On July 8, Justin Bons, the Founder and Chief Investment Officer of Cyber Capital, posted a detailed 38-part thread on the social media platform X (formerly known as Twitter), critiquing Bitcoin’s long-term security model. Bons argues that Bitcoin’s security model is fundamentally flawed and that it faces significant challenges in maintaining its security over the long term.

Cyber Capital is an investment firm that specializes in cryptocurrencies and blockchain technology. Founded in 2016 and based in Amsterdam, Cyber Capital focuses on managing investment funds in the digital asset space. The firm aims to utilize its understanding of blockchain technology and the cryptocurrency market to identify and invest in digital assets with long-term growth potential. Cyber Capital emphasizes thorough research and analysis in its investment strategy. The firm conducts rigorous due diligence and risk management to provide its investors with diversified exposure to the cryptocurrency market. The goal is to make informed investment decisions based on a deep understanding of the underlying technology of the assets.

Bons begins his thread on X by stating that Bitcoin’s security model requires the price of Bitcoin to double every four years or for transaction fees to become extremely high to maintain the current level of security. He asserts that this is unsustainable because it would eventually exceed the global GDP within a few decades, making Bitcoin’s security model impractical.

He explains that each Bitcoin halving event, which reduces the block reward by half, exponentially lowers the security budget. Bons emphasizes that these halving events will continue for at least 70 years before the block rewards run out completely. He argues that this gradual reduction in the security budget makes Bitcoin increasingly vulnerable to attacks.

Bons also discusses transaction fees, stating that it is unrealistic to expect them to reach sustained extreme levels. He explains that when transaction fees spike, users are likely to leave the network due to the high costs, a phenomenon exacerbated by the block size limit. He says this ratcheting effect in the fee market means that extremely high fees are not a viable long-term solution for maintaining Bitcoin’s security.

According to Bons, without extremely high transaction fees, Bitcoin’s security will inevitably decrease until it becomes profitable for attackers to exploit the network. He predicts that this could happen within the next 4-12 years, depending on the occurrence of one to three halving events. He emphasizes that hashrate alone does not equate to security; instead, the true measure of security is miner revenue. Bons notes that miner revenue can decline even as hashrate increases because technological advancements make it cheaper to produce hashes.

Bons argues that the security of Bitcoin is determined by the cost of producing these hashes, not the hashrate itself. He states that the cost to attack Bitcoin is based on the economic reward versus the cost for an attacker. He warns that as miner revenue declines, it will become economically viable for attackers to launch double-spend attacks, particularly targeting exchanges.

He challenges the argument that non-mining nodes can secure the network, calling it a false proposition. Bons explains that non-mining nodes lack Sybil resistance, meaning they are not an effective security measure. Security, according to Bons, comes from block production incentives, which nodes do not share in.

Bons concludes by highlighting the critical dilemma Bitcoin faces: either increase its supply beyond the 21 million limit or risk becoming insecure due to insufficient security funding. He believes Bitcoiners who promise a fixed supply limit are misleading supporters and potentially damaging trust. He expresses respect for those who acknowledge this issue and strive to preserve Bitcoin’s integrity.

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