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

One of crypto twitters most popular on-chain analysts, Willy Woo, posted the following tweet:

There is a large misconception around the differences between how gold scaled and how bitcoin scales so let’s break it down.

Gold worked well in the industrial age before the advent of the network economy, but is now being challenged by a natively digital form of money: bitcoin. There are 2 very unique differences in these monetary networks.

  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.

Bitcoin maximalists most often misunderstand the implications of fee pressure even as layering is introduced, and therefore come to incorrect conclusions on its monetization limit. Money is what settles debts. If the cost of settling credit increases, it reduces the number of goods that can be demanded in Bitcoin. They also misunderstand that bitcoin can be implemented multiple times w/ indistinguishable monetary properties, which can’t be done with tangible monies like gold. The most well known bitcoin substitute is LTC, and on-chain data has shown that as BTC fees rise, so does LTC demand. This isn’t saying that LTC will win the competition for BTC substitute #1, but it is inevitable that something will if demand continues to rise for BTC.

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