Earlier this week, coins.fyi writer Cole South posted a mail on why bitcoin no longer HODLs which spawned some animated Twitter discussion. Therefore, it seemed important to provide a quick tour of some of South’s arguments from a Bitcoiner’s perspective. Of course, I don’t hope to change South’s mind and make him buy again, but I think it’s worth an answer so viewers can understand the difference in mindset. The text of South will be enclosed in block quotes at all times.
“Productive assets vs Pet rock assets
In general, I try to own assets that have real end-user demand/utility/cash flow on which they are strictly dependent on market supply and demand.”
I think this is a category error. I see bitcoin in a separate category from, say, stocks, bonds, or physical real estate. They pay dividends, coupons, and rental income, while Bitcoin needs to be evaluated for its qualities. like money. I believe that Bitcoin possesses monetary qualities that make it superior money, in terms of scarcity, portability, and durability.
Viewing bitcoin as a “non-performing asset” is an incorrect framework because, after all, we have to think about why we have money. for example in “‘The Return on Retained Money’ Reconsidered” by Hans-Hermann Hoppe, the point made is that having money allows us to reduce future uncertainty. The money itself is not meant to have a “yield”, but this does not prevent it from being lent under a fully reserve banking standard.
South acknowledges some of this here:
“Bitcoin has done a great job of winning the ‘digital gold’/store of value asset class.”
But I would argue that this does not give Bitcoin enough credit, as replacing money plus some of the world’s current stores of value (bonds, stocks, property) gives it a huge potential market. Even with the “back of the envelope” numbers, we’d be talking about around $120 trillion in global fiat, divided by 21 million coins, worth around $6 million per BTC. Colloquially speaking, once we add that Bitcoin could “suck up some of the value” of bonds, stocks, and even property around the world, we’re talking even more than this $6 million per BTC number.
Thinking in terms of expected value and stakes, I would rate the probability of this outcome and then buy a number of bitcoins accordingly.
“Bitcoin will face serious security and decentralization issues
“The block reward earned by miners who secure the Bitcoin network is halved every 4 years. By 2140, there will be no block rewards at all… But it’s getting more and more entrenched in ‘there are and will only be 21 million Bitcoins’ with a community that is so resistant to change. Without modest inflation or a big shift in attitudes toward actual Bitcoin transactions, it’s hard to see how Bitcoin can maintain security and decentralization.”
Bitcoin is still young in its life and adoption in general. The point where 99% of the coins will have been mined will occur sometime around 2035, which is still about 13 years away. My opinion is that since bitcoin represents better money, the demand to own it will grow rapidly during that time, especially in a world where people need a way to save themselves from rapidly inflating fiat currency. The block subsidy in terms of fiat value will continue to increase, and on-chain transactions that pay miner fees should increase over time.
Once more people have a bitcoin balance, it will become more natural to spend and receive bitcoin natively. And of course there are people today who live on bitcoin and transact regularly, whether it’s participating in CoinJoins, opening and closing Lightning channels, using bitcoin for coupon sites, or buying things directly with bitcoin.
“ESG concerns are going to be hard to shake for Bitcoin”
It’s worth noting that much of this is due to attacks sponsored by shitcoin, such as the co-founder and CEO of Ripple. Chris Larsen openly sponsors Greenpeace USA and EWG with $5 million to push a “change the code” campaign. Or the World Economic Forum publication on ESG with the collaboration of people like Andreesen Horowitz, CoinDeskthe Ethereum Foundation, Ripple, and the Stellar Development Foundation, all being shit coins or having ties to shit coins.
“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 insecure. It is a political system, not a technical answer to the question of how a network can remain decentralized and in consensus. I argued with Gigi in a recent episode from my podcast why this is the case. Also, I highly recommend Gigi’s thread here: “A lack of understanding of proof of work is a lack of understanding of Bitcoin.”
“No matter how clean Bitcoin gets, or how inaccurate/unfair the environmental concerns are, I think it will still have a VERY hard time shaking off this criticism.”
Maybe, but even here it will affect Bitcoiners but not Bitcoin on the network. The crazy jurisdictions that don’t make sense will lose out to the best 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 big welfare statism. Even within the US, we can see a markedly different treatment of Bitcoin mining when comparing, for example, New York State for Texas. Not to mention the idea that, even despite China’s huge mining ban in 2021, there is underground/pirate mining operations in chinawith presumably 5% to 16% of the global hash rate still comes from China.
“The Bitcoin community is not pro-capitalism”
Definitely not! Bitcoiners in general are quite supportive of capitalism. The distinction is more about being antagonistic to the scammers and scammers in the space. It is especially worse when altcoin creators and promoters hide compensation or risks in order to push their projects.
“Bitcoiners have generally been antagonistic towards new tokens and anything that creates wealth for a builder…”
Here I think a merger is happening. People confuse things as “you shouldn’t criticize the people who are building”, when in reality these people could be building scams or scams of very questionable value. They could be creating a token when there really isn’t enough justification to create a float token.
They could create products and services that charge a fee, or they could issue stock or debt. Instead, pumping tokens allows a broken VC model to gain faster “liquidity events”, resulting in insiders profiting at the expense of uninformed or non-inside retail users.
“We know how this ends: innovation, progress and economic rewards end with the capitalists.”
Entrepreneurs, investors, and employees of Bitcoin companies (and open source and community contributors) are innovating, but on the hardest and most honest path. They generally do not have the luxuries of operating in overfunded companies and environments.
“Bitcoiners have been incredibly resistant to change…”
In certain things, this is a feature, not a bug. Bitcoin should be seen as monetary technology. The technology part is important, but the money part is arguably more important. This is the creation of a new money that combines the notion that gold can be sold in time, with fiat currency that can be sold in 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 tech arms race.”
As mentioned above, some Bitcoiners see “smart contracts” as unnecessary. Like my friend Bitstein He says, “dayenu”, or “it would have been enough”. That is, it is enough that Bitcoin brought to the world a non-state, non-corporate, non-individual controlled scarce money.
Other Bitcoiners believe that additional features can be built into Bitcoin, but in more robust ways that do not encroach on the ability of HODLers and “money only” Bitcoiners to do what they want to do.
And let’s be clear, Bitcoin already has multiple signatures, CLTV (CheckLockTimeVerify) and CSV (CheckSequenceVerify), which are types of contracting ability, but less expressive than the ones altcoin contracting has. In terms of paths to increased capacity, there is currently a discussion in the community about covenants and what kind of covenants Bitcoiners would accept. This includes various proposals such as CTVeither OP_TX.
Looking broadly and longer term, Simplicity it is an example of a low-level programming language with more flexibility and expressiveness than the current Bitcoin Script. It would require a soft fork, but that’s for a future discussion.
“Historically, much 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, it’s actually more like the base layer of a new equity-based financial system. Of course, since it has better monetary qualities, I think it will protect against inflation over longer time scales, typically four years or more.
“If I am going to have a crypto asset and the market is putting it in that bucket, I want to have one that is more like a technology company with innovation and end-user demand (ETH, not BTC).”
I’d rather have what I think will turn into money. Also, what looks like a technology company can hardly claim to be very well decentralized.
Even Vitalik Buterin is now expressing his concerns and his desire to see Ethereum become more like Bitcoin.. Ethereum’s sheer 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 “anarchic mob” of Bitcoiner. The ecosystem generally favors testing things in lower pressure environments like sidechains, testnet/regtest/signet, and testing things with incremental real-world experience.
Are you sure you’re on the right track, 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.