After 8 years of existence, Bitcoin is the most secure blockchain and greatest free market experiment of our time. The mainstream narrative around Bitcoin has changed favourably. Many legacy investors are starting to see bitcoin as a new asset class for a diversified portfolio.
That said, remnants of old Bitcoin myths still linger on some mainstream media outlets. One recent example of Bitcoin misinformation is a video posted by Business Insider several weeks ago, titled “A leading economist explains why bitcoin isn’t money”.
The video starts off with an oversimplification of Bitcoin’s inception by stating “Bitcoin was invented by some big bad people on the dark web”. This narrative sounds more like the opening line of a children’s story read to a kindergarten class.
The video is a perfect example of some of the most common Bitcoin myths.
#1 BITCOIN ISN’T money
The definition of money is “something generally accepted as a medium of exchange, a measure of value, or a means of payment.”
It’s important to make a distinction that the term “money” is different than “legal tender”, which is defined as “any official medium of payment recognized by law that can be used to extinguish a public or private debt, or meet a financial obligation.”
Ann Pettifor, the economist in the video, doesn’t make this distinction and goes on to state “The problem with a finite asset is that the economy is not finite, and if you have a limited amount of money to match this almost unlimited capacity of people in the economy to do things, money doesn’t work.”
My counterarguments to this:
- Finite forms of money have been used since the dawn of civilization, long before fractional reserve banking came into existence
- Most things can be used as a medium of exchange because money derives its value from a social contract between a society
- Bitcoin can be used as a medium of exchange to pay for goods and services. In some cases you can even use bitcoin to pay utility bills or government services
- Bitcoin meets the characteristics of money: durability, divisibility, portability and difficult to counterfeit
- A single unit of bitcoin is divisible by 100 million so it can still be functional even with a higher value
Also, the economy is not “infinite”. The definition of infinite is “limitless or endless in space, extent, or size; impossible to measure or calculate”. Ann states the economy to be “almost unlimited”, which is technically impossible. You can either have infinite or finite, there is no in-between.
The economy is finite because there are a limited amount of resources, population and amount of time that individuals can work. We quantify economic growth every day with finite calculations. The myth of infinite economic growth is one of the main reasons why our natural resources are being depleted at an alarming rate. While it may be true that many natural resources can replenish themselves, they are still bound by time constraints, thus making them finite.
The only thing infinite about the economy, is the bank’s ability to fractionalize money and add to a growing $152 trillion global debt bubble.
#2 Bitcoin is a ponzi scheme
I already dedicated an entire article to debunking this myth. The definition of Ponzi scheme is
“A fraudulent investment scheme in which money contributed by later investors generates artificially high dividends or returns for the original investors. Money from the new investors is used directly to repay or pay interest to earlier investors, usually without any operation or revenue-producing activity other than the continual raising of new funds.”
Some people argue that Bitcoin is like a Ponzi scheme because early adopters can sell bitcoin at a higher price to late adopters. By that same logic, every investment in the world can be labelled as a Ponzi. Most early adopters of any successful investment can usually turn a profit by selling to latecomers. A $100 worth of Apple stock in 2002 could later be flipped for 50x returns at $5000. Does this mean that Apple stock is a Ponzi scheme?
This is all basic supply and demand economics. When the demand is greater than the supply, the price goes up. When the supply is greater than the demand, the price goes down. Bitcoin price discovery is determined by free market consensus based on what buyers and sellers are willing to trade for.
Also, the only way to profit from any economic activity is to sell something for greater than what you paid for it. Unless you’re a bank, then you can create profit out of thin air by charging interest on credit that didn’t exist prior to the loan.
Ponzi schemes implode because they reach market saturation due to the limitations of a finite population. Perhaps in an “infinite economy”, Ponzi schemes would thrive.
Bitcoin isn’t a Ponzi scheme because:
- It is not a recruitment scheme
- Bitcoin can still function as money even without recruiting new participants
- There are no paid dividends to old investors
- A rise in price due to an increased demand for a finite resource has nothing to do with Ponzi schemes
#3 bitcoin HAS NO INTRINSIC VALUE
Another Business Insider propaganda piece argues why Bitcoin has no intrinsic value. The article makes an argument that fiat has intrinsic value because
“The U.S. dollar isn’t just important because other people think it is. The U.S. dollar is important, because the world’s strongest entity, with the full force of the U.S. army, the FBI, the CIA, the NSA, and various local authorities with guns demands that you pay them in U.S. dollars. That’s not faith. That’s the law. Sorry.”
The article later states that Bitcoin lacks intrinsic value because:
“Nobody in the Bitcoin world has the power to compel usage and unlike, say, a commodity, a Bitcoin provides no beauty or functional use outside of that of a trading vehicle.”
So Bitcoin doesn’t have intrinsic value because we lack the ability to inflict violence or force people to use it against their consent? Does that mean that rape has intrinsic value? Does the internet also lack intrinsic value?
Although the price of bitcoin is determined by buyers and sellers on the open market, the network still has intrinsic value for several reasons:
- Bitcoin is the first decentralized global payment network
- Bitcoin is the first open public ledger that’s immutable
- Bitcoin requires real world resources such as electricity, hardware, bandwidth and space, in order to maintain its status as the most secure public ledger in the world
- Individual units of bitcoin are a necessary pre-requisite for securing this ledger
- Bitcoin has a proven track record as a store of value and is cheaper to use than most international bank payments or remittances
Here is an example of a government using Bitcoin as a public ledger to secure land titles. This mere fact completely debunks that article’s arguments that Bitcoin has no intrinsic value. That’s right folks, a government that has the full capacity to inflict violence on its citizens, is using Bitcoin for property-related government transactions.