I M A G E C O L L A G E B Y A N D R I J B O R Y S A S S O C I A T E S / S H U T T E R S T O C K

a stable reserve of value by reinventing 18th-century banking (Tether) and “programmable money” to create smart contracts (Ethereum).

Cryptocurrencies for Payments:
Not Fit For Purpose

The primary notion behind Bitcoin’s design is to enable a censorship-resistant and irreversible payment system. It is intended that there should be no central authority that can say “thou shalt not” or “thou shouldn’t have.” The only other analogue in the real world is cash, which is bulky and requires physical presence.

All other electronic payment sys-
tems have the potential for censor-
ship. There are third parties involved
in the payment process that, under
government pressure, can and do
seek to ban or reverse disallowed pay-
ments. This includes blocking a wide
assortment of criminal activity, such
as drug payments, ransom and extor-
tion payments, and money laundering.
It can also be used to implement cur-
rency controls (limiting the ability of
residents to exchange local currency
potential profit, more miners are in-
centivized to join the process until the
point where nobody makes a profit
anymore. For example, a 10x reduction
in power consumption per hash for
Bitcoin mining would have little real
effect on Bitcoin’s power consump-
tion. Instead, there would just be 10x
as many hash computations needed to
produce a block.

A good rule of thumb is that when prices are stable, approximately one-third to one-half of the block reward is sold by miners to pay power bills. This implies that when prices are high, Bitcoin consumes an outrageous amount of power. Any system based on proof-of-work will suffer this fate: If there is profit in mining, the miners will keep using more and more power until there is no more excess profit available. The only way Bitcoin could reduce its power consumption is through a massive collapse in price.

The fixed block size also limits
transaction throughput to a trivially
small global rate that is approximate-
ly three transactions per second. Al-
though transaction fees start low, they
can quickly increase when the transac-
tion rate exceeds the global limit—as
only those willing to pay increasing
auction-based fees see their transac-
tions confirmed. This is what caused
the recent spike in Bitcoin transaction
costs to a median price of over $30 a
transaction. These global volume lim-
its make Bitcoin clearly unsuitable as
a public ledger. Nevertheless, a com-
parable cryptocurrency that supported
300 inexpensive transactions per sec-
ond could see its global state grow at
an untenable 14GB/day of additional
storage for every participating node in
the network, storage that also needs to
be searched to validate transactions.

Since the original deployment of Bitcoin, a host of other cryptocurrencies has arisen, often by simply modifying the Bitcoin source code and changing a few parameters. These have taken many forms, including faster-committing blocks with a catchy slogan (Litecoin: “Litecoin is silver to Bitcoin’s gold.”), explicit jokes (Dogecoin), forks that maintain the same history until the date of the fork (Bitcoin Cash), and some notable ideas including an attempt to create