Bitcoin’s Security Threatened By Unsustainable Growth, Analyst Warns
Bitcoin (BTC), the world’s largest cryptocurrency by market capitalization, could face a major security threat due to its unsustainable growth trajectory. According to according to a recent analysis by Justin Bons, founder of Cyber Capital, BTC must double in value every four years or sustain extremely high rates to maintain its current level of security.
Is Bitcoin’s security linked to its price?
In Bons’ analysis, he highlights that Bitcoin’s security model is based on its mining network, which requires a steady stream of new miners to maintain its security. However, he assumes that the price of Bitcoin continues to rise at its current pace. In that case, there will eventually come to a point where the cost of mining becomes too high, leading to a decline in the number of miners and a subsequent decrease in security.
1/9) BTC has to double in value every four years for the next century or sustain extremely high rates
Just to maintain the current level of security
Such growth is impossible as it would exceed global GDP in 31 years based on current price
Therefore; BTC security is doomed!
— Justin Bons (@Justin_Bons) April 23, 2023
Simply put, Bitcoin’s security is inextricably linked to its price, and if the price continues to rise at its current pace, it will eventually become unsustainable. Bons suggests that BTC may need to find a new solution to maintain its security or risk becoming a victim of its success.
Furthermore, Bons argues that Bitcoin’s security and technical foundation are “made of sand” and that the cryptocurrency’s growth model is based on “false hopes”. It suggests that paying hundreds of dollars for a single transaction is unrealistic in a competitive market and that when fees rise, users leave, leading to a decline in overall network security.
Bons also blames the unnecessary addition of the block size limit for exacerbating the problem. He argues that this cap created a free market prone to spikes and volatility and led to a decline in Bitcoin’s overall security.
BTC will have more options in the future
Ultimately, Bons’ analysis suggests that if BTC’s growth trajectory continues at its current pace, there will come a point where the network’s security budget is completely depleted, leaving it vulnerable to censorship and double spending.
According to Bons, there are only two options left: allow censorship and double spending to take place when the network is 51% attacked, or increase BTC supply inflation beyond the 21 million limits. Bons suggests that the latter is the better option, although both options are likely to occur as the network forks.
However, it’s important to note that not all experts agree with Bons’ analysis. Some might argue that Bitcoin’s security can be maintained even as its growth slows. Others suggest that new technologies like the Lightning Network can help reduce transaction costs and maintain security.
The Lightning Network is a second layer payment protocol built on the Bitcoin blockchain. It was designed to address some of the scalability issues that Bitcoin faces, particularly the slow transaction processing times and high fees associated with on-chain transactions.
The Lightning Network creates a network of payment channels between two parties, allowing them to transact off-chain. Smart contracts secure these payment channels and facilitate multiple microtransactions between parties without transmitting each transaction to the Bitcoin network.
While the Lightning Network is not a complete solution to Bitcoin’s scalability issues, it does represent a significant step forward in improving the efficiency and usability of the Bitcoin network. As such, it will likely play an increasingly important role in the future of Bitcoin and other cryptocurrencies.
Featured image from Unsplash, chart from TradingView.com