Global bitcoin adoption & proliferating bitcoin payments options unravel detractors' arguments.
Last week, Twitter announced that it was integrating payments on its platform, allowing users in the U.S. and El Salvador to receive payments instantly and for free from anyone around the world. The new feature is an integration with Strike API, the crypto payments processor that was a driving force behind El Salvador’s recent initiative adopting bitcoin as legal tender.
The news of Twitter’s new payments feature comes in the wake of a recent op-ed from New York Times’ economist columnist, Binyamin Applebaum. In it, the author criticizes El Salvador’s recent adoption of bitcoin as legal currency, suggesting that bitcoin’s use as a currency is fraudulent and misguided. The title suggests that bitcoin is masquerading as currency in a reference to “cosplay” – a compounded term for “costume play”, a recreational activity involving participants dressing up as characters.
The author’s argument echoed oft heard refrains of bitcoin detractors, but it was the misinformation and negative bias prevalent in the article that affronted the bitcoin community. As payment solutions such as Twitter’s new feature, which operates using the lightning network allowing for private, secure, and nearly instantaneous transactions at little to no cost to users or the environment, become more widespread, it’s important that discourse around bitcoin proceeds in an informed manner.
In a world where bitcoin is fast becoming integral to global economies, arguments that tear into bitcoin’s value without furnishing full information about technology like that of the Lightning Network, which is fueling Twitter's ability to facilitate highly efficient, environmentally-friendly bitcoin transactions, frustrate education and threaten progress.
To say that bitcoin is useless as a currency because it doesn’t parallel fiat currency in its transactional applications and price patterns, as the author does, is to deny the reality that bitcoin is becoming increasingly popular in developing countries where unstable local currencies make it a desirable alternative. In his argument that bitcoin’s best application is as a speculative investment vehicle, the author presents a limited, highly Westernized conception of bitcoin’s value that fails to account for its benefits as a currency for individuals in emerging markets like Kenya, Nigeria, and Panama, where local currencies are volatile due to government corruption and rampant inflation, and bitcoin transaction volumes are on the rise.
Calling bitcoin’s use a form of “cosplay” also directly contradicts some of the most highly sophisticated investors in the world like Microstrategy, JP Morgan, and Goldman Sachs, who have looked to invest client money in bitcoin during the last year. These portfolio managers are making calculated plays based on advanced assessments that bitcoin’s value is a promising long-term investment.
The essay’s condemnation of bitcoin hinges on the vague appraisal that it “doesn’t work.” What this means to the author becomes clear in bits and pieces – its price is volatile, it’s vulnerable to being lost or stolen, it can’t be controlled by government monetary policy, and it’s difficult and expensive to use.
Ironically, the first two arguments are reflective of critical problems with fiat currency. Appelbaum criticizes bitcoin’s volatility in the short-term as a reason against its viability as a currency. Indeed, if a currency’s volatility meant that it loses its value on a longer-term time horizon, as the U.S. dollar does due to inflation, this would be a greater cause for concern. Bitcoin’s price moves over a few weeks or months can be relatively choppy, but compared to the U.S. dollar, bitcoin has held steady as a far more secure store of value over the last decade. Bitcoin is extremely young, at roughly 12 years old, and as adoption becomes widespread, there is significant evidence that its value will both rise and stabilize in value over time.
The second argument, that bitcoin is vulnerable to being lost or stolen is unconvincing, as fiat currency is even more easily stolen by fraud or theft. To exemplify bitcoin’s vulnerability to being hacked or stolen, the author points to a recent event in which the government confiscated illegally appropriated ransom money from a bitcoin wallet collected by hackers in the Colonial Pipeline attack. In this case, officials most likely recovered the ransom by tracking the criminal's online activity or communications, or being alerted to account details by an individual or a group associated with the scheme. It is highly unlikely that the FBI used brute force decryption to identify the hacker’s private key. This is due to the nature of the ECDSA (Elliptic Curve Digital Signature Algorithm) scheme by which private keys are generated. Given the tremendous security of the ECDSA scheme, it would take trillions of computers trillions of years of continuously trying different alphanumeric combinations to guess a private key.
Besides the fact that the government’s ability to retrieve lost or stolen bitcoin should count in bitcoin’s favor, bitcoin is nearly hack-proof. Moreover, to paint a fuller picture of bitcoin’s security relative to the U.S. dollar, Appelbaum would do well to describe the high frequency of unauthorized security breaches of traditional bank accounts rather than grasping at a singular event wherein account security was breached by the federal government in the name of the law.
Another reason that Appelbaum cites that bitcoin is untenable as a currency rests on the notion that it lacks intrinsic value as an “asset unmoored from any productive purpose.” The creation of value and productive use cases are subjective, driven by public consensus and the laws of supply and demand. Appelbaum doesn’t seem to consider that fiat currency has no intrinsic value without the simple agreement by a body of people and government that says it does. Bitcoin’s value is no less intrinsically moored to a productive purpose, by this understanding, than that of the dollar.
Similarly, Appelbaum’s argument that bitcoin is prohibitively difficult or expensive to use doesn’t hold. Fiat currency transactions, particularly cross-border remittances, are highly cumbersome and involve myriad fees. While transacting in bitcoin involves fees, these are commensurate with bitcoin miners’ efforts in completing a given transaction; moreover, transaction fees will become smaller as network efficiency increases over time. November’s imminent Taproot upgrade on the bitcoin network promises to significantly decrease transaction fees and reduce network congestion, making transactions faster and cheaper.
Looking to the adoption of bitcoin as currency in El Salvador, the author notes that using bitcoin as currency will lead countries to establish centralized financial infrastructure that will mirror traditional banking, pointing to El Salvador’s government-issued digital wallets. In this, he shows an ignorance of the nature of cryptocurrency wallets; while El Salvador’s digital wallet, Chivo, may remind the author of bank accounts, a wallet provider is a far cry from a bank. Chivo wallets facilitate safe bitcoin storage–bitcoin held in these wallets doesn’t enter the central bank’s reserves, but stays securely in individuals’ wallets.
The argument about bitcoin’s environmental impact touches on an evolving aspect of the bitcoin network. Concerns about bitcoin’s energy demands have proliferated in the past year. Cambridge’s Center for Alternative Finance estimates that roughly 39% of proof-of-work mining, the consensus mechanism underlying bitcoin transactions, is already powered by renewable energy–chiefly hydroelectric energy. In response to concerns about bitcoin’s footprint, companies in the bitcoin mining sector are taking decisive steps to mitigate the network’s environmental impact. Square, the bitcoin-forward payments giant, recently founded the Bitcoin Clean Energy to help support companies that drive adoption and efficiency of renewables in the sector. Renewably-powered mining operations and pools – groups of miners that combine their computational power – are proliferating, and DMG Blockchain Solutions and Argo Blockchain recently announced the world’s first bitcoin mining pool entirely powered by clean energy. Leading cryptocurrency exchanges like FTX and BitMex have also announced plans to become carbon neutral by purchasing carbon credits. To put bitcoin’s footprint in perspective, one would also do well to note that research has found its energy consumption to be comparable to that of the traditional banking sector.
His final argument issues a stern warning that politicians should not take bitcoin seriously, as to do so would be “of great concern”. In this, he makes his most dangerous statement. Whether or not the author or any one individual believes that bitcoin has value, a significant and growing number of individuals and institutions find that it does.
When politicians don’t take bitcoin seriously, the consequences are dire. Politicians’ ignorance of bitcoin and cryptocurrency’s nuances showed itself to be highly damaging in the recent battle of the infrastructure bill, wherein a section of the bill was passed that unjustly targeted crypto professionals who should, by any basic understanding of crypto, have been exempt from the bill.
If Appelbaum were to take as critical an eye to the U.S. dollar and its efficacy in storing value as he does to its challenger, he might find himself with a more holistic evaluation of the future of currency and the ways that value “cosplay” is built into our incumbent financial system. If critics continue to deny bitcoin’s value and utility, even as nations and sophisticated investors embrace it, we will remain deadlocked in ad hominem arguments that fail to rise to the new challenges of modernity.
Aubrey Strobel is the Head of Communications at Lolli, the leading bitcoin rewards company, where she oversees all communications, public relations, and marketing efforts on behalf of the company. Prior to Lolli, Aubrey was a senior executive at Wachsman, a blockchain public relations and consulting firm headquartered in New York. She has been featured in Forbes, Buzzfeed, and IB Times.