- The possibility of a Bitcoin black swan event has been an ever-present threat
- Such a new technology is loaded with risk, including catastrophic collapses
- What are the threats still facing Bitcoin and how troublesome could they be?
Talk of a Bitcoin black swan event has been stalking the space like Banqo at the feast for years now, but as time passes old threats diminish and new ones emerge. With Bitcoin recently avoiding a potential EU-wide ban because of its proof-of-work consensus mechanism however, the idea of a Bitcoin black swan event is back on the menu. What are the most likely Bitcoin black swan events today and what is their damage potential?
What is a Bitcoin Black Swan?
Firstly, let’s look at what a ‘black swan’ event is. The term was popularized by finance professor, writer, and former Wall Street trader Nassim Nicholas Taleb, who classed them as events that are impossible to predict due to their extreme rarity, yet have catastrophic consequences.
In that respect, our list of possible Bitcoin black swan events may not qualify because we are predicting them right now, but the impact would be the same, and we have no idea if they will actually come to pass in the way we outline. But there you are – that’s what a black swan event is.
Tether Collapse
This Bitcoin black swan event is like a persistent low level headache that has existed for anyone that has been in the space since 2017. Tether’s market cap is now over $60 billion, with the vast majority resting on non-cash investments. This has led to constant claims that the biggest stablecoin issuer in the space could go under at any time, leaving that supposed $60 billion worthless to holders.
This particular Bitcoin black swan event would be damaging in the short term, but the crypto space would rise again, with other stablecoins taking their place, so it’s not something to worry about long term.
Bitcoin damage potential – white mallard
BTC Banned in U.S.
The U.S. is the biggest adopter of regular Bitcoin usage and investment, so a total ban on owning or holding Bitcoin, as we have seen in China, would be devastating to the space. The ramifications of such an eventuality are hard to fathom in terms of scale, but the scope of the space would shrink massively overnight with its biggest market wiped out.
The reality is however that Bitcoin has come too far now to be banned in this way. Lawmakers realize they have missed the opportunity to take such stringent action, as the space now employs thousands of people and has spurred an entire fintech revolution. The Bitcoin code itself is protected by law, and any such ban would only send it underground.
Lawmakers could change tax laws to make it financially unrewarding to trade Bitcoin, but there isn’t much they can do now to stop its spread. The genie is well and truly out of the bottle.
Bitcoin damage potential – brown heron
Quantum Computer Defeating SHA-256 Encryption
Quantum computers are currently some 100 million times faster than an average laptop, with doomsayers predicting that one day a quantum computer will be used to hack the Bitcoin blockchain.
However, a January 2022 study found that the best quantum computers around today are still one million times away from being powerful enough to break Bitcoin’s SHA-256 encryption, with questions also existing over the motive – a country that has that technology is not going to use it to hack the Bitcoin blockchain when there is an opposing country’s military infrastructure or banking system to target.
Of course, if someone did manage to compromise the Bitcoin blockchain with a quantum computer then it could cause irreversible damage.
Bitcoin damage potential – navy goose
Proof-of-work Ban
The EU parliament recently voted 32-24 not to persist with an attempted ban on cryptocurrencies that use the proof-of-work consensus mechanism. This was a bit too close for comfort for Bitcoin supporters, and the concept of banning an entire cryptocurrency mining method on environmental grounds may be revisited by any number of nations in the years to come.
While other projects can move to other consensus mechanisms, such as Ethereum moving to proof-of-stake, this outcome is unthinkable with Bitcoin, leading to the potential for its sale to be outlawed in regions that decide to move on environmental issues.
This Bitcoin black swan event is probably the most likely in our list to pass, with the severity depending on the size of the nations/blocs that enforce it, which is why it is ranked so highly.
Bitcoin damage potential – black swan
A Bitcoin Black Swan is Out There
As we can see, there are still some scenarios out there that can be considered Bitcoin black swan events, but the only one with a realistic chance of having a lasting impact on Bitcoin, or actually happening at all, is a ban on proof-of-work consensus mechanisms.
Unless Bitcoin mining can improve its use of renewables and reduce its carbon footprint, such an eventuality will become more and more possible as the years pass.
