This is an opinion editorial by Federico Rivi, freelance journalist and author of the Bitcoin Train newsletter.
Would you say that football and baseball are part of the same industry because both playing fields are covered with grass and in both games there is a ball? Would you say that Bitcoin and cryptocurrencies are part of the same industry just because they are both in the digital realm and cryptography is involved in both?
The analogy is obvious, but still many equate Bitcoin with cryptocurrencies, refusing to see the substantial differences. The latest example comes from the Financial Times, whose columnist, Jemima Kelly, wrote that “Bitcoin cannot be separated from crypto.” Kelly is no stranger to criticism of Bitcoin: In 2015, she highlighted the fall in the price of bitcoin from $500 to $300, but that does not mean that his articles are not worth analyzing in detail, even more so when published in major newspapers such as the Financial Times.
So “Bitcoin cannot be separated from crypto”, but why? Kelly offers a list of poorly argued reasons that are worth dismantling.
Ponzi schemes and the money criteria
“It doesn’t matter what bitcoin’s origins were: the people who push it now have the same financial incentives as those who push any other crypto token. Satoshi Nakamoto, the creator of bitcoin, might have wanted to use it as money, but this does not do so: it meets none of the necessary criteria and instead operates in a pyramid-like structure that relies on constantly recruiting new members.”
Pyramid schemes are, by definition, structures that can only be sustained as long as new investors continue to come in to pay interest to the first, that is, those at the top of the pyramid. The moment no new funds come in, the structure collapses. Kelly does not explain how Bitcoin would collapse without new investors. In fact, we are in the middle of a bear market that started 10 months ago with a lot of money coming out of bitcoin. In this scenario, the pyramid scheme should have collapsed by now. As I write, however, Bitcoin remains the most distributed network on the planet and its hash rate is at an all-time high.
Bitcoin works with and without new funds coming in every day and this is a key difference from the world of “crypto”, in which carpet pulling occurs on a regular basis, as reported by the website rekt.news.
As for the money criteria, Kelly forgets to specify what they are and how Bitcoin doesn’t meet any of them. Although there is no universal consensus on how many key characteristics money has, we can limit ourselves to highlighting the main five: store of value, medium of exchange, transportable, divisible, unit of account.
- Store of value: Since inflation can be defined as devaluation due to monetary expansion, Bitcoin is technically and precisely a hedge against inflation due to its fixed supply. It is even better than gold, the world’s most important store of value, in terms of the stock-to-flow ratio, and is therefore certainly an excellent store of value.
- Medium of Exchange: While in Bitcoin’s history, scalability has created quite a few scars, today we are fortunate to have a protocol at our disposal that makes Bitcoin the best way to send money from one party to another. from the world to another instantly and almost without. – Existing rates. The Lightning Network is exactly what Bitcoin needed to become a medium of exchange.
- Portability: Bitcoin is digital, anything to add?
- Divisibility: One bitcoin is divisible into 100 million sats. The Lightning network also supports millisats, so a bitcoin can be divisible into 100 billion units. Try it with dollars.
- Unit of Account: This is the only feature that has yet to be achieved in Western economies due to bitcoin’s volatility, due to its ongoing price discovery phase that is likely to last several more decades . However, this does not mean that bitcoin is not already a much more reliable unit of account in many developing countries, where local currencies have fallen into hyperinflationary spirals.
“Bitcoin is not, in fact, decentralized; not only do miners group together to form ‘mining pools,’ but wealth is also highly concentrated. On Tuesday, MicroStrategy announced that it had bought 301 more bitcoins, meaning that this company alone now has almost 0.7 percent of the entire supply.
Mining pools are not football teams, and there are three considerations that Kelly omitted:
- Individual miners can leave one pool and join another at any time if they feel one is gaining too much power.
- If, until now, there has been a danger of transactions being censored by a group—since it is the group that writes the candidate block and therefore can theoretically choose which transactions to include and which to exclude—with Stratum V2 this problem is ‘is solving. because each individual miner will be able to write their own candidate block. In the end, pools are groups of individuals acting for their individual interests.
- As undesirable as it is, a large hash rate controlled by a single miner gives no power over the protocol rules, which are enforced by individual nodes on the network, as demonstrated in the Block Size War and the beauty of the test. of work
As for MicroStrategy, Kelly has probably drawn the wrong analogy with the fiat world, where power and money go hand in hand. There, wealth and the ability to influence the rules of the system are directly proportional, a bit like in the proof-of-stake system, which is nothing but the cryptographic transposition of today’s world. In Bitcoin, things work differently: as long as an individual runs a full Bitcoin node in a remote village in Kenya, even without owning any Bitcoin, they have exactly the same amount of power that MicroStrategy has over Bitcoin (only if the ‘company manages a full node, obviously, otherwise the individual has more power).
Innovation and Energy FUD
“…a ‘first mover advantage’ doesn’t always last. Other crypto tokens already have several features that bitcoin doesn’t, and there’s been talk of a ‘flipping’ again, where Ethereum’s value surpasses that of bitcoin due to the former’s shift to a less carbon-intensive form of mining.”
It is not specified what exactly those characteristics might be. Maybe smart contracts? It would be enough to study what is happening with the layers that follow the Bitcoin blockchain: Lightning Network, RGB, Taro, Fedimint, Liquid, OmniBolt, Sphinx and tbDEX, just to name the most well-known ones.
As for “carbon intensive” mining, many pages could be filled to refute this idea. For the sake of this article, I will only show the data from the latest Bitcoin Mining Council report, which in July found that 59.5% of the energy used by the Bitcoin network comes from renewable sources, and that although Bitcoin consumes 0.15% of the energy produced globally, is responsible for only 0.086% of CO2 emissions, and is therefore much greener than the average global production of goods and services. This trend will continue, given the incentive for miners to use low-cost energy sources. As Nic Carter said: “Bitcoin mining is converging with the energy sector at an astonishing rate, producing an explosion of innovation that will decarbonize Bitcoin in the medium term and dramatically benefit increasingly renewable networks.”
The idea that first-mover advantage doesn’t last forever is also wrong. There is one key fundamental characteristic that allows Bitcoin to enjoy this constant advantage: scarcity, or to be more precise, finitude. Bitcoin is finite, cryptocurrencies are not. And even if the Bitcoin code was used creating an identical copy, the first Bitcoin would be the original: scarcity cannot be recreated once discovered.
How many Bitcoins? (Spoiler: only one)
“Finally, there is not even agreement on what bitcoin is. For the vast majority it is the digital currency also known as “BTC”, which is currently changing hands at around $19,000. But there are other versions that they have split off, like the one promoted by Craig Wright, the man who claims to be Satoshi and who says that BTC is a scam”.
This is a very contradictory sentence. If the “vast majority” agrees that Bitcoin is a thing, then there is an agreement, even if a megalomaniac with almost no following is called Satoshi Nakamoto and wants his token to be considered the real bitcoin. And in any case, when it comes to Bitcoin, where there is no single authority to provide certificates of authenticity, there is always one final judge: the market. The free market actually accepts BTC, although many western countries have forgotten what it is.
This is a guest post by Federico Rivi. The opinions expressed are entirely my own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.