Clarifying Cryptocurrency Developments

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Arthur Boe Nansa
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Re: Clarifying Cryptocurrency Developments

Post by Arthur Boe Nansa » Sat Dec 04, 2021 6:18 pm

vincent_c wrote:
Tue Nov 30, 2021 2:45 pm
I hope to address some of the points raised by Arthur in this thread: viewtopic.php?f=1&t=12334. I'll try to limit the scope because I find it incredibly hard to follow the conversation when there are many points and having to follow all the quotes back and forths.

1) BTC on a sidechain is still custodial

I do not disagree with the fact that the Liquid sidechain is federated and so it acts as a de facto custodian.

However, the RSK sidechain is not federated because it is merge mined, it is the RBTC peg that is a federated peg. I think this is a key distinction, however it is a fact that the federated peg is custodial in what is often referred to as a "trust-minimized" way using a combination of a federation of signers being the custodians of hardware security modules that manage the private keys that operate the peg.

I agree that BIP300/drivechains is superior to the federated peg (PowPeg) on RSK. If there are no technical barriers to drivechain I believe it is just a matter of time before it gets implemented. It may be that PowPeg has to further improve and gain adoption before work is done on drivechain, but when it happens I believe that it will make a BTC peg as trust-minimized as possible.
I'll start by saying that I appreciate the apology. We all have slip ups so no hard feelings.

1) You say you think it's a key distinction but i'll press you on it... if the federated peg is custodial, what good is a merge mined blockchain? It feels like added complexity with nearly zero added benefit. What is another blockchain using the same hash power adding here?
If I were conspiratorial i'd say they may be looking to gain legitimacy for their own blockchain and then just have most of the transactions happen on their chain. To be fair, I don't know too much about the project but I fail to see the innovative element.

Regarding drivechains, I believe BTC will be cornered with no option but to accept them eventually as a saving grace for BTC's momentum in crypto. But I'm also confident that will only happen late in the game (if at all) because as I said, it's much less lucrative for those looking to make money off of the BTC network with "other solutions".
vincent_c wrote:
Tue Nov 30, 2021 2:45 pm
2) The goal posts for the use cases for BTC keep moving

I don't really see the problem with moving goal posts or even if there are goal posts. Why do people or even organizations need to have a firm position and never adapt to changing circumstances? Arthur, did you raise this issue to point out flaws in bitcoin maxis as a group or do you see this as an actual problem for bitcoin? You mention a few times that you think bitcoin development is slow, that adoption is small, that in practice it does nothing.

One of the things I can think of that may relate to this is that some have suggested that the network effects of bitcoin and other cryptocurrencies is tied to the asset and not the network. So it seems that although bitcoin technological development can be viewed as slow relative to other blockchain related technology in the space, BTC's network effect as an asset remains the strongest.

I have some thoughts that follow from this but it would be interesting to see if there is agreement or disagreement regarding this so far.
There's too much to unpack here, but i'll do my best without writing a whole book.
[Note: this veers from just talking about Bitcoin as purely a financial asset, so keep that in mind when reading what I have to say.]
I'm definitely not against adapting. But there are certain core ideas and questions that need to be considered carefully.
It starts with: What is Bitcoin? What are you trying to accomplish?

The history is crystal clear and anyone can check it. Bitcoin was meant to be "peer to peer electronic cash". The earliest of adopters would give whole Bitcoins away at parties just to get people excited about it. A developer created a faucet that gave away 5BTC just for completing a captcha. You could say there was a self serving interest in spreading the word, but it stemmed from a passion for new possibilities. Bitcoin was meant to facilitate transactions, whatever those transactions were supposed to be. In the past couple of years, Bitcoin (BTC) has morphed into something else, a narrative built on being a SoV, a thing which is meant to be held, accumulated, and held more. It's important to understand that this isn't just a shift in goal, it's a shift in mission, which carries a lot more weight when considering tech of such monumental importance.
There are many reasons to be for or against the different narratives and obviously everything lies on a spectrum, but in aggregate I would say the perception and mission of Bitcoin today is a net negative for the freedoms and opportunities Bitcoin was meant to provide.

Specifically about the shifting narrative:
If I sold you a tree covered in green leaves and said "this is what this tree is", would you not be disheartened when it changed to red/orange in the autumn?
"Ah! But it changes colors! Not many trees can do that! This is good for your investment!"
"Okay" you say. A couple of months later, in the dead of winter, the tree has no leaves at all.
"Ah! But now that it's bare you can see the intricacies of the branches and appreciate the beauty of its bark. This is good for your investment!"
Come spring/summer time the tree doesn't grow it's leaves back, but remains a shriveled, sickly looking trunk with withered branches.
"Yes, it may not be what you bought, but the tree is so coveted. Everyone wants a tree! This has been so good for your investment!"

For those who started buying trees mid winter, what do they care how the tree looked and how it was supposed to flourish? It's a great investment!
But...that's not what the tree was really for.

"Well, so what?" you might be thinking.
First, I hope you can better appreciate the frustration of a movement that has been subverted from one of passion and curiosity to near blind accumulation for NgU (number go up).
Second, there are also a host of domino effects that should be considered. If BTC remains "decentralised" but is owned by mainly 200 to 10,000 major players, is it really decentralised? Where does the idea of "prosperity and autonomy for the poor and unbanked" come in? Does it matter if it was accumulated "fairly" if it totally fails to provide any sort of economic improvement other than to bolster a new elite in the digital age?

Michael Saylor is a fantastic example. He's taken on the bet of a lifetime. Sink or swim, he's converted his company to be a custodian, a fund, so he can accumulate as much BTC as possible because he understands the name of the game. If he loses he files for bankruptcy (and shifts the burden on the company), if he wins he becomes one of the richest people ever. All this talk of "caring for his shareholders because treasuries aren't performing" is hogwash- his stock has treaded water for two decades. If he cared for his investors he'd grow a better company or find a better CEO who can, two things which he's not capable or willing to do. Clearly, his approach is "when you can't change reality, change the narrative" (a recurring theme for BTC).

I think i'll stop here as I don't have much time and I feel like my rant is going into too many directions.

To summarise:
1. Changing a narrative is fine. Constantly changing a narrative to stay ahead of the curve isn't. If an asset (any asset) is both totally risk on, totally risk off, a decentralised SoV and MoE that has most of its coins on Centralised Exchanges and has no function other than accumulation, solves all economic issues and provides total fairness, promotes the use of green energy despite being a total waste of energy (when it has no fundamental utility), you're not dealing with the most amazing idea in existence, you're dealing with a figment of the imagination. A lot of people have a lot invested and are interested in keeping that balloon inflated.
2. BTC (in its current mission) IMO is a net negative for society. Another example, see Mike Green's criticism: if the new generation expects their BTC to go to infinity so they'll never have to work, who's going to do the work? It's a recipe for disaster to raise a generation that believes that a digital currency will solve their financial problems.
3. [to answer your question directly] A constantly changing narrative is bad for any project. BTC is the biggest AND has been one of the worst offenders, making it the most destructive. I see it as an actual problem for BTC that isn't sustainable. And yes Maxis are a large part of that problem. (Although BitcoinintheVP has been great, he gets drowned out by "a new class of BTC holder" that is much more nefarious. Even other maximalists who used to be on the right side of things have taken on a much more dogmatic, ego and investment driven view of the crypto space. As Vitalik (of Ethereum) once put it, imagine if every time someone bought a PC or Mac they were also given shares of the company, with the earlier ones given more stock compensation. Years down the line you get people whose preference is also tied to millions of dollars in value- they have too much to lose if they were to be objective or even simply allow market sentiment to change.
4. You say that BTC's network affect as an asset remains the strongest. Not only do I agree with that, I'd argue that its the last major advantage of BTC and even that is being chipped away at. No wonder so many are trying to double down and speed up institutional adoption, it's what you might call "the escape velocity" for BTC's value proposition. If it can't solidify its reputation definitively and quickly enough, it increases tail risk of near-total collapse. Crypto is still very much the wild west. Some amazing projects have been left for dead because it simply "wasn't sexy enough" while others have rocketed purely on memetic appeal (and greed). BTC (and honestly every project, but BTC has the most to lose) have a vested interest in making you believe "the market has decided" or "this is going to be THE solution".
5. I try and refrain from being too outspoken about my own holdings. I also try and not have so much held that I risk compromising my integrity. These are my honest thought whether I hold 0 BTC or 22 million BTC. My main message is: "does is serve a function?" Despite the conviction of many others, the value investor in me concludes a resounding "no." Can things change? Sure. Do I think they will? Not really. Can BTC still reach $200k by year end 2024? Yes. Long term, I think it will slowly lose it's relevance without the escape velocity it needs.

Bottom line, not something Harry Browne would consider in the PP. In the VP? Have at it. ;)
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Re: Clarifying Cryptocurrency Developments

Post by usermane » Sun Dec 05, 2021 9:34 pm

I've been looking into the cryptocurrency space for a while and haven't found a good answer for the concerns raised in this paper:
https://www.nber.org/system/files/worki ... w24717.pdf

Specifically, if a proof of work cryptocurrency ever became a store of value, it would become valuable enough that either the fees and block rewards would have to exponentially rise to provide security or the network would be subject to majority attacks. So the end game for bitcoin would have miner subsidy can go up either by removing the 21 million cap or raising fees exponentially. Exponentially rising fees seem bad for the investment prospects, since more fees make the asset less liquid. Removing the cap destroys most of the marketing pitch. So we're left with majority attacks, provided that they are actually possible.

I've thought about it for a while and the only reason I can think why that majority attacks would be impossible is that the price of computer chips and electricity would reflexively rise fast enough while performing a majority attack that a majority attack would never be possible. But that strikes me as a strong assumption.

For instance, say Bitcoin becomes a SoV on the scale of gold. So it would have a derivatives market comparable with gold (or the even larger treasury or forex markets if it becomes a currency standard). So a majority attacker could borrow and get a bunch of bitcoin mining hash power, go to the derivatives markets and place a massive short at whatever time he pleases. This position is not risky, because the majority attacker will be double spending to crash the price. To prevent a majority attacker, the reward for the rest of the network has to exceed the potential reward for a guaranteed short win on the derivatives market. That seems unlikely, derivatives markets seem to grow exponentially as assets get more valuable, while the bitcoin network hash power has not been growing at the same rate as the coin value since 2015 or so (https://stats.buybitcoinworldwide.com/h ... -vs-price/).

But say you don't buy that a market actor would sabotage the chain, since that would almost certainly send the saboteur to prison (or worse). Let's say the Bitcoin Standard has been implemented in Alicetopia. Alicetopia's economy is highly integrated with bitcoin, almost everyone owns a little bit, they have btc loans, etc. Bobopolis is at war with Alicetopia and Bobopolis is not on the Bitcoin Standard. Bobopolis could try a majority attack, as a nation-state it has far more resources than market player and they can't be arrested. Counterfeiting is a historically common war tactic and this is better, since Bobopolis doesn't even need to distribute the notes. Just get majority hash power and watch your enemy's economy collapse. Of course, the enemy can see that, so Alicetopia could get tons of hashpower for security. But those are resources not spent on the war effort, which raises the odds that Alice loses. The bitcoin standard would be a security liability.

The limits on storing value in proof of work cryptocurrency seem hard. Either the miners have to be massively subsidized by fees and seignorage or there is money to be made attacking the network.
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Re: Clarifying Cryptocurrency Developments

Post by usermane » Mon Dec 06, 2021 7:06 pm

vincent_c wrote:
Mon Dec 06, 2021 3:53 pm

There is probably a practical matter of acquiring enough physical computing power and electricity if you're talking about challenging the existing hash power of the bitcoin network. It is more likely to be able to acquire hash power from existing mining pools which is no different to the problem of bitcoin miners possibly colluding to perform a 51% attack on the bitcoin network.
I agree there, this is not an easy thing to do. It is a little easier than you may think, since old asics are not good for much, but they are a pretty cheap source of hash power. They may be too inefficient for commercial mining, but the additional electricity cost of a short term attack is a rounding error compared to getting the chips.
vincent_c wrote:
Mon Dec 06, 2021 3:53 pm

So you are raising the possibility of being able to rent a majority of hash power for a relatively short amount of time and at the same time short bitcoin for a profit. It would seem to me that bitcoin miners would not rent hash power or would otherwise have the ability to cut off that hash rate as soon as such a scheme is discovered for the simple reason that such an attack would destroy the bitcoin network and the mining business.
The miners can switch to another coin or not be aware of what is happening. Bitcoin Gold got majority attacked and the miners there didn't do anything to stop it.
vincent_c wrote:
Mon Dec 06, 2021 3:53 pm
So the cost of attacking the network has to be greater than just what it would cost to rent hash rate and you would essentially need to acquire 51% of the hash rate by controlling the existing mining pools. This is a known risk to the bitcoin network and is why it is important to decentralize bitcoin mining as much as possible.

It is actually best if bitcoin miners hoard their bitcoin rather than hedge it, sell it, use it as collateral, etc because if the miners own a lot of the bitcoin then their interest in securing the bitcoin network is increased. However, if bitcoin miners are allowed to hedge most of their risk then it does make it easier for them to be acquired and manipulated to perform the kind of attack you've raised. Would your concerns be alleviated if we had very decentralized mining pools?
People have been trying to decentralize the mining pool for a long time and it never works. Mining is a commodity business and benefits from economies of scale. For the same reasons that the majority of our steel comes from big steel companies and not blacksmiths, the majority of bitcoin hash power is going to come from big players.

Hoarding will work in the short term, but in the long term, miners have to get paid. Electricity isn't free and miners have to sell sometime. The network shouldn't be secured by goodwill, it is designed to be incentive compatible. The incentive compatibility inequality comes down to:

Block_Security > Short_Reward

Block_Security is easy to see. Each block gets a Block_Reward (which is currently 6.25 Bitcoin) and the fees from an average block. Historically, fees are very small (https://stats.buybitcoinworldwide.com/f ... of-reward/) but eventually they will be the entire security budget. By 2040, the block reward will be negligible.

Bitcoin_Price (Block_Reward + Avg_Fees) > Short_Reward

Short_Reward scales with the derivatives market. Bitcoin derivatives seem to be growing exponentially with the price. As the price goes up, more people care and spread the word. So I would guess that short reward is proportional to the price at some kind of positive exponent. Minus whatever it costs to implement. That is buying hash power, which is barely related to the price (I've posted this before, but https://stats.buybitcoinworldwide.com/h ... -vs-price/). So, for bitcoin to be a secure store of value,

Bitcoin_Price (Block_Reward + Avg_Fees) > Bitcoin_Price^Derivatives_Exponent - Implementation_Cost

where Derivatives_Exponent > 1

The centralization or decentralization doesn't matter. Centralization may be better, since it raises Implementation_Cost (the supply of asics is tightly held). Avg_Fees has to go up exponentially with Bitcoin_Price or Implementation_Cost has to grow with the price. That is not behavior we see at the moment and it would probably be bad for the use case.
vincent_c wrote:
Mon Dec 06, 2021 3:53 pm
Regarding state actors and other non-economic actors. I think your concern is the reason why it is key that the actor that controls money in the world is actually in support of the bitcoin network.
There isn't one actor that controls money in the world. Imagine for a second that fiat currency collapses, but some countries go to proof of work cryptocurrencies, some to proof of stake, and some to commodities like gold. The countries on gold or PoS standards can sabotage the PoW countries, since there need not be unified monetary authorities.
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Re: Clarifying Cryptocurrency Developments

Post by usermane » Mon Dec 06, 2021 8:58 pm

vincent_c wrote:
Mon Dec 06, 2021 7:42 pm
usermane wrote:
Mon Dec 06, 2021 7:06 pm
The network shouldn't be secured by goodwill, it is designed to be incentive compatible.
What kind of attack on the blockchain are you envisioning here?

If I understand you correctly, you are trying to argue that there will be a security problem if the incentives for mining a block is less than the value being secured in that block.

This is an attack of the first kind described in the paper. If I can buy 1 million dollars worth of something with bitcoin and it costs 1/2 million dollars to control the network until my transaction is confirmed, then the incentives for mining a block are less than the value secured by that block. That is not something I am worried about.
vincent_c wrote:
Mon Dec 06, 2021 7:42 pm
Is this correct? My understanding is that miners compete to mine a new block but then it's the confirmation of those blocks that make the transactions secure. I don't understand what difference the value of the block reward makes or the transaction fees for that matter. If the block reward becomes negligible then miners will still be competing to mine new blocks for the fees.

Again, my understanding is that confirmations do not consume a lot of computational power so you just need to wait for more confirmations for greater security.
The only thing paying for bitcoin security is the block reward. Nothing else directly pays for the network. Right now, block reward comes from bitcoin creation and some minor fees. As the price goes up, the network needs to secure more value. So either they need to make more bitcoin or those fees become major. If the price goes too high without a commensurate amount of hash power (and its associated block reward subsidy), majority attacks become economical.

Think about it this way. With Bitcoin at 50k, each block has a reward of about 350k (including the fees). Over a year, that's a security budget of 350k*6*24*365=18.4 Billion dollars. This is the network security budget and the absolute maximum miners can spend, ignoring all other costs. If you could take a credible short position (say that you could take a btc denominated loan in that amount) and receive more than 18.4 Billion dollars, you could afford to control the bitcoin network for more than a year. if you only need a month, that's 1.5 Billion Dollars. If you only need a day, that's 50 Million.

If you control the majority of the bitcoin network, you can't actually do that much. Any confirmed bitcoin remain secure, since you don't have the private keys. You can double spend, but you can't spend anyone else's coins. The only real thing you can do is make the network unusable and deny it to others, which will crash the price and permanently destroy a large chunk of the network value.

When the bitcoin price rose from 10k last year to 50k this year, the hash power didn't go up by 5x, it went up by 1.5x. Proportionally fewer resources are securing more value. But the potential short value from sabotage scales to the total value stored, so the value of sabotage went up at least 5x. Nicely, we can say that the network was oversecured before and is now less oversecured. The network can buy more hash power by raising the average block reward. At some point, raising fees or seignorage will be necessary to prevent majority sabotage. Either will lower the price since the network will be less useful, which also solves the problem.
vincent_c wrote:
Mon Dec 06, 2021 7:42 pm
Of course I am referring to the US. If you don't agree, then we can probably debate that sometime.
The reason I bring up nation states is that they can almost certainly find the resources needed to own the network. Australia doesn't have any real need to spend 18.5 billion dollars to wreck bitcoin, but it spends 42 billion a year on a peacetime military budget. If it became a strategic priority, any major power could find the resources. If, for instance, there was a war.
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Re: Clarifying Cryptocurrency Developments

Post by Kbg » Tue Dec 07, 2021 9:42 am

Non technical and at this point completely anecdotal, but does crypto as of late seem to be highly correlated with risk on/off days?
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Re: Clarifying Cryptocurrency Developments

Post by Arthur Boe Nansa » Tue Dec 07, 2021 1:57 pm

vincent_c wrote:
Mon Dec 06, 2021 3:35 pm
The security of the peg and the security of the blockchain are two different issues and in order to have true bitcoin defi you need both.
I understand the tech side of it. My criticism wasn't about the implementation of the how, it was about the rationale for the why.
Sure merge-mining increases "security" but what's the point of that security if you're electing to hand trust over to a custodian by default?
It would be like storing your valuables behind 100 locks and putting the keys in a hundred different places, but then writing where to find all the keys and in what order on a piece of paper and handing out that piece of paper to "only the 5 people you trust the most". I'm still failing to see what you get out of a setup like the one RSK is implementing. I'm not saying it's a bad solution, just that it doesn't really strike me as a good one.
usermane wrote:
Sun Dec 05, 2021 9:34 pm
Specifically, if a proof of work cryptocurrency ever became a store of value, it would become valuable enough that either the fees and block rewards would have to exponentially rise to provide security or the network would be subject to majority attacks. So the end game for bitcoin would have miner subsidy can go up either by removing the 21 million cap or raising fees exponentially. Exponentially rising fees seem bad for the investment prospects, since more fees make the asset less liquid. Removing the cap destroys most of the marketing pitch. So we're left with majority attacks, provided that they are actually possible.
Your concern can be split into two:
1. 51% attack and 2. non-inflationary asset with a security model based on economic incentive to mine for rewards (that grow ever smaller as time goes on).
You can take them together, but they are whole topics even when they're separate.
Regarding 1, the idea of "someone trying to take down the network" isn't as crazy nor as expensive as you might think it is.
As far as reasons why they'd hold off on doing it now, from a political/strategic standpoint I think some derivative of the Streisand effect is a very real deterrent.
I.e. If an entity attacked the blockchain, it would signal a real economic threat to whatever it is that's attacking it. As Bitcoiners always like to say: "this is good for Bitcoin." In the scenario, i'd actually believe that to be true. There's nothing more empowering then forcing someone to take you more seriously.

For some easy to digest, interesting reading regarding the political/national/economic incentives of groups with a lot of power to destroy Bitcoin, see: https://joekelly100.medium.com/

I've read some rebuttals by supposedly "very smart people" to his claims. Their responses have been less than impressive.
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Re: Clarifying Cryptocurrency Developments

Post by Arthur Boe Nansa » Tue Dec 07, 2021 1:59 pm

Kbg wrote:
Tue Dec 07, 2021 9:42 am
Non technical and at this point completely anecdotal, but does crypto as of late seem to be highly correlated with risk on/off days?
It's a high growth tech stock or digital gold, depending on whichever story sells it better for that day's news. ;)
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Re: Clarifying Cryptocurrency Developments

Post by usermane » Wed Dec 08, 2021 6:15 pm

Arthur Boe Nansa wrote:
Tue Dec 07, 2021 1:57 pm

Your concern can be split into two:
1. 51% attack and 2. non-inflationary asset with a security model based on economic incentive to mine for rewards (that grow ever smaller as time goes on).
You can take them together, but they are whole topics even when they're separate.
Regarding 1, the idea of "someone trying to take down the network" isn't as crazy nor as expensive as you might think it is.
As far as reasons why they'd hold off on doing it now, from a political/strategic standpoint I think some derivative of the Streisand effect is a very real deterrent.
I.e. If an entity attacked the blockchain, it would signal a real economic threat to whatever it is that's attacking it. As Bitcoiners always like to say: "this is good for Bitcoin." In the scenario, i'd actually believe that to be true. There's nothing more empowering then forcing someone to take you more seriously.

For some easy to digest, interesting reading regarding the political/national/economic incentives of groups with a lot of power to destroy Bitcoin, see: https://joekelly100.medium.com/

I've read some rebuttals by supposedly "very smart people" to his claims. Their responses have been less than impressive.
That blog is very good, thank you for linking it.

My concern about getting the logistics of getting to 51% was about how you get the asics/electricity. I was thinking attackers would buy them short term, but Kelly's strategy would be to run a business at a slight loss over time. You buy asics as if electricity were free for a while and wind up the majority of the network. Free market miners can't compete with you, they'll go bankrupt. Then you recoup your costs by controlling the network. Governments can definitely afford the subsidy, as Kelly points out.

Getting the mining operation set up over time vastly lowers the cost. You are getting mining rewards as you set up, so your spending is not a pure loss. Plus it is less suspicious, since you're running a (bad) business. Just keep your books secret, claim that you have some competitive advantage in the press, like a clever way to run the chips. Or stay out of sight entirely.

This kind of operation would attract attention, as you point out. So anyone who does it would be admitting that Bitcoin is a big deal. That's the Streisand effect. But if push came to shove, there's a lot of money in seignorage and governments want to get paid. And Kelly points out that the derivatives market for bitcoin includes everything priced in bitcoin. So if you end up able to buy a lot of goods and services with bitcoin irrevocably and anonymously, you could double spend that way instead of needing a financial instrument.

Definitely looks like a set up for a grey rhino. CME bitcoin futures only go out to 2023 and there's no volume for puts, so I won't speculate on it.
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Re: Clarifying Cryptocurrency Developments

Post by seajay » Sat Dec 11, 2021 2:41 am

vincent_c wrote:
Fri Dec 10, 2021 10:53 pm
I enjoyed reading the blog as well, it is very well written.

Regarding 51% attacks, I think the blog is assuming that it is just one attacker and either no competing attackers or defenders of the bitcoin network.

I've long come to the conclusion that bitcoin will never be the kind of utopian currency that some bitcoiners think it will become, but I do think that it has potential as a perfect digital store of value so long as you have nation states or maybe in the future a global state that is in support of that network with it alone being able to destroy or undermine its security.
Compare digital currency with digital art. Why do those with surplus capital buy the likes of paintings by dead artists? Because they're rare, can't be repeated, and more likely when you need to sell to raise cash so others with surplus cash will be looking to buy. Digital art in contrast may be unique, generated using whatever digital technology, but isn't really something scarce. As such whilst there may be markets for both conventional and digital, the conventional is inclined to persist/prevail as the primary preferred choice of scarcity. Something physical/in-hand is also a primary factor, the only real way to make digital secure is to have a system that is physically disconnected and locked securely away. As soon as it connects to the broad network its security is instantly lost to thieves anywhere in the world. At least with physical you might deploy guards to convey the item and only be exposed to local physical attack.

If Fort Knox were replaced with digital, how foolish those making that change would look when one day a obscure software bug had enabled the contents to be irretrievably emptied.
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