Is Bitcoin the only crypto that will survive FTX? | Interview with Bitcoin maximalist

Celsius, Three Arrow Capital, FTX and now BlockFi 2022 has seen crypto companies falling one after another, undermining trust in the ecosystem.

All of crypto is trying to rebuild a financial system that we already have based on manipulation.

But Bitcoin is something different, say the Bitcoin maximalist. To them, Bitcoin is the only crypto that has no counterparty risk and therefore the only one that can be trusted. But can Bitcoin really fix all this mess? Can Bitcoin really be the one and only base layer for the financial system of the future? We discuss these questions with Jeff Booth, entrepreneur and author of the Price of Tomorrow. I'm Giovanni. On this show we challenge the ideas that shape the world of crypto. In each episode we assess a crypto narrative, a macroeconomic outlook or a potentially disruptive technology. Only the most solid ideas will make it to the other side. If you enjoy our content, please consider leaving a like and subscribing to our channel. Now let's get into it. I understand that you envision Bitcoin as the base layer for the future financial system so that people won't have to rely on these third party entities to decentralized entities like ftx, like Celsius, like all these examples that we saw this year.

So all of crypto is trying to rebuild a financial system that we already have based on manipulation and centralization. The entire stack, besides Bitcoin. And Bitcoin is the only thing that changes cha changes that we don't need another system requiring greater credit that can never be paid back, that has to manipulate our time and information to pretend it can pay it back. We need a different system that puts the incentives of all of us together and aligned incentives to the best of us instead of based on a theft. And so the entire that's actually partly the reason why this entire system, the entire crypto ecosystem is going to go to zero besides Bitcoin.

After the collapse of all these CEFI platforms, a lot of people are saying this is time for Defi to emerge. So we, we noticed that there has been an increase in activity on Defi platforms because as we know, Defi offers this sort of peer to peer services which don't require custodians third party risks and so they seem to provide a solution. But you don't believe those are a solution, right?

We talk about Defi. Decentralized finance cannot exist. It's impossible for it to exist on a centralized platform.

When you say centralized platforms, you mean Ethereum, right?

I mean anything other than Bitcoin. Because I have not seen something that passes the test that can be decentralized in security.

A lot of people see decentralization as a sort of spectrum. So you can have more or less decentralization and probably the traditional financial system is still far more centralized than those platforms that you are criticizing on which the defi system is working on.

So. So maybe right now, but if you project it forward and the world moves on top of it, Not a chance. Not a chance. Because functionally they have to become more centralized. They have to. It's not a. That's not a guess. That is looking at the logic on how it's built. And if you look at Ethereum today, and if you look at how it could be overcome, how the state could just take it over, it's because it has to become more centralized as a function of how the blockchain works.

And now let's explain better how Bitcoin is addressing this trilemma, the blockchain trilemma. So you claim that Bitcoin is the perfect protocol for building the future financial system, specifically because it solves two of the three components of the blockchain trilemma. And it doesn't need really to solve the third.

I'm saying it doesn't have to solve that. In a layered system technology protocols develop in layers instead of one big behemoth that solves everything. And for the layers to function properly, they have to harden. And that means they have to be super, super resistant to any changes at the base layer until the next layer can be built built on. That base layer needs to be proven decentralized and secure. And so Bitcoin is hardened for 13 years, provable, more secure, provable, more decentralization and outside of control of any government. Nothing can stop it on the base layer. And then layer two comes on and can talk to the base layer. And layer two becomes lightning and it opens up an entire new payment rail on top of payment rails on top of layer one that we couldn't see that many people that were talking about crypto that why they went into crypto the first time is Bitcoin couldn't provide the payment layer because it could only do five to seven transactions a second on layer one. So they solved scalability or they tried to solve scalability and sacrifice the decentralization by doing so.

So Bitcoin critic and Ethereum proponent Ryan Berkmans explained three reasons why Bitcoin won't be able actually to become this base layer for everything, like the one that you explained. So here are Bitcoin's three problems according to him. Let's address them one by one. So the first problem according to him is that Bitcoin is uncompetitive because of its lack of apps and the high cost of proof of work. So let's address that first.

So the high cost of proof of work on the base layer, as we've already talked about, is a feature, not a bug. It is the way that you drive decentralization and security, period. It's the only way to be able to, from a physics standpoint, to be able to, to be able to do that. And yes, it doesn't, on the base layer, it doesn't allow apps to be built, it doesn't allow scalability, that's actually the, the feature. But in layer, in layer two, it allows all of that, all of that scalability that I can send lightning transactions around the world. I do send lightning transactions around the world right now for fractions of a penny unlimited. So now you have your second layer talking to your first layer without sacrificing the second layer, without sacrificing the first layer, they can build an entire ecosystem on top of that for the lowest cost, period.

Okay. And short follow up question, why there are not so many developers on the Bitcoin blockchain compared to Ethereum, for example.

And that's a pretty simple question. So if you had, let's just, let's just use block size as an example. Let's say increasing the block size, you could put more things in that you could build smart contracts in, right? And then that would give a whole bunch of developers a way to build a whole bunch of interesting things on top of your blockchain. So it would empower an entire audience. But by doing that at the base layer meant the block size would have to increase and the compute power to audit the system would have to increase. And that would concentrate the centralization in very few nodes that had the money to be able to do that. It would be a trade off.

Okay, that was pretty clear. So now let's address the second concern. So Bitcoin security budget is unsustainable because its transaction fees haven't and won't grow nearly enough to make up for BTC issuance reduction from the halvenings. So as a result, Bitcoin is currently on track to suffer successful 51% attacks. To solve this, the Bitcoin community must become willing to sacrifice the 21 million supply cap and inflate BTC on an ongoing basis to buy security so how could you command this?

Okay, so when I see a question like that that is just so factually backwards, it's hardly even a question that, that it's worth it. Because if that was true, then hash rate wouldn't be moving up on Bitcoin, security wouldn't be increasing and, and, and decent security wouldn't be increasing on Bitcoin. So, so if there, if it was easier to attack Bitcoin today and there was that much power to attack it, then why isn't it, hasn't it been attacked? So secur security is exploding. If you look at exahashes on, on Bitcoin as a measure, measure of, of the energy use of Bitcoin secure and, and, and mining of Bitcoin, it's exploding all around, around the, around the world. So there's, it's, it gets harder and harder every year, not, not less hard.

Let's address the last of the concerns, which is about quantum computing. So he's making the point that one day there will be this technology, quantum computing, that will be able to break the cryptography that Bitcoin is based on, thus kind of undermining its security.

You just say, okay, Quantum is going to, to break security at some point. Wouldn't you expect Quantum to try to break security on something like a bank first or the Federal Reserve first or. Because this security underlying this is encryption security that runs the entire world. And so if quantum in some time is able to break this, then it could also break every other security instrument in every other crypto, every other financial institution, every single other thing, codes. And, and wouldn't there as well as that would happen, wouldn't you expect that all of the people within Bitcoin, if that were to happen to develop quantum resistance in, in that threat, just like that would happen all over the world. So that's, that's the way technology evolves. And you're constantly looking to okay, what's the next threat? And you're moving, moving ahead of that. Even if you took that to its logical conclusion tomorrow, there's Quantum that could break that. It's likely not going to break Bitcoin first because there's not enough incentive to do so. And if it did, it would ruin the same incentive that it was trying to crack to be able to create the incentive to create the, to crack it.

Thanks a lot, Jeff, for this incredibly insightful conversation. I hope to have you again on our show.

Thanks, Giovanny.