Who is Bitcoin intimidating?

Source: Liu Jiaolian

BTC slightly recovered to around 97k overnight. Market sentiment has not been high recently, and on-chain activity is also quite low.

At that time, the article said, "In the long run, if block rewards continue to halve and handling fees cannot fill the income gap, the issue of miner incentive model may become one of the focuses of community debate."

Sure enough, Justin Drake, a researcher at the Ethereum Foundation, took the opportunity to write an article, arguing that the total upper limit of BTC issuance of 21 million will become a threat to future security.

He cited data, saying that in the past 7 days, only 1% of miners' income came from BTC handling fees, and 99% came from BTC issuance (block rewards).

Further estimates say that it would take about US$10 billion and 10G watts of electricity to carry out a sustained 51% attack on BTC. This is a negligible cost for a nation-state.

The current total market value of BTC is about US$2 trillion. Therefore, BTC is an asset with a total value of 2 trillion US dollars, which uses 10 billion US dollars as economic security. That is, the so-called safety ratio of BTC is 200:1.

From this, he believes that any short-selling tool related to BTC mining will incentivize 51% attacks. For example, mining company stocks worth 20 billion US dollars, BTC open interest exposure worth 40 billion US dollars, BTC ETFs worth 100 billion US dollars, and potential short-selling exposure generated by MicroStrategy's stocks worth 100 billion US dollars.

From this, assuming that BTC rises 10 times from around 100,000 US dollars and exceeds the total market value of gold, can BTC still guarantee its security? He believes that in the next 10 years, with three halvings, the safety ratio will exceed 1000:1. In particular, as BTC becomes institutionalized, more liquid, and easier to short, the security model will collapse.

So does BTC have a chance to fix this problem in the next 10 years - if this is really a problem? Obviously, he believes that BTC has become rigid, that is, the economic model cannot be changed to increase by 1% every year, and it is unlikely to switch to PoS. Changing the PoW algorithm will not work. The expansion of large blocks to sell block space on a large scale has triggered a community war, which seems to prove that this is a dead end...

Finally, his conclusion is obvious, that is, BTC will be eliminated in 10-20 years.

Is it really so?

The basic law of the financial market is that if the expected future price of an asset is 0, then its present value should be 0. Obviously, the present value of BTC is not 0. Not only is it not 0, it is also the highest level in the past 16 years.

Isn't this obvious contradiction enough to explain the absurdity of all the above arguments?

Whether it is using 10 billion US dollars to protect the total value of 2 trillion US dollars, or using 10 billion US dollars to protect the total value of 10 trillion US dollars, the so-called safety ratio, in the view of Jiaolian, is a bit nonsense.

After all, no one would transfer 2 trillion or 10 trillion dollars of BTC in a BTC transfer transaction, right?

What can a 51% attack do? Reading the Nakamoto white paper, you will know that this bluff-sounding thing can only do so-called double-spending fraud. In simple terms, it is a fake top-up and fake transfer to cancel a transaction that has just passed.

That's all.

It is not a killer weapon that will destroy the world. It also does not allow attackers to steal anyone's BTC on the chain.

If a 51% attack occurs, the psychological panic and price collapse in the secondary market it causes may far exceed the transaction value of the chain being attacked.

In fact, the BTC system often undergoes natural forks, resulting in the cancellation of some transactions that have been written into the block.

If someone, such as the nation-state mentioned by the Ethereum researcher above, secretly controls a large amount of underlying computing power and launches a 51% attack on BTC, resulting in a fork and block revocation, perhaps most people in the world will not notice that such a thing has happened, and it is even difficult to distinguish whether it is a man-made attack or a natural fork.

Large, small (no more than hundreds of millions of US dollars) BTC on-chain transactions are difficult to be locked and targeted by attackers. In addition, BTC addresses have a certain degree of anonymity, which further increases the possibility of the attacker acting in secret.

51% attacks can only attack BTC in circulation, but cannot threaten BTC that is hoarded and immobile. National reserves are usually immobile and can be disassembled and stored, so they are not easily attacked.

Satoshi Nakamoto's 1.1 million BTC is the largest known BTC reserve. This huge, glaring target stands there to laugh at those fools who think it is easy to attack national reserves.

The so-called $10 billion security guarantee does not protect the total market value of $2 trillion, but the BTC transfer transactions that are less than hundreds of millions of dollars or even far less than the "hundred million dollars".

In order to cancel a BTC chain transfer transaction worth millions or tens of millions of dollars, it is not only uneconomical, but also stupid and crazy to use the underlying computing power of $10 billion to launch a 51% attack on the BTC system.

The beauty of the BTC system is that it is not perfect, but has several fatal "loopholes":

The first is the algorithm "loophole" - quantum computing attack. If quantum computers or more advanced computing technologies suddenly mature and break the ECDSA or SHA256 algorithm, then BTC will be finished.

The second is the economic "loophole" - 51% attack. If a country mobilizes resources to launch a 51% computing power attack on the BTC system, then BTC will be finished.

The third is the governance "loophole" - hard fork. If the BTC community splits due to ideological differences and hard forks into multiple BTCs, then BTC will be finished.

Satoshi Nakamoto never promised people that BTC is a "paradise on earth". History has repeatedly proved that the promise of a paradise on earth is often a trap leading to slavery.

These so-called fatal vulnerabilities are more like BTC selling a flaw. In the view of Jiaolian, they should actually be called fatal deterrence.

Who is deterring whom?

BTC's deterrence against humans.

The algorithmic "deterrence" forces people to always ensure that the best technical talents are responsible for the research and development of BTC system codes, and to ensure that the system's security level is always at the forefront of humanity. This deterrence has effectively deterred users who want to make direct democratic decisions and miners who are eager to seize power, forcing them to respect elite developers and accept the technical leadership of developers.

Economic "deterrence" restricts the motivation of a few people and institutions to implement monopoly through large-scale bribery, strikes against the tendency of centralization and centralization, and forces people to pay attention to and carefully maintain the decentralization and consensus balance of BTC, and not to dominate by one party. If everyone holds an equal amount of BTC and benefits from it, then no one will have the motivation to attack. If anyone dares to dominate by himself and holds a large amount of coins exceeding one or even several Satoshis, then he may induce his opponents to attack. The prediction of the consequences of this game will force countries and institutions to pull others together if they want to reserve, which is equivalent to helping BTC complete the further promotion, diffusion and decentralization.

Governance "deterrence" puts a tight ring on elite developers, forcing them to practice elitism but must conform to the voice of the majority of community users. If they dare not be so cautious, then a hard fork can abandon them.

Direct democratic decision-making cannot be implemented on the most cutting-edge, advanced and groundbreaking products. Because direct democratic decision-making allows the public to directly express their wishes and act accordingly. Ford once said that if you ask people what they need for transportation, they will tell you that they need a faster carriage. Only geniuses like Ford or Jobs can see that what people need is not a carriage, but a car, not a fool-proof machine, but a smartphone.

Only when the elites and geniuses lead the masses, but also impose reaction and restraint from the masses on the elites and geniuses to ensure that they always put the needs and interests of the masses first, this is the most effective democracy.

Lethal deterrence is actually living towards death.

Just as you dare not challenge this deterrent force only when you know that a strategic nuclear missile will destroy the world.

BTC relies on these lethal deterrents to prevent the ambitious and restless people from daring to overstep their boundaries, so that humans crawl at its feet, accept the constraints of algorithms and computing power, and can no longer expand currency as arbitrarily as in the era of legal currency.