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Three reasons why Bitcoin isn’t dead yet

Op-ed: Despite the loss of a key dev (and his pessimistic words), Bitcoin plows ahead.

Three reasons why Bitcoin isn’t dead yet

About a week ago, colleagues were sending me copies of a Medium post ricocheting all over the Internet: a crucial Bitcoin developer, Mike Hearn, was calling it quits. The announcement unsurprisingly spawned media speculation and opinion pieces with headlines like, "RIP Bitcoin, it’s time to move on." Bitcoin’s trading price in US dollars fell by about 10 percent in about 24 hours.

But take it from an admitted Bitcoin skeptic—the cryptocurrency isn’t anywhere close to being dead. At least, it's not dying any time soon.

Hearn is certainly much more knowledgeable about Bitcoin than I am, and he outlines a compelling case for why Bitcoin is in crisis. I hadn’t known, for example, that the blockchain is controlled by a majority of miners based in China where outbound international traffic has high latency. I didn’t realize there’s a huge drag on completing Bitcoin-based transactions. And after reading Hearn’s previous piece arguing in favor of the Bitcoin XT fork, I didn’t realize so many people hated the idea. Users wanted the term banned entirely from a prominent Bitcoin forum.

I maintain there's no way the vast majority of people who live in the banked world would prefer to use something that can be frankly so confounding in practice. And all of Hearn's evidence suggests that Bitcoin, as it stands today, is in serious crisis. But Bitcoin has been pronounced dead nearly 100 times since its inception. As skeptical as I remain, there’s simply no evidence that Bitcoin as we know it is imploding in any discernible way.

Let's consider a few facts that indicate Bitcoin isn’t dead: 

  • The trading price of Bitcoin has yet to really collapse. Back in 2013, I reported how its price fell by nearly half in just six hours. So while Bitcoin has yet to fully recover from the dip that it sustained several days ago, it’s nowhere near the level of that crash from three years ago. Presumably if there was suddenly a crisis of faith amongst Bitcoiners, there would be a massive selloff.
  • No notable Bitcoin-related investors have pulled out. In fact, they’re doubling down—at least in public statements—about their faith in the cryptocurrency. "There are a number of well-funded companies competing to build valuable businesses on top of this technology," Fred Wilson, of Union Square Ventures, wrote on his blog recently. "We are invested in at least one of them." And Barry Silbert, founder and CEO of Digital Currency Group, told CNBC he is "not concerned in the slightest" that Bitcoin is going the way of the dinosaurs.
  • Bitcoin-related corporate deals are continuing unabated. Just a few days ago, Kraken acquired Coinsetter to become one of the largest Bitcoin exchanges worldwide.

Blockchain gang

I remain unconvinced that Bitcoin in its present form will continue over the long haul. It remains far too difficult for most people to actually use it, particularly when traditional fiat currencies often do a decent job.

The best evidence of this disconnect between Bitcoin faithful and the general public may be a 2014 bet. Orchestrated by NPR’s Planet Money podcast, venture capitalist Ben Horowitz (bullish on Bitcoin) and financial journalist Felix Salmon (bearish) are squaring off on the following: "In January 2019, we'll poll a representative sample of Americans. If 10 percent or more say they have used bitcoin to buy something in the past month, Ben wins. If it's fewer than 10 percent, Felix wins."

For now, it seems that Salmon is winning this bet. According to the 2015 Survey of Consumer Payment Choice (SCPC) administered by the Federal Reserve Bank of Boston, less than half (47 percent) of those surveyed were aware of any virtual currency—much less Bitcoin specifically. And of those who claimed awareness, nine of every 10 respondents were "slightly" or "not at all" familiar with such virtual currencies.

Ever since I first wrote about Bitcoin in 2011, I found it intriguing largely because of its blockchain idea. This new concept, based on cryptography that raises fundamental questions about the nature of money, is fascinating. And even if Bitcoin does die, this underpinning idea—a distributed, cryptographically based ledger—will likely live on. Apparently China is now doing just that as the country advances its own "answer to Bitcoin."

In fact, the International Monetary Fund recently released a paper exploring how the blockchain and virtual currency could be beneficial in theory despite the idea's inherent risks. As the organization wrote:

[Virtual currencies, or VCs] offer many potential benefits, including rapidly increasing speed and efficiency in making payments and transfers, and deepening financial inclusion. The distributed ledger technology underlying some VC schemes offers benefits that go well beyond VCs themselves.

At the same time, VCs pose many risks and threats to financial integrity, consumer protection, tax evasion, exchange control enforcement, and effective financial regulation. While risks to the conduct of monetary policy seem unlikely at this stage given VC’s very small scale, it is possible that risks to financial stability may eventually emerge as new technologies come into more widespread use.

So today, I continue to feel the same way about Bitcoin as I did when it first surfaced—I'm skeptical but fascinated. Even though I believe the cryptocurrency will continue on, what Georgetown University business professor James Angel told me in 2013 still rings true:

"It’s play money in the virtual casino; everybody else is trying to outguess each other. Bitcoin has turned into a very large multiplayer online game in which everybody is trying to out speculate each other."

Channel Ars Technica