Thread by @ProficieNtOCE

1/16 Bitcoin's monetary policy is fundamentally flawed yet it is hailed as its greatest achievement.

2/16 Every 4 years, Bitcoin's defense (mining) budget will halve, resulting in an every shrinking mining industry. There are currently two ways to invalidate this claim:
- Bitcoin's price will double every year
- Transaction fees will make up for lost revenue

3/16 Relying on the price of an asset to double every year is bad protocol design and this effect would cease after hyperbitcoinization. Not to mention this does nothing to address the shrinking BTC value of the mining sector.

4/16 If miners are paid ever less BTC to secure the same amount of BTC, the incentives will progressively swing them towards attacking the network. This is because the value of the transactions they are protecting will greatly exceed their own future potential revenue.

5/16 This means that Bitcoin's only path towards sustainability is transaction fees. Fee revenue will need to greatly pick-up, with the current limit on block size, fees per transaction will need to increase many magnitudes.

6/16 If Bitcoin does not drastically scale its layer 1, it will need to roll the dice and hope that there is a constant flow of people willing to pay transaction fees that are magnitudes higher than any other blockchain (including current Bitcoin).

7/16 To make the issue even worse, take a look at the difference in volatility between Bitcoin's transaction costs and Bitcoin's hashpower:
bitinfocharts.com/comparison/tra…

While Bitcoin's hashpower steadily increases, transaction fees are extremely volatile

8/16 In a pure fee based mining industry, miners would first need to fill a block with sufficiently expensive transactions before they could afford to turn their rigs on.

9/16 This would mean confirmation times would depend on how many high net worth individuals were bankrolling the miners that day. This would lead to volatile block times, due to Bitcoin's two week long difficulty adjustment period.

10/16 Another issue with having miners selectively run their hardware, is that malicious actors can much more cheaply attack the network when transaction demand (and thus fee revenue) is low. Resulting in an even greater risk of malicious 51% attacks.

11/16 The many issues around a transaction fee based mining industry are only made worse by Proof-of-Work's low cost to attack. In POW, if you utterly destroy the currency you are mining, you lose all of your hardware. This is similar to losing your stake in Proof-of-Stake.

12/16 The difference between POW and POS is that, in POS your staked coins have value indefinitely, whereas in POW your machines lose all value after a few years. Due to the efficiency of new miners, Bitcoin completely replaces its entire mining fleet every few years.

13/16 As a result, the value of the Bitcoin mining industry and thus Bitcoin security's staked value, can never be more than a few years worth of revenue. Whereas the value of coins staked in a POS system could be 50x the yearly revenue (assuming 2% annual yield).

14/16 This means Bitcoin's defence industry is much more expensive to run than that of a POS system. This coupled with Bitcoin's monetary policy, means that Bitcoin's current design is unsustainable.

15/16 As a result, I believe we will see one of three things:
- Bitcoin will transition to the much cheaper POS, in order to try and maintain its 21M supply cap.
- Bitcoin will stick with POW but raise its cap in order to sustain the heavy cost of POW.

16/16 - Bitcoin will refuse to adapt, resulting in it being rendered useless. This fade into obscurity will be driven by high transaction fees, fluctuating block-times, and a plague of double spends as miners try to squeeze the remaining bits of value from their hardware.