Bitcoin skeptics have a variety of different arguments they use against the world’s most successful cryptocurrency, but nearly all of them can be traced back to one core misunderstanding of why the system was created in the first place.
In short, many skeptics often compare the inefficiencies of Bitcoin’s decentralization to the traditional financial system, which completely misses the point. Yes, traditional banks and credit cards can be cheaper and more user friendly in many scenarios, but Bitcoin was not created to compete with those government-approved options.
Of course, many cryptocurrency proponents have falsely claimed that permissionless blockchains can be used as cheaper, more efficient methods of payment over the years, so the skeptics cannot be blamed too much for pushing back against this argument.
When taking a closer look at the details of why bitcoin was created in the first place, many of the arguments against the cryptocurrency fall apart rather quickly.
From cypherpunk roots
Bitcoin came out of the cypherpunk movement. Cypherpunks build and advocate for the use of encryption and other privacy-enhancing or censorship-resisting technologies, mainly for the purpose of removing the relevance of government-imposed regulations and restrictions. An anonymous ecash, which is the ultimate goal with bitcoin, is a critical aspect of the cypherpunk vision.
Cypherpunks’ influence on Bitcoin creator Satoshi Nakamoto can be seen in his writings. Adam Back and Wei Dai were cited in the Bitcoin whitepaper, and Nakamoto also once referred to Bitcoin as an implementation of Dai’s b-money proposal and cypherpunk Nick Szabo’s Bitgold concept. Back, Dai, and Szabo are all well-known cypherpunks due to their past works. Hal Finney, who received the first ever bitcoin transaction from Satoshi Nakamoto, was also a cypherpunk.
“We the Cypherpunks are dedicated to building anonymous systems. We are defending our privacy with cryptography, with anonymous mail forwarding systems, with digital signatures, and with electronic money,” wrote Eric Hughes in “A Cypherpunk’s Manifesto” back in 1993.
The key ethos of how cypherpunks planned to alter society was found later in Hughes’s manifesto where he discussed how these individuals did not much care whether or not government, institutions, or others approved of the software they wrote. They were going to write privacy-enhancing software for anyone to use, and there was nothing anyone could do about it.
“Our code is free for all to use, worldwide. We don't much care if you don't approve of the software we write. We know that software can't be destroyed and that a widely dispersed system can't be shut down,” wrote Hughes.
The point of Bitcoin as an alternative financial system is that it cannot be shut down. Unlike the gold-backed e-currency systems of the past, such as Egold or Liberty Reserve, the level of decentralization in Bitcoin has proven resilient to government takedown (at least up to this point). The often-used analogy here is that Bitcoin is Bittorrent while Egold and Liberty Reserve were Napster.
Bitcoin effectively enabled a method of storing and transferring value online in a more private, censorship-resistant manner that was not possible before its creation.
Why understanding these roots is important
When you consider that Bitcoin is about making something entirely new rather than improving upon what is already possible, it’s easy to see why so many of the arguments from skeptics don’t make much sense.
For example, Bitcoin’s relatively high transaction costs are less of an issue when you realize the system makes possible transactions that were not possible before it was invented. A high-fee transaction is better than not being able to make that transaction at all.
A recent paper from the Bank for International Settlements (BIS) discussed Bitcoin’s issues with transaction finality due to the use of miners for processing transactions rather than a centralized authority. Again, this misses the point that Bitcoin is about making transactions that cannot be made via the traditional financial system.
Technically speaking, on-chain bitcoin transactions never reach a point of 100 percent finality. The chances of a transaction reversal by an attacker with a large amount of computing power approach zero as more confirmations are received. The problem is even worse if the attacker controls a majority of the hashrate on the network (see this article on transaction irreversibility in Bitcoin).
Having said that, this issue around transaction finality applies to the traditional financial system as well - especially when it comes to the types of transactions that would usually be censored. For example, the finality of transactions involving any type of illicit commerce is rather pointless because authorities may decide to seize funds from a bank account, PayPal, or some other custodial financial service at any point in time.
As a side note, bitcoin transactions also reach a higher degree of finality in a much shorter period of time than services such as Visa, Venmo, or PayPal. Chargebacks can happen months after a transaction has taken place in the legacy financial system, while a bitcoin transaction is generally accepted as safe to accept as final after six confirmations on the blockchain.
There are other perceived issues with bitcoin, such as price volatility or the environmental impact of mining, but again, these don’t much matter to those who desire or need the properties of the money that are inherent to the system. There are many reasons as to why a normal person on the street may not want to use bitcoin to buy their morning coffee, but that doesn’t mean a section of the population that desires privacy and censorship resistance won’t decide to use it.
For those who think bitcoin cannot be money, users of Silk Road, Alphabay, and other darknet markets would like a word. Bitcoin is already money for cypherpunks, no matter how small that community may be. The only question now is whether or not that community will continue to grow over time as the general public becomes more interested in protecting their online sovereignty.
Picture from Pixabay.
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Kyle first used Bitcoin in 2011. By early 2014, researching and writing about Bitcoin had become his full-time occupation. Currently, he contributes regularly to Forbes and CoinJournal. His work has also appeared in Business Insider, VICE Motherboard, Nasdaq, and many other media outlets. Additionally, he provides a daily Bitcoin news recap via a newsletter and YouTube show (audio only version available via SoundCloud), which can be found at kyletorpey.com.