INTEL REPORT--It seemed like last week was the week of the bitcoin skeptic as everyone from Nobel-prize winning economist Paul Krugman to legendary investor George Soros had negative things to say about the world’s first and most well-known crypto asset.
Although the arguments against bitcoin keep coming, they haven’t evolved much since 2013, when the first major run-up in the price brought out all of the haters. With skepticism abound once again, I thought now would be a good time to cover three more lies bitcoin skeptics tell themselves.
Lie #1: Bitcoin Has No “Intrinsic Value”and Will Crash to Zero
One of the most common arguments against bitcoin is that the price will eventually crash to zero because there is no true, intrinsic value backing the asset.
On the other hand, the skeptics say the U.S. dollar is required for tax payments, and even gold has the underlying utility of industrial use cases. This argument is so common that well-known economist Nouriel Roubini made it in a new article that I saw while writing this one.
If the skeptics want to make this argument, then they need to come to grips with the fact that permissionless digital payments could also be construed as the underlying value of bitcoin. Much like you need U.S. dollars to make tax payments in the United States, you also need bitcoin to make permissionless, digital payments in an efficient manner online (gold bugs can also read this full breakdown of what they miss about bitcoin’s intrinsic value).
Now, you could argue bitcoin is not required because there are so many altcoins that can also be used, but the issue there is that bitcoin is the most reliable, stable, secure, and long-lasting of all the cryptocurrencies, which is why people still prefer it in the face of high on-chain transaction fees (see my full explanation of why the bitcoin price has continued to rise in the face of higher transaction fees).
This point about bitcoin lacking any “intrinsic value” has been used as the reasoning behind many of the nearly 250 times people have said bitcoin is dead.
In addition to the contradiction in terms of a payments use case providing underling utility for U.S. dollars but not bitcoin, this argument sort of misses the fundamental value proposition of bitcoin in the first place — at least in terms of what drives its price. Bitcoin is a seizure-resistant digital asset with a transparent and incorruptible monetary policy, which provides the base, intrinsic (if you want to call it that) value proposition that attracts hodlers (see my full breakdown on hodlers providing a price floor for bitcoin).
Now, this is not to say the bitcoin price could not be in a short-term price bubble; that’s certainly possible. However, a price correction would not indicate that there is no value here at all.
Lie #2: Bitcoin Wastes Energy and Harms the Environment
Another common argument made by bitcoin skeptics is that decentralized transaction processing is a bad idea due to the inefficiencies involved and the headline-grabbing energy costs that go into the mining process. Skeptics often say that this energy is “wasted” and does nothing but harm the planet because, as I’ve already covered, they also think Bitcoin is a useless system anyway.
First of all, bitcoin mining is not wasteful by definition. Miners are incentivized to secure the network via rewards in the form of newly created bitcoin and transaction fees; therefore, miners only mine if people find bitcoin useful as a store of value and/or medium of exchange.
Secondly, as Coin Center’s Peter Van Valkenburgh has argued, bitcoin incentivizes the discovery and advancement of renewable forms of energy.
“The fact is that the Bitcoin protocol, right now, is providing a $200,000 bounty every 10 minutes (the bitcoin mining reward) to the person who can find the cheapest energy on the planet,” wrote Van Valkenburgh in a blog post last month.
Over the past few months, we’ve seen energy providers in Washington stateand Quebec receive more requests than they can handle from cryptocurrency miners who desire low-cost electricity for their facilities. What do these two locations have in common? Cheap, clean hydroelectric power.
Lie #3: Bitcoin is a Bad Idea Because Bad People Might Use It
This third lie (or sixth lie if you started with the previous article) that bitcoin skeptics tell themselves is usually made when any new form of technology first hits the market: What happens if bad people use it?
While bitcoin is far from anonymous right now, it could eventually be made much more private. In fact, some altcoins, such as Monero and Zcash, already provide enhanced anonymity to those who seek it.
When thinking about the issue of some people using bitcoin to do bad things, it’s important to think of what the alternative option implies. If there is no anonymity allowed in online transactions, then that means the national government and/or a handful of companies will know about everyone’s online purchasing habits. At this point, it should also be remembered that the world is becoming an increasingly cashless society.
This argument that bad people will use bitcoin is similar to the arguments against encryption more generally. There is no grey area to deal with here. Privacy is binary; you either have it or you don’t.
Government officials have long contended there is a need for backdoors in encryption software so law enforcement can more easily solve cases once they have probable cause. Others say that backdoors don’t work because they cannot be sufficiently secured from hackers. The most famous version of this debate — at least in recent times — came in the form of the FBI trying to get Apple to unlock a domestic terror suspect’s phone.
Apple’s argument was that a backdoor in their phones would be nearly impossible to keep secure and out of the hands of hackers. Later in the same year, Apple’s point was illustrated when a set of hacking tools and exploits were stolen from the NSA.
According to Wired, the FBI was eventually able to unlock the terror suspect’s phone without Apple’s help anway.
So, in the context of bitcoin, the debate is between some centralized entity (likely a bank and/or government) knowing the financial activities of all of their users (and potentially leaking this data to hackers) and everyone having a right to financial privacy.
One last thing to consider for lie numbers two and three is that bitcoin doesn’t much care how you feel on these points. Even if bitcoin were extremely wasteful and only useful for criminals, the system is designed to be resistant to government-enforced shutdowns. We’ll have to wait for a serious crackdown or attack from a major government (if it’s not already happening) to see how well this aspect of the system holds up.
(Kyle Torpey: I first used Bitcoin in 2011 and have covered the topic as a writer since early 2014. Subscribe to my daily newsletter, YouTube show, and podcast. This piece was posted most recently at Medium.com.)