Stopping Bitcoin: Why the Old Myths Are No Longer True

Challenges remain, but it’s time to retire the clichés

Recently, I wrote an article about a couple of scenarios that could, theoretically at least, have the power to stop Bitcoin.

Right at the start, I dismissed most of them, because although they were once considered possible, they are probably not viable at this stage.

Inevitably, this lead to a series of questions, comments and counterarguments as to why they should not have been discounted in a mere paragraph or two. So it seems sensible to revisit the ones that were dismissed summarily without representation and formulate a longer response.

And it’s probably even more sensible to do it in the order they were originally made.

Myth One: China controls Bitcoin

This assumption, long held by anti-Bitcoiners, was based on the premise that China not only owned most of the global hash rate, but much of the application-specific integrated circuit (ASIC) manufacturing capability. In other words, they could set the rules and, on paper at least, they controlled the game.

Except, as was proven recently, this wasn’t true in reality.

According to the Cambridge Bitcoin Electricity Consumption Index, China once controlled as much as 74.8% of global hash rate, but by April 2021, just before China announced its countrywide ban on mining, it had already dropped to 46%. These days, that figure will be a tiny fraction of what it once was, as a result of mining operations being stripped and relocated elsewhere, and other countries increasing their own hash rates.

China, theoretically, had enough hash power to undermine Bitcoin’s economic rules in the style outlined in this interesting, but flawed, article by self-proclaimed Bitcoin heretic Joe Kelly.

In fact, China’s gamble on its own digital currency being adopted and maybe even one day becoming the global reserve currency would, arguably, have been well-served by getting rid of this non-sovereign competitor for good. I’m sure there would have been even some coordinated support from its allies, had it been requested.

Even better, with a single-party system and highly controlled society, seizing this equipment to carry out a state attack was probably about as easy as it could ever be.

Yet, instead, China chose to relinquish any form of control it would ever have on the Bitcoin network even though, arguably, it had the most to gain.

We could (and probably will) argue over the details of why this is for years to come, but the bottom line is that this is no longer true, and it almost certainly never will be again.

Myth 2: A 51% attack will undermine confidence in Bitcoin

Without getting into real technical detail, the simple version is that a 51% attack is when a single rogue entity controls more than half the global hash rate on the Bitcoin network.

As a result, this rogue entity could potentially reverse transactions or prevent new ones from being confirmed or recorded on the blockchain. Further, the entity could change the order of transactions.

This entity could overwrite current transactions, effectively returning Bitcoin to users who previously paid for a service they may already have received, allowing them to spend it again — the classic “double spend” problem.

This would, of course, seriously undermine the credibility of the whole system. Just yesterday, for example, a record $188 billion was transferred over the network according to Glassnode. Imagine if those transactions were undone!

According to Crypto51, a website dedicated to constantly calculating the cost to attack crypto networks, it would cost $2,232,180 per hour to successfully hijack the Bitcoin network at time of writing.

At first glance, that seems an extra ordinarily small amount of money, especially for a well-financed government to maintain the attack for enough time to do real damage. With a bill of just a few billion dollars, it might even be possible for one of the world’s largest companies to do it.

That’s a scary thought.

But there are all kinds of problems with this scenario.

First, where will you get the equipment to do this? We’re in the middle of a chip shortage that’s expected to last quite some time, and even second-hand machines are at a premium. At best, you’d need months and another, say, $5 billion to acquire what would be most of the equipment on the planet and get it to your location, assuming, of course you can muster enough power to run it.

Second, how would you keep such a move secret? You wouldn't be able to reveal your plans, because chances are you would find that no one would sell equipment to you. This is, in practical terms, impossible on the scale that is now required.

And since China didn’t even look to confiscate machines on this scale and attempt it even with the incentive they had, it’s incredibly unlikely that a less autocratic government would try it, even if they did have enough hash power in their borders. Currently, no one is in that position anyway.

Finally, the financial incentive is zero. You’d burn through billions of dollars of wealth — money that you clearly believe in more that Bitcoin — in the off chance you could destroy it. So, the only people incentivized to do this would be powerful nations who don't want to see their sovereign currency undermined by Bitcoin.

At best, it’s a very tall order.

Myth 3: Bitcoin will be stopped by environmentalists (or variations thereof)

According to the Bitcoin Mining Council, Bitcoin mining is not only the cleanest and most efficient industry on the planet, but it is becoming more so each day. Of course, to those who believe it holds no value, no amount of power consumption will ever be justifiable anyway.

Again, it’s one of those scenarios that seems viable in theory, but in practical terms, it’s flawed at many levels.

First, there is no central organization that has any such power on a global level to force any action as we’ve already seen with all manner of actual, real environmental issues.

Second, Bitcoin creates incredible efficiencies that were hitherto not possible, tending to use wasted and stranded energy that would otherwise be produced anyway and lost. Not only that, but Bitcoin’s latest tech is actually reducing CO2 emissions by preventing extremely harmful gas flaring on a scale that is becoming significant.

In other words, each day that goes by, more and more of Bitcoin’s power becomes cleaner, more targeted and, increasingly, it acts as a way for large power producers to more efficiently balance network loads. It’s unlikely that any of these parties would now want to give up the economic and environmental advantages that they enjoy currently.

I’ve written and talked about this subject a great deal, so I don’t propose to repeat that information here, but this article is a good summary piece for general reading on this point.

Myth 4: Governments will kill Bitcoin

No, governments won’t kill Bitcoin. It’s true that some countries will try (and have tried) to ban it, but, so far, no one has succeeded in doing anything other than driving its use underground, thereby exacerbating the problem for the ruling powers. The only sure way of achieving this would be to cut off internet access to your citizens, something that would be economic suicide.

But even this solution is probably out of date and no longer guarantees success. In the last couple of years, new developments have made it possible to use Bitcoin without an internet connection. Although not widespread (since using the internet is the obvious first choice) you’d also need to block satellite access, shut down the cellular network and block amateur radio signals.

Good luck with that.

So, if it’s not possible on a technical level, a government can turn to its legislative arm to try and stop it, but this is also an approach that is dead in the water in most jurisdictions.

First, Bitcoin is global, and you can only remove yourself from the network, not actually stop it. This means your citizens must comply, and some probably won’t. And if you think all governments are going to come together and try and ban it globally, we already know that’s not going to happen. Here’s why.

However, it could be argued that it is possible for authoritative states to carry out a ban that is actually reasonably effective.

According to World Population Review, some 2.7 billion people (approximately 34% of the global population) live under some form of dictatorship or autocratic system. While most of us naturally think of extreme societies like North Korea, the vast majority of these people (1.5 billion) actually live in China and Russia.

Freedom in these countries is carefully controlled, thereby creating a neat paradox in a single sentence.

An outright ban in any of these jurisdictions with extremely severe penalties for breaking the law may well succeed through fear, intimidation and strict enforcement. However, any country that does so runs the risk of alienating itself, should adoption continue on its current trajectory. These days, it’s a risky strategy.

But even if that were the case, and all these countries somehow put aside their differences and worked together to remove their citizens from the Bitcoin network, that would still leave 66% of the global population that would almost certainly still have access in some form.

There are other considerations of course, such as allowing Bitcoin’s use and setting very high taxation and compliance levels that strangle users to such an extent it becomes unattractive to them. However, due to Bitcoin’s truly global status, these would be relatively easy to avoid by moving it elsewhere, hiding it, using it only in native form and so on. It would, once again, succeed only in driving Bitcoin underground and risk driving innovation elsewhere.

Governments, in my view, will ultimately find a way to work with it, especially once they understand that trying to stop it is entirely futile at this point. The ones that are progressive and open to innovation will almost certainly earn an economic advantage over the next few decades.

Myth 5: Quantum Computing will render Bitcoin useless

Quantum computing is an experimental computing field that smashes the old ideology of having everything represented in a binary state, either one or zero. The new way of thinking effectively makes the existence of several simultaneous states possible by creating vast multidimensional spaces in which to represent very large problems.

It’s an incredibly exciting — and incredibly complex — area of technical development that has been going on for at least two decades, but some people have started to wonder if Bitcoin’s SHA-256 algorithm (the underlying basis of the entire network) could be “broken” by a quantum computer.

It’s not an unreasonable claim on the surface, but when you look into this more deeply, three obvious problems become apparent.

First, there’s an issue over motivation. Building a very expensive quantum computer to destroy a financial network will achieve what, exactly? We’re back to the same question previously raised — how does destroying a global monetary network help the perpetrator?

Of course, it’s possible that some extremely well-financed secretive state with access to the best brains on the planet might want to try it to cause damage to its enemies, but as we’ve already seen, this is incredibly difficult to achieve. It also seems more likely that they’d go after a softer target, like the existing banking system, rather than going after Bitcoin itself — at least to begin with.

Second, quantum computing is still highly experimental. Even the most advanced developers are still many years from achieving its full potential (possibly even decades off), so any concerns here are not relevant at this point. But, even if we had that technology available within the next five years, there are still problems to resolve.

That final hurdle involves Bitcoin’s algorithm. Should a quantum incursion ever be a viable threat, it would be possible to upgrade the encryption element of the network with quantum-resistant technology.

In other words, this is merely a digital version of the space race or arms race. As new weapons are developed, so are new defenses.

The dance goes on. It always will.

The remaining myths in one: Pyramids, Ponzis and Criminals

In the early days, some people likened Bitcoin to pyramid and Ponzi schemes of the past, almost certainly based on a misunderstanding of what any of any of these things actually were.

These days, these comparisons are few and far between — and for good reason. Any basic examination quickly makes it inherently obvious that they are in no way related, and dismissing them is a straightforward task.

In the same way, while “criminal use” was once a strong objection probably due to the famous Silk Road association, this is no longer true.

Of course criminals use Bitcoin — they will always use anything that has value — but the percentage (and dollar value) of global transactions now ascribed to nefarious activities is almost negligible for reasons discussed here.

The vast majority of criminals turn to the U.S. dollar to finance and profit from their operations, and that’s probably going to remain true for some time.

The Bottom Line

Bitcoin now has enormous momentum, and it is gradually working through the list of possible failure points, block by block. Each day that passes sees the network grow stronger, with wider adoption and more and more development taking place. It is a movement of its time.

But it is also still experimental, and it has some way to go before any sort of maturity is reached. That means it is entirely possible that new, as yet unconsidered, challenges may evolve with the network. We’ll see.

But for now, at least, we can put these old ones to bed.

For good.


Want articles and to minute analysis and opinion in your inbox? Why not subscribe to the ‘Bitcoin and Global Finance’ newsletter? Receive special offers and insider info. Unsubscribe at any time.


Not yet started your Bitcoin journey?

Here’s £10 completely FREE to get you started, courtesy of my sponsors, Luno! Download the app, verify and enter the code PDUK22X to have £10 instantly credited - no purchase necessary.

Click here for instructions.

TIP: Move your money to the built in savings account and earn up to 4% while you learn all about it!

T’s and C’s: UK and Europe Only. 18+. New Luno customers only, Code will not work on existing Luno wallets.


Disclosure:

The author of this opinion piece has been heavily involved with bitcoin for several years and holds a substantial cryptocurrency portfolio, including bitcoin. He also has a mining operation running the SHA-256 algorithm based in Siberia and is a published author on the subject of promoting the understanding of cryptocurrency. Jason is an analyst at Quantum Economics and consultant to Luno.

Disclaimer:

This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.

If you found this content engaging, and have an interest in commissioning content of your own, check out Quantum Economics’ Analysis on Demand service.