Saying Hello To Bitcoin

OpinionCritics believe that the collapse in FTX demonstrates weaknesses with Bitcoin. However, this is a misinterpretation of its fundamentals. Ben Sixsmith published a thoughtful piece in The Spectator titled “Saying Goodbye to the Crypto Nerd Utopia” which provides an outside view on the crisis facing the wider crypto economy. Although there are many points I disagree with, I will focus on the main line of reasoning. Bitcoin is one cryptocurrency, cryptocurrencies do not have intrinsic value and cryptocurrencies can be traded on exchanges like FTX. Sixsmith’s first paragraph states that the value of Bitcoin, Ethereum, and Luna crashed in May. This assertion may seem obvious at first glance. All three assets depend on cryptography and varying degrees decentralization. Trading prices for all three assets fell sharply on exchanges. However, if you look at their open-source software, you will see that there are significant differences. Bitcoin’s protocol is designed to minimize uncertainty using conservative parameters and a limited feature set. It also has an auditable ledger architecture which allows for supply auditability. Ethereum is optimized for cutting edge experimentation and a wide variety of programmable features. However, its complex ledger architecture results with an unauditable supply. Luna was programmed to hyperinflate to support Terra’s value, which it did. It is irreductive to combine all three assets into one “crypto” bucket. They are different technologies that optimize for different outcomes. Bitcoin has achieved long-term network stability. You could run the same node program continuously for the past ten years without any problems. This is not true for Ethereum node software. It was completely redesigned in September 2022 and has since changed its consensus mechanism. This change was possible because the Ethereum Foundation plays a unique central role in staking contracts. To push for aggressive “upgrades” of its protocol, Ethereum must be more central than Bitcoin. Bitcoin does not have a central authority or operator, and its consensus rules are informal: it is a spontaneous, intersubjective, network-wide agreement between the users. Sixsmith’s second point is addressed. The intrinsic value of any form of money is that it helps to minimize uncertainty and protect against unpredicted future cash flows. The fiat system has physical cash and government-insured banks accounts as the least uncertain assets. However, even those accounts are subject to the fiat power and promises of the governments issuing them. This means that holding BTC with your private keys and verifying the ledger using your own node will result in less uncertainty than having physical cash or an insured account. This is bitcoin’s intrinsic worth. While the spot price/purchasing power of BTC can be subject to the whims of market forces, the uncertainty-minimizing principles of how to receive, hold and send BTC have not changed since its inception. You can therefore be sure that smart contracts locking your BTC will work as intended. This means that only your signature and your private keys will be required to move your money. The United States has laws that govern exchanges. They are subject to both federal and state money transmitter, custodian, and investor protection regulations. Federally, they are regulated by the Commodity Futures Trading Commission and the U.S Securities and Exchange Commission. They also have clear terms and conditions of service and user agreements. Even an “offshore exchange” in the Bahamas is subject to the English Common Law. These entities being called “crypto” exchanges is misleading because they are centralized fiat entities. Sixsmith states that “…we knew crypto-currencies weren’t a guaranteed route to freedom and independence. Their value was based on the good judgment and morals of a bunch nerds online. Although this statement is funny, it confuses Bitcoin’s value and the (mis)management of fiat/crypto exchanges. It is akin to asking about the value of tomatoes after a supermarket goes bankrupt. BTC is not designed to be left at a fiat exchange. It is therefore vulnerable to theft. It is more difficult and riskier than using BTC private keys to secure an exchange account password. There are also bitcoin-only brokerages that require or encourage the delivery of BTC directly into the client’s hands. Numerous individuals and businesses receive BTC as revenue for goods or services, not as a trade in fiat. The development of a circular economy will reduce the need to exchange fiat for cryptocurrencies. Bitcoin’s vision of the future is not utopian. It is simply looking back at the past decade of adoption and noting that Bitcoin has only improved in its fundamental properties. This allows it to project for continued growth. Pierre Rochard contributed this guest post. Perhaps, the biggest obstacle to Bitcoin’s adoption is a lack of understanding by people about what Bitcoin is. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.Tagsterms:EthereumcryptoFTXLuna


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