They just don't get it

A few weeks ago, I stopped reading articles about Bitcoin. The level of ignorance and incompetency in the press and in blogs is staggering, and I became fed up with the same uninformed arguments being presented over and over.

In previous posts, I drew attention to the disconnect between the Core, the press, Bitcoin traders; and everyone else. Few read that article, or few cared, because not only are the same sorts of topics about the value of the Bitcoin network being published, but the ignorance in these writings is staggering. It surpasses anything else I've ever encountered, and it mystifies me as to how people can write things that are so obviously wrong.

The topic is framed in different ways depending on the source. In Bitcoin trading forums, posters continually write about the "altcoin bubble," stating that there is no way that ETH is worth $100 because nobody is using altcoins. According to these people, users are going to come back to Bitcoin someday after the "altcoin craze" ends. There are bloggers like Jimmy Song, who among other points asserts that Bitcoin is valuable because of its "network effect." Finally, the Core continually pushes propaganda that Bitcoin Unlimited will somehow destroy the Bitcoin network, which needs to have extreme consensus for any changes because the network is functioning "just fine" as it is.

But the truth is plain to anyone who has done any real investigation (i.e. by using the network for everyday commerce.) Whereas before I stated that Bitcoin was going to fail, now I will say that it is failing. This week, Bitcoin passed the point of usefulness, and people are losing and going to lose huge amounts of money because they aren't paying attention to the facts.

And here are the facts. On Wednesday, we paid $23 to send a single transaction - with a 12 block confirmation time. To send in the next block would have cost $100. As a result of these increasing fees, we raised the free payout threshold to $100. This is the same threshold that is set to $1 on other coins. At the same time, Bittrex raised its withdrawal fees to $2.50 per transaction, and other exchanges are following suit. Even if fees were to never increase above what they are now, they would still cost us $17,000 in profit per year. The crisis is so acute that in order to discourage customers from using bitcoins, we announced a further threshold increase to $250 on Memorial Day.

Customers are getting the message, but interestingly it's not because of the threshold increases themselves. The threshold increases draw attention to the fee problem, and the messages I receive state that declining bitcoin payouts are due to the money expected to be lost when the money is resent. If a single-input single-output transaction costs $25 in three months, as is likely, then 1/4 of current $100 payouts will be lost to fees when the money is spent. Unsurprisingly, this is unacceptable to forward-thinking customers, and as a result, bitcoin payouts have been slowly replaced by other coins. The only reason the "payout coins owed" chart shows such a high proportion of bitcoins is that the bitcoin payout threshold is so high that we are forced to hold $20,000 of money we don't want to be responsible for in our wallets.

Two months ago, at While nobody was paying attention..., I pointed out this disconnect and stated that ETH, which was worth $18, would reach $36 long before bitcoins, which were worth $1200, would reach $2400. I suggested that the cup-and-handle would see ETH heading to $100. In the next post, at Investment planning for the hard fork, I also pointed out that LTC was even more ridiculously undervalued at $4, and indeed it has been a better investment than ETH has. The reasons why both were undervalued were, and continue to be, very simple: the bitcoin bubble is being driven by naïve investors who leave their money in exchanges and rarely or never use the network itself. ETH is being used by actual commerce and contracts, and LTC is poised to explode as an API-compatible alternative that is superior to Bitcoin in every way.

Bitcoin isn't going to decline to be worth zero. Instead, it is being slowly eclipsed and will display slower and slower growth. Any startup that builds their platform to be dependent upon bitcoin because it is the "most reliable" or "only real" cryptocurrency demonstrates a lack of knowledge and understanding - and that company's competence should be questioned.

Another interesting point about bitcoin is that the number of our transactions suppressed by fees is likely about 95%, so if Bitcoin Unlimited had activated, we would be sending 20 times more transactions, and would be willing to pay more fees in total than we are now, since we would be getting more value for our fees. The Core and investors just don't understand the magnitude of the suppressed transaction demand.

For all the people wailing and gnashing their teeth on reddit and other places, the war has already been lost. While the Core clings onto their shrinking domain, and people rage against each other on twitter, we and others are doing actual work to transition to other currencies. It's too late to save bitcoin, which is why you don't see me posting about why larger blocks are needed anymore. What's the best that can be accomplished for bitcoin? A hard fork in 12 months, only after the inevitable crisis that locks up the network? It's much simpler to just change "bitcoind" to "litecoind" in services, do the testing, restart, and be protected against the looming crisis and all the unconscionable behavior that's going on over there.

In March, smart investors sold bitcoins and purchased ether and litecoins. These two networks remain undervalued and will grow far faster than Bitcoin can. Contrary to the views presented in many forums, LTC and ETH have far less risk than BTC does at this point, so it is a no brainer to rebalance portfolios into them.

In the March post, I posted projections for which coin would emerge as the dominant currency, which you can read in the link above. Back then, I stated that Bitcoin Unlimited was the most likely dominant coin, but that has changed. Here are my current odds for dominant coin at the end of the year:

Ethereum: 50%
Litecoin: 30%
Bitcoin: 20%

I now believe that LTC + ETH will be worth more than BTC before the end of the year, and anyone who actually uses cryptocurrency can see why.