The so-called New York Agreement is sometimes credited for bringing the Segregated Witness (SegWit) improvement to the Bitcoin network (others say it was the user-activated soft fork outlined in Bitcoin Improvement Proposal 148), but the hard-forking capacity increase that was attached to the agreement has failed to gain much traction. For that reason, support for the 2x increase has waned and a number of CEOs who pledged their support for both changes have withdrawn their advocacy for the change.
Some have pointed to the hard-forking increase associated with SegWit2x as a contentious waste of time, but there was also much to be learned from the whole experience.
One key takeaway is that it now seems clear that the base Bitcoin protocol is more of a digital gold than an improvement on PayPal or Visa. Having said that, better versions of those payment systems can still be built on top of that base Bitcoin layer.
Digital Gold vs PayPal -
So what does the digital gold vs PayPal debate mean?
The short answer is that there is a divide in the Bitcoin community between those who view bitcoin (the token) as a new asset class outside of the reach of any government, bank, or other third party and those who see Bitcoin (the network) as a payments innovation.
Those who view bitcoin as digital gold do not want to see any contentious rule changes made to the network to protect the idea that there is no counterparty risk associated with storing value in the digital bearer asset. However, those who see Bitcoin as a payments innovation would like to see at least one rule change in the form of a hard-forking increase to capacity.
For those who don’t know, a hard fork is a protocol change that requires every Bitcoin user to move over to a new network with different rules.
This hard-forking increase to capacity would lower transaction fees on the network (at least over the short term). If you built a company around the promise of nearly free transactions provided by the Bitcoin network, it’s easy to see why you would want to see some changes happen once those fees start to rise, even without clear consensus for the change.
You Can Build a Better PayPal on Top of Digital Gold
One clarification that often gets left out of this debate is that a better version of PayPal can be built on top of Bitcoin in a situation where the base layer is used for the digital gold use case. But it doesn’t work the other way around — you can’t build a more secure system on top of a less secure base.
This point needs a major clarification. Yes, bitcoin is digital gold, but you can still build a better, trustless PayPal on top of it. @nathanielpopper https://t.co/xA7Y8VOCo4
The most often-cited example of a “better PayPal” that can be built on top of Bitcoin today is the Lightning Network. In this system, a network of cached Bitcoin transactions (sort of like trustless IOUs) are sent between users rather than on-chain transactions.
In this setup, the blockchain is more of a court for the Lightning Network’s smart contracts. Whenever there’s a dispute, users can fall back to the blockchain.
While the Lightning Network usually gets all the attention in terms of layer-two payment solutions for Bitcoin, other options are available as well. These alternatives usually involve a different set of tradeoffs in terms of centralization, privacy, and other areas.
For example, a paper (PDF) from two members of the Zcash project (a privacy focused alternative to Bitcoin) describes a trustless third-party payment processor that could be built on top of the Bitcoin or Zcash blockchains. This would effectively be a trustless, cryptocurrency-denominated version of PayPal that cannot seize user funds and doesn’t know where money is being sent.
While the base Bitcoin blockchain is built entirely around the removal of third parties, one has to wonder what the downsides of a more centralized model built on top of that decentralized base would be if a third-party payment processor is unable to steal from its customers, censor transactions, or spy on its users.
The Problems with a Payments-First Approach
Of course, a question some may be asking right now is: Why can’t cheaper transactions be built into the base layer? After all, this is the main selling point of some altcoins, namely Bitcoin Cash and Litecoin.
For one, a cryptocurrency does not work well for payments unless it has the liquidity provided by those who view the digital asset as a store of value (or digital gold).
As the chart above indicates, bitcoin’s price volatility has tended to decline as more money has entered the market and the price has gone up. As liquidity rises, it takes more money to push the price around with a single trade.
A better payment system (and better form of money) will be built on top of a more liquid asset.
In addition to layer-two payment systems built on top of Bitcoin having the benefit of being denominated in bitcoin, the payment systems themselves are also likely to offer features that simply cannot be found via on-chain transactions such as drastically lower transaction fees, instantly-confirmed payments, and potentially better privacy in a more scalable manner.
Sorry guys this took little long but everyone related to bitcoin trading and all similar stuff must know these things. I hope this article will help you out at some level.. GOOD LUCK