A rebuttal to the BIS statements regarding Bitcoin

in #bitcoin4 years ago (edited)

Consider the following counter-arguments...

The Bank for International Settlements made some bold criticisms of Bitcoin and cryptocurrency recently, warning that the volume of transactions required to run all money systems in the world would bring the internet to its knees. Additionally, they criticized the entirely subjective and volatile value of Bitcoin, the fact that mining it consumes a lot of electricity, and that it could be a tool used for fraudulent behaviour.

I will make corrective arguments to each of these points here:

Bitcoin will kill the internet

This, of all their arguments is probably the most ridiculous, although they are all a bit ridiculous, honestly. Firstly, they suggest that, as Bitcoin technology stands right now at this moment, if it were to instantaneously take over the role of all financial transactions globally, it would overwhelm the internet.

Firstly, this transition would not happen instantly with the current framework. There would be a gradual movement from fiat into cryptocurrency -- not just into bitcoin, mind you, but many currencies with different algorithms and purposes. This is already happening in some economically unstable regions where people are mining crypto in order to have enough money to get by since their fiat is worthless. The infrastructure and technology supporting the movement of data on the internet will have grown tremendously if there ever is a time that all money transactions in the world are completed via block-chain technology.

Secondly, it doesn't have to replace all money transactions everywhere. Cash is quite handy still, and for many transactions, it works just fine. Yes, it's true in unstable regions fiat money is creating hyper-inflation problems, but that's not happening everywhere at one time. If anything, fiat may fade in importance, along with central banks, as digital currencies become more prevalent. It could take decades for such a transition on such a large scale.

Imagine if Youtube and Netflix were as popular 10 years ago as they are today. Couldn't one have made the argument back then that, if all TV show and movie rentals were replaced, at that moment , with online video streaming, that the entire internet would collapse? It's true, the internet simply did not have the capacity to handle that kind of demand back then. But this grew over time as the infrastructure grew to support it.

This also ignores the fact that many block-chain technologies are finding ways to scale that will not result in an internet collapse. Whether it be via second layer technology or other clever methods, block-chain as it exists today is a far cry from what we will see ten years from now. It will be faster, more efficient, and much more widespread.

Bitcoin's value is too subjective and volatile

Bitcoin's value is subjective. It's true. So is all money. So are all resources. Land, houses, cars, you name it. They have subjective value. A glass of water I might toss down the sink might be worth fighting over in a drought-inflicted region of the world.

Fiat money has an agreed-upon value, determined by a wide range of subjective elements such as a government's economic well-being, military power, control of interest rates, and production of said money. Bitcoin and cryptocurrency are different in a few very important senses, however. Firstly, Bitcoin is inherently scarce. It only consists of 21 million Bitcoin and will never be more than that amount. True, forks can be made with different names, but they still are not Bitcoin. They are forks -- that may have their own value if people agree to it -- but forks nonetheless.

Secondly, Bitcoin and cryptocurrency are not controlled by one central entity like a central bank. They are controlled by everybody who mines it in a decentralized network. Nobody prints it in a building somewhere and decides to suddenly print more to pay off debts, or manipulates interest rates to drive up its value. It can be manipulated indirectly by traders who hold large quantities, that is true. Someone who holds millions of dollars worth of Bitcoin could sell a bunch and cause the market to crash temporarily, but that's a mechanism of a free market, not manipulation.

Bitcoin is also highly volatile compared to fiat money. This is mostly because of the size of the market. It is quite small, comparatively speaking. The entire market of cryptocurrency currently stands at a value that is less than a third of the Apple corporation - a single corporation that is worth nearly a trillion dollars. So when millions of dollars worth of Bitcoin get bought or sold, it has a greater effect on value than the tiny dent that would make in much larger markets. Over time, if Bitcoin were to be adopted, say to the extent the BIS suggested -- the standard currency of trade for financial transactions -- it would be far more stable than it is now as the entire market would stand somewhere close to 100 trillion dollars at that point. A few million bucks here and there wouldn't even cause a blip on the radar.

It's really bad for the environment

Bitcoin mining does consume quite a bit of energy. Did you know, though, that producing fiat currency actually takes quite a lot of energy too? And did you know fiat currency has to get minted and printed over and over again, each time consuming many raw materials, producing waste from ink, and consuming large quantities of water in the minting and printing process? Fiat money must also be transported by pollution-generating vehicles and must be tracked digitally on large banks of servers running 24/7, consuming tremendous quantities of energy.

How about gold? Silver? Have a look at a region that has been excavated for gold mining. It often looks like an environmental wasteland. The amount of energy consumed and pollution and waste that are generated from this kind of mining is massive compared to Bitcoin.

It's a tool for fraudulent behaviour

This one is is just too much. Central banks and numerous banks around the world are the largest fraudsters of pretty much any entity in existence. Take some time to look into some of the largest frauds in history and you will soon find that most of them involve banks. Major banks like HSBC, JP Morgan, and Wells Fargo have all been caught on a number of occasions behaving fraudulently.

Cryptocurrency like Bitcoin, with an open ledger, can not lie. Little deals on the side to corporate friends can not be hidden. Payments can not be moved without everyone seeing it because of the technology. If anything, Bitcoin and other cryptocurrencies should significantly lower the ability, especially for banks, to perform fraudulent transactions.

BIS looks pretty desperate here, in my opinion. I suppose it's possible that they are saying this in the hopes prices will be suppressed so they can buy up more Bitcoin for themselves. That would be the smart thing to do.

*This is not professional trading advice - it's just my opinion!

If you're interested in trading cryptocurrencies, check out CoinSquare and Binance in my profile and sign up today!


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