Unit 10 Lecture

Every year, approximately 2 billion digital transactions occur globally using legacy financial institutions and payment processing applications. In contrast, Bitcoin's base layer can currently handle only around half a million transactions. These figures shed light on the substantial scaling demands necessary for Bitcoin to achieve widespread adoption. However, scaling the Bitcoin base layer to accommodate such volumes would entail expanding its block space, which could potentially compromise the decentralized nature of Bitcoin. Dr. Saifedean emphasizes that it is precisely this decentralization that gives Bitcoin its value. It is crucial to grasp the concept previously explored in this course, which asserts that hard money cannot remain confined to a niche. Since its establishment in 2009, the user base of Bitcoin has experienced exponential growth, accompanied by a rise in daily transactions. As adoption continues to expand, it is anticipated that transaction fees will also increase. Consequently, utilizing Bitcoin for day-to-day transactions could become expensive. Dr. Saifedean argues that the essence of cash lies not in making small payments, but in the capacity to settle transactions without incurring any counterparty liabilities. This unit aims to provide students with insights into why increasing the block space is not the appropriate solution for resolving the scaling issue in Bitcoin. Instead, the focus will be on exploring alternative scaling approaches, such as second layer solutions like the Lightning Network. Additionally, the unit will examine the role of private banks in the scaling process, recognizing that Bitcoin is not intended to replace or replicate the functions of traditional financial institutions. By delving into these topics, students will develop an understanding of the potential pathways for scaling Bitcoin effectively.