Bitcoin is a "Scam"
Examining the fundamentals of the world's best monetary system
We are innately fearful of change. A part of the human brain called the amygdala interprets change as a threat, releasing a set of hormones that shields the body from anything perceived as change. This biological function explains why so many are quick to call Bitcoin a scam despite it being the best monetary system in the world. The blockchain technology that backs the Bitcoin network makes it transparent, secure, indestructible, and incorruptible. In 2140, the last of the 21 million bitcoins will be mined, and no more will ever be created. Satoshi Nakamoto, the pseudonym behind Bitcoin, gave us the ultimate gift: freedom.
Before Satoshi Nakamoto, an intelligent cryptographer named David Schaum presided over the creation of Digicash, a company focused on developing a digital currency that emphasized privacy known as eCash. Despite Bill Gates’s commitment to incorporate eCash into every copy of Windows 95 and his offer of $100 million to purchase Digicash, Schaum deemed the proposal insufficient. Even with support from Deutsche Bank, eCash faced significant criticism and was unable to gain traction, ultimately leading to its downfall and bankruptcy in 1998. Tragically, Schaum’s eCash was flawed from the outset, lacking the crucial technology that would eventually make digital currency a reality. This technology, blockchain, was introduced in 2009 by Satoshi Nakamoto and was the foundation upon which the revolutionary cryptocurrency, Bitcoin, was established.
If Bitcoin is a scam, then what is the U.S. Dollar?
“BITCOIN IS A SCAM...IT’S FOR CRIMINALS”, my grandpa shouts at me across the Thanksgiving table. Bitcoin is transparent, secure, indestructible, incorruptible, decentralized, and has a fixed supply. The U.S. dollar is none of those things, yet nobody calls it a scam. Traditional currencies like the U.S. dollar have been used for centuries to perpetuate scams and financial fraud. From Ponzi schemes to insider trading, the traditional financial system has a track record of corruption and fraud. The U.S. is printing itself into oblivion, as the treasury produced about 40% of all U.S. dollars in circulation between 2020 and 2021.
There can only be 21 million bitcoin. If bitcoin is seen as a scam, then we should seriously question the very nature of money and value, leading us to reflect on the potential flaws and vulnerabilities of government-controlled currencies like the U.S. dollar and sparking a debate on the need for alternatives.
Why Bitcoin is Secure, Indestructible, and Incorruptible
The transactions made using bitcoin are recorded on a decentralized ledger known as the blockchain, which represents a revolutionary way of storing data that has unparalled resilience against cyber intrusion and data manipulation. The pioneering blockchain technology was conceived by Satoshi with the primary objective of resolving the double-spend problem. To date, the Bitcoin network has remained impervious to hacking and fraudulent activity.
The Bitcoin ledger, powered by blockchain technology, is maintained by a network of computers that work together to validate and record all transactions through cryptography. Each time a new transaction is made, it’s added to the end of the blockchain as a block, which is then verified and validated by the network of computers. Once a block is validated, it cannot be altered. If one were to tamper with a block, the other computers with copies of the ledger would recognize it as invalid, hence not validating the block. This technology makes it IMPOSSIBLE for someone to spend the same digital currency twice. This makes it possible to use digital currencies with reliability and confidence that is better than any financial institution in the world.
Since there is no central point of control that criminals or hackers could exploit, bitcoin is an incredibly secure currency. The decentralized nature of blockchain technology eliminates common risks associated with traditional financial institutions, such as bank failures or cyberattacks.
Fixed Supply is Essential, but it DOES NOT Create Value
Bitcoin maximalists often highlight that the supply of bitcoin is capped at 21 million units, making it immune to inflation that can erode the value of fiat currencies over time. The term originates from the Latin word “fiat,” which means “a determination by authority” and refers to traditional government-issued currencies. However, the mere presence of a fixed supply does not necessarily equate to wealth generation. The fixed supply of bitcoin constitutes a crucial aspect of the currency, but its actual value lies in the underlying algorithm and network effect.
Bitcoin’s Energy Usage Should NOT be a Concern
Bitcoin relies on “mining” to validate transactions and add new blocks to the chain. The proof-of-work mining process requires enormous computational power, which in turn requires significant energy. The Bitcoin network's energy consumption is equivalent to that of a small country.
Environmentalists and Bitcoin skeptics have used the high energy consumption of the Bitcoin network as a scapegoat to deem it an irresponsible technology. However, Bitcoin is shifting towards being operated primarily from renewable sources such as hydropower, wind power, and unused fossil fuels that would otherwise be dumped into the planet.
Bitcoin is far too valuable a commodity to be canceled simply because it requires a lot of energy. Facilitating secure and decentralized transactions is a necessity for humanity, especially for those in countries without properly functioning governments. Many traditional financial institutions consume exorbitant energy through their vast infrastructure and employment. The heightened energy consumption of Bitcoin has also catalyzed exciting research and innovation in clean energy.
While the high energy consumption of Bitcoin should be a concern, it’s not a valid reason for shutting down the network. Similarly, greenhouse gas emissions from activities like driving and flying should not dictate the discontinuation of these valuable services to society. It’s time to view Bitcoin in the same context. It provides millions of people access to financial services and acts as a hedge against governments that devalue their currency through irresponsible spending or incompetence to govern.
Helping the Unbanked
In America, we take banking for granted. For the billions of people living in developing nations, Bitcoin means freedom. Here’s how Bitcoin will help the unbanked:
Financial Inclusion: Bitcoin provides a way for the unbanked to access financial services like sending and receiving payments, saving money, and investing in financial markets.
Low Barrier to Entry: To set up a Bitcoin wallet, one doesn’t need to have a credit history or go through a rigorous application process that often requires information people were never given.
Decentralization: Bitcoin operates independently of any individuals or governments. This enables those living under tyranny, dictatorship, or those without a competent government the reliance on a well-thought-out algorithm to be responsible for their financial security.
Borderless transactions: Bitcoin can be sent quickly across borders. Foreign transaction fees don’t exist.
Bitcoin is still early in development, but it has the power to give people freedom through finance. Financial inclusion will create greater economic opportunities for individuals and communities worldwide. It’s a win-win.
The Internet Needs a Native Currency…but it won’t be bitcoin.
The advent of digital technologies has necessitated the emergence of a native internet currency that can facilitate seamless online transactions. A digital currency can enable things like micropayments and prevent websites from exploiting our personal information. While Bitcoin has gained significant momentum as a decentralized store of value, its transactional efficiency has limitations. There is a growing consensus that more advanced cryptocurrencies operating on sophisticated blockchain networks may be better suited to serve as the internet’s native currency. Bitcoin should be thought of as the global treasury reserve.
The King of Bitcoin Skeptcism
Meet the ultimate Bitcoin skeptic, CEO of JPMorgan Chase, Jamie Dimon. He’s been a vocal critic of Bitcoin, criticizing it for its lack of stability and regulatory oversight, believing it could be used for illegal activities such as money laundering and fraud. In addition, he sees the volatility of Bitcoin as a significant risk for investors. Dimon sees Bitcoin as a speculative investment rather than a safe and reliable store of value and treats those who support Bitcoin as inferior.
In regards to Dimon calling Bitcoin a speculative investment, it shouldn’t be viewed as an investment but as savings. The money you need promptly shouldn’t be invested in Bitcoin. However, I treat Bitcoin like a savings account and believe it will retain its value better than my savings in fiat currency. Leaving money in fiat currency is still appropriate if it’s invested in companies or productive assets like stocks and real estate.
To address Dimon’s belief that Bitcoin is used for illegal activities…
THAT’S NOT EXCLUSIVE TO BITCOIN!
Let’s take a deep dive into one of the largest and most powerful banks in the world, JPMorgan Chase. In 2013, the Department of Justice reached a $13 billion settlement with JPMorgan Chase related to the bank’s sale of mortgage-backed securities in the lead-up to the financial crisis. The bank was accused of misleading investors about the quality of the securities it was selling. This settlement was the largest ever imposed on a single company for financial fraud. In 2016, JPMorgan Chase was fined $264 million by U.S. and U.K. regulators for its role in the London Whale scandal. The bank was accused of ignoring warnings about excessive risk-taking by a group of traders in its London office, which resulted in a $6 billion trading loss. In 2018, the U.S. Consumer Financial Protection Bureau imposed its largest fine ever of $1 billion for the bank’s sale of faulty credit card products.
These are just a few examples of fines imposed on JPMorgan Chase for engaging in illegal activities. Jamie Dimon is a businessman who sees Bitcoin as a credible threat and will say anything to influence public opinion that benefits his bank.
Regulation is Coming
While the FTX saga has nothing to do with Bitcoin, it highlights the need for regulation in cryptocurrency. Regulation of Bitcoin and cryptocurrency, in general, has been a topic of much debate and discussion in recent years. Governments and regulators worldwide are grappling with how to craft legislation best without suffocating this new technology.
One of the proposals is the introduction of mandatory licensing for cryptocurrency exchanges and other service providers. This would require companies like Coinbase and Gemini to meet specific standards for security, consumer protection, and anti-money laundering. Legislation like this could’ve helped prevent thousands of customers from losing their money in FTX.
Another proposal that has been debated is the creation of a uniform set of international regulations for cryptocurrencies. This would require cooperation between countries to cement a consistent framework for regulating Bitcoin and other digital assets. This would prevent companies from seeking out countries with looser regulations and promote stability in the global cryptocurrency market.
Less popular proposals include taxation on Bitcoin that the government claims will increase the accountability and transparency of Bitcoin transactions.
It’s important to be thoughtful with regulation since too much could stifle innovation in the cryptocurrency industry, but too little regulation could leave consumers vulnerable and become prey to the next FTX. Regulation is an excellent thing for Bitcoin. Creating a framework that protects consumers, promotes stability, and incentives the growth of the cryptocurrency market will help solidify bitcoin as a stable global store of value that can act as the world’s treasury reserve.
Gold is Overrated
Growing up, you’re told that gold is a good hedge against inflation. Today, gold is a relatively scarce resource that society has deemed valuable. However, gold is not that scarce as we begin to mine asteroids and eventually become a multi-planetary species. It’s only scarce on Earth. Earthlings growing up today value digital commodities far more than physical ones.
Bitcoin is simply better than gold. Unlike gold, Bitcoin is easily divisible, transportable, and can be used to make purchases. Bitcoin is a more practical and convenient alternative to gold for saving money. If Bitcoin reaches the same $12 trillion market cap as gold, the price will amount to approximately $500,000 a coin.
Is Investing in the Stock Market True Diversification?
All stocks, regardless of their sector, market cap, or geographic location, are tied to the same currency. The value of a stock portfolio is dependent on the stability and strength of the currency in which it is denominated.
While the stock market can be a valuable resource for building wealth, you’re never truly diversified. Investors should consider alternative assets like Bitcoin, independent of global economies.
Understandably, investors are speculative about Bitcoin due to its current volatility and lack of global acceptance, but that is because it’s in its infancy. It currently appears that the price of Bitcoin follows economic trends, but that’s only true in the short term. Obviously, during a recession, the price of Bitcoin will follow the economy because consumers have less cash to invest. However, once Bitcoin establishes itself as a global store of value and all coins are mined, the price will not follow economic trends. To achieve proper diversification, investors need to consider Bitcoin. In these early years of Bitcoin, investors should only invest what they can afford to lose.
Bitcoin will Prevail
Welcome to Bitcoin. It can’t be stopped. Bitcoin will outlast most governments because of its decentralized nature, censorship resistance, hedge against government failures, protection against inflation, and immutable record keeping powered by the blockchain. Power will be given back to the people. Time will tell if this prediction is correct. So, embrace the future and join the Bitcoin revolution by HODLing on.