Ask CryptoVantage: Could Bitcoin Actually Go to $0?

1) A Catastrophic Bug

Bitcoin has successfully recovered from attacks and unintentional bugs over the past twelve years, but there are still many unknowns. Even though it is extremely unlikely, there is a possibility that a catastrophic bug in bitcoin’s code could cause it to stop working.

Bitcoin’s development process is slow and conservative for a reason. There are hundreds (if not thousands) of independent code reviewers who audit changes to bitcoin’s code, which makes it very unlikely that a catastrophic bug could be introduced. Even if a bug were to be introduced, a bug fix would probably be created very quickly by the bitcoin development community.

2) Government Bans

Many people argue that bitcoin could go to zero if governments were to ban it. It would be difficult for governments to ban bitcoin at this point because so many people own it and there are already many large businesses and investment products focused on bitcoin. In addition to this, many believe bitcoin owners should be given the same property rights as any other private property owner.

Even if governments were to make it illegal to own bitcoin, that does not mean they would be able to stop people from owning it. Before bitcoin was created, rich people were known to store some of their wealth in illegal ways. It is realistic to assume that this would happen with bitcoin as well if it were outlawed.

Besides, even if Western governments banned bitcoin the rest of the world would still have access to bitcoin. In order to really have an impact, you would need all governments in the world to ban bitcoin at the same time – but even then it wouldn’t drive the price to zero.

3) Bitcoin Gets Replaced

There are thousands of new cryptocurrencies that have been created to try to replace bitcoin as the dominant currency of the internet. The organizations behind these cryptocurrencies usually market them as improvements over bitcoin. They usually claim that they are faster, less expensive, more private, or more programmable, but all of these cryptocurrencies come with trade-offs relative to bitcoin. Usually, one of the main trade-offs is that other cryptocurrencies are more centralized.

While governments couldn’t effectively ban bitcoin, they would be able to ban cryptocurrencies that have centralized organizations behind them. In addition, bitcoin’s monetary economics and network effects make it the most attractive cryptocurrency to store wealth in for the long-term. Once a technology has a significant network effect, it becomes more and more difficult to be replaced by competitors. For example, there are designs for a better internet that have not been able to replace the internet because of its network effects. Bitcoin is the cryptocurrency with the best network effects, and it’s likely to remain that way.

4) 51% Attack

Because bitcoin is decentralized, we cannot rely on a single person or entity to process the transactions. Instead, transactions are processed using a method called mining. Anyone can run specialized hardware to contribute to the mining process.

The more mining hardware that one entity controls, the more say they have in processing transactions. Because of the way the bitcoin network operates, if a single entity has control of 51% or more of the mining power, then they can perform what is known as a 51% attack. Since a 51% attacker would have more say than the rest of the network combined, they would be in control of which transactions could occur.

Even though the mining power is well distributed, individual miners pool their resources together and share the mining rewards in order to get a more consistent pay out. Some of the biggest “mining pools” in the world all operate out of China, and some people fear that the Chinese government could co-opt the mining pools and direct more than 51% of the total mining power to perform a 51% attack on bitcoin.

Attacking bitcoin with a 51% attack would be very expensive to carry out, and its impacts would be quite limited. A 51% attacker cannot change bitcoin or any of its rules, and they cannot take anyone else’s funds. All they would be able to do is undo recent blocks of transactions, block certain transactions from being approved, or do a “double spend”.

A “double spend” is when the attacker spends bitcoin and then creates a new block that replaces the block that had their first transaction. In this scenario they would be able to sell off their bitcoin (the first “spend”), trick the receiver into thinking they have the bitcoin, and then get their bitcoin back and spend it again (the second spend). The 51% attack always has to be a targeted attack. It is not something that would affect everyone who uses bitcoin, it only hurts the people being targeted.

A 51% attack can be defended against by requiring bitcoin transactions that you receive to have more “confirmations”. When your transaction is included in a block, you can think of it as being confirmed. Every block that is added to the bitcoin blockchain after the one containing your transaction is another “confirmation” that your transaction is valid.

With each additional confirmation, an attacker would require exponentially more work to reverse the block with your transaction. By requiring more confirmations when you receive bitcoin, you exponentially increase your security against this type of attack. This is why it is recommended to wait for six confirmations before accepting a bitcoin transaction as valid.