Are we headed for…Lightning?
It really is a headf*** to try and work out what’s going on in crypto overall. In the beginning we had Bitcoin and so many amazing ideas for use cases sprung forth in those first years (e.g. Micropayments, which by itself is a huge opportunity for the Internet). Yet, in the last few years I don’t think we’ve seen crypto adoption or understanding grow at all in terms of the general public. Why?
In the case of Bitcoin it is obvious, the transaction fee disallows micropayments even when crypto is very unpopular, as in the very depths of crypto winter the fee is still around $0.10 and when crypto does get popular $10 or more obviously disallows, not only micropayments, but a lot of normal payments too. At the same time we’ve had the emergence of many altcoins that could do micropayments perfectly well, but yet they do not thrive in it to any significant degree. Why is there no economy growing around XRP or EOS micropayments, for example? Why not?
Is it scale? Is it that if I’m a publisher (or anyone else who is considering accepting crypto), that when I look at the options I’d rather choose the most popular cryptocurrency? If I have to make one choice, it does make some sense that I’d go with the coin that has the biggest network effects, users and overall economy. A rational individual will choose the coin that covers the biggest part of the market. Of course we know that a publisher could accept many cryptos, but then again, we have to remember that for the average person out there, they (a.) have probably only heard of Bitcoin, (b.) perceive it as a lot of work to set up even just ONE crypto wallet and (c.) find the pure choice of altcoins overwhelming. Choice is not always an advantage because most people do not want to consider and research for which is the ‘best’ one, or the best ones. Also, it is a fact that Bitcoin is the easiest to use.
I’m a big altcoiner myself, even going through times where I have only Altcoins and no Bitcoin at all. My favourite project is Cardano. Yet, I am very interested in the race between altcoins and Bitcoin’s layer 2 solution known as Lightning. It hurts the brain to try and figure out which solution will come out on top. Theoretically we should have Bitcoin wallets, in the future, that have Lightning built in and operating behind the scenes. This is planned to be integrated at such a level that the user doesn’t even have to know anything about it, besides an option on their payment screen that lets them choose ‘blockchain’ or ‘lightning’ for the type of payment. The software will manage it all for us.
But that kind of easy Lightning/Bitcoin is still a year or two away (late 2020, perhaps). One huge question is whether an altcoin can rise to prominence before Lightning matures. There are a million reasons why altcoins can be brilliant and amazing, with so many features. We’ve all been around that researching merry-go-round enough times.
Are we headed for…Interoperability?
A serious alternative to Lightning could be that altcoins could themselves start unifying with sidechains and atomic swaps. An idea pushed by Cardano and others is the ability to move coins from their native blockchain to others and have them be used there. Suddenly owning one of those coins gives a person access to every feature of every blockchain that makes itself compatible as a sidechain. Note that Bitcoin might not be able to join the sidechain party because it’s code is (a.) a bit too dumb for that and (b.) the Bitcoin community is extremely resistant to making any changes to the protocol.
What would the sidechain party look like? It will be weird, very weird. You can have your ETH on the Cardano network and your ADA on the Ethereum network. You can perhaps send your XRP to one of them and later to one of the others. If the coin is no longer contained in it’s native network, surely the price of that coin isn’t either. You could own just one coin and use it on any of the sidechained networks, without any reason at all to go and buy different coins. It will surely raise the question of ‘why do we even have different coins here?’ For one, the consensus algorithms of each blockchain will still depend on it’s native coin, so we can’t just get rid of them. The second question is ‘Then why doesn’t somebody just build from scratch a load of blockchains that are sidechained but these ones are all going to use the same coin’, self-interoperable like the way that all of the organs in your body are interoperable on the same basis, which is blood. It makes sense to have one blood running throughout your body, not many different kinds of blood.
Also, there is the network effect to consider. One coin that can do many things is a lot more powerful at mass adoption than a messy bundle of intercompatible coins. There is a very real cost to complexity because businesses and individuals a like only have a limited attention span, or a limited willingness to spend more than X hours of time learning about it. Good luck on forming an ecosystem where people deal in dozens of coins all at once, it is simply beyond the mental scope of normal people. Moreover, this is something that cannot simply be concealed by software, because it is VERY important for people that they are aware of the value of the money that they have. You cannot ask somebody to own an altcoin and not to worry about the value of that as it fluctuates. There is a real mental load to consider with a ‘universe of coins’ type of approach, and it cannot be obfuscated.
Cardano might shine brightly in regard to this, because they are building both a settlement layer and a computation layer which will be sidechains of each other and both using the same coin (ADA). In essence, one layer will act like Bitcoin and the other layer will act like Ethereum…but they will both use the same coin and you can easily send your coins between these layers. Even cooler, new forks of Cardano will be able to be created in order to try new features or even controversial ideas and these will start without any new coins at all, but you’ll have the ability to use them as sidechains and move your ADA onto them as well. This could remove the drama normally associated with ‘hard forks’.
If I can do (safe) Bitcoin-like stuff and (cool) Ethereum-like stuff using only one coin, do I really need more than that right now? It’s not as if we’ve realised the potential of smart contracts yet, so it should be enough to keep us busy for quite a long time.
Bitcoin vs Cardano vs The Universe
There’s a fundamental question, how to reach the people who currently care zero about crypto. They aren’t going to spend even the tiniest part of their mental energy trying to research altcoins. They generally understand nothing about crypto. A lot of people do know the word ‘Bitcoin’ and perhaps they will be interested one day to hear that ‘Bitcoin has been upgraded with Lightning and now it makes instant payments and there are no fees’. That sounds good even to a non-crypto person.
Maybe that will register. Maybe their eyes will widen to realise that this is not like normal money, this is money that can be ‘upgraded’ (yes, we know its technically on the second layer of Bitcoin but they won’t even have to know that to be able to use it). If Bitcoin is one money that gets improved over time by adding more layers and features, surely that makes it an appealing thing to have. Notice how that mimics the growth of the Internet’s abilities in terms of layers. That might get the interest of a lot more people.
This is my case for Lightning, even though usually I’m not much into Bitcoin. One counterpoint, though, is that Bitcoin’s foundations may become restrictive for the things that can be built on top of it. You can’t upgrade something too much if it depends on a very simple foundation, not to mention that the community is so resistant to any changes that it is impossible to change anything important on the protocol, foundation level. There are good reasons for that because we do need a slow and steady, dependable and safe money. In our crypto space that is absolutely Bitcoin. Safety is so important for money.
Yet, another key aspect of our space is innovation. Exciting, futuristic, dreamy innovation. It’s a great thing to have, so how do we solve that dilemma? Ethereum has so far represented those lofty dreams more than any other project, but dramas such as the famous DAO hack and all the scammy ICOs of recent years have dented confidence. Also, it is simply a given fact that Ethereum is more vulnerable simply on the basis that it is extremely complicated and smart contracts on it are hard to understand. For sure people can build very cool decentralised things, but the problem is that not everyone can build safe things.
We associate Bitcoin with safety and Ethereum with innovation, but the two things do not occupy the same space in our brains. I think Cardano has a shot at elegantly combining the super safe layer (socially respectful because of their mountains of scientific research and papers) and the computation layer (which is reduced in complexity compared to Ethereum and which can be reasoned with much more easily due to things that Cardano has built itself around such as ‘Correct-by-Construction’ programming and formal methods of specification, which will let the smart contracts infinitely more auditable and safe.
And yet, there is a lot of competition all around and the crypto space is extremely unpredictable. Crypto is extremely complicated and it lends itself perfectly to a kind of guessing game, not based on luck, not based on simple facts, but based on something as complicated and chaotic as the weather. If you can guess what the weather will be next year, maybe you’ll get rich, but that is much the same as a traditional stock market where everybody is trying to guess what will be worth more in the future. The difference is that, while the traditional world has solid criteria to be guided by, we’re still guessing at what factors will make a cryptocurrency widely adopted. It’s an intense mental exercise to try and process how a whole new sector will play out and our brains processing ability is essentially fighting against chaos theory.
Bitcoin and Cardano both have great ideas for the next big evolution of cryptocurrency in terms of having not one, but two layers native to them. Will other, single-layer blockchains really be able to compete, given that their only other option may be to combine in messy multi-coin sidechain arrangements?