Bitcoin (BTC) may be facing a significant vulnerability that could lead to a catastrophic “bank run,” according to Justin Bons, the founder and CIO of Cyber Capital. In a recent social media post, Bons raised concerns about Bitcoin’s ability to handle mass exits due to its limited transaction capacity, self-custody model, and growing scalability issues.

Bitcoin’s 7 TPS Limit and Exit Bottlenecks

Bons highlighted that Bitcoin’s current transaction processing capacity is only about seven transactions per second (TPS), which is significantly lower than other payment systems like Visa, which handles 5,000 TPS. Bons argues that this limitation could lead to severe bottlenecks during times of high demand, such as a panic sell-off.

Bitcoin’s 33 million on-chain users could face significant delays in withdrawing their funds, with Bons estimating that under optimal conditions, the queue could last up to 1.82 months. In reality, however, Bons warns that transactions could get stuck or even be dropped entirely, forcing smaller holders to pay high fees to exit the network. This scenario could create a vicious cycle where miners shut down due to a price crash, further slowing down the network and worsening the panic.

The Risk of a ‘Death Spiral’

The concern raised by Bons goes beyond mere delays; he warns that Bitcoin could face a “death spiral.” In this scenario, a price decline causes miners to abandon the network due to decreased rewards, which further slows down transaction times. As block times increase and network congestion grows, it could lead to greater panic among investors, potentially causing an irreversible collapse in Bitcoin’s value.

This issue, according to Bons, is exacerbated by Bitcoin’s reliance on self-custody. The self-custody model, which encourages users to hold their own private keys, could worsen the exit bottleneck. In a crisis situation, users may find it nearly impossible to access their funds unless they pay inflated transaction fees, adding to the panic and further destabilizing the network.

The Shrinking Security Budget and Sustainability Concerns

In addition to scalability concerns, Bons also addressed Bitcoin’s shrinking security budget. He warned that as the block reward decreases over time, Bitcoin could face challenges in maintaining network security. With fewer incentives for miners to stay active, the risk of a compromised or unstable network increases, potentially amplifying the scalability issues.

Furthermore, Bons expressed disappointment that Bitcoin, once envisioned as “peer-to-peer electronic cash,” has transformed into a speculative asset. He believes that its limitations prevent Bitcoin from being a practical medium of exchange, undermining its original purpose.

Heated Debate on Social Media

Bons’ analysis has ignited a vigorous debate in the cryptocurrency community. Some critics, like tech expert Patrick Flanagan, dismissed Bons’ claims, arguing that Bitcoin has faced similar challenges in the past and overcome them. However, Bons counters that as Bitcoin’s user base grows, the risk of a “bank run” scenario becomes more likely, and the network’s scalability issues only grow more severe.

Despite the criticism, Bons maintains that Bitcoin’s scalability challenges remain unresolved, and he suggests that the solution for broader adoption may lie in centralized custodians and banks, which contradicts the core ethos of Bitcoin as “freedom money.”

Conclusion

While Bons’ warning has drawn mixed responses, it highlights the critical scalability and security concerns that Bitcoin faces as it continues to grow. Critics may argue that Bitcoin has weathered similar concerns in the past, but Bons’ critique adds to a growing chorus of voices calling for a reassessment of Bitcoin’s future in an increasingly competitive cryptocurrency landscape.