BTC went from freedom money to an elitist meme coin
We fought to preserve BTC's original design & failed. I am so sorry, as the idea of Bitcoin is great! ❤️
Now, BTC's security is falling & scarcity is no longer guaranteed
Code & math do not lie; the collapse is inevitable! 🧵
We must prioritize the truth, whether we like it or not. Reality is a harsh mistress, as most are unwilling to acknowledge the reality that the number one asset is an emperor that wears no clothes!
Broken Security Model
As it stands now, BTC must double in price every four years for the next century or sustain extremely high fees. Only to maintain the present level of security...
That is because each halvening exponentially lowers the security budget until it is practically nothing
If you have a basic understanding of economics & exponential functions, then you should know that BTC doubling in price every four years for the next century is entirely impossible! As it would exceed global GDP within decades. That is why BTC's security is at risk!
Fees will also never reach sustained extremes due to the ratcheting effect of the fee market. Paying hundreds of dollars for a single TX is not realistic in a competitive free market. When fees spike, users leave, all due to unnecessary & arbitrary capacity limitations
This means that BTC's long-term security is unsustainable without extremely high transaction fees... Fees that have so far failed to materialize, with the exception of fee spikes, which are insufficient for sustained long-term security:
That is why the security of BTC will inevitably continue to decrease until it becomes profitable to attack. This is also how we know the approximate timeline for this coming collapse (7-11 years), as it is based on the halvening cycle. In other words, BTC will collapse within 2-3 halvenings from now!
However, this crisis could also be triggered before that time, especially as what I am explaining here becomes more widely known. Other parties are likely going to attempt to front-run this event, too, which makes any attempt at timing an exit a very dangerous game
Measuring Security
This chart of miner revenue shows that BTC's security is actually lower now than it was four years ago! Showing the decline of BTC's security, as it reveals how miner revenue (block reward), not hash rate, is down:
Hashrate does not equal security; most bitcoin influencers do not understand how Proof of Work functions, leading to a profound public misunderstanding of BTC's failing security model
That is because hashrate is a mostly meaningless metric in regard to calculating security, as miner revenue can go down while hashrate goes up. This is because, as hardware improves, it costs less to produce these same hashes. That is why we cannot simply count hashes to determine the security budget!
Because it is not these hashes that secure BTC; it is the cost that goes into producing these hashes that secures BTC. In other words, what matters is the cost of attacking BTC, which is not determined by hashrate! It is instead determined by an attacker's cost/benefit calculation
In other words, the security budget of BTC is best measured by the amount being paid out to miners (block reward), as we would expect a Nash Equilibrium to form based on this direct economic incentive. So that covers the "cost", & the "benefit" is based on what is to be gained from attacking BTC:
Attacking BTC
Crypto-economic game theory relies on punishment & reward, carrots & sticks. This is why miner revenue determines the cost of an attack. When it comes to the reward side of the calculation:
Double spending, with 51% attacks targeting exchanges, is a highly realistic attack vector due to the massive potential rewards
An attacker could make billions from such an attack, especially as they could target multiple exchanges, defrauding them of at least $100M+ each. Especially, if we also include simultaneously carrying out exploits on decentralized protocols that would also be vulnerable once such double-spending starts to occur
The basic premise is that if an attacker sends their own BTC to an exchange, trades it for another asset, & then sends that back to themselves. The attacker is then able to roll back the BTC chain (due to 51% control of the hashrate), at which point they would regain their BTC, & whatever they traded it for, effectively doubling their money, & defrauding the exchange in the process!
This puts the lowest threshold of attack at a few million dollars per day. Something that can easily be reached within this 7-11-year timeframe. By taking the current security budget ($50M) & dividing it by 8 (2-3 halvenings), we get to $6M!
This also means that in this scenario, a blockchain network worth over $2T+ can be taken down with a $1B investment. This might even be a worthwhile endeavor for a statist competitor or even a crypto competitor. Especially considering that this would even be a profitable venture
Hypothetically, for example, it would be quite the blow if China were to wreck the US's BTC reserve in this way, as from a cost-benefit analysis perspective, that would make a lot of sense!
Keep in mind that the more prominent BTC is by this time, the more profitable such an attack becomes... As the below chart also demonstrates, the security budget relative to market cap is falling off a cliff:
This means that BTC can never be too big to fail, as long as it fails to generate fee revenue to sustain its own security budget; in fact, this attack only becomes more viable, not less, with increased adoption!
An Impossible Choice
So what does this all mean? This means that BTC's long-term security is in deep trouble. Without extremely high TX fees, the security of BTC will inevitably continue to decrease. Until it drops so low that the network becomes profitable to attack, rendering BTC insecure!
At which point, there will only be two choices left:
1. Increase BTC's supply inflation beyond 21M!
2. Allow the network to come under attack with double-spend attacks & censorship attacks!
I do not believe BTC will be able to solve this dilemma in time. The "solution" is an inflation increase, as a block size increase is off the table politically. However, this inflation increase "solution" overturns BTC's primary touted benefits, thereby betraying the promise or "social contract" of Bitcoin
The bitcoiners who deny this only exacerbate the situation by promising people that BTC will always have a 21M supply limit. Damaging trust, & setting them up for disappointment & a feeling of betrayal, rightfully so! As they are misleading people into supporting BTC based on false pretenses!
The most likely outcome is that in 7-11 years from now, both of the options I described above occur simultaneously
Splitting the network in half again & causing even more chaos in the process. One version of BTC with inflation, the other without, & both even more vulnerable to attack, as the hashrate is now shared between the two, & price drops in response to the crisis will most likely worsen security even more...
Ideally, we all gradually move away from BTC before the catastrophe hits. However, as time goes on & certain parties double down on BTC, this becomes less & less likely. So we'd better prepare for the worst & hope for the best
BTC = Meme Coin
BTC fits the definition of a meme coin perfectly, as a meme coin is an asset without utility; in other words, pure speculation!
That is what you get when you restrict a chain to being a "Store of Value" only. It ultimately destroys the very qualities that might have made it a good SoV in the first place: Utility
Contrary to the wishes of its founder, Satoshi Nakamoto. BTC was captured by a relatively small group who managed to radically change the design, purpose & economics of BTC
One of the biggest tragedies is that the original design might have worked! Instead, the Core developers restricted on-chain capacity, instead of massively increasing capacity as the original plan promised
Today, any significant usage of BTC is technically impossible! To make the point:
If everyone in the world wanted to do a single TX, the queue would be over four decades long... Even if today every user wanted to do a single TX, the queue would be several months long! This presents additional dangers when the crisis inevitably hits, something I covered in more detail elsewhere
The point is that every feasible use case is impossible, giving BTC ZERO utility. Even settlement & mass self-custody are impossible at any significant scale, at a max capacity of seven Transactions Per Second...
It is this failure of the utility/usefulness of BTC that bears such dire consequences for its long-term security model. As security, scarcity & utility are all intrinsically linked in blockchain design
Math 🎓
The TPS calculation is based on Max Theoretical TPS: (Block size (1.66MB)/Transaction size (374B)) / Block time (10M) = TPS (7.75)
We use the P2PKH TX format with 2 inputs & 2 outputs, to better represent an "average user". Even though Segwit allows for 4MB blocks, this cannot all be filled with TXs. Historically, the largest BTC block filled with TXs was 1.66MB, so we will use that number:
(1740636.16/374) / 600 = 7.75 TPS (rounding down to 7 as BTC cannot execute partial TXs). 7x60 (minutes) = 420x60 (hours) = 25200x24 (Days) = 604,800x30 (Months) = 18,144,000 (Monthly TXs) 33000000
(Current Users) / 18,144,000 (Monthly TXs) = 1.818 (months)!
(7T (Global Users) / 18,144,000 (Monthly TXs) = 385 (months) / 12 = 32 (years))!
Possibility Of Change
The probability of positive change is a key part of this puzzle; however, this requires a political & governance analysis:
The truth is that the dominant client, “Bitcoin Core” has effectively achieved centralized control over BTC development. Effectively turning it into a one-party system, a type of "Github Dictatorship" with Core as the gatekeeper of all change! Currently, there are only six people who hold the keys to the empire, literally! (commit access to Bitcoin Core)
Like all dictatorships, there are limits to their power. Yet, this is still a total perversion of the very idea of decentralization that BTC was supposed to represent
Bitcoin Core, in practice, has disproportionate power to make changes, even controversial ones, such as RBF & not raising the blocksize limit today
While kicking out anyone who disagrees with them, such as @gavinandresen, Mike Hearn, & @jgarzik during the block size wars, & calling that consensus...
The same people are in charge today, the same people who are responsible for the massive pivot BTC made during the blocksize wars. Causing this crisis in the first place, that is what makes the necessary changes so unlikely to happen (raising the block size limit)
In practice, there is now an extreme degree of centralization of decision-making power
Their "anti-governance" stance serves only as a convenient shield, allowing them to deflect responsibility through the use of "decentralization language". When in reality they are effectively in charge
A bit like the wizard of Oz, who controls his empire behind the curtains, pretending to be something he is not 🪄
Another far-reaching consequence of the block-size wars was that they suppressed competing clients in favor of a "monolithic network". That is why Bitcoin Core now makes up 98% of the full nodes on the network. This is what prevents all efforts to solve the security dilemma today!
The big takeaway here is that governance is the reason why there is little hope for change left, at least not until the crisis forces change, but by then, it will be too late!
Conclusion
The story of Bitcoin is one of a beautiful early hope
A wonderful positive vision for the world that most are buying into. The silver lining is that there clearly is demand for Bitcoin's original vision. What a shame that BTC cannot actually deliver on what it is being sold as
All due to the "bait & switch" that happened in 2017
The Bitcoin dream was crushed by the very people we entrusted to uphold the vision. There lay the problem as trust led to betrayal & deceit. False promises followed by broken promises. Forever moving the goalposts to the point of infallibility...
The rejection of "on-chain" governance only gave us the worst of "off-chain" governance; plain old-school realpolitik, something any small group of developers is not equipped for. That is what makes BTC so incredibly vulnerable to capture, corruption, & perversion. The social scientist in me should not be surprised by this outcome; it really was inevitable
That is why BTC will most likely collapse within the next 7-11 years, as there are no viable paths for change left within that very urgent timeline
We can avoid becoming victims by rejecting the lies & accepting the truth now. Spreading this message can help mitigate the damage that will be done. Both directly to innocent people & to the progression of the cryptocurrency movement, industry & cypherpunk revolution as a whole
Bitcoin is a beautiful idea that has gone on to spawn an entire industry of other beautiful ideas. Cryptocurrency can provide people with utility, scarcity & security at scale, while preserving decentralization right now!
BTC is a horrible compromise we do not even need to make. As our beautiful experiment is now teaching us its most important lessons through its failure ♥️
There is, however, much hope left on the horizon for cryptocurrency as a whole. As the industry has evolved by leaps & bounds beyond the original tech & BTC. Solving all of these key problems & far more
That is why Bitcoin's original vision now thrives in its children instead! 🕊