Free Humanity Needs Bitcoin
Bitcoin is an important alternative to the existing monetary system. Cryptocurrency can strengthen the separation of powers. Therefore, we urgently need to discuss digital money more. A guest post
I hardly know of any other topic that is currently dividing people’s minds as much as bitcoin. On the one hand, there are the self-proclaimed toxic bitcoin maximalists who, according to the mantra “Bitcoin fixes this” (Bitcoin fixes this), see cryptocurrency as the answer to all the world’s problems. On the other hand, some »IT people« warn that Bitcoin will destroy the world and must therefore be stopped at all costs. When I talk to journalists, I often hear that they prefer to avoid the topic because of the diffuse information available. However, a balanced debate is extremely important precisely because of the potential emphasized by supporters and the weaknesses cited by critics.
Bitcoins is the oldest and most important cryptocurrency on the market. This is a monetary system that functions independently of states or central banks.
The decentralized structure of Bitcoin is similar to that of the World Wide Web: There is no central unit on which all the data is located and which can control the content. This makes it extremely unlikely that Bitcoin will disappear again in the foreseeable future. Politicians in both Europe and the USA have recognized this. However, there is a lack of a balanced and broad public discourse on how we as a society would like to deal with such a monetary system – and what problems and potential this entails.
Accordingly, my hopes were high when the science journalist Mai-Thi Nguyen-Kim, who is known for her interest in social issues, dealt with the topic of Bitcoin on October 16, 2022, in her ZDF program. The piece impresses with the nerdy style typical of Mai-Thi Nguyen-Kim, in which she first explains money, money creation, and finally Bitcoin as an alternative and decentralized monetary system with wit.
At the end of the show, Nguyen-Kim explains why she doesn’t think Bitcoin is a good alternative. Even if the points of criticism you have raised are quite appropriate, you have underpinned them with not-quite-appropriate examples and also examined them one-sidedly. Since some people probably share your concerns, I would like to take up the debate that has been initiated and explain where I see the problems of the cryptocurrency and why I – taking into account the counterarguments – still think Bitcoin is useful at the moment.
Neutral is not necessarily better
Because Bitcoin is a decentralized system, individuals cannot control it – it is therefore completely neutral. Although many people take the word “neutral” as a positive, neutrality should be seen for exactly what it means: neutral – and thus neither positive nor negative. Nguyen-Kim explains that this is not necessarily desirable for a currency.
This is illustrated by examples from the history of Bitcoin. For example, in 2010, a year after the cryptocurrency appeared, the organization Wikileaks used Bitcoin to respond to PayPal blocking their accounts and still being able to receive donations. Whether that’s good or bad is in the eye of the beholder. The inventor of Bitcoin, for example, emphasized that he would have liked the media attention at the time to have been in a different context and compared the actions of Wikileaks with kicking a hornet’s nest. Edward Snowden also recently noted in a lecture that he paid for the server infrastructure for his NSA leaks with Bitcoin.
In addition to such explosive and often controversial examples, Bitcoin critics clearly cite negative problems arising from neutrality: According to Statista, since 2013 the number of ransom payments that have been successfully extorted with Bitcoin (and other cryptocurrencies) through ransomware attacks has increased almost monotonically. Such crimes, which exploit insufficiently secured IT systems, in particular, are favored by a neutral technology such as Bitcoin since no judiciary can interrupt or reverse payment transactions.
»There is no balanced discourse on how we as a society would like to deal with a decentralized monetary system«
However, it is precisely this characteristic that advocates of Bitcoin see as a powerful tool for the separation of powers: If (central) banks are not able to intervene in payment transactions or control the money supply in the first place, this limits their power – which would reduce the risk of corruption and abuse of power.
Decentralization leads to a shift in power
Next, Nguyen-Kim addresses another consequence of decentralization: since nobody specific is in charge, interest groups can influence the exchange rate of the cryptocurrency for their own ends. The science journalist names the entrepreneur Elon Musk, who allegedly triggered fluctuations in the value of Bitcoin and other cryptocurrencies. Yes, Musk may have some reach, but his actions are not particularly relevant to Bitcoin and its development.
Although his statements briefly influenced the exchange rate, this had no long-term consequences. A similar thing happened with Tesla shares when Musk publicly joked on April 1 that his company was bankrupt. The price fluctuations say nothing about whether Tesla is a profitable company – or whether electric cars are fundamentally beneficial for the future of the world. It’s the same with bitcoin: judging how useful bitcoin is based on Musk’s actions gives the entrepreneur completely exaggerated importance.
The question of whether the power lost by central banks and states will shift to another place in a bitcoin world seems more exciting to me. For example, the further development of cryptocurrency could be influenced. Because Bitcoin is not a static system but is constantly being improved through updates. But how can a decentralized system be updated at all points if, for example, a security gap is discovered? In such cases, it becomes clear how decentralized the technology actually is in its decisions. For example, some developers seem to be trusted in the bitcoin community, so the security updates they recommend are widely accepted.
In 2018, some developers were informed about a critical bug in the system. Had the vulnerability been made public, attackers could have exploited it. Therefore, a small group of developers, working with some miners, fixed the bug and successfully asked the network to update the software under a more benign pretext. This was possible because there is trust in the developers. And they did not abuse this in this case either, because apparently there is at least an implicit consensus regarding such understandable actions. This gives the developers a certain amount of power, which can be withdrawn at any time – the users only have to reject the proposed software updates.
Does Bitcoin ultimately need a trust?
Who enjoys the trust of whom Bitcoin also plays an important role in another point. Because a crucial property of the cryptocurrency is that you can – at least in principle – check its functionality and the correctness of the logbook. This is in contrast to our current monetary system, which is based on trust. Of course, it is perfectly legitimate to believe in the state and society to the extent that you agree with their power over our money – and therefore deem Bitcoin unnecessary. However, not all people share this attitude. Some want to decide for themselves who to trust and why.
However, Nguyen-Kim and others criticize that trust is only not needed in the theory of bitcoin. In practice, it is too complicated for most people to check how the cryptocurrency works themselves, which is why you ultimately have to trust a service provider or the software used.
Whether fundamental transparency is sufficient is not a Bitcoin-specific question, but arises in many areas. Nguyen-Kim herself notes in an interview on her YouTube channel that her editors share specialist articles under the videos, but that very few people are able to check their content. Rather, she seems content with the fact that it is possible for experts. Why should one have any other claim with Bitcoin?
“Musk may have some reach, but his actions don’t matter much to Bitcoin.”
Nguyen-Kim clarifies her argument using the example of the insolvency of the cryptocurrency lender »Celsius«, which has caused numerous people to lose a great deal of money. In my view, it is fundamentally wrong to justify the trust issues in Bitcoin with the disaster of Celsius. After all, it wasn’t the US dollar or the euro’s fault that Lehman Brothers went bust.
As with the collapse of Lehman Brothers, the Celsius case – and similar incidents – shows that Bitcoin works as a monetary system: In the incident, customers – or the service provider – speculated and gambled away the money. In contrast to the banking crisis, however, the losses were not socialized. Instead, people have to live with the consequences of their actions, trust, and gambling.
After all, no one was forced to lend Bitcoins to Celsius for additional returns. Rather, the question is whether there is a need for better consumer protection that educates people about the dangers associated with such service providers.
On another point, Bitcoin is definitely dependent on trust: You have to trust that enough other people want to use the system in this form. But that applies to every means of payment. Historically, it has often been observed that currencies have lost people’s trust and have crashed as a result.
Despite the technical hurdles and the dangers outlined that interest groups could influence the cryptocurrency technology in their favor, I see Bitcoin as a democratic tool that strengthens the separation of powers and, through its optional offer, represents an important alternative to our existing monetary system that people rely on can switch if necessary. Accordingly, I say: »Yes, Ms. Nguyen-Kim, of course, free and self-determined humanity needs technology like Bitcoin!
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This post was last modified on October 18, 2022 12:57 pm