Now that we are in the depths of in this episode of the recent bear market, it might be time to reflect on some of the criticisms of Bitcoin. The best time to get critical and reflective is in the depths of despair — this is not FUD but a healthy confrontation of some of the most reputable critics. If we can face those criticisms respectfully and intelligently, we will have a stronger case for why we believe Bitcoin and blockchain can (and will) succeed. In this episode of CRYPTO 101 podcast, Matthew discussed some of the main criticisms presented in the book ‘The 50 Foot Blockchain’ with it’s author, David Gerard.
Who is David Gerard?
David is from Australia and was a music journalist in the 80s and 90s before he moved into Information Technology because it paid better. When Wikileaks began using Bitcoin in late 2010 when they got cut off by Mastercard and Paypal it caught his attention and he began to educate himself on it. He then started the rational wiki article on Bitcoin and participated in the Buttcoin subreddit. He has recently published his new book ‘Attack of the 50 Foot Blockchain’. He has established himself as one of the foremost critics of Bitcoin and blockchain technology.
David believes it is a reasonable thing to want digital cash but he does not think Bitcoin or blockchain cryptocurrencies are the way forward. He thinks it is mostly an overhyped psychological trick that has the potential to hurt average investors who think they can just get rich overnight. Here is just a small selection of his thoughts on why that is
“Bitcoin and blockchains are not a technology story but a psychology story.”
David believes the ‘trustless’ model of blockchain is very convoluted, expensive and not as ‘trustless’ as people think.
“Proof of Work mining is a really inelegant cludge, but it was the one thing they needed to make the decentralisation trick work. [It] is wasteful and by 2013/14 it mostly decentralised. Trust has come back into it, you are trusting [the mining pools] wont tip the cart over.”
In addition to this, it is obvious that most people’s engagement with crypto assets are through various unregulated exchanges. David points out the obvious when he calls this an incredibly risky venture:
“Using an exchange is like storing your money in a sock under someone else’s bed.”
- Energy waste
This one is an old criticism of Bitcoin in particular, because of it’s Proof of Work consensus mechanism. The energy required to continue securing the Bitcoin Blockchain is more than many countries yearly energy consumption. This is an understandable concern but I believe this is a problem for Governments who refuse to invest and develop renewable energy sources, not Bitcoin itself. People have a right to use their energy however they want and if certain nations insist on burning fossil fuels over capturing sunlight, wind or hydro movements it is they who need to change.
- The Bubble Economics
This criticism comes from wanting to protect average investors. The hype cycle of crypto markets is undeniable and unless you are prepared and stay safe, they can burn you. David comments on the the most recent bubble in 2017:
“The market was getting enthusiastic about enthusiasm, and that’s a bubble”
This doesn't seem so much a criticism of Bitcoin and more just of unregulated market structure and a potential dark side of free markets and game theory. But it is a reality that many people endangered themselves and their families chasing a dream on the back of the blockchain. David also adds that it is impossible to know what is a fair price for a crypto asset because of all this upregulation and manipulation.
“I think the Bitcoin price is so stupendously and obviously manipulated that I have no idea what a Bitcoin would cost and what fair means in this context. You don’t get Bart Simpson formations on charts that aren't being externally manipulated by someone.”
- Altcoin hype
This is similar to the criticism of the bubble economics but focuses on the ease with which people can (and have) set up projects that make enormous promises that are ultimately never delivered on.
“The trouble with the whole cryptocurrency space is that promises are free but execution seems to be a whole lot harder, The press is no help. Even the relatively quality publications like Coindesk, they’ve never seen a story with the word ‘crypto’ in it that they don't like.”
This tendency to view the whole space with rose-coloured glasses is obvious if you spend any time in crypto Twitter or Reddit. Even when prices are falling, projects are being outed as scams, exchanges are being shut down an entire nations are issuing negative statements on Blockchain, some people interpret it all as positive news that can only mean huge gains in the immediate future. It is not rational nor healthy.
- Smart Contracts
The future of blockchain technology seems to be interwoven with smart contract platforms and delivery. David warns that this is probably not a good thing.
“They are misconceived, we are talking about a computer programming. And people are really bad at programming. Nobody has written a computer program without bugs. And now you want to make these things immutable!?”
David gave the example of the DAO, built on top of Ethereum as an example and how The promise of immutability and trustlessness can all end when there are still people at the top who can reverse history when enough “big boys” lose a lot of money.
David left us with some final thoughts:
“I think the future of cryptocurrencies is that it will become increasingly regulated and normalised. People want regulation of this because they want to know where they stand and what they can do with this sort of thing.”
“I think that speaking technically they are junk-quality assets. They are not backed by anything they are volatile as hell. They have a price because people will pay for them and that’s all.”
I would have to disagree with the final quote. The fact Bitcoin is “not backed by anything” does not deprive it of value. People pay for ownership of Bitcoin because it is a hard money, with a fixed supply, that is untamperable from any outside governance or third party. That is why it has a price — a potentially overvalued, or undervalued price depending on the time — but that is what the free market is for, price discovery of emergent investments.
Written by: Glen Veitch - CRYPTO 101 Writer