In this video, i'm gonna talk about a major problem with the bitcoin network that has to be solved long term in order for the cryptocurrency to actually work for it to be a store of value, a hedge against inflation and all that Kind of stuff, so if you're a bitcoin holder or you know, you're thinking about jumping into this cryptocurrency.
You need to understand this and explain it and why it's important as a blockchain developer. Who works this technology on a daily basis so before we get into that, you know if you're new around here, hey i'm gregory and on this channel i turn you into a blockchain master.
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Lots of scammers down below in the comments section. Impersonating me just ignore them. I'll, never give you my phone number or ask you to invest with me, so we've, seen the bitcoin price absolutely explode over the past year, and one of the biggest reasons for this is the narrative change for bitcoin that It is a store of value that it's, institutional grade that it's, a hedge against inflation.
Then it's, a hard money that you can't tamper with all because it has a fixed maximum supply and you just can't print. More bitcoins willy-nilly, like a central bank, could, and you know, potentially inflate away a currency.
So all that sounds good right, but there's, actually a potential problem with this and this cap supply of 21 million bitcoins that everybody talks about being you know, the perfect feature of bitcoin could actually be a real problem for down the road and Actually, an existential threat, so here's.
Why you know, have you ever asked yourself what happens when all the bitcoins in the world have ever been mined? How will new bitcoins be created? What incentives will there be to actually mine bitcoin? How will the network actually run? So let me take you into my whiteboard here: show you why this is a problem and what the potential solutions are down the road really quickly before i do that, i want to disclose that i do hold bitcoin.
So i'm, not saying this is like an existential threat tomorrow, more on that in a second all right, so let's, see how the bitcoin network actually functions to see why this is a problem in the first place.
So let's just say that i want to send you one bitcoin. It's, a really simple transaction from my wallet to yours, okay, anytime! I do this. You know i send you one bitcoin plus play a small fee, all right! So whenever that transaction uh takes place, it goes to the blockchain and that's, how the balance is updated.
Okay, so on the blockchain, you have all these bitcoin nodes that talk to one another. They maintain a copy of the public ledger um. So the miners essentially participate in adding this transaction to the blockchain, so they're paid two ways: all right.
One is through the fee that i pay when i send the bitcoin to you, but also through the block subsidy. Okay, it's, a block subsidy, so this is whenever a new bitcoin is actually created by the network and it's hardcoded into the protocol that new bitcoin be created, every single block that's.
What a blockchain is it's, a bundles of records, uh that are grouped together into blocks that are changed together to make up the blockchain, and so this block subsidy decreases over time. You might have heard of like the bitcoin having that's when, basically, every four years, the number of new bitcoins i've, created every single block anytime, a new transaction is created or group of transactions that reward decreases.
Okay and over time, it trends towards zero and that's. What gives bitcoin it's, a hard cap of 21 million and that's. What you see here - and we have a you - know currently 18 million and over time it'll, get harder and harder to mine, bitcoin, less and less get created until we hit this maximum supply of 21 million bitcoins.
So what's? Going to happen whenever we hit that maximum supply, how are miners going to be incentivized for on the network if no bitcoins are created? Well, we'll talk about that here in a second, but before i do let's first, see like when, will the last bitcoin be mined in the first place to understand when this will actually become a problem so 2140? That's well, over 100 years from now that's in the last bitcoin, be mine, but you have to think about it as we approach this number, the block subsidy or the amount of bitcoin mine will be smaller and smaller and Smaller and smaller and smaller, so it'll functionally be zero bitcoins before we even hit that point, but let's just say, for you know, argument's sake.
It's about a hundred years. Well, whenever uh bitcoins aren't really mined anymore, then the network actually has to run off of fees. Okay, so whenever i send bitcoin to you that fee that i would pay is how we can incentivize people to run the network, but the problem with that is it's, actually a security risk and we've, actually seen other blockchains.
You know build off of bitcoin's model and to change this and to provide alternative solutions. I'll talk about that more in a minute, but this thing that bitcoin says is you know the most amazing thing about it.
This hard cap could actually be a problem when there's, no more bitcoins being minded, the network actually has to run off of fees. So what do we do about this? Well, like i said you know it's. Gon na be a long time before this is really a true problem.
Let's just say about 100 years, maybe a little bit less. If we functionally approach that problem sooner so it's not like we have to figure this out tomorrow. So, like i said, i do hold bitcoin in my portfolio, so it's not like i'm, just dumping bitcoin.
Based on this news. I know this is a problem. I know it's been a problem for a while and so do lots of other people. So what are we doing about it? Well, we've, seen the lightning network. Okay, that's.
One potential solution to this that people talk about a lot, but i mean nobody really uses it right now, but one potential thing that uh you know: people don't really like to talk about. Is the bitcoin protocol actually changing in some way to accommodate better security, long term and that's kind of a narrative violation for the bitcoin community? That says? Oh, we don't tamper with the protocol.
You know bitcoin's, rules are hard coded, they'll, just set it and forget it. You know it's, hard money that can't be tampered with, but that might change. You know, as we approach this and people start to wake up and realize it's, a serious problem.
I mean that's, assuming that we do have the same level of demand for bitcoin many many many years later, as we do now, but that's, the truth about the bitcoin network long term. So what do i personally think about this? Well, like i said, other blockchains have looked at bitcoin and realized.
This is a problem and tried to do uh something about it. So, of course, we've, seen like uh other blockchains fork off of bitcoin and change. The settings like we've, seen litecoin um other similar types of chains, but one thing that i want to note is about ethereum.
So you know this is the primary technology that i work with on my youtube channel and my professional career is my largest holding my portfolio. You know full disclosure, but ethereum has addressed this problem by actually having an infinite supply.
So most people say, oh, my goodness, like eath - has an infant supply, can never be a store of value. All that kind of stuff - but you have to understand, is it - does have an infinite supply but a fixed issuance schedule and of course there'll, be lots of bitcoin people who say, oh, but you know the east protocol could change well going back To saying a minute ago i mean, realistically, the bitcoin protocol could change over time if it's, an existential threat to the network, so anyways with the e-supply.
You know it does have an infant supply, but it has a fixed issue in schedule. So a really easy way to visualize. This is to think about something that's, not cryptocurrency, related that you can just see like with simple math.
So let's say you have like 100 apples right and then every year you add to 10 new apples to that batch and you're, always adding 10. Okay. Of course, 10 new apples are added every year. That's, a fixed issuance, but the actual percentage increase of the supply goes down, so it trends towards zero.
So basically, if you have 100 apples, you add 10, then that's, a 10 increase the first year, but the second year you have 110 apples, um and you add 10, that's about a nine percent increase and then 120.
You add 10, that's about an eight percent increase so over time. This trends towards zero. It's, the same with the east supply. So why does it eat do this? Well, it has an infinite supply to ensure that that block reward never runs out that you '
Ll, never have a problem where the network is not creating new coins to actually incentivize people to run the network. So the thing about ethon is roadmap, and this is one reason that i favor eth long term over bitcoin, potentially as a store of value and don't forget like cryptocurrency right now - and this is a narrative violation, but cryptocurrency right now is - is Figuring out, if it is a store of value, we're testing.
That hypothesis currently, because you know if the cryptocurrency prices crashed, i'm like crazy. Tomorrow, let's, say bitcoin went back to ten thousand dollars. Nobody's, gonna think it's, a store of value anymore.
So if we're going with that assumption, that cryptocurrency could be a story value, then each potentially could be a better story of value than bitcoin. For this reason, and don't forget uh. If you've been watching this channel at all.
You know that eip1559 is happening uh later this year, that can actually burn east whenever new transactions are created, and this could potentially offset the issuance of new east that's, issued on the blockchain at times of peak activity, and if you span out Over long periods of time let's say a year, then the actual net annual issuance could be negative, and so that's.
One reason why eth has an infinite supplied that's when we move to proof of stake and the stakers secure the network that will never like run out of eth for the stakers to earn okay. Don't forget that's.
Eth right now, we're on proof of work. Just like bitcoin ethe had very many similarities to bitcoin when it first launched, but it's changing over time or moving to proof of stake, and whenever we go to the proof of stake network, then we '
Ll, always have new east. As a reward for people to maintain the network, we won't, have her have to run off of fees, and so that's, an overview of the problem with bitcoin. Why, i think a blockchain like you know, ethereum can do it better? You know if we're, going to consider cryptocurrency as a story value in the first place, and i think eth could do it better and also do a lot more.
That's. One reason i think is ethereum is more value than bitcoin over the long term. It's got smart contracts, you can do you can do defy with it. You can actually stake ether. You can't stake. Bitcoin, you can't, put bitcoin natively into a smart contract to earn high yield, like you can on top of east, as i'm, so bullish on this blockchain, this particular cryptocurrency long term.
Of course not financial advice. So go back to saying a minute ago about this. You know, should you worry about this problem with bitcoin? Well, like i said, i mean look what i'm saying and what i personally do.
I do hold bitcoin. I hold a lot more ether for lots of reasons, but i still hold bitcoin. So i'm, not saying that i'm like worried about this tomorrow or even next week or even next year. This is a long-term thing and we do have a lot of time to figure out the best solution for this, but it is a real problem that has to be addressed, and one of these potential solutions is really east.
Just taking the place of what bitcoin currently does i'm, not saying that will happen, but it's, definitely within the realm of possibility, but i do think that's, something you definitely need to know about.
If you're going to hold bitcoin for the long term, i mean let's, say you're young and you're thinking about holding bitcoin. I don't know for life. Then this could be potentially a problem that you have to encounter at some point in your entire investing career and it's also really important.
When you're trying to evaluate hey what's, the long-term opportunity in this space, it's, really important to talk about and a lot of people. Frankly, don't talk about it, so that's. All i got for today, as always smash that, like button down below for the youtube algorithm subscribe to this channel, if you haven't already, that really helps these videos out.
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