Bitcoin Is In Peril Due To The Centralization Of 2nd Layer Scalability Solutions

Cypherpunk Labs

Bitcoin is in dire need of a scalability solution, since its 10 minute confirmation times and 1 MB block size makes it unready to handle even a small fraction of global retail transactions, with the ultimate result being that Bitcoin is barely used as a real-life currency and is instead intimately linked to fiat. In an attempt to fix this, 2nd layer scalability solutions like the Lightning Network and Liquid have been developed, but these are centralized, and could theoretically one day require know your customer (KYC) verification and be subject to government regulation. Even worse, banks could release 2nd layer scalability solutions like Lightning Network, diverting most users away from the main chain and ruining the decentralization of the Bitcoin economy. Even worse, transactions getting diverted from the main chain can lead to insufficient mining revenue long term as block halvenings continue, causing the network hash rate to decrease, and making the Bitcoin network more centralized. If this gets extreme enough it is perhaps even possible that banks could become the majority of the hash rate, and force KYC for all Bitcoin users.

In order to prevent this outcome, it is essential for the Bitcoin community to come together and revamp the technology of Bitcoin so that it is instant and scalable. This could perhaps be accomplished by integrating a decentralized lightning network-esque option into Bitcoin's code, and nodes could be incentivized for running this network. This would make Bitcoin scalable and instant, while simultaneously providing sufficient income for miners to maintain the decentralization of the Bitcoin network long term, as opposed to the current situation where 2nd layer scalability solutions are centralized and divert income away from miners.

We also discuss how the mantra of HODLING and in general Bitcoin being viewed as an investment is preventing the critical changes that need to be implemented for Bitcoin to truly become a currency.

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