With the price of Bitcoin racing to all-time highs, crashing back down, and then eclipsing new all-time highs again in the past 12 months, we have seen huge amounts of questionable claims about Bitcoin arise. Let’s take a deeper dive into some of the most common negative claims regarding Bitcoin over the past year.
Claim #1: Bitcoin is bad for the environment
Luckily, this claim has become easier to debunk over the past twelve months as energy producers realize the power of Bitcoin to improve the world’s energy situation. Bitcoin miners face a constant, long-term downward pressure to reduce energy costs as a result of the halving cycle and difficulty adjustment. The halving cycle reduces a miner’s revenue by half every four years, and, due to the difficulty adjustment, each net new miner that comes online also reduces a miner’s revenue. In other words, in order for a miner to maintain its current profit margins over the long haul, it must reduce its cost of energy as time goes on. This is leading miners to seek out cheaper sources of energy ranging from wasted energy (e.g. flared gas or excess grid capacity) to ‘green’ energy (e.g. nuclear). Thus, Bitcoin miners will continue to lead the charge in reducing global energy costs and driving energy innovation towards the most efficient sources of energy on earth.
Claim #2: Bitcoin is the MySpace of cryptocurrencies
This claim essentially says that Bitcoin is old technology and is bound to be unseated by better cryptocurrencies in the long run. There are two critical flaws with this argument. First, Bitcoin is an open network. MySpace, on the other hand, was a company with a CEO and a limited set of employees. Bitcoin has no CEO, but, as an open network, it has people across the globe using it, educating about it, and building on it 24/7/365. Another company could not simply download MySpace’s code and build a globally accessible application for it as they can with Bitcoin. As an open protocol, Bitcoin’s network effect is far more difficult to unseat than that of MySpace, simply because Bitcoin never sleeps.
Second, despite what companies using the hot industry buzzwords may say, the use case of “blockchain technology” is incredibly limited. Simply put, a blockchain is a distributed, trust-minimized ledger that allows for people across the world to agree upon the status of the ledger–in other words: who owns what when. With Bitcoin, anyone on earth can easily see who (Bitcoin address) owns what (amount of Bitcoin) when (as of which block). Blockchains touting faster transactions per second or more programmability fail to mention the tradeoff they are making: more centralization. In short, more data on the blockchain makes it more expensive for users to validate that the rules are being followed. Fewer users validating that the rules are being followed inevitably leads to a small group of people or companies that must be trusted, ultimately moving the blockchain of other cryptocurrencies away from its entire purpose: a distributed, trust-minimized ledger.
Claim #3: Governments will shut Bitcoin down
Fear of government bans or shutdowns of Bitcoin is probably the most common fear for people new to the space. While governments do have a huge amount of power at their disposal, killing a decentralized open protocol like Bitcoin would be incredibly difficult if not practically impossible at this point. An attempt to kill Bitcoin would require governments across the world to band together in secret in order to attack or co-opt it, all without the Bitcoin community realizing it. But even if an attack like this occurred, Bitcoin’s open-source nature means that as long as someone, somewhere is running the Bitcoin code, Bitcoin lives on.
Additionally, governments are composed of individuals who have incentives to adopt it rather than banning it. We are seeing this play out in real-time as mayors and smaller nation-states choose to embrace Bitcoin rather than fight it. This has been playing out over the past year, as one country (China) banned mining within its borders, while a smaller country (El Salvador) embraced Bitcoin as legal tender. From a game-theoretic perspective, one country’s ban is another country’s opportunity. As Bitcoin becomes more mainstream and distributed across the population, a large-scale Bitcoin ban would eventually require politicians choosing to ban something that they themselves own. When the financial incentives of the government clash with the financial incentives of the individuals running the government and their constituents, we should expect the individual incentives to win out.