Earlier this week, coin.fyi author Cole South published a post that created some animations on why he no longer HODLed bitcoin. twitter discussion. Therefore, it seemed important to quickly review some of Güney’s arguments from a Bitcoiner perspective. Of course, I don’t expect South to change his mind and get him to agree again, but I do believe a response is valuable so that audiences can understand the difference in mindsets. South’s text will be in block quotes throughout.
“Productive assets vs Pet rock assets
In general, I try to have assets with real end-user demand/benefit/cash flow rather than those that are closely tied to market supply and demand.”
I think this is a category error. I see Bitcoin in a separate category from stocks, bonds or physical real estate. They pay dividends, coupons and rental income, whereas bitcoin should be valued according to its qualities. as money. I see Bitcoin as having monetary qualities that make it a superior money in terms of things like scarcity, portability, and durability.
It’s the wrong framework to view Bitcoin as an “inefficient asset” because we really need to think about why we’re holding money. For example, in Hans-Hermann Hoppe’s “The Return on the Held Money” Reconsidered, the point is that holding money allows us to reduce future uncertainty. It is not intended to be a “yield” of money itself, but that does not preclude lending under a full reserve banking standard.
South acknowledges some of that here:
“Bitcoin did a great job winning the ‘digital gold’/store of value asset class.”
But I’d say that doesn’t give bitcoin enough credit, because replacing money plus some of the world’s current stores of value (bonds, stocks, properties) gives it a huge potential market. Even with the “back of the envelope” numbers, we are talking about a global fiat of $120 trillion divided into 21 million coins for a value of about $6 million per BTC. Colloquially, we’re talking even higher than that $6 million per BTC number when we add that bitcoin can “absorb some of the value” from bonds, stocks, and even property around the world.
Thinking in terms of expected value and bets, you evaluate the probability of this outcome and then buy some 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. There will be no block rewards until 2140… But with a community that is very resistant to change, he’s becoming more and more entrenched in “21 million Bitcoins exist and there just always will be”. Without modest inflation or a major reversal in attitude towards actually transacting with Bitcoin, it is difficult to see how Bitcoin can maintain security and decentralization.”
Bitcoin is still young in its overall lifespan and adoption. The point at which 99% of the coins are mined will occur sometime around 2035, which is about 13 years from now. In my view, since bitcoin represents better money, the demand for owning it will increase rapidly, especially in a world where people need a way to free themselves from the rapidly inflating fiat currency. Block subsidy in terms of fiat value will continue to increase, and on-chain transactions that pay miner fees will increase over time.
Once again one has a bitcoin balance, it will naturally be more natural to spend and receive bitcoins. And of course, there are individuals today who live on bitcoin and trade regularly, whether they join CoinJoins, turn Lightning channels on and off, use bitcoin for coupon sites, or buy things directly with bitcoin.
“ESG concerns will be hard to shake for Bitcoin”
It’s worth noting that much of this is due to crap coin-backed attacks like Ripple Co-Founder and Chairman Chris Larsen, who openly sponsors Greenpeace USA and the EWG to force a “change the code” campaign. Or a World Economic Forum post on ESG in collaboration with people like Andreesen Horowitz, CoinDeskThe Ethereum Foundation, Ripple, and the Stellar Development Foundation – all have shit money or shit money ties.
“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 simply insecure. This is a political system, not a technical answer to the question of how a network can remain decentralized and consensus. I discussed with Gigi why this is the case in the last episode of my podcast. Also, I highly recommend Gigi’s thread here: “Failure to understand proof of work is failure to understand Bitcoin.”
“No matter how clean Bitcoin is or how wrong/unjustified the environmental concerns are, I think it will continue to have a VERY hard time swaying this criticism.”
Maybe, but even here, it will affect Bitcoiners, but not the Bitcoin network. Crazy jurisdictions that don’t see logic will lose to the better ones that do. Perhaps there is a pendulum-swinging aspect to this, rich countries believing that socialism can work and increasingly supporting crazy policies like “net zero” and great welfare statism. Even within the US, we can see that Bitcoin mining is treated distinctly differently, for example when comparing New York State to Texas. Not to mention the idea that there are underground/pirate mining operations in China despite the massive Chinese mining ban in 2021. an estimated 5% to 16% of the global hash rate still comes from China.
“Bitcoin community is not pro-capitalist”
No way! Bitcoiners are generally quite supportive of capitalism. The difference has to do with being hostile to crooks and scammers in outer space. It is especially worse when swaps or risks are concealed by altcoin creators and supporters to stimulate their projects.
“Bitcoiners have generally been hostile towards new tokens and anything that creates wealth for a builder…”
I think there’s a conflation going on here. People conflate things like “you shouldn’t criticize the people who build it” when in reality these people are just building scams or scams of extremely dubious value. They may be creating a token when there is really insufficient justification for creating a free-floating token.
They can create products and services that charge a fee, or they can issue equity or lending. Instead, pumping tokens allows a broken VC model to get “liquidity events” faster, causing insiders to profit at the expense of uninformed or unintentional retail users.
“We know how that ends up: innovation, progress, and economic rewards end up with capitalists.”
Entrepreneurs, investors, and employees at Bitcoin companies (and community and open source contributors) are innovating, but on a harder and more honest path. They often do not have the luxury of operating in overfunded companies and environments.
“Bitcoiners have been incredibly resistant to change…”
In some things it’s a feature, not a bug. Bitcoin should be seen as a money technology. The technology part is important, but the money part is debatable. more important. This is the creation of a new currency that combines the concept of gold’s tradability over time with a space-tradable fiat currency.
“I think if BTC adds modern smart contracts and has a long-term inflation plan to secure the network, it can catch up with the technological arms race.”
As mentioned above, some Bitcoin users consider “smart contracts” unnecessary. As my friend bitstein He says “dayenu” or “it would be enough”. That is, it is sufficient for Bitcoin to bring a non-state, non-commercial, non-individually controlled scarce money to the world.
Other Bitcoin users believe that additional functionality can be brought to Bitcoin, but in more robust ways that do not violate 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 contract capability types, CLTV (CheckLockTimeVerify) and CSV (CheckSequenceVerify), but makes less sense than altcoin contract. In terms of pathways to more capacity, there is currently debate in the community about contracts and what kind of contracts Bitcoiners will accept. This includes various offers such as CTV or OP_TX.
Broadly and long-term, Simplicity is an example of a low-level programming language with more flexibility and relevance than today’s Bitcoin Script. It requires a soft fork, but that’s for a future discussion.
“Historically most of the narratives around Bitcoin were that it would perform as an inflation hedge, bear market hedge, or something like currency.”
I don’t see Bitcoin as a short-term inflation hedge, really more like the base layer of a new equity-based financial system. Of course, because it has better monetary qualities, I believe it will protect against inflation on longer timescales, usually four years or more.
“If I’m going to own a crypto-asset and the market is putting it in this bucket, I want to have someone more like a tech company (ETH, not BTC) with innovation and end-user demand.”
I prefer to keep what I believe will be money. Also, a company that looks like a tech company cannot claim to be decentralized very well.
Mistake Vitalik Buterin is now voicing his concerns and desire to see Ethereum become more Bitcoin-like.. Ethereum’s immense complexity and technical debt make it difficult to maintain the veil of decentralization.
Bitcoin-style development and progress is much more “bottom-up” with significant changes requiring a deal with the Bitcoiner “anarchic mafia”. Ecosystem often prefers to test in low pressure environments like sidechains, testnet/regtest/signet and prove things with real world incremental experience.
Are you sure you’re going in the right direction, Cole?
This is a guest post by Stephan Livera. The opinions expressed are their own and are not their own and BTC Inc. or Bitcoin Magazine.