How could Bitcoin fail?
I’m intending to increase the amount of time and money I invest in cryptocurrencies such as Bitcoin. Investment is a bet: I’m betting that the long-term value of Bitcoin (many years ahead) will be larger than it is in 2017. It’s worth considering the possible ways in which Bitcoin could fail. A bet on Bitcoin is a bet that all of these threats won’t happen.
- Worse is better. Bitcoin might be a theoretically superior system to today’s banking system. But theoretical superiority does not mean success. Maybe ACH and banks work well enough. Bitcoin could shrink from its hype to become a nerdy curiosity, like Tor or web-of-trust.
- Impracticality. Maybe Bitcoin can’t be made convenient enough to become a primary payment mechanism. Maybe people can’t wrap their heads around enough to use it, or to trust themselves to use it. Maybe mainstream sellers never bother adopting it.
- Illegality. Bitcoin could be banned. States have shown some effectiveness in applying the law to cryptography. China is trying to stamp out cryptocurrency exchanges at the moment.
- Incorrectness. Someone could discover that Bitcoin doesn’t have its claimed (mathematical, cryptographic, game-theoretic) properties. Or more mundanely, someone discovers a critical bug and exploits it.
- A 51% organization. One day, 51%+ of computing power might be controlled by a single organization. The First Persian Empire once controlled 44% of all people; this could happen again. Alternatively, a breakthrough in quantum computing could radically centralize computing power.
- Technological collapse. Bitcoin relies on computers, the Internet, and a constant electricity supply. By comparison, gold does not rely on much except shared belief.