Laura Shin published a podcast with Eric Wall (supporting Bitcoin and Ethereum) and Justin Bons (arguing that Bitcoin is over) and I recommend listening.
The biggest issue for Bitcoin is security in the long run:
Thanks for reading Hype or Hodl! Subscribe for free to receive new posts and support my work.
There is no clear plan for network security once block rewards end in 2140 and Bitcoin miners earn only transaction fees.
Sample calculation
Today, there is a block reward of 6.25 Bitcoin, which is about $125,000 with Bitcoin at a price of $20,000.
With today’s block size, there are about 1,000 to 2,000 transactions per block.
So, for transaction fees to replace today’s block rewards, that would mean transaction fees of about $60 to $120 per transaction.
Obviously this is impractical for a medium of exchange, but doesn’t seem entirely crazy for a store of value. That said, may $125,000 per block may not be enough security if Bitcoin is worth a lot more than today.
What did Satoshi say?
The Bitcoin whitepaper describes how incentives can move entirely to transaction fees:
Satoshi seems to imply that Bitcoin would be used as a means of transacting in high frequency, which goes against the store of value approach:
This is what the block wars were about and why there were the forks of Bitcoin (keeping a small block size with a small number of transactions) and Bitcoin Cash as well as Bitcoin SV (Satoshi’s Vision) that have larger block sizes.
I don’t feel I understand the technical details well enough, but my gut feel is that:
- Bitcoin Lightning isn’t working as a scaling solution because it’s not gaining much adoption and is unreliable and inflexible to work with.
- Probably Bitcoin will have to consider going back to something a bit more like Bitcoin SV or Bitcoin Cash and have larger block sizes — allowing for more transactions per block. This should be possible because computing is getting better and there can be more transactions per block while it still being possible for (some) individuals to run full Bitcoin nodes.
Overall, I think there’s a balance. Either:
- You plan for insanely high transaction fees (in which case there needs to be a layer 2 like Lightning), OR
- You allow Bitcoin blocks to get bigger.
Anyway, 2140 is a long way away and the Bitcoin community will change a lot before then. Generally, I feel the current Bitcoin maxis are too dogmatic (e.g. Michael Saylor), but I’m guessing there will be a new wave of community in the next 10 years.
Ethereum’s problem is proof of stake centralisation
I’m still surprised that most Ethereum advocates are at least partially dismissive of the centralisation risks that come with proof of stake (whereby most people stake via a centralised provider). Maybe the risk just isn’t as big in practise as in theory and I’m not seeing that.
My best guess is that Ethereum will evolve from the current proof of stake system and start to include things like proof of humanity into staking to reduce the use of centralised staking providers.
Thanks for reading Hype or Hodl! Subscribe for free to receive new posts and support my work.
