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May 22, 2022 21 tweets 8 min read Read on X
The Sober Math Behind the Unsustainability of the Bitcoin Network's Economic Model.

(and Why Bitcoin Mining is a Bad Business)

A thread 🧵

#bitcoin $btc / #Ethereum $eth t.co/f6ksM2cUHl
Imagine you run a utility.

But instead of enjoying growing energy consumption and income over time, like most utilities...

... Every four years your population is cut in half until it goes extinct in 2140.

If this scenario sounds familiar you might be a #bitcoin miner.
Have you ever run the math of bitcoin mining rewards halving every 4 years?

It's daunting.
In 22 years and 5 halvings the # of $btc issued to miners annually will be 1.5% of what is it today (~5k / year vs. ~330k currently).

In other words in 20 yrs the amount of $btc issued annually is virtually zero until the last $btc is mined in 2140.
Your first response will be "well miners will make it up in price."

Let's make a forecast.
Let's assume:
- $btc's avg price is $30k until the next halving;
- averages $90k from 2024-2028 (a 3x), and then;
- compounds at 15% every year until 2140 (i.e. roughly a double per halving for next 100+ years).
Here's the output of the $btc price forecast based on the above.

The resulting $btc prices quickly become unwieldy, surpassing $1M per coin in a little more than 20 years.
Here's the chart to scale.

Compounding at 15% per annum for ~120 years results in a terminal $btc price per coin of $565 billion (with a B) and a bitcoin market cap of $12 quintrillion (!).

Seriously.

Not exactly conservative but stay with me.
Under this forecast, the Bitcoin Network's security budget peaks from 2024-2028 at $14B / year.

In other words, the Bitcoin Network's security budget could realistically peak after the next halving.

Then decline forever.

Hopefully you're starting to see an issue here...
Said another way:

Unless Bitcoin finds alternative sources of revenue, the Bitcoin Network could start becoming less secure over time as early as 2028 (!).

Not exactly a comforting thought for individuals hoping to store their wealth forever.
As is well publicized, the Bitcoin Network generates relatively little activity.

Bitcoin generates a fraction of the economic value as measured by fees / revenue of $eth, BSC, and is regularly surpassed by individual applications such as $uni.
The Bitcoin Network appears unlikely to generate significant alternative sources of revenue IMO.

To repeat: Unless the chain starts seeing A LOT more activity and more paying users, we could see the Bitcoin Network actually start to shrink as soon as later this decade...
Let's compare Bitcoin's exponentially declining mining rewards model to $eth's economic model.
Post @ethereum's move to proof-of-stake (#wen), total Ethereum issued *increases* with number of $eth staked.

The more $eth network participants choose to stake, the more the Ethereum Network will pay validators for security.
At $1T network value (~$8k / $eth) and 10M $eth staked, Ethereum will pay validators 572k $eth, or ~$5B annually.

At 30M $eth staked, the security budget increases to 991k $eth / ~$8B.
Importantly, assuming $eth network value 10x's to $10T, $eth's security budget also 10x's.

Yes - Ethereum becomes more secure as it goes up in price *regardless of time.*

Ethereum is literally incentivized to go up forever.
In summary:

Bitcoin's security budget exponentially decreases every four years.

The Bitcoin network risks becoming more vulnerable unless it finds significant new sources of revenue, which appears unlikely as of today.
Ethereum's security budget grows directionally with # of validators AND with network value.

The more valuable the Ethereum Network becomes, the more secure it becomes.

Win/win.
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aloha \m/ 🏄

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More from @DeFiSurfer808

Sep 13, 2022
New Substack:

Ethereum is the Better Bet

The Winning Cryptocurrency is Likely to be the One That is Most Used; It’s Not Enough to be “The Hardest Money”

defisurfer808.substack.com/p/ethereum-is-…
#Bitcoin vs. @ethereum is likely the most important question to ask for new capital hoping to outperform the cryptocurrency asset class.

Ethereum has many traits that suggest it is the better bet to lead the space by adoption and thus market cap in the long-term.
Bitcoiners extoll the properties of $btc - e.g. scarcity and security - as the reason why it is and will continue to be the largest crypto.

However, it is ADOPTION that will largely determine the ultimate winning crypto in the long-term, not its properties.
Read 11 tweets
Aug 17, 2022
Contextualizing the @arbitrum Ecosystem's Opportunity.

Putting some data behind what early Arbitrum users are playing for.
With Arbitrum Nitro coming August 31st (mark your calendars) and the likely return of Arbitrum Odyssey shortly thereafter, I'm sharing some relevant data to help contextualize where Arbitrum is in its growth trajectory and what its ecosystem could become.
Before we get to the data, here are a few relevant resources for those less familiar with Ethereum's top Layer 2 (L2).

Firstly, here's an overview of the Arbitrum thesis.

Read 16 tweets
Jul 30, 2022
Reasons for optimism that nearly every crypto participant is overlooking:

🧵👇
TLDR:

(1) We're past the worst M2 headwinds; Crypto is a coiled spring.

+

(2) There are catalysts to get capital off the sidelines, including:
* Nasdaq confirming bull market;
* Many idiosyncratic events (e.g. the merge); and
* Inflation coming down (most uncertain).
Part 1: Crypto is a coiled spring.
Read 25 tweets
Jul 13, 2022
Yesterday we shared how @GMX_IO's Synthetic PvP AMM is a game-changer for derivatives trading.

Now it's time to dig further into the pros / cons of $GMX's novel synths model and speculate on how much incremental demand it might drive.

Hint: Moar Volume, Moar Fees for $GMX

🧵👇 Image
For an introduction to GMX's upcoming synthetic derivative product, start here:
Pros / cons of GMX's PvP AMM model:

To begin, let's review several existing derivatives models and see where they may have areas for improvement.

The first derivatives model to review is GMX's current GLP and the Liquidity Provider model.
Read 36 tweets
Jul 12, 2022
Alfa from @GMX_IO: “We will be reviewing the synthetics model this week for edge cases, aiming to start on the contracts next week."

With $GMX releasing a HUGE new product soon™️, @Riley_gmi and I did a deep dive into:

Synths, PvP AMMs, & Why They are *BETTER* Than CEXes

🧵👇
First: What are Synthetic Assets?

Synthetic assets (synths) are crypto-assets that derive value from another asset (the underlying asset) on- or off-chain.

They are essentially digital abstractions of derivatives.

And they're coming to GMX 💪💪💪
All synths need to function is a reliable price feed for the underlying asset.

GMX synths will use @Chainlink Oracle price feeds.

Thus any asset that has a price feed will be tradeable on GMX!

In fact, back in the Gambit days, @Tesla traded on GMX:

Read 14 tweets
Jun 6, 2022
Last week I wrote a thread about how the coins that pumped the hardest last cycle were driven by fundamentals.

One protocol to keep an eye on is @arbitrum gem @GMX_IO ( $gmx).

This beast protocol is annualizing $100M of fees on $169M circulating mkt cap (1.8x!) (FDV $291M).
Despite trading activity faring relatively well in the downturn (fees down only 19% from April peak run-rate), $gmx is down 50%... baby thrown out w/ the bath water?

It trades at a trailing P/E ratio of 6x ( $gmx stakers receive 30% of fees across @arbitrum and @avalancheavax).
Another cool thing about $gmx: the perpetual futures trading market for crypto is huge and well defined.

You don't have to bet on a protocol creating a market.

You just have to bet on volumes moving from CEXes to DEXes like we've seen w/ swaps.

Read 6 tweets

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