I am going to present the future possibility of a massive exodus of miners on the Bitcoin-BTC blockchain. Itwill explain the reasons that could motivate it and why all users holding bitcoins at that time are going to see their funds frozen forever, without the possibility of making any transactions.
The Bitcoin blockchain is designed to issue blocks every ten minutes, with the goal of making the currency’s issuance predictable over the long term and maintaining a stable monetary policy. In order for the rate to remain constant, an algorithm is implemented that adjusts the mining difficulty every 2016 blocks (approximately, two weeks), depending on the average time of the last mined blocks.
If the average time between the last 2016 blocks is less than ten minutes, then the mining difficulty increases. In the opposite case, i.e., if the average time is longer, the difficulty decreases accordingly. The concept is simple, but it hides a latent danger: what would happen if the difficulty were consistently increasing over the years but most miners decided to stop generating new blocks?
It would happen that, for the remaining miners, the mining difficulty would take 2016 blocks to adjust. But how long would those 2016 blocks take? Assuming there were active miners left, they would not take two weeks to be created, but the generation of each block could extend to hours or even days, making the block chain completely static and making it impossible to add new transactions to the history. Moreover, all users holding bitcoins at the time of this exodus would be unable to make transactions, effectively seeing their money frozen. Not only would they be limited by the 1 MB blocksize, but there would not even be new blocks in which to include their transactions.
As for the markets, they would react accordingly and the Bitcoin price would probably fall sharply. Crypto exchanges would suspend Bitcoin-BTC trading (both deposits and withdrawals). Users, for their part, would want to get their coins off their hands and in the blink of an eye a market with a capitalization valued at billions of dollars would vanish as if it had never existed.
So far we are talking about a hypothetical situation in which we consider the possibility that most of the miners would withdraw from the Bitcoin-BTC chain. The consequence is the chain reaction described above. What then is the catalyst that would lead to this fate? The answer is another cryptocurrency based on the same mining algorithm as Bitcoin-BTC, i.e. Bitcoin Cash.
Bitcoin Cash is dangerous for Bitcoin-BTC
When comparing the two currencies from a maximalist point of view, emphasis is usually placed on metrics such as price and market capitalization. But when talking about a currency — “a medium of exchange” — it is much more important to consider things like: liquidity, ease of use, cost per transaction, number of transactions processed, monetary policy, etc.
On all of these points, Bitcoin Cash is a superior alternative to Bitcoin. In the future, as the block reward decreases on both chains, miners will have to choose between two alternatives:
Few transactions with increasing fees (Bitcoin model). This model is viable only if transaction fees reach into the thousands of dollars. Edit: When I say “Bitcoin model,” I’m referering to the proposed roadmap by the Core developers.
Many transactions with low fees (Satoshi’s model). This system, which is the one proposed in Bitcoin Cash, allows to keep the network running in a sustained and practically unlimited way, since miners do not lose the incentive and users can make transactions freely.
If the only way for Bitcoin-BTC to be viable going forward is for fewer users to be able to use it, then it is clear that:
Fewer users → fewer transactions → less reward in fees → less incentive to mine.
For this reason, this mining incentive model currently proposed by Bitcoin Core developers is economically unviable in the long run. It is indisputable that miners need an alternative chain to mine as much as users today need to make cheap and fast transactions. For this reason, they defend the Bitcoin Cash chain with their computing power, even though even this is less profitable for them than mining Bitcoin-BTC.
Empirical evidence of this was seen during the coin’s early days and in forking with Bitcoin SV. At times when Bitcoin Cash appeared to have less computational power a considerable increase in hashrate was seen, even though it represented a loss. This is due, no more and no less, to the miners’ desire to protect the chain on which they will be mining in the future.
Bitcoin-BTC users are going to pay for the costs
If the use of Bitcoin Cash continues to increase, the demand for the currency will grow as well. Logically, following the law of supply and demand, the price will follow this increase due to the greater usefulness of Bitcoin Cash as a medium of exchange. If in the future the price increases, and taking into account that the mining power follows the price, there will be no problem for Bitcoin-BTC miners to point their computing power towards Bitcoin Cash.
The unfortunate consequence of this is going to be paid for by the hundreds of thousands of users who are going to see their Bitcoin-BTC funds frozen at some point in the future, either because they cannot afford the thousands of dollars in fees needed to make a transaction on the blockchain or else because there is not going to be a Bitcoin blockchain on which to transact.
This is one of the main reasons why I believe that no one should hoard Bitcoin-BTC, a project that has become anything but a “currency,” but is instead just another financial instrument of the statist system and a Ponzi scheme waiting to break.
"Few transactions with increasing fees (Bitcoin model)"
That is NOT the Bitcoin model; that is the Blockstream model.