Debunking the Most Popular Bitcoin Myths
By David St-Onge about 1 month
David St-Onge, the author of the new Bitcoin book written in French, Tout sur Bitcoin (Everything on Bitcoin), and a good friend of the Veriphi team is collaborating with us on this Blog Post.
He watched attentively the B Word Conference that was held virtually on the 21st of July 2021 and has taken notes in a bullet point format of every presentation (except the discussion between Elon Musk, Jack Dorsey and Cathie Wood).
The 5 topics addressed in this article are :
- Debunking "Bitcoin Wastes Energy" by Nic Carter
- Debunking "Bitcoin Facilitates Criminal Activity" by Philips Gradwell
- Debunking "Bitcoin is Unscalable" by Arjun Balaji
- Debunking "Bitcoin Ownership is Concentrated" by Nate Maddrey
- Debunking "Bitcoin Can Be Displaced Easily" by Lyn Alden
Make sure to bookmark this article so you can send it to all of your friends that bring up popular but debunked myths and theories.
Debunking "Bitcoin Wastes Energy" by Nic Carter
- As a neutral, global monetary network, Bitcoin has a valid claim on some of society’s resources.
- It provides a utility to tens of millions of people.
- You have to acknowledge the validity of this network to reason about the cost.
- Bitcoin consumes energy to fairly and without intermediaries distribute units of a commodity to the world. (POW)
- Because miners have to incur this cost, they are not able to extract seigniorage from their position of monetary issuer.
- Bitcoin’s security and reliability derives from Proof of Work.
- The costliness of the ledger is what links this digital system to the physical world. There are actual physical costs associated with creating new ledger entries.
- Why can’t we just strip the POW out of Bitcoin and insert a system like POS ? If you were to do that, you would create influence proportional to the number of coins held. In the case of Bitcoin, that would give effective control of the system to the large custodian exchanges that control lots of coins on behalf of users.
- Bitcoin can scale up the number of transactions or the value of transactions without having a proportional effect on the amount of energy the miners are consuming.
- Most of the energy outlay in Bitcoin is the function of the initial creation of bitcoins.
- Bitcoin energy spend is 12x smaller than always-on electrical devices in U.S. households
- Bitcoin energy spend is 15x less than global electricity lost in transit every year
- Domestic tumble dries (1.6x BTC)
- Gold mining & production (3.4x BTC)
- This is the mark of civilizational progress. Obtaining more energy and then put it to uses that make our life better.
- Bitcoin is location-independent and can use excess hydro and otherwise-flared natural gas.
Debunking "Bitcoin Facilitates Criminal Activity" by Philips Gradwell
- Bitcoin due to its public blockchain brings unprecedented transparency to economic activity.
- Due to that transparency, criminal activity on Bitcoin can be measured.
- The data shows that illicit entities accounted for just 2% of all economic activities in 2020. A figure that just can’t be calculated for fiat.
- Bitcoin transparency also means that criminal activity can be traced and stopped.
- Due to its transparency, Bitcoin has good if not better ways of combating criminal activity than fiat.
Debunking "Bitcoin is Unscalable" by Arjun Balaji
- Bitcoin -> 4-7 transactions per seconds.
- Visa -> about 24 000 transactions per seconds.
- Why can’t we just multiply the constants ? Because base layer scalability is a tradeoff.
- Making blocks 10 times bigger would likely make it prohibitive for ordinary users to use Bitcoin without trusting an intermediary.
- One does not simply scale Bitcoin by multiplying the constants (meme).
- Bitcoin is a settlement network which scales like an onion, in “layers”.
- Virtually all paiements networks scale in layers.
- Layer 2 -> scale settlement assurances with deferred settlement, ultimately secured by the base layer.
- Sidechains -> scale settlement assurances by pegging BTC onto another chain that is independently secure.
- Bitcoin banks -> scale settlement assurances using financial intermediaries, can extend Bitcoin’s base capabilities.
Debunking "Bitcoin Ownership is Concentrated" by Nate Maddrey
- While it is technically true that 99% of current bitcoin supply is held by only 10% of BTC addresses, this is misleading because it implies that the supply is controlled by individuals or a few large holders while in reality this is not necessarily the case.
- Bitcoin supply data is completely public and verifiable
- An address isn’t necessarily an individual. An address can represent many individuals. An individual can own many addresses
- About 9% of total supply is held on exchanges. 5 of the 10 largest BTC addresses belong to exchanges.
- Exchanges can hold BTC on behalf of thousands of customers.
- 12% of total supply is held by dormant OG addresses that have been inactive since 2012 or earlier. We typically consider this BTC lost.
- Investment Products: Grayscale’s Bitcoin Trust holds almost 3.5% of total supply. Other ETFs and Trusts hold 1.12%. Over 1% of the supply is wrapped for usage on Ethereum.
- Small addresses: out of the 38 million BTC addresses that hold balance, about 5.8 million hold less than 1$ worth of BTC. These smaller addresses that do not represent individuals makes it looks like the supply is concentrated at the top.
- It can be tempting to compare BTC supply distribution to U.S. wealth distribution but it’s not a like-to-like comparison, since so many BTC addresses do not represent individuals.
- Bitcoin was designed to have fair, transparent supply issuance.
- Natural distribution: Miners need to sell some of their BTC to cover their costs. When the first exchange launched in July 2010, supply started getting more distributed.
- Despite misleading headlines, Bitcoin has a unique, fair, issuance mechanism, which has led to supply getting more distributed over time.
Debunking "Bitcoin Can Be Displaced Easily" by Lyn Alden
- The success of a cryptocurrency relies on its network effect.
- The stronger the network effect, the better the security and development it enjoys, resulting in an entrenched advantage.
- Bitcoin irreplaceable attributes: Security, scale and decentralization.
- Bitcoin has orders of magnitude more security (hashrate) compared to some of it’s copies.
- You can copy all Wikipedia content and host it yourself but there is almost no chance that you would get the traffic Wikipedia has. You would be unable to replicate the millions of links pointing to Wikipedia.
- Bitcoin is very simple on it’s base layer. That gives you less attack surfaces, fewer risks for bugs. Additional complexity that the ecosystem might want can be built on top of it.
- When you hear about a blockchain that offers more capability on the base layer or that has more transactions throughput, ask yourself, what are the tradeoffs that that blockchain is making.
- Bitcoin has the largest capitalization, over 100 millions users (estimated).
- If that number is correct, Bitcoin has so far reached a higher level of adoption than the Internet did by this point in his life cycle.
- Bitcoin is the fastest asset to touch a 1 trillion market capitalization.
- It has one of the largest overall networks in the blockchain space (Companies focusing on Bitcoin). Bitcoin development network is very very big.
- Bitcoin is more like a protocol: TCP/IP, USB, etc
- Protocols tend to be very long lasting when they achieve a certain critical mass. That acceptance is what makes them valuable.
- The Internet changes very rapidly but the underlying foundation (TCP/IP) is actually rather static. Bitcoin in many ways is adopting that approach where the base layer is this purposely simple robust platform for storing and transmitting value and then all this other complexity can be added to it on top of it or alongside it.
- If you were to come along and say “I have made a better protocol”, you have to ask yourself, what is the chance that your protocol could catch on when those other protocols already have billions of users.
- When you look at a competing blockchain, you have to ask yourself, between the nodes, the miners and the developers, who has the primary amount of control. In Bitcoin, because nodes by design are easy to run, that means that a very large number of people will store the full node and therefore if miners conspire to change something about the blockchain, their ability to get past that full node network is limited.
- Other blockchains make their base layer far more complex and very hard for users to run their own full node, basically centralizing the power more in the hands of the miners or the developers. It becomes more of a company-like system rather than a decentralized protocol.
- Part of what makes Bitcoin successful is that by keeping the base layer simple by keeping the nodes small and easy to operate, is achieving a level of decentralization that is very hard for other blockchain to replicate. All the features that they are adding are also adding complexity to that process of running your own full node.
Bitcoin vs Myspace
Bitcoin: Reached a 1 trillion market cap and is still leading after 13 years.
Myspace: Topped out at 12 billion market cap 5 into existence and quickly fell to competition.
Bitcoin: Came after Bit Gold, Hash Cash and B-money, it’s not the first one to do what it’s done. It’s the first one that put enough pieces together to achieve a wide success.
Bitcoin: Bitcoin followed the “protocol path”
Myspace: Myspace followed the “company path”
Bitcoin: Optimize well for its objective
Myspace: Failed to optimize for its objective, for example they were slow to incorporate mobile.
- The fact that there are not that many features on the base layer is by design and so it’s not being surpassed in terms of technology by other protocols, it’s not being overcome by later developments, because everyones of those developments comes with tradeoffs.
- Part of Bitcoin success in addition to being a well designed protocol is the path dependent. It is very hard to replicate Bitcoin's unique path dependence at this point. Bitcoin was made by a creator that left the ecosystem.
- It’s impossible to replicate Bitcoin’s origins at this point.
- Most cryptocurrencies more closely resemble a company than a protocol.