With governments and central banks around the world printing trillions of dollars, proving why the scarcity of Bitcoin is so fundamentally important, many have become extremely bullish on BTC and cryptocurrencies as a whole.
Case in point: Raoul Pal — the former head of hedge fund sales at Goldman Sachs and the CEO of Real Vision — recently wrote about Bitcoin:
“This is the one of the best set ups in any asset class I’ve ever witnessed…technical, fundamental, flow of funds and plumbing. All. Now.”
Yet a prominent analyst in the space is reminding investors that the flagship cryptocurrency is still subject to multiple existential threats that could threaten Bitcoin’s efficacy as an investment and alternative form of money in the long run.
The four existential threats to Bitcoin
Cryptocurrency researcher Hasu, who has worked with individuals like Three Arrows Capital’s Su Zhu and companies like Deribit, recently identified that there are currently four existential risks to Bitcoin.
- The increasing number of Bitcoin held by custodians, such as brokerages or centralized wallet solutions: The growing number of BTC under custody actually may centralize power in the hands of a few institutions.
- A declining block reward over time: The smaller the incentive miners have to power the network, the more “degraded” the assurance of Bitcoin’s security becomes.
- A takeover of the Bitcoin governance structure by one entity obtaining a vast majority of hashing power: By taking over Bitcoin’s governance, one entity could begin to force changes to the fundamental values of BTC, including the supply cap and the halvings. Though users would have to accept those changes.
- The “premature ossification” of the network.
I see the custodial risk as one of 3-4 existential risks to Bitcoin. ~4m BTC with custodians today & rising. The others are
declining block subsidy –> assurances degrade
governance takeover –> introduce vulnerability
premature ossification –> overtaken by competitors https://t.co/wBKzi3INyZ
— Hasu (@hasufl) May 25, 2020
Hasu didn’t expand on what he expects to happen should these existential risks come to fruition as current threats. Though assuming the tone of the tweet, these risks could result in Bitcoin’s price dropping massively or the blockchain grinding to a halt.
What about quantum computing?
The analyst didn’t mention it directly, yet another oft-mentioned trend that is often branded a potential Bitcoin killer is quantum computing or improving computational technology.
As it stands, it’s nearly impossible to hack a cryptocurrency private key due to the heavy layers of encryption that blockchains use.
Yet some say that the introduction of quantum computing will change this, as quantum technologies will allow computers to complete tasks a bona fire supercomputer would struggle to complete. Tasks that quantum computers can exclusively do may include cracking modern encryption techniques, including the SHA-256 that Bitcoin is based on.
The jury is still out about how valid the quantum computer threat is, but Andreas Antonopoulos explained in a Youtube video that even if there is a device strong enough to break Bitcoin keys, the owner of that device would likely go after things a bit more valuable, like nuclear codes.
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