Bitcoin will never be what people want it to be

January 16, 2016

If you ask 10 different people what bitcoin is, you will get at least 10 different answers. I say at least 10, because many people have several different answers. For this article, I will try to leave as much of the technology behind bitcoin out of the discussion. There are tons and tons of articles about the technology behind bitcoin, and I’ll link to those instead of reinventing that documentation.

It’s important to note that people who own bitcoin, it is in their best interest to talk bitcoin up. Bitcoin is highly volatile, and has no oversight or insider trading laws. This means that it is legal for a high profile individual to buy a bunch of bitcoin and then write a slew of articles about how bitcoin will save the world for economic damnation and then sell when he is done. They may be able to swing the price about 10–20% in a day. Better still, they can work with other journalist and focus the pump and dump like efforts.

At a smaller scale, the people who buy in to bitcoin are also forced to talk and inflate the ego of bitcoin. If they don’t their investment might loose value. On the other hand, if they convince the world that bitcoin is the way to go, then they might be millionaires. This has made the understanding of what bitcoin is and where it sits in the world very gray.

The other thing to note, is that bitcoin is currently in its more ideal form. Right now its all wide eye and looking at the world as a 7 year old kid. Full of bright dreams for the world. It hasn’t defined what it is yet, but people are idolizing the young version of it like people often do. This will change, just as Justin Bieber changed.

So, what is bitcoin? Lets look at bitcoin.org’s FAQ for the definition.

Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence.

Not very helpful, but significantly better than most other definitions. Its also filled with half-truths, like most things in life. I’ll break those down, but first lets get some more bitcoin lies.

Bitcoin will replace fiat currencies around the world.
Bitcoin has no central authority.
Bitcoin is anonymous.
Bitcoin is safe.
Bitcoin will end all banks, and put the power back in the hands of people.
Bitcoin will remove politics out of money.
Bitcoin will end transactions fees.
Bitcoin will put credit cards out of business.
Bitcoin can’t have inflation as it is not a fiat currency.
Bitcoin will ensure a even wealth distribution.

My god, the lies hurt to just write down.

Bitcoin will end all banks, and put the power back in the hands of people. This is perhaps the biggest lie, fueled mostly by the tech community. What they claim is that everyone is going to run their own wallet, and not store it in banks. Thus removing the choke hold that banks currently have around money. This could be an entire article by itself, but I’ll keep it short. The vast majority of people are not great with technology and even less people are great with security around technology. It is naïve to think that people are both willing to and should run their own wallet. That’s the equivalent of someone stuffing their mattress with their life savings. It only takes one bad event for it all to disappear. And insuring bitcoin is pretty dam hard. How do you “prove” that your bitcoins are lost or stolen? How do you prove that you were not the one who stole them? You can’t. So for most people banks are necessary.

Bitcoin has no central authority. Right now, bitcoin is pretty community based, however that will not continue to be the case if bitcoin becomes a mainstream day to day currency. The banks of the world will form a committee that will be that central authority. More over, to make changes that affect the world, they only need 51% of the computing power. This means there will be an arm’s race of organizations and countries to build out their infrastructure so they can be the dominate authority. This arm’s race will require a massive amount of electricity to maintain, and will result in multiple exawatts of power being used every year. That’s right, bitcoin will both have a central authority and have a negative impact on the environment.

Bitcoin will remove politics out of money. Politics and money are actually the same thing. If bitcoin becomes mainstream, their will be politics surrounding it.

Bitcoin can’t have inflation as it is not a fiat currency. This is a lie, but even if it was true, it wouldn’t be good. People mark that every fiat currency has failed throughout history. What the fail to realize is that gold standard failed throughout history as well. However bitcoin isn’t gold and isn’t real. If the majority of bitcoin miners and holders (read the world bitcoin committee) decide that bitcoin needs a massive influx of coins right now to bail out the world’s economy, they can. You may be saying that this goes against everything you know about bitcoin, but it true. The bitcoin code can be modified at any time, and as long as the majority of people switch to the new code, it becomes the running law. So if they wanted to change the difficulty algorithm and raise the coin limit and the amount of coins gained per block, they could. With ease. Boom, world wide hyper inflation. This one is something that won’t happen for at least a decade as doing so would be a political nightmare.

Bitcoin will replace fiat currencies around the world. It won’t, but if it did, then our the world will have inherited all the problems of the gold standard along with the all the problems of fiat currencies in one new super shitty currency.

Bitcoin will end transactions fees. Ignoring the fact that bitcoin has transaction fees built directly in the protocol, payment processors will also take a cut.