Bitcoin is in use since 2009 and has proven reliable thus far. As with any technology, there are a set of known risk factors that could threaten its existence. And while a Tweet by Elon Musk can temporarily send the price in either direction, this here is about existential risks, not temporary hype and fud.
Shutdown by regulators
By now it is most likely too late to shut down Bitcoin completely.
There are 8 countries where Bitcoin or cryptocurrencies have been banned in the past, including China.
Reasons include: competition to fiat currency, competition to banks, money laundering and criminal use, high energy consumption.
Some countries intend to bring their own state-regulated blockchain-based money. Crypto enthusiasts ask for decentralized money, where no single entity has the power to print coins (inflation), freeze accounts and block transfers, etc.
More regulations by jurisdictions will actually help bitcoin, and keep off some of the altcoin competition.
Raoul Pal was initially (early 2010s) critical towards Bitcoin, saying that the government can easily shut this thing down. This did not happen, and thus he later changed his opinion on that matter. There’s an interview on YouTube where he explains his transformation.
The fact that Bitcoin ETFs were approved in the USA in 2024 is a clear sign that regulatory shutdown is not going to happen.
Replacement by something better
This could be the biggest threat to Bitcoin.
It has happened repeatedly in history that the first mover has not remained on top.
Examples:
Nokia was first mover with cell phones, but completely missed the move to smart phones. First Apple, then Samsung, Xiaomi and other players took over and Nokia disappeared.
Altavista was first mover in web search, but missed technological innovations. Google’s Larry Page and Sergey Brin came up with the PageRank algorithm, and then Google went on to own that market.
Myspace was the first large social network, then Facebook took over that market.
Other digital currencies that were created after Bitcoin have found significant interest, by developers and investors. So far none of them has surpassed Bitcoin. Ethereum has come the closest. Almost all of these “altcoins” have other use cases, and at least thus far do not directly compete with bitcoin’s store-of-value proposition.
Kaspa is a noteworthy competition. Launched in the bear market of 2021, it has steadily climbed the ranks. It is based on the same fundamental concepts as Bitcoin: stateless money, proof of work, fixed supply, no pre-mine, fully decentralized. Yet it is built with much newer technology, as a BlockDAG, being able to produce many blocks concurrently with a block finality of a few seconds only. Kaspa wants to fulfill Satoshi’s vision of a peer to peer electronic cash system.
One point of attack is the fact that Bitcoin uses the proof-of-work consensus algorithm, while most newer blockchains use the proof-of-stake logic, which uses 99% less electricity. Ethereum transitioned from proof-of-work to proof-of-stake, Bitcoin is extremely unlikely to ever do so. It is possible that at some point some countries will ban proof-of-work crypto mining, as Bitcoin uses it.
Vitalik Buterin, co-founder and driving force behind Ethereum (the number two coin behind Bitcoin) holds Bitcoin. Changpeng Zhao, founder of Binance and the BNB coin (number 3 behind Bitcoin), holds Bitcoin (BTC) besides his own coin BNB:
It helps to be up to date with what happens in the world of crypto, and taking positions in multiple coins may be an idea to consider.
Quantum computing
As always, future technology is a threat to today’s technology.
It is predicted that future quantum computers – which we cannot build yet – will break today’s cryptography, on which not only bitcoin is built but every other secure communication channel and our banking system.
Quantum computers will have to become about a million times more powerful compared to the prototypes available in 2022 to be able to break parts of bitcoin. Although that is a lot, technology moves non-linear, supported by paradigm shifts, and that would only be a doubling of capacity 21 times. Estimates range from 5 to 20 years, with a consensus of about 15 years.
The developers are aware of this risk, and crypto currencies are expected to move to quantum-resistant algorithms in the future. Proposals have been made and are being discussed.
Today’s financial infrastructure is at greater risk than Bitcoin, and Google engineers have urged to move forward with applying more secure cryptographic algorithms.
Further reading:
https://coinshares.com/research/bitcoin-and-the-quantum-computing-risk
https://www.investmentmonitor.ai/tech/quantum-computing-bitcoins-crypto-encryption
https://www.newscientist.com/article/2305646-quantum-computers-are-a-million-times-too-small-to-hack-bitcoin/
Hack, 51% attack
A 51% attack is when someone gains control over the majority of the blockchain network, and abuses this power.
The problem for an attacker is that if he managed to execute and steal Bitcoins, the trust in the network would be gone and with it the value of the coins. The loot could be worthless within an instant.
Also, the network has plans (outlined by the creator Satoshi Nakamoto himself) to do a hard fork of the network and continue. This means: taking the snapshot from before the hack, restoring all the wallets to the state before, fixing the problem, and continuing as if nothing happened.
Crypto terms:
Fud: abbreviation for Fear, Uncertainty, and Doubt.
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