Justin Bons, the founder and Chief Investment Officer of CyberCapital, a cryptocurrency investment fund, has expressed concerns that Bitcoin may be at risk of a significant decline within the next 7 to 11 years due to its existing economic and security framework.
Bons believes this potential downturn will stem from diminishing mining revenues as halving events occur, alongside a gradual reduction in the budget that supports network security.
He pointed out that for Bitcoin to sustain its current level of security, it would need to either see its price double every four years or maintain consistently high transaction fees. Bons argues that achieving such price increases is mathematically unfeasible; he claims it would surpass global GDP in just a few decades while high transaction fees would not hold up in an open and competitive market.
The analyst noted that Bitcoin’s “security budget” is decreasing due to lower mining rewards following each halving event. He emphasized that merely increasing hashrate does not equate to enhanced security. Instead, he argued that the crucial factor is the total revenue miners receive since network security should be assessed based on attack costs rather than hash production rates.
Bons warned that as these budgets shrink, scenarios involving 51% attacks and double-spending could become more appealing. He highlighted large cryptocurrency exchanges as particularly susceptible targets; he suggested future attacks might only cost millions for attackers while potentially yielding profits in the hundreds of millions or even billions.
In this scenario, Bons posited that a network valued at over $2 trillion could face severe disruptions from an investment around $1 billion. He mentioned how even nations with geopolitical rivalries or major financial entities might conduct such cost-benefit analyses when considering their actions against Bitcoin.
Bons outlined two troubling paths ahead for Bitcoin:
- A rise in inflation leading beyond the capped supply limit of 21 million coins
- Acknowledging increased vulnerability to attacks and censorship
This predicament challenges what Bons refers to as Bitcoin’s fundamental “social contract.” He noted some core developers have recognized this issue too and have contemplated increasing supply as one possible remedy. Additionally, figures like Peter Todd have also raised awareness about problems related to funding for network security.
Bons further contended that with an approximate capacity of just seven transactions per second (TPS), Bitcoin’s system becomes precarious during crises. Even if only a small portion of users sought simultaneous transactions on-chain, it could lead to extensive queues lasting months—essentially creating conditions akin to a “bank run,” exacerbating panic among users unable timely access their funds.
The possibility of losing confidence coupled with falling prices may diminish miners’ profitability leading them away from participating actively which can reduce hashrate further complicating matters by causing delays in difficulty adjustments—resulting in transaction backlogs fueling additional panic—a potential “death spiral” scenario characterized by declining prices prompting miner exits followed by slower networks.
Bons asserts the prevailing perception of Bitcoin being “immutable and eternally secure” does not align with reality anymore; he believes there’s been disruption among key factors like security balance along with scarcity versus practical use cases which will likely become evident within seven-to-eleven years driven largely by halving cycles prompting inevitable confrontations within the community surrounding these issues ahead.
*This article does not constitute investment advice.