Bitcoin will Bite the Dust
Kevin Dowd and Martin Hutchinson
32nd Annual Cato Monetary Conference
Washington DC
November 6 2014
How Bitcoin Works
• Payment system based on distributed trust
• Bitcoin miners compete to validate
transactions blocks
• Miners rewarded with new bitcoins and fees
• Competition between miners ensures integrity
of system
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Bitcoin’s Value Proposition
• Decentralized trust
– Maintains integrity of system, prevents double-spend
attacks etc.
– No need to trust any one party to keep promises
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No single point of failure
Potential for anonymous transactions
Incentive-compatibility
Tamper-proof Bitcoin protocol operates as a
Bitcoin ‘constitution’
– Prevents over-issue of bitcoins etc.
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Fundamental Contradiction of the
Bitcoin System
• The system requires competitive mining to
maintain its integrity
• BUT the Bitcoin mining industry has the
structure of a natural monopoly
• These are incompatible
• Therefore Bitcoin is unsustainable
• Therefore Bitcoin must collapse
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Collapse of Bitcoin’s Value Proposition
• No more decentralized trust
– System depends on big pool(s) not to abuse their
power
– Back to the old trust model
– Takeover of system by large player(s)
• A single point of failure
• No more anonymous transactions
• Large player(s) can corrupt Bitcoin protocol
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Snapshot from Ghash.IO’s Homepage
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Ghash
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Implications
• Collapse of its value proposition is fatal
• Nothing to shore up confidence in the system
• Will produce a run on Bitcoin, collapse in
price, abandonment of system
• Not if but when … and probably soon
• Our advice? Get out now
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