Intro
Bitcoin is having trouble correcting some of its mistakes.
I call these “derangements” – the scar tissue that won’t heal properly.
Scar tissue is key to answering the all-important question: will Bitcoin win? Or lose?
If scar tissue is low, then Bitcoin will win. It can coast its way (to victory), on network-effects alone. On the other hand, if scar tissue is high, then Bitcoin is probably doomed. A competitor can start over (without these scars), and out-compete us.
Here’s the current list, as I see it:
Large Derangements
- Lightning
- Lightning is a bad idea. Top LN-devs, and tech experts have already given up on it.
- Nonetheless, it persists as a kind of “rallying cry” – or purity test. It exists only for social reasons, and proud Lightning-shills are everywhere.
- Lightning repels “serious people” – ie, those who want to help make Bitcoin into a success. When they point out problems with LN, they are treated badly.
- Instead, if you build a fraud custodial app (stealing people’s Bitcoin), and name it “lightning”, you are showered with praise and attention. “Custodial” is a rejection of everything Bitcoin stands for – we are literally telling people, NOT to use Bitcoin. A horrible development.
- In practice, lightning requires either: [1] the evil custodians, or [2] ongoing full time R&D software development work. This is the very definition of “dependence” (and/or “centralization” if you prefer that word).
- Every minute, every dollar we spend on Lightning, is a waste – and worse, it digs us further and further into a hole from which we cannot easily escape.
- The “Non-Mined L2s”
- As I presented at OP NEXT 2024, the majority of L2 focus is on the wrong type of L2: the non-mined L2. [This includes LN, ARK, Rollups, Fedimint, etc].
- Why are the non-mined L2s doomed? Well:
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- Any successful non-mined L2, (scaling to 8 billion users), will net a huge prize – txn-fee revenue, in the hundreds of billions of dollars, per year. That’s assuming just $0.10 per Earth-txn.
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- Meanwhile, miners will still be collecting today’s fee-revenue – which is about $23 million per year. [2200 x 1008 x 52 x $0.20]. Ie, 10,000x less.
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- This will result in either [1] vertical integration (ie “Foundry LSP”), or [2] conflict between the miners and the L2.
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- The problem with that, is: the security model of these L2s, collapses if 51% hashrate is your counterparty. This means that [1] the L2 code is superfluous, and/or [2] the L2 will be stomped into pieces by the miners.
- Nonetheless, these L2s are culturally in vogue. They are a make-work scheme – to transfer salaries to pretentious devs, to toy with their academic, impractical designs.
- The Final Rotation
- Bitcoin must either go big or go home. Either it makes it to “8 billion users, and global money” – or else it will go to zero.
- Bitcoin has 10x-ed many times. However, the “final 10x”, (by definition) will take us from 10% of global money, to 100% of global money. This corresponds to a price rise, from $1.1 million per coin [10%], to $11.22 million per coin [100%].
- The “final wave” of adopters, can NOT expect the price to continue its meteoric rise. That will be the end of the 10x-ing – we have hit our ceiling. (Bitcoin might continue to “rise”, at around 9% per year, due to economic growth, but it will never again +900% in a single 10x event.)
- Therefore, the “final wave” of adopters, must be daily users of the currency. They must use it everyday – for payments.
- Bitcoin can easily scale to 8 billion users. However, the community is [first of all] not prioritizing this, and [second] in many cases, actively fighting against this. This is pure scar tissue.
- “Finished Product” vs “Hard Work Needed” – “Complacent” vs “Progressive”
- Some Bitcoiners, such as Saylor, believe that “Bitcoin is already finished”. OG Bitcoiners dispute this view.
- As a result, a mistaken and superstitious view of “Ossification”, has now become widespread.
- Ossification opens the door to Altcoin-ing. (Since there is no other way to try out a new idea.) Also, “Ossification” (the naive variety) means that Bitcoin must reject (by default) any good ideas that are invented.
- Paralyzed Development
- Originally, Bitcoin took a healthier attitude, to new versions of the software. It went like this: “Bitcoin is open source, so we will take all the best ideas, whenever they are invented”.
- Today, however, even the soft fork (ie, the optional upgrade), is today considered too controversial. Instead, new pull requests must obtain near-universal consensus – from everyone.
- Ava Chow, a prominent core dev, told me that Core will ignore all controversial ideas. They will not even comment, to say “this was a controversial idea, so we are ignoring it”. They will just quietly hope that the issue goes away.
- Nick Jonas, a researcher at Blockstream, was surprised to hear this, and confidently accused me of lying about it. But the bigger news, is that had no idea that this was the official policy.
- This state of affairs is very easy to manipulate – it is easy to manufacture controversy. And if there are many veto points, nothing will ever get done. People will hold the process hostage, for concessions.
- Neglect of Libbitcoin
- Libbitcoin is vastly superior to Bitcoin Core, on the main relevant dimension (performance).
- It was built by [basically] one guy (Eric Voskuil), tinkering in his spare time. This speaks directly, to how dysfunctional (and committee-like) Core must be.
- Node-runners are (rightly) afraid to leave Bitcoin Core. (That is reasonable.) But it also establishes a monopolistic barrier-to-entry. As Marc Andreesen says: “monopolies don’t innovate, because they don’t have to”.
- Brain Drain
- All of this adds up to a hostile environment, to any intelligent person.
- As Robin Linus said: “The brain drain is real though. I know dozens of bright researchers and engineers who left the bitcoin community because it takes more than a decade of pointless drama to activate even the most simple updates like covenants.”
- Bitcoin used to average 2 soft forks per year – now we are down to basically 1 every 5 years.
- Purity Tests
- All purity tests devour themselves.
- The standards (for “purity”) get higher and higher. Eventually, no one can meet them. A few hypocrites, (and their gullible followers) are all that remain.
- Meanwhile, the “pure” culture becomes static and predictable. You get tired of talking about the same stuff. It eventually becomes routine – and boring. People move on. It’s no longer a place for intelligent, dynamic, interesting people.
Medium Derangements
- MEV Superstitions
- Matt Corallo, Sjors Provoost, even Casey Roadarmor – all brainwashed by this MEV concept.
- If you ask people to define MEV – or [God forbid] how to measure MEV. You will get no answer.
- MEV is equivalent to: “A wealthy man, pays miners to do a somersault”. It is unpreventable.
- It Bitcoin’s case, it is also harmless – because of the prominence of competitive, PPS pools (which internalize these costs).
- In drivechain’s case [drivechain will probably be the main surviving L2], MEV is completely harmless, due to Blind Merged Mining.
- Nonetheless, people run scared from MEV, as if it were the boogeyman.
- Security Budget
- Such a simple concept, is profoundly misunderstood.
- These misunderstandings are VERY prevalent (in 2025), and frightening. They include:
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- Thinking that “a higher USD/BTC price will help, with fees”. It will not – those units will cancel out.
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- Mixing up “fee rates” and “total txn fees”. This is like mixing up “miles per hour”, and “hours”.
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- Feeble, poorly-reasoned extrapolations.
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- (Most bizarre of all) thinking that improvements in ASIC efficiency somehow help with security budget.
- Even among those who have “studied” the security budget – Dan Held, Saylor, Saifedean, Lyn Alden – the views are misguided and lazy. As a result, they under-appreciate the solution (merged mining).
- Collectively, these people drive us further down the Bad Path – of complacency, wishful thinking, and overconfidence.
- (FYI, here is a more sober, more accurate picture – from one of Bitcoin’s top miners. – [13:20] “we will all suffer if this is the way that Bitcoin scales.”)
- StratumV2
- This is a horrible idea. And yet – people continue to pour money and attention.
- Supposedly, it helps with “mining centralization”, by allowing the little guy to select “their” template (and impose it, on the pool).
- First of all, that is not true. The pool can always override the template – it is the pool that sends the “job” out (to the hashers). (An easy way to see this, is to remember: the pool can just disconnect, and stop talking to you at any time.)
- Second, it is not desirable. You wouldn’t want to join a pool, if your neighbor-in-the-pool (or a saboteur) could destroy the pool’s income, with their inane template decisions.
- Third, it has the opposite effect. It reduces the accountability of pools – by allowing them to blame bad templates on someone else (ie, the mysterious “little hasher”).
- Fourth, miners have switched (overwhelmingly) to PPS. PPS gives all block-construction authority to the pool, making SV2 useless. This is a very positive development.
- StratumV2 is 8 years old, yet somehow isn’t finished.
- The whole thing is a buzzword. It is part of a grift, and a disturbing trend: a “nice sounding idea”, which (under the hood) is bad. This is a sure sign of cultural decay – and of our vulnerability to charismatic charlatans. Thus, it is a sign of more bad things to come.
- BtcPayServer replacing BitPay
- Quite famously, BtcPayServer was born out of a reaction to BitPay’s stance on SegWit during The Blocksize War.
- The problem is: “make you obsolete”, implies that BtcPayServer will perform similar functions to BitPay. It does not.
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- BitPay was an ingenious idea: “de-risk” merchant adoption, via specialization of labor. To accomplish this, BitPay offers: [1] immediate conversion of BTC to fiat; and depositing into the merchant’s account, the next day; [2] low fees (in fact, 0% for the first million processed); [3] symbiotic growth (ie, a mutually beneficial relationship between the merchant and BitPay as a corporation); [4] a neat little sticker “Pay with BitPay” to evangelize Bitcoin (again, with quality-control on the brand); [5] Support (ie, a customer service phone number to call, full-time developers working on Shopify Integrations, easy “mainstream” UX, etc).
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- BPS does none of these things. It [1] does not convert to fiat, ever; [2] does not provide any exchange rate hedge; [3] does not establish a long-run symbiotic business relationship; [4] has no incentive to invest in a brand, and no ability to enforce one; and [5] cannot hire customer support people (since it makes no money).
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- BPS is an interesting project – but frankly, it has nothing to do with BitPay.
- And yet – BPS has a lot of fans. I’ve seen them myself, in my travels (especially across Bitcoin Europe). Last year, TFTC wrote: “BTCPay Server is one of the most important open source projects built on top of the bitcoin network and it has been awe inspiring to watch what the project has been able to achieve in less than seven years.”
- This whole line of thinking is false, and deranged. BtcPayServer is a volunteer project, that does not make any money, and does not provide the core BitPay services (same-day $-conversion, customer support) – its developers are not disciplined by the BitPay brand, nor by the market. This is a night-and-day different project than BitPay.
- Yet people still compare the two.
- The SegWit Discount
- SegWit was a blocksize increase: from 1 MB to 4 MB.
- However, most people misunderstood this. Instead, they thought that the SegWit txns were somehow “smaller” or “packed more efficiently” into the same old 1 MB block.
- Back in 2016-2017 (when SegWit was proposed/activating), this misconception was everywhere. Every time I talked to a Bitcoiner in person, they believed this. They were astounded when I told them it wasn’t true.
- John Carvalho – a crusader for SegWit back in 2017 – would later admit (2019/2021) that he cheered it on, not knowing it was a blocksize increase, at the time: “I was a major proponent of segwit but I didn’t understand the block increase aspect fully at the time.”, “the only reason the Segwit blockspace increase happened is that we were weak and unprepared as users, and we are lucky our ignorance and emotion only cost us a massive blockspace inflation”.
- BitRefill CEO is representative of what 95+% of Bitcoiners believed, at the time (“Segwit can reduce transaction sizes 30-50%”). Bloomberg ran an article with this misconception, which Luke-Jr tried to correct.
- Tadge Dryja wrote a post about how surprised he was, to learn (upon investigating) that this was the case.
- You would think – given how significant SegWit was – that this elementary fact would be common knowledge. But no – unfortunately, (for whatever reason), word failed to get out. Ignorance, spread faster than knowledge.
- Some people still haven’t gotten the memo: Blockstream twitter guy in 2023, Lyn Alden in 2023, this guy in 2021.
- Stock to Flow
- “S2F” was an unbearably stupid idea.
- It basically said: Bitcoin’s price is not determined by “supply and demand” – but instead merely by “supply”. That is what it said it was saying. In reality it was just an “extrapolation” over time.
- It mixed various statistical sins – misinterpretation of R2, violation of regression assumptions, over-fitting – with psychological sins – “wishful thinking”, “mathematical techno-babble”, “social manipulation”. I myself worked as a professional statistician and economist for 2 years, so I recognized all of these. Fitting points to a curve, does not make an argument – especially if you can secretly toy with the curves in private, before releasing one curve in public. R2 is only a measure of the model data fitting the model equation – it says nothing about the future (ie, Nassim Taleb’s “turkey problem”). The stock-to-flow of Bitcoin is already known, so S2F violates Hayek’s conception of prices as “reacting to new information” (this is also the mainstream economic view). As a projection of endless excess returns, it violates the Efficient Markets Hypothesis, etc.
- In other words, it was an incredibly stupid idea – designed to ensnare gullible people with wishful thinking.
- But it ensnared so many! When I visited Austin, TX in 2019, I was surprised to find many S2F believers! Even Michael Goldstein, who had written for the Nakamoto Institute back in 2014, was a believer. It was like discovering that Walter White was a Flat-Earther or something.
- Saifedean Ammous fully supported it. Endorsing (for example) this tweet (which predicted [in 2021] a mid-2025 Bitcoin price of $1 Million). And stating “0.964 for the R squared … I’ve never seen anything like this” – completely oblivious to the fact that the R-squared number is so high because it is doctored and misinterpreted. Again, it would be like Walter White saying: “a temperature of twenty billion degrees, right here on Earth … I’ve never seen anything like it”. (Yeah, that’s because your thermometer is broken.) It betrays a total unfamiliarity with the vocab words.
- Yet this was taken very seriously for a long time! (And still is, as far as I know.)
- See also, see also: “Anyone can make a [mathematical] mistake, but not when you have a 10 year career in economics. That’s when it becomes insane.”
- The 2025 OP_Return B-S
- One recent moral panic was: the Op return drama.
- Many people decided to weigh in… which was a big mistake for some of them, since we now know how unfathomably clueless they are.
- Some of the stupidest tweets would be these ones (and these). And this.
- Some correct tweets would be these.
- A few people wisely noticed the implications of this derangement: “[we’ve been tricked into] DEBATING THE DUMBEST FUCKING SHIT LIKE OP RETURN…TO DISTRACT US FROM BUILDING ANYTHING THAT ACTUALLY FUCKING MATTERS”
- Making matters worse, the bad actors were (in this case) rewarded with a bunch of undeserved attention. (See also.)
- Plus, the “core is corrupt” issue has finally come to light… but (unfortunately) in this situation Core is 100% correct, and the opposition to Core is an ignorant rabble. So –alas– we won’t get any reform/improvement to Core [out of this episode].
- The “Bitcoin Treasury” Companies
- How low we have fallen! In the distant past, we said: “buy Bitcoin, and use Bitcoin”. In the recent past, we shortened that to: “buy Bitcoin”. Now, we don’t even tell people to buy Bitcoin. We tell them to buy legal entities (such as corporations).
- First, this defies common sense. Obviously these companies have: expenses, taxes, regulations, and risk of theft/loss. In contrast, traditional ownership of Bitcoin is: free, allows for regulatory arbitrage (and privacy), and has zero risk of theft. The companies are strictly inferior. Strange as it may seem, we are now asking people to buy “paper” stock (an asset with unlimited supply, a 100% premine, and a centralized issuer), instead of Bitcoin.
- Second, even if a “Treasury Company” had some kind of advantage (and could achieve a higher ROI than Bitcoin itself), this advantage would (seemingly) be competed away, once there were two TCs.
- Third, these companies pose a risk to the Bitcoin brand. They muddy the waters, on what Bitcoin is about. They introduce a risk of catastrophic “rug-pulling” (as with FTX). They discourage actual use of Bitcoin (ie, the software) – they discourage self-custody, and rob miners of txn fees. They encourage low-IQ-style hype, and an unhealthy, Ponzi-like preoccupation with the exchange rate.
- Useless Taproot
- Years and years were spent on Taproot [2018-2021] – only for it to ship without the key promised feature (cross input signature aggregation).
- It was ridiculously overhyped, by almost everyone.
- It then remained at 0% adoption, for months and months – after about a year, it had almost reached 1%. (SegWit, in contrast, had reached 30% adoption by the end of its first year.)
- While no one was using it, Pierre Rochard said (on stage and with a straight face) that it was “the biggest technology upgrade in the entire space [ie, the whole crypto industry]”, and that it “now” gave Bitcoin “the most advanced cryptographic technology of any blockchain out there”. Cringe to the max!
- Eventually, the “Taproot Wizards” hijacked it, for an unrelated purpose (issuing useless tokens).
- Adam Back would later say (correctly): “Drivechain … arguably could have been more important or useful than Taproot”.
- Four years later, still not adopted. The adoption that it has, is due to Taproot Wizards – or due to user’s occasionally updating their wallet to something that defaults to P2TR (ie, they did not consciously choose to adopt Taproot).
- It is further evidence that Bitcoin is handcuffed to the non-mined L2s (ie lightning), and that Bitcoin development is geared towards furthering non-mined L2s – even if it means the death of the Bitcoin project.
- Making matters worse(!), the uselessness of Taproot has been reinterpreted, as a reason soft forks are bad. For example by this guy – and this attitude has percolated down to the noobs. In fact, it is a perfect example of a type of misinformation that spreads quickly and hardily to the easily-deceived.
- In reality, the attitude should be: because we screwed that last one up, we need to do two, soon, in order to get back on schedule.
- Utterly Bizarre Nonsense, said about my own project.
- Prediction Market Neglect
- Back in 2013-2014, I coded, published, and promoted the idea of “prediction markets on Bitcoin”.
- In May 2014, my idea made it to the top of Hacker News.
- My idea never launched because Bitcoin’s tech stack could not support it.
- PolyMarket launched recently, and has been somewhat successful. It does not use Bitcoin at all (and it must KYC the user, since it rejects US customers) – the creator is an Eth fan.
- Today’s “crypto prediction markets” still fall short of what I had envisioned 12 years ago.
- Just more evidence: we are driving good ideas away from Bitcoin. We need sidechains, so that developers can try fringe ideas without risking the L1 layer.
Smaller Derangements
- ASICBoost Blocked SegWit activation
- It was widely claimed (both [1] at the time, and [2] still today) that miners stalled on SegWit activation, because SegWit would interfere with (supposedly highly profitable) “covert ASICBoost”.
- This story casts miners as villains (bad people, prioritizing their bottom line), and developers as innocent victims – very convenient.
- There is an easy way to tell if the story is true. Check the network hashrate at the precise moment SegWit activates. After all, it should brick (or downgrade) lots of AntPool miners, right? Thus, the hashrate would fall.
- When we actually check, we see that the story is false. (See also.)
- But people keep talking as if this story were true.
- Similarly, people talk as if Jihan personally blocked SegWit. In reality, there were two large political factions – Jihan was just a high-ranking member of the largeblocker faction.
- Cringe Ethereum-Bashing
- At Bitcoin2022, this idiot confidently presumed that no one attending a Bitcoin conference would own any Ethereum.
- Bitcoiners bashed Eth for describing itself as “ultra sound money” (here here here – but there were many more). People laughed, as if it were some kind of impossible claim. But it merely referred to the fact that ETH’s supply was (at the time) projected to decrease – whereas Bitcoin’s was projected to increase (and it still is, as we have not yet reached the 21M cap). Yes - it was a hype marketing point, but it also had a dry technical meaning. This nuanced was (seemingly) lost on the hyenas.
- Michael Saylor: “Sometime this summer it will become very clear to everyone that Ethereum is deemed a crypto asset security, not a commodity. It will never be wrapped in a spot ETF. It will not be accepted by Wall Street; it will not be accepted by mainstream institutional investors.” (The SEC has since approved eight spot ethereum ETFs.)
- It is fine to bash Ethereum based on merit – but not based on cringe idiocy.
- The Blocksize War / Mining Grift / Mining “Centralization”
- The conventional wisdom is that [1] miners caused the blocksize war, [2] miners are untrustworthy and must be constrained, and [3] something called “mining centralization” exists, and we must work hard to prevent it.
- All of those are false, as I’ve written on here.
I will add to this list, if I think of any more!
Exasperation
When reflecting on the above list, I often feel that (unfortunately) it is a waste of time to talk to Bitcoiners.
It’s like engaging with Flat Earthers. Why bother?
Anyway, these days everyone just wants to pump the coin. Or, they’re in bed with some b-s lightning monstrosity (and secretly have equity or whatever). Or they have a book to sell (or whatever).
Conclusion
Its annoying to put up with all of this nonsense.
And – it drives smart people away. If we lose the smart people, then we lose our warning system. After all, 15 years ago, the “smart people” were all warning us to get into Bitcoin – they were warning of the dangers of fiat. The smart people will Jump Ship to a better idea, and make it a success. (Turning Bitcoin into a failure, in the process.)
Some argue that Bitcoin has “already won”. (Therefore, it has no competitors.) Unfortunately, this isn’t true.
- 4% – just 4% of the population owns any Bitcoin.
- 1% – the Bitcoin marketcap is just 1% of broad money.
- 0.1% – Bitcoin transactions are fewer than 0.1% of all Earth’s transactions.
Admittedly, Bitcoin has come a long way – as Obama quipped, “everybody’s walkin around with a Swiss Bank Account in their pocket”. In that sense, Bitcoin has indeed won. It changed the game, forever. But it has not “won”, in the sense of defeating all competitors.
The theme of “[truth-oriented] vs [loyalty-oriented]”, is explored in many books and essays, including:
- How to think for yourself, by Paul Graham (2020)
- Conflict vs Mistake, by Scott Alexander (2018)
- The Scout Mindset, ie “Scouts vs Soldiers”, by Julia Galef (2021)
Consider this excerpt:
There are some kinds of work that you can't do well without thinking
differently from your peers. To be a successful scientist, for example,
it's not enough just to be correct. Your ideas have to be both correct
and novel. You can't publish papers saying things other people already
know. You need to say things no one else has realized yet.
...
[At successful startups,] founders and early employees are almost always
independent-minded; otherwise the startup wouldn't be successful. But
conventional-minded people greatly outnumber independent-minded ones,
so as the company grows, the original spirit of independent-mindedness
is inevitably diluted. This causes all kinds of problems...
Bitcoin seems to be undergoing this same shift, [from independent-minded to conventional-minded].
This points toward an opportunity – if you jump ship at the right time, it might be possible to experience +100,000% returns… twice in one lifetime.
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