I started diving into Bitcoin recently, and I’ve been drinking from a firehose ever since. I’ve learned more than I expected — I thought I understood things when I first heard about it in late 2009 (no, I did not buy any… I think it’s a good thing, because it’s been nice having work to do since then). A lot has surprised me about Bitcoin, and a lot of that surprise has come from what I would describe as “under-reported” truths about BTC. Since I’ve been told I’m a bit of a downer, and it’s a handy rhetorical gimmick, we’ll start with:
The Good
Bitcoin is incredibly secure. Most of the time, people talking about “hacking” when it comes to cryptocurrencies have no idea what they’re talking about. At this point, barring an (extremely unlikely) exploit to the underlying cryptographic algorithm, it would take nation-state level budgets to be able to perform attacks on the network. Also, there’s almost no incentive to attack the network by doing so — if you were to amass 51% of the hashrate without attracting attention, would you rather attack the network, or pocket the $2 billion per year that you’d be earning with it? I mean, what would be the point? Even then, you don’t even really get to do anything interesting (compared to $2B/yr, anyway).
With bitcoin, you trust in the code, the protocol, and mutually-beneficial incentives. If you trust these things, you don’t have to be concerned that your bank’s fraud department screws with you, or whether your nation-state of birth or choice decides to do something idiotic with your life savings. Nobody can prevent you from making a transaction. Because there are no gatekeepers, anyone can get an account, send and receive transactions.
Lastly, by it’s very design, bitcoin is deflationary. When you buy bitcoin, you can be pretty sure that it will be more valuable in the future, because there’s a fixed supply. It’s pretty weird for a currency to have this property… cryptocurrencies are the only ones. Being this way makes it really easy to want to invest in (which is part of the reason it is this way to begin with). It’s easy to encourage saving in bitcoin, because it’ll be worth way more in the future! If only my parents had given me my allowance in Bitcoin…
The Bad
Sadly, every good thing about bitcoin has an evil twin…
Because of the incredible security, tamper-resistance, and censorship-resistance of bitcoin — if someone steals your bitcoin (by a list of scams so long I’ll probably write a whole article on it), you’re never going to see it again. You are responsible for your own security, and a lot of people do not take this responsibility seriously.
As for the deflationary nature of bitcoin… it’s only deflationary as long as there’s more people getting onboard. If people start to on average sell more bitcoin than buy it, the value will erode, and can in principle erode to zero. I don’t think this is really likely, but its easy to envision a scenario when the bubble pops because transaction fees skyrocket.
The Ugly
Bitcoin is dirty. Really dirty. Although a lot of the power for bitcoin mining comes from hydroelectric plants (which don’t directly emit CO2 or pollutants), that power almost certainly would be sent somewhere else to be used. I think it’s pretty safe to say that quite a bit of CO2 is emitted, indirectly, from mining Bitcoin. On average (at the time of publishing, averaging over a variety of non-renewable sources of power) 60 metric tons of CO2 are released per block of Bitcoin. This means that every transaction emits 30kg of carbon. That’s about the same as burning 3.3 gallons of gasoline. Ugh. You can make yourself feel somewhat better by saying that most of this comes from huge block rewards, but the only reason that these coinbase transactions are worth so much is because we’ve all bought into the system. It’s kinda bleak either way.
Circling Back
Finishing off the timeless feedback technique known as “the shit sandwich”, I’ll return to saying that I think the strengths of Bitcoin and cryptocurrencies generally far outweighs the weaknesses: all of the incredible new things offered by cryptocurrencies need some time to get used to. In all of history, there has never been an irreversible transaction before, and that can be scary.
Personally, I prefer to think about the “downsides” of bitcoin as business opportunities. Not only is this probably closer to the truth, it’s also way less worrisome. The longer something is around, the more intuitive it is to think this way. With cars, for example, my life is much better remembering preventative maintenance, rather than living in constant terror that my tires might blow out and kill me and my family.
If you’re scared about fraud, there are many companies popping up that aim to solve this in opt-in ways. If you don’t see what you want, and think of a new way to mitigate fraud, go start that company! If you’re concerned about the carbon intensity of your bitcoin transactions, shoot $0.05 or so to your favorite carbon offset company per transaction. Better yet, start a company that takes payment in BTC or ETH, and buys carbon offsets automatically!
In short… worry less, hodl on, enjoy the ride, and pitch in if you have ideas!