Second tier Bitcoin solutions are not profitable today

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Important facts:
  • Despite the difficulties, the second-tier solutions will continue to tell us something

  • Interoperability between protocols is the main attraction when developing these solutions

According to a study by researcher Mohamed Fouda, Bitcoin’s second tier solutions are still not profitable for those who use, develop or maintain them.

The analysis titled on the TokenDaily.co page The level of L2 investmentsargues, however, that thanks to the constant and intense discussion about these solutions, You could be an opportunity for the future and they are a viable and beneficial reality for a large number of companies and users.

This compares the capacity of Lightning Network (LN), Liquid and RSK (RootStock), Bitcoin’s second tier solutions. Explain that Ethereum’s solutions will be discussed in a future release.

Lightning Network: insufficient commissions

Starting with LN, he mentions that this solution became popular in 2017, even though the whitepaper dates from 2015, because this year the enormous volatility and intense commercialization of crypto assets overloaded and delayed the Bitcoin and Ethereum networks and high values ​​caused transaction fees.

LN was introduced to the Bitcoin core network in March 2018, while other second-tier solutions such as SpankChain and Loom Network were implemented on Ethereum. However, interest declined as market activity declined and I am getting crypto prices Implementing a second tier solution was no longer a priority.

Although the development of these solutions slowed down during this time, interest increased again in the last half of 2019 with the suspicion that a rapid price increase was approaching (Bull run) and these solutions would be necessary again.

LN is by far the most important and controversial second tier solution […] Since its inception, the network has seen impressive growth in number of channels, network capacity and use cases. However, entrepreneurs and investors are still thinking about which options are most feasible in the LN ecosystem. The areas they investigated include: creating spaces to collect commissions with full liquidity, integrating LN into services, managing payments through LN, and investing in LN infrastructure

Mohamed Fouda, researcher.

The study found that many companies have seen the opportunity to keep these payment channels in exchange for commissions because LN’s goal is to build a network of micro-payment channels The operating costs and risk of such new technology prevent them from achieving the expected profitability.

“After two years in business, LN skeptics have proven to be right. To date, it has not been possible to build a profitable business by collecting only the commissions from the LN payment channels, “he says.

He gives the LNBIG company as an example and points out that it is one of the largest LN liquidity providers, operates 25 public nodes and “controls” about 50% of the LN capacity; One of his anonymous founders said in an interview that they are opting for long-term adoption despite the currently operating loss-making companies.

He also cites a study by BitMEX Research, which argues that even under the best conditions (e.g. low commissions) LN’s first year only had a 1% return on investmentAn amount that does not cover the cost of opening and maintaining other payment channels.

Citing the success stories of Fold, who raised $ 2.5 million last September, and Bitrefill, which raised $ 2 million in venture capital firms’ investments to expand corporate LN operations, it will Boom not excluded. of risks. “Some companies, such as Sparkswap, which were financed by venture capital firms, found that they were too early to benefit. Being premature in the startup world is the same as being wrong, “he says.

Liquid: Stablecoins can be a no

Regarding liquid, they explain that in 2019 there were less than 100 BTC in circulation in this network. However, several hundred BTC have been received monthly since January 2020, “which reached an effective capacity of 1600 BTC in April and the LN capacity,” he confirms, as we reported in CryptoNews.

Even with the 44 entities that are part of Liquid, this did not mean that users were drawn to the use of this tool since There are some doubts that the practical implementation is far from the model expected by the Bitcoin community.

The current design ensures that Liquid emulates the ERC-20 token model by issuing tokens or assets such as tether (USDT). This could be disappointing investors who have deposited USD 55 million to fund the project.

RSK: Problems due to poor business performance

In the case of RSK, it is stated that this platform on Bitcoin should act as a replica of Ethereum, since programmable tokens such as RSK Smart Bitcoin (RBTC) are to be issued by using the intelligent contracts of this platform, some solutions companies are already using.

“Despite the fact that RSK has been in operation since December 2018, it has only attracted a total of around 160 BTC, with an average of 50 BTC in 2019,” the analysis says, indicating that it is despite The multiple financing rounds, in which revenues were reported, are all about an implementation with low commercial performance.

Now The platform wants to attract more users, but the technological progress of its competitors could overcome itAs the platforms that want to work together between BTC and other intelligent contract systems are becoming more numerous.

Bitcoin’s sidechains struggle to get developers’ attention. His narrative has promoted interoperability between protocols. The logic is simple: why create a new protocol when we can access the desired functionality with more strength and liquidity? “He says, referring to the interest of companies to link their business activities with those of Bitcoin.

The analysis concludes with the finding that despite the difficulties, this trend towards creating second-tier solutions can be strengthened and is an important part of the future financial ecosystem, even for messaging applications or the output of backup assets.

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