It’s likely, but it’s still too early to tell.
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
Satoshi Nakamoto 2008, Bitcoin: A Peer-to-Peer Electronic Cash System
Bitcoin has come a long way since its introduction in 2009 as a new method of transacting value between individuals.
One of BTC’s most famous transactions involved Laszlo Hanyecz, who spent 10,000 BTC for two pizzas in May 2010. The Bitcoin were worth $41 at the time, now worth a whopping $841 million. This event also marked the first type of goods purchased using cryptocurrency.
I can’t think of a compelling explanation as to why instant gratification will ultimately cost you, but I digress.
Nevertheless, good on him for making history with this purchase and for using BTC as intended.
In a January interview with Jack Dorsey, posted on the YouTube channel of Abundant Mines, a Bitcoin mining company in Oregon, the Twitter and Block (formerly Square) co-founder expressed ambivalence about the idea of nation-states buying Bitcoin.
AM: “How do you feel about the concept of nation-state reserves?”
JD: “I think it’s good for the nation-state; I don’t know if it’s necessarily good for Bitcoin. It’s probably good for Bitcoin holders at the moment…If this ends up just being digital gold, I think it’s failed.”
While I partially agree with his views, I won’t immediately dismiss the idea of Bitcoin being digital gold as a “failure”.
Despite Dorsey’s good intentions, Bitcoin’s blockchain still faces the unfortunate dilemma (rather trilemma) of balancing security, decentralisation and scalability.
In other words, while it’s extremely secure and highly decentralised, it can only handle seven transactions per second.
Even if you manage to batch multiple user operations into a single transaction, this is still incredibly slow.
Although it has a significantly lower market dominance nowadays — ~60% compared to over 85% up until March 2017 — many remain convinced it is here to stay.
The growing presence of institutional investors (and government holdings)
I wouldn’t deem the idea of Bitcoin being digital gold a failure. Still, I imagine Satoshi would be very disappointed with the heavy influence of institutional investors (some of which are corporations) over the years, as well as the increased reliance on custodial providers such as BlackRock, Fidelity, Grayscale and other enormous asset managers.
These firms, along with the other nine Bitcoin spot ETF providers, manage just under $100 billion (~1.16 million BTC). The three companies listed earlier control over 80% of these holdings. The iShares Bitcoin Trust (IBIT) alone has $50 billion in AUM.
Beyond the spot ETFs, the top 10 publicly traded companies with the largest BTC holdings control an additional 600,000 BTC, including approximately half a million coins belonging to (Micro)Strategy.
Let’s not forget the hype surrounding President Trump’s signing of an Executive Order to establish a Strategic Bitcoin Reserve and a US Digital Asset Stockpile.
The US Federal Government’s Bitcoin holdings (roughly 200,000 BTC) are predominantly funded by criminal or civil asset forfeiture proceedings.
All of this suggests that the narrative has shifted from BTC primarily being a peer-to-peer (P2P) payment method to being used as a store of value, with rapid accumulation by large entities rather than individuals.
The following point further reinforces this changing focus.
The rise of altcoins with faster blockchains (and stablecoins)
Altcoins such as ETH, SOL, XRP and BNB will likely continue to coexist with BTC, even though they’re far less decentralised than the #1 crypto.
Some will argue that these coexist with BTC, while others will claim that this takes market share away from it. I believe it’s more of the latter.
As financial institutions aim to remain relevant amid a push for distributed networks and peer-to-peer payments, I expect several of them to utilise Ripple’s products, many of which involve XRP.
For the average person who doesn’t care about decentralisation and a censorship-resistant currency, most will gravitate towards altcoins that deliver consistently fast and ultra-cheap transactions.
Besides altcoins, let’s not forget about the rapid rise of stablecoins since 2017, particularly Tether USD (USDT). Most USDT tokens in circulation are held on Ethereum and Tron, with approximately $73 billion and $65.7 billion, respectively. Solana sits in a distant third spot with only $2 billion USDT on its network.
Despite this preference for alternative blockchains, in late January, Tether and Lightning Labs announced that USDT would be issued on the Lightning Network through the Taproot Assets protocol, distributing Bitcoin-native assets on Lightning to enable “instant, high-volume, low-fee transactions.”
Preston Pysh, a renowned Bitcoin-focused YouTuber, spoke with Tether CEO Paolo Ardoino a few weeks ago about Tether’s long-term strategy and the recent news regarding Tether and Lightning, which I recommend you watch.
For many laypeople in the developed world, fiat currencies remain a suitable option for processing payments, despite inflation affecting them, particularly individuals without assets such as real estate, gold, art and other valuable collectibles, or cryptocurrencies like BTC.
Unless we see a breakthrough with the Lightning Network, Liquid, or other open-source layer-2 (L2) networks within the next few years, I expect XRP, SOL, and ETH (mostly via L2s) to continue growing their market share, thereby taking even more market share from Bitcoin.
Additional thoughts
So, has Satoshi’s plan for Bitcoin been ruined?
I’d say there are signs of it due to the rapidly rising influence of institutional investors and the slow progress in seeing Bitcoin as a major player in P2P payments globally.
Before continuing, it’s worth noting that many retail investors rely on BlackRock and the other asset managers mentioned earlier (mostly using Coinbase as a custodial intermediary) for Bitcoin exposure for various reasons, including convenience, tax benefits, and BTC investments through retirement funds.
In brief, we’d need massive improvements and worldwide adoption of the Lightning Network if we are ever to see BTC reach its full potential as an affordable, ultra-fast, and reliable P2P payment system.
It’s highly unlikely that Bitcoin devs would be willing to overhaul Bitcoin’s blockchain to boost scalability, especially if it’s at the expense of security or decentralisation. Thus, Bitcoin L2s and sidechains will likely need to do the heavy lifting.
Moreover, Bitcoin’s trading volume remains impressive, consistently processing over $25 billion daily and regularly eclipsing $100 billion in 24-hour trading volume.
Let that sink in.
A crucial question remains unanswered: Can Bitcoin effectively serve as both a medium of exchange and a store of value?
I believe it could eventually serve as a dual-purpose asset, satisfying both sets of requirements.
Many have prioritised its viability as a form of digital gold, at least until Bitcoin devs manage to permanently fix its very poor scalability without significantly compromising on decentralisation or security.
Some argue that Ethereum L2s have successfully addressed scalability issues as well as the expensive gas fees.
However, this is misleading because its blockchain has relied on L2s that use centralised sequencers (systems that organise and group transactions before posting them to base chain, i.e., Ethereum.
In Bitcoin’s case, while it has L2s available — with most of the emphasis being placed on the Lightning Network over the years — its progress has been hindered by the technical complexity of using these systems on top of Bitcoin and the limited number of merchants accepting LN.
I recommend reading the ‘Beginner’s Guide to Bitcoin’s Lightning Network’ from Binance Academy and this resource from Lightspark.
I have great respect for Dorsey and his efforts to promote the global adoption of Bitcoin as a means of payment.
In Block’s Q1 2024 Shareholder Letter, Dorsey, who serves as the CEO, spoke highly of Bitcoin’s role as a decentralised currency, acknowledging the end goal of seeing it as “the native currency of the internet.”
In this report (page 5), he announced that the company will invest 10% of its gross profits from Bitcoin-related products in acquiring BTC each month.
It reinforces Block’s focus on Bitcoin and blockchain technology, building on the company’s support for the flagship crypto through its digital wallet, Cash App. Its users have been able to purchase BTC through this since 2018.
As BTC remains the oldest and most decentralised digital asset, its increasing favour with corporations and governments is unsurprising.
Ultimately, most people care (exclusively) about the profits they can make from the asset and the control they have over it, especially when institutional investors are involved.
For the retail crowd, many use this as a tool to amass a vast fortune and live a lavish lifestyle, with the clichéd Lambo, designer clothing, and waterfront property or snazzy penthouse.
For others, including myself, it’s about long-term financial security and providing a more comfortable life for one’s children and future generations.
I used to believe that there was a good opportunity for retail to outperform banks in controlling this nascent asset class.
Wishful thinking, I know.
While we had that chance for a while, we have since squandered it, bizarrely embracing the idea of large corporations snapping up vast amounts of BTC and altcoins.
It will be interesting to see how much remains in direct control of retail investors, i.e., the number of non-custodial wallets with relatively small BTC holdings (say, less than 0.5 BTC).
Do you believe Bitcoin will live up to Satoshi’s expectations? Or will it be primarily used as a store of value in the long term? Leave your thoughts below.
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Disclaimers
• The Bitcoin whitepaper, authored by Satoshi Nakamoto, is licensed under the MIT License.
•This blog post is for informational purposes only and does not constitute financial, legal, or investment advice. The author assumes no responsibility for any decisions based on the content provided.
• My opinions in this piece may not reflect those of any news outlet, person, organisation, or other entity listed here.
• Please do your own research before investing in any cryptocurrency assets, staking, NFTs, or other products associated with this space.
• BTC and ETH account for approximately half of my crypto portfolio. ADA and XRP represent another 25%.
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