Buterin also gave his thoughts on some criticisms leveled at Proof-of-Stake ahead of Ethereum’s upcoming “Merge” event.
Vitalik Buterin is concerned about Bitcoin’s future.
In a September 2 interview with economics writer Noah Smith, the Ethereum creator said that he is “worried [about Bitcoin] for two reasons.” He explained that he thinks Bitcoin could face problems in the long-term future owing to its fee model. Bitcoin currently distributes coins to miners as payment for securing the network, but as the protocol has a hard supply cap of 21 million, eventually the network will rely on transaction fees alone for security. Buterin told Smith that this is a problem because Bitcoin is “not succeeding at getting the level of fee revenue required to secure what could be a multi-trillion-dollar system.” The amount of fees Bitcoin generates to other protocols has long been a hot topic of discussion in the crypto community. According to Crypto Fees data, Bitcoin averaged about $225,000 in fees over the past week, trailing DeFi mainstays like Aave and Uniswap. The biggest fee generator is the protocol Buterin created, which took in around $2.7 million over the same timeframe.
Buterin said that he also has fears for Bitcoin because “Proof-of-Work provides much less security per dollar spent on transaction fees than Proof-of-Stake,” arguing that it would be problematic to have a $5 trillion network that costs only $5 billion to attack. Buterin also pointed out that Bitcoin switching away from Proof-of-Work would be “politically infeasible.”
Buterin’s comments will likely spark outrage in some corners of the crypto community. Bitcoin’s most ardent supporters have long argued that Proof-of-Work is a fundamental part of the network’s design. Others have made similar remarks to Buterin regarding the top crypto’s fee model, though as Bitcoin is scheduled to emit coins until around 2140, that issue is typically overlooked by its supporters.
Debates over whether blockchains should achieve consensus through Proof-of-Work or Proof-of-Stake have raged for several years, not least over recent months as Ethereum prepares for its “Merge” to Proof-of-Stake. The Merge is slated to ship around September 15, after which Ethereum will be secured by validators staking their ETH tokens rather than miners.
Some of Ethereum’s most vocal detractors have argued that Proof-of-Stake limits decentralization and allows for larger stakeholders to control the network, but Buterin told Smith that he thought such arguments were “plain wrong.” He said that critics make “a misconception that Proof-of-Work and Proof-of-Stake are governance mechanisms, when in reality they are consensus mechanisms.” In other words, stakers can validate transactions, but they can’t influence the network’s future design.
Proof-of-Stake criticism intensified last month after the Treasury Department sanctioned Tornado Cash, leading to arguments that governments could one day try to censor Ethereum. Coinbase CEO Brian Armstrong commented on the issue, saying that his firm would stop staking rather than censor transactions. Buterin also weighed in, saying he would consider compliance with regulatory sanctions as an attack on the network.
Buterin also gave some rare insights on the crypto market over the past couple of years, commenting on the recent bull run that saw crypto’s global market capitalization top $3 trillion in November 2021. He admitted that he was “surprised that the crash did not happen earlier” because mania phases tend to last a period of a few months before a rapid drop. While he acknowledged that prices are down across the board in 2022, he said that crypto “finally feels meaningfully useful.”
Disclosure: At the time of writing, the author of this piece owned ETH, AAVE, and several other cryptocurrencies. They also had exposure to UNI in a cryptocurrency index.
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