Twelve years ago, when Bitcoin was in its infancy, it was very vulnerable.
Stopping it would have easily been accomplished in a number of ways. For example, any simple low level law, even if it was vague and inefficient, would have sent a message from the establishment that any further development on it would be pointless.
Perhaps someone with a couple of decent computers could have just kept hi-jacking the blockchain or simply stopped others mining via any sort of hacking action — a fairly straightforward task since the entire Bitcoin network was managed by little more than a few personal computers at the time.
Even a few techies or media influencers spreading enough FUD (Fear, Uncertainty and Doubt) in the early days may have been enough to put people off the idea.
This would have undermined confidence and finished any utopian ideas of a non-sovereign based currency, but probably only for a while. The reality is that the idea of a decentralized (or at least non-sovereign) currency is almost certainly inevitable.
Even so, none of these things happened. Each day that passed, Bitcoin grew stronger and now, as Bitcoin’s star rises against a backdrop of failing fiat currency, the stakes are considerably higher. The value flowing through the network is in the billions of dollars, the industry value is in the trillions. And, since the rate of adoption is constantly increasing, these numbers are expected to increase exponentially.
This is no longer about a group of geeks sending “magic internet money” to each other. This is about investment funds, livelihoods, global transactions, personal wealth protection, freedom and, in some cases, actual humans lives.
The cost of failure is now enormous, both in terms of opportunity cost for the people it will make most difference to and the real cost in terms of pure dollars across the planet.
We know we can trust math and code absolutely in terms of the way the system works, but can we be certain we won’t find some other way to make a mess of it?
Fortunately, most of the doomsday scenarios predicted by naysayers are no longer viable or have simply been proven incorrect.
No, China doesn’t control Bitcoin, a 51% attack is no longer a practical proposition, Bitcoin mining won’t cause an environmental disaster (though that one will still take some time to filter through), quantum computing is nowhere close to breaking Bitcoin’s algorithm (which, let’s not forget, could be changed to a quantum resistant algorithm by consensus anyway), Bitcoin is very unlikely to be replaced by [insert your favorite altcoin here] and governments can’t ban it or regulate it out of existence.
And while we’re here, no, Bitcoin doesn’t fit the definition of a bubble or Ponzi scheme (unless you include ALL assets) and isn’t the exclusive domain of criminals.
Yes, it’s possible that a global power outage or an apocalyptic event destroying parts of the planet could damage (or even completely destroy) the Bitcoin network, but frankly this is daft proposal. I’m not sure any financial network would do particularly well in those scenarios and, arguably, Bitcoin has the highest chance of survival anyway thanks to its entirely decentralized and robust infrastructure.
Even so, it doesn’t mean we’re out of the woods. There are, in my view, still at least two possible deadly scenarios that deserve to be examined that, although unlikely, remain possible.
Scenario One: The Self-Inflicted wound
Bitcoin’s code is open source, meaning that anyone can view it, download it, play with it and re-write it at any time. The best place to start doing that, should you ever want to, is here.
This means people can, and have, issued their own coins by simply reconfiguring that base code and inviting people to create a new network effect. Litecoin is a famous example of this, but there are others such as Dash, Peercoin, Decred and the ever controversial Bitcoin Cash.
However, this is different from amending Bitcoin’s underlying code across the current network, to, for example, change the amount of Bitcoin given out in a block reward or amend the total number of coins. Try and do that and you’ll come up short.
The reasons for this are deeply technical and procedural, but the quick version is that Bitcoin’s code is protected at every level, both the network itself by miners and nodes, but also in terms of security access to make those changes. There are very, very few people who are able to do this, and they can only do so via consensus and after extensive testing has been carried out by developers.
Of course, as many rightly point out, consensus systems can be infuriating and slow since no-one is technically “in charge” and changes must be all but universally agreed. But it also means the protocol is naturally change resistant since the easiest course of action is always to leave it as it is, where we already know it works.
Significant changes, such as Bitcoin Taproot upgrade being deployed later this year, take many months (sometimes many years) of planning, testing, agreement and miners’ acceptance to deploy across the network.
This is actually reassuring since the network value is increasing constantly and I, for one, would want to know my assets will be safely preserved for now and always. A change like Taproot, for all its media attention, should be an entire non-event in terms of actually flicking the switch. That is, the network continues exactly as it did before, but with the new functionality added on top for developers to work with.
But what if it didn’t?
What if, despite all of these safeguards, a deployment went wrong or there was a hidden bug that remained unnoticed and only became apparent in a “live” scenario?
Of course, there are safeguards, disaster recovery scenarios and a whole bunch of dedicated developers on high alert for these sorts of events, but even so, the loss in confidence could be devastating and long lasting. It might take years for Bitcoin’s credibility to recover and, the truth is, it might never do so fully. There would always be the nagging doubt that, since it happened once, it could happen again.
Of course, technical glitches happen all the time in the legacy financial world and the fact that Bitcoin has so far exceeded the service levels of all these systems combined to date shouldn’t be taken lightly. But centralized systems, for all their many imperfections, almost always have a point of contact and a whole raft of government backed safeguards to fall back on.
Bitcoin lacks these guarantees and relies on mathematics and execution of code to provide that peace of mind. While they are themselves infallible, the people inputting them are not.
In reality, the chances of this happening are very small.
But it will never be zero.
Scenario Two: Central Government Monetary policy
We already know that governments will be unable to regulate Bitcoin out of exitance or shut it down entirely, no matter what they try and do. At this stage, the network effect is already insurmountable.
However, there is actually a third scenario where governments could be instrumental in either bringing down Bitcoin, or at least reducing its perceived importance.
To understand this, it’s best to consider where are now and what came before. For hundreds (if not thousands) of years, some form of centralized system has controlled our money. This, for all its obvious flaws, was probably the best way of doing it, but it also created an all-powerful monopoly that could never be challenged by anyone.
Monopolistic entities always become complacent, uncaring of end users and self-serving to one degree or another over time. This, sadly, is human nature. Our financial system has been this way for so long that governments have never had to compete with any other financial technology on any significant scale.
At some point, governments will realize the limitations in their power to stop the growth of Bitcoin and will have to find some way to work with it. As a result, it’s not beyond the realms of possibility they may change their approach entirely. What about if governments actually thought of competing with Bitcoin?
In that scenario, governments would have to become more efficient, work within budgets, not devalue the currency used by their people, and, above all, make “their” currency more appealing than Bitcoin. Is it that far removed from competing with existing sovereign currencies?
This is an incredibly tall order, but it’s not beyond the realms of possibility. In truth, it’s incredibly difficult to stop your people doing something they want to do — in this case use Bitcoin — so the only option to make the alternative better.
That means sound monetary policy.
Can it be done? Who knows. It’s been so long since anyone has really had to try that we probably can’t say for sure and macro economics is a very complex field to try and navigate, let alone manage. As our current fiat system shows, we’re still very much learning how money works on a macro scale— and we’re already thousands of years in.
The other issue is that the window of opportunity to do this is very short.
Should Bitcoin become a truly global standard (as some think it could) any attempt to create an alternative would be increasingly hard to deliver, unless, of course, Bitcoin itself became the basis of any new territorial monetary system.
All of this is, of course, entirely theoretical and extraordinarily unlikely, but, like the chances of a self inflicted wound, it can never be zero.
Scenario Three: We don’t know what we don’t know
It’s not likely this list is exhaustive. There must be other possible scenarios that are not yet on our radar. Literally, things we have absolutely no clue about.
Perhaps a whole new quantum based version of Bitcoin will evolve and somehow gain quick global acceptance.
Perhaps a rogue state will suddenly become obscenely powerful and try to force a form of Central Bank Digital Currency (CBDC) on the world with military might.
Perhaps aliens will land and declare us part of their galactic trading empire that requires exclusive use of their multi-dimensional credit system.
It could be, literally, anything.
So, as vague and unknown as it is, scenario three cannot be a zero chance event either.
The Bottom Line
There are no certainties with money, or even with life itself, and we cannot know for sure what will unfold in the future.
However, I believe we’re now at the point where we can safely say that on the balance of probabilities Bitcoin is here to stay and will help drive a monetary revolution in the same way the internet drove the information revolution in the nineties.
This could be indirectly by being the spark that starts the fire, but it’s also possible it will be a direct contributor to the whole process.
In the 1990’s we didn’t quite know how the internet would play out, only that the technology and the possibilities it provided could not be stopped once the network effect had really taken hold. Bitcoin, it could be argued, is in the same place, but with an added advantage.
With every day that passes, the Bitcoin network grows stronger by design and the effort (and money) required to destroy or stop it increases in direct proportion with the reduction in incentive to do so. At a certain point, the task will become both impossible and pointless.
While, logically, the natural conclusion of this process based on the adoption and development data we’re seeing is clear, the reality of a full “Bitcoin standard” still seems a difficult reality to imagine, even for a Bitcoin advocate like myself. So much has to change to make that possible it still seems like a tall order.
But then again, if you told me in the mid-late 1990’s that in just two decades we’d be using hand held smart devices to book Ubers on demand to take us to our Airbnb for the night, I’m not entirely sure I’d have believed you.
After all, so much would need to be change for that to be possible, right?