Op Ed: Debunking Bitcoin Myths, The ‘Intrinsic Value’ Fallacy

Bitcoin Value

A series of op eds by Kyle Torpey addressing some of the oft-repeated arguments against Bitcoin.

One of the earliest criticisms of Bitcoin was that the underlying token in the system had no intrinsic value. This point was an area of heavy debate among libertarians and Austrian economists who had become interested in bitcoin as a potential digital alternative to gold in the early stages of the crypto asset’s development.

Much of the debate revolved around Austrian school economist Ludwig Von Mises’ regression theorem, which claims non-monetary use cases as a prerequisite for any good to become a money.

Like many others, I fell on the side of bitcoin lacking any sort of intrinsic value after first learning about the new digital asset, but this was largely due to my lack of understanding around bitcoin’s utility as a digital bearer asset at the time (around 2011 to 2012).

Medium of Exchange vs. Store of Value

My view on bitcoin’s lack of intrinsic value changed once I realized that it was the only option in terms of a permissionless, censorship-resistant digital money.

One of the common arguments around the intrinsic value of fiat currencies, such as the U.S. dollar, is that the key underlying value proposition is that you have to pay your taxes with it. Bitcoin has a similar property where it must be used for censorship-resistant transactions online (yes, there are other options but bitcoin is the most liquid).

The continued existence of this point of view explains the thinking behind the creation of various altcoins focused on low-fee payments, such as bitcoin cash. Although, as Bitrefill CCO John Carvalho pointed out at the recent Understanding Bitcoin conference in Malta, many Bitcoin users have seen their thinking on this topic evolve further over the years.

This is not to say payments are not important (Bitcoin has its own secondary payments network known as the Lightning Network), but rather, the security and stabilization of Bitcoin’s base layer is key to protecting bitcoin’s utility as a store of value.

These two differing views on why bitcoin is valuable was a core aspect of the scaling debate from 2015 to 2017 (I’ve written an in-depth exploration of this point here).

A number of altcoins have arguably made improvements over bitcoin in terms of adding additional payment features. For example, Monero is renowned for the increased levels of privacy it can offer (although bitcoin is now seeing privacy improvements of its own through software like Wasabi Wallet and Samourai Wallet).

As Blockstream mathematician Andrew Poelstra has explained in the past, Bitcoin users simply prioritize security and stability over new, experimental payment features.

One of the key issues with these payment-focused altcoins is that they don’t have the same level of liquidity or network effects found with bitcoin, so bitcoin is still by far the most preferred money in the cryptocurrency space.

The view of bitcoin being a good as a store of value is helpful in terms of increasing the utility of that good as a medium of exchange. If more people are willing to hold a good, then they’re more likely to accept that good as payment.

Of course, having utility as a medium of exchange also assists the store of value proposition. But the key point to realize here is that a good acting as a medium of exchange is only possible if it first obtains some value. You can’t send value through a good if that good’s value is near zero (more on this from Bitcoin creator Satoshi Nakamoto later).

To be clear, it’s not the specific 21 million cap that enables bitcoin’s usefulness as a store of value. Instead, it’s the credibility of that monetary policy that matters in that it can’t be changed on a whim by anyone (not even a collection of the largest companies in the ecosystem).

Bitcoin is generally much less volatile than altcoins, which harms their comparative utility as stores of value (and, therefore, mediums of exchange).

It should also be noted that altcoins tend to be more centralized in terms of influential nodes and less diverse user bases, which puts into question the level of censorship-resistance of these cryptocurrencies as payment networks (see Ethereum’s hard fork to bail out those who were negatively affected by the hacking of The DAO).

So What Is Bitcoin’s Intrinsic Value?

“Intrinsic value” is a weird term when applied to commodities like gold and currencies like the U.S. dollar. There is nothing intrinsic about the value of anything. Value is subjective and comes from outside forces. For example, a gold bar isn’t very valuable to someone stranded on a deserted island alone.

In real terms, what makes bitcoin valuable is that it’s an apolitical digital money. The difficult-to-corrupt monetary policy is at the core of this value proposition, but other attributes and use cases are built on top of that base layer.

So, what about Mises’ regression theorem? Well, technically, bitcoin was valued as a collectible by cypherpunks before it was used as a payment system. Although it was extremely easy for cypherpunks to obtain some bitcoin at a low cost, that cost was not necessarily zero.

This early value as a collectible combined with a permissionless, censorship-resistant payment system illustrates bitcoin’s “intrinsic” utility. Satoshi wrote about this concept on the bitcointalk.org forum before he left the project.

“If [bitcoin] somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it,” wrote Satoshi. “Maybe it could get an initial value circularly as you’ve suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some)[.] Maybe collectors, any random reason could spark it.”

Many gold bugs (see Peter Schiff) still think there’s nothing valuable about bitcoin and perhaps they’ll never change their tune. But the same logic economists and financial experts use to argue for the intrinsic value of gold and fiat currencies applies to bitcoin too.

This is a guest post by Kyle Torpey. Opinions expressed are his own and do not necessarily reflect those of Bitcoin Magazine or BTC Inc.

This article originally appeared on Bitcoin Magazine.

Op Ed: Bitcoin Is Turning Left vs. Right Into Big Data vs. Privacy

Republicans Democrats

The political spectrum is usually divided into four main categories: libertarian left, authoritarian left, libertarian right and authoritarian right. Those on the left prefer a more controlled economy, while those on the right have a preference for free markets. Libertarians tend to promote more liberal social policies, while authoritarians want to control what people do in the privacy of their own homes.

Op Ed: Bitcoin Is Turning Left vs. Right Into Big Data vs. Privacy

This is generally how political leanings are defined today, but technologies like Bitcoin and end-to-end encryption are changing that as our digital lives become, in some ways, more important than what we do in the real, physical world.

As technologists have explained to lawmakers around the world over and over again, encryption is either secure or it isn’t. Backdoors for law enforcement do not work because they create security holes. Either the encrypted messages you send over the internet are private or they aren’t.

This leads to a dichotomy where governments can either gain access to their citizen’s private messages, finances and other personal data or they can’t. The situation is black and white: People are either able to use encryption or they live in a surveillance state.

@MarcHochstein @BlueMeanie4 @ErikVoorhees @EFF this is the choice forced onto people by bitcoin: freedom vs tyranny. No inbetween.

— Kyle ‘Hodlonaut’ Torpey (@kyletorpey) October 18, 2014

Authoritarians may want access to your personal data in order to make sure you’re following the government-approved social norms, while leftists will want access to your finances in order to make sure you’re paying your “fair share” of taxes.

In an increasingly digital age, both of these political factions would desire what effectively amounts to surveillance in order to bring their values into the digital realm. The libertarian right is the only quadrant that may have no desire or need for mass surveillance.

So, the new political split is between those in favor of surveillance and those in favor of privacy.

Peter Thiel and Reid Hoffman on the Topic

This new paradigm for politics was discussed by PayPal Co-Founder Peter Thiel and LinkedIn Co-Founder Reid Hoffman at the Hoover Institution at Stanford University in 2018.

This contrast between crypto and big data was originally brought up by Thiel in terms of centralization and decentralization.

“Even though I think these things are underdetermined, I do think these two map, in a way, politically very tightly on this centralization [versus] decentralization thing,” said Thiel. “Crypto is decentralizing. AI is centralizing. If you want to frame it more ideologically, you could say that crypto is libertarian and AI is communist.”

Thiel expanded on this idea, noting that AI is about big data, governments controlling all of that data, those governments then knowing more about their citizens than they know about themselves and governments attempting to hold society together through centralized control rather than spontaneous order. He pointed to the Chinese Communist Party’s love of AI and hatred for crypto as a more direct example of this philosophy in practice.

Hoffman tweaked Thiel’s libertarian versus communist analogy and stated, “You could say it’s [anarchy] versus rule of law.”

Thiel added, “I would say AI is a much more transparent world — the centralized world is more transparent. And then the question you go and ask is: What’s the opposite of transparency? Is it criminality or is it privacy?”

Where Will This Take Us?

This move toward digital privacy as the key divider between political ideologies has implications that are difficult to predict. It’s unclear what happens next.

The most interesting development may be with left libertarians, who will need to decide whether or not they actually care about online privacy, because Bitcoin has created a situation where financial privacy on the internet is possible.

In reality, there are limits to the concept of crypto anarchy. While things like Bitcoin may make it more difficult to collect taxes in some instances, governments will be able to evolve in order to protect their revenue streams. Taking the tax issue to the extreme, government employees can still show up at property owners’ homes with guns and demand tribute.

It’s possible that dragnet surveillance may become less useful as more people turn to encryption and old-fashioned police work will be needed more frequently to solve cases.

Of course, this assumes that the advocates of online privacy will win out over the authoritarians from an ideological perspective. It’s still unclear whether much of the population cares about protecting its personal data from the likes of Facebook, Google and government agencies.

At the end of the day, technology is on the side of those who are in favor of strong privacy, which makes it more difficult to control. How this all plays out may depend on how violent leftists and authoritarians are willing to get in order to protect the idea of a centralized, controlled society on the internet.

This is a guest post by Kyle Torpey. Opinions expressed are entirely his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

This article originally appeared on Bitcoin Magazine.

Op Ed: Why Bitcoin’s “Toxic” Maximalism Makes Sense

Toxic Bitcoin

Over the years, Bitcoin has gained a reputation for having a “toxic” community of users around it. This accusation is mostly thrown at Bitcoin by proponents of altcoins and those who have supported various Bitcoin hard fork attempts in the past.

Of course, this is an oversimplification of the Bitcoin community. Crypto Twitter, which is the main hub of online cryptocurrency conversations these days, does not make up anywhere near the entire Bitcoin user base. When people talk about the Bitcoin community being toxic, they’re mostly complaining that some Bitcoin users were mean to them on the internet.

Having said that, there is a logical reason that some Bitcoin users get extremely angry at certain members of the greater crypto asset community.

What’s With the Hostility, Man?

Bitcoin is defined by a set of protocol rules. It is these rules, which are effectively set in stone (see: Satoshi), that provide the underlying value proposition of Bitcoin. Bitcoin’s most important feature is not necessarily its specific monetary policy (the 21 million cap) or any of the other specific rules. Instead, the fact that the rules are extremely difficult to change is the key selling point (I’ve written a longer explanation of this here).

Of course, people could decide to abandon Bitcoin and go use something else (an altcoin or some forked version of Bitcoin), but that would necessitate the creation of a new network.

With this in mind, it should become clear why attempts to change the rules of Bitcoin through social attacks are met with disgust. Attempting to use social clout or “thought leadership” in an effort to push users over to a new network with different rules undermines the underlying value proposition of this technology.

While we’re on the topic of #SegWit2x, it’s important to point out that one of the key issues with the plan was that it was presented as a decree rather than a proposal. Kind of goes against the whole reason of why we’re here in the first place.

— Kyle Torpey (@kyletorpey) March 27, 2019

If something new were to overtake Bitcoin through pressure from a consortium of influential nodes on the network, then what’s to stop that from happening again with the new coin of the moment? Perhaps more importantly, will the new coin stick to the core ethos of Bitcoin as an apolitical store of value and medium of exchange? If Bitcoin is susceptible to this sort of persuasion from influential players in the space, then it’s unclear how different it is from the traditional financial system or non-cryptocurrencies like Ripple’s XRP.

Bitcoin proved resistant to this sort of persuasion in the case of the New York Agreement, in which a consortium of economically relevant Bitcoin nodes and miners effectively got together to say some new fork of Bitcoin with a larger block size limit (which increases the cost of operating a full node) was going to be the new, official version of Bitcoin.

It’s not a stretch to call the New York Agreement an attack on the whole point of Bitcoin existing in the first place. Various businesses built on top of Bitcoin were putting their own needs ahead of the viability of bitcoin as an apolitical money. Perhaps more importantly, they issued their plan as a decree rather than a proposal.

Yes, those companies had users of their own to represent, but it’s possible that the power of users focused on the store-of-value use case were ignored in favor of those who put greater emphasis on the use of bitcoin as a medium of exchange.

On Twitter, some signers of the New York Agreement referred to those who shared criticisms associated with the 2x portion of SegWit2x as toxic individuals.

At the time, I wrote about how the creation of a federated sidechain may be a more sensible approach to the need to free up block space on the base of the Bitcoin blockchain. But the SegWit2x train had already left the station.

Thankfully, the failure of SegWit2x ended up being nothing more than an illustration of the difficulties associated with pulling off social attacks on Bitcoin. The whole ordeal added credibility to the “digital gold” meme that had long been associated with bitcoin.

Bitcoin’s current consensus rules are the Schelling point when people are unsure of what to do in the case of a network split, which makes it difficult for hard-forking changes to happen without widespread consensus. If there is going to be some kind of hard fork of the Bitcoin network, there better be a damned good reason to do so, such as a critical bug in consensus-related software. Otherwise, the “toxic trolls” are incentivized to respond to your attack on Bitcoin’s apolitical nature.

With all of this in mind, the question must be asked: Who is really the toxic part of the Bitcoin community? Those who attempted to push users to a new network and call it “Bitcoin” or those who said some mean words on the internet?

This is not to say every signatory of the New York Agreement is toxic. Some, such as Xapo CEO and PayPal board member Wences Casares, may have simply made a mistake, while others, such as F2Pool’s Chun Wang, may have never had any intention to run the code associated with the hard-forking portion of the agreement.

If You Break Consensus, You’re Gonna Have a Bad Time

Although the technical details of Bitcoin get a lot of attention, the system is mostly built on game theory. The “toxic maximalism” that is sometimes associated with Bitcoin has its roots in the structure of incentives originally put into place by Satoshi Nakamoto. Bitcoin users are effectively incentivized to attack anyone who attempts any sort of social attack on the system.

When certain individuals or entities push for a noncompatible change to Bitcoin and the “toxic maximalists” respond in anger, it is human nature for those pushing for the incompatible changes to get stuck in their position and become unwilling to admit they were wrong to make the proposal in the first place.

The original mistake was to advocate for breaking consensus without proper support, but that led to a series of other mistakes, which were avoidable.

The block size wars were a valuable lesson for everybody, but they were an especially costly lesson for those who simply could not admit they had made a mistake and continued on their crusade via the Bitcoin Cash (BCH) altcoin.

At the end of the day, those who saw the error of their ways and didn’t go down the path of Bitcoin Cash are better for it. After all, it’s beneficial for everyone if we’re all using the same money. The fact that you can transact with your worst enemies via the Bitcoin network is a big part of apolitical money.

Note: This article was partially inspired by ShapeShift CEO Erik Voorhees’s recent appearance on What Bitcoin Did and BTC Inc CEO David Bailey’s recent appearance on the Stephan Livera Podcast. I recommend listening to both of those podcast episodes.

This article originally appeared on Bitcoin Magazine.

FastBitcoins.com Enables Cash-for-Bitcoin Exchange Via the Lightning Network

fastbitcoins.jpg

Many are predicting that 2019 will be the year Bitcoin’s Lightning Network sees massive growth and becomes a more common way to make bitcoin payments, and a new company based in England’s East Midlands hopes to help with that process.

Today, FastBitcoins.com has announced the launch of its cash-based bitcoin exchange, which includes Lightning Network integration. With this new exchange, users will be able to avoid touching the blockchain when they decide to buy or sell bitcoin for cash.

The new exchange was founded by former Neo & Bee Managing Director Danny Brewster, who says he is on a mission to restore his credibility after his last venture infamously failed in spectacular fashion.

How It Works

Brewster is also behind AAO Global, a company that provides store operators with digital kiosks that can be used by customers to purchase anything from prepaid cell phone minutes to Xbox Live subscriptions. The plan is to add FastBitcoins.com as one of the 5,000 voucher options on these hardware terminals.

“We take away the current pain points blocking normal people buying bitcoins; there is no complex process involving signing up to a Bitcoin exchange or network and having to convert your money,” said Brewster. “Customers can now just walk into a Fastbitcoins.com partner shop and buy bitcoins with the same ease and speed as buying a prepaid telephone/cell-phone credit/top up voucher.”

The FastBitcoins.com terminal was originally debuted in December 2018 when a reporter bought 10 pounds worth of bitcoin from a touchscreen in the back of a London taxi.

In addition to the terminals, FastBitcoins.com also plans to sell physical bitcoin gift cards, integrate with existing bitcoin wallets, and build a FastBitcoins.com mobile app.

“We are also building relationships with other distributors for integrating with our FastBitcoins.com systems to enable the sale of vouchers through their existing hardware,” added Brewster.

FastBitcoins.com also has a partnership with crypto payment platform Bitrefill, which means any of the gift cards and other services sold via Bitrefill will also be available for sale via the FastBitcoins.com terminal. Additionally, FastBitcoins.com voucher codes can be purchased via Bitrefill.

Earlier this month, Bitrefill also stepped into the Lightning space when it launched Thor, a service that allows customers to open Lightning channels on demand.

FastBitcoins.com’s fees start at 6 percent to buy bitcoin and 3 percent to sell for unregistered users. Fees become lower if the user is willing to register an account or verify their personal information.

In terms of buy and sell limits, Brewster stated, “You must be registered to sell to us, and the limit depends on the retail locations near the user and their limits for paying out cash. The buying limits depend upon jurisdiction, but you can buy up to £250 worth of bitcoin in the UK per voucher without an account. However, we do have monitoring in place to ensure the structuring of transactions isn’t occurring.”

Currently, FastBitcoins.com’s products and services are available at locations in the U.K., but the company plans to have some locations set up in Canada before March as well. Locations set up in the U.K. right now include convenience stores, money transfer agents, a tattoo parlor, and the aforementioned London black cab.

Bitcoin Magazine was able to try out the FastBitcoins.com system before launch. An image of a test voucher was shared by FastBitcoins.com, and it was easily redeemed for bitcoin via the Lightning Network after entering an email address and copying and pasting a Lightning Network invoice.

Tippin.me was used as the destination for redeeming the voucher via the Lightning Network. Thankfully, FastBitcoins.com had a Lightning channel open with Tippin.me.

Danny Brewster’s Controversial Past: Neo & Bee

Those who are new to the Bitcoin space may not be familiar with Brewster’s controversial past.

Back in 2014, Neo & Bee was building a “bitcoin bank” and payment system in Cyprus. This was not long after the bail-ins happened in the European country, and there was a lot of hype around the Neo & Bee project. Shares of Neo & Bee’s parent company, LMB Holdings, were made available via the Havelock Investments platform, which was sort of a more centralized precursor to the ICO mania seen in 2017.

Neo & Bee seemed to collapse as soon as it was open for business. In short, Brewster was facing allegations of fraud, LMB Holdings trading was halted on Havelock Investments and Brewster ended up leaving Cyprus to go back to the United Kingdom.

Brewster claimed a threat was made on his daughter’s life after he returned to the U.K.

“Regular messages directing me to hang myself were commonplace for the first year,” said the former Neo & Bee managing director.

According to Brewster, he eventually met with Cypriot police in the U.K. for a five-hour interview regarding the various allegations against him on the condition that he did not have a lawyer present.

“I knew I was innocent,” said Brewster. “I attended what turned out to be a five-hour interview and made a recording using my mobile phone. By the end of the interview the officers stated that the case would now be closed and passed to the Attorney General’s office for them to close it, because it was evident that no crime had been committed and the allegations were false. They also offered the advice to see those responsible in court for the accusations they have made, in an effort to recover the financial losses caused by their actions.”

At the end of 2014, Neo & Bee was listed, behind the collapse of Mt. Gox and the ongoing trial of alleged Silk Road administrator Ross Ulbricht, as the third biggest crypto scandal of the year, as rated by CoinDesk.

Mastering Bitcoin author Andreas Antonopoulos and Adamant Capital founding partner Tuur Demeester both posted their accounts of what had happened with Neo & Bee, as Antonopoulos consulted for them and Demeester had bought one share in the company.

According to Brewster, the company’s issues started with a simple accounting error. He shared his full take on the saga in a 2017 interview with Bitcoin Uncensored.

“When all that was happening I was polishing my coding abilities and building FastBitcoins.com,” Brewster told us.

For Brewster, FastBitcoins.com is part of his plan to make Neo & Bee investors whole again. The business is structured in a way where it never holds customer funds, and they offer complete transparency when it comes to exchange rates and fees.

“Given my past, I am fully aware that I will be under more scrutiny than anyone else in the Bitcoin community,” said Brewster. “But I see this as an opportunity because it also puts more onus on me than anyone else in this space to deliver a safe and trustworthy service. The easiest thing for me to have done would have been to walk away from the industry altogether, or employ someone to be the public face of the business. Yet, despite my past and all of the false allegations thrown at me, I’m committed on two things: correcting mistakes made and bringing the benefits of Bitcoin to society.”

Brewster has pledged to take profits from his new venture at FastBitcoins.com to help make all Neo & Bee investors whole. Brewster says around 20 percent of outstanding Neo & Bee tokens have been settled one way or another, and two of those former Neo & Bee investors are now shareholders in Brewster’s new company.

Those who invested in Neo & Bee can make a claim on their investment losses at NeoDisrupt.com.

This article originally appeared on Bitcoin Magazine.