El Salvador recently added Bitcoin as legal tender. In only over ten years, a completely new Cypherpunk open source money system emerged with no known founder, open to anybody in the world to engage in both its usage and structure, which has since started from zero and as a tool of crime has become accepted by the government as valid legal tender. To state this was a crazy ride is an understatement. Now, for the first time in history, a fully decentralized electronic money is recognized by a state as as valid as its own money.
That said, there’s something devil in the details of that this excellent statement: The law expressly mentions Bitcoin (BTC) rather of cryptocurrency in overall and includes a government partnership with Strike, a payment firm based on Lightning Network, the first company-wide string solution for Bitcoin. Given the present size limitations of the first tier and the development status of the next grade, this historical takeover can be a real headache.
I’ve been using crypto for around eight years and have been without charge for five decades. I also run my own Lightning Node and as such can compare and contrast the comparative experience between Bitcoin and what other networks may provide. Let’s analyze why the Salvador Experiment could progress the whole crypto space, if not in the management that Bitcoin favors.
Connected: Adopt the Bitcoin Standard? El Salvador is inscribed in the history books
There could be hundreds of thousands of businesses being forced to participate. Instead of simply allowing and encouraging the adoption of Bitcoin, the new law in El Salvador is special to force All sellers accept it as payment:
“Every economic actor must accept Bitcoin as a means of payment if it is offered to him by anyone who can buy goods or services.”
This compulsion will spark a flurry of new sellers who will accept Bitcoin if they prefer it or not. This will probably result in hundreds of thousands of businesses seeking access to the network which processed approximately that amount across its ecosystem in one moment. Imagine every retailer getting Bitcoin payments on a daily basis, doubling the number of trades on an already crowded network, and creating a nightmare for the user experience. The goal here, of course, is to use the Lightning Network to perform as few operations in the chain as you can. But this can be difficult. Here’s why, with a couple of different possible scenarios.
Connected: A win for all courses: What you can expect from Bitcoin as legal tender
First, imagine a case in that the bulk of businesses participate directly in Bitcoin and use the network in a decentralized way. Online fees vary widely, but are often in the range of a few dollars, or even more. Even if the client is prepared to pay these charges for smaller things, the seller will have to pay these charges to wind up transferring that amount, subject to high fees (probably to be significantly higher following additional strain on the system ). This isn’t a situation that each and every trader can appreciate.
A more likely scenario is linking the Lightning Network, which in concept could allow them to receive and send small payments for sub-coin fees. Indeed, its structure and sophistication will initially pose key issues.
For starters, using Lightning requires opening at least one channel, which requires an on-chain transaction. This leads to the above-mentioned problems with traffic jams and fees in addition to keeping the online infrastructure at all times. Also, someone can’t receive cash on a station with them, which means you have to have a person lock their own money on a station against you (this may require payment) or you have to station yourself to another node with your own Open coins and then send that money through the channel to another source (e.g. a buy or to a separate wallet / node that you control) to release the incoming bandwidth.
In brief, a business needs to be tech savvy and have sufficient cash to begin with before having to rebalance a station or cover the service provider. The amount of funding and technical know-how required to make this happen may appear doable by elite criteria, but a chance most retailers in a developing nation can afford the Raspberry Pi and a couple of bucks of additional seed funds just to get bitcoin is reduced.
Now there’s a second instance in which firms simply take part in a central custodian solution and deposit fiat directly in their bank accounts. This certainly solves many of the problems that result from direct contact with the Bitcoin ecosystem, although not all of them, and in addition, new ones are introduced.
First, if a service such as Strike really opens Lightning stations to all users, then each new user introduced signifies an on-chain transaction. While that is fewer than the previous case, it still represents X trades or all of the on-chain transaction. Bitcoin string capacity for Y successive days. And let’s not forget that Strike itself has to scale the network and a young firm will inevitably face increasing difficulties in recommending dealers across an entire network. Does anyone remember the many times that exchanges such as Coinbase went offline in the confront of a flood of brand new clients? Imagine that, only worse.
Let’s remember the whole reason that is supposed to be useful first: Many Salvadorans don’t have a bank account and also have problems accessing vital financial solutions. A world where most businesses only accept Bitcoin through these financial solutions faces the same struggles that formerly prevented their adoption. How many Salvadorans lack the necessary papers to open a bank account? How can they convert to fiat currency instantly with no bank account? Not only will these issues persist in a mass adoption situation, but they’ll be compounded by unidentified infrastructures and emerging solutions.
The likely scenario would be a mix of both instances, but mostly the latter. This always leads to user experience and involvement nightmares and exposes more people to cryptocurrencies, leading in more individuals having negative views and possibly searching for alternatives.
Let’s have a fast look at what an alternate scenario might look like. I’ve the most experience with Dash because that is what I use for my regular money, but any cryptocurrency with powerful on-chain climbing – Bitcoin Cash (BCH) or Nano if the latter fixes recent spam problems – provides it a similar, if not equal, experience. Due to Dash’s masternode system of incentivized nodes and focus on mass scaling in the chain, all trades are completed in less than two minutes to get a fraction of per cent. Any merchant can make a wallet with no charges, waiting, or burdening the system (unless they use custody alternatives and have ant scaling issues ). Any user can only download the program, download DASH and submit easily at minimal cost, with immediate guaranteed payment with no potential of error. The merchant can transfer these funds immediately and as frequently as they want for a fraction of per cent. In addition, the DashPay username wallet, which utilizes a decentralized electronic identity publicly available on the testnet, will soon enhance the experience by removing long and perplexing cryptographic hashes.
Compare that to Lightning, where each customer and retailer has to pay transaction fees in the chain (and the retailer has to expect liquidity) in order to operate decentrally. When using centralized solutions, there requires to be a level of trust between the parties to ensure that ideal conditions are made for a relatively smooth experience. A failed significant node, a rise in congestion in the series, a huge influx of new users, or problem for service suppliers to stay profitable can result in obligations payable, higher prices, long intervals, critical features disabled, or an immediate denial of support to the customer. And recall, all prices ultimately have to be passed on to the customers, meaning many of the factors, infrastructure, and capital investments required to run the Lightning infrastructure on a massive scale are passed on to the end user.
How will this exciting new chapter in crypto history grow? It’s impossible to know for certain, but if the Bitcoin Lightning Network spreads it broadly, we might find ourselves on a rocky road in the short term. But even if it fails, it will probably succeed in paving the method for many cryptocurrencies…
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