Bitcoin is ahead of its time. Bitcoin is a scam. Chances are you agree with one of these statements, but why? At its core, the theoretical debate regarding cryptocurrency is centered around control: Who do you want to control the supply of your currency?
Unfortunately, a search around the internet has you believe that the above statement is irrelevant to the cryptocurrency debate. Instead, you find media headlines centered around scammers using technology for their crimes and misinformation that conflates various cryptocurrency concepts: This has led to an ideological discussion on whether the use of technology is justified.
So who is right?
Let’s explore the arguments for and against Bitcoin to understand why modern cryptocurrency debates are flawed.
Understanding how cryptocurrency works is important before forming an opinion on it.
- “How Does Cryptocurrency Work” is an article that explains various cryptocurrency concepts (transactions, blockchain, wallets, exchanges, swaps, layers) and why the first modern cryptocurrency tokens were created.
- “The Only Crypto Story You Need” is an article that delves into the story of cryptocurrency and its related financial concepts.
- This article uses Bitcoin as its foundation, but remember that not all cryptocurrency tokens are the same.
For: Bitcoin Is Ahead Of Its Time
The pro-cryptocurrency crowd argues that cryptocurrencies such as Bitcoin are ahead of their time: This is because a cryptocurrency such as Bitcoin cannot be corrupted after its creation. Specifically, the management of Bitcoin supersedes human behavior by existing in a technically secure and psychologically driven system. However, this will sound like nonsense if you cannot recognize the “flaws” of the current system.
So what are those “flaws”?
The Current System
In modern times, humans use fiat (fake) cash to exchange goods and services (which provide value). Fiat cash is a development from previous currencies backed by physical objects (such as oil or gold). Compared to its predecessors, fiat cash is entirely abstract: Its value is only backed by the belief of a group of humans.
Humans are unpredictable compared to computers: Therefore, currencies that humans directly manage are subject to unpredictability. However, this should NOT be considered an argument for or against cryptocurrency. You could argue that cryptocurrency is unpredictable since humans implement cryptocurrency and manage their computers. On the other hand, compared to humans, computers have clear precautions in place to limit the extent of any “corruption”.
A computer (machine) will always do what it’s told, even if the outcome is unexpected to a human.
The Law of Supply and Demand implies that controlling either supply or demand will give you influence over the price. As a result, the price of the current Global Reserve Currency (USD) is controlled by the Federal Reserve. The Federal Reserve is a central bank controlled by a group of humans. In other words, approximately 23,000 people (0.0002875% of Earth’s Population) control the Global Reserve Currency that affects 8,000,000,000 people. That’s 8 billion people.
The subconscious mind plays a major role in any human decision: Do you want someone in control of your money to be able to wake up and say, “I want to pay off my debts, so let’s inflate the currency until that happens.” Or vice-versa, “I want my money to be worth more (than other people’s assets), so let’s cause deflation until that happens.” Well, that’s a possibility within the current system.
And guess who pays for it…
The argument for cryptocurrency being psychologically driven is NOT centered around the unpredictability of humans: More so that humans are psychologically driven to benefit themselves, so don’t be surprised when humans benefit themselves given a chance. In other words, don’t be surprised when a fiat currency’s value (price) is controlled to benefit an individual over the population.
Computers are also indirectly subject to unpredictability. So the transitive property extends a computer’s unpredictability to cryptocurrency. However, unlike humans, a machine cannot be influenced — at a psychological level — to control the supply and demand of a cryptocurrency. Computers enforce the code of a cryptocurrency token using solely the provided code: There is never an unpredictable deviation from that objective.
That said, a valid argument is that the holders of a cryptocurrency token have a psychological drive to increase the value of the token. There are also benefits to being an early adopter of a currency: The Cantillon Effect (Monetary Theory) highlights the benefits of being the first to receive new money when it’s supplied. For example, financial institutions (banks, hedge funds, etc) maintain an advantage in purchasing power over the general population by issuing the supply of new fiat cash.
Psychological drive is also discussed as a defense mechanism for 51% attacks: Delegitimizing a currency is expensive and psychologically antithetical to an attacker’s goals. So while it’s fallacious to say that cryptocurrency maintains protection from psychological influence, cryptocurrency holders are only psychologically driven to increase its value instead of devaluing the currency at the expense of others.
What’s the Difference?
Cryptocurrency is technologically secure against corruption of its machines and psychologically driven by the group that holds it. In contrast, fiat cash is prone to corruption by those that control it and is psychologically driven at both an individual and institutional level. What the for-cryptocurrency crowd gets wrong in its claim that “Bitcoin is ahead of its time” is that there is a need for a currency that maintains the properties of mainstream cryptocurrencies.
For example, Bitcoin is a cryptocurrency that alleviates certain “issues” that fiat cash has:
- It cannot be created out of thin air through its proof-of-work mechanism. In other words, Bitcoin is backed by an actual resource (computing power).
- It uses a decentralized blockchain that is publicly verifiable. Since transactions are public, anyone can hold the system accountable.
- It can be exchanged securely without being limited in a technical manner.
However, these “issues” spur from the assumption that human interference within a currency is a problem. In contrast, proponents of Monetarism would state that fiat cash maintains no flaws, while cryptocurrencies are prone to add them. Beyond ideological opinion, Gresham’s law predicts that fiat cash — which maintains no intrinsic value — would drive out cryptocurrencies such as Bitcoin — backed by computing power — when both are in circulation.
The argument that “Bitcoin is ahead of its time” is flawed because it depends on the ideological opinion of the person making the claim. Therefore, the claim must be backed by contextual information that defines the current issues with modern currencies and how cryptocurrencies fix them.
Against: Bitcoin Is Used In Scams
The anti-cryptocurrency crowd argues that “cryptocurrency is used to scam people”: These people put cryptocurrency to blame for Ponzi Schemes, Phishing, Fraud, Hacking, and other financial crimes. While it’s true that many fraudulent cryptocurrencies exist, one must not conflate human actions — which involve a technology — with the actual technology.
Cryptocurrency is a technological concept, while scamming is an action. People use fiat cash to scam others, but this doesn’t mean that fiat currency is a scam. Scamming to receive a currency is NOT equivalent to creating a currency. So labeling all cryptocurrencies as a scam — when one is a scam — is a hasty generalization.
It’s the same as stating that all companies are scams since one was a Ponzi scheme. This logic doesn’t hold up.
How does fiat cash “resolve” a scam transaction? The person who controls the transaction “reverses” it by taking money away from the “scammer” and giving it to the “victim”. This process is possible because neither the scammer nor the victim owns their money.
Is the above process positive or negative? That answer depends on your ideology. The reality is that scams are a function of humanity and its economic systems: Currency can’t be used to prevent them in a technical manner.
With fiat cash, scams are resolved based on the consensus of the owner. With truly decentralized cryptocurrencies, scams cannot be resolved — in a technical manner — due to the immutable nature of a blockchain.
The claim that “Bitcoin Is Used In Scams” by the against-crowd is a logical fallacy. The claim that “Bitcoin Doesn’t Prevent Scams” is valid but leaves questions that have yet to be answered. What is a scam, and how does a machine determine one has occurred? How should scams be resolved?
Any argument that involves “Cryptocurrencies being used for scams” is flawed because it depends on the ideological opinion of the person making a claim. Therefore, the claim must be backed by contextual information defining a scam and its resolution.
Not to mention that more money is scammed using fiat currency than cryptocurrencies.
The Real Debate
Is control of a currency necessary? Does currency need to be backed by a non-abstract resource? Can humans be trusted to manage currencies? Can we trust machines to manage currencies for us? Beyond these questions remains a single proposal: Who should control your currency?
All of these questions bring forth a better discussion over the optics of cryptocurrency.