What’s Bitcoin Utility?

I believe Bitcoin's utility is seen by those who grasp similarities to gold and the internet at the intersection of energy, money, and finance, and its potential to cause long-term geopolitical change, impacting people, the planet, and economies.

INDEX

1. Cross-border transactions
2. Streaming payments
3. Privacy-focused transactions
4. NFT ordinals on the Bitcoin network
5. Financial inclusion (“banking the unbanked”)
6. Conclusion

I believe Bitcoin's utility is seen by those who grasp similarities to gold and the internet at the intersection of energy, money, and finance, and its potential to cause long-term geopolitical change, impacting people, the planet, and economies.

1. CROSS-BORDER TRANSACTIONS

Context:

Trade finance, by definition, is when multiple stakeholders exchange business transactions across borders, cross country, and cross-jurisdiction. In order to finance the trade a minimum of 3 banks are involved that need to guarantee the documents, or credit, so the business can grow through debt. The Bank’s letter of credit is an instrument to assure payment for buyer and seller. It lays out the terms, removes counterparty risk, and guarantees payment collection.

If on one end banks and financial institutions have high administrative costs and high risks, on the other end, the parties involved major hurdle is trust between so many people involved in the transaction:

Challenges:

Lots of frauds, double financing, counterfeits, waste, manual faults due to lots of paperwork, information asymmetries, data standardization, lots of validation and verification, and lack of digitization. Agreements between institutions, incompatible systems, cross-border regulations, different regulatory regimes between different countries, and issues of trust among jurisdictions.

Value proposition of the Bitcoin network for cross-border transactions:

• Solution: The Bitcoin network offers a unique value proposition of enabling trust between untrusted participants by providing a ledger that ensures provenance and state of transactions, transparency, security through cryptography, and a tamper-proof network.
• Benefits: this leads to data integrity, operational efficiencies, and significant cost-cutting from counterfeits, waste, and data communications. For businesses involved in cross-border trade, Bitcoin can serve as a digital asset that can be held to hedge against currency fluctuations.

2. STREAMINING PAYMENT: MICRO AND MACRO

Context:

Moving money across different parts of the world can be a challenging task, whether it's a micro amount, or larger than 10k.

Challenges:

The process can be time-consuming, expensive, and involves a lot of bureaucracy.

• Solution: with the help of Bitcoin technology, along with L2 and L3 protocols, the movement of money can be made easier and more efficient. This layered approach allows for the quick and low-cost transfer of both small and large amounts of money.

Benefits:

• Low-fee transactions through a combination of bitcoin base layer and different L2 solutions. Almost real-time, no settlement, immediate transaction finality, t0.
• Transaction throughput the number of transactions bitcoin L2 lightning network can process per second can reach up to 20.000 TPS, transactions per second
• Almost real-time, with no settlement, immediate transaction finality, t0
• Secure and with privacy features that are improving with the advancement of technology

3. PRIVACY-FOCUS TRANSACTIONS

The traditional banking system ensures privacy by limiting access to information to the involved parties and a trusted third party. However, this privacy comes at a cost, as the funds are held in a custodial account, and access to them is granted and regulated by banks and local government guidelines.

Bitcoin network is public, and self-sovereign, no one grants access to anybody.

Although the transactions are public, privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous. The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone. This is similar to the level of information released by stock exchanges, where the time and size of individual trades, the “tape”, is made public, but without telling who the parties were. As an additional firewall, a new key pair should be used for each transaction to keep them from being linked to a common owner. Some linking is still unavoidable with multi-input transactions, which necessarily reveal that their inputs were owned by the same owner. The risk is that if the owner of a key is revealed, linking could reveal other transactions that belonged to the same owner

Lightning Network payments are much more private than payments on the bitcoin blockchain, as they are not public. While participants in a route can see payments propagated across their channels, they do not know the sender, or recipient.

Liquid network, bitcoin L2 layer side chain, integrated with lightning, adds additional privacy, liquidity, and assets tokenization to the bitcoin network.

4. NFT ORDINALS ON THE BITCOIN NETWORK.

The value proposition of NFTs can be meaningless or can make a difference whether a unique digital representation of an object, or digital item, has a market value that drives demand interest, and makes sense to trace and certify the trend and object itself.

Part of bitcoin community considers NFT useless and complains about their usage on the Bitcoin network since more transactions have higher transaction fees for everyone using the network. How ordinals work and their implication to the Bitcoin network are greatly explained in the article of Breez ’s founder Roy Sheinfeld

Ordinals, inscriptions, and BRC-20 are the bone(s) of contention. Ordinals allow individual sats to be identified; inscriptions allow objects like text, images and data files to be written onto them; and BRC-20 allows second-order tokens to be minted directly onto them, like an Ethereum-lite. In effect, they introduce storage as a new use case for the Bitcoin blockchain in addition to its existing and principal use as a ledger for currency transactions. These features are affecting block sizes, transaction fees, and validation times, so they’re not inconsequential.

The upshot is that:

1. sats are now uniquely identifiable according to a new convention,
2. people can add data to sats,
3. token-minting algorithms are a kind of inscription data, so people can mint tokens on the Bitcoin blockchain,

"I believe that Bitcoin is an open public infrastructure and its market is democratic. The validity of NFT will be decided based on the demand. Apart from its market fit, it can serve as a way to test the Bitcoin network. The ultimate goal is to reach the network effect of 8 billion users. By stressing the network and facing scaling limitations, Bitcoin builders are forced to find creative solutions to overcome current and future challenges."

5. FINANCIAL INCLUSION (“BANKING THE UNBANKED”)

According to the World Bank’s latest report, nearly 1.7 billion people are unbanked globally. That’s close to one-fourth of the global population without access do not have access to formal financial services or traditional banking systems.

This means they do not have credit score to request a loan for any kind of business activity. They can’t be reached easily and safely by anyone, or any organization that would like to send donations to them. Additionally, in many countries, females are not allowed to have their bank accounts since men want to keep them in a slave condition denying them to be economically independent.

Bitcoin is a decentralized, permissionless global infrastructure that allows anyone to pay, or transfer money worldwide almost instantly and with low fees. It is accessible via mobile phones even without an internet connection.

CONCLUSION

I see bitcoin utility as a ladder that has at the bottom bitcoin as a wealth preservation instrument, second as a mechanism to foster the development of sustainable energy to solve energy scarcity, inaccessibility cost, and Co2 offset. Last, as the most efficient public settlement digital network and sovereign currency.

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