Remember in 2008 when the Satoshi White Paper proposed a revolution to the financial system with the impending release of Bitcoin’s decentralized digital currency and blockchain? A digital currency that would compete with the dollar and provide an end run around the global fiat system. Defi, decentralized finance, will become the name of the game, while Tradfi, traditional finance, slowly, then with a boom, disappears as another historical anachronism. Bitcoin was a decentralized digital system that promised stable money and a permanent ledger transaction history that would revolutionize every aspect of financial life. All the world would have access to this new, revolutionary transaction currency free from government control.
Yeah, well never mind. Bitcoin is the new Tradfi.
Adam Back was an OG anarchist cypherpunk. Bitcoin arose out of the cypherpunk movement connected to online messaging during the infancy of the internet. Back shared correspondence with Satoshi and has been involved with Bitcoin since its inception. He’s the inventor of Hashcash whose cryptography became foundational to Bitcoin’s proof-of-work consensus, the founder of Blockstream, and a main contributor to Bitcoin Core. To say that Back has been a proponent of the original promise of Bitcoin would be a gross understatement. Back has been one of the strongest champions of every initial promise of Bitcoin’s decentralized financial system. That is until he sold out to Tradfi and essentially pulled the plug on everything he and his long promotion of Bitcoin stood for.
Coingeek sums it up this way:
The Financial Times reported this week that Blockstream’s founder/CEO, Adam Back, is in “late-stage talks” to contribute up to 30,000 BTC tokens worth ~$3 billion to a new ‘treasury’ firm being cooked up by Cantor Fitzgerald (NASDAQ: ZCFITX). (Cantor announced a similar deal with stablecoin issuer Tether a couple of months back.)
Back once declared that “individuals using a peer to peer ecash, are the very reason for existence of Bitcoin.” Back now believes that the one true path is handing BTC to Wall Street investment bankers to launch a company that does nothing but warehouse tokens while selling shares in that company (at a premium to the value of its BTC) to ‘individuals’ who don’t know better.
Revolutionizing the system for the benefit of the masses is now cash out while you can to your idealogical financial opposites for your individual windfall.
The Bitcoin system is not sustainable. The fissure cracks are widening on its mining side. Without the transaction fees, along with the halvings, the monetary incentive for competitive mining collapses. Transaction fees are at all time lows, while bitcoin is at an all time high. The result is mining becomes unprofitable and there’s an exodus of miners. When mining becomes consolidated to only a few players, Bitcoin’s security as a viable system becomes at risk. Without enough effective competition, a miner/attacker can obtain 51% control and interrupt the recording of new blocks by preventing other miners from completing blocks.. Satoshi explained the issue in the White Paper as a decentralized system requiring transaction fee incentives and honest nodes.
The incentive can also be funded with transaction fees. If the output value of a transaction is less than its input value, the difference is a transaction fee that is added to the incentive value of the block containing the transaction. Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.
The incentive may help encourage nodes to stay honest. If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth.
Note that in the White Paper, Satoshi emphasizes the requirement for transaction fees to uphold the system and keep nodes honest. Satoshi also proposed that transaction fees would replace the mining rewards that halve every four years toward zero. The mining rewards will continue toward zero, but transaction fees were supposed to rise accordingly to supplement the declining rewards, not trend toward zero also. Oops.
Fixed supply bitcoin can’t act as a transactional currency. I pointed this out in 2017 in The Problem with Bitcoin. Nothing has changed except it’s now obvious to anyone who wants to look. The signs are everywhere. From the foundational backing by the unaudited Tether Ponzi that manipulates bitcoin’s price, to the shift from Defi to Tradfi as the only means to keep the system propped up (defeating Bitcoin’s reason for existence), and to vocal charlatans like Michael Saylor who are now the face of Bitcoin, Bitcoin belies Satoshi’s decentralized digital promise. Everything Satoshi’s White Paper envisioned for Bitcoin no longer exists. All that remains is a non-sustainable, manipulated asset where speculative frenzy defines its valuation. All manias end the same. Even Beanie Babies. It’s not different this time.