Written by Mark Nesbitt
Crypto is a rapidly growing space, with many perspectives on how it should evolve. This series explores different ideas about the future of cryptocurrency and does not necessarily reflect Coinbase’s view.
TLDR: This post explores a typical evolution of understanding Bitcoin, how its most popular criticisms can actually be its strengths, and why its value proposition is unique among cryptocurrencies.
Bitcoin: Introduction and Disappointment
Many people first encounter cryptocurrency with Bitcoin. They learn about private keys, mining, consensus mechanisms, and decentralization. They understand and appreciate the uniqueness of Satoshi’s invention, and the potential transformative effects of non-governmental money. It’s a wonderful discovery.
Not long after the “orange pill” phase, new bitcoin will inevitably face a new batch of bitcoin criticism. These are not the standard “nocoiner” criticisms, but “vulgar” criticisms and, unlike many nocoiner criticisms, cannot be dismissed as uninformed. These criticisms are directed by people who understand Bitcoin. They are sophisticated and persuasive. The new bitcoin finds it compelling. Bitcoin’s eyes are opening to many other exciting cryptocurrencies waiting in the wings for Bitcoin lunch. The new bitcoin has now entered the “bitcoin is boring” phase.
Bitcoin is boring
Criticism usually includes many of the following arguments:
- Bitcoin’s proof of working consensus mechanism is ineffective and less than proof of stake
- Bitcoin is very slow – other chains reach their end faster and will therefore support many of the most urgent use cases
- Bitcoin cannot succeed due to lack of onchain privacy
- Bitcoin’s lack of a fully expressive Turing programming language makes it less useful than other cryptocurrencies
- Bitcoin is stagnant; There is no meaningful innovation in Bitcoin, which means that it will certainly outperform the competition
- Limited onchain transaction throughput will prevent Bitcoin from being useful
The heated debate among the “Bitcoin is boring” audience is not about whether Bitcoin will survive. They are all sure it won’t happen. The debate rages on which of the ETH or hordes of ETH killers (let’s call all of these as “web3 crypto”) will outperform Bitcoin first. But no matter who, how and when bitcoin will be broken. It’s a dead coin rally, borne only by inertia, name recognition, and the eternal September crap of new users flocking to cryptocurrency. Sooner or later, the world will realize this, and bitcoin will fade as a leading footnote like so many other “firsts” throughout the history of technology.
The view can be summed up as follows: “Bitcoin will be beaten.”
Nothing remotely rivals Bitcoin
There is great oversight in this logic.
Proponents believe that Bitcoin is in competition with Crypto Web 3. It is not. It tries to be one thing above all else: digital gold.²
Almost every other cryptocurrency actively developed besides Bitcoin has the same product vision as Ethereum: to create a decentralized application platform, often called “web3”. ³ They are trying to create the next internet, to enable “unstoppable apps” ⁴, not to create digital gold.
Once you understand the goal of Bitcoin, many of the alleged weaknesses outlined in the presentation of “Bitcoin Boring” actually reveal that they are strengths:
- Digital gold must be transferable. So far the proof of work has been very resistant to censorship.
- Digital gold should be decentralized. Ensuring that the global network can continually reach consensus without authoritative parties is critical.
- Digital gold should be scarce. The transparency of the Bitcoin ledger ensures easy calculation of the total supply
- Digital gold should be safe. Safety is backed by simplicity, resulting in the need to eliminate unnecessary complications
- Digital gold should be stable. Constantly changing the rules is disqualification.
- Digital gold must be verifiable. Asset verification should be cheap and accessible.
The realization that Bitcoin has a fundamentally different purpose than Web 3 crypto reveals a crucial point: Bitcoin has no meaningful competitors. The web3 crowd is scratching at each other, while no one else is trying to play bitcoin. Bitcoin is racing as fast as possible to get years under its belt and build the credibility required to be digital gold – a process that has no shortcuts. He can only do this by being stable, predictable, and practical over many years. For any competitor who decides to challenge Bitcoin, they will have to beat Bitcoin’s massive start of 13 years. Currently, no one else has entered the race yet.
Bitcoin is boring, v2
There is a second form of the “bitcoin is boring” argument, and this alternative is often suitable for those who have belatedly understood the shortcomings of the first argument. This form of the argument sees much more insight into cryptocurrencies than “naked” digital gold, and goes something like this:
Digital Gold!? Think larger! Imagine canceling a Facebook, Amazon, or Google broker. If the most innovative thing you can think of doing is to repeat the refinement of a largely useless metal that people value mainly because of centuries of superstition, prepare to eat my dust.
A supporter of “Bitcoin 2 is boring” might respond to the previous section with “Okay, so nothing competes with Bitcoin because Bitcoin plays a different sport. But I’m still right, because Bitcoin appears on ESPN 8 while playing web3 in the superbowl. So congratulations on winning the Dory Bewe”.
The offer can be summed up as follows: “Blockchain can be much more influential than just digital gold.”
Digital gold is important, and it’s here today
There is nothing wrong with a moon shot. Perhaps Web 3 could provide a democratic revolution for the Internet. This is an exciting prospect.
The error comes from rejecting bitcoins just because you see value in something else. This is not a mutual futures contract. Let’s review the impact of digital gold: Bitcoin is a form of value that cannot easily be devalued or appropriated by the government, and that can be transferred globally with nothing but an internet connection. Such an invention is a big deal. The International Monetary Fund rightly fears the threat that non-governmental money poses to fiat currencies. The presence of web3 projects does not change this possibility.
In addition to honest and thoughtful acknowledgment of the massive impact of real digital gold, there is another key point to consider: Bitcoin has been shipped. Digital gold is here, now. It is ready for investors, financial institutions and countries
In contrast, none of the Web3 projects shipped anything close to their final product. Its current state should be considered a successful proof of concept for what could become web3. Readers can tell I’m right because of a simple note: All web3 projects have ambitious roadmaps that always include important hacks to deliver results that haven’t been shown yet. Does proof of stake effectively resist censorship? Will hashing allow truly decentralized verification at scale? Will development teams be able to move away from being critical focal points? Do L2s really allow for untrusted scalability? Of course every web3 project insists that success in these matters is certain, and that these questions will surely be answered in their favor. Probably. Independent skeptics are really forced to conclude that only time will answer these questions.
leave the stage
Moving on from “boring bitcoin” does not make one a bitcoin. One can leave the stage and still manage the full range: bitcoin max, multi-currency, or bitcoin cash. The hallmark of exit is no longer rejecting bitcoin.
Perhaps the goals of bitcoin are not as interesting to you as the goals of web 3. But even the biggest proponents of web3 should read:
- Bitcoin is not in competition with any other cryptocurrency. It crushes its mission to be digital gold while virtually no other project tries.
- Digital gold is important, and it is here today.
It is clear that knowing these two things leads to the following conclusion: Bitcoin is not boring.
- I call it a stage. This does not mean that everyone passes it, or that everyone leaves it. It feels like rebelliousness in the teen years – some teens don’t, and some adults clearly never give up on it. But enough people both enter and leave to call it a stage.
- It is not a p2p e-cash. The huge war had a very clear outcome. See the following footnote for more on electronic cash.
- There are exceptions. Some cryptocurrencies aim to offer a specific decentralized application, such as object storage. Others are meant to be cash. Interestingly, “cash cryptocurrencies” can suffer from an identity crisis, since the high transaction throughput requirements for payments make the chain suitable for decentralized applications. Isn’t the “new decentralized internet” more exciting than the “new decentralized venmo?” The temptation is irresistible, and they tacitly begin to move towards “Web 3”. Consider the crypto OG cash, Bitcoin Cash.
- Unless a group of insiders lose a lot of money when hacking the main app. Then the application must be stopped of course.
- Privacy coins inherently suffer from weak, undetectable risks of inflation. This isn’t just a theory – it happened to both ZEC and XMR, the two most prominent privacy coins. And don’t forget about Bitcoin Private, the fiasco is only made possible by the fact that BTCP is a privacy currency.
- Solana recently experienced a 17-hour downtime, which led to scornful criticism from many of the hardcore Bitcoin supporters. Interestingly, instead of reacting as if a disaster had occurred, the Solana developer downplayed the failure and even suggested it could happen again. This would be ridiculous for bitcoin, and it brought a howl from the bitcoin audience. But his point of view actually makes sense what he buildsWeb platforms sometimes crash. AWS recently experienced nearly a day of downtime. While bad, it happens. This is a great anecdote of how Bitcoin and Web3 are fully sports – 17 hours of downtime would be a disaster for digital gold, but not for the app platform.
- This does not mean that there is nothing to add to Bitcoin. Several improvements are consistent with the goal of being digital gold, such as the root core or improving the transaction broadcast logic. But these are improvements to a product that has already solved the core of its problem, and delivered on its main promise.
- This Tweet He captures it perfectly: “We own Bitcoin because it doesn’t change. We own Ethereum because he owns it.” Ethereum can change, must change, and it will change. Digital gold should not at all.
- This is not a maxi statement. I expect that most knowledgeable proponents of Web3 will agree with most of what I have said here, except perhaps skeptical about the ease with which they will achieve their roadmaps. Nothing in this article indicates that web3 encryption has the wrong goals, or that it does or will not work. Nothing even indicates that the goals of Web 3 are no more exciting or transformative than the goal of digital gold. However, when compared to each other, it is important to note that the goals are Different. In addition, web3 coding has not yet shown that they can build everything they need to achieve their goal. Consider watching Andreas Antonopoulos talk: The Lion and the Shark.
Perspective: Bitcoin was originally posted on the Coinbase blog on Medium, where people continue the conversation by highlighting and responding to this story.