Bitcoin: cutting through the bullshit

When you create an asset that appreciates in price exponentially for a whole decade, you’re going to have plenty of charlatans, no small amount of bullshit, and swathes of market hysteria, all of which you need to cut through.

Bitcoin is no exception. It can be frustrating as a Bitcoin proponent seeing nonsensical arguments being made both for and against the Bitcoin network, every hour of every day.

This article attempts to point out some of the bullshit and the noise that you can safely ignore.

To understand Bitcoin beyond “we can all store value and pay each other”, you have to have a basic understanding of peer-to-peer systems, cryptographic hashing and signing, and game-theory.

I won’t go as far as saying Bitcoin is ‘simple’ to understand, but to demonstrate the core concepts, I recently gave a talk at the JS@PayPal conference demonstrating how you can actually build a Bitcoin-analogue in JavaScript in about 20 minutes. So it’s not that complex.

Here’s the long-form version of that talk. If you’re interested in coding or JavaScript, take a look. The talk explains concepts like creating blocks, signing transactions, and dealing with ‘proof of work’.

This is something you hear a lot. “Blocks are too slow, blocks can’t contain enough transactions, and transactions are too expensive”. There are two main responses to this.

First, the core Bitcoin network is a settlement network, not a payments network.

In a nutshell, this means that Bitcoin at its core is designed to securely settle massive monetary transfers, across the world, with no centralized systems or counterparty risk, in a short amount of time. Centralized systems can take hours or days or even weeks to achieve the same thing. Bitcoin manages full secure settlement in around 10–30 minutes, depending on the level of security you need. And once the funds are settled, they are settled for good.

Secondly, Bitcoin can do payments extremely quickly and cheaply, on the lightning network. If you haven’t tried it, it needs to be seen to be believed.

So Bitcoin has both lightning fast payments, and an extremely secure and reliable settlement layer at its core. Sounds like the best of both worlds to me.

Bitcoin definitely has influential figures:

  • Miners who generate blocks and process transactions
  • Celebrity business figures like Michael Saylor and Elon Musk
  • Thought leaders on Twitter and other social media platforms

At the end of the day though: these are just people. They can share opinions, they can influence the market, but they have no say over the Bitcoin protocol which is what really matters here. Nobody can make decisions about the protocol without a huge consensus. It’s about as democratic as you can get.

This was proven in 2017 when the Bitcoin users won out against the miners and big players, in preventing the SegWit2x hard fork. If you want to learn more there’s an absolutely gripping book on the subject:

My advice: divorce yourself from these leaders, and figure out what you personally like (or dislike) about Bitcoin. You’ll have a much easier time when you disagree with any of them, and you’ll avoid appeals to authority.

Many people believe Bitcoin’s fixed supply, and its fixed supply schedule, give it an edge over traditional assets.

The former benefit (fixed supply) is indisputable. No other asset prior to Bitcoin, whether we’re talking gold, bonds, stocks, or traditional monetary assets, can assert the same attribute. It’s always possible to create more units of stock or discover more gold. Bitcoin on the other hand, we can be confident will only ever have 21 million units. As more people discover this fixed supply and understand its implications, the price of Bitcoin appreciates.

The latter benefit (supply schedule), at least as it pertains to influencing the current market price of Bitcoin, is laughable. I’ve made this argument in more depth in my article below, so I won’t go into too many details. Suffice to say you can not program the price of a monetary asset traded in the free market.

I’m not a mathematician or a statistician, but even as a layman you can spot some incredibly bad takes around the S2F model:

Saifedean Ammous is an extremely prominent figure in the Bitcoin thought-leader space. I follow him, and I’ve learned a whole lot from him; he has helped me immensely in formulating my own thoughts and opinions about Bitcoin.

But (and this is where divorcing yourself from your heroes and leaders is essential):

  • Saying the standard deviation is $40,000 wide and asserting it’s impressive that Bitcoin stays within that range (with a straight face) is puzzling. Especially considering Bitcoin itself right now is priced below $40,000 — so the error band is literally as wide as the entire market cap of the coin.
  • Where does the $100m figure come from here? If you pick an arbitrarily high number, you will get an arbitrarily low probability. Bitcoin is unlikely to hit a $100m market cap for a few decades, in the most optimistic case.
  • Why pick “days in a row”? Why not pick “hours in a row”, or “minutes in a row”? Again — pick an arbitrarily small time unit, and you will get an arbitrarily low probability using this methodology.
  • Bitcoin’s price one day is (in part) a function of Bitcoin’s price the previous day. Treating the price each day as being independent to determine a probability is a concerning approach.

Why care so much if “people are wrong on the internet” about S2F? I wrote a quick thread about this here:

In a nutshell: I think the S2F model does more harm than good, and there are far better reasons to appreciate Bitcoin.

My advice: learn to appreciate Bitcoin for the things which are programmed. That is, its monetary policy, immutability, censorship resistance, inclusivity, and speed. These things are much more important than the S2F ratio.

Bitcoin can certainly appear a bit cultish, with all of the ardent believers and maximalism and so on.

I wrote a quick thread about this:

My argument in a nutshell, is that cults have certain hallmarks: low levels of public information, core ardent believers, influential leader figures, and high financial requirements for entry.

My conclusion is that while Bitcoin looks a little like a cult, you can easily avoid the cultish side of it by thinking for yourself, trusting the protocol, being skeptical of any leader figures, and being critical about anything that smells like bullshit.

Certain people will always try to spin a narrative that benefits them over others. It’s best to ignore these people.

The Bitcoin energy debate has been fielded and rebutted by others much more comprehensively than I could attempt. For example:

The thing I frequently notice is, most people do not normally fight against the energy usage of things they actually find useful. Including electric cars, washing machines, or servers powering the internet.

That leads me to believe that people complaining about Bitcoin’s energy usage haven’t even crossed the first hurdle: they don’t yet understand why Bitcoin has value or purpose, so they jump straight to attacking the energy usage.

Bitcoin’s energy usage does have a critical purpose. It is the security and the firewall around the asset — an asset that has grown to a trillion dollars and beyond. Bitcoin does so in a way that is fair, giving everyone equal access to the network, all whilst protecting everyone’s assets and ensuring fair distribution of new coins.

What this tells me is: as a community we need to focus less on what people use energy for, and more about how we source the energy in the first place. People tend to use energy for activities that they believe provide value, and demonizing those things will end up alienating people and giving diminishing returns. We need to focus more on how we actually generate energy. Nuclear power, renewables — hell, even volcano power will do the trick.

Plenty of leading figures in the Bitcoin space argue that Bitcoin is the only way forward, and any other altcoins or “shitcoins” don’t even need to be considered or thought about.

I think this can be a dangerous line of thinking. The Bitcoin protocol has been upgraded plenty of times in the past (look at SegWit, or Taproot), and while attributes like the monetary policy are immutable by necessity, there are real technological and protocol upgrades that do make sense for Bitcoin.

Keeping an eye on innovations in the alt-coin space and considering them is no bad thing, even if many of those ideas are ruled out as being inappropriate for Bitcoin. It would be nice to see the community thoroughly talk through proposed changes before ruling them out.

Of course any changes to Bitcoin need to be slow, carefully considered, and fully democratic. It is that slow conservatism that gives people faith in the stability of the network. Rushed, top-down changes like SegWit2X are obviously a bad thing, and it is good that the community has a strong immune system against proposals like this.

Sure, Bitcoin is “just data”, and it is kinda weird buying units of Bitcoin in a virtual database in the ether.

But here’s the thing: money is also “just data”. You don’t need to be able to see it, or touch it, or hold it, for it to be real. In fact, it’s arguably better that you can’t hold it or touch it, since that way it’s easy to transport at the speed of light across the world, and prove ownership without resorting to physical possession. Try doing the same with gold.

The question then becomes, who do want to have control over that data? Central governments, who can change it, add to it, or take it away? Or the community at large?

Bitcoin’s answer to this question is “everyone owns it”. The protocol is as decentralized as it’s possible to get, there is no trust required, and there are no central authorities. That kind of system is only possible when you design it around data rather than physical goods.

Every time you read something about Bitcoin, you might be tempted to ask:

But how will this affect the price?

Instead, ask:

Is this actually true?

The truth will set you free.

works for PayPal, as a lead engineer in Checkout. Opinions expressed herein belong to him and not his employer. daniel@bluesuncorp.co.uk