Since 2013, when my interest in Bitcoin started, I have read articles written against Bitcoin and Crypto. I was naive in thinking that the success of Bitcoin would have made this type of articles disappear, and their writers move on other topics. It did not happen. On the contrary, new types of slanders appeared.
On July 6 2019 this article by the Italian newspaper La Repubblica was published. It has two characteritics: it sums up many silly criticisms (that are widely known by now) and it is very recent. I use it as a reference to talk about those arguments and how they look impulsive rather than rational, written for non-experts by non-experts (so it does not matter who wrote them).
- First point: “Bitcoin… does not have any underlying asset. ” I keep reading this observation in many variations. Donald Trump also tweeted that Bitcoin’s value is based on thin air, the general idea being that Bitcoin is actually nothing. Too bad that Bitcoin provides the mathematical certainty that a quantity can be transferred from user A to user B, worldwide, 24/7. This makes it a unique and independent asset, and this is the main strenght of Bitcoin.
But I am hearing voices from down the hall asking “Why does it have a value?”, “Who’s profiting?”. Indeed the article follows asking if - Second point: “Bitcoin works similarly to a pyramidal scheme“. The thesis here is that who buys Bitcoin will profit only if a new buyer enters the market, buying at a higher price. Then the author adds an imaginative reconstruction applied to Bitcoin: the majority of virtual currencies belong to few individuals who probably have created the whole scheme.
Here there is a false sillogism: something is a fraud if someone wants to profit on it. I mean, sure there is plenty of frauds. But really, who is going to investing in something willing to lose money on it? To look for profit is not, in itself, fraudulent, and it is at the base of capitalism. I can hear screams coming out the frigging walls, but what I mean is clear.
Then other two false steps. Firstly, thinking that those inventing Bitcoin wanted to create a fraud. It is like thinking that cars have been invented for selling iron and rubber at a high price, or that Tesla wanted to create the lobby of electricians. More than that, those individuals would have foreseen the price growth. Satoshi Nakomoto would be an unphatomable genius in Computer Science and Finance, but devoted to cheap scams. Secondly, the author trivializes markets driven by demand and supply. Adam Smith docet, this is a unique source of knowledge we have for assets. If Bitcoin has a value on a a free market, that must be taken as a fact. Thinking that its price holds because of a conspiracy fits a Flat Earth forum, or at least should be based on strong data. - Third point: “to sustain costs, miners must sell earned Bitcoins and thuse need a constant influx of new buyers… eventually Bitcoin is going to fail.”
I do not think anybody can foresee the future, but I would like to maybe indulge on the possibility that Bitcoin will be really used, and this use will be paid by its users, in the same way for credit cards. But here I succumb in the tautology: it is certainly true that a system works for as long as it is used and that will fail in the moment nobody uses it. - The fourth point is about its address distribution: “less than 2000 entities hold about 42% of Bitcoins”. This analysis is probably too simple, because I am not sure exchanges were taken in account and the pyramid may be different from what is imagined by the author. Anyway, let us recall that just 1% of families in the United States hold 40% of the country’s total wealth. I do not know if this is good or bad, but surely it does not determine a pyramidal scheme, unless we start considering national currencies as big, fat, Ponzi schemes.
- The fifth point is not a presented argument, but those absent, those things which are always present in pyramidal schemes and that really define them: arcane interests paid without taking any risk, the need to look for new people entering the scheme, earnings that depend on the time you entered the scheme, the system’s opacity (whereas Bitcoin are pseudonymous). I mean, how can Bitcoin looks like a Ponzi scheme as the one played by Bernie Madoff?
Summing up, the article tries to be very specific while, at the same time, providing just misinformation. I hope readers will stop paying for stuff like this, but I will not rest my hopes there.