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There is a common misconception that many people still believe - that fiat currency and the world's reserve currency, US dollars, are still backed by gold. The removal of gold as the international monetary standard was finalized between 1971 and 1973 Nixon Shock, Smithsonian agreement, etc), but dating back to the Bretton Woods agreement of 1944, gold had already lost much of its reserve status and people could no longer domestically exchange their fiat for gold at local banks.
TLDR, the current financial system has not been backed by any hard asset for some timebased on trust. Trust that your local fiat currency can be valued relative to and be redeemable for a US dollar, and furthermore trust that this ethereal dollar will hold its value and not hyperinflate into nothing over time. If recent times have shown anything, it's that we should all be questioning this trust-based system - particularly the people in control of it.
Party Flappers
Have you ever been at a party, happily flapping your gums, delivering all of your excitement and knowledge about crypto and your favourite coins to whomever will listen. Along comes the FUDster (FUD is ncertainty and oubt)...
"Bitcoin is just magic internet money! It wastes so much energy! Haven't you seen the article in the Guardian? Bitcoin makes the rich richer."
Here are 6 reasons why Bitcoin is king, and why all of this FUD is taken out of context or just plain hogwash. Get your pen and paper ready, here are some notes to help you debate those FUDsters.
TLDR - why Bitcoin?
Bitcoin has a fixed maximum supply that cannot be adjusted by anyone - it is written into the code - remember this number 21 million
It cannot be hyperinflated to 0. The same cannot be said for fiat currencies.
Bitcoin is not run by anyone. All other blockchain systems have a team of developers at their forefront. True decentralization is difficult to obtain and arguably, because all crypto front end is run using web 2 services such as Amazon cloud computing (AWS), none of them are fully decentralized (see Coin Bureau video on decentralization - resource 2)
Some benefits of this so-called censorship-resistant
- No government can take away your coins/tokens - or censor your ability to transact on the network.
- No one can stop you from trading at any time (24/7 baby).
- No one can reverse a transaction, they become immutably logged in the blockchain - the distributed ledger.
See the February 2022 incident between truckers and the Canadian government for further evidence of this censorship resistance.
Satoshi Nakomoto - the pseudonym for the creator of Bitcoin - was originally the only miner on the network. He mined more than 1 million BTC, but since the uptick of miners and network activity, he disconnected from the project completely, never selling a single coin and never to be seen or heard from again. He removed himself from the equation. To reiterate - o one runs Bitcoin. No chance of corruption from the inside, pump-and-dump schemes due to pre-mining. No human error to be overcome, (check the insider allocations of your favourite coins in below).
Bitcoin is a finished product
With the exception of certain add-ons like the lightning network, ION (part of Block's Web 5 Decentralized ID (DID) initiative) and other entities built on top of the BTC network for payments and faster transactions, the core project itself is finished. (Trader University - resource 3).
We live in the era of projects being sold at full price before completion. Cyberpunk 2077, Destiny, ring any bells?
You can cut altcoins some slack, Bitcoin has been around for quite a while longer.
But can you think of any other decentralized project about which the same can be said? Go on I'll give you a minute.
misconception - Bitcoin uses large amounts of energy
The value is around 0.05% of all energy consumed globally. Does that sound like a lot? On the global energy balance sheet, this amounts to a rounding error. This energy is spread across several countries, with the US and Khazakstan currently holding the largest numbers of miners.
What if I told you traditional banking used even more energy and had an even bigger carbon footprint?
Bitcoin mining carbon footprint is below 0.08% of total global emissions. 4 times more than the carbon needed just to create fiat currencies. Less than 1/3 of the carbon emissions of the gold industry. less than 1/3 of the global banking system's carbon emissions. And slightly less than the carbon emissions of all household clothes dryers each year.
Final context - coal burning produces almost all of global carbon emissions at around 76%. Gas and oil are in 2nd and 3rd place with 21% and 3% respectively.
The flexibility of the miners - the reason for these energy requirements - enables them to move around their arsenal of computers and draw energy from a variety of sources, moving to areas where there is an energy surplus (check out Soluna holdings) and where energy is cheapest, usually coming from renewables (solar, wind, tidal etc). This flexibility was evidenced by the rapid redeployment of miners from China in 2021 upon their ban on crypto (just a prediction, lol). Additionally, 1/3 of crypto mining can and is already being done with renewable energy.
However, the proof-of-work system will require a non-zero and increasing amount of energy to secure the network hash rate, until the last BTC is mined. This future trajectory is hard to accurately predict and will likely depend on adoption and the future global energy landscape - i.e. will we kick the dirty carbon sources for good. Please decide for yourselves if the risks outweigh the benefits.
(Coin Bureau Youtube videos - resources 4 and 5. Data from CoinShares report).
Some Reddit posts are linked below for further information on the energy consumption topic (resources 6 and 7).
Yet another misconception, proof-of-work is bad for the environment
The previous point covers why the energy FUD is taken out of context, but what about proof-of-stake?
Cue Ethereum and its upcoming merge to shift to the proof-of-stake validator mechanism. Stake your coins to become a validator.
In reality, proof-of-stake is vulnerable to monopolies. Whoever has the most coins has the most influence.
Large investment bodies, Oligarch's etc (all of your favourite people), will be able to control proof-of-stake entities such as Ethereum if they so choose.
Certain entities have or could have attempted to control Bitcoin:
- Before their recent ban (now reversed?), the majority of Bitcoin miners were in China. This did not give them the ability to control the network.
- Even upon the event of a 51% attack, nodes can reject the blocks, route around these malicious nodes, eventually nullifying the mining instruments by changing the mining algorithm.
- Bitcoin mining is extremely competitive - older machines from 4 years back are no longer around.
- Proof-of-stake is not competitive - the same validators do not have to innovate to stay in control.
(Trader University - resources 8 and 9).
Final misconception. Bitcoin makes the rich richer.
As mentioned above, the proof-of-stake consensus mechanism enables the formation of validator monopolies, making it easier for large bag holders to dominate the network. The rich get richer without having to innovate.
The Bitcoin proof-of-work system has no such flaw, it has been tested time and time again since its inception. It was created as a response to government bailouts of major financial institutions that followed the 2008 financial crisis. Bitcoin does not need to be bailed out (looking at you FTX), in some senses it enables capitalism to become what it was intended to be. Brutal and aggressive innovation, where those that make mistakes will lose out to their competitors.
If the recent (2022 January - June) market crash has shown us anything, it's that major financial institutions and hedge funds alike are also vulnerable to getting burned by crypto market crashes due to black swans, cascading liquidations and their nefarious but necessary counterparts. The system cleanses itself of greed and bad practices that plague the fiat-backed financial system.
Conclusion:
There is so much more to say about the king of all cryptocurrencies, but I will leave you with one final quote by Buckminster Fuller, 1967 (now plastered all over crypto twitter (CT)):
"By 2000 there will be a realistic, scientific accounting system of what wealth is. Wealth is energy." Bitcoin and its corresponding network may be the finest example of the capture of wealth from energy known to man.
Resources:
1. Gold standard - Wiki
2. Coin Bureau (Youtube) - Decentralization: Which Crypto's Aren't Centralized?! Let's Find Out!
3. Trader University (Youtube) - Bitcoin, Web3, and Web5
4. Coin Bureau (Youtube) - FACT CHECK!! Bitcoin Mining Emissions: Why It's FUD!
5. Coin Bureau (Youtube) - FACT CHECK: Bitcoin Mining is BAD For The Climate!?
6. Reddit - Bitcoin (PoW) Mining Energy Consumption
7. Reddit - New York is NOT BANNING Bitcoin Mining. Stop spreading FUD.
8. Trader University (Youtube) - Will BlackRock Take Over Ethereum?
9. Trader University (Youtube) - How Crypto Exchanges Can Steal Your Coins
More Resources:
10. Trader University (Youtube) - What Makes Bitcoin So Special?
11. Trader University (Youtube) - Does Bitcoin Waste Energy?
12. InvestAnwers (Youtube) - has lots of great insights on BTC from a more quantitative perspective (be careful he is a Solana fiend)
^ See his videos covering OCTA - On-Chain Technical Analysis
CTO Larrson - BTC investment videos
