Cryptocurrency immutability as an illusion

The cryptocurrency world has a lot of die-hard beliefs that in reality, are far from true.

Probably the biggest of them all is the story of immutability, that goes something like this:

"There will only be 21 million bitcoins. This and anything else on Bitcoin is impossible to change, and it will stay like this forever."

The idea of Bitcoin as the ultimate god of immutability is tempting. However, once you go into the details, you'll see that it's just a computer code written by humans. As with every computer code written with humans - this too can be changed if people decide to change it.

The immutability isn't a technical feature; it's political

This means that a group of people has decided that X will stay true. It's true not because it's technically timestamped like this forever, but because there was a social consensus by a group of people.

Let's take the limited supply of Bitcoin as an example. The Bitcoin protocol has capped its issuance to 21 million, which means there will only be so many coins.

However, this too, can be changed in the future. As a matter of fact, I believe there's a very decent chance it will happen.

Why? For any cryptocurrency to thrive, decentralization, and strong security of the network is a prerequisite. That's where the miners come in, who are providing computational power to secure the system.

Why do miners decide to provide security to these chains? Because they will get rewarded for it - the system will issue new coins for the miners for keeping the chain secure.

Therefore, if you cut the livelihood of those who are keeping your chain secure, then they will leave for other chains where they don't have to operate at a loss. And miners capitulating can be a significant threat to Bitcoin's security.

Another provocative thought why I think the limited supply will be modified is Bitcoin halving events, where the issuance of the coins is cut in half every four years. Halving is a well-waited event for speculators because if you cut the supply of something that has growing demand, the price should increase. However, in the long term, what this means is you're favoring price appreciation for security — technically, halving means that revenue for the miners is cut in half. And this will happen every four years, until a possible miner capitulation occurs, putting the network at a much higher risk for weakening its security.

For this reason, I do think that people will decide to change the limited supply in the future once the effect starts kicking in, therefore disrupting the illusion of technical immutability.

As a comparison, Ethereum has taken an opposite approach of Bitcoin, keeping its yearly issuance at 0.5% to 1% in the future, to make sure that the participants are motivated to keep the network safe at all times.

Although Ethereum doesn’t have a capped supply, it’s issuance can still be projected to be negative in the future due to fee burning and locking ethers in staking and Decentralized Finance (DeFi) applications running on the network.

To conclude, I don't think it's a bad thing that cryptocurrencies aren’t so immutable as we might think. Why would we want to have something that's 100% impossible to change in a world where events do change and where our understandings evolve.

Just let's not fool ourselves with a thought that cryptocurrencies are 100% technically immutable. Because they aren't, they are hard to tamper decentralized networks that can't be controlled by any central party or person.

P.S. I chose Bitcoin as an example, although this applies to every cryptocurrency out there.

-Edgar

Special thanks to @antiprosynth for sharing his feedback on this blog post.