Layering Doesn’t Scale Bitcoin like it did Gold. Here’s Why:

  1. The difference between the cost of gold settlement and the cost of bitcoin settlement is that the former has a fixed cost regardless of demand, and the latter has a variable cost because there are a fixed number of transactions that can be settled at any time. So when gold scaled to the masses via bank notes, as more people demanded settlement in gold, the cost of that settlement remained the same. When bitcoin increases its number of network participants, the cost per settlement increases which puts negative pressure on demand at the lower transaction range.
  2. The second difference between these two monies is that as gold’s market capitalization increases, so does it’s supply as the incentive to mine increases. This is why gold mining businesses have performed so well during times of inflation fears. Increasing demand for gold increases the supply such that purchasing power remains relatively constant. Increased demand for bitcoin increases demand for hashrate, but doesn’t increase supply, and because block-space is limited, puts negative pressure on demand.

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