Newsflash – Professor of Economics Misunderstands Bitcoin

Apparently Bitcoin will “bite the dust” due to a critical flaw and Professor of Finance and Economics, Kevin Dowd has taken it upon himself to explain it to us all from behind a conspicuously oversized lectern:

Thankfully, due to a critical flaw in Professor Dowd’s understanding of bitcoin, his conclusion is unsupported by his argument.

The premise is that mining must centralise absolutely into what economists call a “perfect monopoly”. Some economists say there is no such thing:

There’s no such thing as a natural monopoly. It’s a fabricated economic fiction. The Myth of Natural Monopoly
— Justus Ranvier @JustusRanvier

But let’s not argue about economics, there’s a much less subjective problem with his bitcoin dust biting thesis.

Mining pools do not really hold the control. They do centralise the issuance, and this is a well publicised and significant challenge for bitcoin, but mining pools have no intrinsic competitive advantages. The value of the pool is held almost entirely in the fact that so many other miners are in that pool. Pool switching is trivial and can be fully automated.

If the host of a great party somehow wrecks the vibe by playing unfashionable music or having their parents unexpectedly return home, partygoers may all decide to take the party elsewhere. The partygoers have the power.

Professor Dowd’s argument is that the pool can, will and what’s more inevitably must threaten the entire profit pipeline (willingly or under coercion) and the miners are yet to realise this. Further, the miners are supposedly powerless to act in response to this certain future he so clearly predicts. Surely if there is any warning to miners, the expected risk of loss should cause agitation by the least risk averse to advocate for significant portions to join the second biggest mining pool. Like the partygoers, the miners have the power, they are the life of the party.

That’s not just a good theory, this is in fact what has happened.

The fact is, pool owner abuse (such as 51% attacks) can be instantly responded to as miners can so easily switch pools. This is all also assuming that there are no other solutions to mining centralisation developed between now and the predicted cataclysm.

Mining centralisation is an extensively debated topic and there are many technical solutions proposed. As Professor Dowd emphasises gleefully to the crowd, the timeframes of past developments in bitcoin are short, so why should he not expect the rapid innovation to continue? Hmmm… maybe he’s angling for a job as a core developer!

There are many other crucial errors but I think this is enough already. I do give the Professor points for making a bold prediction though – and so politely – if only he gave us some dates we would have a prediction we can work with. Since it seems Professor Dowd has consulted bitcoin enthusiasts, one wishes he had corrected these fundamental errors before delivering his prediction.

I can’t comment on the accuracy of the Ghostbusters reference, on this matter I will defer to the Professor.

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