Disclaimer: The information in this blog represents the opinions of its author and is for educational purposes only. It is not intended as investment advice. The bitcoin market is extremely risky so you should only invest money you are willing to lose.
Bitcoin Goes Bananas
When the news finally broke at Noon on Nov. 8th that SegWit2x was off, bitcoin price went off the charts - literally - in both directions. First it rocketed up to $7898 then plummeted to $7150 all within about 90 minutes. It finally stabilized in the $7300 - $7400 range and over the past few days has been retracing just as we predicted to the 50% level at $6738.
$100 Billion Game of Chicken
The nerds have been playing a $100-billion game of chicken with the future of bitcoin over the past few months. If we ignore all the hype and just look carefully at what the price action is telling us we realize that's not a bad thing. The typical considerations in the growth of a business - scalability, speed, market dominance - all gave way to the founding principles of Satoshi Nakamoto's revolutionary vision - a community ruled by consensus, not by fiat.
Not A Business
This is why the fork fight is a very good thing for bitcoin - it reminds us all that bitcoin is not a business and it is not subject to authoritarian decree. It is a revolutionary new asset class managed by a community through consensus. As long as future debates about bitcoin stay true to this founding principle, it will retain its competitive advantage over all the stodgy, sclerotic, old-school asset classes out there.
This is also why bitcoin will continue to defy attempts at fundamental valuation. The consensus of the community will never allow typical valuation parameters such as growth, market share, adoption, or market cap to supersede the principles of distribution, decentralization, and consensus.
Principles Over Parameters
The common thread that engenders confidence in the future of bitcoin is that it's not a question of this or that block size, data compression algorithm, or ASIC-resistant protocol, but rather a question of hewing to the original principles that make the cryptocurrency revolution unique in the first place.
Nothing To Shut Down
Satoshi's vision was that of a truly distributed ledger that anyone, anywhere, with any computer could have a complete copy of. That is why bitcoin blocks have a hard-coded limit of 1 Mb. As one analyst described it when talking about regulating bitcoin - it would be impossible to regulate because there's "nothing to shut down". The only way to turn off bitcoin would be to completely turn off the internet, everywhere, and even then you could still run the network using radio waves.
Anathema To True Distribution
SegWit2x would have doubled the block size and increased the speed of transaction processing, but many in the community argued that it would also make running a full node prohibitive to the typical user - anathema to the founding principle of distribution. When full nodes can be run only by wealthy groups and corporations, rule by decree becomes more likely.
Consolidation of mining resources has also become an issue of contention as the cost and energy expenditure of mining is rising along with transaction fees. This was the dispute underpinning the gold fork, which uses a supercomputer-resistant mining protocol. When mining is only happening in a few locations, that violates the principle of decentralization, and also makes rule by decree more likely.
VISA or Gold?
As bitcoin inevitably grows, it will have to process more than 7 transactions per second (VISA processes 20,000) to become the next Paypal or VISA. The community will also have to decide whether bitcoin's ultimate future is that of the next digital gold (a store of value), a speculative investment, or a truly global, borderless, transparent, quick, cheap, secure, and universally accessible value-transfer mechanism that can provide financial services to the entire world.
I have little doubt that applying its collective intelligence in the spirit of consensus and hewing to Satoshi's original principles, the bitcoin community can figure out a way to do all three.