By far THE biggest crypto scam EVER… and it’s still happening!
Wanna know what’s the greatest scam in the entire world of cryptocurrency?
Take a guess… Is it MtGox? OneCoin? Nope. How about Bitconnect?
No… there’s a scam that’s much bigger than all of those put together, and it’s still going on to this very day.
It’s one of those illusions that hides in plain sight.
The closest thing I can compare it to is when you find out the federal reserve isn’t “federal”, it’s a private institution that holds a monopoly on the issuance of currency in the USA, and has never been audited.
The persistent of such institutionalized, parasitic schemes can only continue because of ignorance of the masses.
I’m talking about something so insidious that it’s almost unbelievable…
Ok, I won’t hold you in suspense any longer. Here it is:
The biggest scam in crypto is that BTC is no longer Bitcoin!
Sure, BTC is called Bitcoin by most of the world. But it’s Bitcoin in name only now. What Bitcoin was supposed to be was a peer to peer electronic cash system. That means a new kind of money for the world. It’s an idea so basic even a kid could understand it.
Sadly, BTC is no longer that.
The reason is simple: BTC intentionally truncated its transaction capacity. With 1MB blocks, its stuck at 3 transactions per second. With the addition of SegWit, the blocks can effectively process 6 transactions per second, a small improvement.
But that’s still nowhere even close to being able to be usable as a global currency. By contrast, Bitcoin Cash (BCH) can handle 100 transactions per second (about what PayPal does) and is on its way to scaling toward Visa levels.
This stagnation in BTC happened by design.
The goal in Bitcoin was always to scale big (on-chain). Read Satoshi’s early emails; it was clear that this was the direction of the project. Or see what the Bitcoin wiki had to say about scalability in 2011.
It has a lot to do with a single line of code in the Bitcoin software which limits the size of the blocks.
You see, in the first versions of the Bitcoin software, there was no preset limit. But in 2010, Satoshi introduced a maximum blocksize parameter. At that time, blocks were only about 1kb in size and transactions were essentially free. The 1MB limit was therefore created to prevent the blockchain bloating at no cost.
In the years to follow,this limit became a weak point which was attacked. Those intent on throttling Bitcoin came up with red herrings, scapegoats, and boogeymen.
The mining community was apathetic and afraid to do anything without the blessing of the core development group, even after being lied to and betrayed following the Hong Kong meeting.
A corporation, Blockstream, was formed. It raised over $75M in venture capital from dubious sources and hired nearly all the top BTC devs. This company’s stated purpose was to develop alternative methods of scaling the blockchain.
Plus, while all this was going on, a massive censorship campaign squashed all dissent and critical discussion of the issues in the community.
It was a perfect storm.
The Small Block Philosophy
Every hoax has a story it tries to peddle. To the wise and discerning, the story is implausible. Those who believe it are duped — sometimes because of foolishness, but usually it’s just because they don’t have enough information. And quite often, there is an element of truth to the story which is then exploited and twisted to serve whatever ends are desired.
That’s how propaganda works.
The “lets keep the blocks small and stop Bitcoin from scaling” philosophy was cleverly sold because it was based on a not-uncommon opinion that the way to scale the Bitcoin network is actually to have multiple layers.
This line of thinking (which contrasts with Satoshi’s opinion) goes back to the beginning. One of the very first people to get involved with Bitcoin was Hal Finney. (He’s actually the recipient of the first ever bitcoin transaction.)
Small Blocker Logic
Here’s a summary of the “small blocker” philosophy:
If you try to put everything on-chain, then the cost of running a fully validating node on the network will become increasingly expensive. Pretty soon only big companies will run nodes in data centers. The network won’t be decentralized anymore. Therefore, we should keep the blocks small so that everyone can run a node. This will make the system completely censorship resistant, and we can scale on secondary layers.
Besides, blockchains are naturally inefficient; that’s the cost of creating distributed consensus. What’s wrong with wanting to lighten the load on the main chain? What’s wrong with moving many small-value transactions to a secondary layer? Although it may be slightly less secure, those small transactions don’t need heavy security. Moreover, those transactions collectively can be settled on the main chain, which strengthens the entire system.
(There’s also additional arguments about fee markets and other things, and those too, appear sensible on the surface.)
Their Reasoning Sounds Good, Right?
That’s what gives this movement plausibility: It has its own inner logic. It seems to make sense. In fact, in a perfect world, it might actually be 100% correct.
But we don’t live in a perfect world. We live in reality, here on planet Earth. So I’ll lay out why this school of thought (which can sound so compelling in theory) actually fell apart completely in practice.
With regards to how things went with BTC, there’s 4 main problems.
- Secondary layers don’t actually work.
At least, they don’t work well. The Lightning Network was supposed to be the big idea that helped Bitcoin scale to “billions of transactions”. It was officially espoused in the Bitcoin Core capacity increase roadmap.
The BTC community has spent years on this and has all their hopes hinging on it. Yet, there are multiple fundamental problems that are unsolved with Lightning. My favorite is the liquidity problem. There’s just no way it can work at scale without it devolving into a centralized hub-and-spoke model.
The small-blocker’s concerns over decentralization are therefore a moot point if the cure is worse than the disease.
2. The push to scale off-chain was done way too early.
Given that “secondary layers” are still very much in the experimental and toy implementation phase, it would be utterly insane to put the growth of Bitcoin on pause while we research it for years, right?
But that’s exactly what happened.
The blocksize should have been raised no later than 2015 in any rational outcome. Instead, the system was allowed to stagnate. Bitcoin dominance (as percentage of total cryptocurrency market cap) plummeted from 95% to as low as 40%, and merchant adoption actually started to reverse as companies who once accepted Bitcoin simply gave up and abandoned it, due to ridiculously high fees.
3. The economics were centrally planned.
If Bitcoin can benefit from secondary scaling layers, what is wrong with letting them compete freely in the market, along with on-chain scaling?
This isn’t what happened obviously. By sticking with the hard-coded limit of 1MB, a quota was established and ‘competition between layers’ was killed. Beyond a certain size of blocks, transactions on the base layer were simply not allowed.
Even in the perfect world where secondary layers play a major role, who is to really say how big of a role they should play? Where is the line? Is there something magical about the one-megabyte blocksize?
The 1 MB was originally chosen because it was a round number value, but it had a different purpose. By continuing to use that number out of convenience, it’s value was completely arbitrary and almost certain to be wrong — not only for what the market wants, but also for the stated goals of improving decentralization of the network.
4. An extreme position was taken.
Not only were the number of transactions prescribed (centrally and arbitrarily), but this prescription is quite small, both in terms of what the network can handle (even without optimizing the software), and what is really needed.
Even the Lightning Network’s authors mentioned that we’ll need blocks 100 times bigger as we grow.
Had the BTC Core developers even agreed to 2MB, the position would have been less extreme, and perhaps Bitcoin Cash would have never been needed.
Because of the need to push an extreme agenda, all sorts of bizarre propaganda surfaced, from the demonization and extreme fear of ‘hard fork’ upgrades, to the inflated importance and worship of non-mining nodes, to the “store-of-value” proposition without being a useful payment method. All kinds of self-contradictory and illogical oddities emerged within the BTC culture.
The Rebirth of Bitcoin Peer to Peer Electronic Cash
You can debate this till you’re blue in the face (and maybe people do), but the bottom line is that BTC hasn’t scaled its transaction volume beyond the limits that its community has imposed on itself for the past 5 years.
There’s little reason to believe that’s going to change anytime soon, if ever.
But there’s a silver lining to all this. Although Bitcoin is dead in BTC, its alive and well in Bitcoin Cash (BCH).
Assuming Bitcoin Cash continues to operate as cash, and continues to gain new users, then it will continue to grow and fulfill the original promise of Bitcoin.
Markets will figure this out, sooner or later. Will you?