On Bitcoin’s Confident Misunderstanding: A Response to Steve Hanke

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Arguments against cryptocurrencies did not accurately reflect current data or the common understanding of the terms.

Johns Hopkins University economist Steve Hanke is well known in the Bitcoin community for posting countless variations of the same tweet – “Bitcoin is too volatile and has a fundamental value of 0.” (I suspect he still hasn’t read my essay on How to Think About Bitcoin’s Value.)

But in a recent opinion piece, “How innovative is crypto?” Hanke tried his hand at new arguments. The essay is captioned: “The Case for Crypto as an Engine of Innovation is Slim”. In it, Hanke claims to show that cryptocurrencies are not that innovative. Here I will show how it fails.

There are three main problems with his essay. The first is that he only considers two characteristics of cryptocurrencies: they are digital and they are private. The second is that it relies on an unusually narrow and unspoken definition of the word ‘private’ and claims that this then invalidates Bitcoiners’ attention to what true financial privacy entails. The third is that its statistics are outdated; more recent data paint a very different picture.

I will address the issues in turn.

First, it claims to show that cryptocurrencies are not innovative. He tries to do this by showing that digital and private money already exists. But even if he is correct that he does (which is the center of the second problem), he ignores all the other interesting features of cryptocurrencies that supporters point out. When it comes to Bitcoin, those characteristics are that it is cryptographically secure, censorship resistant, inclusive, borderless, elusive, capped, decentralized, and authorization-free. Even though Hanke is correct in his claims, he has failed to prove that Bitcoin is not innovative in these other ways.

Second, it invokes the word “private” but fails to define exactly what it means and what guarantees its use implies. a long time. ”He goes on to point out that bank accounts are increasingly digital. That’s right. A lot of money these days only exists digitally.

The meaning of ‘private’ that Bitcoiners care about is that financial information ‘should not be shared or revealed to others’. People with bank accounts do not use private money for this; their bank account information is regularly shared or revealed to authorities. Another meaning of “private” is that an asset is “provided or held by an individual or an independent business enterprise rather than by the government”. Private in this sense exists as opposed to “public”; your house is your private property while the park across the street is public property. In this case, people used private money; the money in their bank accounts is often created by private banks and belongs to the individual, not the government.

There is another meaning of private money which is: money which is generally not controlled by a government (thanks to Aaron Segal for pointing this out). Some Bitcoin proponents care a lot about this meaning of private money. The US government controls the US dollar literally, so US dollars in any bank account – or any pocket! or under any floor! – are not private.

Hanke uses the word “private” six times in the next two paragraphs! Each time, this means “provided or owned by an individual or an independent commercial enterprise rather than by the government” (i.e. the distinction between public property versus private property), which is decidedly not the genre. privacy that cryptocurrency advocates talk about. Here are the sentences:

1) “… the convertibility of private deposit money. “

2) “The Federal Reserve is ready to convert every private and digital dollar …”

3) “[the Fed] converts private dollars into reserve money… ”

4) “… settle private money transactions. “

5) “Using the clearing device provided by the Federal Reserve and various private consortia. “

6) “Private digital currency is nothing new. “

Obviously, neither of these has either of the two meanings of ‘private money’ that supporters of Bitcoin care about (transaction privacy; free from government control). Thus, Hanke did not show that private digital money existed before Bitcoin in the form of US dollars in bank accounts.

Third, Hanke’s statistics are outdated. He says, “University research has found that about half of bitcoin transactions involve illegal activity. The newspaper he cites says it uses data “from January 3, 2009 to the end of April 2017”. That was four and a half years ago! A third of the existence of Bitcoin! Things have changed. Looking more recently, Chainalysis finds that illicit cryptocurrency transactions represent only 0.34% of all cryptocurrency transactions, and CipherTrace likewise, they are below 0.5%.

So, Hanke’s claim that “the value proposition of cryptocurrency relies heavily on its ability to provide final contours of the law” is wrong. Over 99.5% of transactions are legal.

Hanke has been hitting the same drum since February 2014 and doesn’t seem to be bothered by new developments in Bitcoin or the fact that Bitcoin has gone from $ 600 to $ 55,000 since he started hitting it.

Which brings us to a lesson we can all learn. People rarely change their mind. It involves a lot of cognitive effort to do this, so we tend to look for evidence to confirm what we already believe. Also, changing our minds involves admitting – if only to ourselves – that we are wrong about something. It is much easier mentally and emotionally to continue to believe what we have always believed.

But that does not lead to the truth. Things are changing and we are presented with new evidence. Sometimes we are looking for evidence and sometimes not. But whenever we come across new evidence, we shouldn’t dismiss it. We should take it seriously and assess whether it should cause us to revise our beliefs. And if we care about believing things that are true in a particular area, maybe because we teach a lot of people about it or because it matters to our own life, then we should look for evidence that we are wrong. and evaluate them. with the desire to arrive at the truth and not with the desire to be right. It is only when we do this that we should have confidence in what we believe.

This is a guest article by Dr Bradley Ritter. The opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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