Writer Describes Bitcoin’s History as “10 Years of Smoke and Mirrors” in Controversial Blog Post
At the end of this month, bitcoin’s whitepaper will officially turn ten years old. One writer, however, clearly isn’t impressed by the anniversary. Karen Webster at PYMNTS.com recently wrote a post titled, “Bitcoin: 10 Years of Smoke and Mirrors.”
October 31, 2018, will mark the tenth anniversary of the release of the bitcoin whitepaper. On October 31, 2008, Satoshi Nakamoto uploaded the 9-page whitepaper online and forwarded it to a cryptography mailing list. The full bitcoin network launched a few months later on January 3, 2009. The rest is history.
Yes, we’re officially coming up on bitcoin’s tenth birthday. Bitcoin has risen from an obscure toy for nerds to a global payments protocol used by financial institutions worldwide.
Unfortunately, bitcoin’s rise to prominence has not impressed Karen Webster at PYMNTS.com. Webster is the CEO of Market Platform Dynamics, a payment platform consulting company.
In a controversial post, Webster describes bitcoin as “the go-to currency of criminals and a way for cybercrooks to wash their money.” While some of Webster’s points will irk bitcoin users, Webster also brings up valid criticisms of bitcoin and blockchain.
“Ten years after PayPal launched, it was operating in 190 countries and had 60 million users.”
Webster adds Amazon as an example:
“Ten years after Amazon launched, it was nearing 70 million users and had just launched Amazon Prime.”
Webster claims that Visa and Mastercard were in the hands of millions of consumers ten years after both credit card companies launched. She writes that Apple had sold 1.2 billion iPhones within ten years of releasing the first iPhone.
It’s not even fair to say that Webster is comparing apples to oranges here. She’s comparing apples to spaceships. The comparison just doesn’t make sense.
Bitcoin is a decentralized protocol maintained by a distributed, open source community of developers based around the world. Bitcoin isn’t built to generate a profit. Bitcoin has no corporate structure and no employees. There’s no centralized decision-making body, and no single person or entity has the power to dictate changes in the network.
All of the examples mentioned by Webster are centralized, for-profit corporations. These corporations were able to attract millions of dollars in venture capital funding. They used investor funds to become wildly successful in the growing tech scene.
Of course, for every Apple and Amazon, there are companies that rose, failed, and disappeared.
“Ten Years After Bitcoin Launched, It Remains the Go-To Currency of Criminals”
The most ignorant part of Webster’s argument is when she describes how bitcoin is the preferred medium of exchange for criminals and “cybercrooks” on the internet:
“Ten years after bitcoin launched, it remains the go-to currency of criminals and a way for cybercrooks to wash their money.”
In the early days of bitcoin, when bitcoin was the only cryptocurrency, it was an easy target for cybercriminals. It was the preferred medium of exchange on online drug marketplaces like Silk Road. You could argue that bitcoin rose to prominence largely due to its use in illegal drug transactions online.
But those times have changed. Today, bitcoin has evolved from its reputation as an anonymous, digital currency. There are better digital currencies for making anonymous transactions online – like Monero. Bitcoin, in fact, is one of the least anonymous digital currencies on the internet today. Anyone can view any transaction on the bitcoin network. Anyone can view who sent the transaction and who received the transaction. You can view the amount of bitcoin transferred in the transaction and the final destination of those bitcoins.
Put simply, if you wanted to buy drugs online from your bitcoin wallet, it would be easy for anyone to spot.
75% of Bitcoin’s Transaction Volume Comes from Speculators and Miners
Next, Webster brings up two interesting points, including the fact that speculators view bitcoin as a “digital lottery ticket”, and that most of bitcoin’s transaction volume isn’t coming from retail payments.
“Seventy-five percent of bitcoin transactions are the result of miners moving money between themselves and speculators trading it – the transactions that it powers are nefarious in nature, at best.”
It’s true that much of bitcoin’s transaction volume comes from miners moving currencies and speculators buying currencies – but the same can be said for the transaction volume on any market. Day traders and hedge funds trade trillions of dollars in securities every day as a form of speculation.
There’s also evidence showing that bitcoin’s transaction volume is less dominated by speculators today than it was in 2017 when hype fueled the infamous bitcoin bubble.
As reported by Chainalysis last month, for example, bitcoin’s network is currently dominated by long-term investors. Over the end of 2017 and beginning of 2018, there was a huge movement of bitcoins from long-term investors to newer investors. These investors have held onto their bitcoin over the summer: they’re not selling it for quick gains.
Nevertheless, Webster is absolutely right to criticize bitcoin’s transaction volume: there are plenty of concerns about exchanges inflating transaction volume. Even the world’s most reputable bitcoin exchanges – like Coinbase – have admitted that 20% of trading activity on the exchange comes from Coinbase itself.
It Can Take as Long as An Hour or More to Complete a Bitcoin Transaction.
Webster brings up another valid point – albeit in an awkward way:
“Bitcoin is anything but free and, in fact, it can be pretty pricey for senders and receivers…Sending money over the bitcoin rails is also anything but fast. Despite very low transaction volumes, it can take as long as an hour or more to take a round trip on its rails.”
This is a valid concern with bitcoin – particularly the BTC version of bitcoin. Today, BTC developers refuse to expand beyond the 1MB blocksize limit, restricting the bitcoin network to a measly 7 transactions per second.
During times of high transaction volume – like in 2017 – BTC’s network has been severely constrained, leading to skyrocketing fees and days-long transaction times.
BTC needs a scaling solution fast if it wants to become a global financial system. Many BTC supporters and developers, however, don’t see a problem with the current system.
Put simply, if you want bitcoin to be a daily medium of transfer and not simply a scarce form of digital gold, then BCH is what Webster is looking for. With 32MB blocksize limits, BCH has vastly superior transaction capacity to BTC – but it doesn’t have the transaction volume from users at this point.
Ultimately, Webster is absolutely right that bitcoin (primarily BTC) has a scaling problem that needs to be solved. Webster, however, believes decentralized communities can’t solve problems like this.
Bitcoin Has Boxed Itself Into a Corner with Decentralized Governance
Webster claims that decentralized governance systems rarely work. In order to solve complex technological challenges, we need centralized decision-making from a qualified team.
Webster claims that bitcoin and blockchain teams have “boxed themselves” into a corner. After a decade of limited problem-solving, it’s looking increasingly unlikely that bitcoin and blockchain startups will solve major problems facing the space:
“Especially now that we see how little payments innovation they have ignited and how much progress has been made without them.”
Of course, you could argue that bitcoin and other decentralized development communities have already surmounted enormous problems over the last decade. Bitcoin was worth a few pennies a decade ago. Today, it’s worth over $6,000.
While dissenters claim bitcoin’s value “is not based on anything”, that’s not effectively true:
“Bitcoin’s value is based on the underlying technology. People believe in the value of the technology to deliver secure money transfers without a centralized authority.”
True Blockchain Innovation is Occurring Within Centralized Institutions
Webster makes another valid point when she claims that much blockchain innovation is occurring within the same institutions we’ve known and trusted over the years. Today, some of the biggest innovations in the blockchain space are occurring in centralized corporations and other similar entities:
“So today, while bitcoin and blockchain tech get much of the press (and as much of the media still waxes on about how revolutionary it all is), the hard work to solve real frictions in payments — the vast majority of that innovation — is happening much more quietly using the rails and institutions people and businesses trust.”
The Bitcoin Bubble Really Hasn’t Burst
Webster sums up her controversial piece by stating that bitcoin’s bubble “really hasn’t burst” and that the hype continues to this day.
Ultimately, Webster’s article has some problems, but it also introduces valid criticisms. Most of bitcoin’s transaction volume isn’t done between retailers and customers. Decentralized governance isn’t always the most efficient way forward.
If you believe in the power of decentralized governance and open source development, then you’ll disagree with most of Webster’s points. Nevertheless, you can read her post here at PYMNTS.com to discover an alternative opinion on bitcoin and blockchain development.