Kurt Wuckert Jr. appeared on the Messy Times Podcast for the second round of discussions on Bitcoin SV, Bitcoin mining, the true potential of a scalable peer-to-peer e-cash system, and more.
Mining Explained and Some Myths About Bitcoin
Podcast host Christopher Messina opens with Wuckert’s quote:
Hashing for subsidies has been extremely lucrative and the continuous arms race in hashing has resulted in levels of efficiency that were frankly unfathomable for the bitcoin economy just a decade ago, but there is no willingness to function in a world with quantitative tightening and a very low subsidy issuance rate per bitcoin block .
Messina says the quote is just “words” to him and asks Wuckert to explain it in non-technical terms.
Wukert starts by debunking the common myth that Satoshi Nakamoto created Bitcoin in response to the 2008 financial crisis. “That’s not really true,” he says, explaining that the white paper was released before people were sure a full blown crisis would break out. And that the housing bubble only burst in early 2009, when Bitcoin already had “tens of thousands of lines of code.”
Wukert believes that most of the monetary activity of the early Bitcoiners is projected onto Satoshi. He points out that bitcoin was one of the manifestations of the currency that cypherpunks were looking for as early as 30 years ago (or so they thought) and that Austrian economists like Ludwig von Mises were talking about a century ago. It was the combination of this mindset and the timing of Bitcoin that made it mature in the bud, but also led to a lot of myths and misconceptions about Bitcoin. Among these myths is the notion that Bitcoin is deflationary. It also indicates that bitcoin has a fixed supply.
“There is nothing deflationary about it,” Wuckert notes.
It was this combination of things that gave rise to memes such as “only up.” and Bitcoin as a store of value, but Wukert reminds viewers that when we read what Satoshi Nakamoto actually wrote, including the Bitcoin white paper, his forum posts, and emails, it becomes clear that Bitcoin was designed for small, random transactions.
Back to basics, Wukert explains to Messina how the bitcoin mining process works and explains how miners are paid a block subsidy and how they distribute the coins. This distinction between issuing and distributing coins is crucial. He reminds us that every 210,000 blocks this subsidy is halved. This process has already been played several times and now miners get 6.25 coins per block and it will continue to work in this way, cutting the block reward in half with each new epoch. In addition, the more miners join the network, the higher the difficulty of solving hash puzzles, which makes the process more competitive.
Wukert then explains how this process becomes exponentially more complex very quickly as competition intensifies; just a decade ago, blocks could be mined with CPUs, but these days, specialized ASICs are required to mine a block. The pair briefly discuss how the associated energy consumption became so huge it became a political issue, with Wukert arguing that bitcoin mining brings various benefits to the network such as load balancing and lower prices.
Miners as transaction processors
After explaining how the block reward works in bitcoin mining, Wukert explains that miners are paid for one more thing; transaction processing. That’s not what ASICs do, he says, telling Messina that this part is built into the node’s server structure. “Fun math stuff happens here,” he says. The calculations that take place here include whether the person has a balance they want to spend, whether they are shipping to a valid address, whether they sent too much (in which case the change will be returned) and a few other things.
Of course, miners receive a fee for processing these transactions. Wukert explains how GorillaPool, a mining company he is a partner at, is charging 0.05 satoshi per byte right now. This transaction fee model is, in a nutshell, the big blocker thesis; when subsidies are gone, they can still make a profit by processing a huge number of transactions.
At this point, Wukert informs Messina that BTC has limited the block size to 1MB.
“If you can’t create enough transactions and squeeze them into a block to pay your bills…you lose money on every block,” he explains.
How will BTC deal with this self-created problem? Wukert says those at the top know this is a problem, and the conversation is either about adding permanent inflation tail emission or increasing the block size.
However, the latter option presents a problem because many people associated with BTC have their careers and reputations on the line by vouching for small blocks and viciously attacking anyone who even offers to increase the block size. This dilemma/decision is unavoidable unless the value of BTC is constantly doubling every cycle, or transaction fees can rise permanently in dollars. Wukert sees both of these options as unreasonable and predicts that at some point a BTC civil war will break out over this issue.
The most important thing about Bitcoin
Wukert believes that the most important thing about Bitcoin is its ability to unleash and facilitate entrepreneurship in the developing world, which is what he says to Messina.
“Right now, 3.5 billion people have no access to the global economy,” Wukert says, wondering how many of them are potentially great inventors like Nikola Tesla or great businessmen like John D. Rockefeller. He believes that if you give these people the opportunity to compete on a level playing field like Bitcoin, the added benefits will be invaluable. It encourages viewers to think about what we could build and who we could free, but instead it’s “complete rubbish” with 20,000 digital currencies being played on venues like Binance. Messina agrees, pointing out that apps like Robinhood have made it a game to buy even more traditional assets like stocks, and wonders how regulators let it go on for so long.
Wukert also points out some of the benefits of an immutable global ledger, noting that if you start a bitcoin scam, it will be a permanent record. He notes that it may take some time for law enforcement to figure this out, even years, but chances are they will figure it out eventually.
Briefly touching on other blockchains, Wukert tells Messina that they “don’t even work.” He dismisses hype like Ethereum 2.0, saying it has been touted for years but never arrived. He notes that while BSV as an asset has remained unchanged for several years, the blockchain continues to become more and more efficient. He compares the rise of Bitcoin to the Internet, pointing out that if and when a company emerges that requires one billion transactions per second, there will only be one game left in town, Bitcoin SV.
Watch BSV Global Blockchain Convention Dubai 2022 Day 1 here:
Watch the second day of the BSV Global Blockchain Convention Dubai 2022 here:
Watch Day 3 of the BSV Global Blockchain Convention Dubai 2022 here:
New to Bitcoin? Check CoinGeek Bitcoin for beginners section, a complete guide to resources, to learn more about bitcoin as Satoshi Nakamoto originally envisioned and the blockchain.