Justin Bons argues that Bitcoin's (BTC) security model is fundamentally flawed and unsustainable due to its reliance on the halving mechanism and transaction fees. He states that BTC needs to double in price every four years or sustain extremely high fees to maintain its current security level, which is impossible as it would surpass global GDP within decades.
He explains that each halving exponentially reduces the security budget, making it financially unfeasible in the long term. High transaction fees are also unrealistic in a competitive market, as users would leave when fees spike, exacerbated by the block size limit. Bons predicts that BTC's security will deteriorate within 4-12 years, making it profitable to attack the network.
Bons emphasizes that hashrate is not an accurate measure of security; instead, the cost to produce hashes and the revenue miners earn is crucial. He points out that decreasing miner revenue will eventually lower the cost of attacking BTC. Bons criticizes the notion that non-mining nodes secure the network, as they lack Sybil resistance and do not contribute to block production incentives.
He suggests that BTC will face a dilemma: either increase the supply beyond 21 million BTC or allow the network to be vulnerable to attacks and censorship. He argues that the block size limit imposed during the historic debates has hindered BTC's ability to scale and provide utility, turning it into a speculative store of value rather than a medium of exchange.
Bons also criticizes BTC's governance, claiming it has centralized around Bitcoin Core, preventing effective solutions to the security dilemma. He concludes that BTC's security model will fail within the decade unless significant changes, such as increasing the block size limit and enhancing its utility, are made.
Here are the main points raised:
Here's a summary of the key points from Justin Bons' thread:
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BTC Security Model Issues: BTC’s security model is flawed as it requires the price to double every four years or maintain extremely high transaction (TX) fees to keep security levels stable, which is unsustainable.
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Halvenings Impact: The halvening events (where block rewards are cut in half) will exponentially reduce the security budget until it is depleted, potentially within 70 years, making it impossible to sustain.
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Fee Market Limitations: TX fees are unlikely to reach extreme levels due to market competition. High fees drive users away, and the block size limit exacerbates this issue.
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Future Security Concerns: BTC's long-term security is at risk and may become profitable to attack within 4-12 years if high TX fees are not achieved.
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Hashrate Misconceptions: Hashrate does not equate to security. Miner revenue, not just hashrate, determines BTC’s security level. As mining hardware improves, costs decrease while hashrate increases.
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Cost of Attack: The cost of attacking BTC is related to miner revenue, not hashrate. Lower miner revenue means a lower cost for attackers.
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Security Risks: With decreasing miner revenue, double spending and censorship attacks become more feasible, making BTC less secure.
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Full Nodes' Ineffectiveness: Full nodes do not provide security since they lack the economic incentives that miners have.
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Possible Outcomes: BTC might face either increased inflation or attacks if its security deteriorates. This dilemma might lead to further division within the network.
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Governance Challenges: BTC’s governance, dominated by Bitcoin Core, has centralized control and failed to address the security dilemma effectively.
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Decentralization Myth: BTC's purported decentralization is undermined by Bitcoin Core’s disproportionate power and the suppression of competing clients.
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Block Size Limit Issues: The decision not to increase the block size limit limits BTC’s transaction capacity, making it impractical for widespread use and leading to unreliable transactions.
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Scaling Solutions: Proposed solutions like the Lightning Network and Drivechains have limitations and may not resolve the scaling issues effectively.
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Loss of Utility: BTC’s current restrictions limit its practical use, reducing its utility as a medium of exchange and store of value, which impacts its ability to generate sufficient fee revenue.
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Future Prospects: The likelihood of BTC’s security failing within a decade is high unless significant changes are made, including potentially increasing the block size limit or adopting more practical scaling solutions.
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Conclusion: BTC’s security model is deeply flawed and will likely fail in 4-12 years, leading to potential inflation or attacks as the only remaining solutions. The failure of BTC's governance and scaling strategies is central to this issue.
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