Why Bitcoin’s Security Model is Unsustainable: Cyber Capital Founder and CIO

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As a researcher with a background in blockchain technology and cryptocurrency markets, I’ve closely followed the debate surrounding Bitcoin’s long-term security model. Justin Bons, Founder and CIO of Cyber Capital, recently posted an insightful 38-part thread on social media platform X that critically examined Bitcoin’s security model and its sustainability over the long term.

As a researcher, I’d like to share an intriguing perspective I came across recently. On July 8, Justin Bons, the visionary Founder and Chief Investment Officer of Cyber Capital, took to the social media platform X (previously known as Twitter), publishing a comprehensive 38-part thread. In this thread, Bons raised concerns about Bitcoin‘s long-term security model. He maintains that fundamental flaws exist within Bitcoin’s security framework and highlights several challenges it may encounter in safeguarding its security over an extended period.

As a researcher focusing on investment firms, I’d describe Cyber Capital as a specialized organization dedicated to managing funds in the burgeoning field of cryptocurrencies and blockchain technology, founded in 2016 and situated in Amsterdam. Our primary objective is to leverage our expertise in blockchain tech and the dynamic cryptocurrency market to unearth and invest in digital assets with promising long-term growth potential.

Bons initiates his discussion on X by pointing out that Bitcoin’s security structure demands either a doubling of its price every four years or extraordinarily high transaction fees to preserve the existing level of protection. He argues that this situation is unsustainable since it would eventually surpass the world’s total Gross Domestic Product within a few decades, rendering Bitcoin’s security model infeasible.

As a crypto investor, I’d put it this way: Each Bitcoin halving event, which cuts in half the block reward I receive for mining new coins, also decreases the security budget by the same amount. This trend will persist for at least the next 70 years until the block rewards completely run out. I believe this gradual reduction in funding for security makes Bitcoin more susceptible to potential attacks as we move forward.

Bons points out that it’s impractical for transaction fees to consistently reach extraordinarily high levels. He elucidates that when fees rise significantly, network users may depart due to the financial burden, a trend intensified by the block size restriction. Consequently, this cyclical pattern in the fee market indicates that exorbitant fees aren’t sustainable for securing Bitcoin’s long-term future.

Based on Bons’ analysis, Bitcoin’s security will diminish if transaction fees don’t significantly increase. He estimates this could occur within the next 4-12 years, contingent upon the number of halving events. It’s essential to understand that hash rate isn’t the sole indicator of security; miner revenue holds greater significance. Bons points out that miner revenue can decrease despite an increase in hash rate due to technological advancements making it less costly to generate hashes.

Bons maintains that the security of Bitcoin hinges not on its hashrate but on the expense incurred in generating those hashes. He points out that potential assaults on Bitcoin are contingent upon the financial incentive for an aggressor versus the associated costs. A decline in miner earnings, according to him, could make double-spending attacks financially feasible, especially against exchanges.

According to Bons, the notion that non-mining nodes can ensure network security is questionable. He points out that these nodes lack Sybil resistance, making them ineffective for securing the network. Security, as argued by Bons, primarily stems from the incentives associated with producing blocks, which non-mining nodes do not receive.

As an analyst, I’d put it this way: According to Bons, Bitcoin is at a crossroads. We either expand its supply beyond the 21 million limit or risk compromising its security due to insufficient funding. Those advocating for a strict supply limit may be misleading their supporters and potentially undermining trust in Bitcoin’s integrity. I respect those who acknowledge this challenge and are working to find a solution that preserves the essence of Bitcoin while addressing its growing needs.

The security model of Bitcoin (BTC) faces significant challenges. To preserve its current level of security, its price must increase by a factor of two every four years for an entire century or the transaction fees must remain extremely high. Such requirements are unrealistic, as they would lead to a value greater than the global GDP within just a few decades. Consequently, Bitcoin’s security seems unsustainable. 🧵— Justin Bons (@Justin_Bons) July 8, 2024

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2024-07-09 09:56