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Here and elsewhere Syke6 has patiently explained (most recently on the Berkshire board) to enthusiasts why Bitcoin will not soon (probably never) become the reserve currency, basis for a monetary system, etc. - most of it boiling down to “it’s volatile.”

Who wants to sell something on Tuesday and by the time you get to the bank on Thursday find it’s lost 10%-20% of its “worth”?

Headline from Barron’s:

Bitcoin Falls to Below $56,000.

Why the Crypto Is Set to Tumble Further.

Bitcoin and other cryptocurrencies were diving early Friday as the market took fright at the pending refund of assets from the collapsed Mt. Gox crypto exchange.
Bitcoin was down 3.2% over the past 24 hours to $55,645. Mt. Gox transferred 47,228 Bitcoin, worth more than $2.5 billion to a new wallet, according to blockchain analytics firm Arkham Intelligence. Mt. Gox’s trustee has said it would begin making repayments to creditors this month.

“Selling pressure will unlikely decrease in the coming days. The German government still has over $2.3 billion worth of Bitcoin, Mt. Gox has more than $8 billion, and the U.S. government has over $12 billion. The direction of Bitcoin in the coming days will be determined by the selling pressure from Mt. Gox users,” said Rachel Lin, CEO of trading platform SynFutures. 

“If there is enough selling to push the price lower, we might be looking at the $50,000 level”

https://apple.news/AuzgE1ZiYRs2hf_rm5e5t9A

Sure, the dollar, yen, or renminbi gain or lose a little value here and there over time, but rarely so drastically or so often. The Bitcoin (and pretenders) are mostly slow, expensive to use, and incredibly volatile. That makes them great for financial roulette traders, but not so much for people who need stability. Which is, of course, mostly everyone.

"Here and elsewhere Syke6 has patiently explained (most recently on the Berkshire board) to enthusiasts why Bitcoin will not soon (probably never) become the reserve currency, basis for a monetary system, etc. - most of it boiling down to “it’s volatile.”

Its volatility is mostly because it is so scarcely traded.

And yes, before some Bitcoin enthusiast sprouts off on the daily volume of Bitcoin, it is scarcely traded compared to actual currencies. Bitcoin trading volumes are tiny, small, miniscule, fraction of a fraction of a fraction of a percent of the volume that real currencies such as the dollar do. If Bitcoin trading volume was even just 10% of the dollar, it's volatility would drop.

However, it is literally impossible for the volume of Bitcoin trading to be 10% of volume of dollar trading. There is simply not enough electricity generated on this earth to power computers to calculate and record the transactions to come anywhere close to that level of trading volume.

The distributed nature of blockchain so attractive to its enthusiasts is what makes it so horribly inefficient (and therefore expensive) to trade the mass volumes required to be a currency.

Here and elsewhere Syke6 has patiently explained (most recently on the Berkshire board) to enthusiasts why Bitcoin will not soon (probably never) become the reserve currency, basis for a monetary system, etc. - most of it boiling down to “it’s volatile.”

Who wants to sell something on Tuesday and by the time you get to the bank on Thursday find it’s lost 10%-20% of its “worth”?

I doubt Bitcoin has enough scale to become a reserve currency in any timeframe that would impact me. But that doesn't make it useless.

Consider those that live in economies without a stable currency (ie: outside of US,EU,G7 countries). If I lived in one of those places I would be all over Bitcoin as a potential hedge against massive devaluation of savings (it would be just an option, investing in USD based equities would still be my first option). Some of these countries have strict currency conversion rules as well that further make Bitcoin attractive; and if you can live with the volatility it has been a very good option the past 10 years.

tecmo
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If I lived in one of those places I would be all over Bitcoin as a potential hedge against massive devaluation of savings (it would be just an option, investing in USD based equities would still be my first option).

I guess I’d stick with the latter. Bitcoin, after touching 20,000 for the first time, fell in half. In 2022, after long run up, it fell by 2/3rds. Most unstable currencies don’t fluctuate that badly, although admittedly when they do they rarely come back as Bitcoin has. But then that’s not assured at all. There are now a thousand other Bitcoins by other names; maybe one day one of those takes off and Bitcoin is last year’s news?

I guess I’d stick with the latter. Bitcoin, after touching 20,000 for the first time, fell in half. In 2022, after long run up, it fell by 2/3rds. Most unstable currencies don’t fluctuate that badly, although admittedly when they do they rarely come back as Bitcoin has. But then that’s not assured at all. There are now a thousand other Bitcoins by other names; maybe one day one of those takes off and Bitcoin is last year’s news?

Yup, lots of volatility, I will point out that many of the best equity investments of the past 30+ years have also had large sell offs - seems to be part of the trade-off. Bitcoin has been around for 10 years now, so hard to really call it a "fad" now. Its still not mainstream, but in the crypto world its the "gold standard" for sure. I would expect that other crypto coins that are better suited to transactions will get developed/released and adopted but in terms of a value store Bitcoin is probably here to stay. I would certainly put it ahead of many of the more marginal currencies in the world.

tecmo
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> I would certainly put it ahead of many of the more marginal currencies in the world.

I wouldn't disagree, but nobody seems to seriously address the 51% vulnerability or the 100% likelihood of depreciation, which I think are the worst attributes.

It's circular logic to say BTC has to increase with halvings, and if that fails, mining consolidation would likely increase as it became transaction fee driven. Consolidation increases the risk of history rewrites in the 51% attack scenarios.

Further, the 2nd law of thermodynamics is inexorable. There will only be 21M BTC and even with the most elaborate data protections some number will be irretrievably lost in a random manner (or irretrievable up to the limit of the strength of elliptic curve cryptography, but then you hit far worse problems). Depreciation won't favor it as a currency, and it can't exist soley as an asset class. I know some some people will point to layer 2 projects but I haven't been convinced.

My conclusion is BTC is just not viable. Marginal currencies can be bad and bitcoin can bad, and having no good options is entirely possible, and sadly seems more common than not.

I have been substantially wrong about this up until now, though. I did my first dive into the technology when evaluating an employment opportunity in a blockchain related company around 2018, when it was $5,000 USD area. I've had the opportunity to buy large quantities and did not. So take it with a large grain of salt.

I feel like I keep seesawing on BTC as a long-term asset. I don't think many people understand that it's decentralized and has a finite number of coins, unlike many cryptocurrencies that could easily be manipulated. There are many countries where their currency is being inflated away by their government and there are strict controls on purchasing other countries' currency and assets, and something like Bitcoin potentially gives them a lifeline. However, the way Bitcoin's set up also makes it very difficult to use as a currency. I read Lyn Alden's Broken Money, and while she really brings a level-headed perspective to the viability of Bitcoin, I struggle to understand the talk around Lightning and the layers that could be "built on top" of Bitcoin in order to improve transaction flow. If the concern is manipulation of currency by governments, how are you getting around the manipulation concern when you're trusting other go-betweens to control the flow?

I don't think many people understand that it's decentralized and has a finite number of coins

I think every single person who has the slightest inclination to put money into Bitcoin understands this. It’s the central thesis of the whole thing.

However the way Bitcoin’s set up also makes it very difficult to use as a currency

Yes, it was an experiment. There is nothing that says all experiments end in success, or that they wind up being appropriate for what the inventor thought. See: Post-it Notes, Slinky, Corn Flakes, etc.

I agree most people know about the finite number of coins, poor wording on my part. My main point is that many people lump all crypto together, but Bitcoin isn't like many of the other large cryptocurrencies because someone would have to control 51% of a decentralized network in order to make material changes. Many other cryptocurrencies are more prone to centralization.

I think every single person who has the slightest inclination to put money into Bitcoin understands this. It’s the central thesis of the whole thing.


I can confirm this statement is inaccurate. I know many people who are currently in Bitcoin who have very little idea about how it works. If I had to guess I would say it was even a majority (of investors, not of the % of the asset value).

tecmo
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> Bitcoin isn't like many of the other large cryptocurrencies because someone would have to control 51% of a decentralized network in order to make material changes

I should clarify, at least what I was mentioning, a 51% attack is different that centralized governance or forking, and Bitcoin is not immune to it. I believe any proof of work based cryptocurrency system is vulnerable to it.

https://dci.mit.edu/51-attacks and https://learnmeabitcoin.com/technical/blockchain/5... have some further informtion, if you're interested.

One of the links is regarding Bitcoin Gold, not Bitcoin itself. The other link describes how it's theoretically possible but has never happened...and if it didn't happen in the early days, it seems much less likely to happen given how widespread mining is now. Even if some blocks broke off to a new chain because a miner got lucky with 20-30% of the mining computing power, the chain can recover. I still don't see how any one entity could pull off 20-30% mining power, but I don't have a ton of knowledge on this.

> I still don't see how any one entity could pull off 20-30% mining power, but I don't have a ton of knowledge on this.

If you were a miner today, you make money when you add a block, and you are awarded 6.25 BTC if you are lucky enough to create one. All the miners have the same pool of transactions, and all of them are in competition to create blocks (lots of SHA-256 hashing to find a random hash value that is small enough).

A new bitcoin block currently averages a bit over 4000 transactions, per https://ycharts.com/indicators/bitcoin_average_tra.... And a bitcoin transaction has an input amount and one or more output amounts. The inputs do not have to equal the outputs, and the remainder is claimed by the miner as a transaction fee, in addition to the 6.25 BTC payout.

Since all miners have access to the pool of transactions, they can give preference to minting blocks containing transactions with the largest fees. If you leave a small tip, you might not have your transaction processed for a while. But if the miner gets 6.25 BTC for minting the block, that's $350K USD equivalent today. That is much more than the transaction fee revenue, https://ycharts.com/indicators/bitcoin_average_tra..., which is a $6k USD at $1.50 per transaction.

Over time, the mining reward halves in a predictable way that the Bitcoin system self-regulates, to a degree, and in 2028 it will be reduced to 3.125 BTC. That will decrease until all 21M BTC are mined in 2140, at which point it will be zero.

If your cost of mining hardware and energy is profitable today, you have to either hope BTC prices double by 2028 when the payout reduces, or make additional money on transaction fees to still break even. And you have to hope BTC keeps increasing over time, or continue to make up for it in transaction fees.

However, if there's more efficient mining operators as the payout decreases, they are going to be able to profitably take the lowest transaction fees which might not be economical to smaller miners. Over time, that's a dynamic that leads to a concentration of mining power, and to my analysis, structurally increases the history rewrite attack vulnerability in a way that's unavoidable.

I just read up on this for a job, though. Hopefully someone out there on the boards knows more than myself and can correct me.

Even if some blocks broke off to a new chain because a miner got lucky with 20-30% of the mining computing power, the chain can recover. I still don't see how any one entity could pull off 20-30% mining power, but I don't have a ton of knowledge on this.

amj101 was talking about a 51% attack, as opposed to a fork. A 51% attack means new blocks with new rules are added to the old chain.

Any one entity probably couldn't pull off a 51% attack, but miners are engaged in a global arms race to increase hash rate faster than the next guy. Back in the day, you could mine on your desktop. As the hash rate increased, it required a dedicated GPU, then multiple GPUs, and now it requires enormous farms with dedicated power purchase contracts. And every time the price drops in a meaningful way, the weak hands get shaken out and mining power continues to get concentrated into fewer and fewer entities.

As the block rewards decrease, is it plausible that a small number of big players will find it in their collective best interests to increase the block rewards? You betcha.

amj101 was talking about a 51% attack, as opposed to a fork. A 51% attack means new blocks with new rules are added to the old chain.

I've never truly understood how it works. Does it require 51% of mining capacity or does it require 51% of bitcoin owned to vote on such changes?

And if the former (51% of mining capacity), how is that determined since mining capacity changes constantly.

I also wonder what might happen when quantum computing becomes real and practical. Since, in theory at least, quantum computing can make short work of decrypting well-encrypted stuff, perhaps it could also make short work of mining (calculating hashes). And if it can, maybe the first big quantum computing setup could control 51% of mining capacity shortly after it gets turned on.

^^I also wonder what might happen when quantum computing becomes real and practical. Since, in theory at least, quantum computing can make short work of decrypting well-encrypted stuff, perhaps it could also make short work of mining (calculating hashes).^^

This isn't my area, but from what I have read, quantum computing is a danger to public key signature algorithms that are based on discrete logs or integer factorization. Bitcoin mining involves discrete log problem but can - and would - be changed with a soft fork, which would go through with very little opposition. A fork involving this change is planned already, but if Quantium computing was expected to suddenly become available, a Bitcoin would be forked more quickly to keep it protected.

There are already have quantum computing resistant encryption public key crypto, for example NTRU Quantum-Resistant High Performance Cryptography. This system is based on integer lattices rather than discrete logs or factoring, and no one seems to know how to use quantum computing to simplify this problem at the moment. Many more such algorithms are on the way because of contests at the Computer Security Resource Center.

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