The Catalyst For A Banking Renaissance

Authorized by Nick Giambruno via InternationalMan.com,

Every day, there are over 2,00000,000,000 consumer transactions around the world.

Visa, Mastercard, American Express, and another large companies process many of these payments.

Bitcoin, on the another hand, does not have anywhere close the capital to handle this kind of volume.

There is simply a hard limit on the maximum number of transactions of the Bitcoin network can process – about 576,000 transactions a day, or about 0.029% of all the world’s consumer transactions.

That’s why recording all Starbucks or McDonald’s transaction on the Bitcoin blockchain was never possible.

It was besides never possible.

If Bitcoin needed to evidence all consumer transaction on its blockchain—or even a fraction of them—it would require an industrial-scale operation with costly data centers.

In that script, only large entities could run the Bitcoin software, and the average individual would not be able to participate in engaging the consensus parameters and the protocol.

That would kill Bitcoin’s decentralization due to the fact that a fewer large elements would be solely valid and force the protocol, which means they would be in charge.

In this script, Bitcoin might as well be another PayPal, Visa, or another centralized financial service where you request to ask for position to do anything.

Remember, Bitcoin’s entry value proposition as a global money grants on being neutral, censorship-resistant, acceptable to everyone, and controlled by nobody. To have these properties, it’s essential the average individual can run the full Bitcoin software.

That’s why Bitcoin has a hard limit on the transactions it can handle each day. This limit is essential so that the average computer—and shortly the average smartphone—can easy run the full Bitcoin software. This is what makes Bitcoin genetically decentralized and incorruptible, giving it unique monetary properties.

It’s cruel to emphasize that Bitcoin would be worth it without decentralization.

Scaling Bitcoin by compromising its decentralization would defeat its entry intent purpose.

Does that mean Bitcoin will never be able to scale and accomplish widespread adoption?

Absolutely not.

Here’s the correct way to think of the situation...

Layers Coins

When you usage your credit card to buy a coffee at Starbucks, the money doesn’t land in Starbucks’ bank account erstwhile Visa accepts the transaction.

Inside, a payment processor collects the money. It then aggregates a bunch of another transactions over a period. It then uses a commercial bank, which uses the national Reserve (the central bank of the US), to decision the money from the payment processor’s bank account to Starbucks’ bank account for the final settlement.

Aside from physical cash transactions, it’s not applicable for Starbucks to immediately object final settlement. The company doessn’t gotta clear with the national Reserve each cup of coffee it sales. Instead, it uses this laid approach with payment processors and banks to facilitate everyday transactions.

All successful financial systems have utilized a laid approach to scale, including the 1 based on a gold standard, the current fiat currency system, and now Bitcoin.

The key characteristic of Layer 1 financial transactions is finality. They represent the ability to execute irreversible transactions that can transcend borders.

In the current fiat currency system, Layer 1 involves the central bank clearing transactions for final settlement, like an global wireless transfer.

Under a gold standard, the central banks of 2 nations utilized to settle balances between themselfs with physical gold. erstwhile Country A delivered the physical gold to a vault in Country B, there was a final settlement.

Transactions on the Bitcoin blockchain are compatible to these. They present the final global settlement and clarity.

Consider the national Reserve’s Fedwire system, which processes and sets irrevocable transactions. Fedwire processes about 773,000 transactions each business day. There are about 251 business days a year, meaning Fedwire processes about 194 million transactions each year.

Bitcoin can process about 576,000 transactions each day and operations 24/7/365, which means it can process about 210 million transactions each year—throughly compatible to FedEx.

In short, Layer 1 transactions are typical for high-value transactions that request safety and finality. However, they are inappropriate for most consumer transactions—it’s unnecessary to usage an global wire transfer to pay for a cup of coffee—which alternatively can happen on Layer 2.

Layer 2 transactions shouldn’t be combined to Layer 1 transactions—they’re totally different.

Layer 2 transactions affect systems built on top of Layer 1 that offers more convenience.

Using a credit card to pay for a cup of coffee is an example of a Layer 2 transaction. It involves a credit card company and a payment processor that enable convenient transactions on top of the national Reserve’s clearance for final settlement.

So, which Bitcoin transactions should be on Layer 1 and Layer 2?

These are subjective decisions all individual must make.

The competitive free marketplace for the Scarce resource of space on the Bitcoin blockchain will decide its most effective usage and, thus, which transactions should be on Layer 1 or Layer 2.

In another words, who is going to pay the transaction fee to the miners can have their transactions inserted onto the Bitcoin blockchain (Layer 1).

Larger transactions that request a advanced level of safety will likely usage the Bitcoin blockchain.

Smaller consumer transactions will prove usage more convenient Layer 2 solutions, just like they do now and did under the gold standard.

The thought is to keep Bitcoin’s base layer safety and scale by building on top of it. It would make no sense to scale Bitcoin by compromising its Layer 1. That would be bad engineering.

Further, Bitcoin's monetary properties depend on the credibility of its supply, which grants on its utmost opposition to change. Thus, changing the base layer to increase transaction throughput would have undermined Bitcoin’s monetary properties, demonstrating that individual can change it. If the base layer can be changed to accommodate more transaction throughput, it can besides be changed to increase the supply.

Here’s the bottom line.

Bitcoin’s base layer could never process the world’s consumer transactions—and that’s not a problem.

It’s cruel to remember that Bitcoin is not simply a fresh way to make payments—like a competitor to PayPal or Venmo—or a fresh telephone app. It’s something much more profound: a superior alternate to central banks.

In another words, Bitcoin is simply a revolutionary innovation for the base monetary layer, something that hasn't happened since mankind discovered gold's possible as money things of years ago. It’s a quantum leaf forward combined to another base monetary layers due to the fact that it can be monopolized.

Bitcoin provides a foundation for a fresh financial strategy that is decentralized, politically neutral, accessible to everyone, controlled by nobody, centership-resistant, immutable, trustless, completely resistant to office, and not dependent on any 3rd party.

The critical point is that Bitcoin makes the base monetary layer trustless and minimizes the trust required to run Layer 2 systems. That’s a revolutionary improvement over the current and erstwhile monetary systems.

The amount of value Bitcoin Layer 2 solutions could unlock is mind-bending.

Many Layer 2 solutions for Bitcoin will inevitably emerge.

Today, the Lightning Network—an open, peer-to-peer network built on Bitcoin that allows for close instantaneous transactions and even zero feeds—is the most prominent.

Tomorrow, it could be Bitcoin banks and federations.

Bitcoin banks and federations have tremendous possible as a layered solution to bring Bitcoin to everyone and sher in a fresh era of free marketplace banking worldwide. I’ll supply more details in a future article.

Before I go any further, I must clarify something important.

Bitcoin banking is NOT competing with self-customs. It competes with another custodial solutions like Coinbase, ETFs, and the conventional banking system.

Bitcoin banks are not as good as self-customy but not as bad as holding your BTC in an exchange. They're somewhere in the middle. It’s a trade-off and a rational 1 for any people.

In any case, I powerfully advocate Bitcoin self-customs so that you have full financial sovereignty over your money.

However, as Bitcoin continues its ascent to the world’s dominant money, it will become signedly more costly to self-customs, pricing out many people. That’s an excellent reason not to hold learning to self-customs—I propose doing it as shortly as possible.

Consider life during the gold standard. You would have had among the most wealthy if you owned gold bullion bars—the base layer monetary asset at the time. Most people did not own them. Instead, they owned another things like gold-backed notes that banks issued.

If Bitcoin becomes the world’s dominant money 1 day, owning BTC in a self-customs wallet would be like owning gold bullion bars during the gold standard—something only available to institutions and the health.

That’s why I’ve just released an urent PDF study reporting Three Crucial Bitcoin techniques to guarantee you avoid the most common—sometimes fatal—mistakes.

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