Bitcoin
Loka Mining CEO on Bitcoin’s DeFi possibilities
In an interview with crypto.news, Andy Fajar Hardika, CEO of Loka Mining, discussed the evolution of decentralized finance (defi) on the Bitcoin network.
On April 19, 2024, Bitcoin mining rewards were cut in half. Mining a block will now only generate 3,125 BTC, compared to 6.25 BTC previously. Although the Bitcoin halving happens every four years or so this year, it really got industry players talking about how the reduced rewards will affect the Minas Gerais economy.
With each halving event, mining companies need to adapt to a bottom margin environment. Companies in financial difficulty often go out of business or merge with larger companies. Unlike previous halving events in 2016 and 2020, the 2024 halving event could result in a series of consolidations and defaults.
To type Runes It is Ordinalsconcepts that are revolutionizing the definition scenario on the Bitcoin network.
Runes, like Ethereum’s ERC-20 standard, introduce fungible tokens to the Bitcoin blockchain, while ordinals bring NFTs directly to the network. Being the main cryptocurrency, this helps a lot to expand the possibilities of what Bitcoin can offer beyond simple transactions.
With Runes and Ordinals, Bitcoin is finding new ways to close the gap with Ethereum, which has been widely hailed as the king of definition. However, nothing is without challenges. Scalability issues and concerns about blockchain bloat are high, echoing past impediments in the industry.
Still, the birth of protocols like Runas and Ordinals shows that Bitcoin can support more diverse decentralized applications. Miners, in return, are able to Detour the effect of the halving on revenue.
Hardika, who heads a cryptocurrency mining company, shared her thoughts on the matter.
How do you see Bitcoin’s role evolving in the defi space, given its recent advances such as the Runes protocol and the impact it has had on miner revenues and transaction fees?
Bitcoin lacks programmability, but it has the strongest Lindy effect and has proven to be the de facto store of value. Personally, I believe that these characteristics are leading Bitcoin to be the “mother chain”, attracting new protocols that are flourishing on the L2 or Bitcoin side chain.
In your opinion, can Bitcoin position itself as a competitor to Ethereum in decentralized finance or do you foresee a different outcome?
I think what we will see in the end is not rivalry, but rather collaboration – where chains will be “fused” and abstracted to a point where ordinary users don’t really care or need to understand which chain they are currently using.
With Runes driving transaction fees to new heights, how do you think Bitcoin can balance rewarding miners with keeping transactions affordable and accessible? Are high fees hindering Bitcoin adoption for smaller transactions?
As Bitcoin transitions from a P2P electronic money system to a store of value, I believe the high transaction fee on Bitcoin L1 is important. It serves as an offset to the security budget that the network needs to maintain. This is where L2s participate in scaling the network and adding programmability to Bitcoin. From a user perspective, solutions like Lightning or ICP with their ckBTC allow Bitcoin transaction fees to be reduced to just a few cents.
Historically, Bitcoin has lagged behind Ethereum in defining applications. How likely is it that innovations like Runes and Ordinals will help Bitcoin bridge this gap? What are the advantages or challenges of Bitcoin in this space?
Ordinals are essentially fully on-chain NFTs, parallel to ERC721, while Runes are essentially Fungible Tokens on Bitcoin, parallel to ERC-20. These are just the first building blocks for Bitcoin’s programmability. Although it is now possible to build a primitive L1 dApp, it is still very limited. I believe the real use case would be as anchor points for L2s to provide a full definition application on Bitcoin. A significant advantage would be that we could unlock the huge Bitcoin TVL that is currently in its holders’ wallets.
Some critics argue that protocols like Runes and Ordinals can lead to blockchain bloat and slower transaction times. What do you think of these drawbacks and how do they compare to Ethereum’s scalability challenges?
History tends to repeat itself. A few years ago, we had CryptoKitties, the first gamified NFT on the Ethereum network, consuming 13% of all transactions on the Ethereum network. This sparked discussion about network scalability and eventually led to many upgrades and the rise of L2s on Ethereum.
Do you expect a similar trend?
I believe we see parallels between Runes and Ordinals, which now occupy significant block space and contribute a significant amount to the network security budget. As an indirect result, there are now more than 50 Bitcoin Layers or sidechains trying to solve Bitcoin’s scalability. And of course, just like startups, most of them will eventually die or go dormant – but those with strong utility and real use cases will survive.