I'm not commenting on the 1M$ price prediction, but rather the technical challenges and possibilities.

> Last I heard bitcoin was not technically able to be used as a payment processor subsitutes. My impression then is the whole affair is a bit of a playing-chicken racket.

The fundamental features of Bitcoin are its limited supply [1], programmability and not being controlled by any single entity, not allowing policy enforcement on-chain. While it is true that on-chain (layer 1) Bitcoin transactions provide very limited throughput, there are other approaches to provide scaling that are built on top of Bitcoin (layer 2) using said programmability.

To date there are two major approaches for trust-minimized L2 systems:

1. Payment channel networks (Lightning [2]) that basically use the blockchain only when joining or leaving the network or on conflicts/fraud attempts. In theory millions of transactions can happen on Lightning without ever needing an on-chain transaction. The main limitation is the onboarding capacity, which (with Bitcoin's current limits) is not sufficient to make Bitcoin a global retail currency. There are also some logistical issues with running a Lightning node that make still trustless, but semi-centralized apps preferable (e.g. Phoenix [3]). Don't get me wrong, Lightning is awesome and the best solution for retail Bitcoin adoption we have right now, but I think if Bitcoin is going be used in retail by everyone globally then that will require other solutions. Luckily that won't happen over night.

2. Federations are another way to scale Bitcoin. Fundamentally they are just a group of entities that jointly hold Bitcoin in a wallet such that transactions can only be made if a quorum is reached (using m-of-n "multisig" wallets) and enforce certain rules on those coins.

One example of such a Federation is Liquid [4], which is a federated sidechain by Blockstream (full disclosure, I contract for them [6]). One can transfer in and out bitcoins to and from this sidechain and transfer the bitcoin-backed sidechain tokens. Such federations allow for easier upgrades (only federation members have to agree), so Liquid is used to test ideas that can't be implemented in Bitcoin (yet?) such as Confidential Transactions which hides transaction amounts through homomorphic commitments.

But other federations that don't run their own blockchain are also imaginable (e.g. based on chaumian e-cash). The fundamental idea stays the same: they create a more efficient, cheaper way to transfer tokens verifyably and fully backed by real bitcoins that are redeemable at any time. The fact that multiple entities enforce the rules and hold the collateral jointly makes them relatively resistent to few of these going rogue. While this sounds a lot like early banking verifyable backing and permissionless, potentially anonymous founding of such federations makes it more robust against regulatory capture imo.

So I think there is a good chance that Bitcoin will at least capture some of the market share of gold, and potentially some of the failing nation state currencies (they always fail eventually because it's too tempting to print your way out of recessions until it doesn't work anymore [5]). You can do the math on where that would put the price.

[1] Some economists disagree that it's a feature for a currency on the basis that it's bad for the economy as a whole. I'd argue that at least on an individual basis a money with little/none and predictable inflation is preferable.

[2] https://en.wikipedia.org/wiki/Lightning_Network

[3] https://phoenix.acinq.co/

[4] https://liquid.net/

[5] https://www.principles.com/the-changing-world-order/#chapter...

[6] If you are wondering if that's why I'm slightly critical of Lightning, it's not, it's just my personal opinion/observation (as is this whole post), Blockstream also develops a Lightning node implementation https://blockstream.com/lightning/

user:	sgeisler
created:	January 8, 2018
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