2020+ Bitcoin Value Proposition
This year is shaping up to carry in a few major technical and fundamental developments for Bitcoin.
-Bitcoin Halving
-Soft Fork
-Lightning Network Development
-ETF/ETP
The Bitcoin “halving” is an event which occurs approximately every 4 years. It is measured in blocks (210,000) rather than a time frame like days or years. The halving gets its name because of the effect it has on the mining reward for solving Bitcoin’s computational puzzle. During the first few years of Bitcoin’s existence, every 10 minutes a miner who solved the computation puzzle was rewarded 50 bitcoin from the “coinbase”. This is not to be mistaken as Coinbase the company but rather the protocol mechanism behind reward distribution for Bitcoin’s blockchain. In 2012 the reward was halved to 25 bitcoin, 2016 halved again to 12.5 bitcoin, and now in 2020 the reward will be halved once again to 6.25 bitcoin. This event will continue to happen until 2140 when no bitcoin is left to reward due to the hard supply cap of 21,000,000 bitcoin. Right now there is just over 18,100,000 bitcoin in circulation. The 2020 halving can be interpreted as important because it will bring Bitcoin’s Stock-to-Flow (SF) Ratio very close to that of Gold. SF equates to the amount of time (years) it takes to generate the current amount of “stock” of an asset.
2016-2020 Bitcoin SF = 25
2020-2024 Bitcoin SF = 50
2019 Gold SF = 62
2019 Silver SF = 22
Bitcoin’s soft fork is deemed to be an exciting technical upgrade to the existing base protocol. With it brings a host of new updates including Taproot/Schnorr implementations which enable better user privacy on top of the public chain. The intricacies of these two additions are above my understanding from a technical level so if you are interested feel free to start your research in The Block article attached below. Besides enhanced privacy, Bitcoin may soon be ready for a bitcoin collateralized stablecoin thanks to the RSK mainnet and future smart contract capabilities.
Since early 2018 Bitcoin’s Lightning Network has shown impressive growth in number of open channels and bitcoin locked but actual user numbers are hard to get a fix on and don’t seem to be up to par. Several companies are working on solutions to bring the Lightning Network, 2nd layer scaling technology, to the masses. The Lightning Network aims to be a cheap and viable way for merchants and consumers to use Bitcoin for everyday business. With the tremendous growth of Ether locked in DeFi last year I estimate a similar effect will play out on the Lightning Network.
Finally a recent development in the long awaited Bitcoin ETF/ETP saga. Last year Grayscale Investment Trust filed a Form 10 with the SEC to make regular filings regarding their publicly available bitcoin investment vehicle GBTC. After a couple months Grayscale is now an official SEC reporting company. This brings more transparency and legitimacy to a publicly available investment vehicle related to the price action of bitcoin. A step in the right direction for an upcoming ETF.
https://link.medium.com/CtPi9ymEx3
https://messari.io/article/lightning-na-na-na-na-na-na-na-na-na-na