Why Bitcoin Core May Survive Indefinitely (or at least decades)

I realize this may not be a popular opinion here, but I believe BTC may survive much longer than we expect. First of all, before dismissing my opinion, please check my past, you will see that I am a strong supporter of BCH (peer-to-peer currency). I also think LN will never be practical for the average person that uses cryptocurrency.

So why do I think BTC will survive? Simple answer: The Pareto Principle. Over 80% of the value in transactions are supported by less than 20% of the available 1 MB block space. As a general rule, this can also be extended to that 64% (80% * 80%) of the value in transactions is supported by 4% (20% * 20%) of the transactions.

Right now the median transaction value on the BTC network has dropped down to about $75 at an average tx fee of less than a nickel. While the median transaction value may be $75, the average transaction value is still around $10,000 and has been as high as $30,000 recently. At the end of last year, on many days, the average transaction value was over $100k.

I paid around a $100 to make a transaction on the BTC network last December. While I feel it was expensive, for the average user around that time making a $100k transfer, it would be only 0.1%. BTW, my bank has a minimum fee of $50 for a wire transfer.

Now, I had to live with the disgust of seeing fees constantly rise in 2016 and especially 2017, but so did a lot of other users. They (like me) moved on to an alternative cryptocurrency. The rich don't really care though, they are just looking for a store of value. Paying a $100 (or even a $1000) to move a $100k or even $1M or more, is no big deal for them. Most of them will even leave their coins on an exchange. And to be honest, I consider a lot of these exchanges to be very safe now for most people (Coinbase for example).

I was around in 2013 reading the forums at Bitcointalk and it was very obvious that Mt. Gox was going to fail. Yet, a surprising amount of people left their coins or a cash balance there. And from what I read on the forums, I felt a lot of these people didn't even know how to make a private wallet and move their coins to it. They were trying to sell and do a cash withdrawal (which was failing long before they went belly up).

I honestly believe the Core shills are right about one thing. Bitcoin will be a store of value. It won't be peer-to-peer currency and the LN will never have any significant value, but it won't make any difference. Just like moving gold from one vault to another, they won't care if the cost is $100 or even $1000 to make a transaction. Only the rich will use it. They are use to spending thousands of dollars to set up offshore accounts or store gold bullion. A $k here or there won't phase them a bit. 157,680,000 (365*24*6*3000/block) transactions a year will probably be enough for the richest 1% of the world population, who will probably never make a single transaction (BTC left on their exchange) in any given year.

I can see a future where BTC is used for savings, buying/selling houses, moving large sums of money. Transactions below a $1000 or even $10k will disappear. Fees of a $100 or more won't make any difference. And since they will be keeping their BTC on an exchange anyway, exchanging some of it for an easy to use peer-to-peer currency like BCH will be easy.

And imagine if the government (or even just banks) start to strongly back BTC. They could easily set up a hybrid system like the XAPO card. Your BTC could be used as collateral for a credit card or some other loan. The Federal Reserve could easily give BTC a huge advantage by buying up a large quantity every year with their unlimited money printing capabilities. It would be a win-win situation for them. Unlike a lot of the junk securing bank debt, they would have an asset that actually increases in value when they buy more of it. The perfect collateral.

Now I do believe that BCH (or possibly some other peer-to-peer currency) will survive. And I think it is important for the majority of the world that it does. But I don't think it will ever be the best store of value. The rich (upper 1%) will store their wealth in BTC, while the poor use BCH as a peer-to-peer currency. Which brings me to one last important point.

There is a formula pertaining to the velocity of money. Basically, it says that GDP=Velocity*Value. Translating for a cryptocurrency, value would be the market value of a coin, velocity would be proportional to how fast it is spent, and GDP would be the value of that particular crypto-economy. BTW, we can also express that formula as Value=GDP/Velocity, which shows that increasing the velocity of money in a given economy can actually decrease it's value (this is one of the forces that can turn inflation to hyperinflation as people start to spend their money as soon as they get it).

Now I don't have the data to plug any numbers into this poorly redefined velocity of money equation, but I can make a guess about the future. I am guessing that the BCH network will be used by people that live day by day and rapidly move money to survive. And if the money is moved a dozen times as fast on the BCH network as on the BTC network (even if GDP of each sub-economy remains the same), then using the velocity formula, the BCH network will only be worth 1/12 of the BTC network. Add to this that the rich will keep their value on the BTC network mainly using it to buy/sell property possibly in a Pareto distribution of wealth (say 80% on the BTC network), and you could have a situation where the BCH network is worth slightly less than 2% (1/5 * 1/12) of the BTC network. Note that I could have a bad assumption here. Maybe Value will become the static variable with GDP being proportional to velocity. Then the BCH network might be closer to 20% of the value of the BTC network. Either way, BTC would strongly predominate.

I lucked out in the fork. Most of my bitcoins were and are in cold storage in a safe deposit box with a time-locked address with a long time to go. I can't mess up (nor can I do anything useful or important if necessary). If not, I probably would have converted half of them to BCH at the worst possible time. Personally, I think everyone should keep at least half their crypto-wealth in BTC regardless of what they think of the Core team or the Loony Network.

Which brings me to my conclusion. We need to concentrate on making BCH the best peer-to-peer crypto-currency possible. Price and value aren't important. Only that poor people around the world will have a useful currency. This is our true value, not the capitalization fiat number assigned by coinmarketcap. It also brings up one final issue: Security.

We will never have a majority of the hash power like BTC, which will make us appear vulnerable. Which means some minor compromises like rolling checkpoints and even renting hash when attacked. It also means that we must be willing to fork if necessary to remove toxic people like Craig Wright and Calvin Ayre.

The important thing is to survive while we grow to become a world peer-to-peer currency.

If you are still here, thanks for reading my rambling post.

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from Bitcoin - The Internet of Money http://bit.ly/2RkYCLf