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This kills the coin
10 visions of the end of Bitcoin
In this issue:
An important thing to remember when reading things about crypto is that it is impossible for anyone to write about crypto in an unbiased way. Anyone who understands Bitcoin has no choice but to decide how it affects their own saving strategy. There is no meaningful way to be neutral about Bitcoin — not owning any is effectively betting against it.1 Rather than trying to seek an unbiased source I think you are better off trying to understand and account for the biases your sources will inevitably have.
I own Bitcoin and I also believe in it. It was the latter that caused the former, but the former no doubt reinforces the latter. Anyone reading my writing should account for the potential that my past investments are clouding my present judgement. I certainly have that worry when I’m assessing my own writing and portfolio. With that in mind I invite you to join me in a meditative exercise to clear the mind of bullish fervor.
I call it: this kills the coin.
10. Governments become worthy of our trust
Faced for the first time in modern history with outside monetary competition, major world governments (most notably China and the US) decide to tighten their monetary policies and relax their capital controls. Fiat money becomes a safe and reliable way to store and transfer value over time/space and across borders. Since governments have stopped causing the problems Bitcoin is meant to solve, no one is interested in paying the high fees of a blockchain network. This kills the coin.
9. Bitcoin users lose all hope
One morning the collective population of people who own or are considering owning Bitcoin wake up and decide Bitcoin is going to collapse. The race to be the first to sell becomes a self-reinforcing feedback loop, causing margin cascades and panicking more market participants. Bitcoin becomes a hot potato that no one wants to hold and the price drops to $0. Since bitcoin are now worthless, miners stop mining on the blockchain. This kills the coin.
8. Surprise! There is a bug. 🙀
A previously unknown bug is discovered in the Bitcoin codebase that fundamentally breaks the security assumptions of the Bitcoin network, allowing sophisticated users to spend bitcoin they don’t own or that don’t exist. The bug may be solvable but the solution will take time to develop. For now all value on the network is made worthless because anyone can spend anyone’s coins. The devs eventually release a patch but it’s too late because everyone who relied on Bitcoin to store their wealth lost everything in the meantime and no one is willing to risk it again. This kills the coin.
7. They built a better mousetrap
Bitcoin is a legitimate technical innovation but turns out to be a primitive implementation and its time in the sun is short lived. Developers create a new digital money with even harder supply guarantees where transacting is cheaper, more environmentally friendly, works with smart contracts and comes with a free frogurt. Now that there is a cheaper, better alternative there is no demand for Bitcoin anymore. This kills the coin.
6. Never meet your maker
The true identity of Satoshi Nakamoto is discovered and it is unfortunate. Maybe he’s a terrorist or a predator who created lawless money for fundamentally ugly reasons. Maybe he’s a three-letter government agency seeking to destabilize other monetary regimes. Or maybe he’s just a boring oaf who doesn’t inspire confidence the way his pseudonymous avatar did in his absence. Upon realizing the truth about Satoshi Bitcoin users lose confidence in the project and race to be the first to sell, driving the price to zero and ending the network. This kills the coin.2
5. Better an absent prophet
The true identity of Satoshi Nakamoto is discovered and he steps forward to resume leadership of the project. Because of his moral authority as the original creator of the network other developers are highly deferential to his opinions. Bitcoin fans become a parasocial army that mobs anyone who disagrees with the direction Satoshi has declared. Everyone begins to accept that Bitcoin is whatever Satoshi says it is and the network centralizes around a cult of personality, eventually succeeded by a priesthood of developers who channel the word of Satoshi for the masses. This kills the coin.
4. Trust us, we verified
Through a series of individually reasonable upgrades Bitcoin’s consensus logic becomes so convoluted and sophisticated that ordinary people can no longer hope to understand it and reasonably verify the network for themselves. Over time the Bitcoin philosophy of "don’t trust, verify" devolves into faith in the developer caste to perform the verification rituals honestly. Bitcoin itself remains theoretically trustless but is effectively contained within a trusted institution. This kills the coin.
3. Governments … attack! 🙀
Faced for the first time in modern history with exogenous monetary competition, major world governments (most notably China and the US) decide to crack down on non-State money of any kind. Private Bitcoin ownership is made illegal, Bitcoin exchanges are shut down, businesses are required to stop owning or transacting in bitcoin. This drives the currency underground and damages price but does not eliminate demand — rogue actors seeking to evade traditional banking controls are still happy to use the network whether it is legal or not. In an escalating bid for control governments seize as many Bitcoin mining rigs as they can find and turn them into a hostile mining pool that mines nothing but empty blocks and immediately dumps any block rewards on the open market to drive price down even further. Honest miners lose revenue and some quit, increasing the mining share of the attackers and forcing even more miners off the network, creating a death spiral. Eventually there are no honest miners left and no transactions are processed. Attempts are made to rally a new network but now that governments understand the threat they are easily able to quash nascent networks before they can develop any robust network defense. This kills the coin.
2. Decentralization works but we can’t afford it
As demand slowly builds for blockspace the price of an on-chain transaction becomes out of reach for all but the wealthiest individuals and then eventually only the wealthiest international corporations. Bitcoin itself remains theoretically trustless but is accessible only through trusted gatekeepers like banks or governments that can afford to transact on chain. Bitcoin ends up serving a similar role to gold, held primarily by multinational institutions and central banks. Ordinary humans are forced to trust fiat money or derivative claims. This kills the coin.
1. Decentralization works but no one will pay for it
As we grow more sophisticated about the purpose and utility of blockchains we come to make increasingly spare use of them. Demand for blockspace subsides as we narrow the set of use cases that actually call for a blockchain and the demand that remains is spread more thinly across multiple Layer-2s. Since transaction fees are set at auction they fall to zero whenever demand for blockspace is smaller than supply.
For a while the price of Bitcoin grows faster than the block rewards shrink so miners remain well paid — but eventually only transaction fees are left. Lots of users benefit from the Bitcoin network but because there is no congestion there is no way to set prices. Many people would pay but no one actually has to so no one actually does. Bitcoin becomes a public good with a free-rider problem and miners abandon the network. This kills the coin.
Did you enjoy this post? Paid subscribers also get access to my companion piece about how likely these threats are and how concerned I think we should be.
Fun fact, Coinbase listed the identification of Satoshi Nakamoto as a risk factor on their S-1 filing when they went public.