Categories: Bitcoin Business

Bitcoin Expert Jeff Garzik Exposes Crypto’s ‘Economic Paradox’

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Jeff Garzik warns that there is an "economic" paradox that threatens to stifle sustainable Bitcoin development. | Source: Tedx/YouTube

By CCN: Early Bitcoin developer Jeff Garzik revealed what he believes is the most daunting challenge the flagship cryptocurrency faces today. He also chimed in on the “economic paradox” that threatens to stifle Bitcoin development.

Bitcoin’s Biggest Hurdle? Scaling. Scaling. Scaling.

Speaking in an exclusive interview with CCN, Jeff Garzik, who was one of Satoshi Nakamoto’s earliest collaborators and also founded crypto startup Bloq, admits his highly “predictable” answer when it comes to the biggest challenge facing Bitcoin would be “scaling.”

Bloq founder Jeff Garzik presents Metronome, along with project co-founder Manoj Patidar, at Consensus 2019. | Source: Justin O’Connell/CCN

But, there’s a deeper problem than that, Garzik warns.

“The pace of innovation of the core of Bitcoin is slow and it’s a real challenge,” he told CCN from the Bloq room at Consensus 2019. “If you onboard a bunch of people on Lightning, stuff like that, the transaction fees go up to the point where [most people] just can’t afford to use bitcoin.”

Bitcoin is WAY Too Expensive

One of Garzik’s favorite statistics is that an individual is in the top 1% worldwide if they earn an annual salary worldwide of $32,000. He fears that bitcoin transaction fees risk excluding anyone who doesn’t live in the US or EU from participating in the network.

“That’s the top 1% worldwide,” he says. “And so that tells you that, if you have to pay $10 for a Lightning transaction, that leaves Bitcoin to [people in] the US and EU and that’s it. We just excluded the rest of the world due to transaction fees.”

Bitcoin’s core layer must be scaled to reduce fees, said Garzik, the architect of the controversial SegWit2x proposal which sought – and failed – to raise the network’s on-chain transaction capacity.

Cryptocurrency’s ‘Economic Paradox’

There’s an “economic paradox” stifling Bitcoin’s ability to scale to fulfill its real mission. | Source: AFP PHOTO / PHILIPPE LOPEZ

But there’s another problem: How do you fund the development of scaling technologies?

“It’s an economic problem of funding,” says Garzik, who has served as an advisor to BitFury, Bitpay,, Netki, WayPaver Labs, and more. “It’s almost a paradox. If you’re a Zcash, for example, then in every single block, 10% of the new tokens minted go to a dev team fund to create sustainability. And so that’s good for the long-term sustainability picture, but it has a downside. It’s a centralized fund, and it goes to a centralized team or whoever is holding the keys.”

Bitcoin doesn’t have such a centralized fund and the corruption that might come with the centralization. On the other hand, it also doesn’t have a sustainable funding model.

“But you also don’t have funding,” says Garzik. “I don’t have a wonderful answer to the problem of funding open source. You have to go out and build businesses. You figure out how to make money, figure out a sustainable business model, and that grows Bitcoin, and then you contribute back to Bitcoin development, et cetera.”

This is a problem Garzik, who came up with a stealthy ploy to get Bitcoin adopted by private blockchains, has seen since his pre-blockchain days at Red Hat. So, how do you fund software that is then given away for free?

That, he says, is crypto development’s “economic paradox.”

“There’s the one-time cost model, where a bunch of people get funding together, whether it’s a business or charity, and they write a big check to a bunch of developers who built some stuff,” says Garzik. “But, then that’s just a one-time check. It’s not sustainable. It doesn’t cover maintenance, stuff like that. How do you fund an ethical blockchain that doesn’t have any carve-outs for the individuals? It’s almost an economic paradox. If you do it the hyper-ethical way, without pre-funding, then no [developer] fund gets funded.”

He adds: “We’re still trying to figure out the answer there.”


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