Bitcoin "end game" a mathematical certainty: correcting bad Bitcoin journalism.
In this post I am going to detail my rebuttals to points used to assert the eminent "end game" for Bitcoin. Is this just a case of ill-informed and non-technical journalism, or is this something more... deliberate?
I was sent this post recently and I immediately wanted to see how non-technical media was reporting on Bitcoin; they obviously were ready to make some strong conclusions. I have seen some other crypto articles on this particular news site and never bothered to give them a read. For the crypto community as a whole, I will go paragraph by paragraph and form my opinions on Mike Adam's Bitcoin take.
I will post quotes with large retractions to save space for my words, please visit the original article to get a better example of the language.
A quick mathematical analysis of Bitcoin and the world of crypto-currencies: After plunging nearly 30% last week in a severe correction, Bitcoin has since surged back to the $2800 range, this time riding a wave of optimism from Bitcoin noobs in Japan and South Korea who have become irrationally convinced that Bitcoin is a replacement for their retirement savings (see Reuters report, below).
Now it is completely fine to adopt a skeptical and conservative view on Bitcoin and crypto in general. It is certainly something that is needed to keep the outrageous optimism in check. What this post is trying to do, and what I believe the writer has directly intended, is to cast much of the current crypto adoption as fueled by irrational noobs looking to see massive returns on their money. He goes so far as to generalize these current-not-so-early-but-still-really-early adopters of Bitcoin as "believing they've discovered a magical source of unlimited wealth".
It is certainly very true that there are many new investors paying into Bitcoin and crypto every day. Many of these investors have a limited understanding of what a cryptocurrency is even supposed to do.
Adams goes on to cast some due criticism at the current fees on the Bitcoin network. He calls this "mathematical" evidence that selling Bitcoin in times of high trading volume will be hard. While I don't want to gloss over the nuggets of truth Adams is touching on, this is written with a very clear motive in mind. Yes blocks can be full, yes you might not have as high a priority as transactions paying a higher fee - this is by design. Bitcoin can still handle 3 transactions per second. How would Bitcoin handle an event where everyone wanted to cash out into another currency? Just like any other currency would deal with massive dumping. Do you think your getting all those USD you have in your bank when the economy collapses?
What the fees are telling us in the short term is there is tremendous demand for Bitcoin transactions - even with fees in the tens of dollars, it is more convenient and secure to make many transactions with Bitcoin than anything else. The fees are artificially high at the moment, once the community forms consensus and the proper alterations are made - fees will lower and the transaction backlog will disappear.
Bitcoin mining will collapse in the next few years, and the blockchain will follow
Now begins the portion with the outrageous claim of the Bitcoin "end game" - is mining actually going to collapse in the next few years?
Bitcoin will approach its “end game” in the next decade when all Bitcoin mining permanently ceases due to the mathematical limit of 21 million Bitcoins in circulation. (The mining algorithm allows no more than 21 million coins to exist.)
As Bitcoins are limited to a grand total of 21 million Bitcoins, and given that nearly 16.4 million Bitcoins are already mined, this means that if the current mining computational infrastructure keeps pace with the increasing mathematical difficulty for achieving Bitcoin rewards, all Bitcoins will be mined out in about seven years (by roughly 2024).
Once Bitcoin’s block mining rewards are no longer available, mining operations will subsist entirely on transaction fees, which currently represent just 19.34% of the earned miner revenue for Bitcoin mining operations. In other words, rewards will collapse by 80% for Bitcoin miners, making nearly all mining operations unprofitable. This, in turn, will lead to a rapid loss of mining capacity, subjecting the blockchain to an ever-increasing barrage of 51% attacks which will fork the blockchain ledger and obliterate the integrity of the blockchain. (Note: If you don’t know what terms like “hashing” and “51% attacks” and “blockchain” really mean, you have no business owning Bitcoin.)
Once this happens, the blockchain and mining infrastructure self-destructs, and everybody heads for the exits in search of the next “big thing,” causing Bitcoin prices to plunge toward zero.
Or, alternatively, the Bitcoin community decides to change the rules of Bitcoin and open it up to unlimited mining (erasing the 21 million coin limit)
Okay... so most of the technical portions outlined in this section are valid. There will only ever be 21 million Bitcoin. :All: (Edit: all replaced with most) Most of those Bitcoin will be mined out in about seven years due to the block reward halving. At the moment rewards for the miners are around 25% of the block reward. I even agree with his statement that you should probably learn about what a blockchain is and what 51% attacks are if you own Bitcoin. I mean that is just simply sound investment advice. What Adams asserts is possible, none of it is likely.
Now where Adams goes astray here is his assertion that the reduction and eventual disappearance of the block reward will cause the Bitcoin blockchain to "self-destruct". The economics of this system were planed for this very event. Bitcoin was designed in a way where the incentive economics for mining adjust automatically to network use. If mining is no longer profitable, some miners will shut down until it becomes profitable. This has been shown to converge on a system that is overall slightly net profitable - in accordance with the many risks incurred by miners.
When there is no longer a block reward for miners, the network will be processing well over the current 3 transactions per second. The fees and hashpower on the network will optimize according to the value and utility of Bitcoin at the time.
In fact, this is one of the reasons investors are attracted to Bitcoin in the first place. Because of the way Bitcoin goes about the controlled supply with block reward halvings, Bitcoin is a deflationary asset. This is very attractive to investors because there are not many deflationary assets to begin with, let alone with the mathematical certainties given to Bitcoin's future coin supply.
You should read more about Bitcoin's coin supply here.
This is not about a search of the "next big thing" Bitcoin can evolve to support economics of any scale. Might there be lots of competition in the future tokenized asset arena, I'm no Bitcoin maximalist. If current trends are any indication, Bitcoin is just going to be a speck on the wall of digital value assets and blockchains.
The last point about Bitcoin changing the coin limit. Well, it is technically possible if the network agreed, anything can change - that's the whole point. Changing the coin supply would not come easy; the Schelling Point around which Bitcoin is founded upon is this coin limit. Any group of actors trying to change is will be viewed as contentious, change would not come lightly. Overall if the people using Bitcoin want more coins, they will make more. Doesn't stop you from keeping the 21 million version up and running. The users of the network control the network, no matter how you look at it. None of this signals an end to Bitcoin... If anything it could show the utility a group of people have found in BTC.
Either way, Bitcoin comes to a catastrophic end. This is mathematically engineered into the system.
Yeah. Do you see why this is deceptive now? There are Bitcoin nightmare scenarios just like there are USD nightmare scenarios. Some of this post makes me think the author's narrative was intentionally misleading.
Kindergarten teachers in Japan now convinced that Bitcoin is a magical, rainbow-powered unicorn for earning money without effort
Okay well there are definitely some people all over the world who look at Bitcoin's past and want to tap into these "magical" gains. Who wouldn't - you would be stupid not to. We are in the middle of a Bitcoin and cryptocurrency bubble. It is going to take us to heights that evoke the same emotions 1000$ Bitcoin gave investors in 2013. It will correct at some point. This does not mean that Bitcoin is doomed to fail. Take a look at the post What it is like riding Bitcoin bubbles: an adventure through the present cryptocurrency explosion for a reasonable assessment of the current state of cryptocurrency affairs.
The comments of Japanese citizens given by Reuters highlight the state of global economy that is causing 'average Joe investors' to throw a few thousand dollars at an asset like Bitcoin. If I was a financial advisor, I wouldn't balk at this decision. Having a small percentage of your portfolio in assets like Bitcoin that are high risk and reverse-correlated is wise advice.
Yep, kindergarten teachers are now buying Bitcoins and thinking they should have bought in earlier. If this isn’t a sure sign of a “mania” bubble in the process of heading toward a catastrophic collapse, then nothing is. The Bitcoin mania has even spawned multi-level marketing “pyramid” schemes across Asia, where Bitcoins are the “reward” for recruiting others to blindly buy into the system:
The funny thing about all Ponzi schemes, however, is that they all end in catastrophe. It’s just a matter of how many fools can be suckered into the scheme before it reaches a point of unsustainable irrational exhuberance, after which the collapse is almost instantaneous.
I hope I don’t have to be the one to tell Mrs. Watanabe that she’s going to lose everything when Bitcoin mania comes to its inevitable end. When the vast majority of new suckers entering the Ponzi scheme are total noobs, you know the mania bubble is approaching its inevitable collapse.
Where there is money to be made there are scams to be had. The Ponzi schemes will collapse. Bitcoin is not a Ponzi scheme. Period.
There is definitely a mania in the air. A correction will come. None of that signals a "catastrophic collapse" as Adams suggests. People will lose money when the bubble bursts, that's just life. That doesn't signal the collapse of Bitcoin. All tech stocks fell when the .com bubble collapsed. The internet is here to stay.
This article was troubling to read. It touched on many points that make it easy to criticize Bitcoin - Bitcoin is a volatile asset attracting many naïve investors. That doesn't mean Bitcoin is "mathematically" doomed to fail. There was no sense to the points given about the collapse of mining - this was borderline intentionally deceptive. Adams took nightmare futures for any currency, applied them to Bitcoin and hit post. There was no reason given to the other side.
It is easy to be critical, not as easy to be sensible.
Stay decentralized and be sure to leave a comment regarding your opinions. I don't have all the answers.