There have been two trends related to Bitcoin that pose a serious security threat to Bitcoin's longevity:Bitcoin's value proposition transformation from digital money to digital gold (reserve asset/collateral).Externalization of transactions to other blockchains (wrapped bitcoin tokens) and/or centralized digital custodian services like Paypal.To put it simply, the long-term security of Bitcoin protocol's depends on the value of transacting directly within the Bitcoin network. The lack of significant scalability of layer 1 along with trends that effectively reduces and diminishes the value of directly transacting in the network can be catastrophic in the long run. Every bitcoin that is externalized to Ethereum, Paypal and others is being indefinitely frozen in its native protocol. The remainder is being used more and more as a reserve asset and collateral. This is not good folks, and we cannot pretend it is not happening or that it is insignificant.Bitcoin's security economic incentives were not designed for it to be a reserve asset and have transactions externalized to other systems. Ultimately if this trend is to be reversed the network needs to scale at layer 1 and/or the utility value of transacting natively must increase - there are no tangible propositions to realize either in the foreseeable future. Another solution would be to change the consensus mechanism and/or monetary policy. Eventually something must give, but for now it is entirely up in the air.
Submitted December 01, 2020 at 05:04AM
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