Vitalik Buterin predicts the end of gold, bitcoin and an unprecedented financial revolution by 2040

With the merger approaching in September, the debate about proof of work and proof of stake has never been stronger. Vitalik Buterin shared some thoughts on the future of the cryptocurrency as well as the potential limitations of the current bitcoin consensus model.

Vitalik: Crypto can become the Linux of Finance.

Vitalik’s comments on the state of the crypto industry always attract attention, not least because people are interested to know what the founder of Ethereum thinks about how certain assets will work in the future. His recent comments about how cryptocurrencies could become the “Linux of Finance” have drawn attention.

Vitalik Buterin explained that over the next 20 years, from now until 2042, there are a number of challenges that we as a society will have to face.

The future success or failure of cryptocurrencies largely depends on how these individual problems are solved and how they affect the big picture.

If cryptocurrencies are firmly established in several niches in 2040: they will replace the store of value component of gold, they will become a kind of “Linux of finance”, an always available alternative financial layer that will eventually become the backdrop for things that are really important, but not completely captivating. mainstream, then the likelihood of them disappearing or completely taking over the world in 2042 will be much lower.”

The problem of limiting the supply of bitcoins

One of the main concerns that the Ethereum community often expresses about the long-term security of bitcoin is that there are limits to what can be achieved with proof of work.

In the long term, Vitalik believes that lowering the block reward will not be enough to sustain Bitcoin in the long run, as most of the revenue will come from fees and fees are not enough to get the money into the market. such a big security budget.

For Bitcoin to be secure, the blockchain must be able to withstand a 51% attack. The higher the total hashrate of bitcoin, the more difficult it is to carry out a 51% attack on the network.

Currently, miners are interested in mining through block rewards, which include newly mined bitcoins and transaction fees generated in that block. There are currently 6.25 new BTC mined per block.

Every two years, the number of bitcoins mined per block is halved, meaning that in a few decades the inflation rate will be extremely low, but miners will be competing for far fewer bitcoins.

This means that miners must earn a lot of income from fees in order to remain profitable.

In addition, for the Bitcoin network to remain secure, the hash rate must increase along with the price: if the price is much higher than the hash rate, this is a problem, because the hash rate is effectively the security budget of Bitcoin.

Is Vitalik right about PoW? Can this problem be solved?

Even at current levels, it will be extremely difficult for one side to get enough of the hashrate to carry out a 51% attack, given the high costs associated with setting up bitcoin mining farms.

Vitalik’s argument that Bitcoin is inherently insecure and would be safer with Proof of Stake, or at least a hybrid between Proof of Work and Proof of Stake, remains to be proven.

Even though innovations like the Lightning Network mean the mempool is often completely empty and fees generated haven’t risen much in recent years, hash rates continue to rise.

Despite China’s 2021 bitcoin mining ban, political uncertainty, ethereal’s slander of proof of work, and a major crash across all markets, bitcoin’s hash rate continues to outperform ATH’s chances, meaning the network is safer than ever.

Also, as Bitcoin becomes more popular and mining becomes a more fundamental part of energy companies’ business models, the future marginal cost of adding hash rate for many industries is close to zero.

For countries like El Salvador, which already produce far more energy than they consume, the marginal cost of using geothermal energy to mine more bitcoin is close to zero.

When comparing the cost of bitcoin mining around the world, it is clear that hash rates can continue to rise significantly as miners seek to regulate energy prices in different jurisdictions.

The price can drop much lower before mining becomes unprofitable, and there is also a difficulty adjustment to keep the network secure.

However, the issue of declining miner revenues could become a problem over the next few decades – even if the price increases exponentially, the lack of fee revenues could lead to some hash rate slowdown.

Other Proof-of-Work blockchains such as Monero have this from the start: in the case of XMR, there is a fixed rate of new XMR that can be mined per block indefinitely, meaning that Monero miners are much more stable in predicting the future of mining . needs, and will likely be able to continue profitable mining for much longer.

Vitalik is interested in Proof of Stake defeating Proof of Work given that Ethereum has always changed direction since its inception. Now, in September, Ethereum will completely switch to Proof-of-Stake.

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