Is Bitcoin a Ponzi? — Part 2: “Nobody Really Uses Bitcoin”

This week is part two of my response to a Gravel Institute hit piece on Bitcoin as Ponzi. Read part one here, but the gist is that every accusation they aim at Bitcoin is far truer for fiat, which marches openly — proudly, even — towards zero value. Meanwhile, Bitcoin’s shortcomings come with the territory for any emergent money, including gold, and are historically temporary.

As I mentioned last week, I’m singling out Gravel not because they’re particularly brilliant — they are not. Rather, because their complaints are extremely common among anti-Bitcoiners. In Gravel’s case, they call themselves libertarian, thought decidedly of the lefty flavor, so not quite as brain-dead as a hard-core Democratic Socialist might be.

With that, Gravel’s leftovers are that Bitcoin is mainly bought for speculation, that nobody uses Bitcoin to buy stuff you can drop on your foot, and — of course — that Bitcoin sucks because it burns up the oceans.

So let’s dig in.

Most Bitcoiners Buy for Speculation

Gravel’s first complaint is that Bitcoiners are mostly buying for speculation.

Now, strictly speaking, every currency is a gamble, just like every decision in life is a gamble. After all, walking down the street could lead to a satisfying stroll, or you could meet the woman of your dreams, or you could get hit by a cement truck.

In the case of currencies, of course, it’s a specific gamble that your asset will hold up when it’s time to sell. This is why you keep dollars in your billfold, or your bank account: because you expect them to be worth only slightly less tomorrow.

This isn’t true in all countries, of course: wealthy Mexicans keep pesos in their billfolds but USD in their savings accounts. Because billfolds are for short-term use and the peso holds up well enough over the next week or month. Meanwhile, in countries like Lebanon or Venezuela, people don’t even want government money in their billfold since inflation is bad enough to matter in a week.

Still, what Gravel really means here is that Bitcoin is particularly risky, presumably compared to dollars or gold. I’ve argued before that gold is actually far riskier than Bitcoin, at least until we hit the anarchy singularity, so let’s talk paper.

In fact, paper loses to Bitcoin on every count of a good store of value: not only is fiat secretive and intentionally lacks transparency, but government paper is run specifically like a Ponzi in the sense that new investors are explicitly promised freshly printed replacements if anything goes wrong.

In the US we call this permanent bailout FDIC, but most central banks “guarantee” they’ll rob others to make losing currency speculators whole. Of course, it doesn’t work in the aggregate, since they run out of people to rob, and that’s where the fiat Ponzi comes in.

So paper is a speculation with a tail risk. Now, occasionally, the speculation goes the other direction so your paper’s worth more. During the 2008 crisis, for example, the Swiss Franc jumped nearly 25% in what it could buy in Euro, before the Swiss Central Bank intervened to siphon off the profit before too many Swiss bought vacation homes in Spain. Of course, even in that episode it wasn’t the Swiss National Bank doing anything impressive, it was simply flight to safety of Euro owners as the European Central Bank went wild with the money-printing.

So, in sum, all currency is speculation. Whether Bitcoin or USD, you’re speculating that others will continue owning it, hence that the purchasing power will hold up decently. Historically, of course, that speculation has turned out much better for Bitcoin.

Nobody Buys Real Stuff with Bitcoin

Next up, Gravel complains that nobody uses Bitcoin to buy real stuff. In fact, they correctly note that people used to use Bitcoin to buy real stuff up until 2017, but then stopped. They oddly wave this away as Bitcoin’s price rise since 2017 — odd because Bitcoin was going up even more crazily before 2017. In fact, Bitcoin went up nearly 15-fold during calendar 2016, while it merely quadrupled this past year.

So, no, people didn’t stop using Bitcoin to buy a coffee because it was going up. So why did they stop? Easy: Bitcoin’s network fees went up.

On December 31, 2016, it cost 31 cents to pay somebody in Bitcoin — still not super for a coffee, but good enough considering a credit card fee might be about 15 cents. That average fee leapt during 2017 with soaring crypto usage, reaching a high of $26.52 by December. I remember the local Bitcoin Meetup bar in Tokyo — once Roger Ver’s haunt — that used to proudly accept Bitcoin, but changed policy after 2017 since a $6 beer would come to $32.52 with fees.

In fact, this is specifically why I’m so bullish on Bitcoin: we’ve already seen the future, but it was delayed by fees. Now that Lightning Network is finally taking off, which reduces fees to fractions of a penny and instant final settlement, it’s only a matter of time before that thundering herd of Tokyo bars rejoins the usage party. Read more about Lightning’s revolution here , which continues getting stronger.

So the transaction fees complaint is, at this point, obsolete. Taking the “nobody uses Bitcoin as money” attack down with it.

Bitcoin Burning Oceans

Gravel’s final complaint is energy usage. Like many energy attacks nowadays, Gravel makes the simplistic error of extrapolating current energy use to claim that if Bitcoin replaces the dollar it will consume all the energy in the world. It’s worth noting this error has been around for years: at the moment, Bitcoin is supposed to have consumed all the energy on earth.

The short answer here is that Bitcoin energy use doesn’t go up with usage — it goes up with price. Meaning if ten times more people use Bitcoin, it automatically becomes about ten times more efficient — “roughly” to account for fees, which are about 2% of it. Indeed, Bitcoin itself is unbelievably efficient — you could, in theory, run the entire monetary system for roughly the cost of running a single Xbox. I’ll delve into that in a future article, but for now Nic Carter has done some great write-ups on Bitcoin’s energy — indeed, he’s written far more than he ever wanted to.

I’ve also written about the massive carbon footprint of fiat money recessions, which alone make Bitcoin many hundreds of times greener than fiat already. Add in ancillary fiat costs like the “ Petrodollar “ system and fiat’s environmental devastation is shockingly worse than Bitcoin’s ever will be.

“Bitcoin is just a Gamble”

Gravel ends their video concluding “Bitcoin is just a gamble. Not that the asset has value, but that the next person in line is more gullible than you.”

So is Bitcoin a gamble? Specifically, is it more of a gamble than government paper?

Beyond fiat’s Ponzi elements, Gravel’s other reasons why Bitcoin allegedly can never be a currency — volatility, speculation, real-world use, and energy — are all either inherent to a new money, are improving with time or, especially with energy, already far superior to government paper when correctly accounted.

Meanwhile, because Bitcoin cannot be counterfeited, whether by criminals with thousand-dollar basement printers or government officials with million-dollar government printers, Bitcoin has an insurmountable advantage against the government product. Finally, because Bitcoin is inherently outside the control of increasingly control-freak governments, it has an insurmountable advantage in a world where liberty itself is under threat.

Put these protections from government together, and unless we have a revolution in world governance, Bitcoin’s insurmountable advantage over paper continues getting stronger each year as fresh millions discover and use Bitcoin, as the infrastructure matures, and as more governments continue dropping off the edge of crazy.

In contrast, not only is fiat among history’s largest Ponzi schemes, it’s not even a very good Ponzi: you’re not even betting your money will grow, you’re just praying it doesn’t shrink too fast. It’s a gamble that fiat will limp along long enough to put the kids through college. A Ponzi that pathetic, of course, could only survive enforced by men with guns, which g overnment paper emphatically is.

Bottom line, fiat lives in a Ponzi glass house, while Bitcoin’s bona fide currency weaknesses — its volatility and low ratio of real-world use — are both natural for emerging currencies, and are improving because Bitcoin’s foundation is superior.

Given governments’ now-soaring appetite for both money-printing and for surveillance and transaction-policing, it’s much closer to call Bitcoin a Ponzi-killer. One that I hope will bring the truly predatory Ponzi of worldwide fiat money to a faster collapse.

See you next week!

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Originally published at https://cryptoeconomy.substack.com on September 19, 2021.