Since Bitcoin was created by Satoshi Nakamoto a decade ago, the cryptocurrency continues to spark arguments amongst economists, financial experts, and the regular folks. Bitcoin challenges the very idea of money, and this is something most people are not ready to accept. The operability of Bitcoin and its features have been questioned at every twist and turn, especially during the bear cycle when the price crashes by a large percentage.
The incredible rise of Bitcoin in 2017, which saw the price surge by roughly 2,000% to reach $20,000, led to an intense argument about its status. The astronomic rise in the cryptocurrency space is unlike anything seen before, and this naturally sparked debates. While most people believe that Bitcoin’s underlying technology, the blockchain, has immense value, they don’t think that about Bitcoin. However, most of the claims against Bitcoin, such as that it isn’t backed by anything, are false.
We will look at some of the top arguments made against Bitcoin and debunk them. Hopefully, this post will provide answers to many Bitcoin skeptics.
Bitcoin doesn’t have an intrinsic value (it isn’t backed by anything)
The first and most widely used argument against Bitcoin is that it lacks inherent value. In the case of fiat currencies, central banks across the globe claim that their paper currencies are backed by gold reserves. Since gold is one of the most valuable materials on earth, it implies that the fiat currencies are backed by something with intrinsic value.
However, some famous economists and Bitcoin skeptics believe that this isn’t the case with Bitcoin. That isn’t true. Bitcoin has intrinsic value. In this internet age, data is valuable. Every Bitcoin holder has the ability to embed a large number of short in-transaction messages on the Bitcoin blockchain, which is the most widely distributed and used data store in the world. The message-embedding ability of Bitcoin has intrinsic value since it allows a holder to help prove the ownership of a document at a specific point in time by adding a one-way hash of that document during a transaction.
Bitcoin has features such as fungibility, divisibility, scarcity, and durability, all of which combine to give an asset intrinsic value. With these features, Bitcoin qualifies as money and can be used as a medium of exchange for goods and services.
In addition to this, you can think about the intrinsic value of Bitcoin as a global network rather than isolated single currencies. The value of a single Bitcoin is derived from the global network it is connected to, making it crucial for transmitting economic information via the network.
Bitcoin is a bubble
This is perhaps the oldest argument against Bitcoin. The skeptics of the cryptocurrency believe that since it doesn’t have any intrinsic value, it will eventually burst and its price would plunge to zero one day. Thus, they think it is a bubble.
In finance, a bubble can be defined as an economic cycle characterized by a rapid rise in the price of an asset followed by a sharp decline. The bubble occurs when investors are no longer willing to purchase the asset at the escalated price, leading to a sell-off that drags the price down.
Bitcoin skeptics have claimed several times that the cryptocurrency is a bubble. Over the past decade, Bitcoin has suffered four major price corrections, and on each occasion, skeptics have reiterated their stance that the cryptocurrency was a bubble. On each of these supposed ‘bubbles,’ the price of BTC dropped by more than 70 percent. However, the value of the cryptocurrency bounces back and goes on to set a new record price.
While Bitcoin was considered a bubble at $100 and investors were not willing to purchase it at that price, the market recovered, and investors bought it at higher prices of $1,000, $10,000, and its all-time high of $20,000.
Each time the bear market comes around, Bitcoin and the cryptocurrency market undergo a correction. Market correction is something that happens in other financial markets as well, considering the market crashes of 2008 and others in the past century.
If market corrections are regarded as bubbles, then Bitcoin will undergo many more bubbles in the future. The price of the cryptocurrency will pop, there will be a correction period, and the market will recover and surge to a new record price. According to security expert and cryptocurrency researcher Andreas Antonopoulos, each market goes through a bubble but endures to come back even stronger.
The fact that Bitcoin has undergone four significant corrections over the past decade and the price didn’t plunge to zero reiterates the fact that it is not a bubble. Instead, Bitcoin is a financial asset that undergoes market corrections but comes back stronger after each correction.
Bitcoin is a Ponzi scheme
This can be regarded as the weakest argument against Bitcoin, yet it is one of the most widely spread. Ponzi schemes are fraud investments where new investors are defrauded to pay off the earliest investors, with the new investors getting nothing in return for their investments.
This argument against Bitcoin is entirely false. In the first place, Bitcoin is a decentralized entity, with no central authority controlling the activities of the network. With no central authority, it is technically impossible for an individual or an organization within the Bitcoin network to defraud new investors to pay off the earlier investors. This is because no one has the power to remove funds from wallets without the authorization of the owner. Bitcoin is a consensus currency, and without the consent of each party involved, transactions cannot take place.
The fact that Bitcoin is being accepted as a means of payment by popular brands across the globe also nullifies the argument that it is a Ponzi scheme. The case that Bitcoin is a Ponzi scheme is usually made by people with little to no knowledge of how Bitcoin works.
Bitcoin is not secure
Some Bitcoin skeptics have suggested that Bitcoin as a currency is not secure. That statement has been proven to be wrong multiple times. Bitcoin is developed on top of its blockchain, and transactions are recorded on its ledger.
Over the past few years, the high level of security of blockchain has been recognized, and corporations and governments are taking advantage of it to enhance their cybersecurity. So far, it has been almost impossible for anyone to alter the transactions recorded on the Bitcoin ledger.
When security complaints are discussed, it is usually due to the carelessness of some individuals. It is advised that passwords and private keys to Bitcoin wallets shouldn’t be stored online to ensure that holders don’t lose their Bitcoin reserve in case their devices or online accounts are hacked. Also, it is not advised to store Bitcoin reserves on cryptocurrency exchanges since they don’t have the security to completely secure the digital currencies in their possession.
However, when it comes to the security of Bitcoin, it is one of the most secure and impenetrable assets in the world. While cryptocurrency exchanges have security deficiencies, that doesn’t mean that Bitcoin is not secure. The Bitcoin network is very secure, and that is a fact.
Bitcoin is for criminals
This argument is often thrown around by banks, which are big critics of Bitcoin. The popular case is that Bitcoin is used by criminals, terrorists, and the like to transfer funds without getting traced.
While it is true that Bitcoin is being used by criminals, fiat currencies have been used for centuries and are still the preferred mode of payment amongst criminals. For ages, criminals have exchanged funds using fiat currencies, and Bitcoin and other cryptocurrencies just provided them with an alternative rather than becoming the primary currency of exchange.
It has become common knowledge that Bitcoin transactions are transparent as they are visible on the Bitcoin ledger. The fact that a transaction carried out on the Bitcoin blockchain is visible to the entire world makes it a poor choice for criminals. Authorities can easily view previous transactions on the network, identify the sender and receiver’s addresses, and the amount used in the transaction.
The transparent nature of Bitcoin makes it a lousy choice for criminals. While the argument might stand that Bitcoin is used by criminals, it is not something that would stick considering the fact that fiat currencies are very much used for the same purpose by criminals.
Conclusion
Bitcoin has been accused of many things over the years. However, most of the arguments against the cryptocurrency have turned out to be false. Some people are still skeptical about Bitcoin’s role as a currency, but cryptocurrencies continue to gain adoption in virtually all sectors of the global economy. Overall, Bitcoin is an innovation and a disruption that promises to change the global financial landscape. And so far, it has recorded moderate success. Despite ongoing criticisms, Bitcoin has consistently proven its resilience and adaptability. The technology underpinning Bitcoin, particularly its blockchain, has demonstrated its ability to withstand various forms of scrutiny and challenge. As the cryptocurrency ecosystem evolves, so does Bitcoin’s capacity to address and overcome its critics. Additionally, the growing institutional interest and acceptance of Bitcoin highlight its increasing legitimacy as a financial asset. Major companies and financial institutions are integrating Bitcoin into their portfolios, which not only validates its value but also contributes to its broader acceptance. As Bitcoin continues to mature, it may very well address many of the current criticisms and solidify its role in the global financial system.
