Bitcoin Faces Quiet Crisis as Network Use Declines

While Bitcoin miners show record confidence today, growing third-party involvement threatens the networkโ€™s future.

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  • Bitcoin is under a “vampire attack” by third parties.
  • Wrapped BTC and ETFs present a long-term threat.
  • Minersconfidence continues to grow.

Bitcoin advocates often tout its incentive system as a masterclass in game theory, designed to ensure longevity and seamless operation well into the future.

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However, the rise of centralized third parties, including ETF providers and DeFi firms, introduces new uncertainties. As these entities aim to profit from Bitcoin, the long-term outlook becomes less predictable, raising concerns about the network’s future.

Bitcoin Under Attack 

As centralized third parties seek to profit from Bitcoin, its long-term outlook appears increasingly uncertain. Duo Nine, founder of Your Crypto Community, warned that the growing prevalence of ETFs and wrapped Bitcoin tokens could reduce network activity, ultimately hampering miner incentives.

Miners earn income by matching the target hash to secure block rewards and collecting fees from successful transactions. However, with the block reward halving every four years, the network will increasingly rely on transaction fees directly tied to network activity.

If fewer transactions occur due to more BTC being locked away, miners may struggle to cover their costs, forcing them to exit the network.

Duo Nine warned that this โ€œvampire attackโ€ is already underway, with liquidity and value being siphoned off the Bitcoin network through wrapped tokens and ETFs locking away vast amounts of BTC.

While this scenario hasn’t yet materialized and may not for another two decades, Duo Nine emphasized the need for the community to resist these external pressures. He urged Bitcoin users to avoid relying on third-party services and use the network.

Miners Pile In

Despite concerns that centralized third parties will stifle network activity in the long term, Bitcoin miners remain optimistic. On October 21, the Bitcoin hash rate reached an all-time high of 885 EH/s, marking a 67% increase from the beginning of 2024, when it stood at 530 EH/s.

Bitcoin hash rate showing a new ATH in October per CoinWarz.

Daily mining revenue is now at $36.2 million, significantly below the April 20 peak of $107.8 million. This suggests that miners are currently content with reduced earnings, likely due to confidence that future BTC price increases will sufficiently offset present risks.

On the Flipside

  • ETFs have acquired 4.5% of the BTC supply in nine months, or 1.1 million coins.
  • Kraken is the latest centralized third party to introduce a wrapped Bitcoin token (kBTC).

Why This Matters

While Bitcoin was designed to free money from centralized control, the success of institutional adoption may paradoxically undermine the network that gives it value.

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This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Samuel Wan

Samuel Wan is a reporter at DailyCoin covering market affairs. Samuel's has holdings in Bitcoin and Cardano, with other minor holdings across the market.

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