The Case Against Bitcoin
There are a lot of rational and valid arguments against the current state of Bitcoin. From the technical hurdles of mass adoption, through to the fact that the large proportion of wealth is held by a very small number of people. This episode takes an objective look at each argument and discusses it in detail.
The main talking points of the episode include:
- The distribution dilemma.
- The environmental impact.
- Transaction speed and cost.
- Security and control.
- The threat of quantum computing.
By the end of this episode, you’ll be armed with all the information you need to make up your own mind about Bitcoin.
Matthew Howells-Barby: Hello and welcome to Decrypting Crypto series one, episode nine. The final episode in the series. This is a big one. We’re going to be talking about the case against Bitcoin. That’s right, against bitcoin. I’m Matthew Howells-Barby. I’m here with my co-host, Austin Knight.
Austin Knight: Hey Matt. Hey everyone. Today, while we love bitcoin…
Matthew Howells-Barby: We do.
Austin Knight: We are going to force ourselves to take off the rose-tinted glasses. And we’re going to break this down into five parts to take an objective look at each major argument. The first of which being the distribution dilemma. How is bitcoin distributed. The second being the environmental impact. We touched on this a bit with the relations to use of power and how bitcoin claiming more energy that entire nations. The third being the transaction speed and the cost. Little bit slow, little bit expensive. The fourth being security and control and the fifth and the most futuristic of all of them being the quantum threat.
Let’s start with the distribution dilemma.
Matthew Howells-Barby: Yeah. This is a big one. I mean let’s just take this back to the basics of a lot of things we’ve been talking about on this podcast and also a lot of things that people have been championing about blockchain technology. The idea that we can empower people that previously have suffered from huge inequality in wealth and opportunity. And empower them now in the blockchain with this new opportunity where everyone becomes an angel investor overnight, everyone has access to create new wealth and participate in a completely decentralized system. Is that the case though? I don’t know. I mean let’s look at some stats here.
In the world, we have more than 70% of the world’s adults own under $10,000 in wealth. That is upsetting really, as a statistic and it’s sobering. And then when you look at the converse side of that, ultra high net worth individuals, so this is defined as an individual worth more than $30,000,000, own 12.8% of global wealth yet, represent only a tiny fraction of the world population. Like .00000 right? This is an alarming distribution of wealth.
I actually read an interesting book recently called, Blockchain Revolution by author Don Tapscott. And in a YouTube video that he was talking about, I think it was a TED Talk actually, he was talking about this idea of how instead redistributing wealth, which is an important economic and social mechanism that we need to facilitate, why don’t we think about leveraging blockchain technology to pre-distribute wealth. This is like pretty big claims, right? Like pre-distributing wealth. Like what does that even mean at this stage? I mean one of the things here is like with ICOs, which we talked about in previous episodes. Initial coin offerings could technically enable anyone to invest early without being an accredited investor. They can participate in wealth from an early stage. Not only that, we can have projects, where if you run a project and you want to issue tokens to your people, you could distribute them equally amongst a whole wide span of individuals to pre-distribute the wealth opportunity in amongst all of this. Is that happening within bitcoin? Is the big question. And it think what we’ll probably come on to is, maybe not.
Austin Knight: So at the time of recording, there are over 10,000 addresses with more than $1,000,000 in bitcoins. That’s pretty good distribution. And you can actually view those addresses with the most bitcoins on the whole blockchain at bitcoinprivacy.net/richlist.
Matthew Howells-Barby: This is actually pretty interesting.
Austin Knight: Fun little thing to do.
Matthew Howells-Barby: Yeah.
Austin Knight: But at the same time roughly 3.5% of bitcoin owners own over 95% of all the bitcoins in circulation.
Matthew Howells-Barby: 3.5% of owners own over 95% of all the bitcoins.
Austin Knight: So this kind of breaks down our dream of decentralization and it makes you wonder like, are we just going to end up with a bunch of rich people owning most of the world’s wealth? Which sounds a little familiar even though like despite us-
Matthew Howells-Barby: I don’t know what you’re talking about.
Austin Knight: Yeah. I mean despite our skewed statistics, we do know that that has gotten exponentially better throughout the course of humanity, right? Wealth distribution is, especially within the last hundred years, it’s way way better. And you can see this traveling around the world. Extreme poverty rates continued to go lower and lower and lower, but I think that the dream with our cryptocurrency and the dream that a lot of us are maybe trying to sell a little bit is that this can bring even more people up, even more people to this global market and create some equality and opportunity. But it doesn’t always seem like that’s happening because ultimately, we already have a somewhat skewed system.
Matthew Howells-Barby: Yeah. I agree. And I mean when I think about in particular, like bitcoin. At the end of the day, you listening to this podcast episode right now, you are ahead of the curve in terms of many people that are looking to get involved in cryptocurrency. A large large large lion’s share of the world does not even know what bitcoin never mind cryptocurrency. With that in mind, if you are investing at this early stage, you’ve got in early and other people have not and by default, if the cryptocurrency market continues at its growth rate, you’ll going to be in a position where you have a disproportionate amount of wealth compared to other people who are later adopters. That is always a challenge.
There’s equal risk that come onboard with that, but it feels more of a capitalist driven economy, which ultimately, it is as opposed to more of a socialist stance, which I think a lot of people tend to try and banned bitcoin ads. And I really don’t necessarily agree with that, I love that blockchain technology can facilitate some of this distribution of wealth, but is bitcoin doing that right now? I think those stats that we just went through really tell the story, right?
Austin Knight: Yeah. Absolutely. And ultimately, you probably don’t want it to be too much of either getting too extreme could lead to the distraction of the entire system that is all resting upon. But something that would allow people to have more equality of opportunity, which doesn’t always lead to equality of outcome and that’s okay. That would be nice. I think that there’s still some big questions that are being asked there. This technology definitely brings us a lot closer to that, but it’s something that I think we’re still trying to pay attention too and we’re wondering, “Okay, Bitcoin took a shot at this and obviously, it’s doing a lot of other things pretty well, but are there other currencies or blockchains that could perhaps take a better step at this?”
Matthew Howells-Barby: Yeah. For sure. And it think some of the progress has been made. Bitcoin is opening doors. I don’t think it’s going to solve every problem that ultimately, the community would love it to do. And I think from a global point of view, we really have the expectations on it to do, at this stage, and I think it gets over scrutinized in that respect. I think this is a collaborative effort amongst a number of projects that are going to pave the way for some of this.
Austin Knight: Yeah.
Matthew Howells-Barby: Talking about distraction in some of the comments that you made previously. There is one kind of thing that we need to talk about and that is the planet.
Bitcoin, as we’ve mentioned, uses proof of work as a consensus system, which is ultimately using the processing power and by proxy the electricity of miners on the network to solve blocks within the blockchain and ultimately, power the network. Now, yes, these miners are protecting the network from malicious attacks that’s processing transactions. And if one person wanted to hack bitcoin, they would have an almost impossible task at doing that. The problem is this does use a lot of energy. I think we connect towards this in the previous episode, right?
Austin Knight: Yes. So bitcoin using the same amount of energy per year as the entire nation of Ireland. It’s out of control.
Matthew Howells-Barby: It is out of control and it really begs the question. Like is this worth it? Right? Like, do we sacrifice the planet at the cost of a benefit in another area of some of our major problems in the world. And I think ultimately, there needs to be changes to the way that bitcoin works for it to scale to a level that really sees global adoption. It just is not sustainable to continue at its current rate. But the problem that comes with this is that actually the more miners that are on the network, the more transaction that are being processed, the more electricity that it uses. And I just want to touch very briefly on why that is.
So we talked about in the episode, I think it was episode three, while we were talking about understanding mining. One of those things we’ve talked about was, the miners use their processing power to solve math puzzles, and these math puzzles use energy to be solved. As time goes on and more miners come on the network, the difficulty of solving these math puzzles also increases. So that it can basically move at the same ratio as the amount of what we call hash power or processing power on the network. Between 2015 and 2017, the difficulty level of these math puzzles to solve has risen by over 20000%. Now, as difficulty level increases, it requires more processing power to solve, which means it requires more energy to solve. When we look at that in isolation, the overall processing power or hash rate on the bitcoin network has also increased between 2015 and 2017 by 1800% and something tells me that’s probably not going to slow down, right?
Austin Knight: I don’t think so. And that’s where we start to get those statistics like, the energy usage that we’re seeing come out of bitcoin right now. In late 2017, a single bitcoin transaction hit the point where it used as much energy as that to power an entire average home for one whole week. That is a lot.
Matthew Howells-Barby: That is crazy and I think like these are like grandiose comparisons that we’re making, but it truly is represented the scale of the problem, right? That we’re talking about here. As we both said, we have admitted at the start, we are huge proponents of bitcoin, but I really struggle to, when someone says to me, “Well, you know Matt. Like, you’re someone that supposed to care about the environment. You promote measures to combat things like climate change and you care about the general welfare of people. How do you answer the question of, well, how do you support bitcoin in light of these?”
Austin Knight: Yeah, it’s a tough thing to reconcile.
Matthew Howells-Barby: Yeah. I really … I’m unsure about how I can reconcile that. My saving grace in the way that I kind of thing towards this is I feel like this is a temporary measure in a long game plan that will have net benefits greater than the harm we’re doing right now. I say that, but I do not know that. And I truly hope that more than anything.
Okay. So we’re going to blow up the planet. That’s one thing. There’s going to be huge wealth and equality. That’s the second thing. What’s the next thing?
Austin Knight: It’s too slow and expensive. So transaction piece are getting out of hand and January 1st of 2017, the median fee per transaction was about 20 cents. And January 1st of 2018, so a year later, the median fee per transaction was $14, which actually brings us really close to those bank transfer fees.
Matthew Howells-Barby: It does.
Austin Knight: It’s like, “Oh boy, what are we doing here?” And this is continuing to rise at a pretty crazy rate. It basically means that bitcoin can’t be used as a payment solution, which is okay. It may not have ever been intended to be used as a payment solution especially when we start to think of it in the context of gold and a store of wealth. But it also means that solutions like PayPal are cheaper than Bitcoin. Scary thought.
To give you a bit of perspective on this, the median transaction fee for Dash, another cryptocurrency on January 1st of 2018. So right at the same time that it was $14 for Bitcoin, for Dash, it was just 2 cents.
Matthew Howells-Barby: Right. That’s slight gap. And I think it’s also just important to add like a slight disclaimer that it is a bit of an apples to oranges comparison. Because Dash doesn’t have the same kind of transaction volume as Bitcoin and that’s something that often, these comparisons are made straight up and make for great news headlines at the same time, there is still a huge disproportion of bitcoin’s network hash rate. Like the top processing power on it, and the minus on there to the transaction fees. The problem being, that only getting bigger.
I think the next thing that you touched upon right? Was the speed. It’s like, Okay. I basically can’t send anything lower than $14 worth of bitcoin otherwise, I lose money on the transaction. If the transaction fee is $14, which is not always is, but it’s also become really slow. Like, especially compared to other blockchains. This is where it still hands down beats the banking system where you got days that we’re talking … Like, I get annoyed about minutes there on the blockchain.
Austin Knight: Yeah. So when we say slow, it’s relative.
Matthew Howells-Barby: It is relative. Yeah. I mean there was sustained periods in 2017, where the median confirmation time of a transaction, that’s for a transaction to be confirmed on the blockchain, to be processed, was over 20 minutes. And I personally had to wait over 45 minutes for transaction to go from one wallet to another wallet that I owned at Bitcoin. And honestly, that was a period spent sweating quite a lot. It’s unsettling, but it’s also super frustrating. I mean I’m complaining over 45-minute transaction speed. And that’s one thing for payments, right? You compare that to something like Litecoin and Litecoin will be done … I literally had it done in like seconds before.
Austin Knight: Yeah.
Matthew Howells-Barby: It’s so fast. It’s great.
Austin Knight: It’s almost immediate. And the average time is about 2.5 minutes.
Matthew Howells-Barby: Yeah.
Austin Knight: It’s quick. So even though we’re not dealing two to four days when you’re in this new world of minutes, 45 minutes can be a lot. Especially because you’re dealing with what at least feels like a more high risk situation. Like you’ll be wondering, “Okay. Did that go through? Did I do something wrong?” You feel a little less that way with the bank.
Matthew Howells-Barby: And what about like when we talked in the last episode with ethereum, right? We talked about device to device payments. We use that example, if you recall of this autonomous vehicle going and trading electricity for another.
Austin Knight: What if those took 45 minutes? Let’s set it to stop for 45 minutes. Trade electricity with each other.
Matthew Howells-Barby: That is a long ride that you have to make and that’s why speed is incredibly important and this really means that in the same respect, what we wanted to have with a payment solution, right? Let’s take a step back from device to device. As a payment solution, we wanted to be able to go into a coffee shop, right? And this is like what people often say is, “Go into a coffee shop, pay for your coffee, use your mobile wallet, make a payment in crypto and that crypto is in the wallet of the merchant before you put your hands on that coffee cup.” That’s the case if it’s 45 minutes. It’s a hell of a lot better than what happens now, which is like, okay, you don’t see that money from like Visa for like a few days, but if we really want to move towards this point is like what we’re talking in the world of crypto, how can Bitcoin compete as a payment solution if it’s too slow and expensive compared to other payment solutions.
Austin Knight: Yeah.
Matthew Howells-Barby: This brings us back to our … One of the other things I think we talked about in either the third or the first episode maybe, which is, it’s all blurring into one, which is, if it’s not a payment method, it’s got to primarily be used as a stored wealth. Like, gold, the precious metal. But will that be enough-
Austin Knight: Is that in it of itself? In this case, gold has more of a viable use than bitcoin in that world. It can be used as utility in manufacturing jewelry and things like that.
Matthew Howells-Barby: Right. Exactly. Time will tell if that is enough for bitcoin as a cryptocurrency to succeed. But I think one of the eureka moments that a lot people had, maybe even like from before November of 2017 when really a lot of these transaction times and cost ramped up, is they would have the like, aha moment, when they would send their first bitcoin, “Whoa! This bitcoin just went from my wallet into this person I know’s wallet.” We incurred very little fees like say 20 cents. And it was there within like 10 minutes. That’s incredible. And now, that kind of dynamic is changed. Like, you can’t send .00005 of bitcoin and it actually work out economically for you. So this is the challenge.
Austin Knight: Another challenge is security and control. So this is where we come back to the unequal distribution of wealth and more importantly, control of that wealth. Control.
Most of the hash rate on Bitcoin comes from a big companies that are like running gigantic mining pools.
Matthew Howells-Barby: I can just elaborate as well and like, mining pools at this stage. One thing that we kind of glossed over bit in the mining section was, okay so usually an individual can mine cryptocurrency, but what you can also do is you imagine when you’re placing a lottery. Like you get to pick the winning numbers of this lottery and if you choose the right numbers, you win and you get all the winnings or you can join a syndicate where maybe 10 of you all choose different numbers and you want to bet on the lottery and if one of them comes through then hey, you split the winnings and you all win. But you win a smaller amount. Mining pools are the same, where you all pool together into a pool of different miners and if one of you solves the block, hey, you’ll all share the rewards out of bitcoin as opposed to going solo and having to like compete on a way bigger level. Now, what you’re talking about here is on bitcoin. Some of these pools are pretty large, right?
Austin Knight: Yeah. Antpool 19.7%, BTC.com 23.9%.
Matthew Howells-Barby: And that’s the entire processing power of the entire bitcoin network.
Austin Knight: And ViaBTC is about 10.9%. So these pools are huge huge huge huge in comparison to any individual there could ever be in terms of processing power.
Matthew Howells-Barby: Yeah. And here’s what’s more alarming. So those three companies that you just mentioned, those three mining pools, Antpool, BTC.com, and ViaBTC. They’re all owned by one centralized Chinese company called Bitmain. And combined, they have a whole lot of power on the bitcoin network. That is a huge amount of control. These are the people that are validating transactions. And when you own a significant portion of the network, we’ve talked about this before, even with good intentions, the things that you’re able to do can abuse that power. And even one step back, we’ve said this before, but like well over 70% of the entire hash power, that’s the processing in the entire bitcoin blockchain comes from China. That’s pretty alarming.
Austin Knight: That’s risky especially when the Chinese government has set precedence to say that they’re going to be regulating or removing aspects of cryptocurrency from the Chinese market, making things illegal. So you could think hypothetically, what if China were to just … Tomorrow say, “Ah yeah guys, it’s illegal mine bitcoin now.”
Matthew Howells-Barby: Oh man.
Austin Knight: You’re setting down 70%.
Matthew Howells-Barby: That would kill bitcoin.
Austin Knight: Yeah.
Matthew Howells-Barby: It would kill bitcoin. Now, would China be able to do that? Would the mining hash power be replaced by moving elsewhere? Okay that-
Austin Knight: Probably.
Matthew Howells-Barby: But like, we’re talking in theoretical strength now. The other huge issue here is, something that you may start hearing a bit more and more is, okay, we’ve talked about how bitcoin is as closed to unhackable as possible. However, there are caveats to this. There is something called a 51% attack and this can be in two different variants where one is called selfish mining, the other is double spending i.e., spending the same coins twice, if you own more than 51% of the hash power in the network. Now, I’m not going to go too deep into the specifics of all of these. We’ll probably be pushing out an article on The Coin Offering around this to go in more detail, but in short, if a single entity were to own more than 51% of the hash power, the processing power on the network, on the blockchain. They could, in theory, spend the same coins more than once. That would mess up everything and it would be a huge attack and an enormous threat to just even think about. And when you look at the percentages of these entities that operate on the bitcoin blockchain, it’s pretty scary, right?
Austin Knight: Yeah. It is. There’s another threat.
Matthew Howells-Barby: This is definitely the most embellished threat I’ve heard of all of them, for sure.
Austin Knight: This is the quantum threat.
Matthew Howells-Barby: So there’s a lot of talk and tons of articles out there about how quantum computing could kill Bitcoin, could kill the blockchain. Is there truth to that? Kind of, but also, kind of not. This is a lot of hypothetical and theoretical situations and technologies also. So to distill this own, the main argument here is that quantum computers, and I’m not going to go into the details of quantum computers. That’s rabbit hole that we don’t need to go into at this stage. Google it. Quantum computers will be powerful enough to basically crack the private key encryption that’s currently on the blockchain. Basically meaning that they’d be able to solve a lot of the encryption that’s baked into the blockchain and gain access to private keys.
Austin Knight: Quantum computers just being an order of magnitude more powerful than any computer that we have right now. So we’re talking about a completely different realm of computing.
Matthew Howells-Barby: Yeah. To put this into perspective. This task that I’m talking about. So gaining access to your private keys, breaking your encryption and being able to ultimately gain access to your crypto. This would be average computer. It would take more time to do than has it lapse since the dawn of the universe. That is the magnitude of difference between quantum computing and non-quantum computing, right? That said, quantum computing, there’s a lot of people that are saying, “it’s going to be here in like 10 years.” Okay, maybe, but I think for a lot of big figures in the space, reputable figures and people exploring the big science behind quantum computing, actually say it’s closer to 30 years, if not, way way more than that.
And on top of this, there’s a secondary threat that’s running parallel. Quantum computing is not a threat right now. Quantum computing is not there. What cryptographers that are focused building out and refining blockchain technology and distributed ledger technology are working on is working on quantum resistant encryption that will help to know some of the threat and also, completely quantum proof encryption. So there’s actually already some projects out there right now that are quantum resistant. Think about this like your watch being water resistant and waterproof, we all know the difference there, right?
Austin Knight: Yup.
Matthew Howells-Barby: And one of those is IOTA. IOTA, interest in checkout. That’s not yet quantum proof and there are bunch of different … Without getting into all the different like lattice-based cryptography, code based cryptography and a bunch of other different types that are seen as promising solutions. But we still are way away. The thing that seems to be a general consensus is that, the rate at which we’re developing quantum resistant cryptography is moving at a greater pace than quantum computing.
Austin Knight: Exactly. It’s easier to encrypt something than to decrypt something.
Matthew Howells-Barby: Absolutely. That is 100% the case. And I personally feel like this is just a lot of fear spreading. It’s 100% something that we should address, but unlike a lot of the other arguments that we’ve kind of talked about here-
Austin Knight: Very tangible arguments.
Matthew Howells-Barby: Very tangible arguments that have impacts right now. I feel like the quantum threat is not something that is as immediately at risk at this stage.
Austin Knight: Where does this leaves us? Oh god.
Matthew Howells-Barby: So we’re going to sell a lot bitcoins now. Like just to get rid of everything. It’s the worst and just declare war on this crypto, right?
Austin Knight: I think the answer to that is no. Even though we brought up all of these big questions and even issues and this entire case against bitcoin. This isn’t the time to go out and sell all your bitcoin or do away with the technology rather it’s an opportunity to ask yourself, is bitcoin perfect? And the answer is no. Is any crypto perfect? The answer is also no. Is this all in its infancy of development? The answer is yes. And for that reason, I think that there’s a lot of leniency that you have to give as these technologies are being developed and we’ll eventually figure a lot these stuff out. It’s just the question of when and how.
Matthew Howells-Barby: 100%. I think the key thing there is the fact that we are in its infancy of development, and the bitcoin community, although is divided in many different opinions and areas that they want to progress the technology, I do believe that whether it’s Bitcoin or another big cryptocurrency or blockchain technology or distributed ledger technology, will come in and find a way of solving some of these. And we’ve touched upon of those in the previous series.
Austin Knight: Yeah. So can Bitcoin adapt to solve these problems? Eh!
Matthew Howells-Barby: Maybe. I think that’s a good rounding up point. So this brings us to the end of series one of the decrypting crypto. Let’s just cover off where you as a listener started and where you’re at now. Hopefully you’ve not been on too much of an emotional rollercoaster and you’ve not thrown your entire life savings into bitcoin to now decide that bitcoin is the worst thing in the world.
So we initially talked about bitcoin. We showed you how to get in and buy your first cryptocurrency, why it’s occurring value, what mining is and some of the broader applications of blockchain. We tried not to scare you too much in a Skynet kind of way there. What an ICO is, how to store your crypto and also explored ethereum smart contracts to eventually build the case against bitcoin.
Now here’s what we will love, it’s like a final call to action here. We’ll definitely be back with series two and we want to make sure that we give you, the listener the chance for us to cover the topics that you really want to hear about and learn more about. All you need to do, and we’ll list this in the show notes is email us at email@example.com. We’ll take in everything. You can hit us off on Twitter, Facebook, anywhere that you can find us. Drop us a note and we’ll try and make sure that we incorporate this into series two, The Decrypting Crypto podcast.
Until then, enjoy your crypto and we’ll see you on the moon.
Austin Knight: Thanks for listening. If you love this episode and want to show your appreciation to myself and Matt. Give us a review on iTunes or your favorite podcasting platform. We really appreciate that. You can also visit thecoinoffering.com to learn more about cryptocurrencies, get caught up on some news, see how your currency is performing and you can follow us on Twitter @thecoinoffering as well as email us at firstname.lastname@example.org, if you’d like to get in touch.