Unit 10 Lecture Notes

This month's bulletin will focus on the question of Bitcoin scaling, and in particular, how it can grow as a widespread monetary standard. This paper examines the magnitude of the scaling problem, and the challenges Bitcoin will face on its way to a much larger volume of transactions. Due to its nature as a hard money, I argue it is not realistic to expect it to remain a niche network limited in its adoption by on-chain scaling capacity. Demand for hard money is self-reinforcing and will likely make Bitcoin grow far beyond its on-chain scaling capacity, necessitating off-chain scaling solutions. We examine the trade-offs and risks involved in these solutions, and then discuss what can be learned from the growth of the gold standard, and whether Bitcoin can avoid the fate of gold.

Before delving into this topic, a little disclaimer is in order. None of the analysis presented here is intended as a design proposal, and this paper isn't arguing for adoption of one technology over another. Instead, this paper presents my understanding of how economic reality is unfolding around Bitcoin given the technical limitations involved. It is my hope to offer the reader useful mental models with which to understand Bitcoin's scaling and to address the main questions around it, rather than advocating for any particular path for bitcoin users to adopt.

Source: Saylor Academy, The Bitcoin Standard as a Scaling Solution
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