Bitcoin is DeFi’s future

Ethereum has long held the title of premium layer-1 for decentralized finance (DeFi). It’s been the blockchain of choice for smart contract developers of all varieties.

Despite Ethereum’s issues with network congestion, security vulnerabilities and the merge to proof-of-stake (PoS), other alternative layer-1s like Solana, Algorand and Tron were unable to overcome Ethereum’s DeFi dominance.

However, with continued regulatory enforcements in the US this year changing traditional crypto users’ perspective on the industry, projects are seeking a destination to build upon that might provide more longevity as well as the trustless, secure and decentralized benefits they’ve come to expect from crypto. 

Bitcoin has the potential to play the most important role in mainstream DeFi adoption. 

Over the past fourteen years, Bitcoin has set itself apart from other blockchains. As the original digital currency, Bitcoin can complement the DeFi ecosystem across layer-1s, as the centerpiece of multichain DeFi. 

At the time of writing, Bitcoin’s total value locked (TVL) remains nascent at $158 million, compared to its $513 billion market cap. Compared to all other chains in DeFi, which total a combined $38 billion in TVL — Bitcoin DeFi’s untapped potential is outsized.

As the only digital asset that is truly a commodity, per the Commodity Futures Trading Commission, Bitcoin is also gaining steady traction in the US regulatory landscape, as opposed to other chains. 

Commentators often pit Bitcoin against Ethereum. The real “flippening,” however, is connecting DeFi to Bitcoin. Doing so gives users the best of both worlds, combining the dexterity of innovation that Ethereum brought along with the purity of Bitcoin. 

The debate around bringing DeFi to Bitcoin should not be around anything other than what Bitcoin-enabled DeFi can unlock for users and developers. 

Bitcoin brings DeFi back to the basics

Bitcoin’s underlying proof-of-work (PoW) consensus mechanism offers the bedrock for a global payment network separated from any one entity or governing body. 

The built-in computational guarantees are enough to attract institutional investors, illustrating that it’s good enough for the power players of traditional finance. These intrinsic properties of Bitcoin are a part still missing from other DeFi ecosystems. When projects are given access to the stability, security and privacy of Bitcoin, time and again they make the switch from alternative blockchains back to Bitcoin. 

Bitcoin’s potential as the safest pathway for new users to enter the world of DeFi is often overlooked, mostly due to the decades-old narratives that have built up around Bitcoin. But many of these narratives are no longer even supported by the most active of Bitcoin builders. 

What makes Bitcoin DeFi stand out?

Unlike many other layer-1s that have also experienced the price volatility and regulatory uncertainties of the last couple years, Bitcoin has the predictability of the halving on its side in 2024. Historically, bitcoin halving events have created increased interest: This expected demand keeps actual network development separate from market fluctuations. 

Read more from our opinion section: Bitcoin blockspace isn’t too expensive, you’re just too cheap

Bitcoin’s network effects, driven by its extensive user base, create a compelling advantage for new users venturing into DeFi. This network effect fosters liquidity, reduces friction and ensures seamless integration with DeFi platforms, making it easier for anyone holding bitcoin to access and utilize decentralized applications.

Building Bitcoin DeFi does not lack challenges, as builders still must navigate its simplistic-by-design structure to unlock usability for a broader set of users. Solutions, by way of smart contract capabilities, have been created by various layers that are already creating the functionality that Bitcoin deserves. 

But Bitcoin’s robust blockchain, powered by a distributed network of nodes, provides a level of security and censorship resistance that is unparalleled in traditional financial systems.

While DeFi offers unparalleled financial freedoms and opportunities, navigating its complexities can be intimidating. In this context, Bitcoin’s status as the safest pathway to DeFi cannot be overstated. Its stability, trust, network effects, security, interoperability and regulatory compliance make it an ideal starting point for those seeking to explore the DeFi landscape. 

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Where Will Bitcoin Mining Be After the Halving?

It is no secret that bitcoin mining has come under fire for its potential impact on the environment due to its energy consumption. Nobody in the industry is shying away from the fact that bitcoin did not start out as the best environmental, social and governance (ESG) investment.

However, the mining industry has since become one of the most self-aware when it comes to its energy consumption, and as a result has created multiple potential pathways to environmentally-friendly solutions that could benefit industries and regions beyond just Bitcoin.

Rena Shah is the head of operations and strategy at Trust Machines, a company building the largest ecosystem of applications on Bitcoin.

Two of the most promising approaches gaining traction are flare gas solutions and exploring nuclear energy.

Flare gas mining turns waste into revenue

Flare gas, also known as associated gas, is a byproduct of oil extraction processes. Traditionally, it has been flared or burned into the atmosphere, contributing to greenhouse gas emissions and wasting valuable energy resources.

Forward-thinking bitcoin mining operations have recognized flare gas and the opportunity to utilize it to power their mining operations. But how?

Instead of releasing the gas into the atmosphere, bitcoin miners redirect the flare gas to power mining facilities using specialized equipment. Flare gas recovery systems are employed to capture and convert the gas into electricity, which is then used to run the energy-intensive computations required by bitcoin mining.

Harnessing flare gas can not only bring us into a carbon-neutral era for bitcoin mining, but it also serves a secondary benefit of providing a secondary purpose for an otherwise wasted resource in the oil and gas industry.

Bitcoin mining in this way, from recaptured energy sources, plays a vital role in the “demand response” of power grids, especially in Texas. Bitcoin miners dynamically adjust their load participation to help balance power grids. These timely adjustments instantly trim power usage so the grid can have an adequate supply during natural disasters.

Bitcoin mining can significantly reduce its carbon footprint.

Taking this a step further, a similar principle could be applied to a microgrid (a power generation and storage grid that distributes it to localized areas), then when bitcoin miners are connected to microgrids, they can lead to self-sovereignty for communities.

Many developing nations lack centralized grids due to a deficiency of infrastructure and funding. Instead, communities could create microgrids and generate energy on-site coupled with bitcoin mining — gaining a potential revenue stream through reliable energy.

This innovative approach is gaining traction alongside another, more recent eco-friendly solution: nuclear power.

Bitcoin explores the nuclear option

Christopher Nolan’s “Oppenheimer” is not the only reason nuclear power has been trending lately. A string of recent announcements from mining operations are looking to use nuclear power as the prominent players in bitcoin mining look to double their hashrate into the future.

The steady and consistent energy output provided by nuclear power is critical for the continuous and uninterrupted operation required by bitcoin mining facilities.

Given that nuclear power is a zero-carbon base-load resource, as it does not produce direct carbon dioxide emissions. This does not make it explicitly a renewable green energy source comparable to hydro or geothermal. Instead, it creates a new incentive for miners to scale more efficiently as the computational needs become larger through the upcoming Bitcoin halving.

With stringent safety protocols in place, the potential benefits of nuclear power in reducing Bitcoin’s environmental impact cannot be overlooked. However, in the current regulatory climate across the entire crypto industry, it is not likely that we see swift and specific legislation providing guidance around nuclear power and Bitcoin.

In 2021 alone, the United States removed about 475 million metric tons of carbon dioxide, a greenhouse gas, from nuclear energy production. That is the equivalent of 100 million fossil fuel cars on the road in a year for the amount of Co2 they produce. A typical passenger vehicle emits about 4.6 metric tons of Co2 per year.

Where will bitcoin mining be after the halving?

As mentioned previously, all bitcoin miners will be looking heavily at their operations and how to increase output and efficiency post-halving. The integration of flare gas solutions and the exploration of nuclear power are but two solutions being pursued by the bitcoin mining industry.

Efforts are also being made to enhance the efficiency of mining hardware and to adopt renewable energy sources like solar, wind and hydropower.

As someone who worked in the petroleum industry as a drilling engineer, working offshore on drilling rigs while spinning up bitcoin mining pools, understanding how Bitcoin becomes a well-oiled machine begins with the efficiency and long-term viability of bitcoin mining.

Not only will bitcoin miners need to embrace these diverse and eco-friendly solutions, they will also be looking for new ways to incentivize use of the blockchain. Layer 2 solutions, Ordinals and other Bitcoin DeFi [decentralized finance] projects have been hard at work building use cases that bring activity to the Bitcoin blockchain.

That usage will feed the miners to incentivize further ESG-friendly solutions in perpetuity. By embracing the natural evolution of the Bitcoin blockchain and the diverse range of eco-friendly solutions, bitcoin mining can significantly reduce its carbon footprint and contribute to a more sustainable future.

Bitcoin’s Lack of Layer 2s Is a Blessing in Disguise

Crypto’s first layer 2 solutions were born out of the need to scale layer 1s properly rather than creating hard forks of the base layer blockchains. And ever since, L2s have typically been marketed as the solution to scaling, faster transactions, lower fees and precursors for mainstream adoption of crypto. However, truly efficient, secure and stable scaling solutions in crypto are hard to come by.

Stop. Predicting. Bitcoin’s. Price.

Bitcoin price predictions are always absolutely everywhere. Everyone who pays attention to crypto, whether for investing, building or entertainment, cannot avoid reading daily wild headlines about where the price of BTC is heading.

“The Fed May Have Just Triggered a $100 Billion Bitcoin Price Boom as Ethereum Surges Back,” “Bitcoin Price Drops Below $28,000 Post Labor Day – Rough Road Ahead,” and “Bitcoin at $100,000? Insiders Say the Cryptocurrency Could Test New Highs This Year,” are some of my recent favorites.

From $1,000,000 price bets to the proverbial “imminent crash,” those who have been around long enough in this space have either learned to tune predictions out or play into their hyped narrative themselves. 

With the next bitcoin halving event less than a year away, it’s a given that prices will move, maybe even wildly. So it’s time we stop predicting the price of bitcoin like it’s something interesting, useful, or even, frankly, predictable at all. 

Instead, there’s an argument to be made that a new challenger to the bitcoin price prediction has entered the room — a contender for new predictions that could actually bring some useful insight to the community.

The challenger? Bitcoin transaction fees.

If we were able to provide more insight about bitcoin transaction fees, our predictions could actually be useful instead of hollow headline grabbers — we could help users find the lowest fee moments to dive into new use cases on Bitcoin, or help builders develop and scale Bitcoin layers more efficiently.

Bitcoin was meant to scale

Interest surrounding all aspects of the Bitcoin blockchain has hit record levels, as Ordinals, Stamps, BRC-20 tokens and other new protocols have sprouted up this year. Bitcoin’s average daily transactions over seven days reached record highs, the first time it’s done so since December 2017. We’re entering this era where people actually want to do something more with Bitcoin than just point out its price.

Glassnode reported that the average transactions reached 586,704.42 throughout May. The average transaction fee reached as high as seven dollars, as Ordinal inscriptions surpassed three million in May 2023. 

The thing we have forgotten is Bitcoin was always meant to scale. Low fees were always going to be temporary. That’s why Bitcoin layer-2 solutions exist. As is the case with every other major layer-1 blockchain, when the base layer began to bloat, layer-2s were designed to efficiently scale usage and reprioritize where demand went toward the base layer. 

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The Bitcoin builders community has talked about the idea of DeFi and other use cases coming back to Bitcoin from other layer-1s for years, and now we are seeing that prediction become a reality. This revival of activity for Bitcoin means that the day-to-day price of transaction fees is going to matter more for many users than the daily moving average cost of one BTC.

I’ll go first with this new prediction model.

I predict that we will see another 10x from here in transaction fees. 

As the Bitcoin thesis continues playing out, and as layer-1 apps grow and scale into layer-2s, we will see multiple spikes in the daily transaction price that will worry some and excite others. Ultimately, the higher fees will benefit the entire Bitcoin community. 

Now, it’s your turn.

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