Limitations Of Bitcoin

Changing The Rules

Bitcoin was built to be open source, so anyone that doesn’t like the rules can simply make a copy and create their modified version. This is known as a Fork. To date there have been over 100 Forks, which underlines that in many people’s eyes Bitcoin’s design has flaws. It should also be seen as both underlining the democratic nature of Bitcoin

Building The Missing Functionality

The concept of layers sees Bitcoin as the base layer, with transactions recorded in blocks connected across an ever-increasing chain.

What happens on the base layer is often referred to as happening on-chain. Transactions that happen on-chain are subject to the consensus rules and with Bitcoin, the limitations of the trilemma.

The Lightning Network (LN) gives the transaction speed of Visa, at a fraction of the cost. The technology exists, what is missing is the usability and network effects.

Sacrificing One Of The Concepts

The two options so far for addressing problems of Bitcoin scaling as a convenient medium of exchange have looked to either adapt the Bitcoin design, or build on top of it. The third area of innovation retained the concepts but through fundamentally different designs and elements of compromise.

The most important cryptocurrency after Bitcoin is Ethereum. Though there are some similarities in their use as digital currencies, Ethereum has a much grander ambition - as a world computer - has a visible creator, in Vitalik Buterin, and less clarity on the crucial aspect of its money supply.

Ethereum quickly inspired a wave of cryptocurrencies which were able to use it as a launchpad, along with a simple standard for generating new coins called ERC20. This enabled rapid innovation, opening the door to different approaches to the trilemma.

One of the crucial aspects of Ethereum was the way that it raised its initial investment. The team - based in Switzerland - established what is known as the Initial Coin Offering (ICO). It was a shortcut to the traditional way of raising investment for a new business. Anyone with bitcoin, an email address and a willingness to take the risk could invest.