“Current estimates of total worldwide household wealth that I have found range from $100 trillion to $300 trillion. With 20 million coins, that gives each coin a value of about $10 million.” Hal Finney Jan 2009
A lot has been written on known attack vectors for Bitcoin. What challenges might there be if it succeeds and Hal’s thought experiment comes to pass?
1. Extremely wealthy early Bitcoiners - Bitcoin was launched to the public, without any preference given to anyone. In spite of this, people like to claim its current high price is somehow ‘unfair’ on those who missed out. As if those investing early didn’t take enormous risk on a totally untested idea, constant scams, hacks and extreme volatility. It is likely that these early adopters will diversify as their gains grow, selling older coins to newcomers. At least once Bitcoin is widely adopted.
2. Reactionary, failing nation states - China and Russia will still command major resources if Bitcoin approaches Gold in value ($7trn). As gold starts to sell off against the dollar, they will have no choice but to hedge it. Their militaries are unlikely to have a large early stake in Bitcoin and so will be the most dangerous group in this scenario. This is probably the most worrying part of a transition to a Bitcoin denominated world economy.
3. Queues to lodge money at Bitcoin ATMs - When the Greek economy collapsed in 2008, we saw long queues outside ATM as people realised the bank didn’t have the money they thought was theirs. In a Hyperbitcoinisation scenario you would get the opposite. People queuing to get rid of their Euros and Dollars, with ATM providers struggling to lodge the cash quickly before the exchange rate changes.
4. Privacy - In a scenario where some form of privacy scales to the degree that wealth can be hidden very effectively, how would this be policed? The same way as it is today in many countries. You can hide all the wealth you want with enough effort today, but if you go out a buy something tangible like a yacht or a mansion you hit the radar of the tax men and need to account for how you got it. Bill Browder's Maginsky Act is the best current example of this. Bitcoin may become very hideable, but you probably will not be able to spend it very easily everywhere you go.
5. Central Bankers fear more extreme business cycles on a Bitcoin Standard. This is unlikely for two reasons. It didn’t occur during the 1800’s gold standard, and there is no reason for the dollar or another 'stablecoin' to go away as it serves the role of hedging against volatility, at least until all of the worlds value is represented in Satoshis. When people began hoarding gold in the 1929 financial panic, Roosevelt promptly banned the practice. The difference with Bitcoin is that it is both worldwide and much harder to seize than gold. In the next major recession Bitcoin may be blamed, but it will be very hard to effectively ban.
6. Kidnappings - While this is currently a threat, it is likely to diminish as key management solutions like Casa become more prevalent. Unfortunately people will continue to lose money by leaving their Bitcoin on exchanges until key management is idiot proof.
7. Other coins fade to 10-20% of the liquid market cap, a level comparable to R&D spend in a company. Ethereum and others are possibly doing interesting research work setting up what will be done on Bitcoin, but much like the Pets.com in 2000, they are ahead of their time and not sustainable. That doesn’t mean they won’t remain popular in the next few years before this is suddenly realised and they go down low for years and resurface at higher levels on Bitcoin. Many crypto games that using smart contract platforms are chain agnostic and so could shift to Bitcoin when the time is right. They will just need to survive a potential smart contract winter.
A lot has been written on known attack vectors for Bitcoin. What challenges might there be if it succeeds and Hal’s thought experiment comes to pass?
1. Extremely wealthy early Bitcoiners - Bitcoin was launched to the public, without any preference given to anyone. In spite of this, people like to claim its current high price is somehow ‘unfair’ on those who missed out. As if those investing early didn’t take enormous risk on a totally untested idea, constant scams, hacks and extreme volatility. It is likely that these early adopters will diversify as their gains grow, selling older coins to newcomers. At least once Bitcoin is widely adopted.
2. Reactionary, failing nation states - China and Russia will still command major resources if Bitcoin approaches Gold in value ($7trn). As gold starts to sell off against the dollar, they will have no choice but to hedge it. Their militaries are unlikely to have a large early stake in Bitcoin and so will be the most dangerous group in this scenario. This is probably the most worrying part of a transition to a Bitcoin denominated world economy.
3. Queues to lodge money at Bitcoin ATMs - When the Greek economy collapsed in 2008, we saw long queues outside ATM as people realised the bank didn’t have the money they thought was theirs. In a Hyperbitcoinisation scenario you would get the opposite. People queuing to get rid of their Euros and Dollars, with ATM providers struggling to lodge the cash quickly before the exchange rate changes.
4. Privacy - In a scenario where some form of privacy scales to the degree that wealth can be hidden very effectively, how would this be policed? The same way as it is today in many countries. You can hide all the wealth you want with enough effort today, but if you go out a buy something tangible like a yacht or a mansion you hit the radar of the tax men and need to account for how you got it. Bill Browder's Maginsky Act is the best current example of this. Bitcoin may become very hideable, but you probably will not be able to spend it very easily everywhere you go.
5. Central Bankers fear more extreme business cycles on a Bitcoin Standard. This is unlikely for two reasons. It didn’t occur during the 1800’s gold standard, and there is no reason for the dollar or another 'stablecoin' to go away as it serves the role of hedging against volatility, at least until all of the worlds value is represented in Satoshis. When people began hoarding gold in the 1929 financial panic, Roosevelt promptly banned the practice. The difference with Bitcoin is that it is both worldwide and much harder to seize than gold. In the next major recession Bitcoin may be blamed, but it will be very hard to effectively ban.
6. Kidnappings - While this is currently a threat, it is likely to diminish as key management solutions like Casa become more prevalent. Unfortunately people will continue to lose money by leaving their Bitcoin on exchanges until key management is idiot proof.
7. Other coins fade to 10-20% of the liquid market cap, a level comparable to R&D spend in a company. Ethereum and others are possibly doing interesting research work setting up what will be done on Bitcoin, but much like the Pets.com in 2000, they are ahead of their time and not sustainable. That doesn’t mean they won’t remain popular in the next few years before this is suddenly realised and they go down low for years and resurface at higher levels on Bitcoin. Many crypto games that using smart contract platforms are chain agnostic and so could shift to Bitcoin when the time is right. They will just need to survive a potential smart contract winter.
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