Justin Bons, founder and Chief Investment Officer (CIO) of the crypto investment fund CyberCapital, has presented a stark prediction regarding Bitcoin's future, arguing that the cryptocurrency faces a significant risk of collapse within the next 7 to 11 years. This projected downfall is attributed to inherent flaws in its current economic and security model.
The Impact of Halving Cycles and Security Budgets
Bons posits that the primary trigger for this collapse will be the diminishing mining revenues, a direct consequence of Bitcoin's halving cycles. Coupled with this, he points to the gradual depletion of the budget that finances the network's security as another critical factor.
According to Bons, for Bitcoin to maintain its present level of security, it would be compelled to either double its price every four years or consistently generate exceptionally high transaction fees. He contends that both scenarios are mathematically unfeasible. A price increase of that magnitude would, within a few decades, surpass global Gross Domestic Product (GDP). Conversely, persistently high transaction fees would prove unsustainable in a free and competitive market, making Bitcoin less attractive for users.
Bons further elaborates that Bitcoin’s “security budget” is steadily shrinking due to the reduction in mining rewards with each halving event. He clarifies that an increase in hashrate alone does not equate to enhanced security. The analyst emphasizes that the truly critical metric is the total revenue paid to miners, as network security is ultimately measured by the cost of launching a successful attack, rather than simply the number of hashes produced.
Vulnerability to 51% Attacks and Double-Spend Scenarios
With the projected decline in security budgets, Bons argues that 51% attacks and double-spend scenarios will become increasingly attractive to malicious actors. He specifically highlights large cryptocurrency exchanges as potentially vulnerable targets. Bons suggests that in the coming years, the cost of executing a single-day attack could fall to a few million dollars, while the potential profit could range from hundreds of millions to billions of dollars.
In this context, Bons asserts that a network value theoretically exceeding $2 trillion could be severely disrupted by an investment of approximately $1 billion. He believes that even geopolitically rival states or large financial institutions could perform such a cost-benefit analysis, deeming the investment worthwhile for the potential gains or disruption.
The Bitcoin Dilemma: Inflation or Vulnerability
Bons outlines two undesirable options that Bitcoin faces at this juncture:
- •Increasing inflation to a point where it exceeds the 21 million supply limit.
- •Accepting that the network will become increasingly vulnerable to attacks and censorship.
Undermining the Social Contract and Developer Concerns
Bons argues that this inherent dilemma fundamentally undermines Bitcoin’s “social contract.” He notes that some core developers have publicly acknowledged this problem and have even discussed increasing the supply as a potential solution. Furthermore, he points to figures like Peter Todd, who have drawn significant attention to the critical issue of the security budget.
Transaction Capacity and the Risk of a "Bank Run"
The limited transaction capacity of Bitcoin, estimated at approximately 7 transactions per second (TPS), also presents a vulnerability during times of crisis, according to Bons. He explains that even if a small fraction of current users simultaneously attempted to process transactions on the chain, a transaction queue could form that might last for months. This scenario, he suggests, could effectively create a “bank run” effect, exacerbating panic as users find themselves unable to move their funds in a timely manner.
Bons further elaborates that a potential confidence crisis, leading to a price drop, could significantly reduce miners’ profitability. This, in turn, would likely lead to a decrease in the network’s hashrate. Network slowdowns, potentially exacerbated by delayed difficulty adjustments, could then increase transaction backlogs, further fueling panic. This creates a perilous risk of a “death spiral” characterized by price drops, miner exits, and subsequent network slowdowns.
Challenging the Notion of Immutable Security
Justin Bons challenges the prevailing notion of Bitcoin as “immutable and eternally secure,” stating that this perception no longer reflects reality. He asserts that the delicate balance between security, scarcity, and use cases has been disrupted. According to Bons, these underlying issues will become increasingly apparent within the next 7 to 11 years, primarily due to the compounding impact of halving cycles. He concludes that the Bitcoin community will inevitably be forced to confront these challenges.