Mythbusting: Why Bitcoin Can Never Go To Zero

Authored by Darryn Pollock via CoinTelegraph.com,

Bitcoin’s polarizing effect has people on both ends of the scale either proclaiming it is going to the moon or it is going to zero. The volatile, unprecedented, and revolutionary monetary system that is cryptocurrency has a future that not many can accurately predict, but as time has gone on, the idea that Bitcoin is going to zero seems more and more far fetched.

Image courtesy of CoinTelegraph

number of commentators, just recently — when Bitcoin has been booming — have come forward with predictions of doom and gloom, warning investors that this new system of money — and investment opportunities — will fall to complete worthlessness.

Bitcoin is barely 10 years old, and has gone from being worth zero to being worth $20,000. So, as we sit with the price lower than many would have hoped, is it feeble to think it can reach as low as zero?

‘It’s going down’

It doesn't matter if it is skeptical friends around a dinner table, or Dr. Doom himself Nouriel Roubini, the prediction that Bitcoin will go to zero often comes up as a counter punch to all the positive strides that cryptocurrencies are making.

Being a new and unprecedented ecosystem, which operates in such established ecosystems as finance and money, it is fascinating to watch how the volatile asset advances. One day it is up, and one day it is down — but what makes people think it will fail all together?

In early February, when Bitcoin was crashing down toward $6,000, the chairman of Roubini Macro Associates, Nouriel Roubini — also known as "Dr Doom" for his pessimistic economic outlooks — made a bold claim:

Dr Doom had some backup at this low point for Bitcoin as Joe Davis — Vanguard’s global chief economist and the head of its investment strategy group — weighed in. He wrote in a blog post:

“I see a decent probability that its price goes to zero.”

He also chimed in that he is optimistic about blockchain, however. But this separation of blockchain and Bitcoin by investors and institutionalized money movers is flawed, and wrongly brought up over and over again as ‘blockchain over Bitcoin’.

Goldman Sachs has also had their say on cryptocurrencies and the possibility of going to zero, but with the caveat that the bigger — and therefore stronger ones — will evolve and survive. Head of investment research, Steve Strongin said:

“Whether any of today’s cryptocurrencies will survive over the long run seems unlikely to me, although parts of them may evolve and survive. Because of the lack of intrinsic value, the currencies that don’t survive will most likely trade to zero.”

The reasons given by these men for Bitcoin going to zero, — or, in Strongin's case, other cryptocurrencies — range from market manipulation to asset bubbles to lack of intrinsic values. All of these instances and reasons, however, are starting to feel a little outdated.

The fast moving cryptocurrency world has outgrown a number of detractions, most notably the Tulip comparison, which is one of Joe Davis’ favorite comparisons. In recent months, even with the market being so low, there has been a big wave of adoption in the use of blockchain, as well as cryptocurrency.

The blockchain revolution

While Bitcoin and cryptocurrencies are a financial and monetary phenomenon, they are also classed as a technological advancement, thanks to the underlying blockchain technology. This means that there is a whole wave of adoption that can take place across different sectors which can use blockchain and cryptocurrencies.

The adoption that has happened recently has been seen at the top level in a few sectors, namely banksmajor corporations and even governments.

There have been big moves by some major global banks to try to get an effective crypto-trading desk that their customers can use, and that they can be party to offering, up and running. Banks are looking to jump on the cryptocurrency bandwagon because demand from customers is so high.

Farzam Ehsani, a former blockchain lead at Rand Merchant Bank and now co-founder and CEO of VALR, told Cointelegraph:

“All banks are realizing they need to get onto this blockchain boat, I don’t think many banks necessarily understand where the boat is going, but they realize that this is a development that is taking off and that, if they want to be on this journey that everyone is going on, they need to be on the boat.”

Furthermore, Companies on the scale of Microsoft, Amazon, IBM and Oracle are also racing to start providing customer-facing blockchain solutions — often tied to cryptocurrencies — in order to be the first to market with an effective and revolutionary product.

Finally, the governments, so often the handbrake of Bitcoin and cryptocurrency adoption, are starting to come around, with the Dutch government being a good example of how this is happening. Just last month, it was reported that the Dutch Ministry of Economic Affairs and Climate Policy had created a unit tasked with researching the further development of blockchain across technology.

So, what does this all mean for Bitcoin and the idea that it can go to zero?

A lot of this hinges on the belief that cryptocurrencies and blockchain can be separated. There is a big push for blockchain adoption — as described above — but the same cannot be said to be as strong for Bitcoin and cryptocurrency adoption.

However, the argument is that the two are definitely linked. Those outside of the blockchain and cryptocurrency space are arguing that the two facets cannot be separated, and thus, if there is an adoption in blockchain, there must be a correlation of benefit to the cryptocurrency space.

With so many faculties as large and dominate as global banks, major corporations and even governments, entering the blockchain space, it would seem hard to see them going on without the cryptocurrency aspect of it.

CEO of Lightning Labs — the developer of the blockchain-scaling Lightning protocol — Elizabeth Stark has spoken out to challenge the Wall Street and traditional financial sector narrative that puts its faith in blockchain, not Bitcoin, in trying to seperate the two so distinctly.

“When we first pitched my company Lightning Labs, we actually took the word ‘Bitcoin’ out of our deck and our marketing material because it was so much about blockchain. Now, I feel like we’ve entered into a ‘Bitcoin, not blockchain’ world, where people understand the value of cryptocurrency technology and what these can bring. You also have proof-of-work in Bitcoin, you have the public/private key cryptography. There are other things that make Bitcoin special. Somehow, the blockchain part got separated and became a thing.”

Adaptable cryptocurrency

Emin Gün Sirer, an associate professor at Cornell University, shared some light on the robustness of cryptocurrencies with Cointelegraph and just how difficult it is for them to completely disappear.

“We have seen that these technologies are quite robust. Chains do not just disappear, they are resilient and stick around. Many of us spent years proselytizing for these technologies in general and Bitcoin in particular. As a result, it had immense goodwill and brand recognition built around it. So there will always be a community around the brand that will ensure that that chain makes progress.”

Gün Sirer’s point — about Bitcoin in particular — is somewhat tied to blockchain technology and where it now stands. The adoption of Bitcoin and blockchain has almost reached a critical mass, where it is difficult for it to suddenly lose total support.

Bitcoin’s brand has exploded last year, and there is evidence both to back up its popularity and just how important that popularity is to its growth and survival.

Source: Google Trends

There is a correlation between Google search trends for Bitcoin and the price of Bitcoin, which shows that higher interest in and popularity of the coin is intrinsically tied to its price, and thus, in many respects, its success.

This has been noted before in what is called a ‘Satoshi Cycle’

However, Gün Sirer does add:

“They might need to hard fork it to breathe new life into it after a chain death spiral, and it might serve a niche function, its medium of transfer and store of value functionality having been usurped by others. But still, I suspect there will always be a Bitcoin brand and a niche community around it.”

Intrinsically unstoppable

While its adoption continues to grow and become more entrenched as a technology and a financial system in everyday life, Bitcoin and cryptocurrencies — as well as blockchain — becomes harder and harder to simply move on from.

But even more than that, now that it is becoming established, it is also showing that it is harder to kill than, say, a stock, a technological fad or countless other comparisons which can die.

Many will compare Bitcoin to a company or stock, which can go to zero, as a reason not to invest in it. However, Bitcoin is decentralized and autonomous. There is not one man, group or board of directors that can run it into the ground.

On that same note, it is also impossible to stop — as regulators are finding out. With the likes of China and others trying to ban Bitcoin outright, they are discovering that they are not fighting anything tangible.

But Bitcoin is also adept at evolving and adapting — again, based on its intrinsic values. It is governed by a majority vote, and as things change and challenge it, the community chooses a path that is best for its survival. There may be battles and ‘civil wars’ along the way, but ultimately, the advancements of Bitcoin are for its survival.

Finally, even the biggest detractors of Bitcoin and the cryptocurrency space are finding it hard to fault the potential of blockchain technology. Some like to try and differentiate cryptocurrency from blockchain, but they are mistaken in that sense.

Jehan Chu, co-founder of Kenetic Capital — a firm working towards spreading the adoption of blockchain technology — is also of the opinion that this new system is something that is fixing the problems of the past. Chu told Cointelegraph:

"Bitcoin will never go to zero because it is a hedge against falling currencies, inefficient economies and increasingly systemic inequality. Bitcoin represents the currency of a better future for society, and people will always invest in their future."

Too many vested parties

Bitcoin, cryptocurrencies, blockchain, all these interlinked parts are slowly spreading through society into all different ecosystems. And, as they entrench themselves, their very makeup means it is hard for them to be eliminated.

Regulators have tried, and also come to a realization that they can’t totally oust cryptocurrencies, so now they are trying to work with them. This has opened the door for the traditional sectors of the globe to enter the market and make cryptocurrencies more part of the everyday.

This system of decentralized, adaptive, autonomous and democratic money has too many vested parties and too many strong characteristics, making it hard to eliminate totally in its current form.

Comments

Cryptopithicus Homme EuroPox Tue, 07/03/2018 - 18:27 Permalink

We have not spoken much about Bitcoin as a defensive weapon in psychological warfare.  And if you read this site, you should know we are fighting a battle against an enemy with unlimited (fiat) ammo.  That same asset is also their deficit in that, Bitcoin can grow infinitely large as they inflate the currency supply.  Bitcoin is floating (closer to) real Austrian inflation that Gold and Silver (which have been neutralized).  When your metals are finally liberated from Dollar forces, please remember to thank a Bitcoiner.

In reply to by EuroPox

kiwidor EuroPox Wed, 07/04/2018 - 00:39 Permalink

EuroPox = my boy lollipop...he makes my heart go giddy-up :)

yes, and that's exactly the point that fucks crypto. until transaction cost is near zero, it's like this;

bitfi wallet $120USD

buy some BTC $? (lose 1 to 20 % of your fiat)

convert to something useful (lose at least another 5%)

pay your barista for a coffee ( and lose something between 1 and 10%)

novelty value for hipsters, technodweebs, tax protesters and the remaining middle class. 

 

In reply to by EuroPox

Think for yourself Richard Chesler Tue, 07/03/2018 - 19:25 Permalink

There are 2 main ways to kill crypto:

1: a deep centralized attack on the internet protocol or through backdoors in every computing system

2: A massive solar flare or multiple manmade EMPs across the globe destroying electronic civilization.

 

In both of these cases, we have worse problems to contend with than losing Bitcoin. I'll stick to my 25% liquid, 25% crypto and 50% PMs allocation scheme, thank you very much. Actually, if i had any kind of decent earnings i'd dollarcost average both Ag/Au and BTC as long as they're under 50$/2k and 10k, respectively.

In reply to by Richard Chesler

Akoniti EuroPox Tue, 07/03/2018 - 18:31 Permalink

It was at 1K last year, and did nothing but grow explosively.

I'm sure the network would persist despite a drop to 1K.

I would certainly continue to mine.

But, I'm not mining for today. I'm mining for 2025, when we'll look back and say:

"Oh fuck! I coulda been mining 20K Satoshis a day with my 1070!"

 

In reply to by EuroPox

Think for yourself EuroPox Tue, 07/03/2018 - 19:17 Permalink

The energy requirement is not due to processing throughput, it is driven by value. The higher the price, the more worth it it is to throw processing power at it, until the energy price/processing power/value reaches equilibrium. If the price drops and processing power diminishes accordingly (miners dropping out because it is no longer financially viable), the processing throughput remains the same - that's what the difficulty adjustment is for. Throughput is only dictated bh block size and block speed, so - aside from layered solutions (segwit, lightning) bitcoins throughput remains the same.

And segwit - not to mention lightning - is pushing fees down not only for their own services (down to the order of 1 satoshi for lightning), it also pushes the fees down for main-blockchain transactions, as the mempool gets cleared and there are less transactions on hold.

It's quite a beautiful system, actually. You and your earlier posts upthread are massively undermined by your clear lack of research.

In reply to by EuroPox

EuroPox Think for yourself Tue, 07/03/2018 - 20:00 Permalink

If you had not added your last paragraph I would not have bothered to reply but your argument is totally undermined by reality.

On 22 Dec 2017 the average transaction fee hit an all time high of $55.16 - fees rise as the transaction rate rises:
https://bitinfocharts.com/comparison/bitcoin-transactionfees.html

Note: that chart is per transaction NOT per coin.

In reply to by Think for yourself

nekten EuroPox Tue, 07/03/2018 - 22:46 Permalink

Yes. Transaction fees actually _were_ that high. This was due to the Bitcoin mempool being stuffed and the miners choosing to include--as they would normally do, being in business--the highest fees offered.

A free market entices new solutions to problems. Segwit and Lightning Network were presented as technical solutions.

Currently, transaction fees are under 20 satoshis per byte (226 bytes is normal), at 100,000,000 satoshis per bitcoin.

In reply to by EuroPox

Weirdly EuroPox Tue, 07/03/2018 - 18:34 Permalink

As people turn off miners the time to close a block increases slightly and the system self adjusts making the next block easier and less energy intensive to mine the next blocks.   If enough people stop mining the last miner running is more than capable to continue the blockchain by itself.  So long as one computer is mining, the blockchain beats it's heart every ten minutes.  Bitcoin can't go to zero.  As soon as price gets to .4 cents I'll buy them all.

In reply to by EuroPox

nekten EuroPox Tue, 07/03/2018 - 23:02 Permalink

Assuming there is just one miner: the difficulty changes every two weeks to allow a block to be mined in about ten minutes. This is probabilistic, not deterministic.

Given a two week period in which the one miner spins without results, after that the difficulty will have been reduced such that our one miner will be able to produce a block in about ten minutes. And the next in about ten minutes. And the next. He's making pretty good money, now.

Another miner will notice the profit and begin to compete. The profit these two are making will attract others. The difficulty will increase based on the hashrate increase.

A transaction rate increase will only increase the mempool. A larger mempool will cause transaction fees to increase, attracting more miners.

In reply to by EuroPox

nekten EuroPox Tue, 07/03/2018 - 21:34 Permalink

If the price of Bitcoin dropped to $1000 many miners would probably drop out and use their (expensive) equipment to mine something else. It's highly unlikely they would just scrap their equipment investment. The "something else" would be either something they could more easily profit with, or a speculative bid on a Bitcoin replacement.

The miners that remain would see that the "difficulty" had dropped and still could mine successfully with fewer miners in competition with them.

As to transfer fees: these relate to demand. If the demand is high--as it was in Dec. '17 and Jan. '18--the fees will be high. And, no, you would want to buy a cup of coffee with Bitcoin. If demand is low, the miner will likely still take the highest fees offered in order to complete a block. But those fees offered will be low, sometimes no fees will be offered at all and miners will still process--as they did in the not-so-distant past.

Hope this helps.

In reply to by EuroPox

Golden Phoenix EuroPox Wed, 07/04/2018 - 00:17 Permalink

To oversimplify, blocks and Bitcoins are issued on a predetermined, set schedule so if half the miners drop out the remaining miners get twice as many Bitcoins. 

The Lightning system is poised to lower the number of on chain transactions considerably by taking much of the traffic off chain then eventually processing many small transactions as one.

In reply to by EuroPox