Bitcoin will not fail because of regulation, or because of too much speculation, or even because it lacks intrinsic value. According to experts, it will fail because of this.
Bitcoin was born to revolutionize the traditional financial system, but it remains a very speculative asset, with problems of scalability, decentralization, and security. According to experts, it is too volatile to become a store of value like gold, it is unstable and complicated, but it will not fail for these reasons.
Since its appearance in 2009 to today, Bitcoin has been declared dead hundreds of times by its detractors, but it has always managed to recover becoming the most famous digital asset in the world. The introduction of Bitcoin ETFs has helped to increase its popularity even among institutional investors. Yet, an intrinsic characteristic of its own protocol could cause its end.
Here’s how Bitcoin will fail and why.
Bitcoin will not fail for these reasons
1. Limited decentralization
The idea of a decentralized currency, without central control, is one of the core values of Bitcoin and other cryptocurrencies. In fact, Bitcoin works thanks to the active participation of the members of its network. Today, however, the difficulty of mining has increased, increasing the computing power of the network needed to validate blocks. This situation has forced operators to join together in large “mining pools”, which concentrate the hash rate in a few hands. Consequently, although Bitcoin was designed to be decentralized, the concentration of mining power could represent a risk to the security of the network and reduce decentralization. According to a 2018 study, it is unlikely that a majority of 51% of miners could manipulate the mechanism with illegitimate validations to obtain minimal gains in exchange for the use of enormous computational capacity.
For this reason, the reduction of Bitcoin’s decentralization cannot be the cause of its failure in the future.
2. Excess speculation
Bitcoin will not fail even due to excess speculation because it is evolving from a speculative asset to a reserve of value and a means of exchange. Furthermore, over time, its supply is periodically halved through halving, a mechanism that has historically led to an increase in the value of Bitcoin due to the dynamics of demand (increasing) and supply (limited): as liquidity increases, the adoption of Bitcoin increases with an exponential growth rate that increases the demand for money. On the other hand, however, the supply is limited by the Bitcoin protocol, which provides for a maximum number of tokens in circulation not exceeding 21 million. The progressive reduction of the supply could contribute to greater stability in the price of Bitcoin, reducing the speculation that has characterized its history.
3. Lack of intrinsic value
Bitcoin critics argue that it has no intrinsic value because it is a dematerialized asset. However, the value of Bitcoin is supported by blockchain technology, its decentralized nature, and limited availability that make it reliable and secure. Thanks to these characteristics, Bitcoin has also acquired social and financial value over time resulting from its adoption, entering investment portfolios as an alternative asset in contexts of inflation and as an alternative means of payment to traditional currencies (with the Lightning Network and Strike).
4. Regulation
Bitcoin will not fail due to regulation, because no government or authority will be able to exercise control and impose effective bans. Although some countries, such as China, Qatar, Egypt, Bangladesh, and Morocco, have banned or limited its use, Bitcoin miners and nodes can continue to operate in favorable jurisdictions. Other governments instead encourage the spread of Bitcoin, with tax breaks or favorable taxation, as in Switzerland and Hong Kong. The regulation introduced in the United States and Europe instead aims to encourage the institutional adoption of Bitcoin, without affecting its independence, finding a balance between the control of illegal activities and the promotion of financial innovation.
Here’s how Bitcoin will fail
Although it is a remote hypothesis, Bitcoin could fail due to the ossification of its protocol. As time passes and with the increase in liquidity of the crypto market, the Bitcoin protocol has become increasingly complex and difficult to modify. Some supporters of the ossification of Bitcoin believe that this is a positive and natural process that characterizes the transition from a young and unstructured market to a more stable and mature market. According to this view, the rigidity of the protocol guarantees greater stability to Bitcoin, in its function as a currency of exchange, allowing users who own it to plan for the future more effectively. Users and investors prefer a game in which the rules do not continue to change and Bitcoin has known and predictable properties.
For others, however, it will be precisely ossification that will cause the failure of Bitcoin. According to the promoters of this thesis, Bitcoin is an innovation still in evolution, with significant price fluctuations and continuous changes in regulation and technology. In this case, the excessive rigidity of the protocol risks becoming an obstacle to its evolution, limiting its adaptability to new market needs or making it more difficult to solve problems. Among the most critical aspects of blockchain technology is the “timestamp”, used in the headers of cryptocurrency blocks to record the exact time in which the block is created and determine the chronological order of the blocks in the blockchain.
The timestamp provides a permanent and irreversible record of when a transaction occurred and is essential to prevent double-spending attacks and maintain the integrity and transparency of the blockchain.
The root of the problem lies in how the timestamp is calculated. In Bitcoin, as in many other computer systems, the timestamp is represented in 32-bit Unix time, with values from -2,147,483,648 to 2,147,483,647 seconds calculated starting from January 1, 1970. When the extreme value of 2,147,483,647 is reached, corresponding to 03:14:07 UTC on January 19, 2038, the count will overflow and the count will restart from -2,147,483,648, corresponding to December 13, 1901, causing system malfunctions and unpredictable behavior. Although there is still time to make changes to this calculation system, the ossification of Bitcoin risks slowing down or preventing the timestamp from updating, causing a collapse of the entire blockchain.
Original article published on Money.it Italy 2024-11-01 12:50:00. Original title: Ecco come fallirà il Bitcoin
