Answering Common Bitcoin Criticisms
Answering Common Bitcoin Criticisms w/ Lex Fridman
In this video Answering Common Bitcoin Criticisms w/ Lex Fridman, Lex Fridman interviewed Saifedean Ammous and asked for his views on various criticisms around Bitcoin.
Criticism 1: Bitcoin in not as Centralization as it should be
Bitcoin mining are conducted by a few big organizations so Bitcoin mining is not fully decentralized. A small number of miners control a majority of the hatching power.
Explanation: Bitcoin understands the Importance of Node Decentralization.
True decentralization lies in having a large number of nodes distributed across the network. Bitcoin’s strength comes from its extensive node distribution, making it resistant to centralization. There are key differences between miners and nodes:
Miners vs. Nodes:
There are some differences between miners and nodes.
- Miners are service providers who invest capital upfront in mining operations (hardware, electricity, etc.).
Their investment is based on the expectation that if they follow the rules set by the nodes, they will be rewarded with Bitcoin. - Nodes, on the other hand, validate transactions, enforce consensus rules, and maintain the blockchain.
- Nodes determine the rules of the game, and miners must adhere to those rules to receive rewards.
The 2017 Blocksize War
Reader should also go and read The 2017 Blocksize War
In 2017, there was a significant debate within the Bitcoin community regarding the block size parameter. Some miners believed they could control Bitcoin by changing this technical parameter, which determines the maximum size of each block in the blockchain. However, their attempt to force this change was met with resistance from other network participants, including nodes. Ultimately, the nodes rejected the proposed block size increase, emphasizing their sovereignty in determining Bitcoin’s rules. This highlight how powerful Bitcoin's decentralized system is, as in it is very difficult to take over the Bitcoin network by any one party.
Criticism 2: Bitcoin energy consumption is very high
Another criticism is about energy consumption. Bitcoin uses Proof of Work consensus mechanism which uses a
lot of energy.
Explanation: True, but it is worth it.
We need to perform cost-benefit analysis instead of just saying that Bitcoin uses a lot of energy without considering what good it brings to human beings.
Technological Innovations and Energy:
- Most technological advancements aim to economize human time and judgment.
- Machines, despite consuming significant energy, enhance efficiency and reliability.
- Examples include telephones, cars, and airplanes.
Bitcoin is just another example of using energy to improves people's life.
Criticism 3: Bitcoin is very volatile and it is not suitable for investment.
People see Bitcoin is too volatile and want to stay away. It doesn't seem like a safe place for them to invest either short term or long term.
Explanation: While Bitcoin currently experiences volatility, its long-term potential and scarcity make it an attractive asset for those willing to tolerate short-term fluctuations.
As the market matures, Bitcoin’s volatility is expected to decrease, aligning it with gold’s historical stability . Keep in mind that individual investment decisions should consider personal risk tolerance and financial goals.
Volatility and Fiat Assets:
- Holding fiat assets (such as national currencies) provides short-term stability but long-term decline. Fiat currencies are relatively stable day-to-day, but their value erodes over time due to inflation.
- Fiat currencies can lose value by 40% or more over extended periods.
- Bitcoin, on the other hand, exhibits short-term volatility but has the potential for long-term appreciation.
Bitcoin’s Volatility and Long-Term Perspective:
- Bitcoin’s price can be volatile due to its relatively small market size compared to traditional assets like fiat and gold.
- Individual actions (e.g., Elon Musk’s involvement) can significantly impact Bitcoin’s price in the short term.
- As Bitcoin’s market cap grows, its volatility is likely to decrease, making it a more stable store of value.
- Bitcoin encourages a long-term perspective, teaching people to accumulate and think beyond short-term fluctuations.
Personal Opinions
Decentralized and Independence:
Personally for me, based on Bitcoin's history, it is able to withstand one party from taking over it's network (so far). Only times will tell whether it is truly able to hold on to its independence status. But with so many super powers and rich people, it could be a matter of time before they are able to "buy over" more than 51% of the nodes.
Energy Consumption:
Also, for energy consumption, I do agree on using the cost-benefit analysis to determine whether it justifies the high energy consumption. But we need to be sure that the benefits instead outweigh the cost. So what are the benefits of using Bitcoin?
1. Decentralization:
- Bitcoin operates on a decentralized network, meaning it isn’t controlled by any central authority (such as a government or central bank). Instead, it relies on a distributed network of nodes (computers) that work together to validate transactions and maintain the blockchain.
- Decentralization enhances security, reduces the risk of censorship, and promotes financial sovereignty for users.
2. Security and Immutability:
- Bitcoin’s blockchain is highly secure due to its cryptographic design. Transactions are irreversible once confirmed, making it resistant to fraud and tampering.
- The decentralized consensus mechanism (Proof of Work) ensures that no single entity can alter the transaction history.
3. Limited Supply:
- Bitcoin has a fixed supply cap of 21 million coins. This scarcity is programmed into its protocol, ensuring that new bitcoins are gradually mined over time.
- Unlike fiat currencies, which can be printed endlessly, Bitcoin’s scarcity makes it a deflationary asset.
4. Borderless Transactions:
- Bitcoin enables peer-to-peer transactions across borders without the need for intermediaries (banks or payment processors).
- Users can send value globally, bypassing traditional banking systems and associated fees.
5. Financial Inclusion:
- Bitcoin provides access to financial services for the unbanked and underbanked populations worldwide.
- Anyone with an internet connection can participate in the Bitcoin network, regardless of their location or socioeconomic status.
6. Ownership and Control:
- Bitcoin gives users direct ownership and control over their funds. Private keys (used for wallet access) are in the hands of individual users, reducing reliance on third parties.
- Users can be their own bank, managing their wealth independently.
7. Transparency:
- All Bitcoin transactions are publicly recorded on the blockchain. Anyone can verify transactions and track the movement of funds.
- Transparency fosters trust and accountability within the network.
8. Store of Value and Digital Gold:
- Many consider Bitcoin a store of value similar to gold. Its scarcity, durability, and historical performance contribute to this perception.
- Investors use Bitcoin as a hedge against inflation and economic uncertainty.
For me, I come from a country that our banking system are sound. We do not go around printing money irresponsibly, even though we are still affected by the devaluing of US$. Personally I do not belong to the super rich people, so I have nothing to hide from the government or the bank. Therefore the idea of bypassing our central banking system of our transactions does not really appeal to me. (I understand some countries really need to have a way to bypass their countries central banks due to corruptions.).
Also, if Bitcoin is used just as another form of investment, then I don't agree this is considered as a "benefit". There are a lot countries with people having not enough food to eat, and not enough energy to warm themselves. I think using the energy consumed by Bitcoin mining to produce food and warm to these people is more worth it. Ultimately, to use Bitcoin as another form of investment and assets is like making the rich people richer and depriving those that really need the energy.
Overall, even though Bitcoin has made a lot of ordinary people millionaires, we need to if it actually have good benefits for the society as a whole. We also need to consider long term effect Bitcoin has on our environment.
What's your view about these criticisms and about Bitcoin? Please share your views!
