Vitalik Buterin says he is worried about Bitcoin in the long run. Here because

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The proof-of-work versus proof-of-stake battle is heating up.


Key points

  • Cryptocurrency legend Vitalik Buterin predicts future problems for Bitcoin if he sticks to its proof-of-work model.
  • Ethereum will make the long-awaited transition to a proof-of-stake system in a few weeks.
  • Buterin says there will come a point where Bitcoin won’t generate enough fees to protect itself.

Vitalik Buterin, the man behind Ethereum (ETH) and a leading light in the cryptocurrency world, has raised concerns about Bitcoin (BTC) and its ability to compete in the long term. Speaking to Noah Smith, an economic journalist and former Bloomberg columnist, Buterin said Bitcoin could reach a point where it can’t generate enough fees to keep itself safe.

Ethereum is just weeks away from moving from a proof-of-work mining model to a proof-of-stake system. Not only does proof-of-stake consume a fraction of the energy of proof-of-work, but Buterin also argues that it will prove more sustainable in the long run. Conversely, the crypto grandfather Bitcoin sticks to its proof-of-work system. This is an important factor why Buterin is pessimistic about his future. Let’s find out the two biggest concerns about him.

1. Bitcoin is not generating enough fees to protect its system

Greater security is one of the attractions of blockchain technology, particularly for larger cryptocurrencies like Bitcoin. But Buterin says we shouldn’t assume the Bitcoin network will always be secure. He explains that efficiency and safety are closely related issues. “The question is always: how much security can you buy for every dollar a year you spend to pay for it?” He said.

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There are several models that blockchains use to prevent attackers from manipulating the chain. Chief among these are proof-of-work and proof-of-stake. One way proof of work rewards miners who validate blocks is by giving them new coins as they are produced. But Bitcoin will only produce a limited number of coins. In the end, miners will not receive new coins, they will only receive commissions paid on transactions.

Buterin’s concern is that this will not be enough. “Bitcoin’s security will come entirely from fees, and Bitcoin is simply not managing to achieve the level of revenue required to secure what could be a multi-billion dollar system,” says Buterin. “Bitcoin fees are around $ 300,000 a day and they haven’t grown much in the past five years,” he added.

2. Sticking to proof of work could compromise Bitcoin’s security

“What would a future look like when there are $ 5 trillion worth of Bitcoin, but only $ 5 billion is enough to attack the chain?” asks Buterin. Without getting too technical, Buterin believes that Bitcoin could grow so much that, with enough money, bad actors could subvert his network.

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To start

Cryptocurrencies are very different from traditional currencies. The magic of the blockchain allows them to eliminate middlemen, so they don’t need a third party like a bank or government to keep them. But that could also make them vulnerable to different types of attacks.

Buterin says proof-of-work miners have average running costs and average entry costs. In contrast, proof-of-stake validators have low running costs and high entry costs. “It turns out how safe you are depends only on the entry costs, as that’s what an attacker has to pay to attack,” says Buterin.

He doesn’t think there is the political will to move Bitcoin into a proof-of-stake system like Ethereum is doing. Although he also points out that a Bitcoin attack would change people’s minds pretty quickly.

What it means for investors

When a cryptocurrency legend like Buterin talks, it’s worth paying attention. The 28-year-old has spent years immersed in everything blockchain-related and is the driving force behind much of Ethereum’s success. If he thinks there are long-term security risks associated with Bitcoin’s proof-of-work validation model, he’s almost certainly right.

However, it’s also worth noting that this is the month Ethereum moves away from the proof-of-work model it’s criticizing. As such, it’s a good time for Buterin to point out his weaknesses. Proof-of-stake has its share of critics and Buterin needs to conquer the Ethereum community. For starters, it hasn’t been road-tested yet – until now, the two largest cryptocurrencies have both run a proof-of-work model. Furthermore, some argue that it is more centralized, which creates different types of problems.

Long-term investors still have several hopes for Bitcoin: some, like Jack Dorsey, believe it will be the currency of the internet. Ark Invest thinks it could gain market share in a number of ways, including the international remittance industry, by becoming a type of digital gold and serving as a currency in emerging markets. Buterin’s questions about his safety may undermine those proposals, but there is still a lot to play on.

Bottom line

Do your research and see how the Bitcoin community could address this problem before it becomes a problem. Find out what other cryptocurrency experts have to say about proof-of-work versus proof-of-stake. Also pay attention to how Ethereum’s move towards proof-of-stake evolves and the problems it encounters.

If you are considering selling your Bitcoins because Buterin’s words made you question your long-term vision, take your time. We are not talking about a security risk that could undermine the system next week. As time goes by, fewer and fewer new Bitcoins will be minted, but it won’t be until around 2140 that the last BTC will be created. Don’t rush your investment decisions. Instead, keep Buterin’s warning in mind as you consider the risks and opportunities associated with your cryptocurrency wallet.

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