On Monday (October 3), Charles Hoskinson, Co-Founder and CEO of IOG (aka “IOHK”), the blockchain technology firm behind Cardano’s R&D, explained why it makes sense to stop mining more Bitcoin and converting all existing bitcoins to wrapped bitcoins (that exist on a smart contracts platform such as Ethereum or Cardano).
In a video released yesterday, Hoskinson started by saying that he agreed with the idea that Bitcoin is digital gold and that it has real utility.
He then went on to explain why the Bitcoin network, which is secured with energy-hungry proof-of-work (PoW) consensus, could and should be shut down, with the existing 19 million or so bitcoins converted to wrapped bitcoins on a much more energy-efficient platform with smart contracts support — such as Ethereum or Cardano — so that they can allow for many more use cases.
“So you have gold and you have a gold mine. Now, does gold need the gold mine to be valuable after the gold has been extracted and the goal is in circulation? Just the knowledge of where it came from, it’s cost of production, and these other things is generally speaking where the price comes from, also connected to the overall demand of the good.
“Now, let’s say as a thought experiment, all the gold mines in the world got shut down. There’s no more gold extraction. Would this mean that the price of gold goes to zero? Of course, not! Actually the price of gold would probably go up. Why? Because we know there’s not going to be any more of it, and so it’s a more scarce resource, but the utility behind it, the demand behind it, the economy behind it is still functioning.
“So you have the Bitcoin network and what the Bitcoin network has done is it has created a chain of proofs for resource consumption. From the data within, looking at the hash rate and some historical notions, you’ll know at any given time the cost to replicate, in other words, that cost of extraction for those gold mines.
“So what if we were just simply going to shut down Bitcoin tomorrow… and what we did is we moved all the bitcoin off of the Bitcoin network and basically created wrapped Bitcoin on other blockchains… but then the sum of all of the wrapped equals obviously the total Bitcoin in circulation…
“So, we have most of the Bitcoin that we care about already mined. If you look at it, about 19 million of the total supply of 21 million have been mined out. It’s getting exponentially harder to produce them. But what if for a thought experiment that people just stopped mining Bitcoin, the entire network shut down, and all the Bitcoin left and became wrapped Bitcoin?Would you need proof of work anymore? No, because proof of work was the mining process…
“So, effectively tomorrow, the entire network could shut down and they could all leave, become wrapped, and as we’ve seen with real market data on over 227,000 in circulation on Ethereum, that wrapped Bitcoin will probably trade at the same value as Bitcoin and basically become like a digital gold.
“So that effectively means that the entire transaction network of Bitcoin, that effectively means the entire proof of work component of Bitcoin from this perspective is unnecessary. You don’t need it. You can send it to other places — centralised ledgers, decentralised ledgers, other proof of work ledgers, proof of stake ledgers, and it can become wrapped.“
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