Reliance on the Internet

Bitcoin depends on the Internet. Its ongoing functioning requires communication across a distributed network of computers that can share data via telecom networks. The destruction of the Internet might spell doom for Bitcoin. In the early days of the Internet, its destruction might have been possible. Quite a few Luddites sounded alarms regarding the Internet’s enabling of crime and social ills. Today the world is still grappling with these issues and others, including destruction of privacy and monetization of personal data by giant Internet monopolists. As mentioned earlier, some of these latter issues may even be solvable using some of the encryption and decentralization principles underlying Bitcoin. Regardless, even in the presence of these downsides of the Internet, society’s dependence on Internet-based services make it extraordinarily unlikely that the Internet will be shut down by any government entity or be destroyed by anything else.

It’s worth considering that if the Internet fails permanently or for a long period of time, many other risk assets will also be vulnerable. Say goodbye to trillions of dollars’ worth of Internet companies, payment systems, free information, etc. Moreover, since so much of the world’s computing activity has moved to the “cloud” (which depends on Internet connectivity), and since computing permeates most areas of life, loss of the Internet would have huge commercial and even health-related consequences. So worrying about Internet failures bringing down Bitcoin is a little like worrying about whether the detonation of a nuclear bomb 10 miles from your house is going to adversely affect the stock market. You might have bigger problems to worry about!

One possible future scenario, proposed by former Google Chairman Eric Schmidt, would be a bifurcation of the Internet between China and the West.¹⁴⁹ If China were to manage to completely block Internet access to the outside world, a feat it has not achieved up to this point, the result could be a split between “China Bitcoin” and “Non-China Bitcoin.” This outcome seems unlikely given that Bitcoin’s bandwidth requirements are so low that small cracks in the “Great Firewall,” whether in the form of satellite Internet links, point-to-point radio-based data transmission, or other means, would likely allow Chinese users access to the Bitcoin network despite the government’s best efforts.