What Is A Shitcoin?
Myth Of Decentralisation
Slow & Costly
What Is A Shitcoin?
Within the increasingly toxic cryptocurrency community, the articulate terminology – namely sh*tcoin – is a phrase that is often thrown around. Commonly this is a term that one fluently uses to express their disgust regarding the failure, and more conspicuously, the total flaws within a particular cryptocurrency.
Most commonly this term is used by Bitcoin BTC holders, whom based on the high price of BTC, solely deem that this is a metric to gauge the technological soundness, and thus superiority of a set protocol. Therefore, the use of the term shitcoin is often thrown around by the Bitcoin BTC holders, in a clear attempt to dismantle the narratives of other cryptocurrencies, and therefore incentivise more Bitcoin BTC holders, via cult-like-narrative creation.
However, within this piece, I want to resurface my opinions I expressed many years ago. Namely, the fact that, ironically BTC itself is a shitcoin. Whilst other cryptocurrencies too are deserving of this pseudoscientific terminology, for now I shall solely focus on BTC.
Myth Of Decentralisation:
Purpose Of Bitcoin: Is Not Sole Decentralisation:
Firstly, let’s start with a personal favourite, specifically the idea that Bitcoin BTC is sufficiently decentralised, thus meaning it is the most secure. Whilst communistic BTC geniuses claim that the sole goal of Bitcoin – as based on the whitepaper – is decentralisation, and thus decentralisation for decentralisations sake – this unfortunately is divorced from reality.
On October 31st, 2008, Satoshi released the whitepaper titled Bitcoin: A Peer to Peer Electronic Cash System. Its purpose is to explain the decentralized electronic payment system based on economics.
The word “Bitcoin” is only used twice in the original whitepaper and goes on to describe a system for electronic transactions without relying on trust. Governing the system are fixed protocols that utilize an immutable blockchain.
The medium of exchange for the system is a digital coin. In essence, Bitcoin is a triadic term that comprises fixed protocols, a digital coin, and also a decentralized blockchain forming an Electronic Cash System that works as a Peer-to-Peer Exchange.
The real purpose of Bitcoin is for Bitcoin to act as an informational commodity – namely the intersection of a commodity, and a contract.
In other words, Bitcoin as written within the whitepaper, claimed to solve the double spend problem. This was a deep rooted, and philosophical debate in which questioned how one could trust the use of digital cash within a decentralised manner, in consideration of the fact that this ledger could not be trusted.
Satoshi notes within the Whitepaper that society wants to make commerce on the internet a reality. Currently, the typical person on the internet does not have the ability to spend a dollar online. The notion of microtransactions is not possible. This is specifically true if one is based within a poor nation, in which microtransactions would have major utility. Bitcoin solves this – the idea of small, and casual transactions.
Bitcoin was created to solve issues within our society, not to solely make a few technocratic elites much wealthier, solely via HODL. Issues can be solved within our society through building upon the incentive driven security, clear within the blockchain, on top of the revolutionary PoW system in which one can exploit the use of microtransactions for a societal good. Via these technologies a range of use cases become available, from saving the unbanked, to micropayments to access paywalls and content.
What makes the narrative by the Bitcoin BTC community even more ironic is the fact that Bitcoin BTC is actually not decentralised to the extent in which the community wants you to believe. Instead, BTC is actually controlled by 3-4 companies, whom exert the power to control the majority of the network.
Firstly, I want to note that centralisation occurs within two forms for Bitcoin BTC. Firstly, via the use of social narrative manipulation, thus creating an eco-chamber void of any logic and thought. Secondly, via the technologically clear power concentrated within the hands of three main companies.
To address the first point, in relation to social narrative creation, and the void of logical thinking apparent within Bitcoin BTC, it is important to understand that this narrative creation is conspicuous.
To understand this point, it is wise to look deeply at the fundamental atomic, and biological principles behind homo sapiens. During the cognitive revolution, this was a period in which homo sapiens became divorced from solely biological processes, and thus adopted the use of fiction, ideas, images and fantasies in conjunction. This is divorced from other animals, whom are solely driven via biological processes. Homo sapiens however, seemingly evolved to uniquely transmit information about things that do not exist at all – including cultures, myths, and Gods. This interoperability between the objective and imagined reality has allowed sapiens to surpass years of evolution.
The point being is that, since the cognitive revolution, sapiens adopted the use of gossip and fiction within society. Modern institutions today operate via the same basis of fiction. This fiction, and gossip, gives sapiens the ability to cooperate at the masses. The use of a shared belief is necessary to enable cooperation at scale – with billions of individuals. Comically, homo sapiens are mostly like apes at the atomic one-to-one level, in regards to human interaction and basic needs. However, unlike apes, beyond the point of approximately 150 individuals, this is where the major differences are apparent.
Apes are unable to cooperate within large tribes – unlike humans. Homo sapiens are able to cooperate with 100,000s of individuals on a day to day basis – perhaps for example- when walking through London For apes, this would result within ultimate chaos, and mass conflict. However, humans have no issue for cooperation at the masses. We do not descend into mass chaos, conflict and war. Instead, we cooperate – peacefully.
The reason as to why humans cooperate peacefully is based on the use of fiction and gossip. Gossip helped sapiens to form larger and more stable bands, however even gossip has limits. The natural size of a group bounded by gossip is about 150 individuals. Most people can neither intimately know, nor gossip effectively about, more than 150 human beings. Thus, sapiens overcame this magic number – via the use of fiction. Fiction allowed the formation of cities, because a large number of strangers were able to believe in common myths. The collective imagination is fundamental for the formation of large societies.
As experienced within more youthfully developed sapiens, there was, and still is today, a common shared set of beliefs in which constitute a fiction, and ultimately a culture. This can consist of religious statues, and rituals.
Within the case of Bitcoin BTC, and the cult-like commentary that is apparent throughout the tribe, the clear sapien-like-behaviour that surfaces to the forefront. This is via the use of rituals, and icons in which one worships. The notion of HODL, and “laser-eyed” narratives, is a method to identify which member is “part of the tribe”, and thus to convey alliance without fully understanding the person in question.
This is a cultural set of beliefs that is perpetuated through the Bitcoin BTC community. Anyone that goes against or criticises the statues and rituals in which are worshipped via the community, is viewed as a violent actor, and therefore a threat against the tribe.
This level of tribalism is unfortunately present within any online community, however specifically within the case of Bitcoin BTC, this ritualism has become increasingly present, and thus has acts as a barrier into impartiality and rational discussion.
To add, when one combines this ritualism, in conjunction with the clear and true complexity of Bitcoin, this creates a true recipe for disaster. Not solely the technological complexity, but also the political debates and countless years of discussion in which has culminated within the technological implementation of each Bitcoin iteration.
Fundamentally, it is incredibly hard to truly understand the history, and the technological complexity in conjunction.
Thus, this ritualistic behaviour, combined with tribalism, has reduced the perceived necessity associated with truly understanding the complexities behind Bitcoin – both historically, and technologically. This has created a true eco chamber, in which stems from a deeply biological predisposition present within sapiens.
Therefore, centralisation is apparent within the sense of a disguised, one sided narrative, in which anyone that criticises, or presents alternative opinions, is instantly disregarded and cast away from the main fiction of the tribe.
Secondly, via the technologically clear power concentration, within the hands of three main companies.
Decentralisation Is A Matter Of Incentives: (https://coingeek.com/decentralization-a-widely-misunderstood-concept/)
Common narratives promote an idea of decentralization as a wide distribution among a large or even unlimited number of participants (people, entities or machines), as if it were an abstract mathematical concept, as well as an absolute “good” in itself.
But the need for decentralization is based on its utility in solving some of the problems created by centralized systems.
The decentralisation aspect assumes that you are more decentralised having a thousand people rather than ten large companies all competing. The reality here is the opposite. Ten competitive companies under rules that stop them colluding and act against monopolies create an environment that is far more decentralised and secure and robust than you get with a thousand individuals. – Dr. Craig S. Wright
The kind of decentralization that is really effective is not a mathematical distribution among a large or even unlimited number of nodes, which is not only unachievable (as BTC has inadvertently demonstrated), but is also unnecessary, or even undesirable.
What is desirable is not decentralization for the sake of decentralization, but that has an optimal ability to avoid a single point of failure or an effective collusion of a majority.
Via the method in which the PoW consensus is designed, even if the system were solely dominated by one single minder (worst case scenario), the system would still be far more secure than traditional centralised systems.
This is because, firstly, the miner is economically incentivised to build the chain as a whole, in comparison to creating a particular interest within a specific transaction. Furthermore, there is a high level of transparency which tends to expose wrongdoings.
These factors in conjunction make the Bitcoin blockchain, secure, and thus decentralised via a matter of incentives. However, importantly to understand, a system with control by a single dominating party always does have security vulnerabilities, because perhaps even if the party itself is not evil, the system may be hacked by a third party, thus intending to do evil.
In this sense, decentralization matters because it improves security.
In that, a couple major mining nodes balancing each other would result in a system that is far more secure than a system that is controlled by just one party. This has a two reasons:
(1) Decentralization with independent parties exponentially decreases the chance that a controlling portion of the system can be simultaneously hacked.
(2) The way Bitcoin mining is designed makes it very hard for parties to commit a collusion, because although two parties might agree upon a plan to cheat the system, one party is always more economically incentivized to betray the other party by not following the collusion but instead remain faithful to the system. The odds of forming a collusion among the parties also decreases exponentially as the number of parties increases.
The above combined exponential nature quickly leads to a practically secure system as the number of independent systems (nodes) increases, such that there exists a point beyond which a further increase would no longer be needed in a practical sense, especially when the cost of doing so is considered.
Note that this is not to argue that solely two mining nodes is sufficient, but it is to illustrate the fact that Bitcoin does not require tens of thousands, or even unlimited number of nodes.
The absurd commentary within the case of BTC, is the notion that there are non-mining nodes, whom thus can secure the network. However, this is clearly untrue. A skewed consensus has recently appeared in which there is little distinction between a mining node, and a non mining node.
Only “mining nodes” creates block and receive the block subsidy, yet some people believe that those who simply monitor transactions without processing them serve as an important security function.
This belief exists in order to mislead individuals about the nature of Bitcoin, and the distributed form of the network. BTC supporters can claim that their network of miners is huge and widely distributed, and thus can not fall victim to Government intervention. This is not true.
Non mining nodes provide no utility as to the security of a blockchain. This is because these non mining nodes fundamentally are not adding blocks to the blockchain, and thus have no power over the creation, and verification of these blocks. These non mining nodes solely watch.
Power Concentration Within BTC:
Furthermore, fairly ironically, as touched upon previously, there is undoubtedly a large concentration of power within the hands of a few mining companies for Bitcoin BTC.
Miners are competing against one another to solve a mathematical puzzle, so that miners then have the right to complete transactions on the network. These puzzles are challenging to solve, however once finished, the solutions can be quickly validated by other miners.
Miners are economically incentivised to keep a validated public history of the transactions, and thus continue to secure the blockchain. The broadcasting miner who successful updates the blockchain earns a block reward.
Rewards consist of newly minted Bitcoin, and fees attached to the transactions that have been inserted into the new Bitcoin block.
Bitcoin protocol has a degrading static subsidy. Number of new Bitcoins produced per block diminishes by 50% every 210,000 blocks. The fixed subsidy was never meant to be the primary source of revenue supporting miners, but the transaction fees from each block mined.
The important factor to note is that, with Bitcoin mining, the transaction fee from each block mined is the fundamental primary source of revenue, instead of the fixed subsidy. These transaction fees come from transactions and usage of the Bitcoin currency, in comparison to solely holding. However, due to the fact that Bitcoin BTC is not Turing Complete, scripts have been ripped out, and the ability for microtransactions can not occur, this basically results within no utility for Bitcoin BTC at all, and therefore little transactions.
Therefore, when the fixed subsidy fades – in which shall eventually occur – in conjunction with little-to-no transactions occurring on the Bitcoin BTC protocol, this will act as a major disincentive for miners to secure the Bitcoin BTC protocol. Instead, in consideration of the fact that the Bitcoin BTC subsidy, and transaction fees are not sufficient to cover costs anymore, this will result within the miners moving away from securing the Bitcoin BTC network.
The incentives shall shift. This is likely to become exacerbated via the declining price of BTC, and the little-to-no real utility & transactions apparent on the Bitcoin BTC protocol.
The economical incentives of mining BTC – are skewed.
The economics are all backward and, sadly, unnecessary. If people would just read the original design of Bitcoin for what it was, peer-to-peer electronic CASH, then miners would be forever compensated by ever-increasing fee revenue, which will be defined by the transaction VOLUME that they are able to process. This keeps the PER TRANSACTION fee rate to a fixed and stable sub-cent fee. For example, BSV currently has fees which consistently are US$0.0001 per transaction, while at the same time, the fee revenue for miners as a percentage of their total MEV (miner extractable value), has increased to five to 10% in some blocks even bigger. When the ratio of fees to subsidy in total block revenue surpasses 50%, we will start to see some interesting economic effects that will drive miners to leave BTC and mine BSV instead. This is because they can make more in USD terms for the same amount of energy expended.https://coingeek.com/btc-fee-model-is-all-wrong/
This is the model of BSV, where the more people use the blockchain for transactions in a peer-to-peer fashion, the more fee revenues the miners can make, which, if they are intelligent businessmen, they will re-invest into increasing their transactional processing capabilities.
Miner’s block reward = block subsidy + network transaction fees
As mentioned, clearly present here is the fact that Bitcoin BTC is highly concentrated via a few – economically skewed – miners.
This is mainly as to why advocates of Bitcoin BTC are promoting this narrative that non mining nodes have utility within securing the network. This, as mentioned earlier, is clearly untrue.
Slow & Costly
If this is not convincing enough, Bitcoin BTC is majorly slow, and incredibly costly. The reason as to why is mainly down to the absurd obsession over excessive levels of “decentralisation”, thus reducing the block size to a static 1MB level.
This static block size is innately communistic, as it disallows any competition between nodes to secure, and thus protect the Bitcoin BTC network. Via an increasingly large block size, this results within competition between miners, therefore emulating a capitalistic and competitive system.
Looking at the transaction speeds globally, a fairly comical image is revealed:
- BTC is capable of 7 t/s
- ETH capable of 15 t/s
ETH claims to achieve 3000 t/s – at the end of their roadmap – however this is mute in comparison to Visa, and their current t/s rate of 60,000.
BSV today, the original Bitcoin protocol, is capable of 100,000 t/s globally, and this occurs regularly, without stress tests. Furthermore, the largest block ever mined within history is a 4GB block in which contains 2 1/5 million transactions, and costs solely 10/1000s of a penny per transaction. This is the largest block ever mined, and occurred on the original Bitcoin protocol – namely BSV.
However, the future for BSV is far more optimistic. In fact, in solely a few years, it will be laughable 100K transactions p/s, and a 4GB block will prove to be miniscule in comparison future sizes.
It is evidently clear that the Bitcoin BTC protocol has taken society backwards in regards to transactability, and microtransactions. Due to the fact that within BTC, the block size is stuck, and static at 1MB, this limits the amount of transactions that can occur at any given time.
Furthermore, as the blocks fill up, miners have to prioritize the transactions and this is done by higher fees. Some transactions, those with lower fees, are forced to wait longer in order to be processed, which does little to improve BTC’s position as a viable currency.
Small blockers (sometimes) believe that Bitcoin is not a payment system, but instead is more akin to a bank in which is designed to solely store Bitcoin – without any practical utility. Therefore, they wanted to use a 1MB static block limit to remain permeant to allow every person who wanted to run a node the ability to, without paying for too much hard drive space.
However, clearly this means that during times of congestion, transactions fees become incredibly high. However, according to the same logic of the Bitcoin BTC community, this apparently does not matter much, as Bitcoin should not be transacted except solely in large denominations or big batches anyway?
For Bitcoin BTC, transaction processors, or miners, are not supposed to have a “vote” upon which version of the protocol software to use. Updates are fundamentally mandatory, and the choice is solely updating, or leaving the network.
There is a handful of Bitcoin BTC developers, and can decide to change anything about the Bitcoin BTC protocol. Recently, the developers decided to change how Bitcoin transactions are ordered, or validated. One of the most outrageous examples was the SegWit implementation.
Note that the ability for developers to make rule changes applies only to those using the BTC network. It does not apply to Bitcoin SV, the original Bitcoin protocol. With BSV, the fundamental transaction rules are “set in stone.” The rules may not be changed according to developers’ (or their financial/ideological sponsors’) whims.
If you record a transaction on the Bitcoin network today, it must still work and be valid hundreds of years into the future (if the Bitcoin network itself is still running). For everyone from ordinary spenders to enterprise-tier projects to use and build on Bitcoin, they must be able to trust that the rules won’t change; the goalposts can’t be moved; the ground can’t shift underneath them.
Compare this to Ethereum, which over the past few years, has shifted the entire network from a secure proof-of-work (PoW) processing algorithm to proof-of-stake (PoS). Finally activated in 2022, this radically changes the economic incentives for validators on the network. Where previously the “miners” had to invest in physical hardware to participate, all that’s required now is a hefty sum of ETH to stake—and who knows whose ETH they’re staking?
This is why processors/nodes/miners shouldn’t be regarded as “reaching a consensus” or “voting” on changes, and why developers shouldn’t be proposing fundamental changes in the first place. Updates should address operating efficiencies or fixing bugs, making updates uncontroversial. Nodes simply enforce the rules.
Whilst it clearly states within the Bitcoin Whitepaper, that Bitcoin is set in stone, and thus does not change, Bitcoin BTC has shown countless examples of radical protocol level changes. One major change was back in 2017 – namely SegWit:
SegWit was introduced in 2017 by BTC core, whom, rather than solely raising the 1MB block size, instead via SegWit wanted to indirectly increase a block’s capacity to store more transactions by separation of the signature (witness) data from the transaction data.
Thus, this creates two hashes: a regular hash of just transaction data without the signature; and a witness hash consisting of a hash of both of the transaction data and the witness data.
Bitcoin protocol already uses a Merkle tree – hierarchical data structure composed of hashes of information – to store transaction data, and places the Markle root into the bock header of every mined block.
SegWit creates a second Markle tree – to separately store the witness hashes, but importantly does not require nodes to keep signature data.
SegWit assumes that signature data is only needed when transactions are being validated, and can thereafter be discarded as unimportant.
Moreover, bitcoin nodes would not be required to keep the signature data. As Wuille further explained, “[SegWit] allows you to drop the signatures from relay whenever you are relaying to a node that is not actually doing full-validation at the time. It also allows us to effectively prune this data from history, maybe we’re fine with not all nodes in the network actually maintaining these gigabytes of signatures that are buried under years of proof-of-work now.” This is a key point because SegWit opens up the likelihood that most bitcoin nodes do not keep the signature data, because it is simply less efficient and costs more to do so.
If most nodes drop the signatures (which is the likely result), the blockchain can only reliably serve as a ledger for worldwide business transactions if:
Some nodes choose to specialize in storing all signature data. This gives those nodes special weight (as a trusted source) to verify and authenticate bitcoin transactions and signatures. But this is antithetical to the idea of bitcoin as a decentralized, trustless system, with no central authority; or
Companies and consumers operating on the blockchain must keep their own copy of transaction records (or their own nodes storing all blockchain transactions with signature data), so they have access to the signature data later if needed for legal proceedings or audits. But this requires massive data duplication and eliminates the efficiencies of using the blockchain as a decentralized ledger.
Within the case of SegWit, introduced in 2017, this shows clearly how Bitcoin BTC, has changed dramatically in comparison to the Whitepaper’s philosophical ideas, and thus is not deserving of the title: “Bitcoin”.
Early Stage Internet Protocol:
As is true within the case of the internet protocol, labelled TCP-IP, the protocol for the basis of the internet, or next generation blockchain, must not arbitrarily change on a whim – if ever. If the internet protocol changed arbitrarily, this would result in disastrous consequences for companies and businesses that use, and build upon the internet.
Fundamentally, these changes of the Bitcoin BTC protocol, indicates the innate flaws of BTC, and thus the inevitable failure in which shall prevail. As is true within the case of the LN – the Bitcoin changes and “soft” forks, act as temporary “plasters” for the Bitcoin BTC network.
Bitcoin BTC continues to push forward other protocol changes, in an attempt to solve the unsolvable flaws within the Bitcoin BTC protocol.
Mike Hearn fluently explains the flaws of a soft fork, and how this tricks community members into believing that this technological change is “sound” (On consensus and forks. What is the difference between a hard… | by Mike Hearn | Medium):
This is a key part of Bitcoin’s decentralisation: by using your own copy of the ledger that was calculated by your own computer, and then only accepting payments that are valid according to that ledger, you reinforce key economic policies like the inflation formula and the absence of double spending.
The idea is simple: nobody, not even a miner with majority hash power, can trick you into accepting money that violated these rules.
Or ……. can they?
And here’s the problem with soft forks.
In a soft fork, a protocol change is carefully constructed to essentially trick old nodes into believing that something is valid when it actually might not be.
Here’s an analogy. Imagine a big company with a team of auditors, and a team of traders. The traders want to make a new type of trade that the firm currently disallows: the auditors check what the traders are doing to enforce company policies. Changing the policies can be slow work. But one day, a trader has a brainwave. “Hey guys”, he says, “I’ve had an idea. I’m going to submit some trades for derivatives, but I’m going to write it down on the paperwork as buying land. When you see that, just mentally replace land with derivatives, and carry on as normal. The auditors won’t find out!”
The auditors are people and services that are running Bitcoin full nodes. The traders are people who want to change the rules. Whether their rule change is a good idea or not isn’t relevant here: what matters is how they’re doing it. The auditors are now cross checking every transaction, but their calculations can arrive at the wrong answer, because they don’t understand the true nature of the transactions they’re verifying.
Knowledge is power. When you know the rules have changed, you can use that information to take better decisions. With a soft fork, you don’t know the rules have changed and are flying blind.
Any change to Bitcoin that is accepted by the majority inherently “disenfranchises” the people who didn’t want that change. This has nothing to do with hard or soft forks: regardless of which technique is used, if transactions using the new rules start to enter widespread circulation then sooner or later you will receive coins in payment that trace back to a new-rule transaction. And then you have two choices. You can verify the new rule, or you can not verify it. But the only thing not verifying does is reduce your own security: it’s cutting off your nose to spite your face. So in practice everyone always upgrades. To disagree with a soft fork that is adopted by the majority is no different than disagreeing with a hard fork: if you don’t like the new rules ….. tough cookies. That’s trade.
As a conclusion, it seems that mass hysteria is present among the Bitcoin BTC community, in which there is an inability for any rational debate or discussion.
It seems clear that the use of a static 1MB block size is incredibly flawed within the case of Bitcoin BTC, and thus results within other fundamental areas of the blockchain being skewed majorly. This includes that of transactability speeds, costs, and the necessity for microtransactions.
As a society, and a community, we must have rational debate and discussion in reference to which Bitcoin technological implementation is idealistic, and which implementation is the “real Bitcoin implementation”.
What can be said however, is the fact that Bitcoin BTC, is incredibly flawed, and it seems that currently, solely fading narratives are keeping the cryptocurrency in trend. However, this shall fade.
With all bubbles, there are companies, or ideas in which become popular. However usually, these trendy ideas and companies, usually are solely a function of mass hysteria and hype.
With the case of Bitcoin and cryptocurrency, this can be seen. However, we must also have nuance and understand the capabilities of the true implementation of Bitcoin, and the utility of a decentralised blockchain in which is capable of microtransactions.
This could be the most disruptive technological force of our generation.
Be open minded – and be nice.