Bitcoin expectations 2019
In this article we’ll take a look at what we can expect from Bitcoin in 2019. Please don’t consider this article as a roadmap for Bitcoin, but as a summary of the biggest developments that will take place on the Bitcoin network this year.
At the start of 2018, the Bitcoin network was unable to handle the amount of transactions being made, which led to major network congestion. This is called the scalability problem and developers have been working hard on a solution for years. Both the Lightning Network and Schnorr Signatures have been implemented to enhance the scalability of the network.
Schnorr also improves the privacy of bitcoin transactions, as does Dandelion, a protocol we’ll discuss later. But first, let’s have a look at our expectations of the bitcoin price.
What will the bitcoin price do in the near future?
First of all, all of our statements about the expected price of bitcoin are subject to change. Unfortunately we don’t have a crystal ball that enables us to predict the price exactly. But a technical analysis could give some indications. In this analysis, we will leave the fundamental news about ETFs and Bakkt for what it is. After all, it is difficult to predict what the impact will be on the price.
Despite the fact that 2018 was a bit disappointing, there has been an increasing trendline visible since 2014. That blue line hasn’t been broken yet. According to this graph, bitcoin will only increase in price. This probably won’t happen immediately, but in the long term it is a realistic scenario.
In addition, the path seems clear for a repetition of history. The yellow channel can just repeat itself. Certainly if you consider that the bitcoin halving will take place in 2020.
Developers have been working on the Lightning Network for quite some time now. You can use it by downloading a lightning wallet from the App Store or Google Play.
Not every transaction has to be recorded on the blockchain. Adding new information to the blockchain takes a lot of time and energy (therefore money). By processing transactions on a second layer of the standard bitcoin blockchain, payments become faster and cheaper. By a second layer, we mean that you open a payment channel with, for example, your regular supermarket, on a layer outside of the regular blockchain. When you open the channel, a transaction is credited to the (regular) blockchain. This channel remains open as long as you and the supermarket prefer. In theory you can send money back and forth endlessly through this channel. All these transactions are not recorded on the blockchain. Only when you close the channel, a transaction will be recorded on the blockchain again. All the payments you’ve done inside of the channel have been done on a second layer.
The Lightning Network is already active at the moment, but it is still in its infancy. There is no user-friendly system yet with which you are able to quickly participate in the Lightning Network. We expect that in 2019 the user experience will be improved.
SegWit was launched in 2017. This change in the Bitcoin protocol is very popular: almost all nodes and miners support SegWit. SegWit alters the weight of data a signature has in a block. The result is that more transactions fit in one block.
Schnorr signatures use SegWit as a base. Schnorr organizes signatures more efficiently as well. All signatures are now merged into one general signature. This signature takes up less space in a block. There are even rumors that this can save a quarter of the data. So more room for transactions!
Schnorr has another benefit as well: privacy. There are many users who consciously use multiple signatures for one transaction in order to guarantee the security of their transaction. The Schnorr protocol ensures that signatures are bundled first. Because of that cluster of signatures, it is not visible whether, for example, a MultiSig wallet is being used.
A MultiSig wallet requires multiple signatures for one transaction. It’s similar to a joint bank account that requires two out of three accountholders to sign before a transaction can be made.
Every time you spend bitcoin, this transaction is broadcast to all nodes in the area. These nodes forward the transaction to other nodes with which they are connected. The transaction is still "unconfirmed" but there is already a considerable number of nodes communicating about it. A protocol like this is called "gossip".
It’s possible to gather information through all this gossip, revealing a lot of information about the sender. By looking at the times when a particular receiving address received a transaction and from which nodes they received the transaction, the source of the transaction could be traced sometimes. Even to the original IP address.
With this information it is possible to link a public key and receiving addresses to someone's real identity. This is not a phishing hack, or a hack of an exchange, this only requires a lot of time and patience (okay, and the right know-how) because you only have to look at the network. Make no mistake, your privacy on the bitcoin network is not guaranteed by anyone.
With the help of a small change in the protocol , it’s possible to disguise the traveled route of the data and the original IP address. This small change is called Dandelion. When you pay using a dandelion wallet, the transaction is forwarded to four nodes as a kind of private message. Each of these nodes forwards this as a private message to four other nodes, and so on. The moment one of these nodes is triggered to make the private message public, all nodes do the same. The transaction can now be included in the memory pool without finding out which route the transaction has taken.
Like we mentioned in the beginning of this article, there is no general roadmap for Bitcoin. But if you like to be informed on technical updates we recommend you keep an eye out on GitHub. This is an open source platform on which developers keep each other posted and help each other.
The information in this technical analysis is not intended as investment advice or as a recommendation to buy or sell cryptocurrencies. Trading in digital currency carries a significant risk.