Bitcoin is no stranger to critiques. Since the first email that Satoshi sent to the Cryptography Mailing List in 2008, even those who had been literally trying to create cyber cash for decades said that it wouldn’t work. Well, it does work, and has continued to work for more than 13 years.
Bitcoin is antifragile, meaning that when it experiences hardship, it gets stronger. Everyone in bitcoin learns, and keeps building. Bitcoin is too important to just give up, so bitcoiners don’t give up.
While builders build, spectators stick to commentary, and someone’s always got something negative to say about bitcoin. If you haven’t done your homework, they may even make a convincing argument and get you to sell your bitcoin.
The good news is that if you have done your homework, then whatever the bad news happens to be likely isn’t a big deal.
One specific example to clearly demonstrate this happened over a few days in 2021. There was a new headline shared on popular social media platforms that Bitcoin had experienced a “double spend”, meaning that someone spent the same coins twice on the network. This would indicate that bitcoin was broken. Game Over! Right?
Of course, this was fake news, and the only thing that happened was that someone used RBF and a block was orphaned. This was all a normal part of how Bitcoin functions, but you’d have to know that to not be fooled by these headlines.
This time, it was a simple explanation and the whole thing was memoryholed shortly after. Some arguments against Bitcoin require much more knowledge and research to understand and debunk.
Don’t get me wrong – there are problems with bitcoin worth discussing. These include current problems, known future problems, and speculation about future unknown problems. The key here is that there are valid arguments against common bitcoin critiques, and that’s why they are often dismissively referred to as F.U.D.: Fear, Uncertainty, & Doubt. Bitcoiners welcome critique, debate, and discussion, but if it’s old news, it’s FUD.
I want to cover the most common bitcoin FUD you’ll run into, and point you to research and resources to help you understand the arguments for and against these ideas. Hopefully, this page helps you in your future FUD-busting.
Top Bitcoin FUD (Past, Present & Future)
It Doesn’t Scale
Perhaps the most frequently debunked, but also recurring (because it’s partly true) FUD is that bitcoin doesn’t scale. There are a few different problems concerning bitcoin’s scalability issue, but the main one people FUD about is the blocksize.
Basically, the amount of transactions that bitcoin is able to settle on the main chain, even when working at full capacity, is not enough to service the entire global economy. One proposal to help bitcoin “scale” that was seriously proposed in the past, was to make block sizes bigger so they can fit more transactions per block.
The trouble with that is it would require more expensive equipment to run a node, meaning individuals would get priced out of verifying their own transactions, reducing bitcoin’s decentralization and value proposition as unstoppable money. Plus, to fit the whole global economy inside of Bitcoin’s blockchain, you’d need insanely massive blocks, making it so that only the most wealthy corporations could run a node. So the idea was scrapped and we kept bitcoin the way it was, and looked to other scaling solutions.
Instead, developers are working on “off chain” or “second layer” solutions that reduce the burden on bitcoin, but still have some level of verifiability and minimized trust. They are not as pure as bitcoin, but you get to pick your flavor. There’s lightning, there’s liquid, and perhaps in the future you may be able to even choose a 2nd layer solution with your favorite bitcoin bank. There are options for scaling this, and they are not vaporware. They work and are growing rapidly in capacity and number.
The problem with comparing Bitcoin’s network to something like the Visa network (a comparison that is often made), is that you are comparing a multi-layer system to a single layer system. Someone can say that Visa does more transactions than bitcoin, but it doesn’t tell you that Visa doesn’t do final settlement. They run a private database and bulk settle transactions on a slower time frame.
When you buy something with a credit card, your money isn’t instantly zipped to the seller. You give an IOU to Visa, then Visa gives an IOU to the seller, and everything settles behind the scenes at a later date. That’s why you can do a charge back 90 days later.
PLUS, there are multiple credit card networks, multiple currencies, and multiple banking systems. Bitcoin as a single layer network doesn’t scale… but neither does anything else. Bitcoin as a multi-layer network has much greater capacity for global commerce, and the infrastructure is currently being built out.
When you compare Bitcoin’s second layer technologies to Visa, the terms change, and suddenly Bitcoin outperforms Visa in transaction capacity.
There still are other scaling issues to be concerned about, but they are more esoteric, and not super relevant right now. The good news is that there are already people working on this, and as the issue comes to the forefront of the bitcoin conversation, there may be more effort to fast track solutions.
For now, I think it’s enough to say that bitcoin scales in layers, much like the current financial system does.
Quantum Computing Will Break Cryptography
For some, quantum is the scariest attack because it sounds inevitable. Technology always improves, so it’s just a matter of time until we have quantum computing and can break bitcoin’s 256-bit encryption, right?
As it turns out, we are not even close to having anything remotely capable of breaking 256-bit encryption. Even if we did make a massive, unexpected leap in computing technology and useful quantum computing is developed, it probably wouldn’t be a big deal for bitcoin.
Quantum computers are not going to be pieced together by a hacker in his garage hoping to steal some bitcoin. They’re going to be created as part of a team of academics doing research, or deep in the heart of a private research company. They’re going to be simulating the human brain, not engaging in a cyber heist.
If the technology starts to trickle down into the broader economy, bitcoiners will have time to strengthen the network in the meantime. It would be in the best interest of stewards and participants of the bitcoin network to work their asses off to make preparations for an attack. For example, it would be possible to fork the network to use a new type of hashing algorithm. This would introduce some chaos into the bitcoin community, with lots of fighting and discussion, but if there was an imminent threat to the network, it’s within each individual’s best interest to preserve the Bitcoin network at all costs.
More importantly, however, is the fact that not just Bitcoin would be at risk. 256-bit encryption is how everything works these days. The internet. Our payment systems. Our government’s sensitive data and other elements of national security. It’s not like this vulnerability is unique to bitcoin. Everyone is using this type of encryption.
Tether Is Pumping The Price
Tether is a “stablecoin” that is meant to mimic the price of the US dollar in digital form and is accessible in non-US jurisdictions. It’s supposed to maintain a 1:1 ratio with the dollar (approximately), while also not directly being under the control of a dollar banking system. It was the first of its kind, and although there are many other stablecoins which have appeared afterwards, like $USDC, $GUSD, and others, Tether is the most widely used, and also most controversial.
The main controversy as it relates to bitcoin is that Tether is a private company which is not located in the United States, so there is a large amount of uncertainty around the idea of how its currency is backed, and how it’s issued. Many people speculate that Tether is being used to pump and support the bitcoin price, essentially creating “fake money” to get access to real money.
The FUD part is that people are saying that the current bitcoin price cannot be sustained without the issuance of this “fake money” which is continually buying bitcoin. It’s being used to prop up and manipulate the market upwards.
It’s undeniable, there are some weird things going on at Tether. Watch the video below, and it’s hard to not be suspicious of what’s going on behind the scenes.
However, creating a compelling case against Tether as a cryptocurrency does not necessarily justify the idea that the only reason bitcoin has value, or deserves its current valuation, is because of Tether. If Tether blows up, nothing happens to Bitcoin (long term).
First of all, it seems that a lot of this FUD stems from a very small number of people who seemingly create a compelling case, but their core arguments have some issues which are not picked up by mainstream media because either they don’t understand the arguments, or are just publishing clickbait for ad revenue.
For example, there is a big issue with the source of data used to claim that USDT is the main source of liquidity for bitcoin purchases worldwide. Furthermore, USDT isn’t the only game in town and there are many other stablecoins which could be could be used in the case of a Tether implosion. Even if you make the case that Tether is a scam, the people trading local currencies for US dollar stablecoins are real and they’ll just move to another token.
Plus, Tether is continually in the spotlight, so if they were running a scam, it would be one of the most advanced and slippery scams in the history of the world. They were even investigated by the New York Attorney General for 22 months, and although they were found to not have a full backing as they described to customers, they simply paid a fine, and were not charged with anything. They were allowed to continue to operate and will provide quarterly transparency about their reserves for years.
The most important thing to understand, however, is that the Bitcoin protocol itself is unaffected by Tether. Even if Tether implodes and never returns:
- does bitcoin still only have 21 million units?
- does my bitcoin balance remain the same?
- can I still send a bitcoin transaction?
- can I still buy & sell bitcoin through my favorite exchange?
Of course, the answer to these questions is YES, meaning that the bull case for bitcoin hasn’t changed. Bitcoin still works the same, regardless of what the hell is going on at Tether.
If there was some catastrophic event and Tether was found out to be a scam, there would probably be some market turmoil due to liquidity issues and negative sentiment in the press, but it would not be the end of days like Tether Truthers fantasize about. There would be a drop in price likely, then everyone would move on.
It Wastes Energy
Energy use is at the forefront of the Bitcoin discussion these days. I’ll get into the climate change and climate destruction stuff below, but a separate discussion is the idea that Bitcoin is a “waste of energy”.
Bitcoin being a waste of energy centers around the idea that the energy could be better used for something else, or that Bitcoin is stealing energy from people, leaving them with more expensive energy costs, or no energy at all. Of course, this isn’t exactly the full story.
First off one of the more famous (and recent) papers claims claims that the cost of energy is skyrocketing due to local bitcoin miners soaking up all the cheap energy. When you dig deeper, you find out that it costs the residents $6/month, and of course, it doesn’t discuss how other local industries may impact energy prices. The paper also fails to disclose that it was paid for, in part, by a company that is well known for lobbing bombs at bitcoin as part of its strategy to promote their own blockchain technology.
What all critics of bitcoin’s energy use fail to recognize is that miners are paying for electricity, and they are just like any other consumer of energy. Even if all of that is true, they can fix this problem locally. Bitcoin miners have not resulted in an increase in energy prices everywhere. Are we, as a society, going to start passing judgment on what’s a “good use” or “waste of” energy?
If so, let’s talk about Christmas lights. Let’s talk about clothes dryers. Let’s talk about video games and Netflix marathons. When you talk about a waste of energy, you’re making a subjective argument. Bitcoin miners are paying for the electricity, and bitcoiners are using bitcoin, so they do find value here. You pay for Google servers. I’ll pay for hash power on an s19.
What also needs to be included in the conversation is the fact that in many places, there are massive amounts of excess energy being generated that simply goes to waste. Some figures state that globally, 65% of all energy is being curtailed simply because it doesn’t have anyone to buy it. This is often due to the cost of transmission making it uneconomical, or there’s just too much to consume.
An example could be a massive hydroelectric dam located far away from urban centers. There may be 2x or 3x or 10x energy being produced at the dam, which cannot be used by locals and is too far away to be exported.
So while critics can point to one specific situation where bitcoin miners may have caused energy prices to go up a little bit, there are many more situations where that’s not the case. If it’s a big issue, then the government can just cut back on bitcoin miners in their local jurisdiction and the miners will move elsewhere.
Some critics will point to how China banned miners as a way of “going green” or “saving their grid from energy waste”, but can you really trust the official statements of a communist government that’s known for lying and deception?
Even if you take them at their word, this just proves the point that miners will go where they’re wanted. The miners were kicked out of China, so they moved to Kazakhstan. Then Kazakhstan had some political unrest and grid issues, so they moved to Russia. There are some places that don’t want miners and that’s fine. There are just as many places that do want miners, like hydro-rich Quebec, oil & gas-rich Texas, or geothermal-rich El Salvador.
One last word on bitcoin being a “waste” of energy. The main thing that detractors always fail to recognize is that bitcoin is a useful technology. Regardless of how much energy it uses and any potential negatives associated with that energy use, the ability for the world to have access to a global money that can’t be manipulated by individuals, corporations, or governments. Personally, I think securing the network with bitcoin mining ASICS is a pretty good reason to use energy.
Mining Will Lead To Climate Destruction
Climate FUD has been a great way for certain US politicians to get headlines recently, so it may be the FUD you’re most familiar with. According to them, bitcoin mining is an environmental disaster that will accelerate climate change beyond a certain threshold, making Earth unlivable.
One recent headline claimed that local bitcoin miners heated up a local lake so much that it turned into a hot tub.
Of course, we only get part of the picture here.
First, the article fails to mention that the heated part of the lake is just at the water discharge zone, not the entire lake, which has not changed temperature at all. The lake is 4.2 trillion gallons of water, and it’s unaffected by the water discharged by bitcoin miners. Second, the headline is just one person’s opinion of what a hot tub feels like, and the discharge area is not literally as hot as a hot tub.
And, of course, all the bitcoin miners in the area are compliant with all current EPA rules, so this is really just someone complaining about something they don’t like.
Now, maybe there is some merit to the criticism that some areas of the lake are too warm due to bitcoin miners, and that there could be some unexpected environmental impact. That can be investigated and assessed individually. The idea, however that bitcoin miners, in general, will cause environmental disaster is incorrect.
In fact, bitcoin miners can be good for the environment!
In 2021, Compass Mining and Oklo announced a partnership that would allow for the building out of 100% renewable nuclear mining facilities sharing space with bitcoin miners. Bitcoin miners would be able to fund the ongoing costs of the facility, while they provide clean, renewable energy to local areas with their microreactors. Bitcoin is funding renewal energy resources.
Also, while carbon is the current boogieman for environmentalists, methane is actually much more harmful to the environment. Methane leaks from abandoned oil wells or natural gas deposits. Capturing the methane is a costly activity, and most of the time it doesn’t produce an economically viable product that can be sold, unlike oil and gas deposits.
This means that the methane just continues to leak unless otherwise required by government agencies.
Bitcoin miners are one of the only economically feasible activities to make use of that methane, turning it into electricity for miners to mine bitcoin.
Let’s not forget that the environment is not our #1 priority. People are our #1 priority.
Bitcoin miners allow for the build out of extra large and extra robust energy grids to prevent human catastrophe caused by environmental events.
Grids are typically built to sustain an average amount of electricity load based on local use, with some ability to expand during adverse weather events, like an extra cold day when more people will be using more heat than usual. However, when large, unexpected, once-in-a-decade-or-century events happen, it can stress the grid to the point of failure (especially when relying on unreliable energy sources like wind and solar).
The reason grids aren’t built insanely huge and always running at peak capacity for any unexpected weather event is because of the cost. If nobody is buying the energy, it’s going to waste, and sending money down the toilet.
When you bring bitcoin miners into the mix, they have the ability to pay for excess grid energy on a daily basis, making it more economical to produce a larger capacity of excess energy, which will now be available to residents to use in emergencies. For example, Riot Blockchain is required to shut down their operations in Texas if a polar storm rolls through the typically mild-winter state. Sounds like a good tradeoff to me!
The climate FUD just keeps going though. Did you hear that there was a dying coal plant that was revived to mine bitcoins? Well, it turns out that it was converted to natural gas, which is much cleaner than coal, and they’re building a solar farm next door on top of an old coal ash landfill. Or you may have heard that a bitcoin miner is burning coal waste, polluting the air. What you may not know is that they are safely combusting coal waste, to prevent it from poisoning the groundwater in the surrounding area.
If this is your first FUD as a bitcoiner, it may seem insurmountable. It could seem like climate disaster FUD is the death knell for the bitcoin network. My advice is to you is to not look at the FUD, but instead, look at everything happening outside of the FUD.
Yes, there are people speaking in clickbait headlines, and yes, environmental fanatics seem impossible to reason with. However, look at what’s actually happening in the world versus what’s being talked about in mainstream media.
Companies are getting approved for nuclear reactors in cooperation with bitcoin miners. Miners in Canada are expanding their operations at hydropower plants. States in the USA are actively seeking out bitcoin miners and politicians are attending bitcoin mining conferences.
Plus, there are reasonable voices who actually do their homework. Recently, some Swedish financial and environmental regulators claimed that they’d have to ban bitcoin mining to meet their climate goals. Almost immediately, Sweden’s state-owned power company argued against this policy.
Plus, organizations put out these reports, and they often result in nothing. There are still bitcoin miners in Sweden, and they are even innovating by using excess heat from the miners to do greenhouse farming.
So keep in mind that there will always be FUD, but bitcoiners keep building.
China has been a huge source of Bitcoin FUD over the years, but as of 2022, China FUD seems to have lost its luster. There are actually a couple of FUDs related to China.
Maybe the biggest China FUD was that Chinese miners controlled more than 51% of the network and they could perform a 51% attack on the bitcoin network. There was never a single mining entity that controlled that much hash, but together, more than 61% of the hashrate was represented in China. It was considered a threat because it was believed that the communist government could covertly co-opt the miners to launch an attack.
Even during those years, however, the fact was that it was Chinese mining pools that controlled that much hash, meaning non-Chinese participants in these pools could redirect their hash if needed. It was also suspected that there would be some portion of Chinese miners who would simply move underground and mine behind a VPN to protect the network.
It was also never clear exactly what would be the motivation would be behind such an attack, if it could actually be “successful”, or what success would mean. I’ll get into the 51% attack below, but it never happened, so that’s that.
In fact, in 2021 China simply banned bitcoin mining within its borders. This is universally seen as a huge mistake on China’s part. Why would such a powerful government make such a dumb mistake? Government bureaucracy is a bitch.
Another branch of the Chinese mining FUD is that China also manufactured the majority of Bitcoin mining ASICs, thus controlling all the bitcoin mining hardware production. The fear was that China could co-opt these companies, and keep all the miners for the state.
It wasn’t clear if the worse scenario was that China would make the miners then attack the network, or build up a fleet of miners over time and simply take all the bitcoin and become the most powerful bitcoin mining nation in the meantime. Regardless, this never happened, and the situation with the miners is getting much better now.
In 2021 and 2022, companies like Intel and Block both announced that they have developed, or are beginning to develop new bitcoin mining technologies. Chinese manufacturers see the writing on the wall and are starting to distribute their operations to other countries. Bitcoin miner production is more distributed than ever. As more people and companies start to bring consistent demand for these products, I suspect more bitcoin mining manufacturers will come to market.
If you want to get more conspiratorial with the China FUD, there were people who believed that Bitcoin was a Chinese psyop to steal money from the West and perform the biggest rugpull scam in history. Supposedly, they invented bitcoin to get Westerners to invest money, then China would convert this money into gold… or something like that. Somehow Tether was involved as well. The whole thing was kind of nonsensical, considering bitcoin is open source and everyone can read the code.
Lastly, there was some environmental FUD related to China, is that there were a number of large bitcoin miners in China who were using electricity from the grid that relied mainly on coal. People weren’t happy about the use of “dirty” fuels to run bitcoin. I’ll get more into energy FUD below, but this isn’t an issue now because China banned mining. The miners have moved to other places where the use of renewables like hydro, geothermal, and nuclear is more common, thus “cleaning up” Bitcoin’s carbon footprint.
Deflationary Economies Don’t Work
Deflation is when prices of things go down, and this concept has been demonized by economists and financial media for decades. The fear of deflation is usually centered around the idea that if prices fall, people won’t buy stuff. If people don’t buy stuff, then businesses won’t be able to sell things. Why buy a blender today, when I can wait a year until it’s cheaper?
Selling less stuff means that in a deflationary economy, wages would also fall over time. Imagine getting a 10% haircut on your salary every year rather than a raise! Imagine if your “cost of living adjustment” was downward! The big risk here is that if you have loans denominated in “old money”, it’s going to be hard to pay them down.
For example, if you borrow money at a fixed rate to buy a home, as your wages go down, it will be harder and harder to pay back that loan over 30 years. With our current inflationary economy, it becomes easier to pay back the loan over time. The loan repayment terms remain fixed, while your wages (usually) go up over time due to inflation.
As far as I know, there has never been a truly deflationary economy to ever exist. Even gold was inflationary, with the gold supply increasing about 2-3% per year. These days, for those on the US dollar standard, inflation is more than 7%!
So can bitcoin actually work as a base monetary unit with a fixed supply? Its issuance is currently disinflationary, meaning that the supply is increasing, but at an ever-decreasing rate. Eventually, there will be no more bitcoin issued, and people will just continually trade bitcoin which is already in the economy.
Nothing like this has ever existed. Can it work? Some people say no. They are afraid of money hoarding. They say that if people are incentivized to save money rather than spend, then economy will grind to a halt while everyone just waits around to get rich.
Personally, I don’t think that’s likely to happen. My guess is that everyone has a price at which they’d sell some bitcoin for something they want. You can only be so rich before you start spending money and enjoying life. I think it would be nice to get off the financial treadmill and be able to save money without investing in the stock market.
The transitionary period from an inflationary economy to a deflationary one could definitely be rocky. I like the case that Jeff Booth makes, that bitcoin will be the tool which allows us a “soft landing” into the new deflationary economy. That way even if your wages are going down due to deflation, your savings account will continue to go up in value.
Things would work differently in a deflationary economy, but that doesn’t mean they’d be “worse”. What if, instead of buying a home you can’t afford and paying it back over 30 years, you just saved money for 10 years, then bought a home? You’d be able to save money that goes up in value over time, and your home would be coming down over time as well. As houses get cheaper and your savings become more valuable, eventually you’d be able to buy your home with CASH instead of CREDIT.
I just can’t really see complications with anything else. Just don’t buy things with credit, or buy them with short-term credit obligations. Deflation wouldn’t be 100% year-over-year. You could still borrow money at fixed rates, but for shorter periods of time.
However, I’m not a credentialed economist, nor am I well-read on the history of financial markets and the global economy. I’m definitely not qualified to officially “debunk” this FUD. You can come to your own conclusions here.
One interesting thing to consider is how interest rates would work. If bitcoin is appreciating at 10% per year, for example, why would anyone lend out their money for anything less than 10%? After all, they could get a higher return for just letting their money sit in cold storage!
The answer is that just like there will always be someone willing to trade their bitcoin for a good or service, there will always be someone who is willing to lend it out under certain circumstances. Maybe they think bitcoin will go into a bear market for the next few years, and they are OK with a lower percent return compared to bitcoin’s historical average. Maybe they’d rather take the fixed income of loan payback than the volatility of the bitcoin price. Bitcoin’s price appreciation is never guaranteed!
There will also always be opportunities that will be able to outpace bitcoin’s returns, and there will be plenty entrepreneurs and investors who think they can beat the market.
So can bitcoin work as a base monetary unit for society even though it’s unlike anything we’ve ever used before? This is a big unknown. Nobody knows because it hasn’t happened before.
Here’s what we do know, however: they will never stop debasing the value of fiat currencies. It’s 100% guaranteed, that your money stored in fiat currency will lose value over time. Whatever the future of the global economy looks like, you need hard assets to mitigate the effects of inflation on your wealth. Bitcoin is a global, liquid, decentralized, immutable, hard money. I think it makes sense to have at least a little bit.
Toxic Culture Ruined Bitcoin’s Brand
A more recent and new type of FUD, “toxic bitcoiners” is the idea here is that while bitcoin may have some use cases and may have some benefits, the people involved are such bad crowd that it makes people not want to use bitcoin.
One of these toxic traits is so-called “toxic masculinity”. The claim is that bitcoin is a boys-only club. I’m struggling to even describe what toxic masculinity is supposed to be, but I guess it has something to do with bitcoin evangelists being argumentative, bombastic, and sexist.
The truth is that bitcoin is a male-dominated industry, but so is anything related to computer science. I suppose you could speculate on some reasons as to why this is, but that’s beside the point. Bitcoin is an open network, so anyone can participate. No matter your race, sex, religion, or country of origin, you don’t need permission to work on bitcoin or build a bitcoin company. In fact, many people do it as a “nym”, or anonymous entity.
Regardless of the “culture” you may perceive, from a technical aspect, there is no gatekeeping.
Another aspect of the “toxicity” of bitcoiner is their rejection of any crypto project which is not bitcoin AKA bitcoin maximalism. Bitcoiners are typically ruthless when calling out shitcoiners, and for good reason. The majority, if not all altcoin projects are naive attempts to replicate bitcoin’s success. They aren’t cryptocurrencies, they are companies issuing tokens to fund their operations. Some are outright scams.
“Maxis”, as they are often called, don’t play nicely and just let things be. They call things as they see them to prevent people from losing money.
The purpose of altcoins is to steal your bitcoinMax Kaiser
Participants in the broader “crypto community” just want everyone to support each other and send good vibes or mind their own business, but bitcoin maximalists buck the trend and call these projects out for what they are. If you can’t tell what the current supply of coins is, how can you say it’s hard money? If there are only 6 nodes on the network, how can you say it’s censorship-resistant? How can you be proof of stake and say that small users benefit, when clearly it’s the large account holders who benefit the most?
These are just some of the “mean” things bitcoiners say online. i.e. legitimate criticisms, lifting the shroud on opaque and convoluted systems that trick people into investing money into narratives that will likely never materialize.
Sure, there are some asshole bitcoiners, and you can point to specific examples, but bitcoiners are not a monolith. Anyone can use bitcoin, even people you don’t like.
There are a lot of vocal bitcoin advocates who also advocate for other non-mainstream lifestyle choices like owning farmland, eating only meat, avoiding seed oils, and not wearing sunscreen, among other things. Even so, there are plenty of vegan bitcoiners, city-dwellers, and avid sunscreen enthusiasts. Whatever the case may be, again, none of these things prevent YOU from using bitcoin. That’s the point of bitcoin. It’s open and permissionless.
To be honest, a lot of this “toxic bitcoiner” FUD is basically from social media, namely Twitter, so it isn’t really a big deal. Bitcoiners being mean isn’t really something that’s going to come into play when talking about nation states and central banks adopting a global digital currency. It’s just bullshit social media stuff that will blow over in time.
OK OK – even if you are still convinced that bitcoin is full of a bunch of undesirable people, does it really negate the value prop of bitcoin? Let’s debunk the toxic culture FUD: does a mean guy owning bitcoin and talking shit online mean that the protocol is corrupt or that the network doesn’t function? Absolutely not. Am I going to put my life savings into some other altcoin technology because someone said something rude to me? No way.
High Fees & Buying Coffee With Bitcoin
During the 2016-2018 era, there was a lot of FUD about high fees on the bitcoin network. To be fair, the concern was valid, but there was a lot of nuance to the conversation, and as you’ll find out in the next section, the problem of high fees turned out to be a non-issue.
Fees are what you pay to the bitcoin network to get your transaction included in the next block. When you send a payment, your transaction is first sent to mempool, which is like a “waiting room” to get included in the next block. Since there are more transactions than can fit in a single block at any moment in time, there is a bit of competition to be first in line. The more you pay in fees, the higher preference you get.
For most of bitcoin’s history, this didn’t matter. You may pay 2 sats per vbyte and get your transaction confirmed in an hour, or pay 1 sat per vbyte and get your transaction confirmed in a day. The difference in what you paid wasn’t a lot, and the difference in the time you waited wasn’t much.
Then the fee market started to get competitive as the price of bitcoin rose, and at the height of the bull market in 2017, fees rose to $50 or more for a single transaction to get confirmed quickly, otherwise, you’d have to wait a week to get confirmed. You can’t buy a $2 coffee with a $50 fee!
This is, of course, a big problem if you want bitcoin to be global money. How can someone in a developing country buy goods with bitcoin if a single transaction fee is higher than their monthly wage? They can’t. It’s a problem. So let’s get into the nuance.
Extremely high fees like this have only been present in this one period of time, so the crazy fees you saw in 2017 were a bit of an anomaly. Even now, as the price of a bitcoin is 2-3x higher than 2017, with an even higher adoption rate than 5 years ago, fees have not even come close to that time period.
Plus, in hindsight, we now know that at that time, bitcoin was experiencing a spam attack, most likely coming from people who wished to paint Bitcoin ($BTC) as expensive and slow. The network was filled with over 100,000 transactions of exactly ₿0.0001, meaning this was probably a single entity or several coordinated entities. For someone who owns thousands of bitcoin, a griefing attack costing ₿28 in total isn’t that expensive.
Plus, in the five years since, new technologies have emerged and evolved to let people use the bitcoin network without transacting on the main chain, meaning that high network fees won’t affect them. These are still newer technologies and not widely adopted, but they are experiencing growth. The Lightning Network is a perfect example.
Fees are important though. An active fee marketing on Bitcoin is a feature, not a bug. There are blockchains out there with very low, or no fees, but they are vulnerable to spam attacks. When it’s free to spam the network and clog up the network, why not cause some chaos. A fee market ensures that any transaction spam attack on bitcoin is short lived.
Plus, fees have the advantage of paying miners to secure the network. This means that bitcoin should actually hope for a fee market of some scope in the coming years.
Low Fees & The Mining Death Spiral
You thought high fees were bad? Just wait until you hear about low fees FUD! (Now you can see why many bitcoiners laugh off standard FUD).
At the opposite end of the scale, the worry is that if bitcoin transaction fees are too low, it will lead to a collapse of the network.
When you send a bitcoin transaction, you must pay a fee to get your transaction included in a block at some point. Pay a higher fee, and get to the front of the line. Pay a lower fee, and you may wait a couple of hours or days depending on network congestion.
If there’s not a ton of activity on the network, however, you can usually get in for 1 or 2 sats per byte and get confirmed within an hour. When you use something like Cash App, which naturally gives you the benefit of the doubt of being an honest actor, your transaction will be confirmed the second it hits the mempool. Anyway, let’s not get too far into the weeds.
Right now, the block subsidy, which is the new bitcoins being minted by miners is 6.25 bitcoin per block, but that gets cut in half every four years, as has been predetermined since the genesis block of bitcoin (it used to be 50 bitcoin per block).
The concern is, if the price of bitcoin doesn’t continue to rise, miners will not receive enough money to fund their operations. Fewer bitcoin being minted in the block subsidy means that miners will need to fund their operations with transaction fees. If there’s no fee market AND the price of bitcoin stagnates, miners will start shutting down due to a lack of capital to fund their operations. Miners have to pay for power, maintenance, employees, licenses, and other costs.
As miners go offline, network security suffers. This could cause a drop in price, further reducing miner revenue, and sending more miners offline. Miners may be forced to sell, causing the price to drop again, and then the cycle repeats.
This is known as the miner death spiral. Sounds scary, right?
What this fantasy scenario forgets to take into account is the fluid dynamics of the entire bitcoin ecosystem and the economy as a whole.
Life finds a way.Dr. Ian Malcolm, Jurassic Park
It’s possible that we will always have a low fee environment for bitcoin if everyone moves their activity off chain to sidechains and layer 2. If fees don’t rise and take over as a larger portion of the block reward in the future, it’s possible that some miners alive today will not be able to survive in that type of environment.
Consider, however, that there will always be someone interested in mining. The economics of earning money changes with scale, and if a gigantic miner like Riot Blockchain can’t make a profitable business out of mining bitcoin and they close up shop, what’s going to happen to all those mining rigs? They’ll probably be sold on the market at a discount and acquired by other miners with cheaper electricity or bought individually by bitcoiners.
The cost inputs required to run 10,000 miners in Texas is not the same as running a single miner in Ecuador.
Also, it’ll probably get cheaper to mine bitcoin in the future, meaning miners will be willing to accept lower revenues and still remain profitable.
Why? The obvious answer is that technology gets better over time. A single miner may produce double or triple the hashrate in a few decades. ASICs are always getting more efficient and cheaper to produce as production technology improves and market demand grows.
Also, because miners are always seeking out abundant, cheap energy sources, the most successful miners long-term will be the ones who operate with the lowest cost of energy.
Even if all that is scrapped and big miners close up shop due to unprofitability, you have to take into account the difficulty adjustment. If big miners disappear, it will just become easier to mine bitcoin, meaning smaller operations will take over.
True, the network will become less secure with fewer active miners, but then, who’s going to attack the network, and what would be their incentive? Someone would have to acquire all those old ASICs, find the power to turn them on, pay for staff to run them, then sustain their attack for a period of time. Yes, it’s possible. The question is how possible. Anything is possible, but what’s the likelihood of that happening versus other possible outcomes?
Bitcoin Mining from 2011 – Present
Originally, you could mine bitcoin on a basic laptop. As mining started to get a little competitive, people switched to GPUs for more efficiency and faster hashing. Eventually, ASICs were launched, and you could run a little USB ASIC at home. Then they started to make much larger and much more powerful rigs.
What will the future of mining be like? Everything is going to change a lot in the next few years. Blockstream bought a mining hardware manufacturer. Block is working on a new miner. Intel already built one with a custom ASIC chip and is releasing it in Feb 2022. Upstream Data built a weatherproof housing unit for two s19’s you can toss in your backyard.
OK, I’ve gotten off into the weeds a bit here again, so let’s get back to the issue at hand – low fees being bitcoin FUD. My point is that no matter how low fees get, there will always be an ebb and flow of various types of bitcoin miners and bitcoin mining entities who will be able to figure out how to make money by mining bitcoin.
Bitcoin Is “Old Tech”
For those new to bitcoin, you may be surprised to learn that in the eyes of some people, Bitcoin is “old technology”. Their argument is that while bitcoin was new and innovative in 2009, iterations and improvements on blockchain technology that’s happened over the last decade have made it irrelevant.
There’s No More Room For Price Growth
Maybe the dumbest argument is that the price simply can’t go any higher from here. The argument is that Bitcoin has already reached critical mass. Everyone knows about bitcoin and has bought it or not bought it, and that’s not going to change in the future. If you want to make money, you need to buy alts.
This misses the point of bitcoin completely. The reason to buy bitcoin is not to simply watch the price go up and then exchange it for dollars. Once you do that, you’re in the same boat you were before, which is holding an asset which is having its value inflated away.
Sure, there will be other coins that pump for short periods of time, but the underlying value of those assets is non-existent. They are not money. They are basically tech startups issuing shares outside of the traditional financial system infrastructure. For long term value, Bitcoin is the ONLY choice.
Also, the idea that bitcoin’s valuation topped out at $60k is just plain silly. Only 10% of Americans own “cryptocurrency”. Globally, that number hovers around 1%. When you start looking at how many people own a significant portion of their wealth in bitcoin, that number is estimated to be just around 10,000.
The logic here just doesn’t make sense. You mean to tell me that just a few million people out of 10 billion people in the world own bitcoin, and the price is at $60k and will never go above it? Unlikely.
It’s The Myspace of Crypto
Myspace was the famous social media website that was popular before Facebook. Of course, we all know that Facebook now dominates the social media space and Myspace is irrelevant. Critics see bitcoin as old technology that will make way for newer technology that will have better market penetration and user adoption.
There are two issues with this statement.
First off, it fails to recognize that Myspace and Facebook are companies, while Bitcoin is money. The dynamics of how people interact with these technologies is fundamentally different.
The reasons for and ease of switching social media platforms is much different than switching money. With social media, there’s nothing lost. A funny handle and cool pictures on a website being traded for a similar-but-slightly-different offering from a different company with marginally superior technology takes very little effort and costs nothing.
Switching money is fundamentally a different game. Making the decision to move my wealth from one asset to another and risk the financial future of myself, my children, and future generations of my family takes months or years of contemplation and careful consideration. The idea that people are just going to jump ship and dump their wealth into a cryptocurrency has cooler widgets just doesn’t make sense.
Secondly, the simple financial facts of the situation are impossible to ignore. Myspace was worth a total of 12 billion dollars at the peak of its popularity. Facebook is now worth more than 600 billion dollars, and in a single day of trading in February 2022 lost 200 billion dollars. Myspace was eclipsed early in its evolution.
The Bitcoin network is now worth about a trillion dollars and is the largest, most distributed, most used, and most trusted digital asset by far. Bitcoin is way past its incubation stage.
Lastly, Bitcoin wasn’t the first attempt at creating digital cash. The concept of digital cash has been around for decades, and the problems were well known. Bitcoin was just the first successful creation of digital cash. In fact, many say that it was a one-time invention that cannot be re-created. You can’t just invent a “new wheel” or find a “better gold”. If it wasn’t called bitcoin it would be called something else but it doesn’t matter what the name is – digital money is the thing.
Hardcore bitcoiners (including myself) claim that the invention of bitcoin was a one-time event, never to be repeated.
Absolute mathematical scarcity achieved by consensus in a sufficiently decentralized distributed network was a discovery rather than invention. It cannot be achieved again by a network made up of participants aware of this discovery since the very thing discovered was resistance to replicability itself.Knut Svanholm
Proof-of-Work Doesn’t Work
Bitcoin’s consensus mechanism is called “proof-of-work”. By using energy to mine for bitcoin, you essentially enter a lottery to construct the next block in the bitcoin’s blockchain. If you win, you get paid some bitcoin and have the privilege of adding transactions to the ledger, facilitating the transfer of bitcoin from one entity to another. Nodes then verify the block was made according to the rules of the Bitcoin network, a block is added to the chain, and those transactions become irreversible.
Proof-of-work is is how Bitcoin decides what’s true and what’s not.
Other cryptocurrencies have since developed other types of consensus mechanisms for deciding what’s true on their blockchains, such as proof-of-stake, proof-of-history, proof-of-transfer, proof-of-authority, proof-of-capacity, and others. How each of these alternative methods work isn’t important. What’s important is that the attack on bitcoin is the same, claiming that proof-of-work doesn’t work.
Bitcoin’s indifference to energy is one prime aspect that makes it a fair monetary network. Anyone can mine bitcoin, whether they are using on-grid electricity from their home, a local government-run hydroelectric dam, or off-grid methane gas in the desert. You can mine bitcoin with a single ASIC or 10,000, and players cannot remain entrenched due to the proliferation of new ASIC technology every couple of years.
To mine bitcoin, you need to invest time, energy, and money. To acquire bitcoin by any other method means you need to provide value to someone and earn it.
This scales as large as you want it to. In fact, Bitcoin’s hashrate recently topped an all time high of more than 200EHs, making it the largest proof-of-work digital asset by far. The idea, however, that the consensus mechanism in any way affects the ability to scale transactions is not even technically correct. Block capacity has nothing to do with consensus.
Bitcoin’s Layered Technology Approach
Bitcoin is built to be basic, and there’s a good reason for it. It’s the bottom layer of a “stack” of technology. The foundation of a building is concrete and rebar, not a mixture of 50 multi-use materials. Similarly, Bitcoin is meant to be the foundation of a global monetary network, not the network in its entirety.
If you want to build more complicated things on top of bitcoin, that’s fine. Bitcoin is built like the internet – a permissionless protocol, which allows anyone to use universally accessible tools to build. These are called “layers”. For example, HTTP and SMTP are layers for browsers and email built on top of the internet protocol (TCP/IP).
In the same way, you can build layers on top of bitcoin. Lighting is the main one right now, but there could potentially be other technology in the future. From there, you can even build further layers on top of lightning creating a layer 3. Examples could be services like a VPN or token exchange, messaging apps like Sphinx, or communication platforms like podcasts and even video streaming.
The great thing about building in layers is that if a top layer fails, the bottom layers are unaffected. You are free to build and play at the upper layers, with the knowledge that nobody is going to screw you over by making big changes to the bottom layers. As bitcoin becomes more widely adopted and attracts more development, this is going to be extremely important. Imagine if you were trying to build a website and one day they just change how the internet stack works – you’d have to start from scratch!
It’s a good thing bitcoin doesn’t change much or change fast. There are improvements proposed through Bitcoin Improvement Proposals (BIPs), but they are slow to get implemented and undergo rigorous review and testing before being adopted by users running nodes. It’s a controversial and drawn-out process. This is different from the “move fast and break stuff” approach that a lot of newer cryptos implement.
It’s easy to get distracted with things like ICO tokens, NFTs, DeFi, and other flashy things, but if they aren’t built right from the ground up, they aren’t going to survive. What’s the point of decentralized finance if you’re just trading dog shit? What’s the point of NFTs if you host them on a company website? Bitcoin starts at the fundamental of sound money and then builds from there.
Bitcoin isn’t old tech. It’s robust, reliable, and predictable – exactly how money should be.
It’s Too Volatile!
“Bitcoin is too volatile to be a store of value” is a FUD that I really don’t understand, but making sense isn’t really a prerequisite for being FUD. There are two types of volatility fudders in my opinion.
The first is the normie fudder, who sees large swings in bitcoin’s price action and says it’s just too scary for them to invest. They are worried about losing 20% of their purchasing power in a day.
The second is the qualified economist or financial analyst, who, from their perspective, is stating a fact. In their mind, emotion doesn’t play into it. Bitcoin simply cannot be a store of value because it loses a large amount of purchasing power during market swings.
Both of them are wrong because they are looking at too short of a timeline to judge bitcoin’s quality as a store of value.
Sure, over a month or a year, bitcoin’s value can be cut by 50%, up to 90% at times. Those massive drawdowns really suck. Look at any 4-year time horizon though, and nobody has ever lost money in bitcoin. If you hold your bitcoin long enough, it will effectively store value, and most likely increase in value.
Has the stock market ever had a multi-year drawdown? Sure! The S&P 500 has experienced many bear markets, including some lasting 15-60 months. That’s about 1-5 years long! Drawdowns are usually not as steep as bitcoin’s eye watering 90% dips, but stocks have gone as deep as a 50%+ cut in value.
In 2022, we’ve also seen plenty of stocks act similar to bitcoin’s volatility, with stocks like Netflix, Paypal, and Facebook dropping more than 25% in a single day, and compounding losses deeper than that over next few days.
I remember in 2012 when Apple was trading 40% off of its highs and people said that Apple was done as a company. They can’t innovate anymore! Smartphones are getting commoditized! Emerging markets want Android! Well, the stock has gone on to more than 10x since then.
In other words, the stock market is not immune to steep losses in value, short term FUD, and misrepresentation in the media.
Is bitcoin volatile? Yes, but if you hold it long enough, you get used to it. Imagine holding from 2011 and riding all those crazy dips along the way for TEN FREAKIN’ YEARS. If you’re reading this, you probably haven’t held for more than a couple of months. Hodl bitcoin until 2030 and see how you feel.
51% & Empty Block Attack
The 51% attack and the empty block attack are two types of technical ways you could attack bitcoin, and these have both been cited as potential ways to “kill bitcoin”. In the past, the 51% attack seemed like more of a threat, so it was decent FUD in the early years of bitcoin.
A 51% attack means that a single entity, or group of aligned entities, who control more than half of the hashrate (miners) in the network could prevent the network from functioning normally. They could send money to one person, “reorganize the blocks”, then send the same money to someone else, which is known as a “double spend”. Not only would it cause issues for some specific participants of the bitcoin network, but it would also disprove the concept of bitcoin as an immutable ledger.
A 51% attack was much more “viable” in the early days of bitcoin because it was a much smaller network, and there were even some periods where there were entities that controlled more than half of the hashrate of the network.
Fortunately, the attack never happened, either by luck or by pure incentives. Why would a mining pool business attack their own users and business model? Regarding China, you could make the point that Bitcoin was small and irrelevant to them, or that China attacking Bitcoin would legitimize it as a threat to state power.
These days, no single country or pool owns the majority hashrate for the bitcoin network, and it gets more expensive to conduct a 51% attack almost daily as new miners come online and the hashrate hits all time highs.
A subset of a 51% attack is called the “empty block attack”. This means that an entity controlling more than half of bitcoin’s hashrate would simply mine blocks that contained zero transactions, which would prevent users of the network from sending bitcoin. This would be like a “denial of service” attack, meaning the bitcoin network would be unusable for a period of time.
The trouble with this attack, as described in the video below, is multifaceted.
- you need the money to acquire ASIC miners
- you need the energy source to mine bitcoin
- you need to dump the new coins mined meaning this attack will not be profitable
- you need to sustain this attack for a period of time
Then, after all that is done, although bitcoin would be damaged, it would not be dead. Instead of killing bitcoin, you would have launched a very expensive, resource intensive attack to prove that bitcoin can survive an attack like this, and bitcoin would become more popular than ever. Andreas Antonopoulos explains the process in more detail in the video below.
Overall, there are two things to take away from this FUD.
- these attacks are costly
- they don’t kill bitcoin
It would cost a lot of money to effectively attack bitcoin, and the greater incentive is simply to use your mining equipment to mine bitcoin. Plus, even if you choose to attack bitcoin, the effect would be temporary, and you’d eventually run out of money. Then, bitcoin would not be dead and you’d have no money.
One tried and true method of attack on anything these days is to make a connection to white supremacists. Don’t like a political candidate? He’s a white supremacist. Don’t like a musician? White supremacists like his music. Don’t like bitcoin? Didn’t you know it’s used by white supremacists?!
This is basically the same as reductio ad Hitlerum argument, which is the ridiculous argument that if Hitler did something, and you do the same thing, then you are just as bad as him. Here, the fact that white supremacists use bitcoin, means that you must also be a white supremacist!
This argument falls apart once you consider how money currently works, and the main value proposition of bitcoin as a digital money.
Just look at our money at the moment. Look at our current banking system. White supremacists as well as all other types of “undesirable people” in our society right now all use the US dollar. What do they use to buy and sell things? What do they use to save money? What do they use to invest? They use the same cash that we all do. Money is universally accessible and agnostic towards its user.
The main value proposition of bitcoin is that it transfers this value to the digital realm. Normally, when you use digital cash, you have to go through a middle man. To send money online, you have to use a bank or a service like PayPal These are private companies, and they can stop your transaction for any reason. PayPal can freeze your account if they deem you are a “hate group”, and you have no resources to prove otherwise. After all, it’s not the government stripping you of your rights, it’s a private company (although the government can do this too)!
With bitcoin, you don’t have that problem. Nobody can stop you from owning bitcoin. Nobody can prevent a bitcoin transaction from being sent or received. Bitcoin mimics the properties of physical cash, but in the digital realm.
It has to be this way by design. If you can block white supremacists from owning and transacting in bitcoin, that means the ability to block exists, and therefore it has the potential to be abused. You may not like what people like that have to say, but what happens when someone decides they don’t like what you have to say?
Or maybe you have nothing controversial to say, but what happens if you are in a place like Myanmar, where the military has taken over the government. Do you think that those in control wouldn’t like to abuse their power and censor payment transactions? What about countries like Lebanon and Venezuela, which are experiencing hyperinflation – wouldn’t their leaders love to stop the people from buying and using bitcoin?
Where the ability to censor exists, so does the possibility of abuse.
Bitcoin is neutral. Bitcoin can be used by anyone, of any political ideology. In fact, there are a growing number of progressive and left-leaning political groups who own and promote Bitcoin.
As a sort of offshoot of this FUD is the idea that somehow, the government is good by default, and that the use of Bitcoin reduces the ability of government to function. Government is good, so by giving the government less money, you must be bad!
In the end, none of this will work. Government exists for a reason. But the right’s constant attacks on essential government functions will take a toll, making all of our lives nastier, more brutish and shorterPaul Krugman [source]
Government will still exist with bitcoin. It’s a natural human instinct to organize in groups and create common rules, invest in common resources, and live in a society. Bitcoin doesn’t stop the ability of government to run.
What bitcoin destroys is the ability of the government to tax its citizens by default through inflation. One of the greatest pro-bitcoin arguments is that many of our modern wars are financed though government borrowing, and then those debts are paid off by inflating away the value of money. Who cares how much a war costs when it’ll be pocket change in 50 years?
Without the ability to inflate the money supply, governments are forced to directly tax people to finance their operations. Most people are cool with financing things like clean water, roads, and even some social programs. People are not chill once you start funding multi-year wars and other crazy shit. Bitcoin doesn’t sever the tie between people and government, it just changes the nature of the relationship.
Bitcoin Is For Criminals
One of the oldest bits of Bitcoin FUD is that bitcoin is for criminals. In the early years of Bitcoin, it was quite popular due to its use on Silk Road, where you could buy drugs, hookers, and other illegal things. Bitcoin was useful because it was a global payment system so you were not limited to in-person cash, and transactions were not associated with your government ID, as with bank accounts and credit cards.
Of course, Bitcoin was never just about doing illegal things, and there are two ways to debunk this FUD. One is social, one is statistical.
Statistically speaking, from 2019 to 2020, illicit activity with cryptocurrency (as whole, not just bitcoin) fell from 2.1% to 0.3%. That’s less than one percent of all crypto transactions in the world being used for crimes. The technology used most often was non-bitcoin protocols like DeFi, and the #1 activity was scamming [updated report].
Looking at the social aspect, the truth is, ANY type of money in ANY society will be used by normal people as well as criminals.
It’s impossible to expect that money itself will be able to decide what’s a crime and what isn’t. Money is neutral and fungible by design. Like a knife or a hammer, money is a tool, and how it is used will be defined by the user.
Furthermore, getting past the idea of what “should” or “should not” happen, practically speaking, the overwhelming majority of people using bitcoin in any capacity are everyday folks. There are publicly listed bitcoin miners. There are millions of people who own bitcoin on exchanges. Bitcoin companies are working with the SEC to develop lending products. Billionaires and wagies are buying bitcoin all the same. Bitcoin is for everyone.
Plus, consider that when criminals aren’t using bitcoin, they are using fiat currency. Physical cash is the most popular way to commit crimes by far. You can even buy weed with a credit card in California!
First off, bitcoin is not anonymous. Bitcoin is pseudonymous. The difference is subtle but important. Anonymity means that you can do something as a completely unknown entity. It’s impossible to trace back to your real identity. Pseudonymous, however, means that you have an alternative identity or multiple alternative identities.
As a result of Bitcoin’s immutable ledger, it’s possible to trance every bitcoin transaction all the back to the Genesis Block. Through modern analytics tools, it’s possible to recognize patterns and associate certain transactions with defined entities.
This means that when you spend your bitcoin, even though it doesn’t say “Bob from Denver, CO spent bitcoin” on your transaction, someone may be able to look at past spending habits and make some connections. For example, “Person X bought gift cards with bitcoin, and the week before they paid for a beer from this other entity which is known to be a local brewery in Denver, CO. It looks like they control a wallet which contains 1.68 bitcoin.” So although someone can’t see your name and home address, they can isolate some types of identifying information.
The type of information they can discover depends on your spending and custody habits. There are many good resources available online about bitcoin privacy that can help you buy, custody, and spend bitcoin privately. Privacy is not secrecy! Law enforcement has many tools available to them to catch criminals, and the goal of using bitcoin privately is not to hide crimes. The goal of using bitcoin privately is to protect yourself from corporations, individuals, and state actors who wish to do you harm by exploiting your private financial information.
One complaint about the bitcoin ecosystem is that the distribution of wealth is not equal. At a glance, it seems like there are a few holders who have a LOT of bitcoin, and everyone else just has a little. Seems unfair, right? If bitcoin really was a revolutionary tool for global money adoption, why would some people be really wealthy and other people be begging for scraps?
There are two problems with this analysis.
The first problem with looking at bitcoin through this lens is that it ignores the fact that this is pretty much how the world works anyway, so there’s no reason for bitcoin to be magically different. Bitcoin is neutral money, so it reflects how society works, and in general, in all modern societies, there exists a small group of people with a large amount of wealth and a large group of people with a small amount of wealth.
Regardless of whether this is “good” or “bad”, it’s just the way things are. For example, 10% of Americans own 89% of US stocks, and policies like QE and other inflation-inducing tactics may worsen wealth inequality in the legacy financial system.
The second problem with looking bitcoin through this lens is an issue with the data itself.
For example, the quote you often see in the news is that 2% of the network owns 95% of the coins. This is just plain false, as proven here. Statistics like this fail to recognize entities like exchanges, funds, and other pooled bitcoin resources where multiple people have ownership over one set of bitcoin.
You may also hear people refer to the “Gini coefficient” of bitcoin being high. The Gini coefficient is a statistical tool in economics to measure income inequality. As another example of junk data being used to discredit Bitcoin, either out of ignorance or malice (who really knows), a statistic like this is doesn’t show the full truth of what’s going on.
For example, the Gini of the US dollar is about 40, while the Gini of bitcoin is supposedly 99+. Of course, if you don’t dig into the method of calculation, you wouldn’t have guessed that the Gini of the dollar is calculated only within the US borders, while the Gini of Bitcoin was calculated using the entire global population. Not really a fair analysis, right? This also doesn’t mention that bitcoin is only 13 years old compared to other global currencies, and is becoming MORE distributed over time, not less.
When someone tries to buy all the world’s supply of a scarce asset, the more they buy the higher the price goes. At some point, it gets too expensive for them to buy any more. It’s great for the people who owned it beforehand because they get to sell it to the corner at crazy high prices.Satoshi Nakamoto
Part of people’s unhappiness with how bitcoin is distributed, is, in my opinion, due the the fact that they feel like they missed the boat and aren’t rich from a fat stack of cheap bitcoin from 2010. It’s not fair! I didn’t even know about Bitcoin back then, and bitcoin rich people just got lucky!
I think everyone regrets not buying bitcoin back in the day, but if you look at how bitcoin was launched, it really was the fairest way to do it, all things considered.
First off, Satoshi didn’t “pre mine” any coins, meaning he didn’t create a special stack for himself before launching Bitcoin, as is common, if not standard practice with most crypto projects. He announced bitcoin to the Cryptography Mailing List, and anyone who wanted to participate in the launch could have mined bitcoin at launch (and did).
Even though Satoshi did mine a fat stack of about a million coins in the early years, those coins have never moved. Nobody knows what happened to Satoshi Nakamoto, but due to bitcoin’s transparent blockchain, we do know that those coins haven’t moved since his disappearance.
More importantly, however, remember that bitcoin didn’t have any value at that time. It wasn’t even worth a fraction of a penny. It was literally worth nothing, so Satoshi, and others who participated in bitcoin mining in the beginning mined at a loss. Would you have spent the time to run your computer mining “magic internet money” that was worth less than nothing? Most likely not.
In terms of fairness, this was maybe the fairest way to distribute coins. Only people who were truly interested in global crypto money took the time to understand, run, fix, and trade bitcoin. It wasn’t the hedge funds. It wasn’t the banks. It wasn’t the government. It wasn’t traders seeking profit.
It was the people building bitcoin who chose to interact with bitcoin who had “first access”.
Even after all that, consider that there were TONS of bitcoin lost and forgotten by those early adopters because bitcoin simply had no value and most people, even those involved with Bitcoin early on, could not have guessed it would become the global money it is today.
Ask yourself, how many people actually had the visionary mindset to see bitcoin shoot from being worth $0.001 (less than a penny!) to being worth over a million dollars (OK, we aren’t there yet, but we’re well on our way).
So between 2009 and 2022, early OGs in bitcoin lost coins due to technical issues or even bailed on the project because they thought the bull run was over. Imagine acquiring 100,000 bitcoin for free by mining on your laptop, then one day each bitcoin has a value of $1 each. Would you have cashed out? I think most people would have. Very few people would have held onto those coins from $1 up to $69,000.
Although bitcoin was not perfectly, evenly, instantly distributed among every single person in the entire world, it’s probably the fairest way to launch a global money. At least, it’s preferable to scanning your eyeball for a pittance reward of orb coin.
It’s A Ponzi Scheme
Honestly, saying that bitcoin is a Ponzi scheme really shows that someone hasn’t done their homework. In the early years when Bitcoin was a brand new concept, this type of criticism was more understandable, but these days it just doesn’t make sense. Some basic Google research shows that large investment companies like Fidelity and famous investors like Paul Tudor Jones are buying and recommending bitcoin. Banks offer bitcoin services. Apple and Google allow bitcoin custody apps in their app stores and are even going to allow people to custody bitcoin in their native mobile wallets.
Is Bitcoin a Ponzi? It seems pretty obviously not. Don’t take my word for it though – there’s a detailed analysis here debunking the Ponzi characterization step by step. It’s a quite thorough article, so I’ll summarize the main ideas here.
- bitcoin is a transparent blockchain with a verifiable supply
- there is not central leader
- there is no promise of returns
- the risks are known and widely discussed
- new entrants are not required for bitcoin to perform its defined function
In a nutshell, bitcoin works as it is, and you don’t need new people to pay previous investors, as is the hallmark feature of a Ponzi scheme. Yes, many people believe that bitcoin will go up in price over time, but there’s no promise that this will happen. The risk of losing money in bitcoin is well known. Bitcoin really doesn’t have much in common with a Ponzi at all.
This one is kind of a difficult one to break into because the research here goes deep. Our entire economy is now based around the idea that “hoarding money” is bad, and that spending money is good. I’m not qualified to debunk this idea in a few paragraphs when there are probably hundreds of academic articles stating the opposite of what I write here. Of course, it’s impossible to argue with academic professionals.
What I can do, however, is break down how bitcoiners and hard money advocates think about money. I may add additional information here in the future as I learn more, but for now, I’ll just paint with some broad brush strokes, and you can make up your own mind.
One of the core utilities of money is to store value across time, meaning that if you hold money, it should retain its purchasing power into the future. Good money retains purchasing power better bad money.
For example, when comparing gold and silver, gold became a better store of value because it’s more scarce, more durable, and more portable since it’s more value-dense.
Money isn’t better when you spend it more. Money is better when it retains value more. Store of value precedes medium of exchange. With good money, there will always be a desire to keep some around and store that value for a rainy day. Saving money isn’t bad. It’s a smart thing to do.
When you have a storage of good money, your future is more secure, and your decision making process changes. You no longer have to focus on the day-to-day stress of eating just to stay alive, and you can think longer term in the future. Like the fisherman who catches two fish, and stores one for the next day, he can then spend that free day building a fishing rod to increase his future productivity.
When you have a reliable tool for storing value, you can focus on long-term goals instead of short-term goals. Saving money isn’t “hoarding”. Saving money is building a safety net for your life.
Of course, everyone still has to live their life. Everyone has a different “line in the sand” of when they will decide to spend money on something, whether it’s necessary (food), or for fun (entertainment, etc). People who claim that hoarding money is bad for society forget that people love spending money. Saving money takes work. It’s the hard thing to do. There will always be a desire to spend money on non-essential activities.
Because bitcoin tends to go up in value over time, it just changes how people think about stacking sats versus spending. When I think about spending bitcoin, I have to weigh my options and think, “If I spend these 100,000 sats right now, how much stuff could that buy in the future”? There’s a more obvious cost-benefit analysis there, because I know that the purchasing power of my money goes up over time.
Contrast that with something like a dollar, which needs to leave my account immediately. It either goes into current day-to-day spending on heating, food, and water, or it goes into a stock account (investment). It doesn’t make sense to hold dollars for more than a few months, up to a year. The spending happens immediately because I know it will lose purchasing power over time.
Let’s not forget that stocks can go down in value as well, so regardless of what you think about bitcoin, saving money in the stock market is still a risk to the purchasing power of my money.
In short, saving money allows you to plan better for the future as well as make better long-term decisions, and saving in a hard money doesn’t mean that you’ll never put anything into the economy.
Nobody Uses It
For a bit of “classic FUD”, a basic bitcoin critique is that “nobody uses it”, which is, of course, false in many different ways.
First, the idea that “nobody” uses it is crazy. There are 35 thousand people attending the Bitcoin 2022 conference in Miami alone. There are publicly traded bitcoin companies. There are people living on bitcoin. You can buy some things directly with bitcoin. There are companies which only accept bitcoin for payment.
It’s just crazy to say to say that nobody uses bitcoin. You could certainly make the case that fewer people use bitcoin than dollars, but that’s not the argument. Sure, on a global scale, there aren’t many people who use bitcoin in their day-to-day lives, but that’s one of the main value props of buying bitcoin right now – we’re still early.
Outside of just using a basic Google search to figure out that yes, people are using bitcoin, you can actually see on chain metrics that prove bitcoin ownership is growing. Some people may nitpick “ownership” versus “use”, but in my opinion, saving money, AKA hodling, is using bitcoin.
There are more addresses than ever that own bitcoin. The network hashrate is at an all time high. Lightning network capacity has never been bigger. Maybe it was easy to dismiss bitcoin with this FUD ten years ago, but the idea that nobody is using bitcoin is just plain lazy FUD as of 2022.
You Can’t Buy Anything With It!
It’s possible to be “good money” without being widely accepted as a medium of exchange. To be fair, this was hard to wrap my mind around at first, but it’s because I didn’t understand what money was. I thought that for something to be money, I had to be able to buy stuff with it. Then, I realized that I was putting the cart before the horse.
The two basic functions of money are
- Store of value
- Medium of exchange
When people say you can’t buy anything with bitcoin, they are talking about the medium of exchange part. They can’t exchange bitcoin for goods.
The question to ask is why money is desired for exchange. Why can you give someone money in exchange for a good or service?
The reason is that money also stores value. A person who accepts your money believes that they will be able to use that unit of value (gold, dollar, bitcoin, etc) to do a future exchange with another party. Money allows them to store value, then buy something they want in the future
Hence, store of value precedes medium of exchange. Something must become a trusted store of value before it will be desired enough to exchange real goods and services for it.
Right now, bitcoin is in its “store of value” phase, and it’s performing wonderfully. There are still plenty of skeptics, but more and more people are realizing that bitcoin stores value better than their local fiat currencies, and even stocks, bonds, and real estate.
Eventually, when enough people trust that bitcoin will effectively store their value for the future, they will want more. To acquire more bitcoin, they will offer goods and services in exchange for bitcoin, and bitcoin will begin it’s “medium of exchange phase.
Finally, consider that you can still exchange bitcoin for goods indirectly. You sell your bitcoin for local currency, then buy goods with the currency. Bitcoin can still be global MONEY even if it’s not global CURRENCY. Sovereign nations will most likely always want to maintain their own local currency.
The Price Is Manipulated By Whales
In Bitcoin, a “whale” is someone who owns a lot of bitcoin – usually in the thousands, or 10’s of thousands of bitcoin. There are around 2,000 non-exchange, non-trust entities who hold this much bitcoin in the world. That’s not a lot of people, and the criticism here is that they can manipulate the market up or down using various types of trading tactics.
For example, if they execute a huge buy order, it can trigger a price pump, or if they put in a massive short, it can drive the price down, triggering cascading liquidations.
It’s true – there are certain actors in the trading space who are known to use manipulation tactics to attempt to move the market in a favorable direction. Sometimes they are successful, sometimes they are not.
The question here to ask here is, how much can they move the market, and how long will it be successful.
There may be some instances where a whale can move a market, but as traders get more sophisticated, these tactics lose their effectiveness. What worked in 2013 may not necessarily work in 2022. Honestly, in all my research, there was no conclusive evidence that whales had any large or lasting impact on the bitcoin price.
Of course, that doesn’t stop the haters from speculating with nonsense like the idea that large holders “cashing out” will cause permanent damage to the bitcoin narrative.
Sure, some people cash out at the top, and then guess what… now they don’t have any bitcoin. It just means they executed a good trade. What’s their next action? Now, they have to guess when to buy bitcoin, or they just exit the market permanently. You can get lucky sometimes, but you can’t get lucky all the time, and many traders end up trading their way to zero bitcoin.
In addition, whale holdings as a whole have been generally decreasing since 2016, with many individual whales losing some of their stack. Nobody can beat the market all the time, which means over time, whales will lose ground to the swelling mass of average people who are starting to accumulate bitcoin in small quantities.
At the end of the day, bitcoin adoption is increasing. More companies and businesses are turning to bitcoin to preserve their wealth. More people trust bitcoin as a store of value. More people are trading. There are more addresses than ever that own some bitcoin. The bitcoin economy is growing, and whales are much less effective at manipulating the market these days.
There will always be whales, but their incentive is not to destroy bitcoin, since they also hold a significant amount of wealth invested. If they market dump, the price crashes, and their wealth goes down. If they slowly distribute their bitcoin over time, the bitcoin simply goes to new hodlers, and whale holdings further decrease. If they just sit on their hands don’t distribute their bitcoin, then nothing happens.
If whales are manipulating the market in some super spy, scientific (yet undetectable way), as long as you don’t sell your bitcoin, you won’t play into their short term game.
It’s Going To Zero
As of 2022, it’s pretty hard to make the case that Bitcoin is going to zero, but that doesn’t stop Nobel Prize winning economists from making exactly that case. Of course, I’ve gone into that topic extensively before, so I’ll just cover it briefly here. To summarize: sure – it’s possible that bitcoin goes to zero. Nobody knows what’s going to happen in the future. However, it’s very unlikely that it does go to zero at this point, and there’s lots of evidence for that.
Bitcoin is no longer just a cypherpunk experiment used by computer nerds and drug dealers. Politicians own bitcoin and tweet about it. Public companies own bitcoin. Bitcoin is recommended by respected financial institutions. Bitcoin is being mined by century-old energy companies. Pensions funds invest in bitcoin companies. Insurance companies have bitcoin on their balance sheet. Various types of legislation are being proposed to secure the rights of people to self custody their bitcoin, or in less-free areas of the world, at the very least to regulate bitcoin mining, transfers, and custody solutions.
You can argue about how much it’s worth, but Bitcoin isn’t going away. Bitcoin is here to stay.
The Government Will Ban It
Even if everything else on this list was fully debunked and Bitcoin was embraced by the people as global, digital money, there would still be a contingent of people who would believe that bitcoin is “too good”, and it “works too well” for it to be allowed by governments. If bitcoin truly is freedom money, then the government will simply ban it.
I totally get the knee-jerk reaction, but when you think through the process, it doesn’t exactly make sense.
First off, which government would ban it? Any national government that would ban bitcoin in the country would simply ban themselves from the network. Bitcoin would continue to function as normal everywhere in the world, including their own country. They would just have to expend more resources to catch and prosecute bitcoiners within their borders.
Or did you imagine that there would be a global, coordinated, prioritized campaign to stop a nascent communication technology?
Secondly, how exactly would this be funded and enforced, and what would be the consequences? Would they be knocking on doors looking for ASICS? Would you face fines, arrest, and jail time for having an app on your phone? Would it be illegal to write or store certain types of code on your laptop? Would electricity use be investigated and only some types of computing power be allowed? I just don’t really see how they could ban the use of bitcoin.
Plus, if they can’t even stop people from stealing makeup from CVS or entire carts of groceries at my local grocery store, how are they going to enforce a bitcoin ban. It seems impractical and costly.
Thirdly, bitcoin industries are already becoming entrenched in local economies. These include bitcoin miners, bitcoin exchanges, financial services, and other bitcoin companies that are employing people. Killing bitcoin means killing those jobs.
Most importantly, however, I think it’s important to remember that our government officials are supposed to represent the interests of the people in their jurisdiction. Democratic governments don’t just get to make up arbitrary rules. There’s a process.
Plus, there are already bitcoiners in government who will fight for bitcoin, and there is a growing number of private organizations fighting for bitcoin adoption as well.
One of the new bouts of FUD to hit the scene involves none other than cute and cuddly – dolphins. Yup, you heard that right. Dolphins want to steal your bitcoin. They’re out there attacking boats and causing bitcoiners to drop their bitcoin in the water!
Actually, this is just a joke that went around Twitter this weekend. You can read the post here: Dolphins & The Collapse of Bitcoin. I guess I’ll ruin the joke by explaining it:
Bitcoin is not guaranteed to succeed. There are an infinite number of unexpected scenarios in the future, and the scope of what is not known in the world outweighs the known. Is there a shadowy group of super coders hiding quantum computers ready to steal all the bitcoin in 2030? Is the US government going to bust down your door and hijack your private keys with a back door master password from Satoshi Nakamoto? Are the schools of dolphins roaming the ocean knocking over boats to steal hardware wallets? Anything is possible.
The truth is, there is plenty to worry about in Bitcoin. Bitcoin is NOT guaranteed to “win”. It’s not guaranteed to go up in value. Bitcoin may not be the future of money.
Future Bitcoin FUD?
One of the interesting things about looking back on old Bitcoin FUD is seeing the FUD cycle come and go, then realizing that there will always be new FUD on the horizon. Sometimes, it’s the same old FUD, simply repackaged (Tether FUD), and sometimes it’s a brand new FUD. Remember when China controlled mining FUD became Kazakhstan coal mining FUD, and now it seems to be North American mining regulation FUD.
Some recent FUD spotted online is that bitcoin miners create too much e-waste due to them having a short life cycle. This is verifiably false information, especially considering S9s are still profitable in 2022 even though they were released in 2016 (8+ years!).
What I think is equally interesting is trying to predict the new rounds of FUD that will appear in the future. Of course, for there to be FUD in the future, it assumes that bitcoin will continue to succeed over time. Haters gonna hate, and haters gotta hate on something.
Here are my top predictions for future bitcoin FUD, and please feel free to add your own below in the comment section.
Early Bitcoin Adopters Got Lucky
As the price of bitcoin increases, so does the production of nocoiner salt. It’s super easy to look at bitcoin now and think, wow, wouldn’t it be nice if I had a time machine and could go buy bitcoin in 2010 so I’d be rich today. Early adopters were so lucky they heard about bitcoin!
The truth is, most people heard about bitcoin in some way before even 2017, and most people ignored it or dismissed it.
Even if you did buy bitcoin early on, tons of people sold it in the meantime. Not many people could have predicted a single bitcoin would be worth more than $40,000 by 2022.
Those who did hold for MORE THAN 10 YEARS experienced a lot of FUD along the way. Serious FUD. Not funny FUD like we have nowadays, which is easily debunked and discussed among the community. Back then, it was real FUD because the Bitcoin project was only a few years old, and we didn’t have so many cycles behind us.
Those who held for 10 years had serious conviction. Those who held a large amount of their wealth in bitcoin and watched it drop 90% several times over the course of 3 years had balls of steel.
Hodling is simple, but it ain’t easyAmerican Hodl
The Bitcoin Rich Benefited From Economic Collapse
Many people in Bitcoin are predicting an imminent economic collapse. If things happen like bitcoiners predict, it could be several years of a depression-era-like environment for the entire world.
Except for bitcoiners of course.
Bitcoin, being the only digital global monetary settlement network that can’t be printed even if politicians really want to get re-elected, will of course skyrocket in price, making holders of the coin extremely wealthy.
In this massive, chaotic transition to a global bitcoin standard, there will be winners and there will be losers. Nocoiner salty tears will flow, and who do you think they will blame? Those damn greedy bitcoiners.
The Bitcoin Rich Owe Society Through Higher Taxes
What’ll be real frustrating to watch is how people will probably want to tax bitcoin in some specific way because they suspect the gains are unfair. You got rich from doing nothing, so easy come, easy go!
We’ve already seen some proposals on this, such as a bitcoin-specific capital gains tax, taxing unrealized capital gains, or even taxing every bitcoin transaction. Even if it’s not related to the bitcoin asset specifically, you could still implement things like a bitcoin miner tax, bitcoin exchange registration fee, or other things that may make bitcoin ownership more expensive and less attractcive.
If you’re bitcoin rich in the future, they’ll be coming after your bitcoin.
Bitcoin Owners Don’t Deserve To Profit From Doing Nothing
One of the most frustrating pre-FUDs I’ve come across, is that you shouldn’t benefit from the growth of monetary value, no matter if it’s bitcoin or not. I forget what the tweet exactly said, but it was something to the effect of, “Why should money gain value over time and benefit the owner for doing nothing? Money is meant to be earned!”
Of course, this would tie into the higher tax rate, or even unrealized cap gains tax, because why should bitcoiners continue getting rich when they just got lucky by buying a stupid digital coin?
Bitcoin Returns Aren’t Even That Good
And one last bit of FUD which is sure to hit us at some point in the future is that bitcoin isn’t even a good investment! You should probably ditch your bitcoin for some other type of hot new investment.
This is selection bias. There may be individual companies or alternative investments that outperform bitcoin over a specific period of time. The question is, could you pick that company and hold it for exactly that amount of time, buying and selling at the correct moments?
More importantly, it ignores bitcoin’s benefits. Is your investment liquid and cheap to buy and sell? Is it immutable and censorship resistant? Can you carry it in your pocket and access it anywhere in the world? Most likely not.
Bitcoin FUD Documentary
I haven’t watched this yet, but this Bitcoin FUD documentary features some respected smart people in the Bitcoin space, so is probably worth a watch. I’m not sure which FUD they cover, but there’s probably lots of crossover with what I’ve talked about in this article.