Solving the three major risks of Bitcoin requires Satoshi Nakamoto to come forward

Zhu Weisha November 18, 2024

The gameplay of Bitcoin has changed in the second half

In January 2024, the spot Bitcoin ETF was approved. Bitcoin surged, various predictions emerged, and the market was filled with optimism, while cryptocurrency celebrity Arthur Hayes published an article expressing strong dissatisfaction with the funds' entry, claiming that Bitcoin is dead. In their minds, Bitcoin has died. He saw the risks.

After the entry of large capital, all the rules of the game in Bitcoin have changed. In fact, I mentioned in my article on the natural growth curve of Bitcoin that the fourth cycle is a turning point, marking Bitcoin's transition from the first half to the second half. The spot ETF is an event that facilitates the turning point. The goal of the first half is currency issuance, while the goal of the second half is to solve the practical application issues of Bitcoin.

The second half has actually begun a financial revolution, which is not the forte of the technical experts from the first half. Excellent financial, application product experts, and politicians have taken the stage in the second half, and of course, the risks have also changed accordingly.

The 1.14 million Bitcoins held by Satoshi Nakamoto are no longer the main risk in the first half

In the first half, there was a viewpoint that Satoshi could not come forward, otherwise, the 1.14 million Bitcoins would be thrown into the market, and the market could not bear it. 'In the first quarter of 2024, nearly 1,015 institutions held approximately $11.72 billion in Bitcoin spot ETFs. This accounts for about 23.2% of the total market for U.S. BTC ETFs (including GBTC).' A quarter with a transaction of $50.9 billion is equivalent to a turnover of about 1 million Bitcoins; by the end of April, funds had already seen a pure turnover of over 1 million Bitcoins. In just 4 months, it would be enough to exchange all the Bitcoins in Satoshi's hands. The total value of global stocks and bonds exceeds $255 trillion; due to the involvement of mainstream capital, the ability to absorb Satoshi's Bitcoins is completely different from the first half.

In the first half, Satoshi faced legal risks; Trump promised Bitcoin tax exemption, and President Trump is known for keeping his word. With his election, Satoshi's legal risks can be considered alleviated in the second half. President Trump humorously said he wanted to protect geniuses like Musk, and I believe this also applies to the great Satoshi.

In the first half, Satoshi was portrayed as a god. The market believed that if he appeared as a person, since humans can make mistakes, it would affect Bitcoin's value. By the second half, Bitcoin issuance was basically over, the system had matured and stabilized, and the community mechanism had been running for 12 years. The core idea of the Bitcoin system remains unchanged; Satoshi has little room to play a technical role, minor adjustments may be possible, but the direction cannot change. Thus, the role that Satoshi needs to play is no longer about solving technical issues.

If it were a religion, with a set of doctrines, becoming a deity would make sense. At the time of Satoshi's departure, there was no set of doctrines for Bitcoin, leading future generations to compete to offer various interpretations of Bitcoin, but they are all like blind men touching an elephant. Decentralized blockchain is understood from a technical perspective; there are not many articles that truly understand Bitcoin from a financial perspective. To put it bluntly, few people explain the financial implications of 'Bitcoin: A Peer-to-Peer Cash System.'

In the first half, Satoshi not coming forward was the right decision. In a circle where everyone knows who Satoshi is, many people selflessly protect him, and protecting the Bitcoin system is highly respectable, like Nick Szabo, Hal Finney, Adam Back, etc. A large number of believers established a Satoshi protection organization, and altruistic programmers maintained the stability of the Bitcoin system. Bitcoin has fortunately come this far and has attracted the attention of large capital, thanks to the selfless contributions of core participants. We should also thank God, as when fiat currency faced difficulties, Satoshi and a group of elites emerged, leading to the birth of cryptocurrencies. Cryptography is technology, currency is finance, and the combination of technology and finance is a definition that is much more accurate than 'decentralization' and 'blockchain represents the internet financial revolution.'

The second half is a financial revolution, a transformation of production relations. In subsequent articles, I will introduce what Satoshi Nakamoto's definition of the internet is. Using the current top-level perspective within the Bitcoin community, that is, Bitcoin fundamentalism, one can only conclude that Bitcoin is dead. Will Bitcoin die? Satoshi's departure created a community decision-making mechanism, humanity is ever-living, it will be reborn!

The second half has introduced new risks, mainly three.

The three major risks of Bitcoin

1. The risk of concentration in Bitcoin mining. Figure 1 shows the red line as hash rate, and the yellow line as Bitcoin's price; on October 28, 2024, the maximum hash rate across the network was 724 EH/S. Large capital entering has changed the shape of the hash rate curve. When Bitcoin lingers around the cost price, miners' profits cannot be reinvested in production, leading to a concentration of hash rate in the hands of large capital. If the hash rate of Bitcoin is controlled, there is a significant possibility of reducing Bitcoin's value.

Figure 1 Bitcoin price and hash rate trends. With President Trump's election, Bitcoin's price rose, which will ease the timeline of monopoly coming, but the trend remains unchanged. Concerns about monopoly by large capital should be one of the risks observed by Arthur Hayes. Hash rate monopoly was not foreseen by Satoshi in the early years; this kind of monopoly needs checks and balances. When the checks and balances between hash rates are insufficient to restrain the emergence of monopolies, external balancing mechanisms are required. Of course, according to Satoshi's view, why do harm if one can earn well? However, this remains an uncertain factor. Since there are uncertain factors, methods of handling must be prepared in advance.

2. The risk of a reduction in personnel maintaining Bitcoin. The 'Bitcoin Core,' which holds over 98% of the mining software market share, has reduced from 17 people to just 4 in less than 15 years. The possibility of dropping to one person in the future is very high. What happens with one person? This is a programmer monopoly. The Bitcoin system has two trigger points: 'leaving the limited freedom relay part as a switch' and 'the safety mode will still be triggered when a longer (greater total PoW) invalid blockchain appears.' Quoted from Satoshi Nakamoto. What are the conditions for triggering? I'm not a programmer, I don't understand. If the system is controlled by one person who is not Satoshi Nakamoto, if that person is bribed by competitors or joins in potentially unfair competition... the outlook is alarming.

3. Bitcoin holders have no rights in the Bitcoin system. Entering the second half, the main force holding coins is users, yet they have no say in the Bitcoin accounting system. Although the stock market belongs to traditional finance, under its operating rules, such absurdity would not occur.

The internet financial revolution needs Satoshi Nakamoto to play a role again

(Bitcoin: A Peer-to-Peer Cash System), translated into financial terminology as a peer-to-peer M0 system. M0 represents cash in the financial field. From a financial perspective, Bitcoin is equivalent to the central bank's M1. The central bank's currency is called base currency. There is no concept of base currency in the Bitcoin system; it has no bubble when it is on-chain. There is no situation where commercial bank credit amplifying money creates bubbles. Satoshi Nakamoto stated in the Bitcoin whitepaper that his goal was: to create a bubble-free financial system. For this, you can refer to my article (Postscript: A New World Needs a Financial Scale That Remains Unchanged)

Satoshi introduced Bitcoin; the internet is no longer a tool for finance but a transformation of the financial system. This will be explained in another article.

If centralized internet is 1.0, then Satoshi Nakamoto's internet is 2.0. The prominent feature is community decision-making. The community is an organizational form suitable for the internet 2.0 era. Its characteristic is solving the issue where users are both consumers and project value contributors.

The current Bitcoin community was proposed by Amir Taaki in 2011 in BIP 0001 and expanded by Luke Dash Jr. in BIP 0002. It mainly addresses the issue of program improvements after Satoshi's departure. The community is naturally formed, having accumulated rich experience through the practices of numerous cryptocurrency participants, forming the embryonic structure of governance in the internet age. The downside of the Bitcoin community is the lack of user participation, making the community structure incomplete.

To solve the three risks mentioned above, having a complete community is not enough; a foundation is also needed. Similar to Ethereum, a portion of transaction fees should be collected. This time, the performance of the Bitcoin Political Action Committee in the U.S. demonstrated significant power, supporting 54 candidates, 40 of whom were elected. Utilizing $40 million in advertising, one seat was overturned, and ultimately over 270 pro-Bitcoin U.S. Congress members were elected in the entire election. Of course, without money, it would not work; your voice would not be heard. In this U.S. election, Musk performed prominently, but unfortunately, there is no representative figure for cryptocurrency to speak on its behalf. Only Satoshi holds such a position; he is undoubtedly the representative of cryptocurrency.

As an organizational form of the foundation, programmers, miners, and users each form a community. Each community elects representatives to form a decision-making committee of 9 people. The decision-making committee is a permanent body equivalent to a board of directors. Resolutions are executed by each community. There is a very small operational body, smaller than the Ethereum Foundation. Programmers have two votes, miners have two votes, users have four votes, and Satoshi has one vote. The community controls the Bitcoin system, maintenance personnel have income, personnel no longer decrease, monopolies cannot form, ensuring Bitcoin's long-term stability. Satoshi has a huge influence on all three aspects, and the first chairman must be Satoshi.

This idea also does not sit well with Arthur Hayes and others because there is a center. Bitcoin is a system, and a system must be ordered to counteract entropy growth; Bitcoin is like gold but it is not gold. Gold has no system and can be ownerless. However, due to being ownerless, the British government at the time could just overthrow it. Only by combining forces and gaining strength can one achieve long-term stability. Bitcoin, as a system, is an organism that requires a governance structure; community governance is the organizational form of the internet age. Overthrowing the unfair fiat currency system to achieve a fair new world requires a leader. If Washington had not led back in the day, would there be America? I also call on the Trump administration to invite Satoshi as an economic advisor to help the development of artificial intelligence and cryptocurrencies.

As for who Satoshi is, my series of articles (Please Bring Forth Satoshi to Welcome the New World) explains this clearly through logical reasoning.

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