Praised by its enthusiastic devotees as the currency of the future, bitcoin holds plenty of promise as a way to move money safely, privately and free from unwanted government interference. However, there is a major potential problem that could hinder the growth and widespread acceptance of bitcoin. As financial expert and investing consultant Ted Bauman pointed out, bitcoin’s inability to process large numbers of transactions quickly and efficiently could impede the popular cryptocurrency’s road to success.
In The Bauman Letter, where Bauman shares his financial insights on a monthly basis, he asked his followers to envision a time in the near future when bitcoin is more widely accepted among the general population. While increased recognition of bitcoin is a positive development, it does come with possible pitfalls.
For example, let’s say you have to make a payment at a machine in order to exit a parking garage. In this scenario, you have lost your wallet and all the cash and credit cards in it. On the bright side, the machine does accept cryptocurrency. You opt to pay your fee in bitcoin. However, nothing happens for 20 minutes after making the bitcoin payment. You’re essentially dead in the water while waiting for bitcoin to process the transaction. If you’re lucky, it will go through in a minute or two. If not, you could be stuck in the parking garage for an hour or longer. According to Bauman, bitcoin’s slow processing speed could emerge as its fatal flaw.
Compared with the processing capabilities of the major credit card companies, bitcoin transactions can be painfully slow. For example, Visa has the ability to complete more than 20,000 transactions per seconds during busy periods. On average, Visa processes approximately 1,700 transactions each second. For most people, credit card transactions go through almost instantaneously.
By contrast, bitcoin’s organizational structure can handle between six and seven transactions each second. It’s common for a transaction to take 10 minutes or so to be finalized. During busier times, bitcoin transactions routinely take 40 minutes or more to process. Bauman speculated that these slow processing times could scare people away from bitcoin.
Fortunately for bitcoin fans, Bauman also proposed a solution to the problem. If bitcoin could either reduce the amount of data processed in each mining block or increase the size of each data block, processing times could speed up substantially.
As Bauman further pointed out, bitcoin miners are already on the case. In an effort to process transactions more quickly, bitcoin miners looked to integrate a technology known as SegWit2x, which was designed to decrease the amount of data in each bitcoin block by transferring it to an extended block. However, leaders in the bitcoin community decided to cancel the plan due to concerns about the security of the new system. Prominent bitcoin figures Mike Belshe, Wences Casares, Jeff Garzik, Peter Smith, Erik Voorhees and Jihan Wu signed off on the decision.
The next step in the effort to increase bitcoin scalability, according to Bauman, resulted in a new cryptocurrency called Bitcoin Cash, an offshoot of the original bitcoin. Bitcoin Cash emerged onto the scene after some bitcoin miners initiated the hard fork strategy. This ploy entailed launching a new branch of transactions under a new system with a larger block size. The ultimate goal was to accelerate the transaction confirmation process.
While Bitcoin Cash is showing some promise and bitcoin still holds some potential, Bauman stated that he remains largely skeptical. The volatility of bitcoin prices and wild swings in the cryptocurrency markets are causing him to stay cautious for now.
As an experienced and accomplished investor, fund manager, publisher and financial consultant, Bauman is uniquely qualified to offer innovative solutions to challenges in the cryptocurrency sector. Before becoming involved in bitcoin, Bauman established an extraordinary reputation in international business and finance.
A native of Washington, D.C., Bauman relocated to South Africa, where he earned postgraduate degrees in economics and history at the University of Cape Town. He went on to forge an illustrious career spanning more than two decades in South Africa. He honed his investing credentials as a consultant, researcher, fund manager for low-cost housing developments and financial planner.
Bauman has lent his financial expertise to prominent clients such as the World Bank, the United Nations, the government of South Africa and various agencies specializing in making grants throughout Europe. He also served as the director of international housing programs at Habitat for Humanity International.
In 2013, Bauman decided to devote his time to researching, writing and publishing in the fields of international finance, asset protection and investment planning. He is the editor of Smart Money Alert, Plan B Club and The Bauman Letter. A passionate world adventurer, Bauman has traveled to more than 75 countries.