Shocking Crisis Coming to Cryptocurrency (in Sept?)

Bitcoin’s Existential Crisis

Miners will eventually be incentivized to spend to themselves (i.e. “steal”) all the historic SegWit transactions which accumulate sometime after SegWit goes live on approximately August 23.

I’ve elaborated on this here and here (archived). The last link contains some discourse with Andrew Chow — a Core and Armory developer.

When?

Nobody knows yet how long it will take for enough value to accumulate so that a miner of significant enough hashrate is incentivized to take the leap to “steal” the SegWit transactions by spending them to themselves on Satoshi’s original protocol rules. Satoshi’s rules that were afaik compatible up to now¹ until SegWit forks those protocol rules unilaterally to foster a high volume of transactions which can be eventually stolen. WTF?? 😱

¹ except for any (rare?) P2SH transactions which miners validated incompatibly, but afaics now I presume these would not be orphaned in the future and instead just incorporated as validation errors that the chain mistakenly accepted!

Who?

One of the issues is that if a more powerful miner decides to mine The Real Bitcoin (aka TRB, which is Satoshi’s original Bitcoin) and is able to more than double the network hashrate, then they can orphan any prior miners’ blocks. Therefor there is probably no Schelling point towards mining TRB until a miner with very significant hashrate decides to, e.g. Bitmain. Which probably will not happen until the accumulated SegWit booty is sufficiently humongous. Could Bitmain be positioning themselves now by offering the Bitcoin Cash fork (which presumably they know will fail to achieve the status of the true Bitcoin) so they will plausibly have an excuse to go back to mining TRB after the 2MB plan of the New York Agreement fails to materialize. I see possibly Bitmain is playing a very clever political game here to position themselves. And remember Bitmain retains also the AsciiBoost weapon which they can activate to hypothetically increase their hashrate by ~30%.

However there is an alternative scenario in that Bitmain et al might entirely ignore TRB and so a smaller miner such as perhaps Craig Wright’s claimed 20% share of network hashrate might take the risk to start “stealing” the SegWit transactions on and by mining TRB. As time goes on, it becomes more difficult for even Bitmain to orphan those older blocks as the amount of proof-of-work difficulty on the longest chain accumulates over time. The Bitcoin million BTC kingpin Mircea Popescu and others who are astute will be selling their BTC on the Core fork (as I explained how to do) and buying TRB somehow (will Craig Wright be providing an exchange?). This will continue to raise the hashrate of TRB relative to the Core fork.

A third and perhaps less likely scenario is that a sufficiently powerful player such as Bitmain could periodically swoop in driving hashrate of TRB up, orphaning recent blocks to steal back more SegWit (and any replayed Core transactions that were paid by Bitmain or proxies/allies), and then appear to leave only to come back again. This might be done to attack confidence in TRB and Core/SegWit in order to make the Bitcoin Cash fork look more relatively stable.

Speculation

I anticipate the vast majority (if not all) of the news during August should be about the successful activation of SegWit and the euphoria of finally getting some scaling moving forward on Bitcoin. As well, the inability of Bitcoin Cash to dominate thus leading to more confidence in a victory of the New York Agreement. Thus I expect a blow off top in the BTC price perhaps even north of $4000. Not sure if we will get a waterfall crash after that peak or just a Fibonacci pullback, perhaps the latter if TRB has not kicked into high gear yet. It is also possible that Bitcoin Cash (BCC) has more initial success than I expect, and thus we might see instead of a moderation of the BTC and BCC prices, but perhaps the sum of the two $4000+.

Then as SegWit usage increases with adoption of Lightning Networks, the carrot for “stealing” SegWit on TRB increases until it (not if it) happens.

Unfortunately I think when this plays out fully, then we will see a waterfall crash in the cryptocurrency prices, because it will obliterate confidence in Bitcoin for perhaps up to a year or so (maybe only 6 months but I doubt it because it will be so shocking to everyone that Core was never really Bitcoin). Everyone will think that TRB is about theft and that cryptocurrency can never be trusted (when in fact it is Core that is enabling the loss of Bitcoins). The majority will be fearful as they see the price of Core BTC collapsing and they will fear to hold any cryptocurrency. Remember what Mt. Gox’s collapse did to Bitcoin (and altcoins) after crashed from over $1000+ in 2013.

This would be a buyers market and those who buy when there is “blood in the streets” should end up being very wealthy in concurrency when it eventually recovers.

Additionally on the macroeconomic level, 2018 appears to be (c.f. also) when the short dollar vortex kicks into high gear thus a strong dollar and USA stocks due to international safe haven stampede into dollar and dollar denominated stocks, which could possibly mean other speculative assets (such as gold and crypto) sell off (as priced in dollars, but rising in Euro) temporarily (as gold did in 2008 with the liquidity crisis caused by the subprime crash, but this time it will be an international effect, not local USA stocks).

There are more comments on the Steemit copy of this blog.

Disclaimer: This is provided for the entertainment value only and should not be construed as advice. Please consult an expert on these matters.

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