Can Bitcoin be destroyed? Analyzing Bitcoin's viability using 7 scenarios

Before we start speculating, let’s recognize one fact: Bitcoin has been denied more than 200 times.

Even though it has been running stably for nearly a decade as the world’s first cryptocurrency, people are still predicting the possibility of its demise in the future. Some smart people are also known for spreading the “Bitcoin Syndrome.” They keep predicting the demise of Bitcoin, even though they are proven wrong every day.

If we assume that these people have a certain level of intelligence, then the reason why their predictions fail and why they keep arguing is that they never take the time to learn and understand how the system works.

So, I want to list below all the possible ways Bitcoin could be destroyed.

Technically, as long as there are a few computers on the network running the Bitcoin system, Bitcoin will survive. There is only one extreme situation that will lead to its destruction. It may still be the largest cryptocurrency by market value in the next few years, unless the Bitcoin community leads to its destruction due to greed or carelessness.

Scenario 1: Doomsday
Likelihood (next 5 years): Close to zero
Impact: Sudden death

If all power systems, the internet, and data communication channels around the world were shut down, Bitcoin nodes would not be able to communicate with each other. Then the system would be useless.

The temporary shutdown of the global network will undoubtedly cause confusion in the Bitcoin community, but it is important to note that the blockchain will restart the consensus system from the longest chain.

It is also possible that die-hard fans or museums will continue to operate its system, so Bitcoin will not die on a technical level.

Case 2: Serious bug
Likelihood (next 5 years): Low
Potential impact: Sudden death

In this case, a bug from the infamous DAO project (built on the Ethereum blockchain) could be included in a Bitcoin update, a bug that puts the integrity of the system at great risk.

Even if the Bitcoin community agrees (and there is no guarantee that they will agree) to fix the bug, install the new version and restart the Bitcoin network, it will definitely lead to a crash and a fork.

However, the Bitcoin community is also aware of this risk: according to the code contribution guidelines, any changes to the code must be peer-reviewed and tested.

Scenario 3: Fork
Likelihood (next 5 years): Low
Potential impact: Slow demise

Bitcoin can be forked many times for technical reasons (or "money reasons") if the Bitcoin community disagrees on development plans.

The Bitcoin Cash fork that emerged last summer did not hurt Bitcoin, as it only caused a reduction in the number of Bitcoin network nodes and a drop in computing power. In theory, there may be several more similar forks that further split the Bitcoin network and cause a drop in computing power.

If this happens, I believe Bitcoin will lose its dominance and slowly die. Again, it is in the common interest of the Bitcoin community not to allow this to happen.

Scenario 4: Government-led crackdown
Likelihood (next 5 years): Medium to low
Potential impact: Sudden death

Because Bitcoin is decentralized, governments cannot destroy it. However, they can control and restrict the use of Bitcoin within their jurisdiction.

For example, they could close the bank accounts of cryptocurrency-related companies and prohibit them from conducting any related business. If only a few countries ban cryptocurrencies, the impact will be limited as companies can turn to more friendly jurisdictions to conduct related business.

Last year China banned the trading of Bitcoin within the country, and while it’s possible that more governments will approach Bitcoin in the same way, I’m pretty sure it’s almost impossible to ban Bitcoin worldwide (imagine that would require a consensus from the entire United Nations).

In addition, Bitcoin is already legal in Japan. If the United States, the European Union, the United Kingdom, and China jointly ban cryptocurrencies, it will be extremely destructive.

However, they are more likely to regulate the cryptocurrency market to collect taxes while protecting individual investors.

Scenario 5: Major hacker attack
Likelihood (next 5 years): Medium to high
Potential impact: Temporary crash

This can happen in several different ways.

First, a malicious attacker could attempt to attack the consensus protocol in what is known as a 51% attack. This could theoretically happen, but the likelihood of this happening is very low.

Internally, a 51% attacker would destroy their own profit source. Externally, a large investment in mining equipment and energy would be required, and the attacker’s profit source would collapse.

What is more likely is that applications built on the protocol will be attacked.

When Mt. Gox was hacked in 2014 (an example of an attack), it was handling 70% of all Bitcoin transactions. Today, there are many more exchanges around the world. If one of them were hacked and a large amount of Bitcoin was stolen, the price of Bitcoin would likely crash, but it would probably recover later.

For example, $400 million worth of NEM was recently stolen from the Coincheck exchange: the price of NEM only dropped by 15 to 20% and rebounded within a day.

Scenario 6: A “better” cryptocurrency emerges
Likelihood (next 5 years) : Medium to low
Potential impact: Slow demise

Is it possible for a “better” cryptocurrency to replace Bitcoin? (By “better,” I mean more profitable to mine and cheaper for users to transact, all else being equal.)

Let’s face it: this is more about economic benefit than mere convenience. For this cryptocurrency to be “better” it will have to overcome Bitcoin’s network effects and brand capital.

In fact, it hasn’t happened yet. Moreover, for regulatory and economic reasons (not technical ones), a UN-backed “international” cryptocurrency is unlikely to happen within five years.

The economics could play out the other way: if electricity prices rise dramatically, mining could become unprofitable, leaving only large mining pools using relatively cheap electricity.

This is an extremely difficult security-cost tradeoff. Bitcoin must find a way to reduce the security cost while also maintaining the integrity of the decentralized ledger.

Scenario 7: Market weakness
Likelihood (next 5 years): Low
Potential impact: Slow demise

If crypto-related startups fail to provide any tangible value in the real world, people may slowly start to lose faith in cryptocurrencies and tokens. (This is what happened during the bear market in 2015 and 2016).

In this case, the market’s growth is likely to slow down and its value will eventually stabilize. The cryptocurrency market will lose its appeal from an investment perspective, leading to a further decline in market capitalization, etc.

Personally, I believe that some cryptocurrency-related startups will eventually create value in the real world. In any case, the cryptocurrency market is still in its infancy, so we still have plenty of time. History also shows that the market can always rebound.