get there. They missed that there is no difference between voluntary interactions and money transactions, given that the money is honest. A solid money, free market society is a voluntary society. The road to the utopian “Venus Project” cities described in these films is bitcoin.
The brilliant Canadian series founder Jeff Booth has often described bitcoin as a “bridge to the other side.” Almost all Bitcoiners agree that our current system is wrong and we need a way out. Bitcoin is that way out. But what is on the other side of the bridge? That is the deeper question here. When you think about it for a long time and thoroughly, you realize that the world on the other side of the bridge is the real scaling solution. With truthfulness in society’s foundations, the need for money transactions will decrease, not increase.
All good is a service. Every human interaction is a transaction. We do not want money; we want what we think it will buy us. We do not want the couch; we want the opportunity to sit on a couch whenever we feel like it. To put it another way, we want access to the abundance technological advancement enables. Inflation money is a force in the opposite direction. It requires higher prices and thus less access to the riches that technology unlocks. It creates an elite class that gets richer over time at the expense of everyone else. Deflation money will do the opposite. It will give everyone a reason to save rather than overconsume, and give more people access to what they want over time due to falling prices. If you postpone your consumption, bitcoin will buy you more in the future. In other words, fewer transactions. Quality before quantity. The need for transactions per second will decrease.
Now think about how you interact with family and friends. You rarely spend money, do you? Remember that every voluntary interaction is a transaction. You exchange information and share experiences with your loved ones all the time, all without exchanging a single satoshi. The Bitcoin community is like that too. Everyone is very generous with their time and effort. You notice this when you spend time with so-called toxic Bitcoin maximists. We do not care about making money. We care about making the world a better place. I have received boundless help from other Bitcoiners in the form of proofreading, translations, art, website building and many different things, completely free. All I needed to do was give something of value back. As in my family and with my friends, there was mutual trust; thus no money was needed.
After all, the only reason societies need cash in the first place is to enable transactions between people who do not know or trust each other. Unfortunately, it seems that everyone has forgotten this in fiat countries. All bitcoiners are benefiting from the success and ever-increasing purchasing power of bitcoin. Therefore, each Bitcoiner is encouraged to help each other. When hyperbitcoinization is upon us, everyone will be Bitcoiner. Everyone wants this incentive. Ironically, “Do not trust, verify,” somehow unlocked an ability to trust each other on a scale never before known to humans. The kicker is that we had this ability all the time. Bitcoin is a private key to our hearts, so we can wear them on our sleeves in public. The real scaling solution is honesty. When we have it, the division of labor happens automatically.
By running the mathematical experiment called Bitcoin in the back of our minds at all times, we unlock the true power of human cooperation. The need for smaller transactions disappears as everyone’s time preference decreases and our ability to love our neighbor increases. You will not pay for your coffee in the future. You get it for free. Only significant, essential investments that provide enough value to humanity will be worth making since just holding on to your bitcoin will be a better strategy in most cases. The ability to make micropayments quickly and cheaply for anyone worldwide will still be there due to Layer 2 scaling solutions, but people do not need to use it as often. Bitcoin culture is the opposite of fiat culture. We have a bright orange future; the sooner we embrace it, the better we feel.
This is a guest post by Knut Svanholm. Expressed opinions are entirely their own and do not necessarily reflect the opinions of BTC Inc. or Bitcoin Magazine.
