The Great Bitcoin Debate:
By: William Hofford
Tags: Halvening, Bitcoin Block Reward, Lightning Network, Bitcoin, Scaling

Let me first start off by addressing what appears to be a common thread in many social networking applications. Many people have complained about the leadership of the Bitcoin Satoshi’s Vision (BSV) camp and they think Craig Wright is a fraud (Faksatoshi) and people don’t like Calvin Ayre and Jimmy Nguyen. As a result they want nothing to do with BSV. Okay I get that, and I don’t particularly like them or their lifestyles either, BUT please tell me how any of this effects the economics of Bitcoin?

In a short amount of time miners that mine Bitcoin Core (BTC), Bitcoin Cash (BCH) and Bitcoin Satoshi’s Vision (BSV) will all experience a halving of their block reward from 12.5 coins to 6.25 coins. Then again in the year 2024 there will be another halving to 3.125 coins. Right now the primary incentive for miners to mine a given coin is the reward that they will receive if they are successful in creating a block that gets added to the blockchain. Mining equipment can be switched to mine any of these coins easily and miners will switch depending on which coin is the most profitable to mine. All three Bitcoins have a mining difficulty factor that is adjusted so that on average a nonce (the result of the hashing math puzzle) can be found that will result in a block being added to the blockchain every 10 minutes. If BSV becomes more profitable to mine and hash power is directed away from BTC and directed at BSV there are now fewer miners mining BTC and the likelihood of a block being added every 10 minutes goes down. Therefore, if the difficulty level is lowered in relation to the other chains and it is suddenly easier for a miner to mine on BTC and the hash returns to BTC. With the block reward going down it could be less profitable for miners to mine a given coin unless that reward is somehow supplemented. One possible scenario for BTC is that the value of the coin by 2024 could go up 4 times making the value of the block reward the same as today. Today’s price of BTC is about $4,000 so all things being equal if BTC hits $16,000 then the dollar amount of the block reward remains constant. Keep in mind that the same scenario also holds true for BCH and BSV, however in the case of BCH and BSV they are also advocating for larger blocks that would hold a greater number of transactions. Miners in addition to getting the block reward also are paid with transaction fees. So if the block rewards remain relatively constant based on an increase in coin price but the fees paid to the miners for transactions is going up on BCH and BSV then it would make sense that the bigger blocks have an advantage when it comes to profitability.

The Bitcoin Core Leadership consisting of BTC developers and the companies that are heavily invested in BTC like Blockstream have be pushing the narrative ever since late 2017 that BTC is a Store of Value (SoV) and not a global peer to peer form of payment as described in the original white paper. The reason why they are pushing that narrative is because when BTC hit $20,000 the transaction fees went as high as $50 or more. So who is going to use BTC to buy a meal or a coffee? If the fees cost more than the purchase then the use case for BTC as a means of exchange falls apart. If in four years BTC is falling behind BCH and BSV because they can’t fit as many transactions into a block then in order to compete the transaction fees will have to increase substantially making it an even worse means of exchange. There has been a lot of hype in Crypto and prices have been fueled mostly by speculation, and then we saw the bubble burst and prices came back down more in line with the proper value based on use case. Given the above scenarios in my opinion the use case and the economics for BTC are awful. The BTC Leadership knows this and in order to circumvent the effect of the halvings in 2020 and 2024 they have started to push a narrative that there should be some sort of inflation or the halving should be done away with. If that were to happen the fixed supply of 21 million bitcoins would be a thing of the past. I don’t know about you but the Store of Value use case for me was based on the fixed supply of 21 million. If the leadership changes the protocol and plays with the economics in order to attempt to allow BTC to survive I think a whole bunch of people that started to buy BTC because of the limited supply will leave in droves and BTC will crash and burn.

Another differentiating factor between BTC and BCH/BSV is the scaling debate. BTC is holding to smaller blocks and they want to push smaller transactions off of the blockchain and put them on Lightning Network (LN). This solution has been in the works for years and the target go-live for a fully scalable solution seems to always be next year or 18 months away. They do seem to be making some headway however there have been a lot of problems like liquidity and maintaining channels and keeping them up. An unrelated problem is also the fact that you can not trace the flow of money from beginning to end through the LN which I believe is a problem for government regulators and would allow for things like black market purchases. There is also the problem that anyone hosting a LN node is really a money transmitter and as such needs to be licensed.

I feel that BSV is the big block coin that follows the original white paper. BCH is continuing to make changes to their protocol that deviates from the white paper and is still in a state of flux. As a computer scientist and someone that has worked with software my whole life, I believe that BSV having a protocol that is fixed in stone is very beneficial to businesses that are building use cases on top of a stable protocol. Since November when BSV split from BCH I have seen a number of the original BTC Core developers move over to the BSV camp and I have seen an unprecedented amount of development being done on BSV. While the market will ultimately decide who the winner will be, to me the economics and facts point to BSV as the ultimate winner.

People want to declare BTC as the winner because of the name recognition and the higher value at the moment. There has also been a coordinated effort on social media to downplay the bigger blocks and the problems with BTC and LN. Newbies and uninformed investors that are blindly following that narrative in my opinion will be burned. To me the economics of Bitcoin and all the problems associated with the way they want to scale and the failures inherent in LN cause me to come to the conclusion that BTC will fail in the long run. I also know that Craig Wright has claimed that there is a bug in BTC that will also cause it to fail, and he thinks that will happen in 2019. Putting aside how you feel about Craig Wright the man could be Satoshi Nakamoto, the creator of Bitcoin. If he is not we at least have proof that he has been involved with Bitcoin from the very early stages and as such is probably very knowledgeable about the inner workings of the coin. Craig is brilliant and holds multiple doctorate degrees in totally unrelated fields. He also holds more patents than Thomas Edison. Dismissing Craig because he is a belligerent ass could be a very big mistake…

Another factor to consider when investing is the fact that there is a mining pool called SharkPool that is pretty well funded and it is their goal to attack all coins that are not BSV. They intend to use the Nakamoto Consensus to gain at least 51% of mining hash while disrupting the mining by mining empty blocks with no transactions. If they are successful in doing this they could effectively shutdown all these other coins.