Vitalik Buterin worried about Bitcoin: He Criticizes
Ethereum co-founder Vitalik Buterin is concerned about Bitcoin. He sees two points in particular as significant weaknesses and uses them to defend the merge, which has recently been criticized.
Is Bitcoin too insecure in the long term?
In a recent interview , Vitalik Buterin, initiator of Ethereum, states that he is concerned about Bitcoin ‘s future. He is particularly critical of the Proof of Work consensus mechanism – a system that Ethereum has been using itself until now, until it will be replaced in a few days thanks to the Proof of Stake merger.
In the long term, Bitcoin will face drastic problems, Buterin believes. This is how he explains:
In the long term, the security of bitcoin will depend solely on fees, and bitcoin simply fails to generate the required level of fee income.
Vitalik Buterin: Bitcoin’s fee problem
What Buterin means by that: Bitcoin is a cryptocurrency with a hard cap. Unlike Ethereum, there is an upper limit of 21 million coins. So far, miners have been paid through block rewards and fees. These form the incentive for their work.
However, when bitcoin hits its cap, miners no longer receive block rewards, only network fees. In order for Bitcoin mining to continue to be worthwhile, these fees would have to be high enough.
Currently, a user pays about one US dollar in fees per transaction . Buterin believes that amount is not high enough and has seen too little growth over the past five years.
In reality, Bitcoin’s often advocated hard cap could cause fees to skyrocket, as miners would otherwise lose money from their activity.
Is Bitcoin also making the change to Proof of Stake?
Buterin also criticizes the effectiveness of Proof of Work. This time, however, this does not mean the energy requirements of the Bitcoin network , but its monetary effectiveness. Buterin describes it as follows:
“Proof of Work offers much less security per dollar spent on transaction fees than Proof of Stake.”
Buterin fears that the value of the total bitcoin supply will exceed that of the bitcoin network.
What would a future look like where there is $5 trillion worth of bitcoin, but it only takes $5 billion to attack the blockchain ?
asks the programmer. He himself believes the answer is as follows:
Of course, if Bitcoin is actually attacked, I expect that the political will to at least move to a hybrid Proof of Stake will emerge quickly, but I believe it will be a painful transition.
Yeah right. Buterin does believe that Bitcoin is also making a move to Proof of Stake, albeit only to a hybrid model. He considers a strong political rejection of Proof of Stake among Bitcoiners to be the biggest obstacle.
Turning away from Proof of Work does not appear to be politically feasible.
How should Vitalik Buterin criticism be evaluated?
Buterin’s intention is obvious: he’s trying to justify Ethereum’s move from PoW to PoS. In fact, neither criticism is new. They have been observed and discussed in the scene for years.
Bitcoin’s potential fee problem is far away. Only in the year 2140 could this become a reality. It is certainly questionable whether Bitcoin will be able to maintain its role as the most important free currency until then.
What is certain is that it has not yet been conclusively clarified how Bitcoin will overcome this problem. In the crypto scene, the early discussions about the downside of a hard cap led to new approaches.
The privacy coin Monero therefore uses the so-called tail emission – a soft cap with an infinite circulation supply. However, since issuance is slow and cryptos keep losing, it is uncertain whether inflation or deflation will occur.
Buterin’s critique of monetary effectiveness neglects an important point. The most serious threat to known blockchains are government attackers. Because they control the fiat money, they could create any amount of money, acquire the majority of the funds on a PoS blockchain, and thus take over the network.
With a PoW blockchain, the effort is significantly higher, even if the amount of money required may be lower. Experts estimate that by 2022 there will already be over a million miners. If a state wants to have a majority here, it would require an enormous amount of equipment and work.