United States President Joe Biden’s executive order on digital assets has launched an interagency mission to support financial innovation while protecting American interests and consumers. While many industry leaders welcome the constructive tone, some critics expect a crackdown. We don’t blame them.
Many cryptocurrency projects operate behind thin veils of decentralization. In public, they are sold under the premise that they distribute power. Behind the curtains, the leaders pull the strings. In the recent Wonderland case, a serial scammer and criminal ran a billion dollar hoard.
Many projects secretly pay influencers to promote their tokens. The price goes up. Initiates get rid of them. Naive investors lose money. Sometimes the promoters are famous. And sometimes those celebrities leak the surprisingly low cost of their integrity.
Hundreds of projects suffer from technical vulnerabilities. It seems like every week, hackers exploit hidden software flaws. The third largest in history occurred in early February, with $326 million missing. And at the end of March, another 600 million dollars.
Many cryptocurrencies are blatant scams, some proudly pyramid schemes. Market participants see it as a reality, with terms widely used to refer to exit scams (“rug pulls”) and pyramid schemes (“Ponzis”).
For most, cryptocurrencies are the same, like the tomatoes stuck in aisle 9, only bland, useless and more numerous. Cynics see the cryptocurrency menu as a most wanted list. Neither group is entirely wrong.
However, there is one menu item that stands out. It is arguably one of the most important technological advances since the Internet itself. Whether you buy it or not, we don’t care. But we, the three professors, do care about carrying a simple message: Bitcoin (BTC) is special. It deserves to be studied and debated.
let’s talk about bitcoin
Bitcoin is truly decentralized. Tens of thousands of nodes work all over the world. Operating a node is easy; you could do it in an hour with a computer connected to the internet and a few hundred gigabytes of storage. In 2017, these nodes vetoed a controversial change in Bitcoin that would have increased the centralization of the network by making it difficult for ordinary people to manage a node. In doing so, they imposed themselves on the majority of Bitcoin miners, exchanges, and other powerful legacy players.
Bitcoin decentralization makes it fair. Neither foundation enjoys a registered trademark or governs its monetary policy. This contrasts not only with the more centralized cryptocurrencies, but with the Federal Reserve itself. In the last year, three Federal Reserve officials have resigned after a series of operations, shall we say, opportune. Bitcoin has never had any officials resign in disgrace – it has no such officials. The network automates these jobs.
The decentralization of Bitcoin also makes it secure. Most of the money is digital and under the control of third parties such as banks and payment processors. But innocent Russian and Canadian citizens remind us that third parties can freeze and confiscate those balances, especially when subject to state pressure. Relying on third parties puts funds at risk. Bitcoin participants can have their own private keys and thus store and send value without the need for third parties. Bitcoin is in a different league than other cryptocurrencies. In the digital age, Bitcoin’s unparalleled level of decentralization makes in the safe haven from state and corporate overreach.
And unlike most other cryptocurrencies, Bitcoin never had a private token sale to venture capitalists or an initial coin offering to enrich insiders. Bitcoin is the most widely distributed digital asset. In an important sense, you are not insiders, just early adopters.
The main pioneer, Satoshi Nakamoto, mined about a million Bitcoin (5% of the maximum supply). Satoshi’s possessions are fully visible, and Satoshi never spent a single penny. In most other cryptocurrencies, the rich get richer, sometimes hidden, and have more influence on the network. This is not the case with Bitcoin.
While some projects move fast and break things, Bitcoin moves slowly but surely. Errors are rare. Of course, this conservative approach has its advantages. Updates are as rare as bugs. And Bitcoin lacks the flexibility of other platforms. But in return, the exchanges feel safe with Bitcoin on their balance sheets.
You may have heard of Bitcoin hacks and thefts. These cases do not imply weaknesses in Bitcoin, per se. Instead, they illustrate the pitfalls of insecure key storage or trust in third-party custodians.
Finally, Bitcoin is not a scam. It certainly can be used for scams – just like the US dollar, or other digital assets. But the Bitcoin network offers the final settlement of its native asset, just like the Federal Reserve System offers the final settlement of the US dollar. People speculate a lot on the price of Bitcoin. Such are the early stages of innovation. And people all over the world need it even as the Western privileged speculate.
Bitcoin’s design implies advantages and disadvantages, to be sure. Its public ledger makes privacy difficult, though not impossible. Requires power for your safety. And its fixed supply generates price volatility. But despite this, Bitcoin has become something extraordinary: a neutral monetary system that escapes the control of autocrats. Ideologists will be reluctant to search for that perfect, but perfectly elusive, monetary system. Wise and pragmatic politicians, on the other hand, will try to use Bitcoin to improve the world.
This is what it means for public policy
First of all, we should not assume that cryptocurrencies have more in common than they actually do. Bitcoin leads them all of them precisely because none of them leads it. Politics here must start from a place of understanding – not of cryptocurrency, in general, but of Bitcoin, in particular. As President Biden’s executive order conveys, digital assets are here to stay. The umbrella category is going nowhere precisely because Bitcoin, itself, is not going anywhere. We owe you special attention. Not just to Bitcoin, but to Bitcoin first.
Second, Bitcoin is credibly neutral, as the network remains leaderless. Consequently, the United States can use and support Bitcoin without “picking winners and losers.” In fact, Bitcoin has already won as a globally neutral currency network. Powering the Bitcoin network, using Bitcoin as a reserve asset, or making payments through Bitcoin would be analogous to deploying gold within the monetary system – only digital, more portable, more divisible, and easier to audit and verify.
We commend President Biden for recognizing that digital assets deserve attention. We will need the collaboration of everyone – computer scientists, economists, philosophers, lawyers, political scientists, etc. – to stimulate innovation and feed what already exists.
This article has been written byThis article has been written by Andrew M. Bailey, Bradley Rettler Y Craig Warmke.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, readers should do their own research when making a decision.
The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Andrew M. Bailey, Bradley Rettler Y Craig Warmke they are members of the Bitcoin Policy Institute and the Resistance Money Bitcoin research collective and teach, respectively, at Yale-NUS College, the University of Wyoming, and Northern Illinois University. Warmke also writes for Atomic.Finance.