Earlier this week, coins.fyi writer Cole South posted about why he no longer HODLs bitcoin which generated animations Twitter chat. So it seemed important to quickly present some of South’s arguments from a Bitcoiner perspective. Of course, I don’t expect to change South’s mind and redeem him, but I think an answer is worth it so viewers can understand the difference in mindset. The text of South will be quoted entirely.
“Productive Assets vs Pet Rock Assets
In general, I try to own assets that have real demand/utility/cash flow to end users rather than ones that are strictly dependent on market supply and demand. »
I think it’s a category mistake. I consider bitcoin in a separate category from, say, stocks, bonds, or physical real estate. They pay dividends, coupons and rental income, when bitcoin should be valued on its qualities like money. I view bitcoin as possessing monetary qualities that make it a superior currency, in terms of scarcity, transportability, and durability.
Viewing bitcoin as an “unproductive asset” is a misframe, as we really need to think about what we are holding money for after all. For example, in “’The Yield From Money Held’ Reconsidered” by Hans-Hermann Hoppe, the point is made that holding money allows us to reduce future uncertainty. Money itself is not supposed to have a “yield”, but that does not preclude lending under a full bank reserve standard.
South acknowledges some of that here:
“Bitcoin has done a great job winning the ‘digital gold’/store of value asset class.”
But I would say that doesn’t give bitcoin enough credence, because replacing cash plus some of the world’s stores of current value (bonds, stocks, property) gives it a huge potential market. Even with “back of the envelope” numbers, we would be talking about $120 trillion in global fiat, divided by 21 million coins, for a value of about $6 million per BTC. Colloquially speaking, once we add that bitcoin could “suck some of the value” out of bonds, stocks, and even property around the world, we’re talking even more than that $6 million per BTC number.
By thinking in terms of expected value and bets, you assess the likelihood of that outcome and then buy an amount of bitcoins accordingly.
“Bitcoin will face serious security and decentralization issues
“The block reward earned by miners securing the Bitcoin network is halved every 4 years. By 2140, there won’t be any block rewards at all… But it’s becoming more entrenched in “there are and there will only ever be 21 million Bitcoins” with such a resilient community. change. Without modest inflation or a huge shift in attitude towards real-world Bitcoin transactions, it’s hard to see how Bitcoin can maintain security and decentralization.
Bitcoin is still young in its overall life and adoption. The point where 99% of the coins have been mined will occur around 2035, which is still about 13 years away. My opinion is that since bitcoin represents a better currency, the demand to own it will increase rapidly during this period, especially in a world where people need a way to protect themselves from rapidly inflating fiat currency. . The overall subsidy in terms of fiat value will continue to increase, and on-chain transactions paying miner fees are expected to increase over time.
Once people have a bitcoin balance, then it will be more natural to spend and receive bitcoins natively. And of course, there are individuals today who live on bitcoin and transact regularly, whether they participate in CoinJoins, open and close lightning channels, use bitcoin for voucher sites, or directly buy things with bitcoin. .
“ESG concerns are going to be tough to shake for Bitcoin”
It’s worth pointing out that much of this is due to shitcoin-sponsored attacks, such as Ripple co-founder and executive chairman Chris Larsen openly sponsoring Greenpeace USA and EWG with $5 million to push a “change the game” campaign. coded”. Or the post of the World Economic Forum on ESG with the collaboration of Andreesen Horowitz, CoinDeskthe Ethereum Foundation, Ripple, and the Stellar Development Foundation – all of which are shitcoins or have ties to shitcoins.
“Ethereum, on the other hand, has a very clear answer to this problem: they are moving from proof-of-work to proof-of-stake”
The problem is that proof of stake is just not secure. It is a political system, not a technical answer to the question of how a network can remain decentralized and consensual. I discussed with Gigi in a recent episode of my podcast why this is the case. Also, I would highly recommend Gigi’s thread here: “An inability to understand proof of work is an inability to understand Bitcoin.”
“No matter how clean Bitcoin gets or how inaccurate/unfair the environmental concerns are, I think it’s going to continue to have a VERY hard time shaking off this criticism.”
Maybe, but even here it will impact Bitcoiners but not the Bitcoin network. Crazy jurisdictions that don’t see the meaning will lose to the better ones that do. Perhaps there is a pendulum aspect to this, with rich countries believing that socialism can work and increasingly supporting crazy policies like “net zero” and massive social statism. Even within the United States, we can see a markedly different treatment of Bitcoin mining when comparing, for example, New York State to Texas. Not to mention the idea that even despite China’s big mining ban in 2021, there are underground/pirate mining operations in China, with probably 5% to 16% of the global hash rate still coming from China.
“The Bitcoin community is not pro-capitalism”
Certainly not ! Bitcoiners on the whole are quite pro-capitalism. The distinction is more about being antagonistic towards scammers and scammers in space. It is especially worse when the trade-offs or risks are hidden by altcoin creators and promoters in the name of boosting their projects.
“Bitcoiners have generally been hostile to new tokens and anything that generates wealth for a builder…”
Here, I think there is confusion going on. People confuse things as if “you shouldn’t criticize people who build”, when in reality those people might just be building scams or scams of highly questionable value. They might create a token when there really isn’t enough justification to create a floating token.
They could create paid products and services, or they could issue stocks or debt securities. Instead, token pumping allows a flawed venture capital model to achieve faster “liquidity events,” allowing insiders to profit at the expense of uninformed or uninitiated retail users.
“We know how it ends: innovation, progress and economic rewards end with the capitalists.”
Entrepreneurs, investors, and employees of bitcoin companies (and community and open source contributors) are innovating, but in the hardest and most honest way. They usually don’t have the luxury of operating in overfunded businesses and environments.
“Bitcoiners have been incredibly resistant to change…”
On some things this is a feature, not a bug. Bitcoin should be considered a monetary technology. The technological part is important, but the financial part is undoubtedly most important. It is about the creation of a new currency that combines the notion that gold is salable over time, with a fiat currency that is salable over space.
“If BTC added modern smart contracts and had a long-term inflation plan to secure the network, I think it could catch up in the technology arms race.”
As mentioned above, some Bitcoiners view “smart contracts” as unnecessary. Like my friend Bitstein says “dayenu” or “that would have been enough”. That is, it is enough that Bitcoin brought the world a non-state, non-trade and non-individual controlled rare currency.
Other Bitcoiners believe that additional functions can be brought to Bitcoin, but in a more robust way that does not impinge on the ability of HODLers and “money only” Bitcoiners to do what they want to do.
And let’s be clear, Bitcoin already has multi-signature, CLTV (CheckLockTimeVerify) and CSV (CheckSequenceVerify), which are contract capacity types, but less expressive than altcoin contracts. In terms of pathways to new capabilities, there are currently discussions in the community about alliances and what kind of alliances Bitcoiners would accept. This includes various proposals such as CTV or OP_TX.
Generally speaking and in the longer term, Simplicity is an example of a low-level programming language with more flexibility and expressiveness than the current Bitcoin script. That would require a soft fork, but that’s for future debate.
“Historically, a lot of the narrative around Bitcoin has been that it will function as something like an inflation hedge, a bear market hedge, or a currency.”
I don’t see bitcoin as a short-term inflation hedge, rather it’s the foundation layer of a new stock-based financial system. Of course, because it has better monetary qualities, I think it will protect against inflation over longer time frames, typically four years or more.
“If I’m going to own a crypto asset and the market puts it in this bucket, I want to own the one that’s more like a tech company with innovation and end-user demand (ETH, not BTC).”
I prefer to hold what I believe will become money. Also, one that looks like a tech company can hardly claim to be very well decentralized.
Same Vitalik Buterin now expresses concern and desire to see Ethereum become more like Bitcoin. Ethereum’s high complexity and technical debt make it difficult to maintain its veil of decentralization.
Bitcoin-style development and advancement is much more “bottom-up,” with significant changes requiring agreement from the “lawless mob” Bitcoiner. The ecosystem generally favors testing in low-pressure environments such as sidechains, testnet/regtest/bookmark, and proves things with incremental real-world experience.
Are you sure you’re headed in the right direction, Cole?
This is a guest post by Stephan Livera. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.