Unfortunately, the characteristics of this system isn’t what we’d want at all. It’s ultimately deflationary; It empowers casual adopters with capital control; And, worst of all, it denies leverage by third parties of the value they hold.

What can be done to avoid this catastrophe? We obviously need to retain the ability to benefit from their holdings by the traditional method of exercising capital advantage. After all, it’s important that control of capital remains in the correct hands.

Well, the first thing to do is to constrain throughput. If you can’t transact, then bitcoin can’t possibly work as a currency at all. Fortunately, this is easy to achieve as the current software enforces a trivial 3-4 TPS throughput and has maxed out the network at levels way below those necessary for continued growth. This is greatly assisted by the inability, or unwillingness, of any of the system actors to remove this limit. The Bitcoin community appears to be in an interminable deadlock, so this constraint could by itself, be sufficient to achieve our aims. Fortunately, there appears to be support for a solution called “Segregated Witness” that would ensure that the network throughput will continue to grow slowly and stay below 10TPS for quite some years to come.

However, all this may not be a sufficient or fully reliable way to stop the Bitcoin system.

Another related approach, and one that would be recommended in addition to throughput constraints, would further ensure the desired outcome. This would be to kill general adoption. This is easily achieved by leveraging these throughput limits to price out the lower end of the market by using fee schedules. Ideally, these fees would be sufficiently high to eliminate low value transactions, but be beneficial to those of us that wish to move large capital volumes. Fortunately, in Bitcoin, fees are calculated by the transaction data size and not by the value being transferred. This, of course, plays perfectly with the requirement that capital leverage becomes the key factor and is able to destroy any remaining “currency” aspect of this system.

There is also a great opportunity here, if we are able to use the above strategies to effectively commoditize the token in this system as a traditional asset. We merely need to build a more traditional financial second layer on top of the commodity. There’s already a foundation with a proposal called the “Lightning Network”. This has great acceptance in the community, but crucially requires that the value is backed by assets on the Bitcoin network. So, initially, we have to mobilize the working capital to back that up. This is necessary to properly centralize the ownership of user accounts and provide the appropriate capital controls. We can then simply repeat the history of a gold-backed, commodity-based currency and create a global fiat currency that remains in the right hands.

Disaster averted!