How organizational networks are gearing up for Bitcoin incorporation

The following is a guest post from Shane Neagle, Editor In Chief from The Tokenist.

Six months after the introduction of Bitcoin ETFs, it can be confidently stated that they represent the most successful ETF launch in history, achieving a volume of $309.53 billion. On the very first day of trading, spot-traded Bitcoin ETFs attracted $4 billion, surpassing the previous record held by the Gold ETF (GLD), which took three days to exceed $1 billion in inflows.

This achievement is particularly noteworthy given that Bitcoin is a relatively new asset in comparison to traditional gold. The trend clearly indicates that Bitcoin is more suited for the digital era. But what exactly is that suitability?

Jay Jacobs, BlackRock’s Head of Thematic & Active ETFs, recently remarked that Bitcoin serves as a “potential hedge against geopolitical and monetary risks.” Most individuals are now aware that central banks’ capacity to manipulate the money supply introduces numerous moral hazards, ranging from unprecedented budget deficits to inflation acting as an additional layer of taxation to finance excessive spending.

Gold is less capable of countering this manipulation due to its physical nature, which makes it confiscatable and not genuinely limited. Although Bitcoin’s market size is only one-tenth that of gold, its price exhibits greater volatility, making it a more appealing asset for potential gains.

With Bitcoin ETFs now facilitating and institutionalizing access to this more enticing digital gold, what measures are necessary to ensure this trend persists?

Ensuring Network Reliability

Thanks to its proof-of-work (PoW) consensus mechanism, Bitcoin possesses a dual nature. It is a digital asset grounded in the tangible reality of energy and hardware. This foundational aspect grants Bitcoin its value as a decentralized alternative to central banking.

Consequently, the elements of that foundation, the Bitcoin network, must scale up to accommodate ongoing institutional demand. Currently, the Bitcoin network processes approximately 412,000 transactions daily, nearly double the volume from two years ago. While the median transaction fee fluctuates based on network congestion, it seldom exceeds $5 per transaction.

Simultaneously, networks must expand to ensure the Bitcoin network can manage significantly higher loads from institutions. To enhance their stability and resilience, they need to address various network components, including software, servers, hardware, and internet connectivity.

Scalable Blockchain Solutions

Just as IBM has made notable contributions to the development of contemporary large language models (LLM), the legacy technology company has also advocated for blockchain scalability through IBM Blockchain. This immutable ledger is built on an open-source Hyperledger Fabric framework, providing a comprehensive suite of tools for constructing blockchain platforms.

This framework could connect with the Bitcoin ecosystem through atomic swaps, such as virtual vaults utilizing timed smart contracts. In a similar vein, Visa has proposed an experimental Universal Payment Channel (UPC) framework designed as a hub for blockchain network interoperability. The international banking network SWIFT has already completed the second testing phase for atomic settlement capabilities.

When viewed from a broader perspective, a landscape emerges of enterprise-grade blockchain solutions for institutions, linking with international hubs and interfacing with entities that manage Bitcoin exposure, such as Coinbase.

Dependable Servers

Supporting scalable blockchain solutions relies on hardware. This can involve internal servers, through customized solutions provided by Broadcom, or outsourced to external options like the Canton Network.

As a decentralized infrastructure, the Canton Network is a network of networks, utilizing Daml smart contract language and a micro-services architecture. This architecture allows each service integrated into the network to have its own server, which can be expanded with additional CPUs and storage.

By employing atomic settlements, the Canton Network enables real-time settlement across various blockchain applications. By outsourcing services to such networks, businesses and institutions can concentrate on core functionalities rather than managing IT infrastructure, including CPU maintenance, dedicated GPU hosting for AI support, and other critical hardware.

Internet Connectivity

Nodes within any blockchain network must continuously communicate to validate transactions and execute settlements by adding them as the next block on the blockchain ledger. Thus, internet connectivity inherently requires redundancy and failover strategies.

For instance, when Solana faced network downtime issues, co-founder Anatoly Yakovenko engaged Jump Crypto to develop Firedancer as a secondary network validator client to enhance network throughput and stability.

With broader solutions like the Canton Network, which benefits from support from major tech and banking firms, redundancies, multi-channel systems, backup solutions, and load balancing are already integrated into the distributed ledger technology framework.

Enhancing Network Performance

All types of computer networks inherently experience some degree of packet loss and jitter. Packet loss can occur due to excessive demand, leading to congestion, network interference, malfunctioning software or hardware, and data corruption on storage devices.

Transmission Control Protocols (TCP) address packet loss by retransmitting data, which can introduce delays, or by utilizing Forward Error Correction (FEC), which adds redundant data to packets, eliminating the need for retransmission. The Bitcoin Relay Network employs FEC for this purpose, as does the Blockstream Satellite network, providing an alternative method to receive Bitcoin blockchain data.

Regarding jitter, certain data packets may arrive at varying intervals. When jitter occurs, packets may arrive in different sequences, disrupting the data stream. This issue is typically managed with buffers that temporarily store streamed packets to ensure they arrive in the correct order.

Another approach to mitigate jitter is to implement quality of service (QoS) network configurations that prioritize essential traffic. This can also help reduce packet loss. The design of the network itself plays a significant role in minimizing jitter by ensuring the network has as few hops as possible.

The Bitcoin network benefits from its decentralized architecture, as each transaction necessitates multiple confirmations. If jitter occurs, subsequent confirmations can compensate for delays. Most importantly, the Bitcoin mainnet features an auto-adjusting difficulty mechanism that maintains the average block time at 10 minutes.

In practice, managing the network’s data packet loss and jitter falls to on-site versus ISP solutions.

On-site vs. ISP Solutions

On-site solutions require organizations to manage their IT infrastructure. While this grants institutions complete control, including regulatory data compliance and quicker personnel response, the initial costs for hardware and storage are considerably higher.

Conversely, ISP-hosted solutions are easier to scale, as specialized companies are likely to operate efficiently, managing both maintenance and network uptime. For clients, this necessitates a reliable internet connection and the selection of optimal packet loss and jitter metrics.

For example, Amazon Web Services (AWS) provides clients with a Global Accelerator tool to enhance and balance network performance. Alongside Amazon Managed Blockchain and Quantum Ledger Database (QLDB), these services have positioned AWS as a foundational infrastructure provider in the blockchain sector.

As for ISPs, they are generally less transparent regarding their jitter and packet loss metrics, as these depend on various factors. Consequently, numerous tools are available to monitor network latency, packet loss, and jitter, such as PingPlotter.

Jack Dorsey’s Block (formerly Square) has chosen to establish its own Bitcoin mining network, utilizing its 3 nm chip design, likely produced by TSMC foundries. With an in-house, open-source mining hashboard compatible with Raspberry Pi controllers, Block aims to set new benchmarks for the Bitcoin ecosystem.

The other aspect of the Bitcoin scalability challenge pertains to energy.

Sustainable Energy Solutions

It is often stated that Bitcoin represents digital energy, or more accurately, tokenized energy. Ultimately, Bitcoin’s proof-of-work distinguishes it from thousands of copycat cryptocurrencies, rendering it virtually impervious from a network security perspective. This consensus algorithm requires energy, as is expected from any form of work.

But how much energy and what type? Bitcoin’s energy consumption is frequently compared to that of a nation, such as the Netherlands or Argentina. It is sufficiently substantial for Greenpeace to initiate a campaign advocating for a transition from proof-of-work to proof-of-stake.

BRÆKING: @greenpeaceusa continues its SEXIST anti-#Bitcoin campaign, releasing new video about “Bitcoin BROS.”

NEWSFLASH to Greenpeace misogynists: there are WOMEN in Bitcoin, & Bitcoiners will not stand by while you ERASE them.

Please retweet if you think Greenpeace is sexist. pic.twitter.com/qX3emR8TaL

— Walker (@WalkerAmerica) June 22, 2024

However, Greenpeace itself could initiate such a transition, given that Bitcoin’s open-source code is accessible to everyone. The challenge is that without a network and market interest, such a modification would lack significance.

In the meantime, over 50% of the Bitcoin network derives its power from renewable sources. According to research by Daniel Batten via Batcoinz, the majority of this energy comes from hydro, wind, solar, and nuclear sources.

Not only has Bitcoin entered the majority-green territory, but it has also been recognized as a crucial component in stabilizing power networks. Specifically, the Electric Reliability Council of Texas (ERCOT) compensates large Bitcoin mining companies, such as Bitdeer and Riot Platforms, to help stabilize the grid during unusual conditions like heat waves.

As recently as June 13th, ERCOT recommended that Bitcoin mining be directly integrated as a Controllable Load Resource (CLR) to enhance power grid balancing. Additionally, there is a growing trend for Bitcoin miners to utilize flared gas from oil drilling operations. This byproduct, which would otherwise be wasted and burned off, can be harnessed to power Bitcoin mining rigs.

With BlackRock, a leading proponent of the ESG framework, advocating for Bitcoin, this signals to institutional investors that the narrative surrounding “dirty Bitcoin” is becoming outdated.

Block has yet to disclose its 100% solar-powered mining facility in West Texas. However, several Bitcoin mining companies, including Bitfarms, Iris Energy, TeraWulf, and CleanSpark, have already moved towards achieving near-zero carbon footprints.

With nuclear power on the horizon due to demands from AI data centers, investors can anticipate even greater sustainability in Bitcoin operations. Furthermore, should Donald Trump win the next presidential election, concerns regarding Bitcoin sustainability are likely to diminish further.

Conclusion

In 2022, Messari reported that gold mining generates three times the carbon emissions of Bitcoin. Since then, Bitcoin has significantly outperformed gold ETF capital inflows by an even larger margin.

It appears that there is substantial value in an asset that cannot be practically manipulated and is not under anyone’s control. Instead, Bitcoin is secured by sophisticated cryptography, linking code to hardware assets and energy.

With capital access transformed and Bitcoin exposure equated to any other stock, it is a race to achieve new highs and lows to capitalize on market dips. Drawing from the experiences of other blockchain networks and mining companies, the technology is readily available to engage with this expanding ecosystem.

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