No, I’m not talking about the recent crash in price, wiping out 50% of the value of something that shouldn’t have a lick of sane value in the first place. I’m talking about the very real and inevitable end of Bitcoin. It’s all about entropy and algorithms.
The number of Bitcoin is capped at 21 million. Once the 21 millionth coin is awarded, no more can be mined. That’s it. It’s a limitation built into the algorithm itself. Of course, you can change the algorithm, but then all the arguments of why Bitcoin is different go right away. Now you’re just printing money like the Fed, only you don’t have a continent of land and minerals to back up its value.
What’s more interesting to me is the fatal flaw of passwords. You have to protect your Bitcoin wallet passwords at all costs. Bitcoins are like bearer bonds. If you steal them, they’re yours. The rightful owner can’t get them back. And if you lose your password, you can’t retrieve them. There are already people freaking out because they mined Bitcoins years ago, when they were worth pennies, and now they can’t remember how to get their Bitcoins back. Not only that, but everyone who passes away without leaving their password behind means those Bitcoins are also gone forever. Poof.
Bitcoin was designed to fight inflation. The growth rate is capped by making mining more difficult over time, and the total number of coin is capped at 21 million, so a deflationary period is to be expected. What wasn’t accounted for in the algorithm (or any of the crazy hype about blockchain) is human fallibility. We can’t remember our passwords. We also refuse to plan appropriately for our deaths. We are going to keep losing Bitcoin, and it is going to go to the grave with us, until there is no Bitcoin left. This ratchets in only one direction.
The end of Bitcoin is as sure as the winking out of our sun, only it’ll happen a whole lot sooner. The max cap of Bitcoin, and the entropy of human recollection, mean that Bitcoin’s days are numbered, not just as a bubble, but as a thing with any kind of existence, real or imaginary.
If you write your passwords down, they can be stolen with no recourse. If you don’t, they’ll be lost for good one day. I didn’t think it was possible, but somehow the Winklevosses are going to look even dumber in the sequel.
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