I hear a lot of people talking bad about Bitcoin and cryptocurrencies. As if crypto is bad for humanity. In 2014 I already wrote a blog article about Bitcoin; Bitcoin and Litecoin (Dutch).
I want to discuss several arguments against Bitcoin and misconceptions people are telling me regarding crypto. Specifically against Bitcoin.
Why Bitcoin specifically?
Because most people outside the crypto market only heard about Bitcoin. Bitcoin is after all the first cryptocurrency created by Satoshi Nakamoto, author of the Bitcoin whitepaper. Bitcoin is also the most discussed cryptocurrency in the mainstream media and on the Internet.
Arguments against Bitcoin
Below some of the most commonly arguments I hear, in no particular order:
- It is fake internet money, backed by nothing
- It’s a scam / pyramid scheme
- Bitcoin mining is not environmentally friendly
- It doesn’t solve a market need (95% is already digital)
- Price of Bitcoin is too high (how many bitcoins does it cost to buy this Coffee at Starbucks? .00023?)
- There are more than 10,000 cryptocurrency alternatives
- Transaction fees are very high
- Nobody is using it
- It’s deflationary currency which discourages spending
- It can be used for money laundering
- It is complicated for the average person
- Using it requires internet access
- Intense day to day price fluctuations
- Forgotten passwords/lost devices can lead to major losses
- Lack of a central authority means governments can’t respond to economic crises
- It functions more like an asset than a currency
Let’s discuss them one by one.
Hint: Click on an argument above to go to the specific answer directly. Or just scroll down and start reading right away 🙂 !
Argument: It’s fake internet money, not backed by anything
What is Bitcoin? Small intro…
Cryptocurrencies, including Bitcoin (BTC), is a digital currency using a decentralized ledger. Meaning, the currency is stored across the network and not by a single party/company/individual.This is also called the Bitcoin blockchain.
Bitcoin has a maximum limited total supply of 21 million coins. The value of a single bitcoin coin is decided by basic financial model called; supply and demand.
The Bitcoin demand went up during the past years on average. If the demand is growing the price is increasing, especially if the supply is actually decreasing on the crypto exchanges. People are taking the cryptocurrency off exchanges, on to their own digital wallets.
Why does Bitcoin have value?
Because people have trust in math, trust in the community and trust in the decentralized nature of the Bitcoin network. Which could potentially destroy the current traditional banking system (central and commercial banks) as well as the fractional-reserve banking. Also Bitcoin is the first blockchain project and first cryptocurrency.
Last but not least, your fiat money in your country (the dollar or euro) is also not backed by anything. It’s just a number on the screen or paper in your hands.
However, fiat money has no supply limit. In fact, central banks are printing a lot of money recently, due to the COVID-19 pandemic. This floods the system with money, making your local currency worth less. And lowers your purchasing power. Also called (high) inflation, or in the worst case it could lead to hyper-inflation.
Read also the argument about the Bitcoin price is too high.
Argument: It’s a scam / pyramid scheme
It’s wise to first read the previous section above.
Why people think it’s a scam?
A scam is a fraud or a dishonest scheme. Bitcoin is decentralized, meaning YOU are in control of your money. This is very important to understand. People get scammed in the crypto world, because they are victim of trusting another person. They are giving others access to their cryptocurrency. Usually without their knowing or intending to.
Therefor, never share any private key or back-up seed phrase. In fact, you should store this sensitive information offline and buy a hardware wallet like a Ledger or a Trezor device. Look out for scammers!
In a decentralized system you do not need a trusted party like banks, this has a lot of benefits like; you can’t get censored and nobody can block your transaction. The only downside of a decentralized system is that you are in control which requires education. Keeping your cryptocurrencies safe is your responsibility. Read also Forgotten password/lost device argument.
Why people think it’s a pyramid scheme?
Pyramid scheme is a fraudulent system of making money based on recruiting an ever-increasing number of “investors”. Until it collapse, and the system seems worthless. The promotors get money from the new “investors” by providing profits to the earlier “investors”/promotors.
Bitcoin has no such structure. Your Bitcoin/crypto amount is stored in the blockchain. Also known as an UTXO(s). You do not get profits if you invite new people. You can only get Bitcoin via (de)centralized exchanges, P2P systems, by mining bitcoin. Or you receive Bitcoin when someone sent you some.
Indirectly, the more people use Bitcoin the more likely the value goes up in comparison to the dollar or euro. But that does NOT make Bitcoin a pyramid scheme. After all the euro price could also rise (compared to any another currency), whenever 70% of the world would use the euro as their main currency.
Argument: Bitcoin mining is not environmentally friendly
It’s true that Bitcoin mining is using energy in form of electricity. This energy is used to secure the Bitcoin network. It’s very important that nobody could potentially hack the system and steal money from your digital crypto wallet. Bitcoin mining using the Proof-of-Work consensus mechanism (PoW for short) is used to secure the Bitcoin network, which includes the transactions.
Bitcoin mining (using PoW) is crucial for the security of a decentralized network. Bitcoin therefor requires physical power of the real world. In order to hack the Bitcoin network via the 51% attack, you need a tremendous amount of energy and money for a long time.
The electricity required can actually be 100% CO2 neutral if the energy is coming from renewable power sources. Currently, Bitcoin has a big variety of power sources like; wind energy, solar, hydroelectric (eg. water dams) or even geothermal (volcanoes). It is estimated that more than 56% of all Bitcoin miners are using renewable energy already.
Actually Bitcoin miners are searching for the cheapest electricity for the biggest profits, which is actually renewables energy today. Also the Bitcoin mining hardware is getting more energy efficient over the years. Many people still think that the more the network is used, the more miners you need. This is wrong.
Since the ban of Bitcoin in China miners became significantly more “green”. China is after all mainly using coal plants for generating electricity. (As a side-effect the Bitcoin mining network became also more decentralized since the China ban, because the miners spread all over the world)
There are alternative consensus mechanisms, like Proof-of-Stake (PoS). Cardano (ADA) is using proof-of-stake and soon Ethereum (ETH 2.0) as well. Proof-of-stake is actually using 0.01% of the energy consumption in comparison with proof-of-work. Proof of Stake also has down-sides. Proof-of-work is still considered more safe and decentralized, and easier to implement correctly. However, I will not go into details about proof-of-stake. Since I focus on Bitcoin in this article.
Argument: It doesn’t solve a market need (95% is already digital)
It’s true that most fiat money (dollar/euro) can be used online. Either via online banking or your mobile apps, or 3rd parties like PayPal.
The difference between fiat and crypto is that fiat money is centralized, and even the digital platforms like PayPal or your online banking website is centralized. Where as cryptocurrencies, including Bitcoin, are decentralized currencies. Meaning you are in control your own money. Banking the unbanked. You can transfer crypto globally without any third party. No banks, PayPal, MasterCard or VISA are required as third party. No approval needed.
Argument: Price of Bitcoin is too high
As I mentioned earlier in the first argument, Bitcoin has a limit of 21 million coins. It really doesn’t matter what the limit would be, as long as it doesn’t change afterwards. It’s an arbitrary number.
If the Bitcoin supply limit was set either higher or lower, the dollar/euro price would change accordingly. The Bitcoin price is determined by the market capitalization. Also known as supply and demand, see also what is Bitcoin.
21 Million coins on a world population of 8 billion assuming 70% of the world population would use Bitcoin. That will result into 0.00375000 BTC per individual person (if everyone would get the same amount). However, some bitcoins have also been lost forever. And some major companies and rich individuals are already buying Bitcoin. Making Bitcoin even more scares.
It is difficult to say how much bitcoin you should own. Some people say to aim for at least 1 full BTC and hold, don’t sell (not financial advice of course). At least if you able to effort that via dollar-cost average (DCA). As long as the price is still relativity speaking cheap, which is still the case. Read also the argument about high price volatility.
Bitcoin has more precision after the comma than fiat money. The smallest amount is actually called a satoshi. 1 satoshi (sat for short) = 0.00000001 BTC. Visa versa, 1 BTC are 100,000,000 satoshis.
Thinking in satoshis rather than bitcoins make much more sense, especially if we talk about smaller transactions. Like ordering a coffee via Bitcoin, think in sats.
Argument: There are more than 10,000 cryptocurrency alternatives
There are currently, according to CoinMarketCap, 12,140 different cryptocurrencies available.
Most of those coins are called “sh*tcoins”, because they are just created for the fun. Or to get people invested into it, and the creator will dump his coins on the market, walking away with all the profit. But it does NOT mean alternative coins beside Bitcoin, called altcoins, are all bad. That being said, you do need to watch out where you put your money.
I myself never look below the top 30 cryptocurrencies listed on CoinmarketCap sorted by market capital. Bitcoin is by far the #1, regarding the amount of market capitalization. Again some altcoins are still a good pick, including some smart-contracts projects and decentralized finance (DeFi), like Cardano, Solana, Ethereum, ChainLink and more.
Altcoins do have higher investing risks. Altcoins are more volatile than Bitcoin, let’s say Bitcoin drops 10% the altcoins can drop 30% easily. The crypto market is still relativity new, the Bitcoin capitalization is still very low ($800 Billion) compared to gold ($11 Trillion). Meaning that the crypto top 20 of today, is not the same in 1 year let alone over 10 or 20 years from now.
Bottom-line: If you don’t like risk; only invest into Bitcoin and hold (not financial advice of course). Which by itself is still a risky asset. Other projects like Cardano, ChainLink or Solana are still interesting to be part of it. Always do your own research! But never randomly “invest” into a coin/token on place #359 or #4295 regarding CoinMarketCap. These are red flags.
Argument: Transaction fees are very high
Sending money on a decentralized system requires Bitcoin miners to accept your transaction. Your transaction will be part of the new block on the blockchain. In return the Bitcoin miners receive a small amount of Bitcoin in return (sats/byte). This is called Transaction fees.
There are 3 major ways to reduce your transaction costs in Bitcoin:
- If the Bitcoin network is heavily used, meaning a lot of transaction are taking place, the pressure on the blocks are high, resulting into higher fees. Pick a wallets that support changing the fees (sats/byte) in combination with Replace-By-Fee (RBF), and wait it out. In that case your transaction will only be processed if the transaction costs on the network does down. See also Mempool for the current transaction cost (currently: ~3 sat/vByte).
- Use wallet that has SegWit supports, which further reduces the fees. And send money to a wallet that also support SegWit addresses, the address will start with the “bc1” prefix.
- Use the Lightning Network (LN), which is a layer 2 solution build on top of Bitcoin, to scale Bitcoin. While the project is still relativity new, it’s already used a lot. Especially if you wan to spend small amounts, like buying groceries, you can use the Bitcoin Lightning Network (LN). The LN is not only cheaper, but also faster. Meaning your small amount of satoshis are send fast and cheaply via the lightning network.
Argument: Nobody is using it
Bitcoin and other cryptocurrencies are actually used more and more over the past years. Countries like El Salvador has made Bitcoin legal tender. But also Twitter is soon accepting cryptocurrencies as tipping feature on their platform. PayPal allows you to tip people on their platform via Bitcoin. Soon the Bitcoin ETF will be accepted in America.
Some countries are actually afraid of Bitcoin. China try to ban crypto, most likely in favor of their own central bank digital currency (CBDC). Be aware that a CBDC is centralized and is not a real cryptocurrency, no matter what they try to make you believe.
A Dutch bank, called Rabobank, doesn’t allow you to buy Bitcoin when in case it’s a business account. With a personal account at Raobank, you still can transfer your money to a crypto exchange. Anyway, I would cancel your Rabobank account if you believe in crypto.
Personally, I expect Bitcoin and crypto in general will only see more mass adoption over the coming years. And the blockchain/crypto industry will resolve more real-wold use cases, not just freedom of money.
Argument: It’s deflationary currency which discourages spending
Bitcoin is actually inflationary until all Bitcoins are mined around the year 2140. The bitcoin inflation rate goes down by each Bitcoin halving event. Currently, the Bitcoin inflation rate is around 1,8%.
It’s indeed true that no government, or any other party, can “print” extra Bitcoins. New Bitcoins can only be created via the Bitcoin mining process, until we hit the 21 million coin limit (the maximum amount of Bitcoin that will ever exists). Meaning Bitcoin is a scares asset.
We can argue if Bitcoins won’t be spend at all. Since currently you already see more adoption of Bitcoin. Countries like El Salvador and platforms like Twitter are allowing you to spend your Bitcoin (either via the “layer 1” or via the Lightning network). If you don’t want to spend your Bitcoins, you can always choose other cryptocurrencies as your payment method, maybe Doge, Cardano or Bitcoin Cash to name a few.
Inflation is actually not as good as you think. After all your purchasing power goes down over time. Basically your money will be worth less and worthless. The average wages aren’t growing as fast as the inflation rate is at most countries/companies. That one of reason why often both partners work full-time to make ends meet.
Argument: It can be used for money laundering
Actually the blockchain (decentralized ledger) is fully transparent and readable world-wide. Since the Bitcoin blockchain is fully transparent, you can trace all transactions on the blockchain.
In combination with the laws in most countries require you to execute the know your customer (KYC) process, as mandatory requirement on exchanges. You can trace back who is owning what and to which Bitcoin address. You can stop money laundering that way.
Furthermore, almost everyone in the underworld is using cash. Bitcoin would actually be much easier to trace back, as described earlier.
Argument: It is complicated for the average person
Bitcoin was hard to use at the beginning of the project in 2009. However, we’ve come a long way since then. Bitcoin and other cryptocurrencies became much more user friendly. I see great new digital wallet apps being created each year, both on desktop, mobile phones or web-based. The adoption rate is growing steadily over the years.
Just like the Internet or the first mobile phones, technology advances and the adoption increases. The technology will become more user friendly.
As an example: is most countries you need to a computer with internet access in order to file your tax return. I think you can compare the blockchain to the Internet revolution.
Argument: Using it requires internet access
It’s true you do need Internet access in order to submit your transaction to the Bitcoin mempool (where all the pending transactions are located). Internet is also needed to keep the Bitcoin blockchain in sync across all nodes, over the whole world.
That being said, without Internet you are also unable to perform any pin transactions/wire transfer. The whole world is actually dependent on the Internet/WWW. That is why the Internet is a very important infrastructure, and should by itself also become more decentralized in my opinion. Without Internet we have I think bigger problems world wide.
Argument: Intense day to day price fluctuations
The cryptocurrencies is indeed very volatile. That is also because the market capitalization is relatively low in comparison with other assets.
Once more money flows into Bitcoin and other cryptocurrencies, the volatility will go down because the market becomes more mature. Same of Bitcoin adoption in general. But keep in mind 200 sats, is still 200 sats. 1 bitcoin = 1 bitcoin.
The price is still fluctuating, because crypto is still relativity new. How do you price something that is still being explored by a lot of (new) people, it’s under development and still growing…
Bitcoin has a market cap of around $800 Billion, which sounds a lot, but isn’t. Gold alone has a market cap of $11 Trillion. The America Bitcoin ETF is still pending for approval. Once such an ETF will be approved, billions more will be invested into Bitcoin, Ethereum and other cryptocurrencies. Making the prices less volatile.
Argument: Forgotten passwords/lost devices can lead to major losses
As discussed earlier at Argument: Why people think it’s a scam, Bitcoin is a decentralized system. Meaning you get all the benefits of a decentralized system, but the down side is that you need to educate yourself.
It’s very important to understand that you are in control your of your own money. You can’t press a “I forgot my password” link. Meaning you need to take additional measurements to keep your cryptocurrencies safe and take your responsibility.
Never ever share any private key or seed phrase with anybody. Do not even store your seed phrase on a computer, and definitely not online.
Best way that I found is to use a hardware wallet, like a Trezor or Ledger device. Allowing you to manage your crypto safely, your private key will never leave the hardware wallet. Also store your back-up seed phrase offline on a metal plate. I don’t store my seed phrase on paper, since paper can easily be damaged. Paper burns easily and is definitely not water-proof.
When you go for a hardware wallet, I would advice you to buy either a Trezor Model T or a Ledger Nano X. Hardware wallet have support for multiple cryptocurrencies, meaning you can use the same hardware wallet for a large variety of crypto coins/token.
Furthermore, a hardware device isn’t limited by the vendor software ( Trezor Suite or Ledger Live), but can used in combination with other (lite) wallets.
Argument: Lack of a central authority means governments can’t respond to economic crises
You could argue if the central authorities like central banks and governments are really helping the individuals. Intervening usually makes the situation worse. Although not always directly visible in the society. It can take several years before the problem reaches the surface. Which can then lead to (new) financial or economic crisis.
Furthermore, the reported inflation rates are almost always wrong and reported too low. The real inflation rate is higher. This is because house prices, for example, are not part of the inflation rate calculations, at least not in The Netherlands nor in North America.
Argument: It functions more like an asset than a currency
Bitcoin is indeed used as an asset against inflation. Just like gold. In act, gold has an average return of -0.21% over the past 10 years. S&P500 has an average annual return of 14%. Bitcoin has an average annual return of 891% over the past 10 years. That is one of the reasons that investors are seeing Bitcoin as an asset.
Satoshi Nakamoto describes Bitcoin in his whitepaper as an “electric cash system“. Hinting to a technology that could potentially replace the current monetary system. With more and more adoption over the last years, including El Salvador, Bitcoin is already be used as a digital currency.
The Bitcoin Lightning network does help to make Bitcoin become more usable as a currency. See also the argument of high transaction fees.
Thanks for reading. I hope this article helped you to better understand Bitcoin and the underlying technology. If you have any questions or you do want to discuss another arguments. Let me know in the comments below!
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