FIRST STEPS
NO FEAR

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. 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]