Erik I

I've been saying for a while that I expect Bitcoin – in its current state at least – to become worthless, and here are my three reasons:

This is a rough draft, -if I should wait until I finish everything I write it will never be published.

(See http://www.manifestoproject.it/bre-pettis-and-kio-stark/ for inspiration to publish drafts.)

1. It is too difficult, too ineffective, too slow and to hard to really decentralize

As has been pointed out elsewhere Bitcoin, as it exists today is still hopelessly ineffective. When I dabbled with it back in 2009 – 2012 sometime I remember downloading the official wallet app. I remember the hassle of buying a small amount of Bitcoin for testing and I remember it had an option to enable mining locally.

I also remember the blockchain soon grew huge. Enabling mining locally never produced anything (my CPU wasn't exactly top of the line, and I think mining was transitioning to GPU already back then).

Except for the hassle of getting hold of Bitcoin, none of these issues have disappeared.

2. There's a only a fixed amount of bitcoins that can be produced

This one might seem counterintuitive, but the explantation is reasonably short:

Like gold, the supply of Bitcoin is limited, in Bitcoins case it is limited to 21 000 000 Bitcoins. And while we can assume that Bitcoin clients will evolve to let one divide Bitcoins into as small parts one would ever need it should still mean that if it where distributed evenly there would be about 0,003 bitcoins pr inhabitant of planet Earth.

If one expects Bitcoin to go mainstream globally, a single bitcoin will cover above 300 people, which means even someone who has a fraction of a bitcoin will be rich.

Which means the only reasonable thing to do right now is to hold. I mean, if Bitcoin went mainstream, would you like your grandchildren (or whoever talks about you after your death) to talk about the man who spent his soon to become fortune on groceries?

For this reason nobody in their right mind will use significant amounts of Bitcoin now. It makes sense. And ironically it is part of why I think Bitcoin – at least as it exists today – will never go mainstream.

3. Probably the most exciting: If Bitcoins goes mainstream a bunch of nerds will get super-rich

... like crazy, almost unimaginably rich, and would become wealthier than many banks and many where late to the Bitcoin party.

I can see a number of governments accepting Bitcoins. After all it really easy to track unless care is taken to hide its traces. And it's not like we can prevent our governments from claiming taxes from digital wealth just as they do for other wealth.

I would fully expect banks and others who run the show today to start lobbying for regulations, create competing blockchains etc etc for no other reason than to avoid being overtaken by a bunch of geeks. I mean, who of todays top 1000 richest people would enjoy a bunch of lucky kids to displace them?

4. Bonus: To many unknowns to work as a stable currency

Again, this may take a little explaining:

While the blockchain is completely transparent and the rules are more transparent than most current systems can ever hope for it got its own fair share of uncertainity:

• “Satoshi Nakamoto” (whoever or whatever he/she/it is) is reported to have more than 1 000 000 Bitcoin. “Satoshi Nakamoto” has not been know to active for years, the latest verified observations seems to from 2011 and the latest observations that hasn't been thoroughly debunked are from 2014. What will happen to coins from the early blocks? Will Satoshi ever come back to claim them? If not, did anyone else get a key? Because someone comes with his/her/its key and start making transactions out of that wallet it will affect the prices a lot overnight.

• Generally Bitcoins, unlike gold, can be easily be lost and disappear for ever, but usually it is very hard to prove that they are actually lost for ever, meaning that given the blockchain exists in a 100 years they might show up when someone renovates the house of a dead crypto hoarder or maybe when a breakthrough happens or a flaw is found that makes what we think of today as unbreakable crypto trivially easy to break. AFAIU this means a couple of things:

  • There exists an opportunity to try to defraud the tax system or insurance (if anyone wants to insure crypto) by claiming your fortune disappeared – only to have it show up with your children or grandchildren across the globe a couple of decades later.

  • Since it is hard to prove that you really really lost the keys this probably means that claiming you lost your digital fortune and shouldn't pay taxes on it anymore might not be accepted right away.

Feel free to send your comments to @eitland@mstdn.io

Filed under #bitcoin and #cryptocurrencies