I haven’t written about crypto for a little while. The main reason is that I don’t want to pay too much attention to annoying crypto people like Balaji and its endless scandals. But since today is a light news day and the bitcoin network has been going crazy over the weekend, I decided it’s time to make another post about crypto.
The Bitcoin network has been congested since this past Sunday and currently has 460K+ pending transactions. If you want your transaction to go through reasonably fast, you have to pay $18 of transaction fee vs. $1.2 before the congestion issue occured. The congestion is due to some kind of NFT application putting a lot of data on the bitcoin blockchain. Binance had to suspend the BTC withdrawals because of the congestion. It’s crazy how fragile the bitcoin network is. It mints one block every 15 minutes and there’s really no solution for congestion problems like this. Sure you can use the bitcoin lightning network to make instant payments but it was not fully finalized until it is recorded on the BTC network, which is a very slow, energy inefficient PoW blockchain. Apparently, it’s not too hard for people to paralyze the BTC blockchain by coming up with various ways to overwhelm the network and AFAIK there’s no good solution to address this at the mainnet level. Ethereum, on the other hand, has a much better mechanism to handle this. The Ethereum network is upgradable and has moved from PoW to PoS. It is also launching a solution to allow L2 confirmations to form special blocks on the mainnet so the transactions on the mainnet won’t clog the L2. BTC doesn’t have this kind of resilience AFAIK.
BTC currently has a $500B+ market cap. I don’t understand why investors will put so much value on such a fragile network. Instead of owning physical gold, imagine people owning BTC in their wallet in an apocalyptic situation. Do people really want to go through the process of getting their device on the internet, waiting for hours to days to open a lightning network channel, and finally sending the BTC around so they can convert their BTC to actual food and other essentials? I would rather carry the physical gold around. Given that it doesn’t seem very hard to drive up the transaction fees and paralyze the BTC network, I wonder if there will be deliberate attacks on the BTC network from the short sellers. It could be an easy target for tech savvy investors.