This piece is in rebuttal to “How to Kill Bitcoin” by Joe Kelly, initially published July 8, 2020. The original piece can be read.
One of the biggest problems Bitcoin faces on its path to mainstream worldwide adoption, and what’s argued by Joe Kelly, is the fact it could be theoretically banned and dominated by powerful world governments. However, this argument is flawed for multiple reasons, and as a resilient cryptocurrency, Bitcoin truly is “unstoppable code.”
Let’s start with a summary of Kelly’s argument. He concedes that Bitcoin is unstoppable code, and that you cannot stop Bitcoin by attempting to shut down nodes or hack the protocol. Instead, the way to kill Bitcoin is by using two crucial parts of its infrastructure: The physical proof-of-work consensus mechanism, and the monetary incentive to uphold the network.
Kelly’s theoretical argument starts with the banning of any Bitcoin-related activity by major world governments, including the United States and China. They ban it on the grounds that it is a net-negative for society, and undermines the power of their currencies.
The second part has to do with the hashing power of the Bitcoin network, which costs around $3.3 billion per year, as of July 2020. For the sake of his argument, we will say that this number is the same today, even though it is slightly different. After the hypothetical ban on cryptocurrencies, the United States and other major countries would begin seizing major mining operations and running them under state control. Furthermore, the world governments would use their massive defense budgets to contract Lockheed Martin, a defense company, to create their own mining operation that will dominate Bitcoin hashing power.
At this point, the major world governments have complete control over the network, and refuse to allow any transactions go through, meaning Bitcoin is completely worthless.
Though there is some validity in the argument, there are some flaws in the reasoning that result in an unrealistic conclusion.
For the sake of keeping the situation valid, we will assume that the United States decides to fully ban Bitcoin. However, the idea that all world governments would agree is arguably unrealistic. Many large countries, including China and Russia, would benefit from a rise of Bitcoin and the United States dollar losing its place as the world reserve country. This could lead to an international stalemate wherein the United States and China are allocating resources to increasing the hash power of the network and supporting different mining groups, which would actually make the Bitcoin network more secure.
However, to further give the advantage to Kelly’s argument, we will assume that the world governments band together and decide to ban any sort of action with Bitcoin, be it mining, exchanging, or otherwise. In this situation, Bitcoin would definitely not have, nor deserve, a $1 trillion market cap. However, like many illicit items, there would still be a black market for the good, and transactions would take place.
In order to circumvent the seizure of mining farms and stoppage of the network, a hard fork could take place. This would change the network’s consensus mechanism from proof of work, which requires physical computers securing the network, to proof of stake, whereby users use their coins as collateral in order to secure the network. In this scenario, this means that no matter how much computing power the world governments are able to amass, they cannot bring down the network. Instead, holders of Bitcoin can secure the network in an anonymous fashion from the safety of their homes and hidden behind layers of VPNs and other privacy tools.
For the world governments to take over a proof of stake blockchain, they would need to amass 51% of the staked Bitcoins. Though this sounds simple, it would be incredibly difficult. First, with all exchanges banned, there would be no way for them to buy Bitcoins. Even if there was a method for them to buy Bitcoins, they would be driving up the price significantly. As the governments reached the 40–50% mark, the price of Bitcoins would be incredibly high, as each individual Bitcoin could be crucial in ensuring that the government gains control of the network. This could lead the price to be millions, if not billions, of dollars, and make it incredibly hard for governments to amass the amount needed. The other option would be to sieze coins from users. If they wanted to do this instead, they would have to prove that someone had access to a Bitcoin wallet, which would be as difficult as finding a needle in a haystack, if the haystack was the world population and the needle was a flash drive. This method would prove to be unsustainable and impossible to pull off for any extended period of time.
Whether world governments like it or not, Bitcoin and other blockchain-based cryptocurrencies are here to stay. Though Kelly’s argument has validity in the fact that banning Bitcoin would significantly hurt its value proposition, it would not be hurt to the point that it would be useless, or that the incentive to secure the network would be destroyed. The decentralized, secure, and ever-adapting nature of the blockchain and decentralized consensus means that Bitcoin is capable of weathering any storm that may come its way.
By Lincoln Murr
Originally published at https://en.bitpush.news.