If you believe that Bitcoin has the power to replace the traditional global financial system, then an economic analyst here will give you cold water.
When discussing digital currency, the main players were liberals and computer geeks, but the popularity of cryptocurrency has attracted the attention of scholars, such as University of Chicago scholar Eric Budish. In the latest report, Eric Budish evaluated the Bitcoin incentive system, and he concluded that if Bitcoin wants to have a significant impact on the economy, it will certainly encounter many inherent economic constraints.
Some "bitcoin majority members" (who want digital currency to crowd out all competitors) believe that bitcoin is like gold: it has storage value, although efficiency is not as high as real money. Budish said that if Bitcoin is really close to gold in value, then people will attack the Bitcoin network for profit.
Before we join the debate, we need to understand the background: in the past year or so, the size of the Bitcoin market has swung between $100-200 billion. The value of the gold reserve is about $7.5 trillion. Therefore, from the digital point of view, Bitcoin has far less influence on the economy than gold.
Budish believes that its influence will never be comparable to gold. Why? Because even if the specifications become large enough, it cannot be tolerated due to the design constraints of Bitcoin.
The security of Bitcoin stems from the competition of members of the blockchain network (ie miners). Every miner is looking for opportunities to add new deals to the blockchain to get Bitcoin in return. Miners use powerful computing power to fight for complex digital problems. An attacker can't beat the system unless it has a powerful computing system that can smash the system and manipulate transaction records. If so, the attacker can reuse the same bitcoin. Such attacks (known as Majority Attack, most people's attacks) are the biggest threat to Bitcoin, but for now, mining is more profitable than subversion systems, so the system is temporarily safe.
But Budish believes that this protection mechanism is costly. In order for the Bitcoin network to function properly, the power consumed is similar to that consumed by Ireland. Although in theory, the value of Bitcoin can be continuously added, there is no limit, but the security of the blockchain can only be linearly enhanced, and more computing power will be added to the network. This security mechanism is not the same as other forms of security, such as the cryptographic mechanism used by traditional financial systems. The traditional method is equivalent to adding a lock to the door, and the protection cost is relatively low.
According to Budish's calculations, today's Bitcoin blockchain is running at around $100,000 per 10 minutes, but the cost of attacking the system is about $1.5 billion to $2 billion. Why is the cost of the attack so high? The main reason is that the bitcoin mining work is mainly done by chips. These chips are used exclusively for mining and there is no way to do other things. If an attack is launched, the price of Bitcoin will be greatly reduced, and the value of bitcoin held by the attacker will be reduced. If someone just wants to destroy Bitcoin and does not seek profit, there is no way to stop it.
Budish's report is supported by other economists, but cryptocurrency enthusiasts do not agree. BlockTower Capital co-founder Ari Paul said Bitcoin's survivability is indeed likely to be limited because the cost of stopping damage is too high, but it has been discussed for a long time in popular web forums. He believes that the report did not add new data or new logic to the discussion.
Joshua Gans, an economist at the University of Toronto, believes that online discussion lacks scientific rigor. He also said that economists have just been involved in the discussion, Budish has integrated all the factors, research is very rigorous, which can benefit the entire research community, such research methods will make science to the next level.