Bitcoin is valuable because it is scarce in a way that humans have never experienced before, it’s easy to secure and transfer, highly divisible, fungible, programmable, and impossible to counterfeit.
In today’s dollar world, you cannot spend your money anytime. Sure, you can spend it today or tomorrow. But what about in 20 years? You can’t do that, because in 20 years, more than half of your money will be gone. That’s how inflationary currencies work - you are forced to spend now, on things you don’t really want, or make investments into things you don’t really understand. You are penalized for saving, so that when there’s inevitably a crisis, you have no protection (COVID-19 exposed this sad state of affairs).
Bitcoin does the opposite. You can spend your money anytime, and you are rewarded for patience. If you invest, it’s only in something you understand well or are passionate about.
Bitcoin’s supply is limited, so there is no inflationary penalty. It’s important to stress that not only is bitcoin’s supply limited, it’s limited in the strictest possible way, that has never been achieved by any other asset in history. There can only be 21 million bitcoins ever, no matter how high the price goes. No other asset works like that. Humans can increase production of anything else if the price is right: they can dig up gold faster, build taller buildings (in effect manufacturing real estate), make cars or houses or clean water or any other good you can think of. Bitcoin’s supply cannot be affected by price or anything else, in other words its supply elasticity is zero. Nothing, not even a competing cryptocurrency, can ever beat that - zero is as low as it can get. Bitcoin can only respond to demand by going up in price.
Bitcoin is pure information, it has no physical location or jurisdiction. You can take it with you anywhere in the world, invisibly, and be sure you can trade it for goods and services. No border agent can seize it from you. They have no way of even knowing you have it. Bitcoin gives you the power to exit and go somewhere else, without penalty.
You can transfer bitcoin (or it can be transferred to you) in a way that no one can stop it or reverse it. Unlike bank accounts, bitcoin cannot be seized - by government or anyone else. It’s important to note that bitcoin is the only asset you truly own. You can earn money from anywhere in the world, and buy anything you want. You can accept it with 100% confidence you’ll be able to spend it later.
You can pay and receive arbitrarily small amounts of bitcoin. It makes “pay as you go” practical: you can pay for gas by the milliliter, or news per-article, or music per-listen. You don’t have to trust the merchant, and they don’t need to trust you. Ever tried to cancel a monthly subscription and get the runaround instead? With bitcoin, they can’t scam you.
Because it’s an “online” system, bitcoin is impossible to counterfeit. Your bitcoin wallet validates payments that you receive, in real time. You cannot do this with gold, which is easily debased.
So far bitcoin has resisted all attempts to alter it. The monetary policy was set on day one, and has been strictly enforced ever since. It’s sufficiently distributed that any attacker who tries to alter the rules, will be easily rebuffed. No other currency (traditional or crypto) has that track record. There actually have been very public failed attacks on bitcoin - the latest in 2017, see “segwit2x”.
Someone who buys bitcoin today because of its objective uses, can be confident it will remain that way forever.
There’s a lot of hype about “smart contracts” but bitcoin does it right: bitcoin can be programmed to react automatically to real world events. Bitcoin doesn’t directly interpret real world events (it doesn’t know the price of a stock, or the score of the Super Bowl), but it can be programmed to react to events as described by some trusted party who has some authority over those events, for example the NYSE or the NFL.
Because of these objective uses, people are starting to realize that bitcoin has value, and its increasing price makes it useful as an investment. Buying before everyone else is a very profitable decision. It is not a self-fulfilling prophesy. Bitcoin appreciates not just because people say it is better money, but because it actually is. Contrast this with tulip mania or beanie babies, where there was nothing in particular about those products that justified their high prices. Bitcoin delivers on its promise to revolutionize money.
There are lots of other cryptocurrencies attempting to cash in on bitcoin’s rise. None will ever overtake bitcoin. Bitcoin was first, and it is good enough. Like the internet protocol tcp/ip, that is all that is needed to cement victory forever. Tcp/ip carries traffic very effectively, it’s worked since the 1970’s, even though transmission speeds have increased ten million fold. Newer protocols aren’t better, there’s no reason for anyone to switch, and they haven’t for 50 years.
Why is the bitcoin protocol “good enough”? Clearly it is not perfect in every way - for example, transactions are not private by default, it doesn’t scale very well. The reason it’s good enough is that these are fundamental tradeoffs. Bitcoin deliberately gave up default privacy to gain auditability. You can’t have both with existing technology. Bitcoin deliberately gave up base-layer scalability to achieve censorship resistance. The technological landscape has not changed. The same tradeoffs that existed when satoshi designed bitcoin in 2009, still exist. All other cryptos simply make worse tradeoffs. They’re not better, and they weren’t first. Bitcoin is ahead and nothing else on the horizon today has the capability to catch up.
What about the possibility of truly groundbreaking tech discoveries? Well, bitcoin can be upgraded, if such an upgrade were available that didn’t involve horrible tradeoffs. So far, there have been some relatively minor upgrades that the whole network has agreed upon - mostly these are optimizations, and not any sort of fundamental breakthrough. (segwit, and soon taproot, which moderately improve efficiency and privacy).
I’ll address some so-called “advances” that altcoins claim:
The claim here is that we can eliminate bitcoin’s energy use by switching from “proof of work” (whoever proves they expended energy chooses the official order of events) to “proof of stake” (whoever proves they own some coins chooses the official order of events).
There’s a lot of big problems with proof of stake: it’s circular logic, insecure, the rich get richer, and doesn’t actually prevent energy consumption - it just obscures it.
The circular logic is as follows: If you own coins, you get a partial say in who owns coins. It’s not 100% objective.
In proof of work, there can only be one “correct” chain and the rules are sufficient to decide which. That doesn’t exist in proof of stake - there are multiple competing chains with different results of who is supposed to own what, and in order to figure out which version everyone else must be using, you have to ask around and hope you don’t get lied to.
In PoS, the rich get richer, just by the way these systems work. Stakers (mining is called ‘staking’ in this scheme) get rewarded in proportion to how much they already own. In theory, if everyone stakes, then everyone’s proportions stay the same and the rich don’t get richer. But in reality, staking takes significant knowledge and effort. Average users are left with a choice: spend time and money maintaining their own server, or give up control of their coins by depositing them at an exchange (which is effectively a crypto bank). Guess which one they will do? They’ll lose control of their coins (defeating the purpose of decentralized protocols) AND lose money because the bank takes a cut of their staking rewards. In the end, the bank gets rich off the deposits of users. Sounds just like the traditional banking system we’re trying to replace!
Finally, the idea that PoS systems won’t consume a lot of resources is wrong. It’s a bit complex to explain, and I think Paul Sztorc does a good job in his piece, Nothing is Cheaper Than Proof of Work. It’s rather dense with economics and technical terms, but if you really want to know why PoS is a fraud, it’s worth digging into.
The transactions are cheap because the altcoin is obscure, and hardly anyone uses it. It can’t overtake bitcoin without fees being just as high, or being insecure. Bitcoin is already as good as it gets.
It’s tempting to theorize that bitcoin will end up as a niche store of value, similar to gold. However, it does not have the same weaknesses as gold. Gold is easy to counterfeit, not easily divisible, and can’t be transported or stored cheaply. Bitcoin addresses all these faults, so there’s no reason to think bitcoin will be limited to gold’s niche.
In fact, it can completely usurp gold as a store of value, and then go on to absorb literally everything else that’s used as a store of value. That includes: currencies, stocks, bonds, commodities, real estate, and art.
Let’s take real estate as an example. Today, people buy houses and use them not just as a place to live, but to store value for the future. The value of a house, beyond its value as a place to live, is called its monetary premium. Under the dollar system, the monetary premium of houses is enormous. It’s hard to say exactly what percentage it is, but I’d say it’s roughly 50%. People buy these things without knowing anything at all about them as an investment. Do they know anything about their local real estate market, or where they expect future growth to be? No. It’s just a place they wanted to live, but they’re still paying the monetary premium.
In a bitcoin world, those premiums are eliminated. You simply hold bitcoin and it appreciates as the economy grows. You no longer need to invest in things you know nothing about, just to avoid losing your savings. Houses and other assets become much more affordable, because they’re not being bought up by people who have nowhere else to put their money. Because housing is cheaper and bitcoin appreciates, it doesn’t take that long to save up for a house. You don’t need loans.
It’s not that there’s no investment in a bitcoin world, it’s that you aren’t forced to invest. You can wait for an opportunity.
The total addressable market of bitcoin is in the hundreds of trillions of dollars. That puts bitcoin’s maximum price (in today’s dollars, using today’s market sizes) at about $10,000,000. See cryptographer Hal Finney’s arriving at this conclusion immediately after bitcoin was invented.
Of course, bitcoin can’t get that big without destroying the dollar too, so in nominal terms, bitcoin’s dollar price can go to infinity. See Hyperbitcoinization by Daniel Krawicz.
With a possible reward of 20,000% gains, it doesn’t have to be that likely of an outcome to be willing to bet on it. It just has to be 1:200 odds or better.
If you believe bitcoin is superior money, and people are already figuring it out, and governments can’t stop it, and there’s no competition, and it won’t fall apart on its own, is a 1:200 chance of complete victory really giving bitcoin enough credit?
Part of the challenge of bitcoin investment is believing what’s in front of your eyes. We’re accustomed to thinking that anything that looks that good, must be too good to be true, because usually that is correct. But not always. Markets are not perfectly efficient - there’s opportunities everywhere, if you do the work to recognize them.
In a ponzi scheme, the schemer gives existing participants income, telling them it is from investment profit, when really there was no investment and the cash came directly from new participants. It’s unsustainable, because eventually there are no new participants, the income dries up, and everyone wants out. But there’s no money left - all the earliest participants have it all.
With bitcoin, there is no income, or promise of it, and there is no one who could even theoretically promise it. Bitcoin does not have to rise in price forever to be valuable. It just has to not lose value. So it does not require new participants forever - when there are no new participants, they all have a valuable shared currency.
All investment involves speculation about future events. There’s nothing fundamentally different about bitcoin. Usually this criticism is levelled by people who don’t understand the Objective Uses, or believe that because they currently have no desire for those use cases, that they never will, and no one else will.
Bitcoin has been going up in price (doubling, on average, every six months or so) for 12 years. That is not typical of a “bubble” or “fad”.
For the most part this criticism is just a convenient way to dismiss bitcoin without having to do any research.
This one makes no sense at all. Bitcoin’s price is volatile because people buy it like crazy. Critics manage to get cause and effect inside-out and backward by claiming “people won’t buy bitcoin because it is volatile”.
This criticism is a product of short-term thinking. “If I can’t be guaranteed profit after 1 month, I’m not interested”. Sure, there are people who currently think like that. However the bitcoin forums are full of people who used to think that way. People change their minds. Bitcoin’s long-term track record is unassailable - anyone who bought and held for 4 or more years is in massive profit, no matter when they bought. That helps change people’s minds.
This is the most reasonable criticism of the bunch, that takes the most effort and thought to address. I’ll summarize and then point to some longer articles that do a good job of addressing it: The political will to ban bitcoin is insufficient, and this will not change in the future. Bitcoin is far too useful, to far too many people, to reach the near-universal level of agreement necessary to successfully shut it down. See Dan Held’s more detailed explanation: Can governments kill Bitcoin? and also Daniel Krawicz’s classic, Bitcoin’s Shroud of Subtlety and Allure.
See No Competition section.
This criticism basically goes, “if anyone can copy bitcoin’s code and make a new currency, then bitcoin is not scarce”. The problem with this criticism is that new currency isn’t bitcoin, it’s something else. The question is, why would someone prefer bitcoin over a clone? It’s because bitcoin was first, and everyone else already chose it over clones. The clones can imitate everything about bitcoin, except being first.
Why does being first matter? It makes bitcoin the Schelling Point - where everyone ends up without any coordination. Without knowing what anyone else is doing and forced to choose, you’d likely pick bitcoin over a clone, since it was the original. That is what is actually happening - no bitcoin clone even has 1% of bitcoin’s market value. Each clone’s failure to capture market share makes it even more likely the next clone will fail too. People see the history of clones’ failure growing and are less and less willing to take risks with each new one.
Since bitcoin eventually stops being produced, what will incentivize miners to secure the ledger? Today a lot of that incentive is newly minted bitcoin. Eventually it will be just fees. You can think of it as “tipping” the miners to include your transaction in the chain by including a “little something” for them. That exists today. If you don’t include a big enough “tip”, miners will ignore your transaction.
As for why this will remain sufficient forever, Dan Held explains better than I could: Bitcoin’s Security is Fine.
If these fees are high enough to incentivize miners, might they be “too” high? Frankly I’m not sure what that means. It’s sort of a “nobody goes there anymore, it’s too crowded” argument.
This argument is complex and I don’t think even many cryptocurrency “experts” have a good grasp of all the issues.
My best summary is as follows:
Fees may eventually be very high. Perhaps too high for the average person to afford. That is not ideal of course, but it is not anywhere near as big a problem as you might think.
Bitcoin’s design (and really, every cryptocurrency) is such that everyone who runs the software has to check everyone else’s transactions. If you don’t do that, you can be tricked into accepting counterfeit money.
So there’s a balance to be struck: if bitcoin allows huge amounts of transactions per day, fees will be affordable. However then you’ll need a very fast (and expensive) computer to process all that data. Conversely, if bitcoin allows a tiny amount of transactions per day, fees are very expensive, but a computer that can validate everything is cheap. So the tradeoff is between “I can’t check anyone’s transactions but I can make my own” or vice versa.
The question is, if the balance is off, which way is worse?
Well, they’re both bad, but not being able to validate the chain is worse. It’s the difference between “I can’t use sound money, but I can be sure that my bank uses it” and “I can’t tell if anyone has sound money”. If you can validate the chain, even if you can’t receive money on it yourself, you can make your bank prove to you that they have sound money assets. (That by itself doesn’t prove the bank is solvent, because you still don’t know what their liabilities are, but it at least gives you insight you wouldn’t otherwise have).
The best way to rephrase this is, “I wouldn’t want to spend energy on this, therefore no one should”.
Is it ok to tell someone they must wash their clothes by hand, because washing machines worldwide consume over 100 gigawatt hours per year?
When speaking of any other modern device or convenience, no one tolerates this sort of judgmental intrusion. You buy the electricity, use it however you want. Why should bitcoin be an exception? The whole point of having prices is to properly allocate resources to things that people actually want. If electricity is allocated to bitcoin, it’s because people want sound money, in the exact same way that electricity is allocated to washing machines because people want an easy way to clean their clothes.
Bitcoin mining is actually highly competitive - only the miners with access to the cheapest power are profitable. That means generally that the energy used by bitcoin would otherwise be wasted. That’s why it is so cheap. In practice we see this happening: bitcoin mining using excess hydroelectric power, or stranded hydrocarbons that otherwise would be burned off into the atmosphere.
Bitcoin makes energy transportable: a miner consumes energy in a desolate place (where it’s otherwise wasted) to earn bitcoin. Then that bitcoin is traded for energy in a more desirable location. This is an incredibly valuable service that did not exist before bitcoin.
The criticism is that (in a world where bitcoin is the main currency) if bitcoin’s value keeps going up, people won’t invest at all, they’ll just hold bitcoin. The economy will then collapse because of no new investments.
Two points here. First, this is a myth. Second, even if this myth were true, you rationally should still invest in bitcoin.
Why is this a myth? In a world where bitcoin is the main currency, and no one is investing, then there won’t be enough goods and services produced to satisfy everyone’s demand. There will then be more bitcoin than goods, and people will no longer be enticed to hold bitcoin as its purchasing power wanes. People don’t live forever, they have needs they must satisfy if they want to have a decent life. Their money may appreciate, but they can’t eat money. They will spend bitcoin eventually, one way or another. It’s not possible to have a “deflationary spiral”.
Now, let’s say for argument’s sake that the myth is true: that if bitcoin takes over, the economy will collapse. You should still invest in bitcoin now, and become wealthy as bitcoin takes over. You cannot prevent other people from using it, so you might as well increase your own wealth. You would then be in a great position to survive the impending collapse - a much better position than you are in right now.
Bitcoin is simply neutral. It doesn’t care what the laws are - how could it? Laws vary all over the world, and bitcoin is internet native - it doesn’t have any particular jurisdiction.
We can divide this criticism in two: a) that bitcoin enables illegal but ethical behavior (avoiding capital controls and inflation, buying weed online). b) that bitcoin enables unethical behavior (terrorism).
Legal and ethical are not the same. There are countless examples of this mismatch, but to name a few: slavery and the Holocaust were legal. Homosexuality and possession of cannabis are still a crimes in many places. In the US, it’s illegal for a 20 year old to buy alcohol (ostensibly because they’re not mature enough to handle it) but it’s legal to forcibly compel them to murder foreigners in a far-off warzone.
Regarding a: If it’s ethical behavior, then what exactly is the
criticism? That we’re in the right but disobeying authority? I would
take that as a compliment, personally.
Regarding b: it’s not true. Terrorists overwhelmingly use the dollar
as their currency of choice. However even if bitcoin were used by
terrorists, it is certainly not used exclusively by terrorists, just
like the dollar. Yes, ransomware uses bitcoin. Carjackers use
cars. We’re not going to give up cars just because carjacking happens
occasionally. Similarly, we’re not giving up bitcoin just because
ransomware happens occasionally.
I really hate to devote any effort to altcoins, because they’re pure gambling, have no future, and are not an investment.
However many people I know look at ethereum and get the impression it’s superior in some way. It’s not. It’s a very well-run scam. If you look at the history of ethereum, it’s more obvious. But most people haven’t been around long enough to see that history unfold.
When ethereum was first planned in 2014, the founders of the project reserved 70% of money supply for themselves and their friends. At the time, no one really cared, because it wasn’t a big project. However, it does speak to how their marketing has changed - how can one party control 70% of any serious currency?
At the time, ethereum didn’t even call itself a currency. It was billed as the “world computer” and “oil to bitcoin’s gold”. Eventually that narrative completely failed, because ethereum is a horribly inefficient computer. People found that out the hard way, when they tried to use it as one.
Then ethereum was re-branded to support user-issued tokens during the ICO boom of 2017. All of those tokens are scams too, and so far this has been ethereum’s only use case: to proliferate more scams.
Today, ethereum’s marketing team is trying to rebrand once again to “sound money” - but it’s too late. It’s not just their marketing that’s constantly changing, Ether’s economic policies have already been changed many times. There’s no reason to think they won’t change again.
Ethereum has already sacrificed so much for marketing, that almost no one still validates the transactions - it’s too slow and expensive. Everyone uses a central service called Infura, which of course completely defeats the purpose of a decentralized currency.
In fact, ethereum doesn’t really have anything except marketing. There’s a lot of hype about “smart contracts”. They are useless to enforce anything in the real world. Your house is yours not because any government ledger says so. It’s yours because men with guns will show up to kick out tresspassers, if you’ve paid your property tax! A blockchain doesn’t help you.
Vitalik Buterin still controls ethereum. He’s clearly very bright, but he’s also a known scammer - see his quantum computing scam he ran just prior to ethereum. There’s a reason people joke about ethereum’s proof of stake plan by calling it “proof of vitalik” - that really is the plan, for him alone to decide the order of the world’s transaction events.
Ethereum is, to anyone who examines it closely, a scam. It’s a bunch of technical soup that when criticized, just gets more complex to obfuscate its problems even further. Then the creators proudly hold up the new complexity, and say “look how fast we’re developing”, as if that is their goal. Their actual goal is to take money from naive investors.