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FUD Slaying 1.0

Being initially skeptical about Bitcoin is healthy. Whilst your curiosity brought you here, you likely cultivate fears, uncertainties, and doubts (FUD) regarding this “magic internet money”. They will dissipate as you learn. Get acquainted with key Bitcoin FUDs and misconceptions as well as their debunking!

FUDs - An Overview

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More debunking

In case you want to further explore this topic now, the lists below unpack specific FUDs you will stumble upon sooner or later. They are organised into three buckets. Explore the critiques, their rebuttal, and access extra sources as needed. You can come and visit this page anytime during your learning.


Bitcoin is :

CRITIQUE:

The supply of Bitcoin is such that there won’t be enough for everyone.

REBUTTAL: 

There will only ever be 21 million bitcoin. Each bitcoin contains 100 million satoshis. Which means there will be a total available supply of 2.1 quadrillion satoshis (thats 2,100,000,000,000,000) available to circulate around the Bitcoin network. At a world population of 8 billion (rounded up) that equates to 262,500 sats for every person on the planet. Plenty to go around, don’t you think? [Source: Bitcoin Q+A]

CRITIQUE:

Like tulip-bulbs hundreds of years ago, Bitcoin is a retail mania, and it will collapse.

REBUTTAL: 

Bitcoin has experienced four major cycles of massive 1000%+ appreciation, followed by deep drawdowns of more than 80%. Each cycle has started from a much higher price than the previous one. This is not a characteristic of one-time manias. Bitcoin's price, as well as fundamental adoption numbers, are increasing dramatically over multi-year timeframes. 

It is a common refrain from people ignorant of both bitcoin, as well the dutch tulip bubble, to refer to bitcoin as "tulips". The tulip bubble was a one-time event, lasting a couple months at manic prices, and affecting relatively few people. Bitcoin, by sharp contrast, is exhibiting growth characteristics - both in price and adoption metrics - similar to an increasingly dominant tech company or protocol.

Another thrust of this argument centers around the fact that bitcoin has no cash flow (like bonds) or expected cash flow (like stocks), and that therefore it's worthless, or at least massively overvalued. This is essentially the same as the "no intrinsic value" critique, as it ignores fundamental properties that humans demand and therefore assign value. [Casebitcoin.com]

CRITIQUE:

The extreme volatility of Bitcoin makes it an overly risky investment and makes it totally unfit for its use as a useful currency or store-of-value

REBUTTAL: 

1- Its certainly no secret that Bitcoin does have some monumental price movements. It is a relatively new financial asset that the market is still trying to understand. This is why it is always good advice not to try and trade the market for profit. By adopting the strategy of making smaller more frequent purchases you effectively ignore Bitcoin’s price volatility and obtain the ‘market average’ price. Not financial advice. [Source: Bitcoin Q+A]

2 - It's true that bitcoin historically has very high trading volatility. This is not a surprise for an asset whose market cap has grown to hundreds of billions of dollars, from 0 a decade ago. Furthermore, bitcoin's volatility is decreasing as it matures.

At this intermediate stage, where bitcoin's market cap is significant but still one or more orders of magnitude below where one might expect a mature global store of value to be, thinking of bitcoin as an emerging store of value is helpful. Ultimately, it's possible that once bitcoin achieves more maturity and a higher market cap, it can become a directly useful unit of account and medium of exchange as well. [Casebitcoin.com]

Additional resources:

- Bitcoin is Not Too Volatile (Parker Lewis)

CRITIQUE:

Bitcoin is purely digital & backed by nothing, and therefore has no intrinsic value.

REBUTTAL: 

1 - Parker Lewis sums this answer up best in his article. “Like all money, Bitcoin is backed by the credibility of its monetary properties”. Bitcoin is valuable because it is verifiably scarce, anybody can check exactly how many bitcoins are in circulation at any time. It is valuable because it is secured by millions of $ worth of assets worldwide through its distributed mining and consensus mechanisms. It is valuable because it is the first and only form of money that anyone with an internet connection can take part in. It does not discriminate and it does not censor. [Source Bitcoiner.guide]

2 - "Intrinsic" value is a faulty concept. It's always the case that humans value something based on its usefulness for a specific purpose. The value is not an inherent property of something but a reflection of people's demand for it. Similarly, something only needs to be "backed" by something else if it is missing the properties that people value. Bitcoin has many attributes that are fundamentally similar to gold (which humanity values at over $10 trillion), and are often superior precisely because of bitcoin's digital nature. People have historically valued gold above its industrial use (electronics, etc.) because it has properties that made it useful for reducing the friction of exchange, such as scarcity, fungibility, durability, etc. These properties generally define something that can be a good money and store of value.Bitcoin has these same properties, often taken to an extreme vs gold due its digital nature, plus other capabilities that are not possible for a physical object. This is why bitcoin is often called "digital gold".[Source Casebitcoin.com]

CRITIQUE:

Bitcoin is just too slow to operate as an effective payment rail.

REBUTTAL: 

If Starbucks were to accept bitcoin tomorrow, then yes, waiting 10 minutes for a confirmation to pay for your latte may not be the ideal situation. For near instant payments like that, we have Lightning. Although the user experience isn’t quite as polished as CashApp or Venmo it’s certainly getting there. But let’s say you want to transfer $50,000 to the other side of the world, when compared with the current available options, 10 minutes doesn’t seem slow does it? [Source: Bitcoin Q+A]

CRITIQUE:

Bitcoin's mining process is extremely energy intensive, therefore wasteful, and contributes to the degradation of the environment.

REBUTTAL: 

1- It is true that Bitcoin’s proof of work mining process consumes vast amounts of energy, but much of this now comes from renewable sources. Bitcoin is also pushing the development of energy capture by making use of sources that would otherwise be wasted such as flared natural gas. Bitcoin only consumes energy to the market’s appetite. If more people choose to value and use bitcoin, then more energy will be dedicated to securing it. The opposite is also true.  [Source: Bitcoin Q+A]

2 - Bitcoin's energy spend is required to do three things: fairly distribute new bitcoin according to bitcoin's monetary policy, allow anyone to participate in the bitcoin network on even footing, and create the strong security assurances around bitcoin's transaction settlement. Any financial system will have certain properties and guarantees, and they never come for free. Before digging in further, some context is helpful here. Some back of the napkin math suggests that as of this writing (Feb 2021), Bitcoin uses less energy than clothes dryers just in the US, and also less energy than just US households spend on "vampire energy draw" ie. devices like TVs and cell phone chargers that are plugged in, but turned-off and not doing anything. This is to say, bitcoin's energy use happens to be very easy to calculate, but pales in comparison to much more mundane sources of power consumption that most people don't think about much.

But even with the scale more properly contextualized, it would still be a shame if bitcoin wastes energy. So does it? Financial systems require infrastructure and security one way or another. In the case of gold, enormous amounts of effort and energy are spent to both mine it and securely store it. For modern government currencies, the physical banking infrastructure, and human capital to make it all work and settle correctly is extremely costly. These costs are usually not directly measured in energy, but it could be expressed that way in theory, and they'd be very large numbers.

With bitcoin, the creation of the asset, as well the processing of transactions, and the assurances around bitcoin's security are all bundled into the mining process which deliberately expends energy. The energy is spent as a "proof of work," the sum of which assures that bitcoin's transaction ledger cannot be changed. This is essential for bitcoin's monetary policy certainty, as well as other key properties. With hundreds of billions of dollars in market cap and billions of dollars settled on the bitcoin network every day, there is clearly significant demand for the services bitcoin provides, and bitcoin mining expends energy to support those services. This energy spend is not wasted; the market explicitly demands it.

Additionally, bitcoin mining has strong reliance on renewable energy, and furthermore, the hyper competitive and global nature of bitcoin mining suggests that it may eventually rely almost completely on renewables, since they are likely to be one of the cheapest power sources long-term. Jack Dorsey, CEO of Square, recently noted: “We believe that cryptocurrency will eventually be powered completely by clean power, eliminating its carbon footprint and driving adoption of renewables globally... Published estimates indicate bitcoin already consumes a significant amount of clean energy, and we hope that Square’s investment initiative will accelerate this conversion to renewable energy.” [Casebitcoin.com]

ADDITIONAL RESOURCES:

  1. Arcane Research (2022). How bitcoin mining can transform the energy industry: Summary
  2. Square (2021) Bitcoin is Key to an Abundant, Clean Energy Future.
  3. Lewis, Parker (2019). Bitcoin Does Not Waste Energy
  4. Carter, Nic. (2021). The Frustrating, Maddening, All-Consuming Bitcoin Energy Debate
  5. Carter, Nic (2021). The Last Word on Bitcoin's Energy Consumption
  6. Dan Held (2018). PoW is efficient

CRITIQUE:

Bitcoin can only support around 7 transactions per second, so it will never be a global currency.

REBUTTAL: 

Bitcoin's base layer today can indeed only support a theoretical throughput of 7-10 transactions per second. This is vastly less than the ~4000 tx/sec that the VISA network can hit at peak times. But bitcoin transactions are not VISA transactions. Bitcoin today settles over $5B in transactions per day across hundreds of thousands of transactions. This simply means a much higher average transaction value (over $5,000) vs retail payment networks (VISA's is around $80). Bitcoin is much more akin to a large value settlement network today, than a retail payments network.

The core nature of a bitcoin transaction means any amount of value can be transacted using the same number of bytes and bandwidth. Given its core use today as an emerging store of value, it makes sense that average transaction value would be high, but sheer number of transactions per day would be a lot less than existing global payment networks. Global high-value independent settlement, that works anywhere, doesn't require a middleman, and credibly cannot be reversed, is a unique and high-value use-case that bitcoin alone occupies today.

In the future, advancements such as bitcoin's Lightning network may offer a very high throughput way to issue bitcoin transactions, allowing Bitcoin to scale as payment network, and even offer new payment use-cases not practical with traditional networks, such as machine-to-machine micropayments. [Source Casebitcoin.com]

ADDITIONAL RESOURCES:

  1. Ammous Saifedean (2017). Economics of Bitcoin as a settlement network

CRITIQUE:

The complexity of Bitcoin and its lack of user-friendliness will hinder its adoption.

REBUTTAL: 

This is a highly subjective view and depends on the individual. But yes, right now, we agree that it’s easier to tap your bank card on a terminal than to dig out your phone, scan a QR code and wait for a confirmation. We think an extra couple of steps to make a Bitcoin transaction is a small price to pay for the benefits the network offers. There’s 1000’s of developers worldwide working round the clock to make the user experience easier. Just like all technology, it takes time to develop and refine.  [Source: Bitcoin Q+A]

CRITIQUE:

There are news reports all the time about bitcoin getting hacked. Bitcoin must not be secure.

REBUTTAL: 

Bitcoin is a protocol run by thousands of computers and operators all over the world. The news stories about "bitcoin" getting hacked refer to centralized services that use bitcoin getting hacked, not Bitcoin itself. Most famously, the notorious early bitcoin exchange, MtGox, got hacked and drained of 650,000 BTC ($362mm worth at the time). This is akin to your bank or stock broker getting hacked. Bitcoin itself has never been hacked, and is perhaps the most scrutinized codebase in the world. Furthermore, because it is decentralized, it is not prone to the usual attack vectors that centralized services (like your bank and MtGox) are exposed to.

Even though bitcoin the protocol has never been "hacked", diligent attention must be paid to storing bitcoins securely. Bitcoin's key properties include the fact that transactions are irreversible, and that no one sits in the middle of a transaction. That means that if someone else gets control of your bitcoin, they can send it to their own wallet and there's nothing anyone can do to stop or reverse that. This is a key strength of bitcoin as a cash-like bearer asset and money system that is credibly neutral & global, but it does mean secure storage is all the more important, since there simply is zero recourse if something goes wrong.

Thankfully, there is now a wide range of reputable products and services that help you safely store your bitcoin. In contrast to even just 3 or 4 years ago, there are now many ways to securely store bitcoin, ranging from relying on a regulated custodian (such as Fidelity), to taking full control yourself with a hardware wallet or other self-storage solution. There are also hybrid models where you retain significant control, but offload a large part of the security burden to other providers (such as Casa or Unchained Capital). While bitcoin owners still need to think carefully about what storage solution is right for them, bitcoin custody is not the wild-west it once was.
[Source Casebitcoin.com]

CRITIQUE:

Bitcoin is too volatile to be a day-to-day currency, plus it takes too long for transactions to settle, and sometimes has high transaction fees, so it's a failure as money.

REBUTTAL: 

It's true that bitcoin is not a viable global every-day currency today (though it settles $billions equivalent in transactions every day). And it may never be. But that's ok. Gold would make a much worse day-to-day currency, and yet humanity finds over $10 trillion in value in gold's fundamental properties. Furthermore, bitcoin's digital nature and programmability mean future innovations can be built on top of bitcoin's base layer, potentially enabling direct frictionless instant global payments at scale.
It is commonly accepted that a "currency" has to be 3 things:
    1) a medium of exchange
    2) a unit of account
    3) a store of value

Bitcoin critics argue that it directly fails on #1 and #2, and that its trading volatility (critique #3) invalidates #3. Perhaps "currency" is a misnomer for bitcoin today. In any event, bootstraping a commodity like bitcoin from nothing to a global currency that satisfies all 3 conditions would likely require it to go through various distinct phases of development. Nick Szabo examines this process in his 2002 (pre-dating bitcoin) essay "Shelling Out -- The Origins of Money".

Bitcoin is arguably in a phase where it is emerging as a store of value, which can serve as a base on which to build the other two pillars of a good currency. But even if that never happens, digital store of value is a huge market, and an asset doesn't need to be a globally accepted means of payment in order to excel as a high-marketcap store of value. [Source Casebitcoin.com]

CRITIQUE:

Bitcoin is a typical Ponzi scheme promising jaw-dropping returns to gullible investors.

REBUTTAL: 

Bitcoin’s utility is as money. It has a market because it solves a problem inherent in modern money. Not only is Bitcoin not a pyramid scheme; it is fundamentally distinct from the class of innovation that could be offered by any individual company. Bitcoin is not Dell and it is not Apple. It is not a tech stock. There is no company that exists behind bitcoin. Bitcoin is not a company selling a product and there is no income stream to pay future dividends. Bitcoin is not about making money; instead, bitcoin is money, or at least it has become money to those choosing to store a portion of their wealth in it. [Parker Lewis]

ADDITIONAL RESOURCES: 

  1. Lewis, Parker (2019). Bitcoin is Not a Pyramid Scheme

CRITIQUE:

Bitcoin is anonymous and facilitate criminal activities such as money laundering.

REBUTTAL: 

This is not true, Bitcoin is ‘pseudonymous’. Meaning that at a network level a wallet or address is not directly linked to a real life identity. This means that chain surveillance firms can follow and link together ‘bitcoin identities’ without knowing who the individuals behind them are. But, if you purchase bitcoin through an entity that requires personal information then those companies can tie together a real person and a bitcoin address. Always be mindful who you give this information to. [Source: Bitcoin Q+A]

CRITIQUE:

Governments won't simply allow a non-state money to keep growing. Control over money is too central to a government's survival for them to allow this.

REBUTTAL: 

Bitcoin's decentralized nature makes it impossible for anyone, even governments, to fully kill it. Given that it will always exist, the dynamic becomes one of "jurisdictional arbitrage,"; i.e., if one government makes owning bitcoin fully illegal with harsh penalties, other governments will embrace the opportunity to become home to bitcoin-related businesses, investors, etc.

Furthermore, the cat's out of the bag, so to speak. In the US, several members of congress already own bitcoin, and the list of elected (and unelected) officials who take pro-bitcoin stances publicly is getting longer. Additionally, the false-narrative that Bitcoin is popular for illicit activity is being challenged by career US intelligence officials, plus in April 2021, the US House Minority Leader positioned bitcoin as geopolitically important to the United States.

Additionally, adoption of bitcoin and cryptoassets continues to grow rapidly. The Cambridge Judge Business School's 3rd Global Cryptoasset Benchmarking Study found that in Q3 2020, there were an estimated 101 million unique identity-verified accounts at crypto service firms (exchanges, wallets) globally. This is up from an estimated 35 million such accounts in 2018, and does not include the likely significant expansion that's occurred in Q4 2020 and so far in 2021 as bitcoin and crypto markets have rapidly attracted new interest. Furthermore, the Cambridge study tracks identity-verified users only. The bitcoin and crypto-ecosystem is likely much wider. Since BTC is a bearer asset, and can be self-custodied, users who exclusively hold their own bitcoin and who don't use services that require identity-verification will not show up on these studies, and may represent a very large portion of total bitcoin users. The larger the portion of the electorate who has a stake in bitcoin, the more politically difficult it becomes to attack it.

Finally, the 2nd half of 2020, and early 2021, have seen a rapid broadening of bitcoin exposure, and positive bitcoin sentiments, coming from deep-pocketed backers with lobbying power. These include numerous multi-billion-dollar, and even mutli-trillion-dollar, fund managers taking BTC positions, corporates like MicroStrategy, Square, and Tesla putting BTC on their balance sheets, and major banks and financial services providers such as BNY Mellon, Fidelity, PayPal, Visa, and MasterCard offering bitcoin-related services. Bitcoin is rapidly embedding itself into both the financial plumbing, as well as corporate and major funds' balance sheets, thus making it far more politically difficult to attack too aggressively, and this momentum shows no signs of slowing down. [Source: Casebitcoin.com]

CRITIQUE:

Bitcoin is used by criminals to conduct illicit activities. It is bad and needs to be banned.

REBUTTAL: 

1 - Bitcoin is money and any money can be used by criminals. In 2017 the entire drug trafficking market alone was estimated to be worth $500,000,000,000 (500 billion). At current prices that could buy the entire Bitcoin network 11 times over! It’s probably fair to say that the overwhelming majority of illicit activities are funded by normal ‘fiat’ currencies. It could also be argued that the public nature of Bitcoin’s blockchain might actually make it less desirable for criminals.  [Source: Bitcoin Q+A]

2 - Bitcoin has received a lot of press about criminal use, largely due to the novel darkweb marketplaces, such as Silk Road (now defunct), which used bitcoin as a key element early on. Yet, the fraction of total bitcoin transactions associated with illicit activity was never very high, and remains below 1% today. In fact, former CIA Acting Director Micheal Morell produced a report analyzing bitcoin's use in illicit activity and found that it's "significantly overstated", and is likely a far smaller share of the bitcoin economy than illicit activity done via the traditional banking system is vs global GDP.

The novel properties of new technologies often present criminals with opportunities before society more broadly finds use for the novel properties. In Bitcoin's case, its uncensorable nature was a boon for darkweb activity. But this is also a key property of Bitcoin that gives it its security and settlement assurances, and cuts out the friction and cost of middlemen that's evident in legacy money systems. This property also eliminates enormous classes of fraud - the kind that plagues credit card networks, leads to costly identity theft, and requires Visa and Mastercard to charge merchants ~3% of every transaction just to make consumers whole when fraud inevitably occurs. As with many new technologies, ultimately, the benefits vastly outweigh the downsides. [Source: Casebitcoin.com]

ADDITIONAL RESOURCES: 

  1. Morell, Michael (2021). An Analysis of Bitcoin’s Use in Illicit Finance
  2. Lewis, Parker (2019). Bitcoin is Not for Criminals

CRITIQUE:

Bitcoin is one of many thousands of crypto assets, and anyone can create more whenever they want. Bitcoin therefore is not scarce and can't be valuable.

REBUTTAL: 

1 - At a network level you can, and lots of people have. There are literally hundreds of copies of Bitcoin, each usually with a minor tweak to its code to ‘improve’ it. Almost always these ‘improvements’ come with huge tradeoffs that prevent them from gaining any traction on Bitcoin’s massive network effects. These copies usually have an unfair launch which are generally carried out to enrich their founders. Their design usually makes it very difficult for the average user to run a node. This means the project becomes very centralised and a few parties have a large influence over any changes. [Source: Bitcoin Q+A]

2 - Crypto currencies are not scarce, but bitcoins on the Bitcoin network are. Anyone can indeed clone the open-source Bitcoin codebase at any time, and launch their own coin, but they can't clone the acceptance, name recognition, and security that only the Bitcoin network enjoys. People have been cloning Bitcoin since 2011, yet no clone has come close to matching Bitcoin's marketcap and network effect.

As an internet protocol for money and a store-of-value, Bitcoin enjoys extremely strong network effects. The lock-in created by thousands of businesses, and millions of users & investors, who have a vested interest in Bitcoin specifically is extremely difficult to overcome. This is akin to what we've seen with base-level internet protocols over the past 50 years. Foundational technologies like TCP/IP and SMTP have dominated for decades, despite their technical flaws and emergence of countless competitors. They are simply too ingrained in the internet ecosystem to unseat, and developers and businesses choose to build on top of them instead. Bitcoin is proving similar.

Along these lines, CEO of Micro Strategy, Michael Saylor, recently observed that once a tech company or platform with a network effect achieves a $100B marketcap, and does not have competitors similarly valued, the platform is likely to be a dominant runaway success due its network effects and a winner-take-most dynamic. Bitcoin surpassed $100B in marketcap for the first time in 2017 and has remained dominant as a pure digital money and store-of-value throughout its entire history. [Source: Casebitcoin.com]

ADDITIONAL RESOURCES: 

    1. Lewis Parker (2019). Bitcoin Can’t Be Copied

CRITIQUE:

The Bitcoin code could easily be changed and made less consistent with its initial value offer, or less stable, and more vulnerable to attacks.

REBUTTAL: 

This is just plain false. Bitcoin has become renowned (and sometimes criticised) for the length of time it takes to implement changes to its codebase. This is because any major changes to Bitcoin’s code has to go through a rigorous peer review process before implementation. If this code change would result in a lack of backward compatibility (meaning older software may not be compatible) then the process becomes even slower and more rigourous. [Source: Bitcoin Q+A]

CRITIQUE:

Bitcoin transaction fees will keep increasing to a point where it will not be usable anymore.

REBUTTAL: 

The Bitcoin network has a very efficient fee market. There have been some short lived spikes where transaction volumes grew exponentially resulting in higher fees. The average transaction fee in $ for the past 12 months is just 77 cents. We are personally of the opinion that fees will not rise significantly for at least the next couple of years, but when they inevitably do, we have Lightning which is a promising scaling solution that has matured a lot since its inception. [Source: Bitcoin Q+A]

CRITIQUE:

The control of miners over the network means that they can collude to conduct nefarious attacks on the network.

REBUTTAL: 

Whilst it’s true that the miners play a critical role in Bitcoin’s operation, to say that they control the network is not. Miners are financially incentivised to act in good faith and the network only requires just over 50% of miners to be honest for the network to continue to function. In the highly unlikely event that a majority of nefarious miners got control of the network it would cost them over $300k per hour to sustain. If they were to succeed, not only would it be extremely costly but the price of bitcoin would likely plummet, making their efforts even less fruitful. [Source: Bitcoin Q+A]

CRITIQUE:

The programmed decline of the amount of the block subsidy means that bitcoin mining will become less and less profitable thus affecting the security of the network and the whole value proposition of Bitcoin.

REBUTTAL: 

Obviously nobody can be certain of this one as it’s a future occurrence. But the common expectation is that as the block subsidy drops, fees will rise and miners will continue to be compensated for their work processing transactions and securing the network. By which point, the likelihood of there being a commonly accepted scaling solution such as Lightning will be far greater. Even if some miners stopped mining, thanks to the network’s ‘difficulty adjustment’ it would still continue to function just fine and blocks would still be produced on average every 10 minutes. [Source: Bitcoin Q+A]

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The information presented on BTCTouchPoint and related social media accounts does not constitute financial advice. BTCTouchPoint.com is for information purposes only. Bitcoin is historically a very volatile investment. No one should invest more than they can afford to lose. Each investor has a different risk profile, and should conduct his or her own research to assess the suitability of any investment in the context of his or her personal circumstances.
Key points
  • Being initially skeptical about Bitcoin is healthy. Our very first touchpoints are usually imbued with fears, uncertainties, and doubts (FUD).
  • These FUDs occasionally stem from genuine misunderstandings. More often than not they are pure disinformation marketed to discredit Bitcoin.
  • FUDs will dissipate as you learn. It is in bitcoiners' ethos to assess each new claim as objectively as possible. Here is a trove of powerful rebuttals: Learn from it!

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