Three ways the Bitcoin revolution could fail

As an investor, you should always be on the lookout for developments that could undermine the value of the asset you’re holding.

Over the next few years, odds are there will be a number of black swan events that will completely change how we trade and store value.

So how can we be prepared for the worst and still hope for the best? What scenarios could lead to Bitcoin’s demise? Let’s take a look.

Three worst-case scenarios

The topic of how to kill Bitcoin is not new. It has been addressed in the past by academics, researchers at MIT, and practitioners such as traders and cypherpunks.

It is an interesting abstraction exercise to think about in order to consider how resilient Bitcoin must become in order to avoid such dreadful ends.

From governments and/or private enterprises taking control of the crypto-space to technological or governance failures, I aim to cover the three most likely scenarios I believe could result in Bitcoin’s disappearance.

The three scenarios involve failures in key areas that make Bitcoin what it is: security, decentralisation, and scalability.

1) Bitcoin is taken over by governments and private organisations

In this scenario, Bitcoin would lose its value due to the loss of decentralisation. For this to play out, most of the world’s governments would have to ban Bitcoin’s usage and production at the same time.

The goal would then be to enter the market by buying up the currency and/or mining it to gain a significant share of the hash rate.

Even if there’s still people mining and using the currency after such an event, the likelihood it survives would be very low given how few people would actually use it.

Still, value could be achieved given the greater scarcity of the asset. Moreover, price could increase given Bitcoin would be looked at as a collectible.

My point here however is that governments could try to shut down Bitcoin by controlling its supply or production.

This is what I call ‘death by centralisation’ – Bitcoin would cease to hold value because it would be inaccessible to most people.

2) Bitcoin suffers a governance hack

In this scenario, Bitcoin would lose its value due to the loss of security. This could involve an event such as people agreeing to change the supply cap of Bitcoin.

A governance hack such as the above would most likely completely shatter Bitcoin’s value preposition. Of course, in order for this scenario to happen, we would need a) people to agree on altering the supply to a higher number, which would automatically dilute the value they would be holding, and b) people would have to follow the new “Bitcoin” as the new chain would be a fork given the change is at the consensus level.

This means that for Bitcoin to suffer a destructive governance hack, there would have to be an altcoin that surpasses Bitcoin’s dominance, usage, and adoption.

This is what I call ‘death by security’, as this scenario represents what would happen if Bitcoin’s security (maintained by mining) is compromised.

3) Bitcoin gets too bloated

Although this is an unlikely scenario, we can assume Bitcoin could fail because its technology simply fails to scale in the necessary time-frame.

If the number of transactions increases exponentially and the technology doesn’t evolve to scale the network, the mempool would quickly fill up and create a backlog of transactions waiting to be confirmed, clogging up the system.

People will use what’s easier to use and what gives them some control over their money. If transactions are horrendously slow, why would they use Bitcoin?

I call this ‘death by scalability’, as Bitcoin wouldn’t be able to scale to meet the demands of the users.

Will Bitcoin avoid these scenarios?

Although the above scenarios are fun to discuss, I personally doubt they will ever happen.

I assign a higher probability of Bitcoin being used as a settlements layer rather than any of the above “predictions” taking place.

I personally see Bitcoin avoiding all attacks coming its way. What doesn’t kill you only makes you more resilient.

So no, Bitcoin won’t likely be killed that easily. What this beast has shown us is that it can sustain 90% drops and recover in the blink of an eye.

As long as Bitcoin remains resilient, the revolution will continue.