We saw lots of activity in the Bitcoin world in 2016 and the end of the year saw tremendous action with things heating up for Bitcoin in India and Venezuela, a new administration elected in the US that surprised some people, and the Brexit vote just to name a few. Let’s take a look at some of the things we think will affect Bitcoin and Ethereum in 2017.
Bitcoin’s Outlook 2017
While Bitcoin is a great investment tool and our primary focus here at Magnr, many people are first exposed to Bitcoin as a payment system. That payment system has been running into issues of higher transaction fees and longer confirmation times due to the maximum 1 MB block size in the current Bitcoin blockchain. There are a couple proposals to help improve Bitcoin’s use as a payment system.
The lightning network does what the name implies by making transactions move faster through the network. The transaction is done off-chain, which speeds things up a great deal with blockchain as arbiter in case of dispute. This explanation for you techies of the hashed time locked contracts that are bi-directional explains it pretty well for those that understand the underlying tech.
For those of us that don’t understand it so well, it means a payment channel is open both ways between buyer and seller but only for a short time and if no acknowledgment of payment is made in the time required the payment reverts back to the buyer.
The actual lightning network white paper is right here and worth a read.
Are lightning networks going to increase the utility of Bitcoin in general and as a payment system specifically? Only time will tell but it is a proposed solution to an existing issue that is gaining traction.
The other primary tool proposed to help with payments and increasing the effectiveness of Bitcoin’s block size is Segmented Witness or Segwit. Segwit is a way to handle the block size debate by changing the way data is stored in a digital currency transaction allowing it to take up less space. Litecoin has already adopted Segwit and some people think that the payment network of the future might be Litecoin while the digital asset and store of value remain with Bitcoin. Segwit’s most important non-techie feature is that it increases the block size from 1 MB up to 4MB allowing for more data to be stored and faster confirmation of transactions.
2017 looks like the year where one of these proposed improvements to Bitcoin as a payment system will take hold.
The Ethereum platform could be the most promising way for companies to build blockchain-based applications. Ethereum represents the change in the code known as a hard fork after the DAO hack while Ethereum Classic is the original code. Ethereum is the larger and faster growing market so we are going to look that market which is ETH vs ETC for the classic.
The big deal for Ethereum so far, and rightly so, is the use of smart contracts. When you have a smart contract, it is a self-fulfilling ‘trustless’ contract between parties that negates the need for a middleman like a broker, agent or escrow officer. This is a huge development in the use of this technology and how it can help business and society.
While R3 was set up as a blockchain based consortium of numerous banks there is now a similar group set up to explore Ethereum in more depth. The Ethereum blockchain group is called Enterprise Ethereum.
Unlike R3, which is all banks and all for blockchain research and implementation, Enterprise Ethereum is financial firms like Santander, JP Morgan, and BNY Mellon, yet also tech giants like Cisco and Red Hat and even British Petroleum. Smart contracts and the building of new applications on Ethereum will enable peer to peer payments more easily and could save financials firms millions just on the reduction of staff that fewer middlemen would bring without a lack of transaction fulfillment or revenue.
Ethereum’s potential as the platform for new applications should continue to grow in 2017.
Is Bitcoin more likely to hit $500 or $1500 this year? Or both? We don’t know, which is why our outlook does not include a price projection. We are not examining technical analysis in this outlook, only fundamentals. The fundamentals for Bitcoin and Ethereum both look good going into 2017 and could continue for a couple years.