Kurt Wuckert Jr. on Messy Times: What is the true potential of the scalable P2P electronic payment system?
Kurt Wuckert Jr. appeared on the Messy Times podcast for a second round of discussions on Bitcoin SV, Bitcoin mining, the true potential of a scalable peer-to-peer electronic payment system, and much more.
An explanation of mining and some myths about Bitcoin
Podcast host Christopher Messina opens with a quote from Wuckert:
Hashing for subsidies has been hugely profitable, and the continued arms race in hashing has led to levels of efficiency that were frankly unfathomable for the Bitcoin economy just a decade ago, but there is no preparation to operate in a world with quantitative tightening and the very low issuance rate of the bitcoin block subsidy.
Messina says that quote is just “words” to him and asks Wuckert to explain it in non-technical terms.
Wuckert begins by dispelling a common myth that Satoshi Nakamoto created Bitcoin in response to the 2008 financial crisis. “It’s actually not true,” he says, explaining that the white paper came out even before people don’t be sure that there would be a full-fledged crisis. And that the bursting of the real estate bubble only became apparent in early 2009, by which time Bitcoin already had “tens of thousands of lines of code”.
Wuckert believes that much of the monetary activism of early Bitcoiners is projected onto Satoshi. He points out that Bitcoin was one manifestation of a currency that cypherpunk types had been looking for 30 years (or so they thought) and Austrian economists like Ludvig von Mises had been talking about a century ago. It is the combination of this type of thinking and the timing of Bitcoin’s release that made it “ripe on the vine”, but also led to many myths and misconceptions about Bitcoin. Among these myths is the notion that Bitcoin is deflationary. He also points out that Bitcoin has a fixed supply.
“Nothing about it is deflationary,” Wuckert notes.
It’s this combination of things that has given rise to memes like “up only” and Bitcoin as a store of value, but Wuckert reminds viewers that when we read what Satoshi Nakamoto actually wrote, including both the Bitcoin whitepaper and his forum posts and emails, it’s clear that Bitcoin was designed for occasional small transactions.
Getting back to basics, Wuckert tells Messina how the Bitcoin mining process works and explains how miners receive a block grant and how they distribute coins. This distinction between issuing and distributing coins is of crucial importance. He reminds that every 210,000 blocks, this subsidy is reduced by half. This process has happened many times before, and miners now receive 6.25 coins per block, and it will continue to work that way, halving the block reward with each new era. Additionally, as more miners join the network, the difficulty of solving hashing puzzles increases, making the process more competitive.
Wuckert then explains how this process becomes exponentially more difficult very quickly as the competition intensifies; as little as a decade ago blocks could be mined with CPUs, but nowadays specialized ASICs are required to even have a chance of mining a block. The pair briefly discuss how the power consumption involved here has become so huge that it has become a political issue, with Wuckert arguing that Bitcoin mining brings various benefits to the network, such as balancing load and lower prices.
Miners as transaction processors
After explaining how the block reward side of Bitcoin mining works, Wuckert then explains that miners get paid for something else; process transactions. It’s not something that ASICs do, he says, telling Messina that this part is built into the structure of the node server. “That’s where the fun math stuff happens,” he says. The calculations that take place here include if a person has the balance they want to spend, if it is sent to a valid address, if they oversent (in which case the change would be returned) and a few other things.
Of course, miners earn fees for processing these transactions. Wuckert explains how GorillaPool, a mining operation in which he is a partner, currently charges 0.05 satoshis per byte. This fee-per-transaction model is the big blocker’s thesis in a nutshell; when there is no more subsidy, they will still be able to make a profit by processing a large number of transactions.
At this point, Wuckert tells Messina that BTC has limited block sizes to 1MB.
“If you can’t create enough transactions and cram them into a block to pay your bills…you’re losing money with every block,” he explains.
How will BTC handle this self-created problem? Wuckert says those at the top know this is a problem, and the conversation revolves around adding a permanent inflation issue or increasing the block size.
However, the latter option is a problem because many people involved in BTC have staked their careers and reputations by vouching for small blocks and viciously attacking anyone who even suggests an increase in block size. This dilemma/decision is unavoidable unless the value of BTC continues to double every cycle forever or transaction fees can increase forever in dollars. Wuckert views both of these options as unreasonable and he predicts that at some point a BTC civil war will break out over this issue.
The most important thing about Bitcoin
Wuckert thinks the most important thing about bitcoin is its ability to unleash and facilitate entrepreneurship in the developing world, and he says exactly that in Messina.
“There are 3.5 billion people, right now, who don’t have access to the global economy,” Wuckert says, wondering how many of them are potentially great inventors like Nikola Tesla or great men businessmen like John D. Rockefeller. He thinks that if you give these people the opportunity to compete on a level playing field like Bitcoin, the benefits would be invaluable. It encourages viewers to think about what we could build and who we could free, but instead it’s “all nonsense”, with 20,000 digital currencies being staked in bucket stores like Binance. Messina agrees, pointing out that apps like Robinhood have gamified the process of buying even more traditional assets like stocks, and he wonders how regulators have allowed it to continue for so long.
Wuckert also points out some of the benefits of an immutable global ledger, noting that if you start a bitcoin scam, there will be a permanent record of it. He notes that it might take law enforcement a while to figure it out, years even, but there’s a good chance they’ll figure it out eventually.
Briefly discussing other blockchains, Wuckert tells Messina that they “don’t even work.” He dismisses the hype as Ethereum 2.0, stating that it was touted for years and never happened. He points out that while BSV as an asset has remained stable for a few years, the blockchain continues to become more efficient. He compares Bitcoin’s growth to the internet, pointing out that if and when the company comes along and needs a billion transactions per second, there’s only one game in town: Bitcoin SV.
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