CyberCapital Founder: The security model of Bitcoin has been compromised

Original Author: @Justin_Bons

Compiled by: LayerTwo Labs >

"The security model of Bitcoin has been compromised"

------Founder of Europe’s oldest cryptocurrency fund[1] @CyberCapital[2] @Justin_Bons[3]

3:23-September 9, 2023 Twitter original post[4]

What is the Bitcoin network security budget issue?

• 1/36) The security model of BTC has been broken; for a century, its price must double every four years, or it will incur extremely high costs! Just to maintain the current level of security… This is impossible, as it has already exceeded the global GDP in 31 years. Therefore, the security of BTC is a foregone conclusion.
  
• 2/36) Each halving exponentially reduces the security budget; until it disappears! After more than 80 years of halving beyond the global GDP, these halvings continue until they are completely exhausted. If you understand exponentials and economics, you should know this is completely impossible!

Paul Sztorc Bitcoin Network Security Budget-1
Paul Sztorc Bitcoin Network Security Budget-2

• 3/36) Due to the ratchet effect of the fee market, fees will never reach sustained extreme levels. In a competitive market, paying hundreds of dollars for a single TX is unrealistic; when fees soar, users will leave, all due to the unnecessary increase in block size limits!
• 4/36) All of this means that without extremely high transaction fees in the future, the long-term security of BTC is unsustainable! The security of BTC will inevitably continue to decline until attacks become profitable; I predict this will happen in 5-9 years! (2-3 halvings)
• 5/36) Hashrate does not equal security; Bitcoin enthusiasts like @saylor do not understand PoW[5]. This chart of miner income proves that the security of BTC is actually lower now than it was 2 years ago! The chart shows BTC miner income (block rewards) rather than hashrate is declining:

Editor’s note: @saylor entered later than BIP300

• 6/36) Hashrate is an almost meaningless metric for calculating security because miner income may decline while hashrate increases. This is because the cost of generating these hashes decreases with hardware improvements, which is why we cannot calculate hashes to determine the security budget!
• 7/36) Because what protects BTC is not these hashes: it is the cost of producing these hashes to protect BTC! In other words, what matters is the cost of attacking BTC, which is not determined by hashrate! It is determined by the cost/reward calculation for the attacker.
• 8/36) Cryptoeconomic game theory relies on punishment and reward; carrots and sticks. This is why miner income determines the cost of attacks. When it comes to the reward aspect of computation: a 51% attack on exchanges is a realistic attack vector:
• 9/36) Setting the minimum threshold for attacks at millions per day, assuming prices no longer rise significantly, we predict reaching this goal in 5-9 years. When the security budget is too low, censorship may also occur as malicious actors gain a majority stake.
• 10/36) There is a common but obvious rebuttal to this; nodes protect the network. This is an absurd claim because non-mining nodes have no Sybil resistance! Since security comes from block production incentives, mere "full nodes" do not share block production incentives.
• 11/36) So what does all this mean? It means the long-term security of BTC is in deep trouble. Without extremely high transaction fees, the security of BTC will inevitably continue to decline until it drops so low that the network becomes profitable to attack, making BTC unsafe!

• 12/36) At this point, there are only two choices left:

1. Increase BTC's supply inflation beyond 21 million! [Issuance?]
2. Allow the network to be subject to double-spending and censorship attacks. BTC is caught between pet rocks and difficult places; think about it and consider who else is saying this:

❝
Translator's note:

Embrace the iPhone moment of Bitcoin

• 13/36) @ercwl[6] and @gametheorizing[7] both agree with my point in our debate on this topic. Even top core developers like @peterktodd[8] agree. The writing is on the wall: "Bitcoin holders will have to make this difficult choice, or they will watch Bitcoin's security collapse before their eyes."
• 14/36) As a BTC critic, I believe BTC cannot resolve this dilemma in time, as it undermines its main touted benefits. Supporters of increasing supply clearly do not think this way. I have the utmost respect for Bitcoiners who speak this truth.
• 15/36) Because they are doing everything they can to protect the source of BTC, Bitcoin supporters who deny this will only make things worse. Promising people that BTC will always have a 21M cap undermines trust; it leaves them disappointed, a sense of betrayal that is entirely justified!
• 16/36) Because they mislead people into supporting BTC based on false pretenses! BTC is not a good or competitive SoV. Choosing between security and scarcity is not a good choice, especially when competitors can offer security, scarcity, and capacity; all of which are different from BTC!
• 17/36) The most likely outcome in 5-9 years is that both options will occur simultaneously, splitting the network in two and causing more chaos in the process: one with inflation, the other without inflation, both more susceptible to attacks, with price declines further worsening security.
• 18/36) All of this is because BTC's governance cannot resolve such dilemmas without splitting. My original 2013 investment thesis in BTC has been ruined by those we trust to maintain it, and the problems have followed; what we are witnessing is a failure of governance:
• 19/36) The power struggles and civil war history of BTC are symptoms of this failure. The fact is that the main client, "Bitcoin Core," has effectively achieved centralized control over BTC's development, turning it into a one-party system, with Bitcoin Core as the gatekeeper of all changes.
• 20/36) Currently, over 99% of full nodes are using Bitcoin Core, which is extremely centralized! In fact, only one major maintainer has final decision-making authority over all decisions, making it a dictatorship. Like all dictatorships, their power is also limited.

• 21/36) This is still a complete distortion of the decentralized ideals BTC should represent. Another consequence of the block size debate is that it stifles competitive clients, instead supporting Core, which is why all efforts to resolve the security dilemma are hindered.
• 22/36) The myth of BTC; it is a decentralized elite politics, which is far from the truth. Bitcoin Core has disproportionate power to make any changes, such as RBF, while simultaneously expelling anyone who disagrees with them, such as Gavin Andresen, Mike Hearn & Jeff Garzik.
• 23/36) This is why the implementation of diverse competitive clients is so important for true decentralization. BTC has been effectively captured, which is a clear failure of decentralized governance. I delve deeper into this topic, which you can find here:

[Original: Theory On Bitcoin Governance; Three Stage Model (v.1.0)](https://medium.com/cyber-capital/theory-on-bitcoin-governance-three-stage-model-v-1-0-98a8b83095b0 "Original: Theory On Bitcoin Governance; Three Stage Model (v.1.0)")")

Translation: Bitcoin Governance Theory; Three Stage Model (v.1.0)

• 24/36) The root of this major flaw can be traced back to the historical block size debate. The original design of BTC did not have such an incredible flaw. The fact is that BTC changed its purpose, economics, and vision during the block size debate, contrary to popular belief:
• 25/36) Not increasing the block size limit is a significant deviation from Bitcoin's original vision and purpose. It is conceivable that serving a large number of traders, with each trader paying a small fee, is a more realistic path to sustainability, as opposed to a few traders paying high fees.
• 26/36) Like the former case, BTC would provide valuable utility to billions of people, which is clearly what BTC has always wanted to do. Even in the Bitcoin white paper, it is explicitly stated that the right to allow Bitcoin to truly become a currency has been taken away by those in power.

• 27/36) To make matters even more tragic: BTC could achieve large-scale adoption while maintaining decentralization if it had only borrowed some code from BCH. It could support VISA scale on laptops from a decade ago! The threat of supporting larger blocks has been exaggerated!
• 28/36) The block size limit now restricts BTC's throughput to between 7-22 transactions per second. This means that it would take over seventy years for everyone in the world to make just one transaction! Making BTC widely and broadly used is completely impossible!
• 29/36) Because from a technical perspective, usage has effectively been restricted, it cannot and will never become "the future of money." Congestion has also made BTC transactions unreliable, as fees cannot be perfectly predicted, leading to transaction failures.
• 30/36) Some have proposed the Lightning Network as a solution to this problem. However, introducing people to the Lightning Network in a non-custodial manner actually requires multiple on-chain transactions. During congestion, high fees will also be passed on to Lightning Network users, forcing channels to close.
• 31/36) The block size limit undermines all potential use cases of BTC because any large-scale usage is impossible. Whenever real use cases truly take off, it only leads to soaring fees and congestion, which ultimately drives people away; this is why BTC has no utility.
• 32/36) It is this lack of utility that is at the core of BTC's inability to generate sufficient fee revenue to sustain its security model. Transforming BTC from a useful medium of exchange and store of value into a purely speculative store of value is its decline.
• 33/36) Bad actors mislead people by downplaying this threat, leading them into this waiting disaster. You can verify it yourself with a full node! BTC is not impossible to fix; by increasing the block size limit and building applications that people want to use and pay for!
• 34/36) No matter how unlikely I think this possibility is after the utility companies were expelled from the block size debate, if you are a Bitcoin enthusiast and want to fight for Bitcoin, this is how to do it; by allowing utility and real use cases to thrive on BTC, just like what has been done in ETH. This is your choice!
• 35/36) I fight to protect Bitcoin and its original vision. We have lost our way; BTC is now an empty shell, twisted and captured. Now we must warn people of the impending failure because I truly believe this movement will fail, even if BTC's security model fails within a decade!
• 36/36) Conclusion: The security of BTC has been compromised and may fail in 5-9 years, making (inflation) issuance the only solution, breaking the 21M supply limit! Bitcoin governance is preventing any solutions before it is too late. Our beautiful experiment is now teaching us through its failure!

--Drivechain is Our ONLY HOPE!--

Dr. Adam, the inventor of PoW, and the founder of Nostr highly praise Drivechain

References

[1] Europe’s oldest cryptocurrency fund: https://cyber.capital/

[2] @CyberCapital: https://twitter.com/CyberCapital

[3] @JustinBons: https://twitter.com/JustinBons

[4] Twitter original post: https://twitter.com/Justin_Bons/status/1700228438798287150

[5] Bitcoin enthusiasts like @saylor do not understand PoW: https://twitter.com/saylor

[6] @ercwl: https://twitter.com/ercwl

[7] @gametheorizing: https://twitter.com/gametheorizing

[8] @peterktodd: https://twitter.com/peterktodd