Addressing Bitcoin’s Common Criticisms on Twitter.
The Internet is riddled with the same old inaccurate statements about Bitcoin, which we will address using Tweets as examples.
Bitcoin is a Tulip Bubble
We chose to add it since comparisons are still made between flowers with a short lifespan and many mutations and a global digital peer-to-peer network secured by robust cryptographic techniques.
Tulip Mania was a period of the Dutch Golden Age during which contract prices for particular bulbs of the newly introduced and popular tulips reached exceptionally high levels, with the greatest acceleration beginning in 1634 and then rapidly crashing in February 1637.
So what actually happened?
The true narrative, according to Anne Goldgar, author of Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age, is far less dramatic. The history professor spent years going into Dutch records to figure out what happened, and what Goldgar discovered was a relatively small and short-lived market for an exotic luxury, rather than an irrational and broad tulip frenzy.
Here are some of the highlights of her research:
1) Nobody went bankrupt and the Dutch economy wasn’t affected.
2) The extreme prices were very rare, with only 37 people spent more than 300 guilders (a craftsman’s annual wage) on a tulip bulb.
3) Crash wasn’t due to uninformed buyers speculating on price increase, but rather prices fell due to concerns about oversupply.
4) Tulips were NOT bought by everyone, but a relatively small number of people most of them were wealthy merchants rather than chimney sweeps.
Bitcoin is a Ponzi
Ponzi Scheme, named after Charles Ponzi, is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.
Here is how the U.S. Securities and Exchange Commission identifies a ponzi scheme:
- Guaranteed investment opportunity
In Bitcoin whitepaper, Satoshi never promised any investment returns. The online writings from Satoshi still exist, and he hardly ever talked about financial gain. He predominantly wrote about technical aspects, freedom, problems of the modern banking system, and so forth.
Satoshi mined virtually all of his coins at a time when the software was public and anybody else could mine them. He gave himself no unique advantage in acquiring coins faster or more easily than anyone else.
- Overly consistent returns
For the first year and a half, Bitcoin had no quotable price, and after that it had a very volatile price.
Furthermore, Bitcoin’s returns could never be characterized as ‘overly consistent,’ due to prolonged price declines. The price peaked in June 2011 and subsequently plummeted, only to rebound in February 2013 at its 2011 high. Then, in November 2013, it peaked, plummeted, and didn’t recover until February 2017, and so on.
A fundamental premise of Bitcoin is to verify rather than trust. Bitcoin is an open source currency that is used all over the world. The blockchain is open, transparent, verifiable, auditable, and has capability to be analysed. Firms can use blockchain analytics to determine whether bitcoins are moving or remaining in various addresses. An open source full node, which can audit Bitcoin’s whole money supply and other data, can be operated on a basic home computer.
The only criteria that applies to Bitcoin is that it’s unregistered. However, this doesn’t inherently mean that it’s a Ponzi, as Bitcoin was designed to be permission-less and to operate outside of the established financial system.
Importantly, the SEC has already stated that Bitcoin is not a security under the Howey test and by logical extension, have not committed any securities fraud.
If You Stop Mining Bitcoin It Will Cease To Exist.
If you studied economics, you’ve probably heard of ‘game theory,’ which states that players in a game are rational and would attempt to maximize their payoffs in the game.
Even if all miners abruptly turned off their equipment, Bitcoin transactions would continue to work properly. They would, however, no longer be validated, implying that a network may be attacked, allowing an attacker to initiate bogus transactions in order to earn a modest profit.
However, everyone else, would soon discover that they could make $1.5 million per hour (at today’s BTC prices) simply by being the first to press the “start mining” button on their bitcoin wallet application. You would also not require large mining rigs either because the mining difficulty would have reduced, allowing you to do so on your home PC.
In reality, even the attacker would quickly realize that mining the network would earn them far more money than minting fake ones.
Thus, it would be far more profitable to contribute to the network rather than to undermine it.
In order to completely ‘erase’ the Bitcoin network, all Bitcoin nodes (computers spread all around the world that store the entire blockchain. Anyone can become a Bitcoin node by simply running the Bitcoin core client on a PC) would need to be destroyed or compromised. If a single copy of the blockchain survives then it is possible to rebuild the network once again and continue as normal.
There are over 47,000 functioning Bitcoin nodes spread across the world today — so good luck with that.
Argument on Energy Waste
Firstly, the law of conservation of energy states that energy can neither be created nor destroyed — only converted from one form of energy to another.
Second, according to the University of Cambridge’s 2020 Global Cryptoasset Benchmark Study, the vast majority of Bitcoin miners (76%) use renewable energy as part of their energy mix. Hydropower is the most popular energy source, with 62% of miners utilizing hydroelectric energy to power their activities.
Finally, according to a Washington, D.C.-based nonprofit think tank, Christmas lights hung on American trees, rooftops, and lawns consume 6.63 billion kilowatt hours of electricity each year, more than certain countries and the whole Bitcoin network combined.
Bitcoin vs Gold Mining
Several recent research on the energy consumption of gold and bitcoin have been conducted. According to one such analysis published in May 2021 by Galaxy Digital, Bitcoin’s yearly power usage is now estimated to be about 113.89 TWh (terawatt-hours). In comparison, the gold industry’s yearly total energy usage is around 240.61 TWh.
However, gold mining damages the environment in ways that Bitcoin never will. Mining gold causes:
- Poisoned waters — according to Earthworks research, a nonprofit environmental organization, mining companies around the world routinely dump toxic waste into rivers, lakes, streams and oceans — research has shown 180 million tonnes of such waste annually.
- Solid waste — according to Earthworks research, many miners employ a process known as heap leaching, which includes dripping a cyanide solution through huge piles of ore. The solution strips away the gold and is collected in a pond, then run through an electro-chemical process to extract the gold. This method is enormously wasteful with 99.99% of the heap becoming waste. To cut costs, the heaps are often abandoned, which contaminates groundwater and poisons neighboring communities, such as Miramar, Costa Rica.
- Mercury pollution — according to International Institute for Sustainable Development, there are 132 gold mining sites that cause mercury contamination, affecting more than 3.5 million people, particularly in Africa and Southeast Asia. Mercury is extremely harmful to human health.
- Destroying the Amazon — according to CSIS, bipartisan, nonprofit policy research organization, gold miners are tearing down the forest to access the rich gold deposits beneath. One study found that deforestation rates in the Madre de Dios region of the Peruvian Amazon have increased six-fold due to gold mining.
Time is not a valid argument. The mere fact that something has been existing for “thousands of years” does not make it correct. Slavery has existed for thousands of years as well. Next.
Bitcoin vs Gold Utility Argument
According to Statista, actual usage of gold accounts for 7.95% of its total distribution, with the rest being used as a store of value, i.e. minimal real world use case.
Unlike gold, Bitcoin’s underlying technology, called blockchain, is tested and used as a payment system by millions of people across the world. One of its most effective use cases is in remittances across borders at low cost without third party liability risk settled within an hour.
Bitcoin’s blockchain is decentralized, incapable of being hacked, controlled, mishandled, corrupted, or halted. To date, it has never been down or hacked.
Blockchain is Useless
Use cases for blockchain:
- Secure sharing of medical data
- Cross-border payments without a middleman
- Real-time IoT operating systems
- Personal identity security
- Anti-money laundering tracking system
- Supply chain and logistics monitoring
- Voting mechanism
- Original content creation, such as music, art without a middleman
- A way to securely store and own a one-of-a-kind digital asset (NFT technology)
Fiat Money are Backed By Tax/Trust/Government
Great powerful empires throughout history have suffered as a result of hyperinflation of their paper money, regardless of tax, trust, or anything else.
The Ming Dynasty (China’s governing dynasty from 1368 to 1644) created its first paper money, known as “Great Ming Precious Notes,” in 1374. These notes could not be converted into gold or silver coins.
The value of these notes soon deteriorated, and by the early 15th century, the paper-to-coin ratio had surpassed 300:1. The Great Ming Precious Notes soon vanished from trade, and there are no recorded references to paper money being in circulation after 1455, therefore ending China’s first 650 years of paper money.
For the next 500 years China functioned under a silver economy.
Then there’s Ancient Rome (third-century crisis), the Holy Roman Empire, the Weimar Republic, and so on.
When Bitcoin is Compared to the Internet in its Early Years
Documented “fad” about internet:
1) New York Times, 1992:
“We’re promised instant catalogue shopping–just point and click for great deals. We’ll order airline tickets over the network, make restaurant reservations and negotiate sales contracts. So how come my local mall does more business in an afternoon than the entire Internet handles in a month?”
2) Newsweek, 1995:
“They speak of electronic town meetings and virtual communities. Commerce and business will shift from offices and malls to networks and modems. And the freedom of digital networks will make government more democratic. Baloney! “
3) Waring Partridge, in Wired, 1995:
“Most things that succeed don’t require retraining 250 million people.”
4) Robert Metcalfe, in InfoWorld, 1995:
“I predict the Internet will soon go spectacularly supernova and in 1996 catastrophically collapse.”
5) Paul Krugman, renowned economist, 1998:
“The internet will fade away because most people have nothing to say to each other. By 2005 it will be clear that the internet’s impact on the global economy has been no greater than the fax machine.”
There are lots more, but we won’t continue to twist the knife.
Nobody Uses Bitcoin
Bitcoin has an average of 700,000 daily active users, with an average total number of completed transactions of 270,000 per day and a daily transaction volume of at least $6 billion. These figures are steadily growing.
Merchants that accept Bitcoin include:
AMC, Regal Cinemas, AT&T, Phillip Plein, Shopify, Lush, Microsoft, Pavilion Hotels, AXA Switzerland, LOT Airlines, Expedia, and 30,000 retail locations across the US via the Gemini Pay app, including Whole Foods, Bed Bath & Beyond, GameStop, Office Depot, Petco, Ulta Beauty, and The Coffee Bean & Tea Leaf.
Ultimately, it’s up to each and every one of us. It’s fine if you don’t like what Bitcoin stands for. However, science and data must take precedence over emotions and headlines. Regardless of how you feel about Bitcoin and its blockchain, let’s stick to the facts.
DISCLAIMER: The information contained in this article is for educational purposes only and does not constitute any form of advice or recommendation by Wheatstones, and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.
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