Bitcoin: it’s a trap!

With the release of what seems to be the most compelling proof of Satoshi Nakamoto’s identity, some questions arise regarding bitcoin’s development and what the future might bring.

Bitcoin is the original cryptocurrency. The one that forged the entire crypto space; however, as we discussed in the past, bitcoin is indeed a living organism. And as an organism, it may evolve into something quite different from what it originally was, for the better or, the worse.

Today we will speculate on bitcoin’s progress. We will discuss why we think bitcoin has drifted away from being a pure community-driven project to a hybrid shape that mixes a community, such as node operators, hodlers, speculators and marketeers, with a common enterprise — Blockstream — whose goals may purely be profit-driven, and much less focused on improving the Bitcoin protocol for the sole benefit of its community.

Will bitcoin endure this hardship, as it did in the past? Or will it finally succumb to the depths of centralization and authoritarian control?

Even though there is commonly no connection between technology and price in the short-term, it’s the technology’s underlying subjective value that will impact its price — because value is what attracts buyers, especially when it is mismatching its price. Therefore, if bitcoin’s value does not increase vs altcoins, its price may continue to tumble vs the rest of the market — Pedro Febrero, Head of Blockchain at RealFevr.

To comprehend why we think bitcoin will most likely continue to depreciate in price vs altcoins, we will discuss how its value has been increasing less meaningfully as time goes by, especially when we consider the critical innovations the rest of the cryptocurrency market has been providing, such as DeFi protocols, NFTs and on-chain DAOs.

Let’s Dive Deep.

Session 1: bitcoin, a community-driven project

Bitcoin is the first solution to the most pressing issue in the last century: to produce hard money (and currency) outside the shackles of the state.

It has indeed solved this problem quite magnificently. Through proof of work, or brute-forcing your way to finding a valid nonce, producing a valid block, and being rewarded bitcoin (in fees and block reward), bitcoin solves the double-spending problem.

It also creates a positive game theory for miners not to attack the network through spam attacks or by excluding participants.

Additionally, bitcoin was built and supported by a community led by different people. Various players held the keys to the bitcoin core Github account and could de facto make changes to the code.

Active developers did not need to be associated with a specific code-base, language, framework, entity or philosophy; mostly everyone was welcome to contribute.

Not only that, but the Bitcointalks forum was an excellent venue full of vibrant ideas. So many discussions were held on improving bitcoin — from coloured coins to increasing the block size, no topic was off-limits.

But somewhere down the road, this virtue was stranded. As bitcoin’s market capitalization grew, so did the financial interests of its core contributors. Perhaps money does indeed mess with one’s perception of fairness and openness. Or maybe it was this massive growth that scared some of bitcoin’s core contributors from trying new, bold things.

While most of these “maxis” argue everything they stand for is for the empowerment of bitcoin and its decentralized network, we think actions speak louder than words.

Session 2: the bitcoin enterprise

While bitcoin was released as a community-driven project, there were a few things off already in its early days.

Before we dive into the most pressing issues, we would like to highlight that we agree that bitcoin is the most decentralized project to date, from node operators, miners, mining pools, to the overall user-base (general network effects). Additionally, we argue bitcoin will overtake central banks as the issuer of the next global currency.

Nevertheless, bitcoin is not free from participants personal interests — even its illusive anonymous founder, Satoshi Nakamoto, and the peers that surround him.

Let’s get back to the topic at hand and discuss the screenshot above. The most spectacular and unexplainable update to bitcoin to date, and the culprit of most of the past years’ disagreements that led to hard forks such as Bcash and BSV, was the block size limit of 1 MB, added by Satoshi Nakamoto after bitcoin’s release.

It was not mentioned in the paper, nor did Satoshi discuss it with his cypherpunk peers.

In 2010, Satoshi added a few lines of code that limited the block size without explaining his reasoning behind the change.

Theymos, a r/bitcoin moderator and Blockstream employee, wrote on the issue: “I think that he was just trying to solve an obvious denial-of-service attack vector. He wasn’t thinking about the future of the network very much except to acknowledge that the limit could be raised if necessary.”

However, the block size increase never came. Instead, in 2014 Blockstream was forged.

The issue? The apparent conflict of interests between a company that essentially controls bitcoin’s development and has a clear financial interest in keeping bitcoin’s base layer as inefficient as possible, while at the same time is selling financial products that live outside the bitcoin protocol, but “improve” on it.

Our reasoning is straightforward: can a for-profit organization make meaningful improvements to the bitcoin protocol and, at the same time, profit from bitcoin side-chains and payment channels? Or, will the company seize complete control of bitcoin’s development and stop producing noteworthy updates to the base layer?

In sum, what incentive will be the most profitable for Blockstream?

1. To undermine the bitcoin base layer to sell more liquid, LN, and other bitcoin-related products “subscriptions”?
2. Or, will the company rise to the challenge and improve the bitcoin protocol as the community sees fit?

So far, there hasn’t been a meaningful block size update. Segwit is fun, but that’s hardly an improvement.

However, the market identifies a more significant problem: sound money may be needed for a new economic paradigm to rise, but it may not be the killer application.

If not, why would the market think bitcoin is only worth around 40% of the entire pie?

Session 3: the 🤴’s new clothes

While we agree that bitcoin will remain king for the foreseeable future, we also consider what reality is shoving us in the face: that bitcoin is losing value vs the rest of the cryptocurrency market.

Without a shadow of a doubt, the market — that is the ultimate judge of truth — has been screaming: stay away from the 🤴!

While bitcoin has been losing relevance vs altcoins, altcoins have been gaining market share vs bitcoin.

Since 2013 BTC.D, or bitcoin’s market share, has been on a clear downtrend. It went from 100% dominance in 2013–2014 to around 40%, where it now sits.

Essentially, bitcoin has lost around 60% of its total market share to several altcoins. Ether has so far been the principal benefactor. While we agree this trend could reverse at any point, we also do not recommend going against the market. Sure, being a contrarian has its advantages and merits, but when a trend is apparent, there is no point denying it.

When will BTC.D find strong support? At the current level? Below 40%? Will it ever reverse and go above 75%?

Who knows. Only time will tell. But if you have been acquiring BTC instead of altcoins (especially) since 2019, you are essentially rekt. Not because BTC/USD hasn’t been appreciating, but because altcoins have enjoyed orders of magnitude more than bitcoin.

Essentially, what’s your opportunity cost of not diversifying into altcoins? How many Xs have you missed? How much more BTC could you have accumulated had you not listened to BTC maxis?

Ask yourself: even if 90% of your altcoin investments went bust, couldn’t a single asset outperform all those losers? If so, isn’t that outcome worth the risk? We think so.

If your main goal is to accumulate bitcoin as fast as possible, altcoins rule. If your goal is to accumulate bitcoin with as little risk as possible, DCAing will work.

Conclusion

While we don’t think bitcoin is going anywhere and its price will continue to appreciate, we are conscious of the potential negative impact perverse incentives might have on BTC’s code quality, and ultimately, its value.

Independently, we admit that technology and price rarely go hand-to-hand; however, we also consider the market the voice of reason, and we avoid going against the trend.

Therefore, we cannot recommend bitcoin to new participants as it represents a massive opportunity cost: missing out on #madgainz™️.

Like 2015 and 2017 entrants, 2020 and 2021 rookies will most likely benefit considerably more by buying and holding the right altcoins than DCAing into bitcoin.

The DCA game is excellent for high-income earners and rich folk. For most of us, the pleb, the suitable game to play is buying altcoins at the early stages of development and 🙏 that the 🚀 goes to the 🌝.

Is this sensible advice?

You may end up losing everything and owning much less bitcoin than you previously anticipated. The opposite is also true; hence, it’s really up to each individual to assess their risk level: how much they are willing to lose and how much BTC they may be willing to not acquire today, in order to win orders of magnitude more bitcoin in the future.

Safe trades!

This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.

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