The Writing’s on the Wall

New Paradigm

Last week, the crypto market entered a new paradigm after the Segwit2x agreement fell through. The market reaction to the cancellation was sharp and dramatic, but to those who have observed the market’s behavior over the past year, it was actually quite predictable. It was predictable because this year we had already entered two new paradigms related to Bitcoin’s scaling problem.

The first new paradigm began in May when Bitcoin’s scaling issues became apparent and altcoins took Bitcoin’s market share down from 90% to 50%. The second began after the Segwit2x agreement was made and Bitcoin Cash announced its launch. Once it became apparent that these scaling issues would be resolved one way or another, Bitcoin began outpacing altcoins and started taking back its market share.

Now that the 2x part is out of the equation, we’ve entered a new paradigm where legacy Bitcoin STILL has the same scaling problem it had when the first paradigm started. However, this time around, it has a more formidable opponent. Instead of competing against altcoins, it is now competing against a more efficient version of itself: Bitcoin Cash.

Bitcoin Cash had been outpacing Bitcoin’s spectacular gains shortly before the Segwit2x agreement fell through, but once the agreement was officially canceled, its value skyrocketed in comparison. The market reaction was telling. It preferred the non-bottlenecked, low-fee, highly-scalable version of Bitcoin to the bottlenecked, high-fee, non-scalable version. The investors placed their bets, and they placed them on the version of Bitcoin that has scaling baked into the cake.

The writing’s on the wall. Scaling matters.

Don’t forget who wanted 2x

The Segwit2x agreement was significant because it had support from over 95% of the mining hashpower and some of the most well-known companies in the ecosystem. With a scaling debate raging on for quite some time with no end in sight, a resolution finally appeared in the form of a compromise. But compromise was not something legacy Bitcoin’s leadership team or followers were willing to do so they put up a huge fight and eventually got their way. Segwit2x would be canceled, and Bitcoin would be stuck with a 1MB blocksize and congested network for the foreseeable future. What they didn’t consider were the other, VERY IMPORTANT parties involved. That is, the parties that cared less about Segwit and sidechain networks, and more about on-chain usability and removal of network congestion that caused high fees. After all, what business or customer ever said, “I want to pay more in fees?”

Without the compromise, the writing is on the wall for businesses, miners, and use-cases that have been involved with Bitcoin for some time. Bitcoin Cash is friendly towards their interests, and regular Bitcoin isn’t. Massive expansion in the number of users equates to a higher price for miners; and low cost with no backlog is better for businesses and use-cases. It’s a no-brainer as to why they wanted the blocksize increase, and now, they have that with Bitcoin Cash. Bitcoin Cash listened, legacy Bitcoin did not.

The writing’s on the wall. Businesses and entrepreneurs want a bigger blocksize.

Investors look for future growth potential

Investors invest in assets that offer future growth potential. If a company stops growing, so does its investment demand. Legacy Bitcoin is unlikely to be an exception; at least in the long term. In the short term, however, the market could remain irrational due to current momentum and name recognition; but sentiment can shift suddenly, especially if it becomes obvious that a more efficient, higher growth potential version is out there. Investors favor growth over no growth, and Bitcoin’s growth potential is limited whereas Bitcoin Cash’s is limitless.

Legacy Bitcoin has reached the upper limits of its growth potential. With significant transaction backlogs and fees that price-out most people in this world, the capability to add more users and use-cases is minimal. Unfortunately, the leadership of legacy Bitcoin doesn’t seem to mind. They don’t intend for Bitcoin to function as a currency, nor are they trying to share its benefits with everybody in the world. They are content with Bitcoin being used only by tech geeks and investors that are simply riding the “digital gold” wave. Their focus isn’t on adoption by the average, everyday person or turning it into a usable form of money; rather, their focus is on the highly technical user with efforts spent on building things that they might find cool. Things a normal person would never care about but a tech geek might salivate over.

Which is why the market reaction after Segwit2x was predictable. Investment dramatically funneled into the version of Bitcoin whose game plan includes not just tech geeks or rich investors, but everybody in the world. Demand funneled into the chain that can handle exponential growth and keep fees low enough to invite participation from everyone. It funneled into the version that unlocks cryptocurrency’s maximum potential, maximum number of use-cases, maximum number of users, and has the capability to bring a fair form of money to everyone in the world under one roof. When you break down what matters to each camp, the writing on the wall becomes crystal clear. Bitcoin Cash is the version of Bitcoin with the greatest growth potential.

BTC = The “Bitcoin as tech” camp that wants everyone to run a node, doesn’t care about fees rising during periods of high volume, makes complaints that transactions are spam, doesn’t plan on becoming money and aims only to be held as an investment, doesn’t care for it to be used in commerce, prices out most of the world population, intends on having a “fee-market” develop, aims to add additional steps to the process with sidechains, and is reliant on a theoretical, unproven method for scaling.

BCH = The “Bitcoin as money” camp that wants everyone to have it, is capable of handling immense transaction loads with fees remaining in the pennies, considers no transactions spam, plans to become the best form of money to ever exist and believes value comes from usage, intends to be used in commerce throughout the world, plans for fees low enough to be used by the world’s population, wants use-cases built off of it and embraces merchant adoption, desires to disrupt the current financial system, aims to make it easier for the average person to use, and plans on scaling to levels larger than VISA using Satoshi’s proven invention: The Blockchain.

Now ask yourself, “What vision is better? What coin is more attractive to investors? Which coin is most likely to take market share away from the multi-trillion dollar gold and currency markets?”

The writing’s on the wall. Just open up your eyes.