The Gaslit Asset Class Author's Background and Context David Rosenthal, a retired software engineer with over 40 years in Silicon Valley, is known for his early involvement with Sun Microsystems and Nvidia. Together with his wife, a pioneer in academic publishing's transition to the web, he started a program at Stanford focused on digital preservation, emphasizing the archival value of academic literature and striving to make digital content as durable as paper analogs using systems like LOCKSS (Lots Of Copies Keep Stuff Safe). Overview of Cryptocurrencies and Bitcoin Rosenthal was invited to speak at Grant's Interest Rate Observer annual conference about cryptocurrencies. The talk focuses primarily on Bitcoin, acknowledging that many claims about it are misleading or false. He emphasizes that he holds no financial positions in cryptocurrencies to avoid bias. Historical Background and Technology Foundations Bitcoin was built on decades of prior research, including Proof-of-Work (1992), blockchains (1991 patent), and decentralized systems. LOCKSS, a decentralized system secured by Proof-of-Work developed years before Bitcoin, shares similarities but existed to preserve web content. Prior digital cash efforts like DigiCash were centralized and anonymous but required trusted banks, unlike Bitcoin’s aim for decentralization. Critical Analysis of Bitcoin's Core Claims Trustless Because Decentralized Bitcoin’s premise: decentralization removes the need to trust any single node. However, economic realities led to mining centralization in large server farms. By 2014, a single pool (GHash) controlled 51% of mining power. Subsequent studies (2022) showed Bitcoin and other blockchains are not truly decentralized. Mining pools dominate the hash rate, raising risks of collusion or 51% attacks. The rise of mining-as-a-service has made attacks on smaller coins common. Bitmain, a Chinese company, controls most mining hardware production, influencing mining centralization. Bitcoin as a Medium of Exchange Bitcoin’s 10-minute block time and confirmation requirements make it unsuitable for real-time transactions like vending machines or face-to-face buying. A payment processor layer was envisioned by Nakamoto to enable faster transaction confirmation. Advanced smart contracts (like Ethereum’s) face fundamental impossibilities in securely handling escrow without trusted third parties; attacks and extortion risks exist. Real-world adoption for payments is low, with less than 2% of U.S. consumers using crypto for payments recently. Fast and Cheap Transactions Transaction backlog varies, causing unpredictable confirmations and delays. Typical transactions wait about one block time; low-fee transactions face much longer delays. Demand surges spike transaction fees drastically. Miners earn from transaction fees and by strategically positioning transactions for profit (Maximal Extractable Value). Secured by Proof-of-Work Security depends on the cost of attack exceeding potential gains. This cost is linear, meaning it may be economically feasible for large pools to attack. Studies show the security model depends heavily on block rewards inflated supply and high transaction fees, but fees remain too low. Declining block rewards (halvenings) challenge security sustainability without price appreciation. Derivatives markets create incentives for attacks. Mining is dominated by pools linked to Bitmain, creating systemic risk. Quantum computing threats loom, with estimates that Bitcoin’s signature scheme (ECDSA) could be broken by 2027, exposing wallets including “lost” coins worth billions. Secured by Cryptography Unlike banks, cryptocurrency holders have no recourse if keys are stolen. The secret key’s exposure risk is high due to social engineering, supply chain attacks, or malware. Transition to post-quantum cryptography is problematic,