## Sunday, November 12, 2017 ... //

### Bitcoin congestion singularity may be coming

The Bitcoin is under pressure since Friday.

According to CoinMarketCap.com, the Bitcoin Cash (BCH) – the cheaper, faster would-be main Bitcoin with bigger blocks that was created in August – is already the #1 cryptocurrency by trading volume – over $10 billion a day. Much of the trading takes place at Korean exchanges. But maybe it's not Koreans behind the purchases of Bitcoin Cash; it could be Chinese with accounts in Korea, too. Bitcoin Cash is also the #2 cryptocurrency after Bitcoin Core (BTC) by capitalization – ahead of Ethereum (although it's a statistical tie most of the day and ETH may occasionally get above BCH). I was always sure that it was the most promising cryptocurrency and held a lot in it – but I was too impatient and sold when it was$400. It's over $1,800 now. These changes aren't unusual. The number of BTC unconfirmed transactions is around 160,000 – on Friday evening, it was already bad, 80,000 – doubling in less than two days. There are some 250,000 transactions on a weekend day. Clearly, the number is growing and I believe that by Monday, the unconfirmed transactions will actually surpass the 240,000 record high from May 2017. What's even more dramatic is the behavior of fees. Bitcoinfees.earn.com tells you how many people paid which amounts for one byte of their transaction – the more you pay per byte, the earlier your transaction is confirmed. They currently recommend "fast but cheap enough" fee of 900 satoshi per byte. Satoshi is 10-8 Bitcoins, the smallest recognizable amount now. The average length of a transaction is 226 bytes so you pay 203,000 satoshis for such a transaction. At current price around$6,000 per Bitcoin, that's over $12. However, there's still a big risk that such a transaction gets stuck – even the number of "reasonably high fee" transactions that get stuck is growing. What's the average fee that the people are actually paying for a transaction now? The Bitcoin block 494060 mined some hours ago is quite a beauty. Such a block encapsulates all transactions, along with the solution to a difficult mathematical task. This one had 1941 transactions in it and BTC 11.2 were the total transaction fees. Multiply it, you get the average transaction fee of BTC 0.0058 which, at the current Bitcoin price$6,000, is almost $35. You pay$35 for an average transaction now. Good luck with buying coffees for the Bitcoins.

In fact, it's not only the coffee drinkers who are threatened. It's all smaller investors. Millions of new Bitcoin addresses – relatively to Friday, perhaps 10% – can no longer afford a single fast payment. And I think that the situation should get worse during the Sunday and up to some moment on Monday. Why? Because the number of unconfirmed transactions is growing, so people who want to make a successful BTC transaction are increasingly competing. The average transaction fee may very well grow to $100. You may hope that the miners will speed up their work and clear the transactions. But it doesn't look so. On Monday, the number of transactions is likely to increase further. Moreover, the miners are leaving BTC for BCH because the latter is much more profitable, due to the higher Bitcoin Cash price. According to Fork.LOL, the BCH vs BTC miners' power was already in the 2-to-1 ratio, in favor of Bitcoin Cash. This exodus of miners from BTC may escalate further. In principle, that should mean a lower frequency of blocks and therefore a higher percentage of transactions that remain unconfirmed. To achieve a transaction that is confirmed within hours or a day, you will have to pay insane amounts to beat the competitors! The situation could improve a bit tomorrow when Bitcoin Cash (BCH) adjusts its difficulty. It should increase the difficulty, and therefore make the mining of Bitcoin Cash less attractive. Some miners could return to BTC. However, BTC itself won't adjust its difficulty up to December 3rd or so – estimated day. In fact, I think that the estimate will turn out to be too optimistic because the percentage of miners in BTC may stay well below 50%. While I mentioned that because of the "difficulty increase", BCH will become less attractive for miners tomorrow – than it is now – there will be a "fork of BCH" itself which will change some rules. This lowered attractiveness may be de facto compensated by the fork if the BCH miners decide it's a sensible idea. So most of the next week may see the miners overwhelmingly favoring BCH over BTC. The hundreds of thousands of unconfirmed BTC transactions – billions of dollars that are hanging in the air – will keep on piling, I think. So people will increasingly acknowledge that BTC has basically failed as a cryptocurrency. These crypto-folks use the term "flippening" for the moment when Bitcoin (BTC) loses the #1 spot in this list of cryptocurrencies by capitalization. Bitcoin Cash is most likely to become the #1 cryptocurrency at this moment because the outflow from BTC is mostly going to BCH. If BCH gets to the top, its fans would probably like to get the brand "the Bitcoin" for their currency while BTC would be renamed to "Bitcoin Core". By the trading volume, Bitcoin Cash is at the top, above$11 billion in recent 24 hours. BTC had $9 billion. Tether, the crypto-dollar, was the third now. It's an actual currency backed by the U.S. dollar but because of the anxiety in the crypto-markets in recent days, CoinMarketCap.com actually shows its value to be$1.03 now – and it was $1.10 a few hours ago! Many people who were escaping the Bitcoin were buying the Tether. It's fun to watch the new comments at the BTC Reddit forum (named Bitcoin) and the competing BCH Reddit forum (which is however called "btc" because they managed to get this brand on Reddit LOL). They're literally two groups of teenagers that are fighting with each other, like fans of two soccer teams or the Protestants and Catholics within the Christian church, or something similarly childish. The BTC people are much more religious, immature, and detached from reality, of course. They're the folks who say that "$20 fees don't matter at all, we live for the God of BTC" – they talk about the BTC God literally, I am not exaggerating. They need to HODL regardless of what and that's guaranteed to make them trillionaires, they believe, and they impose this belief on all the members of their community. Whoever says something heretical – e.g. if he doubts that their denial of reality is the wisest thing to do – is downgraded to a promoter of FUD (fear, uncertainty, doubt) which is equivalent to "heretic" in this church. You're not allowed to mention any doubts about BTC over there! Yes, of course, I have already been banned on the Bitcoin Reddit forum, it's hard not to be. This fanatical belief that things must be OK is their version of "risk management". What a surprise that as soon as BTC understandably drops, they react like this one. ;-)

I have repeatedly discussed the simple point that the "fundamental value" of all the unbacked currencies (i.e. not Tether) is zero. But it was assumed that those actually worked at least as "payment" systems. BTC is in a serious trouble because their payment system is basically broken, too. The congestion of the unconfirmed transactions – coupled with the growing fees – are a quantification of that. So even if you accepted that an unbacked cryptocurrency may have some nonzero "fundamental value", that must surely be affected by the probability that you can make a payment without losing your whole amount as a fee. This probability is substantially reduced and may decrease further.

The Bitcoin – with no fixes to deal with this "scaling problem" – is primarily supported by true fanatics who say that they will HODL even though something is clearly bad even about the purely technical properties of the cryptocurrencies. Will this infinite jihadist faith be enough to keep the price above $5,000 and then$3,000 etc.? I don't think so. Their basic position seems so utterly indefensible that I still believe that basic instincts and some rational reasoning – along with the (totally justified) fear, uncertainty, and doubt, indeed – will gradually beat the fanatical faith among these people and the price of the Bitcoin will return to the collapse in coming weeks.

Note that 3 days ago, the Bitcoin (BCH) hit the record high around $7,900. In the morning, it hit a daily low (so far) below$5,200, before it returned to $6,100 now. But can it possibly survive near the$6,000 level? I have serious doubts because even the faith of many of the fanatical BTC "hodlers" has been undermined. On that forum, there are numerous folks who say "I placed all my money to BTC at $7,600 and I can't afford to lose the money" and stuff like that. Wow. Their parents probably haven't taught them much about the financial responsibility. If Bitcoin Cash (BCH) manages to be recognized as the "king of cryptocurrencies", some defects of the Bitcoin will be cured, others will not be. The transactions in BCH are and will remain fast and cheap – minutes and pennies. It's so because the transactions are packaged in larger, up to 8 times larger, blocks than BTC transactions – so there's room for a 8 times greater number of transactions. Also, they typically occur in minutes. Even this capacity constraint may be depleted if BCH managed to become much more widely adopted. But BCH folks are more flexible and another change of the block size or something like that would probably be enough to solve such a situation. On the other hand, all the economic, security, legal... arguments against BTC hold against BCH, too. On top of that, Bitcoin Cash is also insanely wasting electricity. In fact, right now, Bitcoin Cash is wasting about twice as much electricity as the Bitcoin! ;-) You know, the coins of the Bitcoin Cash have the total value below$30 billion right now but they are consuming electricity at the rate of almost $1 billion a year. It's like the duty to pay for a regular annual$3 cleaning of every $100 banknote you possess. You just don't want 3% of your GDP to be getting lost in some operations needed for the payment to be possible at all – and I am generously ignoring the payments for the GPU hardware and the experts who have to be paid to do lots of the related tasks. Bitcoin Cash is a technically superior game but it's still the same game as the Bitcoin conceptually. Just some parameters are different so that the fees aren't$35 but \$0.10 or so. If the Bitcoin (BTC) collapses and becomes irrelevant, CME should also establish the Bitcoin Cash futures and despite the technical superiority of BCH relatively to BTC, I would still recommend to short them.