Bitcoin – Fear, Uncertainty, Doubt

Recently, there have been many articles that are down on Bitcoin. So many so, that it feels like a conspiracy to spread FUD! With that in mind, here are my counterpoint arguments to some of the more common anti-bitcoin messages. Keep in mind this is just my opinion, please don’t spend any money based on my musings below!

FUD: Educated economists think Bitcoin is a load of rubbish and going no where

History is littered with examples of disruptive thinking that experts were unable to fathom and as a result made completely incorrect predictions. For example in 2007 Matthew Lynn, a financial journalist, declared “The iPhone is nothing more than a luxury bauble that will appeal to a few gadget freaks.”.

The truth is, many times “experts” simply don’t know what will happen one way or another. Furthermore, I would argue that it’s hard for educated economists to predict the outcome of Bitcoin, since Bitcoin came in to being through a totally different specialization (ie software and cryptography).

FUD: Bitcoin is a short term scam to make a fast buck

Most Bitcoin users don’t act that way. In fact, one of the biggest arguments against Bitcoin becoming a stable currency is that users mostly hoard Bitcoins for long term gains. These speculators are buying Bitcoin for the long haul because they believe that Bitcoin will go up in value over the long term.

For example, the Winklevoss twins purchased $11 million worth of Bitcoin, with the hope that in the long term they will substantially multiply their investment.

FUD: Bitcoin is a Ponzi scheme

That’s like comparing apples to oranges. A Ponzi scheme pays returns to its investors from the money paid in by subsequent investors, until finally there are no new investors and the whole thing crashes.

On the other hand, Bitcoin is a crypto-currency with a fluctuating exchange rate that floats freely on a daily basis – much like gold, the dollar, the euro, etc. Bitcoin is also a frictionless transport layer that enables digital payments across a peer-to-peer network.

FUD: Bitcoin is inherently deflationary. Thus less cash for everybody to spend. This is bad.

Bitcoin deals with this issue by having 8 decimal places. The higher the Bitcoin value rises, the smaller the decimal transaction size will become. Each decimal place has a name, with the smallest unit being 1 Satoshi. If 1 Bitcoin was worth as much as one million dollars 1 Satoshi would still only be worth 1 USD cent. In other words, there is no need to print new currency, we can simply use smaller units of Bitcoin.

 FUD: Bitcoin can’t become a currency because people hoard Bitcoins and transaction volume is too low.

People make this argument because they are comparing Bitcoin in it’s current state to a modern currency. However, I would argue that Bitcoin has not evolved beyond the point when gold became a value store.

In that early period gold was not exactly a frictionless, high volume, high transaction, commodity. It wasn’t until after the gold-rush that gold ended up in the pockets of the average Joe. Even then, gold was never a truly frictionless modern currency until paper represented gold in the gold standard monetary system.

We already have the Bitcoin ATM, Coinbase, and many other Bitcoin ventures. Now cast your mind five years into the future and consider all the other software and hardware devices that could make Bitcoin much easier to use. Once these devices have been deployed into the consumer marketplace it stands to reason that Bitcoin liquidity would increase.

The other consideration is that true liquidity will not happen at the full BtC level, it is much more likely that consumers will be trading fractions of Bitcoins rather than entire Bitcoins.

FUD: Bitcoin will devalue or collapse due to criminals using Botnets to mine for coins with free electricity.

If Bitcoin moves towards mass consumer adoption this outcome becomes less of a probability. Coinbase already has 650k+ verified legitimate users and of course this is only the very tip of the iceberg.

Bitcoin technology enables frictionless value based electronic transactions. This idea is very useful and viral. The viral effect might be amplified as software and hardware providers start to integrate Bitcoin into every day work flows and products. With enough users this argument becomes weak since the usage of Bitcoins by criminal networks would represent only a fraction of the market.

FUD: Bitcoin is designed for tax evasion.

That’s like saying that USD cash is designed for tax evasion. Yes, it is very possible to use cash for tax evasion by passing it under the table and not declaring it to the government. However, if you’re using cash within the normal constructs of society (ie shops) it will be passed through various systems (such as cash registers) that will log transactions. I would argue that by the time Bitcoin becomes a high volume consumer traded currency  most transactions will pass through some form of cash register.

FUD: Bitcoin is evil

Given the modern pace of technology, one way or another, a purely digital currency is within our future. Even if Bitcoin fails, something very similar will take it’s place. Bitcoin is arguably one of the lesser evil representations of digital currency due to being de-centralized.

After recent NSA revelations it seems foolhardy to trust the government with something as powerful as a fully regulated digital currency where they would be able to seize 100% of anyones wealth with a click of a button.

FUD: Bitcoin’s lack of regulation facilitates illegal markets

It should be noted that our government and law enforcement agencies are not completely useless. For example the FBI were perfectly capable of closing down Silk Road, the webs biggest drug black market.

There is also a counter argument that by making it easier for criminals to connect and transact via centralized marketplace websites, it makes it easier for law enforcement agencies to track down criminal communities, who would otherwise be acting in a far more more dispersed and untraceable manner.

 FUD: The top one percent of Bitcoin users own 40+ percent of Bitcoins

I would counter that the top 1 percent of Americans own 40+ percent of the nation’s wealth. Apparently this type of wealth distribution is the norm. I’m not saying I like it, I just don’t understand how this argument has any weight regarding Bitcoin.

FUD: Bitcoin makes it easier for criminals to do business with each other

Yes, but it also makes it easier for non-criminals to do business with each other. Since there are far more non-criminals than criminals, one can easily argue that the frictionless nature of Bitcoin can offer benefits to society at large that outweighs this downside. For example, Bitcoin makes it easier for independent business owners in third-world countries to trade with the rest of the world.

FUD: Early adopters stand to make profit, later adopters are “suckers”

Just like with any business related venture the first involved are the ones that take all the social and financial risk. There have been plenty of attempts at virtual currencies that resulted with no adoption and early investors loosing 100%. Bitcoin might just as easily have gone this way. However, Bitcoin seems to be a version of a virtual currency that finally strikes a chord. This turn of events is just as much about timing and luck as it is anything else.

Why should we persecute this batch of early adopters for this particular technology. What is the difference between this and those that purchased Google shares at $85 which are now $1000+? If someone today buys Google at $1000+ are they a sucker, or just an investor that missed the early opportunity?

FUD: Bitcoin will fail when “real” money is fully digitized

It’s much easier to create a standalone, self contained, digital currency than it is to try to tie “real” money to a digital transport mechanism that is fully integrated with everything in the world.

For example, let’s say the fed decided to create a digital transport system similar to Bitcoin that could carry “real” money around… it would be a huge effort on their part to truly integrate that into all shops, banks and existing financial infrastructure. It would take many years, by which time Bitcoin may well be so embedded within our commercial culture that it proves difficult or impossible to remove.

FUD: Bitcoin mining software is being distributed as malware

If your computer is susceptible to malware that can mine Bitcoin, then your computer is also susceptible to malware that can steal your credit card information, hijack your video camera, etc. In other words you should secure your computer.

FUD: Bitcoin mining has a terrible carbon footprint

Doesn’t printing money, stamping bullion, and minting coins also have a carbon footprint? If you measured all the banks computers in all the world what kind of carbon footprint would you find?

Bitcoin is no different to any other industry that uses electricity to create a product or service. There is absolutely nothing stopping Bitcoin miners from using machines that are solar or wind powered. In fact I can imagine it would be a selling point for Bitcoin miners to sell coins at a premium that have been “mined responsibly”.

Even so, I would personally like to see this issue addressed by the Bitcoin foundation. It seems highly likely that there is a technical approach to deal with this downside.

Conclusion

The real point here is Bitcoin is a highly disruptive technology that has the potential to change our lives on a fundamental level and that’s probably the main reason it’s generating so much controversy. Hopefully this article can help some folks re-examine their assumptions about Bitcoin.

Anyway, as I stated at the top of this article these are  just my opinions, please don’t spend any money based on my musings. That said, if you’ve found this article useful and have a few satoshi’s to spare please consider making Bitcoin donation to: 19rN88GkWwLfKBn6Kue5wGrWWq2KnqDQRk 😉