Bitcoin "end game" a mathematical certainty: correcting bad Bitcoin journalism.

in bitcoin •  last year

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?

See Natural News article here; post by Mike Adams


Image from natural news website. Reprinted without permission.


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.)
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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).
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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)
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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.
-Kyle

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The offset is that quality of cryptojournalism is abysmal as it's infilitrated by hacks, shills, companies that own publications as their own propaganda arms (Coindesk), and almost no one of quality. They never dig deep, they mostly FUD, and they are captured by industry. We should demand better not only of mainstream press in their coverage of crypto but also the crypto press.

The exception are people like Laura Shin who remains independent and can write.

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Laura is fantastic. Great plug.

You make some great points about the state of crypto journalism. I think a large part of the problem stems from writers who don't necessarily know the deep technical details that form the other sides to their arguments. I try and give them as much slack as possible becasue some of them are often expressing the questions that many of the "average Joes" will be asking - there is nothing wrong with that.

The problems come when this skeptical attitude is deliberate and deceptive. Where to draw that line is by definition, hard. Some of the crypto tabloids (coindesk, CT, twitter) are walking a fine line - how do you simplify and distille topics that take PhD level understandings to really evaluate, into language that is accessible to the masses that are interested? Answer: it's hard. It gets much worse when these firms take advantage of the education level their readers have to promote their shillings.

Crowdsourcing journalism is getting better. I hope to help it improve bit by bit.

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Thanks for pointing me to Laura Shin

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Happy to do so, she's awesome. A Candle in the Dark in the Saganian sense of the term.

Thank you for sharing this with us and your opinions.
Appreciate it.
Follows, Resteem and upvote

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Cheers!
You and the same!

Great rebuttals to many of his points. His point of btc losing it's profitability in mining after the final coin is mined and causing all mining operations to cease is ignoring very fundamental free market principles of supply and demand.

The argument is reminiscent of the"peak oil" crowd that was claiming we'd all run out of oil by 1996.

Excellent article!

-O.T.

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).

I thought the estimate was 2140 - I know there is some variation due to the way mining works but unless I'm missing something 7 years does not sound right.

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Thanks for the catch, I was giving Adams some liberty with regard to what he considers "the end of bitcoin mining as we know it". Bitcoin will not be mined out until the 2100s but I took his point as the proportion of the current reward being the problem.

Thanks for the catch. I have edited my wording in the post!

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NP. I'm going to be sharing this on twitter but I can't remember if I you are one there - let me know your tag if you are and I will include it in tweet.

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Hey thanks a bunch. Funny story actually. I had a twitter, @ky13anderson and had started to get quite active during the election cycle and with crypto in the arena of Bitcoin scaling. If you google @ky13anderson, I think a few tweets from Bobby lee come up - don't think he agreed with me :P.

I had been asking some questions around sensitive topics - nothing against twitter terms of service directly IMO - and using sensitive hashtags like #pizzagate and #johnpodesta. I had my account terminated once but was able to have it reinstated. I tweeted about this BS and my tweet gained serious traction. Poof - no more twitter account.

I am better for it. Breaking out of 140 characters is so freeing.

Steem won't be shutting my account down.

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Oh that sucks but I have heard they have a tendency to take action first and ask questions later. No problem. I will share it around and hopefully people will see it.

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Thanks a bunch!

Yeah I tried to appeal but it looked to be much more trouble than it is worth.

Hope @zapple will attract some more users like me from twitter. There really is a place for uncensored channels.

Once he said bitcoin will be mined out in 2024... ugh.

We're climbing the wall of worry, enjoy the ride!

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Wall of worry. I like that. Hope you don't got no trademark.

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It's an old trader saying:
Bull markets climb a wall of worry.
Bear markets ride a slope of hope.

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Haha well I'm no trader :P

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wall of worry, I cant wait until they are all mined imagine the price on it!!
hodl lol

Started reading, will finish when I have a bit more time., nice anaylsis thus far.

I continually see people "exposing" cryptocurrency "problems" thinking that it hasn't already been considered and discussed by the crypto community ad nauseam. Some of the world's greatest minds are involved in creating and developing crypto, not to mention the army of decentralized crypto keyboard warriors, pushing the tech forward, do people really think the community has turned a blind eye to things like competition, quantum computing, cryptographic advancements and just basic mathematics?

I find this irritating...sorry for my mini rant lol.

Thank you for this. It's good to see somebody being realistic in the middle of extremes.

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Hahah I really hope you are a bot and just comment that following sentence. - love the username!

Thanks for the praise - got my follows.

Great article but the question is if the demand will remain this high if Transaction fees stay this high, on the long run I'm pretty sure it won't be. People made a lot of money or they want to get their foot in the door so they are accepting it but something needs to be done about it and it will.

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Well there are certainly some short term issues with Bitcoin. Nothing is certain.

Great article. But an easy rebuff, I feel like you have more to say and are just pushing off this. - And would like to here more - about how you see Bitcoin in the long term.

One point of disagreement, perhaps you could set me straight on :

  • 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

You presume much here. First of all that the community will form a consensus (it appears people have different ideas of what bitcoin is and could be and who it should benefit). Secoundly, a consensus could easily enforce high fees to turn bitcoin into a security (which at the moment it is) more than a day to day currency.

Edit: dodgy brackets and grammar.

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Thanks for the comment.

Of course I have much more to say. It is difficult in crypto journalism to balance my optimistic feelings for the future and the tone and independence required by the space. Bitcoin in the long term: you should be able to get a good idea of how I feel about these things if you read some of my blog posts. I am not a Bitcoin maximalist. I am optimistic however.

I absolutely presume much in that comment. The scaling debate is not something that can be outlined in a single comment. It would be best to take a look at r/btc on reddit to build a sense of the climate. The reason so much is presumed is Bitcoin is messy to change anything by design. This is actually something that people view as attractive in Bitcoin. Consensus will form, it just might take a bit longer than say Ethereum due to the structure and politics of the network.

Bitcoin doesn't have to be the currency - there is nothing wrong with a security (I don't know if I would call it that though)

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Thanks for the measured reply. Crypto journalism is a real minefield, most people have vested interests and of course its all completely new to everyone.

I do generalise with terms like security and currency, because bitcoin is actively changing semantics and moving the goal posts in the field - another journalistic frustration.

The personal reason I would like to see bitcoin as a currency is that it could have tremendous force to help developing economies and global financial inequality. As a security that may still be true but is limited. If a another crypto-currency can replace bitcoin in this function (because primarily of the time it takes to reach consensus) then the consensus debate will have a very different feel for bitcoin.

My main point stand that a consensus may lead to even higher fees if bitcoin is promoted as a security - encouraging people to hold it - and hold large amounts. These are in conflict with a day to day use of currency to buy milk and bread.

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I agree. I guess it is mostly a "wait and see".

If Bitcoin becomes the only currency on Earth, and its early adopters become the lords of all humanity and rulers of the planet, there will still be a gaggle of idiots claiming it is a waste of an investment and doomed to failure.

This post received a 75% upvote from @randowhale thanks to @kyle.anderson! For more information, click here!

I agree, but the 21 million bitcoins will not be completely mined until 2140. I know you said most. However, reduced supply with equal demand will cause price to go up thus incentivizing the miners further

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You're right. Really trying hard to give Adams point as much benefit as I could.

should be tagged 'rebuttal' on non-technical journalism. :) great to see how you explain thru this journal.

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What tag should I replace?
Is #rebuttal really a tag yet?

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usually people create a new tag...then suddenly becomes a thing to use that tag.

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'debunked', maybe?

Well written post. Thanks