# Last edited on 2014-10-29 18:32:07 by stolfilocal
# NOT POSTED

Someone asked why I am skeptical about bitcoin's longterm success.  Many reasons.

For one thing, if and when it really starts eating into bank earnings, the banks will do all they can and can't to ban it, and/or sabotage it, and/or make their own version that will let them retain control and revenue.  Banks can influence governments and lawmakers. A loose and chaotic community of libertarian hackers and users is no match for that power.

Governments should also want to ban it because it helps all sorts of illegal activities, including tax evasion, terrorism, drug traffic, corruption, gambling, investment scams, etc..  Some countries have already banned it, and more will probably follow as these uses become more prevalent. (In fact, the thing I can still not understand about bitcoin is why the US and their poodle nations are so friendly about bitcoin.  When you think that it was precisely those nations who pushed the world into the histerical wars on drugs, file-sharing, child porn, whistleblowing, etc., it makes no sense.  Unless...)

In either case, if bitcoin use is criminalized (as in Bangladesh) or even just banned from the regular economy (as in China), it would have failed in its purpose.  The world does not need some tool that is ONLY useful to outlaws.  The vast majority of the population would not risk jail, confiscation, or hefty fines just to save a few % in electronic purchases.

Second, as a method of payment, bitcoin is far from optimal; and was not meant to be.   Bitcon was not designed to replace credit cards and bank transfers, to bypass government restrictions, to allow anonymous transactions, to evade taxes and inflation, to be a safe investment, or to turn lucky gamblers into billionaires.  All these "goals" were attached to it afterwards, and did not quite stick.  

The idea of a decentralized payment system that did not depend on a trusted authority is as old as public-key cryptography, and many parts of bitcoin were conceived long ago.  "Satoshi" thought he had found a solution to one major remaining obstacle, namely how to motivate a network of uncoordinated volunteers to cooperate in the maintenance of the ledger, rather than sabotage it.  After making sure that that, on paper, his solution resisted all the attacks and failures that he could think of,  he started an experiment to see whether his solution worked in practice. 

Bitcoin is sometimes said to be still in "beta-test phase"; but that is incorrect.  The phrase implies that it was developed as an off-the-shelf, turnkey product, and is being tested by volunteers just before its general release to the general public.  However, bitcoin was never meant to be a product for general use.  Like the Wright Flyer One aeroplane, it was only an experiment, whose only goal was to prove that a particular solution to a particular technical problem really worked.

For sure, the experiment required that bitcoins were actually used for payments among a fair number of people; but it would have been enough if these were limited to a few thousand computer researchers and enthusiasts (motivated by their technical interest in the problem, who understood the technology and its risks), and a few friendly merchants and pizza parlors.   That user base did not care formany shortcomings of bitcoin that made it unsuitable for general use.  These shortcomings include its 10-minute confirmation time, the lack of an error-correcting mechanism, the high risk of key theft, and the high cost of mining.

>> As an experiment, bitcoin has succeeded so far.

>> For its experimental purpose, it does not matter whether it can be used to buy drugs or evade taxes, whether the NSA can track every transaction and identify every user, whether there is theft and scams.  It will not matter if it gets criminalized in most countries, and/or banned from most regular commercial activities.  The experiment can go on as long as there is a scattered and open community of a few thousand tech-savy people, preferably in the Europe or US, that have a technical interest in the problem, can use it legally for some payments, and is not too discouraged by theft or other factors.  

>> The experiment however is far from complete.  It has to survive the transition from "inflation tax" to transaction fees.

>> Some developments ma not have been foreseen by "Satoshi" and may cause the experiment to fail.  For example, the concentration of mining in a few large corporations, with no legal constraints on their operation of the protocol, may lead to "51% attacks", lifting of the 21 M BTC limit, prohibitive fees, etc..  Also, the large number of coins held by long-term speculators, together with the dwarfing of the utilitarian demand by the short-term speculative trade, causes large instability in the price, that may cause long pauses in the blockchain support.

>> Another problem for the longterm success of bitcoin as "product" are the altcoins.  Until a few years ago, it was claimed that altcoins could not arise, because of the "network effect" and the "first player's advantage".  It is clear now that these arguments were flawed, and cannot prevent the appearance of an altcoin that will supersede bitcoin.  The "bitcoin network" can be quickly redirected to mine altcoins with similar protocols, including bitcoin clones that differ only in having a distinct blockchain, starting with a new genesis block.  That is bount to happen as soon as the miners see a monetary advantage in doing so; which may happen, depending on how price and the legal scene evolve.  While bitcoin could incorporate some features of altcoins, it may not do so soon enough, and it may be unable to do so for technical reasons. (Why can't linux copy all the good features of Windows and Apple iOS, and thus become the winner?)  For example, while Bitcoin could adopt a 1-minute confirmation time, like Litecoin, it cannot adopt its completely incompatible PoS protocol.  And, as Dogecoin showed, technical superiority may matter less than superficial image and marketing. 

>>