Special report: Bitcoin is the cryptocurrency most emblematic of the universe it helped establish and the popular digital currency has been the gateway for many to dip their toes into the market. However, Bitcoin’s functionality could soon evolve.

Bitcoin, the first and most famous digital asset, continues to captivate the public imagination. Amongst a sea of digital competitors, it has remained the most searched and popular digital asset around the world, and was the first spot digital asset the US Securities and Exchange Commission approved to be traded as an ETF earlier this year.

However, Bitcoin is not static. Bitcoin is, at its heart, a technology. The community of Bitcoin developers is large, and there is a clear and present need for Bitcoin to adapt to remain at the forefront of the digital economy.


The Core Attributes of Bitcoin

Bitcoin’s popularity derives from three main qualities:

  • Durability: As long as the internet and electricity exist, Bitcoin remains accessible.
  • Portability: Bitcoin can be accessed from anywhere in the world, anytime.
  • Scarcity: The fixed supply of 21 million bitcoins is a certainty that provides predictability in a way that traditional fiat currencies cannot.

History has proven this is a very appealing set of fundamental features, but they do not guarantee that Bitcoin will remain unchallenged.


The Need for Scalability and Innovation

One persistent challenge to Bitcoin is the question of scale: Bitcoin’s current infrastructure is not currently equipped to serve a potential global user base of eight billion people effectively. In its defence, very few technologies could possibly make this claim.

Bitcoin’s mission is to act as a decentralised method of transaction outside of the control of any one person, group or government. In effect that means the more popular it becomes, the more difficult it will be to scale and fulfill its intended purpose.

Potential solutions to this difficult problem lie in developing additional transactional layers (such as Layer 2 scaling solutions) that enhance Bitcoin’s base capabilities without compromising its fundamental value propositions.

Recent developments in the Bitcoin ecosystem, such as unlocking Turing-complete smart contracts and the transformation of bitcoins into non-fungible tokens (NFTs), demonstrate the potential for innovation from within.

These enhancements not only strengthen Bitcoin’s functionality but also render many newer crypto networks with similar features less necessary.


Regulatory Challenges and Opportunities

Another frequent challenge by Bitcoin skeptics is to question how governments around the world will react to Bitcoin in the future.

In regions like Australia, the adoption of Bitcoin and other cryptocurrencies is hampered by a lack of regulatory clarity. Most investors need a stable and clear regulatory framework that fosters confidence and ensures that the rules do not change unexpectedly.

The good news is that globally a lot of these frameworks are now in place in regions such as Europe and Asia. Whilst it is a slow process, the development of regulations in developed markets is actually a catalyst for growth and acceptance by a wider pool of investors.


Looking Forward: Bitcoin and the Future of Finance

With the SEC approving the first spot bitcoin ETFs in the US, and the ASX debuting its first spot Bitcoin ETF in June, traditional financial investors now have further options to gain exposure to Bitcoin.

This development underscores the demand for cryptocurrencies from mainstream finance institutions (such as pension funds) and highlights the importance of continued innovation from both inside and outside the ecosystem.

Bitcoin, by virtue of its first-mover advantage and embedded features, occupies a unique space. There will never be another Bitcoin, but it will be the ongoing efforts to improve it and solve the challenges ahead by both technologists and investors that will power the next phase of growth and wealth generation.


This article was developed in collaboration with Kraken, a Stockhead advertiser at the time of publishing.


This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.