In essence, if mining incentives go low (and unspoken in title: If transaction volumes stay low so that transaction incentives are also low), then a 51% attack becomes trivial over time b/c miners drop out.
So, either we start using bitcoin a lot, generating significant transaction fee revenue to keep miners in, or it's doomed to an inevitable compromise.
So they are attacking bitcoin as a stable store of value, but not necessarily as a currency. Is there a road to 1000x more daily transactions? I don't know. It's currently more like a blue chip stock than a currency or asset.
Author here. Yup, that's a decent summary. While transaction volumes aren't mentioned in the title, they are mentioned several times in the article (Scenario #3 is based entirely on transaction volume and Scenario #2 accounts for it).
And, at the one-hour mark, this post got knocked out of the top 10 on HN's front page to the 106th spot on the 4th page, for no stated reason, which has happened before. (Perhaps it's HN's "flame war detector", idk; for me, that usually only knocks a post to Page 2). None of the comments are too negative about the piece. But in any case, this will likely get flagged by enough users, and I get it - people own a lot of this stuff. It's a major looming issue for the space though (Bitcoin dominates all other cryptos). It's another reason a project is in trouble: when you can't have tough and open conversations about it.
This forum is unfriendly for discussions about cryptocurrency. There are tough conversations happening about it, just not here, where the level of discourse about the subject itself is low. It's like saying the NBA is in trouble because there aren't open and
tough discussions about it here. It might be, but pack of discussion here isn't signal of anything other than here's not a place for that discussion.
The petrodollar relied on burning significant resources, although its power is waning now. Gold relies on mining. As for Ethereum, it's proof-of-stake, implying it's not decentralized.
The only alternative currency that wouldn't burn energy would be shares in transferable energy itself. This would require a global energy grid which we don't have, and are not intelligent enough to seek to develop. Once such a grid exists, then shares in transferable energy would have a relatively stable value.
The problem with bitcoin is that past work is worth more than future work. More work/energy has to be expended now for 1 bitcoin than in the past. It's just as an unequal system as inflationary fiat.
You're not taking into account that the work was far riskier in the past - a much higher risk of it being wasted. It also required much scarcer knowledge in order to understand the value of bitcoin.
You buy bitcoin at the price you deserve.
Bitcoin is inheritly more equal than fiat because the cost of issuance is the same for everyone i.e. you don't have a select group of people who can legally counterfeit it and accrue enough power to effectively control the world.
Not really. Back then miners risked less work for less certain value. Nowadays miners risk more work, for more certain value. While it may seem like the past risked more, the risks/work hasn't really changed.
Yes, that's my point. Any extra gains in value that early adopters received was offset by the greater risk they took.
If anything risk/reward ratio is a better proposition than it was then - we have 15 years of solid operation, nation state adoption, ETFs and far less volatility yet the upside is still enormous.
You can buy "risky" bitcoin now at $50K, or you can wait until $50M when everyone and his dog is using it to store their wealth. The choice is yours.
If global finance ran on Bitcoin instead of on bank ledgers, all that energy would still need to be spent, but then an astronomical amount more energy would be spent on transaction processing on top.
Most likely they are not intentionally burning it for sake of burning it. And they do run almost all of the money in the world, so some energy expenditure is expected.
Removing the cap is a solution, but not necessarily a preferred solution. For one, it is not guaranteed that mining will even continue if the rewards are positive but insufficient to cover the expenses of mining. Secondly, I shudder at the thought of burning fossil fuels in perpetuity to mine bitcoin.
It's not just the deflationary ones. With one exception, all cryptocurrencies give outsized rewards in early years. E.g. block rewards 20x higher in the first year for Dogecoin. Or 40% of all (soft) supply in the first year for Monero.
Completely agree. The fine article discusses the attack issues with most PoW. The problem is that even the threat of such attack makes success more likely. I don't know that there aren't other issues, but it seems PoS at least has a less obvious failure mode (if you need short term control of $80B ~25% rather than $30M/day or <3% for bitcoin). That could frankly even be a profitable short play.
> For years, analysts have gone on channels like CNBC calling Bitcoin “digital gold”, and many everyday crypto investors truly believe that.
This has always been silly. You can stick gold in a basement and come back 200 years later to find it completely intact. Redeeming bitcoin depends not only on a functioning software ecosystem (imagine trying to run today's software 200 years from now) but also on the mining community continuing to operate forever.
Bitcoin's primary appeal has always been unregulated, online exchange of value.
Yep, I like to frame it as: gold is secured on the bare metal of the universe. Bitcoin is secured via an abstraction and therefore has a continuous overhead.
Holders are free riders in bitcoin; their value is secured by those actually using the currency. But due to the capped supply and capped blocks, fees tend upward, incentivising holding over using. This drives miner revenue, and therefore security, and therefore value of holders' coins, down over time.
I would assume this would be somewhat concerning for anybody investing in crypto.
Correct me if I'm misguided - I'm not an economist, let alone a crypto-economist - I would assume the price of a bitcoin would go up as the mining rewards get fewer and fewer, but with Bitcoin being "tied" in a sense with traditional currencies, I wonder how much of a effect the lowering mining rewards would have compared to other global economic factors.
Is this the kind of event where investors/holders hit critical mass where they start selling off their Bitcoin, leaving a bunch of bag-holders? Or, will the idea of having scarcity keep the currency going? I somewhat understand that the USD was a gold-backed currency before, which I would think (again, not an economist), keep the value of the currency more stable, compared to the system we have now? I'm curious if there's any parallels between the old "gold standard" and limited availability of crypto like Bitcoin.
Very interesting. I've always wanted to play around with crypto stuff but haven't sat down and given it a decent go.
“Bitcoin security” is a different notion than almost all other popular chains. A prolonged 51% attack on bitcoin implies the ability to double-spend, but not at all the ability to affect prior balances. A 51% attack on most smart contract chains implies the ability to change any and all state arbitrarily.
The simplest solution is to wait until the cost of hashing exceeds the value of your transaction by some reasonable factor. I expect that better solutions will come along by soft fork without adverse effect on supply or decentralization.
How is it different exactly? If I had 51% of the hashing power on the bitcoin network, couldn't I change block history and have a majority of the network agree on that new chain?
No. If you had 51%, you could revert one block of history for every 49 blocks of attack time. In addition, you have no ability to create transactions that were not already signed by the owners, nor create bitcoins more than the block reward. This is because of the UTXO model rather than the state machine model. In Bitcoin, every transaction is verified against history, while the EVM chains only verify transactions against state. So if you control EVM state, you can bootstrap every new node to any state you wish, but UTXO verification requires rewriting the entire history.
> they would need to pay ~$37.50 to move them, which would likely cause them to make fewer transactions
Various soft forks to Bitcoin have been proposed that will allow a higher transaction rate. Even without them, people will pay not only $37.50 for a transaction, but even $100 on the busy days. This is because only big transactions will need to happen on layer 1. Smaller transactions can continue on layer 2. Secondly, no, there don't have to be fewer transactions, especially as the technical fixes to the transaction scalability are introduced.
Even so, the transaction fees only delay the inevitable, which is the complete stoppage of miner rewards, so the argument is not without merit. Relying on miners to secure the network seems weird.
Bitcoin will eventually need to move to Proof of Stake like Ethereum did. Or to maintain a fixed supply without any issuance whatsoever, Bitcoin could convert entirely into an ERC-20 on Ethereum (probably the best option but would never happen)
A key mistake is to think that mining rewards are measured in coins, whereas they are actually measured in fiat currency. Miners pay their bills in dollars/pounds/euros/etc. To them, the price of a coin matters as much as the mining reward. As Bitcoin becomes scarce to obtain, it's price will skyrocket, offsetting any reduction in mining incentives. It's designed to balance itself.
And of course if it becomes a real problem, the miners will update the codebase.
> As Bitcoin becomes scarce to obtain, it's price will skyrocket
This kind of logic always reminds me of the Terra/LUNA fiasco. An economic model that works as long as nothing unexpected happens. For the price of bitcoin to skyrocket, you need a constant stream of new investors willing to buy bitcoin at these inflated prices. What if this just doesn't happen?
As with any investment, there's always the classic "Past Performance Is No Guarantee of Future Results". But with Bitcoin a significant downturn could be an existential threat if miners decide it's no longer worth their time and money to keep the blockchain running.
Someone has been independently "discovering" this every fortnight since I first heard the word Bitcoin. The answer will always always be, read the bitcoin whitepaper please... This is explicitly discussed.
Cryptobros will play negative sum games with greater fools right up until the collapse, and then the meme stock buyers will jump in to get wiped out as well.
I don't "invest" in cryptocurrency and never have. I just use it regularly (a couple times per month) to pay for things. For my use case it really doesn't matter what the silly speculators do in their completely off-chain fiat speculation markets.
Only? I never said that. But I certainly have an easier time paying for my dot com domains, VPS renting, computer hardware from newegg, etc with bitcoin than I do with my mastercard debit card. To answer your implicit (if inaccurate) question Mastercard has literally broken itself (via it's complex out of band anti-fraud implementation) with Newegg and I can't even use it there anymore, I have to use bitcoin. The last thing I bought was a super nefarious vertical 2x monitor stand. But sure, project your own nefarious thoughts onto my behavior if you wish.
So, either we start using bitcoin a lot, generating significant transaction fee revenue to keep miners in, or it's doomed to an inevitable compromise.
So they are attacking bitcoin as a stable store of value, but not necessarily as a currency. Is there a road to 1000x more daily transactions? I don't know. It's currently more like a blue chip stock than a currency or asset.