Short answers to common criticisms of Bitcoin

TLDR stands for Too Long, Didn't Read. It's for anyone who just wants short answers to the most common criticisms of Bitcoin. We bust the biggest myths and address the most common misconceptions about Bitcoin.


24 Common Criticisms of Bitcoin Answered

Bitcoin isn’t backed by anything

There are over 11,000 nodes (and counting) actively maintaining the Bitcoin network while 150mill Terra Hashes per second of energy are being committed to the mining process. This ensures all transactions are valid, new bitcoin are issued, confirms new transactions and ensures balances aren't spent twice. This creates a protect ring around the Bitcoin network all without anyone in charge.

All life on earth derives from energy, so why not our money? Bitcoin does create a significant carbon footprint as in return for keeping the network secure via their CPU power, Miners are rewarded with bitcoin.

Existing (fiat) money is backed by only by the authority and legitimacy of those that control it.

global distribution bitcoin nodes
global distribution bitcoin nodes
Bitcoin is a bubble

Bitcoin is often compared to the economic bubbles like the Tulip Mania of 1636, but by their nature bubbles are discrete one-off events. You cannot reflate a burst balloon, so if the 2017 bull-run was a bubble, how come Bitcoin recovered and has now surpassed that high?

Cryptocurrencies do experience significant price volatility but should be evaluated over broad time periods. 2014 and 2018 were the only years where Bitcoin's price was lower at the end than it started.

If you zoom out and look at long term average indicators Bitcoin's appreciation is consistent. The monthly price has never closed below its 200 day Weekly Moving Average.

Money backed by the government is more secure than Bitcoin

If you hold the private keys to your bitcoin, no one can take them. Governments can and do confiscate money, both directly and indirectly.

Depositors in two Cypriot banks lost billions when savings were confiscated to protect the island's banking system in 2013. 

The government of Franklin D Roosevelt seized all gold bullion and coins in the USA in 1933 via Executive Order 6102, forcing citizens to sell at well below market rates.**

Excessive money creation by central banks feeds inflation which allows governments to shrink their debts as well as your savings, which can viewed as indirect theft.

There are also numerous examples of governments taking high-denomination bank notes out of circulation at very short notice, such as in India in 2016.

U.S. Government Printing Office, Public domain, via Wikimedia Commons

Bitcoin is a fad, it will never catch on

Kodak thought that about digital cameras. Sony thought that about digital music. The same was said about cars, the radio, the TV, movies with sound and the internet.

If money didn’t evolve we’d still be exchanging shells.

For more examples see: The worst technology predictions of the last 150 years or take a look at the Pessimist's Archive:

If you shut down the internet Bitcoin stops working

Bitcoin can keep working without broadband and without mains power. A node can be updated via Satellite and be powered by natural resources; in fact a significant proportion of Bitcoin mining is powered by sustainable energy sources.

Aside from that, if all power and communications are down, humanity will be in such a state that digital money will cease to be useful. Regardless of that, if/when society gets back on its feet nodes could quickly resume from the last known agreed ledger.

Gold is the best store of value

Gold has been a very effective store of value for about 6,000 years, but it isn’t very suitable for the digital age. The most obvious reason being the difficulty in transporting it.

Bitcoin doesn’t need to replace Gold, it simply provides an alternative, and to those in the crypto community, it is a better store of value.

Stock-to-flow models are one argument why. $1 invested in bitcoin in 2009 is now worth almost $75million*, while the same investment in Gold would be worth $1.73.

*Accurate as of April, 2021. Source Woolbull Charts.

Cryptocurrency is only used by criminals
Commons criticisms of bitcoin
Commons criticisms of bitcoin

This isn’t supported by the facts. Yes, cryptocurrency is used for illicit activity but so is the traditional financial system.

In 2020 alone the top 10 bank fines totalled $12.5bn, for crimes such as money laundering, tax evasion and corruption. While EY estimates money laundering and associated crimes to cost anywhere from $1.5 - $3.5 trillion annually.

Leading blockchain analysis firm, Chainalysis, reported that in the 2020 State of Crypto Crime Report, that the illicit share of all cryptocurrency activity fell to just 0.34%, or $10.0 billion in transaction volume.

RIP Bitcoin - Calling its premature death

Critics of Bitcoin, and cryptocurrency in general, have predicted its demise so many times that this has become a meme. Yes Bitcoin is volatile. It is an emerging technology and it's way too soon to understand how far reaching its impact will be, so sentiment fluctuates based on changing perceptions and opinions.

It is also a speculative asset, so price is subject to cycles which include parabolic rises and sometimes, dramatic drops.

In search of an attention grabbing headline, the mainstream media often interprets a cyclical or event-driven decline in price as Bitcoin’s death-knell. Just like the boy who cried wolf, the more often obituaries appear, the less credence they are given.

Bitcoin has what is called a Lindy property. In short, the longer it survives the greater its overall life expectancy.

RIP Bitcoin TLDR
RIP Bitcoin TLDR
What happens to my bitcoin when I die?

Bitcoin - and crypto is general - does come with a different level of responsibility to regular money. This is a feature not a bug. It means that you should make plans for passing it on should you….well...pass on.

Without precaution, your bitcoin may simply be lost; estimates vary but around three million bitcoin are considered lost for numerous reasons. This shouldn’t be considered a weakness as much traditional wealth gets lost, forgotten or rendered unusable.

Specialist services already exist to ensure your bitcoin are passed on if you die, see Estate and Inheritance planning from services like Casa

The government will shut Bitcoin down

It is certainly true that some governments view cryptocurrencies as a threat to their privilege to create and manage money. This is especially true of the US government as the dollar is the world’s reserve currency.

Entirely shutting down the Bitcoin network - for example - would require every government to collude in banning it and find an effective way to enforce that ban. Think about how that has worked out with the war on drugs.

For money to be useful it needs to be fungible; which means all bitcoin should be interchangeable at equivalent value. The US government has created lists of addresses identified as holding the proceeds of crime, which is a threat to this. Anyone interacting with those addresses would be viewed as committing a crime. The number of addresses is tiny, but it does pose a potential threat if the practice increases.

The amount of bitcoin held on centralised exchanges does however, pose a potential weakness as governments could certainly pressure them; another argument to have control of your private keys. See the TLDR discussing Gold Confiscation.

This scenario is extremely unlikely. Many governments suffer from dollar dominance and would have more to gain from adopting a new, more effective sovereign money. China is already testing a digital yuan, while other countries are keen to move away from the dollar for oil trading, which may signal a policy of tolerance to cryptocurrency in general.

Some analysts believe that a few progressive countries may already be quietly buying bitcoin, while those nations hit by sanctions, such as Iran and North Korea, have been accused of acquiring crypto by hacking

We may soon see a forward thinking government invest a significant amount of their currency reserves in bitcoin, which would represent a next transition in its development.

Regular money works fine for me, why do I need crypto?

Do you realise that the spending power of the US dollar has declined by 95% since 1913? Since the US Dollar is the world’s reserve economy it has a profound effect on all currency. 

Any money you have saved, including your pension, are like melting ice-cubes, their purchasing power slowly but surely declining year-on-year. So if your wages don't keep up, you are in a gradually worsening financial position. That is why wealthy people buy assets like art and property that are better stores of value than cash.

It is understandable that this goes unnoticed in Western economies, with relatively stable currencies, because of the boiling frog effect and also because official inflation figures don’t accurately reflect the true cost of living.

In countries with weak currencies - like Venezuela, Argentina or Zimbabwe - that melting is much more dramatic, experienced as Hyperinflation. Whether you are paying attention or not, the government wants to erode the value of your savings as that reduces their huge debt burdens; Bitcoin’s value does the opposite.

Cryptocurrency isn’t real so how can it have value?

This is one of the most common ‘strawman’ arguments. It is estimated that only 2-3% of all money as we now know exists as coins and cash. The rest only exists as entries on a digital database. Source: Marketwatch Infographic.

Money has value because it is useful (portable, divisible, fungible, durable, recognisable) and because it is scarce. It doesn’t matter whether money is physical or digital, so long as it fulfils those criteria. Bitcoin does.

Given that Fiat (government) money is backed only by authority (and the threat of violence or sanction), ask yourself why you feel the money in your pocket has value and Bitcoin doesn't?

Crypto is anonymous & only for people who have something to hide

Cryptocurrency is far more transparent than cash. Every transaction ever made can be seen by anyone with an internet connection and where it connects with a regulated exchange or money service, tied to a real-world identity.

Cash is so popular with criminals governments are banning it.

The EU stopped printing the €500 in 2018, It was nicknamed the Bin Laden and often traded on the black market above face value.

In late 2020 the UK the Public Accounts Committee called for an investigation into £50bn of unaccounted cash.

Certain types of cryptocurrency, known as Privacy Coins, are designed to minimise the amount of transaction information that is publicly available.

What if miners just decide to remove their support for a cryptocurrency overnight?

Cryptocurrencies like Bitcoin are specifically designed as open source projects with no central authority, that anyone can participate in. This unique approach only works because of economic incentive.

Miners are rational - they participate because the rewards they receive are greater than the cost of participating. If a Miner acts irrationally, a rational Miner will take their place. If another cryptocurrency offers better incentives, Miners will switch, which is as intended.

The growth in Bitcoin’s hashrate - the Mining power behind it - measured in Terahashes, can be viewed here. It illustrates that increasing numbers of Miners think it is in their economic interest to commit energy to mining Bitcoin. Any decision to stop would have to justify the lost return on capital required - plant, machinery and employees.

Bitcoin isn’t scarce if it can just be forked

Bitcoin has been forked 105 times, with 74 of these considered relevant and active. It has also inspired many spinoffs, copying core design elements. This is a feature not a bug.

Bitcoin works purely on economic incentive. If another coin is perceived as better, Miners, Nodes and users will switch. The first major fork, in August 2017, produced Bitcoin Cash (BCH) currently valued at 2% of Bitcoin (BTC).

Forking itself isn’t the hard part, challenging Bitcoin’s brand and first mover advantage is. Bitcoin has an established network effect - with over 11,000 nodes - and has demonstrated scarcity; blocks mined by its creator have never been moved, despite being valued at over $45 billion.

This reinforces its integrity and decentralisation. You can copy code, but you cannot copy those qualities.

Bitcoin contributes to global warming because of its power requirement

One of the biggest arguments against Bitcoin is that it misallocates energy production and contributes to global warming. According to a study by the University of Cambridge from September 2020, 39% of Bitcoin is mined from renewable sources, especially hydro-electric power, with 73% of miners using renewable energy in some form.

As mentioned elsewhere in these short answers, Bitcoin works purely on economic incentive.

Some countries - such as China and Iceland - produce energy very cheaply, and in some cases, in excess of what can actually be consumed. This is either from natural sources - seismic/hydro-thermic in Iceland - or man-made hydro-electric dams in China.

In Iceland the power exists naturally, in China it results from poor planning; in both cases it makes economic sense to allocate to Bitcoin mining and there is no excess carbon emission.

Comparisons of Bitcoin’s energy use vs something like Visa are spurious. Bitcoin is a fully stack money system, while Visa is one element in a system that stretches all the way to the top of the US economic/political/military system. Coindesk, does a good job of explaining that argument.

It is also worth noting that close to 90% of Bitcoin has already been mined so its energy requirement will end around 2140.

Bitcoin does have a considerable carbon footprint, so the argument boils down to justifying it? If it continues to provide sound money, and appreciate in value, the energy consumption can be viewed as a cost-effective use of energy. Are Christmas Lights, Video Games, Bottled Water or Mobile Phones more worthy uses of energy? Read more about Bitcoin's impact on the environment in our blog.

One estimate suggests that the electricity consumed by idle electronic devices could power Bitcoin for almost two years, and that is based on 2015 data.

Idle devices can power bitcoin
Idle devices can power bitcoin
Where does bitcoin's price come from?

There is no one source for the price of bitcoin. If you Google, ‘what is the price of bitcoin’ it will return a number which either comes directly from an exchange, e.g Coinbase, or is aggregated and adjusted across a number of exchanges - which is what Coinmarketcap does.

An exchange brings together buyers and sellers to establish the best price at any point in time where both sides are willing to exchange. More buyers means greater demand so price goes up, excess sellers pushes the price down.

There are hundreds of exchanges, and each independently enables this ‘price discovery’. Where the conditions within which each exchange functions are the same, the prices across them stays roughly in parity, otherwise there is an opportunity to profit from discrepancy (aka Arbitrage). Where conditions are different, a regional premium on bitcoin can emerge.

This has been seen in places like Turkey, Nigeria, Argentina or Venezuela where the local currency is weak, controls restrict access to alternatives, and hyperinflation creates increased demand.

Advances in Quantum Computing will crack Bitcoin’s cryptography

Bitcoin doesn’t derive security from a central authority but from a network of Miners who commit computing power. Miners act as a shield protecting the integrity of transactions because it is in their economic interest - they receive rewards for adding new blocks of transactions to a growing chain - a blockchain. That is the only way transactions can be added to Bitcoin’s distributed ledger.

To add a new block Miners have to solve an arbitrary mathematical puzzle, which gets incrementally harder as new Miners compete for the reward, requiring more computing power, making the network more secure in a virtuous circle.

But what if someone had a computer so powerful they could solve every block first and corrupt the chain with transactions that award them Bitcoin?

The fear that Quantum computing might enable this requires a significant increase in known quantum computing power, and ignores the fact that quantum resistant cryptography is being developed at a much faster rate.

Bitcoin, and other blockchains, will simply switch to the quantum resistant approaches, before the Quantum computers are capable of cracking existing hashing algorithms.

Source: Santander Global Tech.

No, you don't have to buy a whole Bitcoin

It is a common misconception that bitcoins are single unbreakable units, when in fact Bitcoin was designed to be divisible, because that is one of the main characteristics of sound and practically useful money. The others being portable, durable, fungible, recognisable and scarce.

One bitcoin is divisible into eight units or 10,000,000 parts, the smallest being one Sat, named after its founder, Satoshi Nakamoto.

Theoretically you could buy one Sat but because exchanges charge commission for purchase and there is a network fee moving Bitcoin, the minimum purchase requirement is generally around €20, which at a theoretical price of €30,000 would get you:

0.00066666 Bitcoin - which can also be described as0.66666 Millbitcoin/mBtc

666 Microbitcoin/μBTC

66,666 Sats

Bitcoin transactions are too slow

The Bitcoin blockchain confirms a new block of transactions every 10 minutes. In general six confirmations are regarded as being optimal to reduce the chance that a double spend could be included in a block to an infinitesimal level.

This is obviously a long time to wait for a cup of coffee but Satoshi Nakamoto - Bitcoin's creator - consciously sacrificed speed for security. On-chain Bitcoin transactions are ideal for larger value transactions where time isn't the priority, but security is. This is why right now Bitcoin functions primarily as a store of value.

As off-chain (layer 2) solutions scale, which aren't subject to block confirmation process, then Bitcoin can also function as an effective medium of exchange.

Governments can just keep printing money

One of the main arguments for Bitcoin is that governments can't be trusted to maintain stable monetary systems for the benefit of all people. Once the Gold Standard was abandoned money works simply because people trust the government to manage it effectively.

The US debt is now close to $30 trillion - an absurd number that cannot realistically ever be paid back. So the question is, does that matter?

MMT (Modern Monetary Theory) advocates that governments shouldn't be constrained in printing money by how much revenue they create - in terms of taxes or borrowing. As long as debt can be serviced, the money printer keeps churning.

Only time will tell as to whether MMT can maintain this financial alchemy, but history provides some dire warnings. In general, when National Debt exceeds 100% of GDP (productive output) economies slide to crisis. Japan is the only exception to this rule.

The world has seen thousands of currencies come and go, Empires have risen and fallen due to monetary abuse. It doesn't happen over night, the Roman Empire - which lasted almost 1,500 years - being a great example.

Can Bitcoin's price really reach $100k?

Bitcoin is an effective store of value, one of the three functions of money. According to Bloomberg data from March 2021 it had an Annualised Return of 254.2%. Bear in mind an asset would be regarded as a good store of value for simply staying ahead of inflation. Over the same period Gold's Annualised Return was 3.5%.

Given the market capitalisation of investable gold is around $3trillion compared to Bitcoin at around $1trillion with a price of $60k, the figures north of $100k aren't unrealistic. Here are some price predictions from credible sources and the dates they were made:

Citibank - $300k (Nov 2020)

JP Morgan $146,000 (Jan 2021)

Pantera Capital - $115,000 (May 2020)

PlanB Bitcoin Quant - $100k (Mar 2019)

Bitcoin's value Is only speculative

A big argument against Bitcoin, and crypto in general, is that people only buy it for speculative reasons. The size of the crypto market is about $2trillion. Global financial markets (bonds & equities) are around 100 times bigger at about $200trillion annually

The 2008 Financial Crisis exposed much of that institutional investment as no better than casino banking. So why should speculation be the privilege of Wall Street? Chamath Palihapitiya wrote a piece for Bloomberg in 2013 that simply described Bitcoin as 'Schmuck Insurance'. Essentially a hedge against poor decision-making by governments. So Bitcoin's popularity is a barometer of trust in fiat money.

If you look at bitcoin's price premium in countries with weak currencies - Argentina, Turkey, Nigeria, Venezuela, Zimbabwe - they are happy to pay more for their Schmuck Insurance.

Bitcoin's value is inflated by uncontrolled printing of stablecoins

One of the most frequent criticisms of Bitcoin is that its value is being inflated through the creation of stablecoins - particularly Tether (USDT) - which it is claimed aren't backed 1:1 with fiat e.g real US dollars.

Tether is the most dominant stablecoin, ranked 6th among all cryptocurrencies, with a market capitalisation of over $50bn.

Concerns emerged in 2019 when documents submitted to the New York Attorney General's office, for a case of whether its affiliated exchange, Bitfinex, covered up the loss of nearly $1 billion in customer funds using Tether’s reserves. Filings suggested that only 74% of Tether's assets were held in the form of cash and cash equivalents, the other 26% being a loan to help out Bitfinex.

That case has since been settled with an $18million fine and an agreement to provide transparent reporting to the NYAG over a two year period. At the same time Tether has published attestations - the first in March 2021 - verifying that had at least $35.28 billion in total assets against total liabilities of $35.15 million.

An attestation doesn't hold the same value, in terms of transparency, as an audit, but it was conducted by accountants in the Cayman Islands, Moore Cayman, and will be produced regularly, along with the submissions the NYAG.

Together, these actions go a long way to answering the common criticism of Bitcoin that its price is inflated by uncontrolled printing of Tether, but doesn't provide a conclusive answer. The latest detail, released by Tether in mid-May, shows that 49% of the cash reserves are in the form of Commercial Paper. This means that they've loaned the USD reserves to unspecified companies, in return for interest payments. The creditworthiness of those companies is hugely relevant to the ability of Tether to accept the equivalent dollars quickly, should they need to.

This is not investment advice.