Bitcoin – Fidelity brushes aside 9 recurring criticisms

The giant fund Fidelity has published a paper addressing the recurring (and often undeserved) criticism of Bitcoin.

Persistent criticism of Bitcoin

In its paper, Fidelity addresses the most common criticisms and misconceptions about bitcoin, some legitimate, others not:

1# Too volatile to be a store of value.
2# Failed as a payment method.
3# Waste of energy and/or bad for the environment.
4# He will be replaced by a competitor.
5# Bitcoin is not based on anything.

For Fidelity, these criticisms can be easily refuted. However, there are some legitimate concerns that have some, even if low, probability of occurring:

6# A bug in the code.
7# Deadly regulations.
8# Public disinterest.
9# The unknown unknowns.

Here are the most interesting extracts from this paper of 13 pages in English.

Criticism 1# Too volatile to be a store of value

“As Parker Lewis explains, ‘Bitcoin has value because of its fixed supply. It is also volatile for the same reason’.

The growing adoption of bitcoin and the arrival of investment products [comme un ETF spot] will decrease the volatility of bitcoin over time. The trajectory of a new asset moving from marginal awareness to a global store of value cannot be linear.

Bitcoin will stabilize as the money brought in by new entrants represents a smaller and smaller share compared to the total capitalization of bitcoin. »

[Notre récent article sur la rareté du bitcoin par rapport à l’or : Le Bitcoin bientôt beaucoup plus rare que l’or ]

Criticism 2# Failure as a payment method

“The most attractive use of bitcoin’s low transaction throughput is the settlement of high-value transactions that are underserved by traditional rails.

Many people still believe that the main purpose of bitcoin is to be used as an everyday means of payment. Critics therefore speak of failure because bitcoin cannot offer the same transaction speed as Visa, Mastercard or PayPal.

If bitcoin has properties that make it a viable payment tool, it suffers from its volatility and limited throughput. However, these are deliberate compromises to allow its decentralization and by extension its absolute scarcity.

Capping the throughput serves to limit the quantity of transactions and therefore data to be stored. This data frugality allows any basic computer to be used to run a node. Nodes are important because they verify that the transactions that miners add into blocks are legitimate.

Which transactions deserve to be recorded in the Bitcoin blockchain (layer 1)? […] This includes, but is not limited to, global settlements between international businesses and, ultimately, even between central banks and governments.

The Lightning Network (layer 2) helps meet the growing demand for bitcoin micropayments. Transactions on the LN […] do not require confirmation in a block to be finalized.

LN allows for extremely low fees of $0.00014 per transaction and near-instant payouts. It allows Bitcoin to be used for everyday life. The Lightning Network […] is faster than Visa. It is by far the fastest and cheapest payment technology in the world.

Tax treatment is another factor that complicates the use of Bitcoin as a payment method. For example, the IRS classifies bitcoin as “property”. This means that bitcoin users must calculate their gain or loss every time they make a bitcoin payment, reducing its appeal as a payment option. »

[Notre récent article sur les chiffres concernant l’utilisation du Lignthing Network : River fait le point sur le Lightning Network]

Criticism 3# Waste of energy and/or bad for the environment

“Most bitcoin miners consume renewable energy or energy that would otherwise be wasted. Not to mention that Bitcoin is arguably a valid and important use of energy resources.

The question arises whether it is worth using energy to secure the Bitcoin network and process transactions? The answer varies from person to person.

Those who appreciate the importance of an asset existing in absolutely fixed quantity, decentralized, resistant to censorship and seizures […] will answer in the affirmative.

These characteristics […] are directly related to the actual resources used to secure the Bitcoin network. Without energy resources, Bitcoin would not be able to fulfill its role as a store of value and payment system on a global scale.

Recently, bitcoin miners have begun consuming gas that would otherwise be flared or released into the atmosphere at oil extraction sites. [et les décharges]. This results in a significant reduction in methane emissions.

An oil well without the infrastructure (pipeline) necessary to transport the gas to civilization cannot be used. This methane is then burned or released into the air. Bitcoin miners provide a solution to limit global warming linked to these methane emissions […].

[Notre récent article sur le sujet : Le Bitcoin réduit les émissions de méthane ]

Criticism 4# He will be replaced by a competitor

“While Bitcoin’s open source code can be copied, its community and network effects cannot.

Many digital assets [shitcoins] claim to improve bitcoin. However, none of them have been able to match the network effects of bitcoin.

Bitcoin compromises […] for the good reasons cited above. Competitors have attempted to improve on the limitations of Bitcoin (e.g. limited transaction throughput), but this has come at the expense of fundamental properties that Bitcoin offers (absolute scarcity, decentralization, immutability). This explains why bitcoin continues to dominate the market.

Although Bitcoin software is open-source and can be modified and improved, its stakeholders (users, miners, nodes, developers, service providers) and network effects cannot be replicated as easily. »

Criticism 5# Bitcoin is not based on anything

“Bitcoin is not backed by cash flow, industrial utility or fiat. Bitcoin is the emanation of a code animated by a social contract established between its stakeholders:

• Users who choose to transact on the network.
• Miners who spend energy and capital to process transactions and secure the network.
• Nodes that choose to execute Bitcoin code and validate transactions.
• Developers who choose to maintain Bitcoin code.
• Holders who choose to store part of their wealth in bitcoins.

Bitcoin’s network effect, that is, the addition of new participants, strengthens its properties, attracting new participants in return, and so on. »

Criticism 6# A bug in the code

“Bitcoin is just software running on computer hardware. However, software can have “bugs”.

The Bitcoin network has experienced two bugs during its history. The first occurred in August 2010. It was a bug that allowed the creation of 184 billion bitcoins. […] At the time, Satoshi was still actively working on the project. Alerted to the problem by other programmers, he released a code update a few hours later. Soon, a sufficient number of nodes were updated, highlighting the role of community and social consensus in this process.

The second bug dates from March 2013. The network was offline for about six hours due to an update (which is done quite regularly to make small improvements). […] The problem was resolved once again thanks to a consensus reached between programmers and miners to voluntarily roll back the clock. This event caused the price of bitcoin to fall by more than 20%. It fell to $37.

The Bitcoin network has been operating continuously for over ten years. While it cannot be ruled out that another bug could occur following a botched update, we believe the likelihood of such an event is now much lower given that the network has become more resilient and more programmers contribute code. »

Criticism 7# Deadly regulations

“Increased regulation of BTC could actually be a positive indicator of its adoption and usefulness. If bitcoin were destined to become worthless and fade into oblivion, there would be no need to regulate it. That said, we believe that the current level of regulatory uncertainty could hinder the adoption and development of bitcoin.

We believe that Bitcoin technology is such that it is impossible to stop (just like the Internet and other decentralized technologies). However, poorly designed regulations, or the absence of regulations, can significantly hamper its adoption. In our opinion, this deserves to be taken into account by investors. »

Criticism 8# Public disinterest

“While we have emphasized that the value propositions and fundamental characteristics of bitcoin are unmatched by any other digital asset (absolute scarcity, immutability, decentralization, censorship resistance, etc.), this does not mean that everyone will give as much importance.

The success and increasing adoption of bitcoin (and, therefore, the increase in its value) is not guaranteed and is a direct result of more and more people valuing these characteristics over other competing assets.

However, the data shows little sign of a decline in interest in bitcoin. The number of wallets that accumulate BTC continues to increase. »

Review 9# The unknown unknowns

“We completely agree with this criticism. But it is not specific to BTC.

We have sought in this paper to debunk some of the common criticisms that we do not consider relevant, while including risks and criticisms that we believe investors should consider. These are the ‘known unknowns’, such as a bug in Bitcoin’s code or Satoshi suddenly reappearing to sell all his bitcoins. We know these risks, but we do not know the probability. »

Conclusion

“Bitcoin is a unique digital asset in an increasingly digital world. Understanding its main properties and trade-offs requires digging deeper into the subject and challenging preconceived notions of what is right and widely accepted. »