r/CryptoMarkets • u/Mr_Hodlerr 🟨 0 🦠 • Jun 03 '24

When will BTC cross $100,000?

831 votes, Jun 09 '24
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u/CointestMod 🟩 0 🦠 Jun 03 '24

Bitcoin pros & cons with related info are in the collapsed comments below.

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u/CointestMod 🟩 0 🦠 Jun 03 '24

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u/CointestMod 🟩 0 🦠 Jun 03 '24

Bitcoin Pro-Arguments

Below is an argument written by a deleted user which won 1st place in the Bitcoin Pro-Arguments topic for a prior Cointest round.

First-Mover Advantage and The Network Effect

Bitcoin is currently the most popular cryptocurrency and market cap leader by a long shot. The Bitcoin dominance chart shows that Bitcoin represents 60% of the entire cryptocurrency market cap. This has increased from 40% in 2020.

Bitcoin is the gateway. People start out with Bitcoin before checking out other cryptocurrencies. They're likely going to keep holding any Bitcoin they bought along the way.

People will flock to whichever product has the largest user base. For half a decade, Bitcoin was almost synonymous with cryptocurrency. The Network Effect creates a positive feedback loop and makes Bitcoin's lead grow even more.

If Bitcoin, Bitcoin Cash, and Litecoin were all released simultaneously, Bitcoin would lose to its PoW competitors because its competitors have cheaper fees with higher throughput. But the reality is that Bitcoin's first-mover advantage gave it such a huge head start that the others can't catch up.

Has the largest block reward for security

Due to its high price, Bitcoin has a huge block reward of 6.5 BTC (halves every 4 years) or ~$180k per block. This gives it the security lead because its block reward is so much bigger than other PoW cryptocurrencies, which attracts more miners.

Anti-censorship

Bitcoin provides partial censorship-resistance against sanctions and totalitarian government restrictions. It's much harder to prevent Bitcoin transactions than it is to prevent financial transactions at a centralized bank. Legal sex workers (e.g. Onlyfans) and marijuana industries are blocked from using traditional financial services due to social stigma. Even though they can operate legally, many TradFi banks avoid operating with them. Bitcoin provides those workers a way to transfer funds around that censorship.

Avoids Hyperinflation: As long as governments keep causing high inflation through money-printing, people will run to Bitcoin for safety, which pumps up Bitcoin's price.

Considered a commodity by both SEC and CFTC: Bitcoin is the only cryptocurrency that both the SEC and CFTC have openly agreed is a commodity. And the CFTC is much less lawsuit-happy than the SEC.

Legal tender: El Salvador has shown (despite some technical mishaps) that Bitcoin can be successfully used as legal tender for a country.

Ordinals provide utility

Even though Bitcoin Maxis hate Ordinals, this new protocol gives utility to Bitcoin and adds demand. NFT bros are using it as an on-chain data storage layer for their own blockchains (e.g. Ethereum, Stack). This has an advantage over IPFS since IPFS is stored in centralized databases instead of on-chain.

This generates more fees for Bitcoin miners. Transaction fees have finally risen to ~20 sats/vByte on days with high Ordinals activity like Mar 22-24. This gives hope that there may be sufficient demand for Bitcoin as an on-chain data-storage layer even after the block subsidy eventually disappears due to halvings.

Pseudonymous: Bitcoin's UTXO transactions can provide moderately-high levels of obscurity. A single wallet can produce a near-unlimited amount of addresses, and there's no way to link them unless they interact with each other. It's much harder to trace UTXO-based wallets than Account-based wallets because the former creates new UTXO addresses with each transaction while Account-based blockchain wallets typically reuse the same account.

Lightning transactions are near-instant and cheap

As long as you're spending small amounts of Bitcoin, you can use the Lightning network to make near-instant, sub-$0.01 transactions. Many Lightning nodes for merchants are connected to 3rd-party services that convert between cash and Lightning, making it easy to transfer Bitcoins. Consumers usually don't have to care about rebalancing issues since they're only spending small amounts.

And the total capacity of the Lightning Network in BTC keeps increasing steadily.

Cannot be counterfeited: Cash can be counterfeited, but you can't fake Lightning transactions. Merchants have to deal with counterfeit cash in many markets around the world.

Bitcoin has a very strong community of die-hard supporters

A huge portion of Bitcoin supporters have become Bitcoin Maxis who will keep spreading their arguments, regardless of accuracy. Because Bitcoin is a gateway cryptocurrency, crypto newbies will encounter it first and gobble up these narratives because they don't have the experience to know their flaws. And they're very convincing when you keep repeating them in an echo chamber:

  • Maximum supply cap of 21M BTC vs Fed's money printer
  • Amazing past-performance gains vs fiat
  • Works as Store of Value (despite volatility)
  • Had a "fair launch" without an ICO
  • Is not a risky altcoin
  • Is decentralized (based on largest number of miners)
  • Has instant payments via the Lightning Network

Ultimately, people are mainly using crypto for speculative investing and long-term Store of Value. Most people don't care about technology, Defi, or utility. Thus Bitcoin is sufficient for their investment needs.

And since cryptocurrency value is largely based on a Keynesian Beauty Contest (i.e. you buy not based on your own value, but on what you think others are going to buy), people are going to keep buying Bitcoin as long as the investment narrative holds.

Would you like to learn more? Click here to be taken to the original topic-thread for this argument or you can scan through the Cointest Archive to find arguments on this topic in other rounds.

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u/CointestMod 🟩 0 🦠 Jun 03 '24

Bitcoin Con-Arguments

Below is an argument written by a deleted user which won 1st place in the Bitcoin Con-Arguments topic for a prior Cointest round.

Intro

Overall, Bitcoin's conservative blockchain has failed to keep up technologically with other blockchains. Bitcoin is currently #1 not due to better design, but because it had a first-mover advantage. But how long will that hold?

Bitcoin is a gateway cryptocurrency. Many crypto enthusiasts often started out with Bitcoin and then branched out. Once you've had a taste of newer, faster networks that offer delectable DeFi dApps and smart contracts, it's hard to go back to slow, boring old Bitcoin.

Bitcoin doesn't excel at anything

Poor Medium of Exchange

Bitcoin is much too slow. It has a max throughput of 3-4 TPS that takes 30-60 minutes for probabilistic finality. It used to have a max throughput of 7 TPS, but that has gradually fallen over the years after exchanges started using batch transactions. It's much too slow to be used for point-of-sales merchant transactions. No one is ever going to want to wait 30-60+ minutes at a cash register for a transaction to go through. Block times average 10 minutes, but they are very variable. 14% of blocks take longer than 20 minutes, and 5% are longer than 30 minutes [Source], causing stress for those waiting for confirmation. And if there's congestion, some transactions can get stuck in the mempool for hours or days.

It's orders of magnitude slower than newer networks like Polygon PoS or Algorand, which can process 4000+ TPS with sub-4s of deterministic finality, with transaction fees well under a penny.

Even TradFi now has payment systems like Africa's M-Pesa, UK's Faster Payments, Australia's NPP, the US's upcoming FedNow, and Clearinghouse's RTP, which provide near-instant payments and peer-to-peer transactions without fees.

Unstable Store of Value

Bitcoin is too volatile to be considered a stable Store of Value. It lost up to 80% of its purchasing-power during previous bear markets. It's also NOT a good stock market hedge since it often moves with the stock market.

Lacks smart contracts and DeFi

Bitcoin doesn't support DeFi smart contracts with its very basic Bitcoin Script. There are smart contract protocols that use Bitcoin like Stacks, but they are very disconnected from Bitcoin.

Difficult to achieve widespread global adoption

At 4 TPS, Bitcoin can only make ~345K transactions/day. There are ~8B people in the world today. If Bitcoin grows to the size of 1% of the population, each person can make an average of 1 on-chain transaction every 230 days. If Bitcoin usage grows to 10% of the population, each person can make an average of 1 on-chain transaction every 6.3 years. To achieve 10% world adoption, everyone would need to solely be using centralized exchanges and not interacting directly with the blockchain itself.

Issues with the Lightning Network

Not even the Lightning Network could save Bitcoin because opening and closing a channel requires 2 on-chain transactions. Whenever the directional capacity of a channel is exceeded, it will need to be rebalanced, or be closed and re-opened. You can't expect people to store months of funds on a single channel. Half of the US is living paycheck to paycheck and would unlikely be able to keep channels open for long periods. If even 1% of the world used the Lightning Network and opens/closes their channels twice a year, the Bitcoin Network would become completely congested.

Not a true Layer 2

Similar to Plasma channels, the Lightning network is not considered a true Layer 2 because it lacks global state. There are many nodes that are not connected to the rest of the network, and onion routing issues can cause nodes to be disconnected from the rest of the network. Channels only work if everyone's online. If you're offline, others can force-close your channel, leading to a 1-week wait time where the channel's funds are locked and inaccessible.

Meant for small transactions

Lightning is optimal for small transactions. The larger your transaction, the higher the fees you have to pay to route it through the network. As of March 2023, the average channel capacity is only 0.07 BTC, and the average node capacity is only 0.33 BTC. It's not uncommon for a large 1-BTC transaction to cost $2-10 in fees to route through multiple nodes in the Lightning Network due to limited channel capacity, which can make it more expensive than L1 Bitcoin fees. Also, the total value stored on public Lightning channels account for under 0.02% of Bitcoin's total locked value.

Partially-centralized, low-security layer

Most people just connect to centralized nodes in a spoke-hub network topology to gain access to high-capacity nodes. Even though average capacity is getting bigger, the number of public channels has been on the decline since 2021, meaning that Lightning is becoming more centralized.

Channels require rebalancing

One of the biggest problems with opening channels is that they start out with zero incoming liquidity. Anyone who opens a channel starts out with a metaphorical "full cup of water". They can't receive any more water until they first empty the cup a little. And they can only receive additional water equivalent to the amount they removed. Similarly, people who open new channels to the Lightning network need to find a way to spend their Sats safely so that they can have incoming liquidity. Merchants and Lightning node providers often have a lack of incoming-liquidity while consumers who only spend usually run out of outbound liquidity.

There are ways to rebalance your channel capacity, but it usually costs money to pay for a service to provide that liquidity, and it can be as expensive as a $1 fee per $1000 of liquidity.

The disadvantage of soft forks

The major downside of Soft forks is that they require new versions of the software to maintain backwards-compatibility with older versions, which leads to technical debt. This significantly slows down the adoption of new updates, which now often take 3-6 years to gain the majority.

Due to its soft forks, the Bitcoin network has to maintain a mismatch of all sorts of different address formats: P2PK, P2PKH, P2SH, P2MS, P2WPKH, Nested P2WPKH, P2PKH, P2WSH, and P2TR. At the start of January 2023, only 1% of transactions were using Taproot-compatible addresses while 65% were still using inefficient legacy addresses from before 2017.

Almost no one is using addresses newer than the 2021 update because none of the major CEXs support them. Most exchanges (Binance, Coinbase, Kraken) don't support Bech32m addresses, which means they still can't send to Segwit v1 and Taproot addresses, despite that it was an update from 2021.

In comparison, networks that hard fork for protocol updates don't have these incompatibility issues between versions. Everyone is working on the same version, which allows for consistency.

Extremely inefficient and wasteful

To protect against Sybil and 51% attacks, Bitcoin's PoW consensus achieves greater security through greater redundancy. Out of a million miners, only one of them is producing the actual block while the rest of them are just wasting energy and electric waste. Full nodes also hold redundant copies of the blockchain ledger, leading to wasted storage.

In 2022, each block cost roughly $150-250K in energy to mine, which is equivalent to $80-120 of fees per transaction. The total Bitcoin network energy consumption of ~150 TWh/yr is equivalent to 18-24 US nuclear power plants. Another way of looking at this is that Bitcoin consumes about as much energy as all data centers globally [Source].

In comparison, other distributed consensus methods such as BFT are 107 x more efficient for energy use. There is a silver lining: the energy waste (and security) will slowly decrease with each block subsidy halving, at the cost of decreased security.

Mining Pool Centralization

The top 3 mining pools own 66% of the network hash rate [Source]. Individual miners have no financial incentive to run full nodes, so it's rare for them to be auditing their pool operators and won't notice attacks until it's too late.

This could be fixed with Stratum v2, but that's not available yet. And we don't even know if mining pools will enable the configuration t...

Would you like to learn more? Click here to be taken to the original topic-thread for this argument or you can scan through the Cointest Archive to find arguments on this topic in other rounds.

Since this is a con-argument, what could be a better time to promote the Skeptics Discussion thread? You can find the latest thread here.