Discussions on Bitcoin have followed a familiar trope recently: the bears harping on the ongoing weakness in the price of the world's preeminent cryptocurrency while the bulls mooning over the strength-inducing prospects of the upcoming halving event. With months of this monotonous back-and-forth, is it really a surprise that Bitcoin is stuck in the doldrums' purgatory? Yet, there is a breath of fresh air, and it combines Bitcoin's Lightning Network with the expected proliferation of diverse AI mesh nets to create a compelling bullish thesis.
In this moment, #BTC is hovering below ~$26000
This level has acted as support for the past 3 weeks
But this week, there is a threat of a Weekly Close below it to flip it into new resistance
Will the Double Top validate?
New Weekly Close later today$BTC #Crypto #Bitcoin pic.twitter.com/W02SZ8JK5U
— Rekt Capital (@rektcapital) September 10, 2023
Let's get Bitcoin's less-than-stellar recent price action out of the way first. Yes, the world's largest cryptocurrency is likely headed lower. There is the lurking specter of the dreaded double top on the weekly chart. And it appears that the $26,000 price level is about to flip into a resistance, heralding a steeper price plunge.
Bitcoin nearing ytd lows relative to the $QQQ.
Usually Bitcoin is a leading indicator of risk on in equities, perhaps it’s decoupled recently…?
— Heisenberg (@Mr_Derivatives) September 11, 2023
Bitcoin also appears to be losing its heretofore strong correlation with the high-beta, high-growth US equities in the Nasdaq 100 index.
My favorite Bitcoin chart right now. The relative distance between Bitcoin's price, the historical price floor (Bitcoin Electrical Cost) and fair value (Bitcoin Energy Value). That’s a 5:1 risk-reward assuming no-hype and that price would stop at fair value, which it never has. pic.twitter.com/J2yuGcNX9q
— Charles Edwards (@caprioleio) September 7, 2023
On a brighter note, a measure of Bitcoin's fair value, which takes into account the summation of energy deployed on the network, is currently hovering at around the $46,000 price level, indicating a sizable potential for upward momentum should the fundamentals again gain sway over the collective psyche of the investors. Related developments on the spot Bitcoin ETF front also appear to be gaining investors' attention.
Will Bitcoin Power AI-Related Micropayments in the Near Future?
This brings us to the crux of the matter. The Lightning Network is a secondary layer that sits on top of the primary Bitcoin blockchain, enabling seamless peer-to-peer payments within seconds and at a fraction of the original cost. A few weeks back, the Lightning HTTP 402 Protocol (L402) was introduced, combining advanced authentication and efficient payments. The protocol leverages two key technologies:
- Bearer tokens, known as Macaroons, allow for secure authentication on the basis of an initial immutable set of restrictions that can only scale downward and not upward. Basically, the Macaroons can never grant a higher set of privileges than those bestowed initially.
- For the purpose of the L402, the Macaroons only become valid when paired with a cryptographic secret in the form of a preimage that is obtained after paying a Lightning Network invoice.
The L402 essentially allows Bitcoin to cater to pay-per-use models that are likely to become the norm as AI applications become ubiquitous, incurring a specific cost every time GPUs are burnt to cater to the unique queries of disparate AI models by the end-users.
Here, a question emerges: Why is Ethereum not suitable to become the backbone of this emerging micropayment ecosystem? After transitioning to a Proof-of-Stake (PoS) transaction authentication mechanism, Ethereum has sacrificed its censorship resistance in favor of a more efficient overall structure. This leaves Bitcoin as the only viable solution that offers efficient payments paired with privacy (for additional context, head over to ARK Invest's latest podcast on this topic).
Then again, some people might ask why privacy is important, given that major AI gateways such as OpenAI's ChatGPT refuse to provide their services to anonymous individuals. The answer: understand that if AI is to realize its true potential, it has to become as ubiquitous as the air itself, allowing a plethora of AI services peddlers to set up shop, with many allowing their clients to maintain privacy. For such peddlers, Bitcoin is the only viable solution, especially in light of the Lightning HTTP 402 Protocol (L402).
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