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Perspective: Bitcoin is not boring

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By Mark Nesbitt

Crypto is a rapidly growing space, with many views on how it might evolve. This series explores various ideas on crypto’s future and does not necessarily reflect the view of Coinbase.

TLDR: This post explores a typical evolution of understanding Bitcoin, how its most common criticisms can actually be strengths, and why its value proposition is unique among cryptocurrencies.

Bitcoin: Introduction and disillusionment

Many people first encounter cryptocurrency through bitcoin. They learn about private keys, mining, consensus mechanisms, and decentralization. They understand and appreciate the uniqueness of Satoshi’s invention, and the potentially transformative impacts of non-governmental money. It’s a fascinating discovery.

Not long after this “orange pill” phase, our new bitcoiner will inevitably encounter a fresh crop of criticism of bitcoin. These aren’t the standard “nocoiner” criticisms, but rather these are the “coiner” criticisms, and unlike many nocoiner critiques, they can’t be dismissed as uninformed. These criticisms are made by people who understand Bitcoin. They are sophisticated and persuasive. Our new bitcoiner finds them compelling. The bitcoiner’s eyes are opened to the many other exciting cryptocurrencies waiting in the wings to eat Bitcoin’s lunch. The new bitcoiner has now entered the “bitcoin is boring” phase¹.

Bitcoin is boring

The criticism usually includes many of the following arguments:

  • Bitcoin’s proof of work consensus mechanism is inefficient and inferior to proof of stake
  • Bitcoin is too slow — other chains reach finality much faster and therefore will support many more compelling use cases
  • Bitcoin can’t possibly succeed due to the lack of onchain privacy
  • Bitcoin’s lack of an expressive Turing complete programming language makes it less useful than other cryptocurrencies
  • Bitcoin is stagnant; there is no meaningful innovation in bitcoin, which means it is sure to be outcompeted
  • Bitcoin’s limited onchain transaction throughput will prevent it from being useful

The hot debate among the “bitcoin is boring” crowd is not about whether Bitcoin will last. They are all certain it won’t. The debate is about which among ETH or the mob of ETH-killers (let’s collectively label all these as the “web3 cryptos”) will first eclipse bitcoin. But regardless of who, how, or when, bitcoin WILL be eclipsed. It’s a dead coin walking, carried by nothing more than inertia, name recognition, and the foolishness of the Eternal September of new users flooding into crypto. Sooner or later, the world will realize this, and bitcoin will fade into irrelevance as a pioneering footnote like so many other “firsts” throughout the history of technology.

The view can be summarized as: “Bitcoin will be outcompeted.”

Nothing remotely competes with Bitcoin

There’s a huge oversight in this line of reasoning.

Proponents believe bitcoin is in competition with web3 cryptos. It’s not. It is trying to be one thing above all else: digital gold.²

Nearly every other actively developed cryptocurrency besides bitcoin has the same product vision as Ethereum: create a decentralized application platform, often called “web3.”³ They are trying to build the next internet, to enable “unstoppable apps”⁴, not build digital gold.

Once Bitcoin’s goal is understood, many of the purported weaknesses laid out in the “bitcoin is boring” view in fact reveals themselves to be strengths:

  • Digital gold must be transferable. Proof of work has thus far been highly censorship resistant.
  • Digital gold must be decentralized. Ensuring that a global network can consistently reach consensus without trusted parties is crucial.
  • Digital gold must be scarce. The transparency of bitcoin’s ledger ensures easy accounting of the total supply.⁵
  • Digital gold must be safe. Safety is aided through simplicity, driving a need to eliminate unnecessary complexity.⁶
  • Digital gold must be stable. Constantly changing rules are disqualifying.
  • Digital gold must be verifiable. Validation of the asset must be cheap and accessible.

The realization that bitcoin has a fundamentally different goal from the web3 cryptos reveals a crucial point: Bitcoin has no meaningful competitors. The web3 crowd is scratching and clawing at each other, while literally no one else is trying to play bitcoin’s game. Bitcoin is sprinting as fast as it can to get years under its belt and build the credibility required to be digital gold — a process that has no shortcuts. It can only do this by being stable, predictable, and functional over many years. For any competitors that do decide to challenge Bitcoin, they will have to overcome Bitcoin’s enormous 13 year head start. Currently, no one else has yet entered the race.

Bitcoin is boring, v2

There’s a second form of the “bitcoin is boring” argument, often a convenient fallback for those who belatedly grasp the shortcomings of the first argument. This form of the argument sees a far grander vision in crypto than “mere” digital gold, and goes something like this:

Digital gold!? Think bigger! Imagine disintermediating Facebook, Amazon, or Google. If the most innovative thing you can think to do is to digitally replicate the refinement of a largely useless metal that people value primarily due to centuries of superstition, prepare to eat my dust.

The proponent of the second version of “bitcoin is boring” might respond to the previous section with “Ok fine, so nothing competes with bitcoin because bitcoin is playing a different sport. But I’m still right, because bitcoin is shown on ESPN 8 while web3 is playing in the superbowl. So congrats on your win in the peewee league.”

The view can be summarized as: “Blockchains can be far more impactful than mere digital gold.”

Digital gold matters, and is here today

There’s nothing wrong with a moonshot. Maybe web3 can provide a democratic revolution for the internet. That’s an exciting possibility.

The error comes from dismissing bitcoin just because you also see value in something else. These are not mutually exclusive futures. Let’s review the impact of digital gold: Bitcoin is a form of value that a government cannot debase or easily seize, and it can be transferred globally with nothing but an internet connection. Such an invention is a big deal. The IMF is rightfully fearful of the threat to fiat currencies posed by nongovernmental money. The existence of web3 projects does nothing to change this potential.

In addition to an honest and thoughtful recognition of the massive impact of true digital gold, there’s another key point to consider: Bitcoin has shipped. Digital gold exists right here, right now. It is ready for investors, financial institutions, and nations.⁷

In contrast, none of the web3 projects have shipped anything close to their final product.⁸ Their current state should be considered as a successful proof of concept for what web3 could become. Readers can know that I’m right because of a simple observation: All the web3 projects have ambitious roadmaps that invariably include crucial breakthroughs to deliver results that have not yet been demonstrated. Will proof of stake effectively resist censorship? Will sharding enable true decentralized verification at scale? Will dev teams be able to step away from being critical points of centralization? Will L2s really allow for trustless scalability? Of course every web3 project insists that success in these matters is a certainty, that these questions will surely be answered in their favor. Perhaps. A truly independent minded skeptic is forced to conclude that only time will tell the answers to these questions.

Leaving the phase

Moving on from “bitcoin is boring” does not make one a bitcoiner.⁹ One can leave the phase and still run the entire gamut: bitcoin maximalist, multicoiner, or bitcoin critic. The hallmark of exit is ceasing to be dismissive of bitcoin.

Maybe bitcoin’s goals are not as interesting to you as web3 goals. But even the biggest web3 proponent has to acknowledge:

  • Bitcoin is not in competition with any other cryptocurrency. It is crushing its mission to be digital gold while literally no other project is even trying.
  • Digital gold matters, and is here today.

Recognizing those two things clearly drives the following conclusion: Bitcoin is not boring.

Footnotes

  1. I call it a phase. That doesn’t mean that everyone goes through it, or that everyone leaves it. It’s like being rebellious in your teenage years — some teens don’t do this, and some adults have clearly never moved out of it. But enough people both enter and leave to call it a phase.
  2. Not P2P electronic cash. The blocksize war had a very clear outcome. See the next footnote for more on electronic cash.
  3. There are exceptions. Some cryptos aim to deliver a specific decentralized application, like object storage. Others aim to be cash. Interestingly, the “cash cryptos” can struggle with an identity crisis, since the high onchain transaction throughput requirements for payments also make the chain potentially suitable for decentralized apps. Isn’t “the new decentralized internet” more exciting than “the new decentralized venmo?” The temptation is irresistible, and they implicitly begin moving towards “web3.” Consider the OG cash crypto, Bitcoin Cash.
  4. Unless a bunch of insiders lose a lot of money when the flagship app gets hacked. Then the app should be stopped, of course.
  5. Privacy coins inherently suffer the risk of undetectable inflation vulnerabilities. These are not merely theoretical — they have happened to both ZEC and XMR, the two most prominent privacy coins. And don’t forget Bitcoin Private, a fiasco only made possible by the fact that BTCP is a privacy coin.
  6. Solana recently suffered 17 hours of downtime, earning derisive criticism from many bitcoin maximalists. Interestingly, instead of reacting as if a catastrophe had occurred, a Solana developer downplayed the significance of the failure, and even suggested it could happen again. This would be absurd for bitcoin, and brought howls from the bitcoin crowd. But his view actually makes sense for what he’s building — sometimes web platforms go down. AWS recently suffered almost a day of downtime. While bad, it happens. This is a terrific anecdote for how bitcoin and web3 are playing entirely sports — 17 hours of downtime would be a disaster for digital gold, but not for an app platform.
  7. This doesn’t mean that there’s nothing that can be added to bitcoin. Many improvements are consistent with the goal of being digital gold, such as taproot or improved transaction broadcast logic. But those are refinements to a product that has already cracked the core of its problem, and has delivered its key promise.
  8. This tweet captures it perfectly: “We own bitcoin because it doesn’t change. We own ethereum because it does.” Ethereum can, should, and will change. Digital gold absolutely should not.
  9. This is not a maxi manifesto. I would expect that most well informed web3 proponents would agree with most of what I’ve said here, perhaps with the exception of the skepticism about the ease with which they’ll achieve their roadmaps. Nothing in this article suggests that the web3 cryptos have the wrong objectives, or that they can’t or won’t succeed. Nothing even suggests that the web3 objectives aren’t more exciting or transformative than the digital gold objective. Nevertheless, when comparing them to one another, it’s important to point out that the objectives are different. In addition, the web3 cryptos have not yet shown that they can build everything they need to deliver on their objective. Consider watching Andreas Antonopolous’s talk: The Lion and the Shark.


Perspective: Bitcoin is not boring was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

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Crypto

Why Gold Is Beating Bitcoin In 2022

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Bitcoin continues to underperform as a general “risk-off” sentiment has investors driving toward gold as a safe haven asset.

Not Risking It

Concerns about the Russo-Ukrainian war continue. The U.S. inflation struggles at a four-decade high and Fed rate hike fears prevail. The uncertainty extends to the world economy as a recession is expected instead of a recovery. The IMF’s managing director Kristalina Georgieva called it “a crisis on top of a crisis.”

“The war is a supply shock that reduces economic output and raises prices. Indeed, we forecast inflation will accelerate to 5.5 percent in advanced economies and to 9.3 percent in emerging European economies excluding Russia, Turkey, and Ukraine. ” The IMF stated last week.

Reuters recently quoted Commerzbank analyst Daniel Briesemann, who talked in a note about the factors that have “lent buoyancy to gold in recent days,” mentioning the “strong buying interest on the part of ETF (Exchange Traded Fund) investors” and news about the Ukraine war.

“Russia appears to be preparing to launch a major offensive in the east of the country – that is generating considerable demand for gold as a safe haven,” the analyst said.

This summarizes the “risk-off” sentiment at the moment. As expected, equities suffer as investors are selling risky assets and purchasing the ones negatively correlated to the traditional market. Thus, the crypto space is struggling alongside de stocks market and gold is rising.

Bitcoin Outperformed By Gold

Data from Arcane Research’s latest weekly report notes that it has been a gloomy year for the “digital gold.” In the first three weeks of 2022, Bitcoin sank 25% and it is still down by 18% in the year despite its slight recovery.

Similarly, Nasdaq records a 19% decline in the year, having underperformed against bitcoin “by a small margin,” notes the report, adding that “This is surprising given that bitcoin has tended to follow Nasdaq, albeit with higher volatility.”

The general fear over geopolitical and macroeconomic uncertainty has given gold the safe-haven asset spotlight once more. The asset outperformed all the other indexes seen below with a 4% gain.

Physical gold outperforming “digital gold” in 2022 | Source: Arcane Research

Meanwhile, the currency market is performing with “the same risk-off patterns.” The Dollar has been proving its “risk-off” dominance as the US Dollar Index (DXY) is up 7%. The Chinese yuan has taken a hit over concerns about the country’s “zero-covid” policy –which creates issues for the global supply chain– and the slowing down Chinese economy. In contrast, investors have been running to the US Dollar for safety.

Bitcoin supporters usually refer to the coin as “digital gold” alleging it is a safe haven asset, and this narrative had held well while BTC had been “uncorrelated with most other major asset classes,” but the tide is shifting with the 2022 scenario as investors are rather placing the coin “into the risk-on basket”.

A previous Arcane Research report indicated that bitcoin’s 30 -day correlation with the Nasdaq is revisiting July 2020 highs while its correlation with gold has reached all-time lows.

A pseudonym traded noted that “As Bitcoin adoption goes on and more institutional investors enter the market, the correlation of BTC and stocks becomes more and more tight. That is a paradigm that the crypto world struggled to come to terms with in the past but is now more real than ever. A healthy stock market is good for Bitcoin.”

Meanwhile, the general sentiment of traders seems to be bearish, with many saying that the coin could visit the $30k level soon.

Bitcoin
Bitcoin trading at $39k in the daily chart | BTCUSD on TradingView.com

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Attendees talk the future of NFTs

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The crypto community headed to Nassau in the Bahamas this week for the inaugural Crypto Bahamas conference.

Like most conferences, panels fill up the agenda and on Wednesday the topics at Crypto Bahamas ranged from NFTs to crypto in sports and to asset allocation in Web3. During one particular conversation, titled Evolution of NFTs: Culture, Utility and Regulation, panelists had some insightful musings on the NFT market.

To put the Crypto Bahamas conference into context, Sam Bankman-Fried’s cryptocurrency exchange FTX moved its headquarters from Hong Kong to the Bahamas in Sept. 2021. It recently inked a multi-year partnership with Anthony Scaramucci’s investment firm SkyBridge Capital, and its events arm SkyBridge Alternatives, or SALT. They jointly presented the conference.

That’s why the NFT panel consisted of multiple perspectives from Tristan Yver, head of strategy at FTX U.S., Joseph Doll, attorney at Fenwick law firm, Roham Gharegozlou, the chief executive officer at Dapper Labs, and Sarah Hammer, the managing director of The Stevens Center for Innovation in Finance at The Wharton School. Zack Guzman, writer for the Meta-owned newsletter platform Bulletin, moderated.

Gharegozlou pointed out how new the NFT market truly is when “most people have only been thinking about it for a year and a half,” making valuations “very immature.” As the CEO of Dapper Labs, the company behind NBA Top Shot,  Gharegozlou recognized that “utility, rewards and the how you value and NFT is primarily based on the strength of that of the community.”

He added that a good way for an NFT collection to build a strong community is to have multiple tiers of scarcity. In the case of NBA Top Shot, at the higher price end there is extreme scarcity, but there are also millions of “common” moments so that people can “get their first NFT and see how it feels without breaking the bank.” 

Tristan Yver echoed that the current valuation and pricing model for NFTs is based on a collective perception on value based on the amount of people willing to buy an asset for a certain amount. He anticipated a “movement away from this consensus view to a more unique singular view where people buy things that resonate with them rather than what resonates with a larger community.”

Joseph Doll chimed in to say that “communities need to be thoughtful about democratizing access.” There are some “massive” barriers to entry to certain projects, he said, including not being early enough or not having enough capital at the time. He questioned, “That’s not what crypto is about, right? It’s kind of about the exact opposite of that.” Democratization, he suggested, can come in the form of derivative projects at better price points.

Another important point brought up by Yver was the reality of scams, especially on Discord and Twitter. He said that “we need to move past security aspects to be able to really bring in the next large mass of users.” He recommended talking among family and friends or asking a Discord moderator to make sure “you click the right link when minting that NFT” because “wallet security sucks right now.”

Gharegozlou even said that Elon Musk, the new owner of Twitter, should use Web3 to fix Twitter’s fraud problem, just as Discord should use Web3 authentication and verification as well. “Once NFT’s are the sort of identity bridge across all these different social networks, identity and assets, authenticity, provenance,” then the system can be more resilient he added.

When asked what “main alpha” the audience should bear in mind, Doll said to engage with and be part of these NFT communities even if it’s “scary,” because getting scammed is a “part of the journey.”

Sarah Hammer, who leads the Cypher Accelerator at Wharton business school, said that the school is launching an incubator specifically for NFT projects in partnership with Dapper Labs because the “NFT model is a business model for the future.” She emphasized that the greatest way to grow and innovate in the space is to increase education efforts in order to get more people learning and working together.

Related: Goldman Sachs reportedly eyes FTX alliance with regulatory and public listing assistance

Recently the Bahamian government allowed residents to use digital assets, including the world’s first central bank digital currency, or CBDC, to pay for taxes in 2022.