An Annotated Response to The Gravel Institute: "Why Bitcoin Is A Scam"

An Annotated Response to The Gravel Institute: "Why Bitcoin Is A Scam"

Doug Henwood of Gravel Institute, through an otherwise noble effort to provide counterpoints to the ludicrous claims of PragerU, ultimately finds himself in the unique position of succumbing to the same foibles of populism as his Institution professes to combat. In what could otherwise be a genuine critique of the flaws in the pioneer cryptotoken -- of which there are no shortage of genuine critisisms -- Henwood strays into outright slander, appeal to emotion, and fearmongering. Such a folly cannot be dismissed as 'misguided but well intended' when the sources provided to back his claims [1] are misleading at best, malicious at worst.

The bias becomes evident from the start of his argument. Satoshi Nakamoto, the name associated with the creation of the blockchain, proposed the technology behind Bitcoin as a solution to the double spending problem for digital transactions of currency -- a way to prevent 'bounce checks' through a system of trustless transactions without the dependency on a centralized authority to validate transactions. To equate the breakthrough number theory results of Nakamoto with the fraud transactions of Ponzi is being disingenuous at best. Indeed, Nakamoto has specifically made a point of disengaging from value claims about little more than passing commentary about fractional reserve banking. Factually, Nakamoto has withdrawn themselves from the public eye for the vast majority of Bitcoin's lifetime. [2] And while there have indeed been other developers, namely Gavin Andresen, to take the mantle and make bold claims of Bitcoin being "better gold than gold," [3] you cannot imply that the claims made by proponents of Bitcoin are the responsibility of those who pioneered the technological developments that make it possible.

This less-than-objective language makes itself a staple in Henwood's presentation. To describe the process of 'buying' a cryptocurrency is itself erroneous, just as the concept of buying a dollar is erroneous -- exchange would be a more accurate and less emotionally charged description. And singling out autocratic nations like Russia and China as large centers for Bitcoin mining operations isn't fully representative of the decentralized nature of the cryptocurrency, just as the term 'wasteful' isn't doing any favors. Nobody's claiming that the carbon emissions associated with Bitcoin mining is anything but problematic -- its total energy demand is comparable to some nations, as the video rightly illustrates. But to paint Bitcoin as some world-ending nightmare scheme isn't wholly representative of the complete picture. The Digiconomist source provided [5] makes clear errors in its analysis. [4] One cannot simply divide the estimated total energy expended based on hash-rate, divide by the number of reported transactions made, and call that an accurate number.

The claim that a single Bitcoin transaction requires more energy expenditure than a household makes in a month falls short of capturing the whole of the picture. When validating a block, (i.e. a ledger list of pending transactions) a characteristic hash must be found from a series of nonce values. And while the current block-time for this nonce is currently 10 minutes, and while 10 minutes of energy to power all the computers on the network isn't anything to bat an eye at, it's important to remember that all this energy isn't dedicated towards validating a singular transaction. Rather, it might be more genuine to consider this the energy needed to power a train chock-full of transactions -- we need not build and power a railway for every singular passenger. Likewise, it's hard to get an accurate estimate on the emissions associated with mining. The reason for the existence of major Bitcoin mining operations cited by Henwood is -- at least in part -- due to cheap electricity from hydroelectric dams. In short, while the total annual energy figures may be accurate, the singular transaction figures are wildly off the mark.

In addition to the misguided claims on energy consumption, Henwood fails to acknowledge Bitcoin's value as a commodity currency. Normative claims about the stability of a currency's value are left unsubstantiated, and fail to address counterexamples. I have previously and still occasionally use cryptocurrencies as a means of exchange rather than a store of value. Being universally recognized, it has some worth in that I can reliably travel to any large city with enough people who recognize it and use it to purchase goods and services, such as coffee and chocolate. I recognize that not everybody does this, but once again, it's fallacious to blame the creators or proponents of a commodity for the behavior of its users.

In a similar vein, I consider it a bad faith argument to ascribe the value of Bitcoin in particular to the whims of any one man or organization while also foreboding its foreign influence. One cannot claim that Elon Musk has any reliable control over the value of Bitcoin while also simultaneously arguing the scope of influence the Russian Federation has over the power to verify its transactions. Bitcoin, as a decentralized system of exchange, is intentionally bigger than any one person. Its value is subject to the whims of all who use it across time and space far larger than any one entity is able to govern or predict.

Henwood implies that the only reason people show interest in cryptocurrency is for profit alone. While I'm able to agree that the term 'investment' isn't an accurate take on an arbitrary store of value, I don't believe that calling it a 'financial betting game' is a reasonable description either, any more than owning Pounds, Euros, or Yen is a financial gamble. The currency has its limitations. It isn't terribly liquid or anonymous, and there are barriers to its acceptance or recognition, limiting its use as a medium of exchange. But with finite quantity and a sense of scarcity -- lost Bitcoins are lost forever, driving up the comparative value of those that remain -- the term 'socially useless' is an inadequate description.

My final objection concerns the fear mongering present throughout the video. When somebody makes the claim that a system of financial transaction is making its way as a placeholder for our much-needed sense of community and human interaction in daily life, I call bullshit. The argument is straight from a McCarthyist playbook. Yes, there are dumb fucks who will make Crypto the entirety of their identity, just as there are people who think that The Office is an adequate substitute for a personality. Claiming that Bitcoin is corrupting our youth, turning our brethren away from the church, and compelling our wives to vote is an argument that's been made since before the invention of video games, television, comic books and radio.

Perhaps the most upsetting aspect of Henwood's argument for me is that he does occasionally flirt with some very reasonable perspectives, all shone through a lens of incompetence. Bitcoin as a pioneer medium of exchange has its disadvantages, much the same way as using gold bullion to pay for your movie tickets has its disadvantages. But efforts have been made to improve upon the technology since. Stablecoins exist, with value pegged to the US dollar or the European Euro, so as to mitigate the issue of wildly fluctuating value. Bitcoin lightning nodes have been created, which aim to find the path of least resistance and -- in turn -- drive down both the transaction fee and the carbon footprint of sending a payment. Alternative cryptocurrencies have been devised that use differing forms of authentication, such as proof of stake. In practice, some of these currencies have required less energy than your average email server. And all of them have been driving forces of innovation in technology, some of which have forced us to ask fundamental questions about the nature of open source technology in our lives.

Had Henwood taken the stance that "Bitcoin is a groundbreaking yet critically imperfect means of exchange that cannot be depended upon as an investment", I may have very well found myself agreeing with him entirely. Instead, Henwood took the route of describing Bitcoin as the next big scam, which I find woefully inadequate and wildly inaccurate.

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