2020 was undoubtedly the year of decentralized financing. With an increase in interest and discovery, DeFi protocols have accelerated economic innovation as they transform the blockchain landscape. Through innovations in active gateways and DeFi protocols, Ethereum has attracted a significant amount of Bitcoin (BTC) assets, and reduced the number of bitcoin transfers along the chain.
In the future, this trend will pose major challenges for Bitcoin’s network security, especially as BTC continues to phase out blocking rewards gradually, with the result that miners are increasingly unable to generate revenue. Prior to the DeFi explosion, BTC spokesmen were confident that they could generate revenue from the platform’s transaction fees, but this does not appear to be the case anymore. Looking ahead, I will explore the future of BTC and its implications for the blockchain sector.
As blockchain adoption enters a new phase, decentralized financing facilitates the irreversible transition from centralized financing as users accept self-reservation. Since the launch of liquidity cultivation in July 2020, large cryptocurrencies such as Ether (ETH) have increasingly shifted to decentralized platforms in the last four months. Trading volume on decentralized exchanges now accounts for 10% of total market turnover, up from only 1% in the same period last year, and the MetaMask user base exceeds 1 million users this year. Apart from the multi-year safety issues and regulations of CeFi, users make self-safety decisions despite unaffordable gas charges, network load and launches of new products. In short, 2020 saw the victory of the open source approach to blockchain, with users taking on both the risk and the benefits that are unique to DeFi.
Since March 2020, the volume of key foreign exchange transactions has decreased, while the number of newly registered Ether wallet addresses has increased rapidly. In short, Ethereum has revolutionized the usefulness of cryptocurrency exchange. Users are now increasingly storing and increasing assets, and getting more platforms to develop DeFi products.
Ethereum beats Bitcoin with DeFi management
Perhaps one of the most notable changes in 2020 was the redefinition of Ethereum Bitcoin as Defi’s flagship infrastructure and public settlement network. Ethereum is expected to surpass Bitcoin transaction volume for the first time, and will also be the first blockchain to record over $ 1 trillion in transactions. In addition, Ethereum’s total fees have exceeded Bitcoin’s fees this year, indicating its previous ability to generate higher returns for users.
Bitcoin and the rise of DeFi
Bitcoin will face a decline in network activity as well as insufficient transaction fees due to the emergence of DeFi. Given that Ethereum has bypassed Bitcoin as a settlement network, there is now a very real possibility that Bitcoin-based transactions may disappear in the future.
Recently, the daily trading volume of BTC trades on Ethereum-based decentralized exchanges has exceeded $ 100 million, which is over 1% of the total BTC trading volume, despite only 0.71% of the 21 million BTC traded on Ethereum.
In short, Ethereum BTC’s turnover rate is higher than vice versa. Furthermore, the trading volume of BTC assets on Ethereum has grown significantly; It is now expected that over 4% of the total BTC will be deposited in the Ethereum ecosystem by next year, if this trend continues.
Due to the growing number of use cases for Ethereum and the development of on-chain protocols, BTC is now moving to Ethereum, while Ethereum is tracking bitcoin transactions in the chain.
Therefore, Bitcoin’s journey is full of risk. As Bitcoin continues to shrink in two, miners are increasingly relying on transaction fees, but over time, fees account for a smaller and smaller share of revenue. Transaction fees are currently estimated to cover only 30% of mining costs – not enough, especially with the ongoing halving and blocking of rewards.
In the future, the cost of mining bitcoins could fall to tens of thousands per hour – an amount that cannot be maintained by a network that hosts hundreds of billions of assets.
Related: Jumping in the Pool: How to Make Money on Bitcoin & Ether Mining
In light of this challenge, the Bitcoin community has three options for the future: to increase network fees, implement Bitcoin-based DeFi or implement a moderate inflation policy. We will analyze and discuss each method in more detail.
RELATED: DeFi will not last long unless it opens the $ 250 billion Bitcoin Treasure Fund
Maintain network security and transfer BTC
Now I will discuss the future size of the BTC market, its model and the cost of maintaining the BTC network along with phasing out block rewards. First, I noticed that there is a certain speed used to keep the network secure.