A Bitcoin postmortem

Two weeks into 2016, the Norwegian stock market is down 12% and the oil price has fallen below $30 a barrel. As Chris Martenson puts it, the deflation monster has arrived. And the one thing that could offer us some hope in the face of deflationary collapse, Bitcoin XT, has failed to gain enough support to impose bigger blocks on the blockchain. The Bitcoin network is already close to maxed out at the current blocksize, so it is not going to get much better than this. Now the best we can hope for is 2MB blocks if Bitcoin Classic is able to gain consensus, but that is far too little to offer any realistic alternative to the fiat banking system. This means Bitcoin is fated to die on the vine, and industrial civilization will sink with the financial system which is now at the end of its rope.

So, what went wrong? The one-megabyte blocksize limit was just a stopgap measure instituted by Satoshi to prevent spam transactions in Bitcoin's early days. It should have been removed or greatly increased by now, but that didn't happen because the limit is being exploited by people who either have a completely different vision of the purpose of Bitcoin than the peer-to-peer payment network it is meant to be or want to cripple the network for their own conflicting interests (Blockstream), all of whom are oblivious to the coming collapse. The Lighting Network under development by Blockstream is unappealing in many ways and would still fail to scale Bitcoin sufficiently without bigger blocks. Another partial solution is a possible soft fork known as segregated witness, but that only gives us an effective blocksize of 1.7 MB. Mike Hearn has written the most detailed and accurate account of what went wrong, concluding that the Bitcoin experiment has failed, and sadly I have to agree.

The Bitcoin exchange rate may go up in the short term and especially in the early stages of stock market collapse, but don't be fooled. Bitcoin will crash when it runs into major disruption thanks to the crippling blocksize limit, and if that doesn't kill it, the fallout from the ensuing forking attempts and escalated blocksize wars certainly will. There will be no useful alternative left standing as we enter the next global financial crisis, which may well put and end to our entire civilization. The more I learn about blocksize, the clearer it becomes that the blocksize war is a clash of two fundamentally irreconcilable ideologies. Either path will lead to the death of Bitcoin in the eyes of the opposing side. Each side has different definitions of centralization and success, so no amount of technical argument can resolve the controversy. The small-blockers are the new Luddites, and this time they are winning.

We had our one and only chance to bootstrap a decentralized digital currency for the world, an undisputed measure of value that everyone can use even when the banks shut down, and we failed. Now civilization will collapse due to low commodity prices and there will be no way to save it. Now there is no hope of any alternative payment system reaching sufficient adoption to keep the machine that is industrial civilization running after deflationary collapse has run its course.

Collapse is the sort of thing that sneaks up on us slowly and then suddenly. It looks like the slow part is almost over now.