In my last post I shared with you my thoughts on cryptocurrencies. As I said in it…
Now I figure you might want to hear from someone who actually has researched these things. Someone who has invested in them and who knows the arguments against them probably better than most who make them.
You might remember him from his guest post on the subject back in 2017. I should have listened then. Maybe I will now.
One of the most influential economists of all time, Nobel Prize winner Friedrich Hayek predicting Bitcoin in 1984:
It has been 3 1/2 years since my first jlcollinsnh guest post on cryptocurrency, and once again you cannot escape the Bitcoin headlines everywhere you turn. We’re right in the middle of another crypto-mania bubble, but this time it feels different. The media salvos have a little more bite. The supporters sound like religious zealots preparing for the rapture. The detractors sound like angry luddites shaking their fists at those new fangled gas-powered horses.
Maybe the stakes feel higher because the crypto ecosystem has added an order of magnitude more money to the pot. Bitcoin is up 500-1000% since I was last here. I don’t have to quote you the current price because it’s on every financial ticker in the world.
But “the price keeps going up” is not an argument. Today I want to look at the most common arguments against Bitcoin that you are likely hearing every day.
Note I said, the “most common” arguments against Bitcoin. These are not even remotely the best arguments against Bitcoin. Like all big things in the world, when you get down to the gritty details the best arguments for and against anything important are nuanced, complex, and involve trade-offs.
I want to help you dispense with these shallow headline hot-takes and level up your understanding so next time we can debate some of the genuine issues facing crypto adoption.
First they ignore you. Then they ridicule you. And then they attack you and want to burn you. And then they build monuments to you.
-Nicholas Klein, trade union activist 1914.
1. Energy Usage
In the US alone, Christmas lights use enough electricity to power the entire country of El Salvador for an ENTIRE YEAR.
Do you still support using Christmas lights you selfish entitled assH%&*!? Don’t you know they are destroying the planet! They don’t even produce anything, the energy is just wasted!
The Christmas lights stat is true, and this is how ridiculous it sounds to complain about how much energy Bitcoin uses, but no self-righteous representatives are proposing legislation to outlaw Christmas lights.
There are several sneaky slight-of-hand fallacies they are trying to slip past you with this argument because nothing generates clicks and views like climate outrage.
First, electricity usage is not the same thing as pollution, but the headlines pretend they are synonymous. If I use a diesel generator with no emissions filters to charge a Tesla, am I saving the planet? Obviously not, because the method of producing the electricity is the cause of the pollution.
Likewise, if I use 100% solar power to mine my bitcoin, how exactly is that hurting the environment?
Second, Are you in favor of free markets? If you are reading the jlcollins site, I’ll assume that you are.
Would you like the government to get in to the business of telling you exactly what you are or are not allowed to use electricity for? Me either.
Bitcoin mining itself does not generate pollution. Can you name another instance where we blame the non-polluting electricity usage instead of the method of electricity generation that created the pollution?
Why don’t we blame all of the pollution from coal fired power plants on your Christmas lights?
The answer to Bitcoin energy usage and pollution is the same as every other form of energy usage on the planet: Renewable energy. If we need to regulate the negative externalities of polluting energy production, that is fine, but it is not Bitcoin’s fault. In fact, Bitcoin is accelerating the adoption of renewable energy sources.
Third, Bitcoin energy usage is not tied to transaction volume. Meaning the amount of energy used in mining will NOT scale up based on the number of transactions. So all of the breathless headlines about “amount of energy per transaction” and “if Bitcoin continues at this pace by 2040 it will eat the world” are just misleading.
Bitcoin can and will scale to many millions of more transactions totally irrespective of the amount of energy used. If you don’t understand how this works, you do not understand Bitcoin, see #7 below 🙂
2. Inherent Value
“Bitcoin has no inherent value” they say. “It’s just numbers on a computer, created from nothing”
This is debatable, but true on the surface. It’s also true of gold, which is has had no inherent value for the 6000+ years humans have been using this “useless” metal as a store of value.
It’s also true of the US Dollar, and everything else humanity has ever used as a unit of exchange.
Bitcoin, like all other units of exchange in history only has the value that people give it and only functions as a store of value when people collectively use the value system together.
If this is your argument against Bitcoin then you should give me all of your US Dollars which have no inherent value either.
3. Bitcoin is not “real”
You may have seen Bill Maher’s tirade against crypto a few weeks ago. Which included such gems as:
- “I understand out financial system isn’t perfect, but at least it’s real”
- Bitcoin is “Easter Bunny cartoon cash”
- “we knew money had to originate from and be generated by something real somewhere”
So his position is: When Wall Street does it, that’s just how the Very Serious People™ do things. But when Bitcoin does it’s fake funny money. You can’t have your cake and it eat too.
I will let you in on a little secret: Bitcoin issuance is capped at 21 Million, now and forever. No un-elected cabal of banks can choose to debase Bitcoin whenever they feel like it.
If you think Bitcoin is fake, just WAIT until you hear how our financial system works!
If you are inclined to take Maher’s opinion on things, here is his outlook on so called “smart phones” circa 2003. Yes, this is an ad hominem attack against Maher himself – because he’s a talking head that gets paid to talk, not to be correct and his arguments are silly.
4. Criminal Usage
Bitcoin is the second most used currency in the world for money laundering and criminal activity.
Second only to…the US Dollar!
All of the largest banks in the world launder hundreds of billions of dollars every year, yet still we have banks.
People said the same thing about the internet. Should we outlaw the internet because criminals use it? How about cars? It was true then and it’s true now – Criminals did use the internet and they use Bitcoin, but that doesn’t mean we don’t use them too.
In fact, because the Bitcoin ledger is public, immutable, and visible forever many law enforcement agencies are finding it easier to track illegal transactions made through Bitcoin.
5. Insane Market Caps
This one is partly true. Just like during the last crypto-mania in 2017: frauds, scams, and pump-and-dump schemes abound. They will ultimately fail and I agree their so-called “Market Caps” are a fairy tale.
But what about the established Cryptocurrencies – specifically Bitcoin and Ethereum. Can we justify their huge market-caps?
First ask yourself, do you really understand what Market Cap is measuring? Market Cap is simply the value of a single share (or coin) multiplied by the total number in circulation. Does that mean the company (or coin) is “worth” that total value?
Yes and no.
Yes, in that the market value of that share or coin is what the open market shows and you could sell 1 share (or coin) for that value on the market.
No, in that Market Cap is an instantaneous measurement subject to all other market forces. Tesla’s current market cap is $600 Billion. If Elon Musk suddenly dumped his 60 million shares on the open market, how would Tesla’s “Market Cap” fair? Not good. Does that make Tesla’s market cap “wrong” somehow?
6. High Transaction Fees
Another common complaint against Bitcoin or Ethereum is the high cost of transactions and the slow transaction speed that goes something like this:
“you fool – it costs $70 and takes 10 minutes for one bitcoin transaction – Nobody will ever use that for everyday purchases like coffee or groceries”
If this is your best argument against crypto, I would say you lack imagination – or even just the ability to learn from history.
Yes, it is entirely true that transaction costs are high right now. Settlement times are slow, right now.
Are you old enough to remember dial-up internet? When a single web page or image took 30-60 seconds to load in 1999 and monopolized your home phone line, how crazy would I have sounded to tell you that in 15 years or so, multiple wireless devices in your house would be simultaneously live streaming 4k video non-stop – gigabytes and gigabytes at a time?
The history of technology is the history of underestimating the future capabilities of technology.
“Layer 2” solutions to Bitcoin and Ethereum are in development and coming soon. ETH2.0 is expecting 100,000 transactions per second throughput capability and a 99.95% reduction in energy usage.
7. I Don’t Understand It
Warren Buffet has famously said many times: “I do not invest in anything I don’t understand”. You know what else Buffet didn’t understand? Google and Amazon. So I both do and don’t take his advice on this one. I do understand Bitcoin, therefore I invested in it. I do not think Warren Buffet does, therefore he did not invest in Bitcoin. Fine either way.
Outside of Warren Buffet, a common refrain – echoed recently on Bill Maher’s rant against Crypto – goes something like this:
“Bitcoin is complicated and I don’t understand it – it seems like black magic to me, therefore I think it’s fake or a scam“.
I don’t understand rocket science, but I see NASA and SpaceX launching them all the time so I don’t think they are a scam. In fact, I don’t really understand physics very well either, but I don’t think it’s a scam and I avoid jumping off bridges too.
The logic chain of “I don’t understand X, therefore it is a scam/fake” makes no sense. Only by understanding something could you possibly know if it is a scam.
I’d wager that all of your money is invested primarily in things you don’t understand. Do you know how to refine oil? make toilet paper? produce cars? If you wisely invest in VTSAX as JL Collins recommends, you are invested in THOUSANDS of things you don’t really understand but still enjoy the benefits of.
That said, if you are at least honest enough with yourself to say “I (me, myself) do not understand Bitcoin, therefore I will not invest in it” then I respect your decision.
8. X is Better Than Bitcoin
Where X is whatever crypto flavor of the month is hot right now. This was prominent during the last Crypto bull run, but still gets pushed quite often – Most recently by Elon Musk.
Unfortunately for the critics, Bitcoin has some giant tail winds here:
1. First Mover Advantage. Virtually any reading of the history of business proves this out to be an incredible advantage. Not always and not permanently, but often it is enough.
2. “Bitcoin is Worse is Better“. This outside of the scope of this article, but interesting additional reading for the curious.
3. Doing Bitcoin better than Bitcoin is harder than you (and Elon) think.
Suffice it say:
9. Actually Good Arguments to Debate Bitcoin
- Is the deflationary block/transaction reward system sustainable in a multi-crypto world?
- How does a Bitcon-as-an-asset ecosystem without centralized control function within our existing laws and regulatory frameworks?
- Are Russia, China, or Iran a systemic-risk to Bitcoin through mining centralization?
- Could Bitcoin survive a sustained nation-state level attack against an adversary without a financial incentive?
- Is such an attack even possible given the distribution of mining hardware currently available on the planet?
- Will Bitcoin volatility ever settle enough to make it a viable everyday medium of exchange?
These and many others are genuine concerns about the future of Bitcoin that deserve intense debate and scrutiny, but they don’t fit into an outrage headline and don’t have clear answers so you won’t hear them everyday.
If you want some compelling optimism for why Crypto could change the world for the better (or be the investment of a lifetime) try these:
- How Bitcoin may a life-saving boon to people in developing nations with no infrastructure
- Bitcoin adoption in Venezuela against crushing inflation
- Own the Internet: The Bullcase of Ethereum
Coinbase is the largest and most trusted Crypto Exchange in the US and I use them for all of my crypto purchases.