In the Bitcoin discourse community, much of the fud that is dissipated is cyclical and completely refuted. One purpose of this article is to show that there is whole set of unique concerns within the Bitcoin community that are being discussed constantly. It is a truly vibrant discourse! This article also aims to document new forms of fud that need to be addressed by the Bitcoin community. If these points are not addressed, Bitcoin will struggle to gain traction among new potential adopters. So instead of rehashing the same old boring narratives like “mining death spirals” and “proof of work is not energy efficient,” let’s look at some less cyclical and much more interesting fud narratives that may emerge as Bitcoin advances.
Block reward halvenings could turn miners against the network
This first problem has more to do with Bitcoin’s monetization not happening fast enough (i.e. it wouldn’t be a problem if bitcoin was a widely accepted unit of account). Because a reliable fee market has not developed and shorting large amounts of bitcoin is getting easier, there could be a period of time where large miners want to attack the network. Such an attack would imply a flaw in the security model of Bitcoin itself—it does not take into consideration the possibility of an attacker not interested in rewriting its own accepted chain, but is only interested in destroying trust in the network. The only way to get around this problem completely is to either complete Bitcoin’s monetization or develop a stable fee market for miners. Once fully monetized, shorting Bitcoin to acquire fiat money won’t make much sense and a fee market would reduce make attacking the network make a lot less sense for miners. As a result, solutions will focus on delaying the attack (if imminent) or keeping miners at bay before monetization or development of a stable fee market. At the moment, it is unclear how this will happen.
But first, we should consider why such an attack hasn’t happened in the first place. Conducting such an attack is extremely expensive. First, ASIC producers will be reluctant to sell massive amounts of their product to one buyer given that it might render their product worthless and destroy one of their income sources. But even if a malicious party managed to acquire the necessary ASICs, it would be extremely expensive, costing almost 4.2 billion dollars just to get the hardware¹. Second, as it stands today, shorting bitcoin is costly in its own right, as current interest rates for shorting stand at 6–9%. Lastly, it is unclear if exchanges would be willing to pay out short positions that would put them out of business.
Whatever the reason for no attack having occurred yet, these factors do not address this incentive problem. One option Bitcoin has is to make the ASICs being used to launch the attack useless by switching the PoW hash function. This has its own set of well documented drawbacks. Another suggestion to address this issue is to implement a constant inflation rate. Unfortunately, this would destroy a massive Nash social equilibrium that has been developed under the 21M cap rule and would likely lead to a contentious hard fork to a 21M cap chain. Lastly, a UTXO fork that meritocratically distributes their bitcoin via block rewards could mitigate the incentives of executing an attack temporarily. Ultimately, this threat vector will present some big questions as we approach each halvening, and there won’t be a massive bull run until this is addressed.
A UTXO fork that changes the monetary policy of Bitcoin
The core value propositions of Bitcoin aim to provide its users peace of mind when it comes to their money: it is a commodity that will never be printed, confiscated or censored. In doing so, Bitcoin retains value for its users. Of course, a UTXO fork on Bitcoin would imply an infringement on the idea of it being not confiscatable. If the entire network of full nodes agreed to it, the argument goes, any user could be ejected from the blockchain, and the user’s UTXOs could be confiscated.
Of course, this is fud, and isn’t wholly based in reality. The fact of the matter is that the people calling for such a fork would be the owners of the coins getting forked, and would only be doing so in an attempt to prolong the block reward period (and allow a stable fee market to develop/Bitcoin to monetize). The goal of such a fork would be to mitigate the possibility of the attack described above, and temporarily appease miners. That said, this action is not purely unselfish as it provides a buffer for the network to monetize and makes Bitcoin more valuable as its holders become more decentralized (both of which will help a stable fee market to develop). In sum, this type of fork would be purely voluntary, and its goal of increasing the probability of Bitcoin’s monetization would be in line with those having their UTXOs forked.
A new blockchain comes out of nowhere and improves Bitcoin at every level
Every blockchain that has come along since Bitcoin so far has been a scam. And a majority of the blockchains that have come along differentiate against Bitcoin on the basis of fungibility, programmability or throughput. These projects ignore Bitcoin’s growing fungibility while programmability and throughput are increasingly seen as red herrings.
At the end of the day, the point of a money, and a Store of Value more broadly, is to provide peace of mind. High transaction throughput and privacy are not necessary for this. Instead, for a new superior blockchain to differentiate itself, it has to compete on trust, putting together a credible development team, and launching with something similar to Bitcoin’s immaculate conception (i.e. not much promotional marketing, anonymous founder, low hype prior to release). On top of all this, even if another blockchain platform managed to pull this off, it would have long lasting consequences as Hal Finney pointed out. Thus, it’s possible, but it would have terrible long term consequences for cryptocurrencies generally. Moreover, it is very hard for to meaningfully differentiate against Bitcoin on trust because it takes time to develop trust. Bitcoin’s monetization has a similar effect on its trustworthiness over time as well. Bitcoin’s moat strengthens as social consensus forms around it— a self fulfilling prophecy emerges of its rise (or revelation?). As a result, a new cryptocurrency needs multiple competitive moats along with winning the time-based trust battle. In addition, building decentralized systems requires time, capital and energy which makes it much harder to match Bitcoin’s immaculate conception.
Another possibility is that a decentralized stablecoin comes out and beats Bitcoin. By definition, stablecoins do not have the volatility issues that “plague” Bitcoin. In addition, stablecoins can be used immediately as a short term Stores of Value. These are good points, but a new stablecoin still has to beat the aforementioned trust problem, it is still unclear how a decentralized stablecoin would work and whether or not a stablecoin is truly uncensorable and not subject to financial regulation. In sum, even though stablecoins face a myriad of challenges in beating Bitcoin at its core value propositions, they could still build up some serious hype as an alternative in the near future.
We will just have to wait and see if anyone can come close to unseating Bitcoin. In the meantime, it looks like mimblewimble/grin (privacy + issuance policy) and Decred (PoS/PoW hybrid+ governance) are doing well. In sum, a better blockchain or stablecoin could unseat bitcoin, but given how far along bitcoin is in its monetization and the “trust moat” it has built up, this is quickly becoming practically impossible.
People are indifferent to Bitcoin
This fud does not exist yet, but it certainly could in the near future with the great reckoning that is coming to altcoins. One of the reasons one can safely say that Bitcoin has been monetizing is by watching its growing yearly lows. These lows are a clear indication that hodlers believe in Bitcoin as sound money. However, in the wake of the great scam coin bubble of 2017, Bitcoin might end up paying the price for the pumping of scam coins. As the obliteration of scam coins continues, short-term profit seekers are also cleared out from Bitcoin. If this happens, bitcoin may dip below its 2018 low; suggesting, whether right or wrong, that bitcoin is not monetizing as quickly as previously believed.
One could also view Bitcoin as a social movement and from this view conclude that there just isn’t much interest in sound money. It would imply that adoption among the next set of hodlers has been rising in difficulty at the margin and a temporary slowdown in monetization. In the end, Bitcoin, like any other form of hard money flooding an economy, ultimately does not care about what others think, and will be adopted, however slowly.
Custodialization of private keys
One of the reasons it was possible for governments to impose a fiat standard in the first place was that people stored their personal gold in banks, which made it easy for governments to confiscate. In the case of bitcoin, a similar problem exists. Many people “hold” their bitcoin in exchanges without access to “their” private keys. With the advent of AML/KYC and regulatory moat based exchanges like Coinbase, this could lead to seizure of bitcoin by government’s en masse. Of course, this would only cause bitcoin’s price to skyrocket as the available bitcoin for purchase would plummet and the government’s tacit recognition of bitcoin’s value would be accidentally communicated to the citizenry. Moreover, Su Zhu aptly notes “we have taken something whose chief value is to occupy an orthogonal plane to the existing financial/social system — and then relocated it back within that system.” Ultimately, if users do not take personal responsibility over their keys, many of Bitcoin’s value propositions will be heavily muted.
An over custodialized world would be enough for the government to begin to issue bitcoin backed paper currency, altogether defeating Bitcoin’s original purpose. All told, hodlers can only win from this fud: if governments seize bitcoins from exchanges then the value of bitcoin would moon, and if its not, this fud only serves to FOMO people into setting up cold storage and using hardware wallets.
A Nation State Attack
Two facts we know about governments is that they don’t need to be profitable and their incentives are not always in line with their people. In this case, a national, fiat-oriented government, like the US, EU or China, could attack Bitcoin despite an expected loss in financial profit. It would involve a massive amount of energy, and would be very difficult to do secretly (the opsec behind the hidden manufacture of the necessary ASICs and temporary seizure of energy resources would certainly present problems). However, if successful, such an attack would lead users to believe that Bitcoin is fallible and do tremendous damage to the network. That being said, it’s likely that a government would only attempt to carry out such an attack if Bitcoin was rapidly monetizing and likely when it is too late to stop it — a last ditch effort at preserving the legacy financial system. Also worth considering is that governments could resort to tactics like banning Bitcoin, arresting its users and harassing miners. These laws and tactics would ultimately backfire, as the populous would see that only something valuable would be worth regulating in such a dramatic manner. Lastly, it is also possible that major nation-states could collude to attack bitcoin collectively. This is unlikely however, given the adversarial nature of states. For example, even if one nation goes against the collusion, it would quickly build up a citizenry rich in the hardest money in the world. In the end, regardless of how states treat bitcoin, any action taken by a government will be perceived a recognition of its legitimacy and value.
A black hat hacker finds a bug in the protocol
This fud is neither new nor non-cyclical, but it does come up whenever a bug is discovered. First of all, no software is truly secure, but as long as this isn’t a fundamental flaw in public key cryptography or the Proof of Work security model, one can reasonably assume Bitcoin is safe to use. Second, at this early stage in Bitcoin’s monetization, a bug exploit would not be fatal — the social consensus and belief in the project itself would carry Bitcoin through such an ordeal. In the end, the price might crash a bit on the news of an exploit, but that would be it. Hasu addresses this entire topic well. That being said, if you find a bug, use responsible disclosure to get it fixed. Or just tweet it out. Bitcoin doesn’t care. It’ll just keep chugging along.
Conclusion
Bitcoiners are asking critical questions about Bitcoin’s security model. And along those lines, the best way to engage in fud with Bitcoiners is to focus on how the changing landscape of Bitcoin will shape its incentive structures and security model in the future. After all, the best new fud will involve how bitcoin’s network adapts to its inevitable monetization. Although it may seem like Bitcoiners are a monolith of sound money propaganda, there is a lot you can learn through this community. In the end, serious Bitcoiners are willing to discuss their concerns and the importance of those concerns in pushing Bitcoin to the next level; you’d just have to look away on purpose not to see that.
I am always on the look out for new arguments for and against the merits of Bitcoin. Please reach out if you have some fud not listed here.
Thanks to Marty Bent, Nic Carter, Hasu and Su Zhu for their input and helping me write this article.
[1] Assumes hashrate is 41 Th/s (as of Jan 5, 2019) and one is only using a Antminer S7 (https://www.cryptocompare.com/mining/bitmain/antminer-s7-miner/)
