Revisiting Persistent Bitcoin Criticisms: A Report by Fidelity Digital Assets

Bitcoin, the first and most popular cryptocurrency, has been around for more than a decade and a half. Since its inception, it has faced various criticisms and challenges from skeptics and regulators. Some of these criticisms are based on misunderstandings, misconceptions, or outdated information, while others are valid and deserve attention.

In this article, we will review nine of the most persistent Bitcoin criticisms and how they have been addressed or mitigated by the Bitcoin community and industry. We will base our analysis on a recent report by Fidelity Digital Assets, a leading provider of institutional-grade custody and execution services for digital assets.

Bitcoin is too volatile to be a store of value

One of the most common criticisms of Bitcoin is that it is too volatile to be a store of value, especially compared to traditional assets such as stocks, bonds, or gold. Bitcoin’s price fluctuations can be attributed to several factors, such as supply and demand dynamics, market sentiment, regulatory developments, technological innovations, and geopolitical events. However, volatility is not necessarily a bad thing, as it also creates opportunities for profit and diversification.

Moreover, volatility tends to decrease over time as the market matures and liquidity increases. According to the report, Bitcoin’s annualized volatility has declined from over 200% in 2011 to around 70% in 2020. Additionally, Bitcoin’s volatility can be reduced by using various strategies, such as dollar-cost averaging, portfolio rebalancing, hedging, or derivatives.

Bitcoin has failed as a means of payment

Another criticism of Bitcoin is that it has failed as a means of payment, as it is slow, expensive, and impractical for everyday transactions. Bitcoin’s transaction speed and cost are limited by its design, which prioritizes security and decentralization over scalability and efficiency. However, Bitcoin is not meant to compete with existing payment systems, but to complement them as a settlement layer and a reserve asset.

Bitcoin’s value proposition lies in its ability to transfer large amounts of value across borders, without intermediaries, censorship, or inflation. Moreover, Bitcoin’s scalability and efficiency can be improved by using second-layer solutions, such as the Lightning Network, which enable fast, cheap, and private micropayments.

Bitcoin is wasteful and/or bad for the environment

A more recent criticism of Bitcoin is that it is wasteful and/or bad for the environment, as it consumes a lot of energy and generates a lot of carbon emissions. This criticism is based on the assumption that Bitcoin’s energy consumption is wasteful and harmful, and that it is proportional to its carbon footprint. However, this assumption is flawed, as it ignores the context, quality, and efficiency of Bitcoin’s energy use. According to the report, Bitcoin’s energy consumption is not wasteful, as it provides a valuable service of securing the network and validating transactions.

Moreover, bitcoin’s energy consumption is not harmful, as it is mostly sourced from renewable or surplus sources, such as hydro, solar, wind, or natural gas. Additionally, bitcoin’s energy consumption is not proportional to its carbon footprint, as it depends on the energy mix and location of the miners. The report estimates that Bitcoin’s carbon intensity is around 0.1% of the global total, and that it can be further reduced by adopting more efficient mining hardware, using more green energy sources, and implementing carbon offsetting or capture solutions.

Bitcoin will be replaced by a competitor

Another criticism of Bitcoin is that it will be replaced by a competitor, such as another cryptocurrency or a central bank digital currency (CBDC). Bitcoin’s competitors may offer better features, such as faster transactions, lower fees, more privacy, or more functionality. However, bitcoin’s competitive advantage lies in its network effects, its security, and its immutability. Bitcoin has the largest and most diverse user base, the highest market capitalization, the most liquidity, and the most adoption among institutions and regulators.

Bitcoin also has the most secure and robust network, as it is protected by the largest and most decentralized group of miners, nodes, and developers. Bitcoin also has the most immutable and predictable monetary policy, as it has a fixed supply of 21 million coins and a transparent and verifiable issuance schedule. Bitcoin’s competitors may try to emulate or surpass these features, but they will also face trade-offs and challenges, such as centralization, regulation, or innovation stagnation.

Bitcoin is not backed by anything

Another criticism of Bitcoin is that it is not backed by anything, unlike fiat currencies that are backed by governments or gold that is backed by physical scarcity. This criticism implies that bitcoin has no intrinsic value and is only worth what people are willing to pay for it. However, this argument can be applied to any form of money, as money is essentially a social construct that derives its value from the trust and acceptance of its users.

Bitcoin is backed by the network of its users, miners, developers, and nodes, who collectively maintain its security, functionality, and scarcity. Bitcoin is also backed by the principles of cryptography, mathematics, and game theory, which ensure its integrity, verifiability, and immutability. Furthermore, bitcoin has several attributes that make it valuable, such as divisibility, portability, durability, fungibility, and censorship-resistance.

A bug in Bitcoin’s code could render it worthless

Another criticism of Bitcoin is that a bug in its code could render it worthless, as it could compromise its security, functionality, or integrity. Bitcoin’s code is complex and constantly evolving, as it is developed and maintained by a global and open-source community of developers. However, bitcoin’s code is also robust and resilient, as it is subject to rigorous testing, review, and auditing by thousands of experts and users.

Bitcoin’s code is also conservative and modular, as it avoids radical changes and preserves backward compatibility. Bitcoin’s code is also transparent and verifiable, as it is publicly available and can be inspected and verified by anyone. Moreover, bitcoin’s code is also adaptable and flexible, as it can be updated and improved by using various mechanisms, such as soft forks, hard forks, or sidechains.

Regulations will slow Bitcoin adoption

A criticism of Bitcoin is that regulations will slow its adoption, as it will face legal and regulatory hurdles and uncertainties in different jurisdictions. Bitcoin’s regulatory status is complex and dynamic, as it is subject to various laws and rules that apply to financial services, such as anti-money laundering, counter-terrorism financing, tax compliance, or consumer protection. However, regulations are not necessarily a threat, but an opportunity, as they can provide clarity, legitimacy, and protection for bitcoin users, investors, and businesses.

Regulations can also foster innovation and competition, as they can create a level playing field and a conducive environment for the development and growth of the Bitcoin industry. According to the report, regulations have been generally supportive and constructive for bitcoin, as they have recognized its potential and value, and have adopted a balanced and proportionate approach.

People could lose interest

One criticism of Bitcoin is that people could lose interest, as it could become obsolete, irrelevant, or unappealing over time. Bitcoin’s popularity and adoption are influenced by various factors, such as media attention, public perception, social influence, or market trends. However, bitcoin’s longevity and resilience are driven by its fundamentals, such as its vision, its utility, its innovation, or its community. Bitcoin’s vision is to create a decentralized, peer-to-peer, and censorship-resistant form of money that empowers individuals and challenges the status quo. Bitcoin’s utility is to provide a secure, efficient, and accessible way of storing and transferring value across borders, without intermediaries, censorship, or inflation.

Bitcoin’s innovation is to combine the power of cryptography, mathematics, and game theory to create a trustless, verifiable, and immutable system of consensus and coordination. Bitcoin’s community is to foster a diverse, inclusive, and collaborative network of users, miners, developers, and nodes, who share a common interest and goal. These fundamentals are what make bitcoin interesting and valuable, and what will sustain its growth and adoption in the long term.

There are “unknown unknowns”

The final criticism of Bitcoin is that there are “unknown unknowns”, or risks or challenges that are unforeseeable or unpredictable, and that could have a negative impact on Bitcoin’s performance or viability. These unknown unknowns could be internal or external, technical or non-technical, or benign or malicious. Examples of these unknown unknowns could be quantum computing, black swan events, or existential threats. However, these unknown unknowns are not unique to Bitcoin, but apply to any system or phenomenon that is complex and dynamic.

Moreover, these unknown unknowns are not insurmountable, but manageable, as they can be anticipated, mitigated, or overcome by using various strategies, such as contingency planning, risk management, or crisis response. The report acknowledges that Bitcoin is not immune to unknown unknowns, but argues that it is resilient and adaptable, as it has survived and thrived despite facing numerous challenges and adversities in its history.

Conclusion

Bitcoin is a revolutionary innovation that has the potential to transform the world of finance, technology, and society. However, it also faces various criticisms and challenges that need to be addressed and overcome. In this article, we have reviewed nine of the most persistent Bitcoin criticisms and how they have been addressed or mitigated by the Bitcoin community and industry, based on a recent report by Fidelity Digital Assets. To read the full report, please go here.

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