Recently, Jimmy Song, a “Bitcoin Developer and Entrepreneur” posted up an article on Medium titled, “Why Bitcoin is Different”
Typically, I’m a big fan of Jimmy Song’s posts on Medium. I find his articles to be thorough, well-researched and informative.
However, I found his recent article, which is titled, ‘Why Bitcoin is Different’ to be a gross overstatement and exaggeration of the Bitcoin protocol for several different reasons.
Dissecting the Article
Jimmy begins by talking about the recent downturn in the crypto market, which has had a noticeable impact on sentiment everywhere. If anyone is currently invested into cryptocurrency, then they should be all too aware of the steep descent that bitcoin’s price has underwent.
However, as Jimmy Song argues, there is still much room for the entire Bitcoin network to grow in spite of its recent downturn.
This is a point that I don’t disagree with. I’ve actually stated the same sentiment to many other users before. Bitcoin isn’t ‘dead’ in terms of its rise. However, it is in a serious danger zone and Jimmy Song’s article appears to be blissfully unaware of that fact.
His first substantive section within the article assert that Bitcoin is the hub of “real innovation”.
This can’t be disputed. Bitcoin is the undisputed father of all cryptocurrencies and as such, demands at least that much respect in the community.
However, where Jimmy loses me is in these series of statements:
“It’s tempting to think that the newest ICO or altcoin is the one that will finally ‘improve’ Bitcoin and fix all of its problems and that Bitcoin will be relegated to the dustbin of history due to its lack of some ‘feature’. Indeed, nearly every altcoin, ICO or hardfork thinks that they’re being innovative in some fundamental way. What’s missed is that the biggest innovation has already happened.”
The statements above are not necessarily false. The creation of ‘blockchain’ itself probably will go down as the ‘biggest’ innovation within the sphere for a host of reasons.
However, to assert or implicitly suggest that there are no altcoins or potential variations of Bitcoin’s protocol that could improve upon the original model is absolutely absurd.
Jimmy goes on to state, “Decentralized digital scarcity is the real innovation and Bitcoin was the first, and, as the article will make clear, continues to be the only such coin.
All the other so-called innovations such as faster confirmation times, changing to proof-of-whatever, Turing completeness, different signature algorithm, different transaction ordering method and even privacy, are really tiny variations on the giant innovation that is Bitcoin.”
Once again, Jimmy does not state anything that is patently false, but the implication is clear: Any and all variations of the Bitcoin protocol are essentially cheap ‘knock-offs’ that do not possess the ability to be any better than the original.
The flaw in this reasoning here is akin to Henry Ford telling all automobile makers that, since he is the original designer of the Model T, any and all variations of the model are ‘so-called innovations’ are simply ‘tiny variations’ on the giant innovation that is the Model T.
As we now know, cars have improved substantially:
A Bugatti is technically an ‘altcoin’ to the Model T’s Bitcoin if we’re to make this an analogy. They both operated with 4 wheels, a steering wheel, and seats in the vehicle. They also both possessed an engine in them.
However, the ‘minor improvements’ to Buggati, structurally and engineering-wise, make it a vehicle that is beyond comparison when looking at the Model T.
This doesn’t mean that the Model T “sucks” or that it won’t always be considered the granddaddy of all automobiles that are on planet earth. But, no one in their right mind would drive a Model T in today’s times.
Are You Saying Bitcoin Could Become Extinct Like the Model T?
Possibly. No piece of technology has anywhere close to lasting forever. Upgrades are a necessary facet of technology. As society’s technological capabilities accelerate, so do our innovations. The only reason that the Bugatti wasn’t created during the time of the Model T was because there were no adequate resources available at the time to create such a vehicle.
Now that the resources and knowledge are available and such a vehicle has been created, it would be absolutely absurd to spend a bunch of time trying to continually upgrade the Model T.
There’s an underlying fear within the hearts of many individuals in the cryptocommunity that the potential death of Bitcoin would mean that cryptocurrency as a whole could die.
All of the above is true.
However, the argument that, “Decentralized digital scarcity is the real innovation and Bitcoin was the first, and, as this article will make clear, continues to be the only such coin” is a complete myth.
First, the idea of decentralization itself must be unpacked. Fortunately, I have already done so in another Medium article that I wrote on the issue, which can be found here:
To summarize, decentralization refers to a central point of failure. This means that if some entity, part of the network is compromised in any way, then the entire network will collapse with it.
For instance, Visa is ‘centralized’ because if Visa is hacked, then Visa’s entire network would be compromised.
Bitcoin, conversely, is considered to be decentralized and an innovator/pioneer of such a concept because the various users of the network all contain their own individual versions of the ledger and there is a system of checks for each transaction processed that is devoid of any sort of authority checking the chain to ensure that everything is ‘correct’ or that all balances are accurate.
That was and still is the benefit and gift of blockchain technology.
And within these facts lies the inconsistency of Jimmy Song’s argument.
If you’re still confused, let me point out the logical inconsistency here:
1.) Bitcoin is a decentralized network and has been inherently designed to be such.
2.) Altcoins, as defined by Jimmy Song, have all been birthed by Bitcoin’s protocol through forking or reiterating the code (bitcoin = open source) in some way to replicate the features of bitcoin.
3.) Thus, altcoins must be of the same properties of bitcoin.
4.) If #1-#3 are true, there’s no logical ground to stand on to assert that altcoins, by design, are inherently more ‘centralized’ than bitcoin.
Using Bitcoin’s network size as evidence of its decentralization is also a fallacious argument because there’s no ‘bar’ or standard that has been provided for us to deem a network sufficiently ‘decentralized’.
Also, using this argument implies that, at one point in time, Bitcoin had to be centralized because it wasn’t always the size it is now. In fact, at one point in time, the protocol consisted of just Satoshi himself. So, at what point did it become decentralized? At 100 nodes? 300? 1,000? When CNBC started talking about it?
Here Are Some More Arguments From Jimmy Regarding Decentralization
The argument above, in my opinion, is ludicrous.
It should be noted that Satoshi was the lead developer on the coin for the first two years of its inception. After he/she/it/they disappeared, Gavin Andresen took the reigns of the project and helped form the Bitcoin Core team, which is a group of developers that have the ultimate say over which changes are made to the Bitcoin protocol.
There also has been a forced hard fork in Bitcoin’s protocol before.
In fact, the centralized nature of the decision making process on the protocol to quell fears/worries regarding this fork were lauded by some in the community (see below):
In the article, we see that the main devs (i.e., Luke Dashjr, Jouke Hofman, and Mark Karpeles were the main individuals collaborating with each other during this time).
Jimmy though, somehow oblivious to this concept, barrels down this road:
One quote that struck me as interesting was the one where he states, “For money, however, centralization is a bad thing”.
Why? And if this is so, then what does this say for Bitcoin since we still base how ‘valuable’ it is on how much value in fiat it possesses at a given moment in time?
The concept of bitcoin doing “good” or “bad” at a particular point in time is based solely on what’s it value is in some fiat currency.
Thus, if the actual fiat currency implodes/collapses — Bitcoin would have no worth because its essentially pegged to fiat right now.
If you feel that I’m wrong about what I just said above, tell me how many sats you think a cup of coffee, ham sandwich and pastry from Starbucks is worth in sats WITHOUT checking the current price of bitcoin first.
Would you feel comfortable walking into Starbucks right now and ordering all those things and handing over some amount of bitcoin without even checking the price? Do you think it would be fair if that price were locked in forever?
If the answers to all or even some of the questions above are ‘no’, then we can safely say that Bitcoin is pegged to fiat, still.
Jimmy also states, “First, one of the propositions for a store of value is in being something that doesn’t change qualitatively (aka immutability).”
Bonds already fit this description. Jimmy also doesn’t consider the fact that the removal of the internet through a massive international cyber attack/solar flare/infrastructural collapse in a given area or nation would completely rob one of their ability to even transact with Bitcoin.
So bitcoin’s worth, to an extent, must also be pegged to the accessibility and security of one’s access to the internet. Perhaps the greatest example of this is the crashing of Bitcoin prices almost instantaneously after harsh restrictions/bans are announced in certain regions of the planet (i.e., South Korea, China, India, etc.).
This is where Jimmy’s lack of historical and economical knowledge rears its ugly head at the highest point possible (Just kidding, Jimmy Song is an intelligent fellow and this is just journalistic rhetoric, but a journalist must do as a journalist is! Love you Jim).
“Indeed, 20th century economics is the story of central banks slowly degrading fiat money’s store of value utility”
is a quote from the article that is patently false.
Misappropriation/misallocation of resources by the Federal Government (WWI + WWII were COSTLY), speculative trading (preceding the Great Depression), and various boom-bust cycles can be attributed to some of the declines in economic activity in the United States through certain periods of the 20th century.
Similarly, in other countries, things such as famine (see: Agricultural Revolution in China) or war (see: Germany following WWI), and even political regimes (see: Communism in the Soviet Union for the last 200+ years), have all played major roles in the fluctuation of currency prices/trading/spending and economic activity across the planet — not central banks.
However, the dollar, as a currency, is as valuable as its ever been (long-term wise; I realize that the value has fallen greatly in the last year or two). In fact, the dollar is exponentially more valuable than it was at the turn of the 20th century.
Politics and economies of scale determine the value of fiat currencies, not central banks. Ignorance of this fact does not void its veracity.
Fiat has also always been used as a ‘token’, not as a store of value. So, this is yet another fundamental precept that Jimmy Song appears to be blissfully unaware of in his super pro-bitcoin article.
Bitcoin Vacuum Argument
The main flaw that is exhibited within Jimmy’s reasoning is something that I deem the, ‘Bitcoin Vacuum Argument’.
What is that?
My definition of this argument is one that makes definitive statements about Bitcoin that could only be true in a perfect world devoid of any external factors/impediments/regulation/legislation/adverse opinions or attitudes/bad actors.
For example, the concept of decentralization goes out the window if someone were to kidnap/bribe the developers to change the code to their liking. Is this unlikely? Probably. But is it possible though? Absolutely.
A massive internet outage or a surreptitious piece of legislation that surfaces randomly one day that bans the use/trading of all cryptocurrency could greatly disrupt the Bitcoin protocol’s ability to be used.
What hasn’t been accounted for in most of these arguments is the fact that, while the Bitcoin protocol is decentralized, the resources necessary to access it and use it aren’t.
1.) Just about any place that you could spend Bitcoin at is centralized.
2.) The exchanges you would use to buy Bitcoin is centralized.
3.) The internet connection you’re using to read this article and trade/hold/own Bitcoin is centralized.
4.) The ‘cold wallet’ (ledger) that you bought from someone is a centralized source and more than likely the vendor that sold it to you is centralized as well.
5.) The governments that can exert authority over the populace in terms of their regulations (i.e., China) are also centralized.
6.) Even the manufacturers of the technology that is used for the Bitcoin protocol like Bitmain for mining or maybe the Dell computer that you’re using to connect to your centralized internet connection, is centralized as well.
The one gaping hole in the ‘decentralized’ argument for the Bitcoin protocol is that its use and spread is entirely reliant upon centralized resources. Thus, while there may not be an internal failure within the Bitcoin protocol itself, outside centralized sources that are used in order to transact Bitcoin will always create potential centralized points of failure for the Bitcoin protocol itself.
The Mt. Gox hacking is a great example of this concept. Mt. Gox, being a centralized exchange, was a point of failure for many people obtaining/storing/trading bitcoin through this platform. Thus, when Mt. Gox was hacked (or whatever happened), people lost their Bitcoins. Period. The fact that the protocol itself was decentralized did not save them.
What’s the Point of You Mentioning All That?
To emphasize the fact that the ‘decentralized’ characteristic of Bitcoin has been watered down significantly by the infinite number of centralized tools we must use in order to access/trade/interact with it.
In fact, it seems that we all almost inherently gravitate to these centralized resources as a reliable means of using the protocol efficiently.
Jimmy Song does make some cogent points within his article. However, it seems to read more like a pep rally for Bitcoin rather than an actual critical thinkpiece on why he assumes that Bitcoin will forever assume dominance over the rest of the market.
Closing Remarks: Truthfully, I love Jimmy Song’s pieces. He’s the man as a journalist and a really intelligent human being. Please don’t interpret this article as me slighting Jimmy! I just like writing critical pieces and I hope that he and others can separate my journalistic personality from the content of my articles.