21 min read

50 Shades of Lies, Speculations & Half-Truths That the ECB Is Recycling About Bitcoin

50 Shades of Lies, Speculations & Half-Truths That the ECB Is Recycling About Bitcoin
Christine Lagarde, the President of the European Central Bank (ECB), had previously referred to Bitcoin as a "funny business" and stated that cryptocurrencies are "worth nothing." Recently, there have been more similar unsubstantiated claims and calls for the banning of Bitcoin from the ECB, as the bank prepares to launch its "digital euro." Picture: An edited screenshot, Instagram/christinelagarde.

First things first: I want thank Steven Lubka, Allen Farrington, Andrew M. Bailey, and Vlad Costea for joining this discussion, providing super valuable insights and feedback. Also, a special thanks to Satoshi Nakamoto for patiently allowing us to figure everything out by ourselves.
All mistakes in the text are mine (except the ECB part).

"If someone had asked me in 2010, 'What is Bitcoin?' I would have replied, 'Pardon me?'
By 2013, I would have tried to say something about weird tech nerds and wild price swings.
In 2017, I would have said, 'Oh yeah, that's the biggest cryptocurrency there is.'
By 2020, I would have been almost convinced it was an inflation hedge and a store of value.
In 2022, I would have asked, 'So, you want to know what Bitcoin is, right? How much time do you have?'

And now, as 2023 is around the corner, I’m told by the European Central Bank (ECB) (well, two co-authors, to be exact) that we’re witnessing “Bitcoin’s last stand” (published on the ECB's website).

I was curious and asked myself, 'So, how do these gentlemen know this?'

After reading/writing/editing literally thousands of articles about Bitcoin (BTC) and the rest of the crypto industry I wasn’t able to see this last stand myself. I almost thought to myself, 'So, they must be smarter than me. And they know much more and understand all the intrinsic value and shenanigans of the current monetary and financial system.' But I didn't.

And then, I was disappointed.  

The quality of reasoning, facts, sources, and their selection in the article wasn't something you could expect from a supposedly top institution responsible for monetary decisions that affect hundreds of millions of people.

Nevertheless, Peter Ehrlich, Head of Section Strategic Communication at the ECB and a former journalist, praised the article:

“One of the cases where our experts can say "We told you so" and with reason.”

Ok, let’s reason about their reason then.

I asked Ulrich Bindseil, Director General of the ECB's Directorate General Market Operations and co-author of the article, for sources to back up the following claims made in the article:

  • "Real Bitcoin transactions are cumbersome, slow and expensive."
  • "Bitcoin has never been used to any significant extent for legal real-world transactions."
  • "The manipulations by individual exchanges or stablecoin providers etc. during the first waves are well documented, but less so the stabilising factors after the supposed bursting of the bubble in spring."
  • "Firstly, these technologies have so far created limited value for society."
  • "One Bitcoin transaction consumes hardware comparable to the hardware of two smartphones."
  • "The entire Bitcoin system generates as much e-waste as the entire Netherlands."

Ulrich promptly replied and sent an article he co-authored in January of this year, which he said would provide the arguments I was looking for:

The encrypted threat: Bitcoin’s social cost and regulatory responses

After reading it, I found:

  • 18 speculative statements with no hard or any evidence;
  • 7 logical fallacies;
  • 7 instances of selective sources;
  • 7 half-truths;
  • 2 debatable statements;
  • 9 false statements.

In total, there were 50 problematic arguments. Let's examine each of these in detail.

N.B. The main purpose of this article is not to mock someone, discuss complicated concepts and beliefs in a very detailed manner, or discuss whether we are really witnessing “Bitcoin’s last stand” (what it means anyway?), but to look at the quality of information, data that is used to make the case against Bitcoin.
Also, if it feels sometimes that I'm making whataboutism-type arguments, you might be right. But, for the sake of brevity, and to make the point, I'm just using Hitchens's razor sometimes: "What can be asserted without evidence can also be dismissed without evidence."
In this article, the categorization of the arguments is subjective and some statements might fit into multiple categories.
I'm not claiming my arguments are the best, feel free to help me understand things better (linas at dessenter.io or Twitter). Thanks!

Let's begin.
(Dear Mr. Brandolini, please give me strength. Thank you.)


(No hard or any evidence, speculative definitions, etc.)

ECB 💶: "[Bitcoin] fails to deliver on its promises but comes at high costs."

Me: We can debate almost every word in the sentence above. E.g., Bitcoin did not promise anything, it’s just a tool that is still being developed and understood.
Also, the ECB failed to deliver on its mandate to ensure price stability in the eurozone, and businesses and people are now facing high costs. Should we disband the institution now?

💶 "[Bitcoin] is unfitted and inefficient as a means of payment but used extensively for illicit activities."

Of course, BTC could be and is getting better. Meanwhile, here’s an example: BTC was already used extensively for legitimate activities and used as a means of payment by my previous company because it was more efficient than traditional means of payment. It’s safe to assume, there are many other legitimate users too.  Also, the authors omit the Lightning Network, a layer-2 BTC scaling solution, that increases the efficiency of payments tremendously.

💶 "It is unsuitable as an investment asset and neither empowers, nor relieves the sovereign individual from the state."

One of the reasons why we have so many investable assets is that people are free to decide where they want to invest.
Also, how come a technology that increases the independence of an individual is not an empowering technology?
"There is clear evidence of BTC being used under hostile regimes for both left and right-wing causes, Nigerian protests for female equality, etc.,” added Steven Lubka, Managing Director of Swan Private Client Services.
The sovereign individual debate is too complex to expand on here, and the authors did not elaborate on this too.

💶 "In November 2021, the market capitalisation of crypto assets exceeded for the first time USD 3 Trillion, of which around USD 1.3 trillion were contributed by Bitcoin. This article restates the reasons why the observed Bitcoin valuation is unlikely to be sustainable."

“Unlikely” is speculation. Also, how can we define “sustainable valuation”? Do stocks have a sustainable valuation? Tesla (-55% year to date)? Amazon (-48%)? Anything?
“Bitcoin has no right valuation, that's the whole point. It isn't a commodity or a claim to cash flows,” Steven noted.
But yes, the price is going to be volatile. As a portfolio manager at Man Group, the world's largest publicly listed hedge fund firm, once wrote, “[BTC’s] volatility is part of the early price discovery process for a new asset class.”
Also, gold, an asset that has been around for thousands of years, crashed by over 40% on multiple occasions in the past decades alone.

💶 "[T]he Bitcoin life cycle will likely have implied painful losses for many retail Bitcoin investors and a significant enrichment for early investors who liquidate their position in time."

“Will likely have implied” is speculation. The same logic might be applied to any other investment.

💶 "By consequence, the miners will require more electricity to solve the puzzle and will consume more electricity and increase carbon emissions."

Energy used isn’t equivalent to emissions - a recent report claims that Bitcoin network zero-emission energy use surpassed 52% and this share keeps growing. Moreover, what about miners that are using energy nobody else would pay for? What about miners that help solar and wind projects to be competitive when they otherwise wouldn’t be? Also, Bitcoin’s energy usage won’t grow forever.

💶 "Nakamoto (2008) presented Bitcoin as useful for society through its payment function, but his related arguments were already rather unclear at that time. There is today in any case a broad consensus that Bitcoin fails in its original objective of being a currency."

What arguments? In the Bitcoin whitepaper, Satoshi Nakamoto wrote:  “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” That’s it. And this is exactly what Bitcoin does.
Also, while Bitcoin does indeed need more improvements and adoption to be a better currency, the claim about the “broad consensus” is just speculation. (The above-mentioned argument that the ECB failed to maintain price stability is appropriate here also - it seems like there's a broad consensus on this too.) Moreover, Bitcoin as a technology has much larger implications than being a currency only.

💶 "However, even if one were to assume that Bitcoin could become the new global money, its technically fixed “money supply” would turn out to be a weakness on closer inspection: the world would be led into a deflation trap in a growing economy. In a deflation, falling prices of goods and services tempt citizens to postpone less urgent purchases into the future. This is reasonable for individuals, but aggregate demand suffers which slows down the economy."

Once again the deflation vs. inflation debate is much more complicated than that, so why ignore the other side?
“Deflation only happens when capital is being formed, so society is becoming more abundant. If no one invests in productive enterprises, no capital is formed and there is no deflation. If there is no deflation, then people invest to earn returns, and capital is formed. If capital is formed, then maybe people hold more money for a bit. It's self-correcting. Deflation hysteria is absurd,” argued Steven.
Also, how one would solve climate change and pollution when the current system is forcing people to overspend and companies to overproduce?

💶 "Finally, the objection that the fiat money of modern central banks also has no intrinsic value falls short: because in deliberately moving away from the gold standard, sovereigns and central banks have put in place clearly defined mandates, legal guarantees, institutional and operational arrangements (independence as well as loans against collateral) to be able to release the gold brake without losing stability (see e.g. Bindseil and Fotia, 2021, 103-107)."

“That's not intrinsic value!” disagreed Steven. As he characterized the report’s statements, "Fiat doesn't lack intrinsic value because we have created an opaque system of rules and mandates."
“These guys really don't get it. Having no intrinsic value is a benefit, not a cost, for a medium of exchange. They should embrace this feature of fiat monies and argue that it makes them more potent and useful!” added Andrew M. Bailey, an associate professor at Yale-NUS College.
Also, if this intrinsic value is so great, why the value of fiat money keeps falling and falling?
Once again, there are no 100% clear answers here, so why pick a one-sided argument then?
And here’s a question from Lawrence H. White, a professor of economics:

💶 "The enthusiasm for Bitcoin alone is not enough in the long run, especially as Bitcoin is in the end only a number chain and technologies are replaced by better technologies; with the newer soon displacing the new."

What technology has displaced the Internet? Also, does it mean, that Bitcoin, as a potentially better technology, will displace current monetary “technology”? And what is “a number chain?”
“We still use shovels to this day. This is a weak Whig History [argument]. The Whigs came up with the myth that we just endlessly progress automatically therefore everything is replaced. It isn't true,” noted Steven.

💶 "[...] the high cost of conventional cross-border payments is not only due to the inefficiency of payment instruments, but in significant part to costs of market and liquidity risk management and regulatory requirements to combat money laundering and terrorist financing. However, the cost of complying with these requirements, and provisions for legal and exchange rate risks only affect the regulated financial sector. The fact that some bitcoin transactions, e.g. like peer-to-peer, have been able to escape this entirely so far is a regulatory gap, not a technological achievement."

“False. It is completely and utterly dependent on removing credit from transfer. What Lightning [Network] achieves is only possible because it is a digital bearer asset,” commented Allen Farrington, the co-author of Bitcoin Is Venice.
Also, why are central banks working on their central bank digital currencies (CBDCs)? Or it’s not a technological, but a regulatory change?
“Regulation is a key aspect of how payments function. The inefficiency is CAUSED by siloed banking systems trapped by regulations. There is no fix for that. You can't separate from regulations,” added Lubka.

💶 "The longer the boom lasts and the more money flows into the system before the music may stop, the higher are the risks and costs for invested individuals and the society at large."

There’s no way of knowing this. "This is just a tautology: "The more money people invest the more they lose if it crashes"," replied Steven.
It could also be the opposite: The longer the boom lasts and the more money flows into the Bitcoin system before the debt cycle music may stop, the lesser the risks and costs for invested individuals and society at large are.

💶 "The high social cost of Bitcoin and its negative net social value is currently not perceived by Bitcoin investors who believe them to be covered by current and future speculative gains."

“High social cost” and “negative net social value” are just opinions, not proven facts. “They are clearly false opinions. [BTC’s] social value is a revealed preference of those who use it,” stressed Allen.  
Also, how can we know what Bitcoin investors believe in?
(Not related to Bitcoin, but to the argument itself: How many industries that are a net negative for society, do banks keep supporting?)

💶 "A significant additional component of the ultimate social costs will be the societal damage when many will have realized that they lost their hard-earned savings for the benefits of smarter Bitcoin investors who bought at low and sold at high prices.<...>The bigger the burned market value will be, the more dramatic the social backslash will be."

“This is a projection on the part of the establishment. Replace Bitcoin with the fiat regime and this paragraph makes sense,” Steven noted.

💶 "It is difficult to find good arguments that support its soundness as a medium of exchange or as form of investment."

If someone can’t find arguments, it doesn’t mean they don’t exist. On contrary, there is more evidence of the soundness of Bitcoin.

💶 "If Bitcoin eventually collapses, the net social cost of the Bitcoin life cycle will be very large."

Fighting speculation with speculation: If Bitcoin eventually collapses, the net social cost will be very large, but for different reasons than the authors claim, because society would lose an alternative and a way to opt-out from the current system.

💶 "More recently, many public authorities, have taken or plan to take strong measures against Bitcoin, after concluding that its societal value is negative."


💶 "Last but not least, doubts on the sustainability of Bitcoin and the related social costs does not mean that DLT, blockchain and decentralised finance have no merits as innovative technological approaches. <...> In the case of Bitcoin these doubts are particularly strong because of Bitcoin’s reliance on the inefficient proof-of work concept and its poor performance as means of payment."

The authors omit all the research on why proof-of-work is the main reason why these systems can be truly decentralized and censorship-resistant.


But how?

💶 "The entire potential of these technologies [blockchain and DLT] has still not fully been explored."

How come Bitcoin has been fully explored and is seen as a failure then?

💶 "The lack of acceptance by merchants due to long settlement times and high fees (currently between USD 2,5 and 4 per transaction) already shows that Bitcoin cannot be understood as a means of payment outside of niches. Therefore, Bitcoin’s business model as a global means of payment is not plausible."

What is the source of the first part of the argument?
Meanwhile, a survey by Deloitte showed a completely different picture. Exactly a year ago, 85% of 2000 senior executives at retail organizations across the US said that they anticipate that digital currency payments will be ubiquitous in their industry in 5 years. 87% said that those accepting digital currencies currently have a competitive advantage in the market. Can we make the “Therefore, Bitcoin’s business model as a global means of payment is not plausible” conclusion based on this survey? (At the time of writing, the median transaction fee is around USD 0.6, with the Lightning Network - almost free.)
Also, Bitcoin is not a business.

💶 "Because Bitcoin is neither efficient nor suitable as a means of payment, it is not competitive for legal payments. Moreover, Bitcoin has no intrinsic value and does not generate a cash flow or dividends. Hence, the market valuation of Bitcoin is purely based on speculation."

First, the said nonsuitability is just an opinion, while the argument regarding the cash flow & dividends is similar to the argument that "a horse is not a good cow because it doesn’t provide milk."
Everything the markets do all the time - they speculate about future cash flows, dividends, the solvency of states, etc. So why some other rules should apply to Bitcoin?
Also, as George Kaloudis wrote recently, not all real estate generates cash flow, Google has never paid a dividend, people use bitcoin so it is productive and there are clear social benefits to bitcoin.

💶 "Mechanistic rules, as Bitcoin appears to create, are not an appropriate solution for a changing world. Therefore, the recent more ambitious attempt to make Bitcoin a means of payment unavoidably betrayed its libertarian principles, including the core idea of Nakamoto (2008) to overcome the role of central payment intermediaries."

It’s impossible to make such a conclusion on “mechanistic rules” (what is it anyway?) without going much deeper into this matter, especially because the world is changing.
“Betrayed its libertarian principles” is also just speculation. Bitcoin is just a technology, principles are attributed by people, and people are different. What principles does the Internet have in the US? And what about China?

💶 "People could send value across borders for free and unhindered to anyone with a Bitcoin wallet."

Previously, the authors claimed that Bitcoin is unusable and expensive.

💶 "If it were true that Bitcoin is eventually unsustainable and will not persist <...>then these private costs will however have represented a net loss for society."

So, if it were true that Bitcoin is sustainable and will persist, the argument falls apart then?

💶 "Third, many aspects of Bitcoin are fundamentally new and difficult to comprehend."

If this thing is fundamentally new and difficult to comprehend, how can the authors be so sure about all those statements they make about Bitcoin? In either case, their report is just another proof that this new technology is difficult to comprehend.


Why not both sides?

💶 "Still, several authors have raised serious doubts on Bitcoin’s underlying technology and concept (for example Taleb, 2021; Avoca 2021; Acemoglu, 2021; Kolbert, 2021)."

What about numerous authors that have debunked those doubts?

💶 "Avoca (2021) stress that the Bitcoin network is also vulnerable because of its reliance on a single security technology that experts consider to be outdated by advances in computing. Bitcoin uses the secure hash algorithm (SHA) which is more than twenty years old. Researchers believe that the technology will not be able to keep up in a quantum computing environment. In the absence of a central legitimized management it is hard to see how the fundamental security technology could be replaced to withstand the challenges of future technological advances of others."

What about other numerous pieces of research in this area that are not so gloomy? Also, Bitcoin is being developed and improved without any “central legitimized management” for 14 years now.

💶 "According to the Cambridge Centre for Alternative Finance Bitcoin computers use around 140 terawatt hours of electricity per year - about a quarter of Germany’s electricity consumption. Digiconomist (2021) estimates that the entire Bitcoin network consumes 201.894 TWh per year. This would be close to the amount of energy all data centres consume globally. The consumed energy further results in 95.9 metric tons of CO2, comparable to the carbon footprint of metropolitan London."

First, the data from the Cambridge Centre for Alternative Finance shows that the total electricity consumption of Bitcoin was lower than 105 TWh at the time the authors made their claim, and this year it has not yet reached 101 TWh. The claims made by Digiconomist (Alex de Vries) have already been debunked. (It is worth noting that de Vries himself claims that Bitcoin's year-to-date electricity consumption stands at 113 TWh.) Additionally, the authors cite two different sources that provide significantly different numbers. Which source is being used to support the claim about global data centers and their carbon footprint?

💶 "Bitcoin is sometimes justified by the fact that it would on balance be beneficial for planet earth and humanity as argued e.g. by Vukolic (2021). And even if alternative sources of energy were used or disused power plants revived, the network would still waste energy that could be used for other purposes, as convincingly argued recently by the Swedish Financial Supervisory Authority and the Swedish Environmental Protection Agency (2021)."

“It doesn't WASTE power, it USES power you just consider its use a waste,” stressed Steven.
Also, the argument in the paper ignores other research that BTC helps solve the stranded and otherwise wasted energy problem.
Moreover, the authors omit the fact that Sweden’s state-owned power company, Vattenfall, debunked the claims made by the Authority and said that BTC mining has the potential to be a solution to some of the challenges energy producers are facing.

💶 "As Adam Tooze formulates, fiat money is backed by “‘nothing’ other than the trifling matter of tens of trillions of dollars in private credit, the rule of law and the power of the state, itself inserted into a state system. In other words, the entire structure of global macrofinance” (Tooze, 2021)."

And a few lines later, the authors claim that "the dissatisfaction about reality in many advanced economies is comprehensible and legitimate". So this entire structure of global macrofinance is going great, right? Again, just another speculation, not a hard fact.
“Fiat money isn't backed by the economy just like Amazon gift cards aren't backed by Amazon equity. Fiat is redeemable for goods and services,” added Lubka.

💶 "Griffin (2019) found that the second and third [BTC] booms were associated with the launch and rise of Tether.
Griffin’s investigations during the 2017 boom suggested that 50 percent of the sharp price increase was due to manipulation with Tether."

The authors of the report omit the fact that another research debunked these claims.

💶 "As also argued in detail elsewhere (Taleb, 2021; Dunn 2021; Green, 2021; Roubini, 2021; Bindseil and Schaaf, 2021) the sustainability of Bitcoin is questionable."

There are plenty of reports that argue differently. Why not use them? And what is “sustainability” here anyway?


Where's the rest?

💶 "[Bitcoin] is prone to a so-called 51 percent attack, which occurs when miners (potentially malicious) gain control of more than 51 percent of the network’s hash-rate: they could then issue coins twice."

I’ll just leave it here:

💶  "Bitcoin is too volatile to fulfil the classic functions of money: unit of account, means of payment, store of value."

It is volatile indeed and it will stay volatile for some time. The paper ignores that BTC volatility is dropping, yet remains high. However, not as high as we’ve seen this year in the stock market. This past October, even GBP, the world’s oldest currency, was volatile almost as BTC.

💶  "Moreover, the system is too slow and expensive to compete with established payment systems and currencies."

Even the base protocol of Bitcoin is faster and cheaper than the important parts of the established payment systems. On top of that, the paper omits the fact that the established payment system has layers the same way Bitcoin does, and the second layer of Bitcoin, the Lightning Network, makes payments instant and almost free. Yes, this solution still has issues, and yes, they’re being addressed.

💶 "In fact, Bitcoin remains the dominant crypto-asset but its market share has declined sharply in 2021 from more than 70 percent to less than 45 percent."

The authors omit the fact that in 2018, Bitcoin's dominance was around 40% with approximately 1,500 other cryptoassets, or altcoins, in existence at the time. As of now, at the time of writing, it stands at 38%, with almost 22,000 other cryptoassets. Furthermore, do the authors really trust the altcoin market capitalization data? Really?

💶 "Market interest has grown for newer blockchains that use smart contracts and aim to solve the challenges of earlier blockchains by introducing features to ensure scalability, interoperability, and sustainability."

The authors ignore the fact that all those "newer blockchains" sacrifice security, decentralization, and censorship resistance, which are core features of Bitcoin.

💶 "The biggest among the newer crypto-assets is Ether, which surpassed Bitcoin trading volumes earlier in 2021 (IMF, 2021)."

While Ethereum (ETH) did indeed surpass Bitcoin by some metrics, ETH trading volume is usually several times lower than BTC’s.

💶  "Bitcoin has also been popular for financing criminal activities. <...> The share of illicit payments in total Bitcoin transactions are disputed: While Foley (2019) estimates that some 45 percent are for illegal use, the Chainalysis’ 2021 crypto crime report finds less than 1 percent for 2020. As suggested by Green (2021), such small ratio could be because the denominator confuses trade volume (mostly relating to investment flows) with payments matching an economic transaction. FATF (July 2021) reports variations in identified illicit Bitcoin transactions from 2016 - 2020 to range between 0.6 and 9.9 percent (in proportion to the number of transactions) and 0.1 and 5.1 percent (in proportion to the USD value of transactions)."

The authors omit that the share of illicit transactions involving BTC is decreasing in comparison to the total volume, although it's true that it is being used by criminals alongside fiat money. Additionally, fiat money also faces the same problem. For instance, a research conducted in 2010 suggested that illicit activities in the EU generated about EUR 110bn, which is around 1% of the EU's GDP.


Let's debate

💶  "The advocates of gold as a weapon against inflation – and those who praise Bitcoin for the same as reason as the new gold - should remember the reasons for the abolition of the gold standard. While the gold peg could indeed offer protection against inflation, the flip side is the above-mentioned increased risk of deflation: In 1931 major currencies gave up the gold peg after years of painful recession, deflation, and financial instability."

“This is just regurgitated fiat dogma. We didn't abandon Bretton Woods 2 out of a selfless concern to supply the world with liquidity. That's a Keynesian fan fiction. Deflation hysteria is also misplaced and many scholars have addressed it,” said Steven Lubka. And as Allen Farrington added, “debt deflation following credit expansion is not technological deflation.” See? It’s more complicated.

💶  "It wastes power and is therefore an immense environmental polluter."

Once again, as Steven said: “It doesn't WASTE power, it USES power you just consider its use a waste. Also power consumption =\= pollution.”


But why?

💶  "However, even the case of Bitcoin freedom needs rules, otherwise there is a threat of anarchy and the law of the strongest."

Bitcoin has very clear rules, even clearer than those of the current fiat system, which is already controlled by the strongest.

💶 "Bitcoin is also by no means as grassroots democratic as its community may have believed, at least in the early days, but is shaped by financial interests and powerful shareholders and, relatedly, the exposure to concentration risks, given its large reliance on a few entities, like custodial wallets and exchanges (for example, Binance handles more than half of trading volumes according to the IMF (2021))."

Bitcoin does not have shareholders.
The above-mentioned “concentration risks” are only related to a theoretical ability to move prices, the same way as a central bank does with the interest rates, or, e.g., gold reserves.
At the time of writing, Binance handles less than a third of BTC's trading volume. In either case, Binance can’t influence the Bitcoin protocol, blockchain, or network singlehandedly.
By the way, how can I vote for the president of the ECB?

💶  "The question arises why such a simple [Bitcoin] solution would not attract any other energy intensive activity with a priori limited geographical constraints? Moreover, the energy consumption of the Bitcoin network is inversely proportional to the cost of energy. This means that if mining farms move massively to areas where energy is cheaper, then the logic of the proof of work mechanism requires that more energy will be consumed in mining for a given price of Bitcoin."

“Because you can't just magically use energy in remote locations, not all generated energy is suitable for industrial production. And once again, Bitcoin’s energy use doesn't just spiral up forever, it is constrained by costs and [mining] difficulty,” Steven explained.

💶 "The more computing capacity and the faster the validation process takes place, the safer the whole system will be. Such dynamic and decentralized protection leads to an exponential increase in the power demand of the computers, which means a huge energy demand for the system."

“Producing blocks faster doesn't add to the security and doesn't exist outside of epochs. Power demand will not go up forever, Bitcoin will not go exponential forever, and the curve will settle out,” Steven said.

💶  "[...] the price [of BTC] is not anchored in any real contribution to society."

What about those women and men who used BTC to avoid authoritarian regimes, transfer wealth during wars, save millions on remittances, etc.? Also, only after Bitcoin emerged as an alternative, the current monetary and financial establishment rushed fixing the payment system. Looks like a great contribution!

💶 "It may also be noted that slow and opaque pricing networks have traditionally attracted predatory high-frequency algorithm traders and are vulnerable to related market stress."

“High-frequency traders are attacking the (implied) actual Bitcoin network? Opaque? It just called the BTC network opaque? This is an insanely wrong but also tangential critique. Dog whistle towards "only central management can make decisions". Okay, explain FOSS [Free and Open Source Software],” Steven replied.

💶  "In recent years, exit scams have dominated crypto-assets crimes according to Cybertrace (2021)."

First, the company is called CipherTrace, not Cybertrace. Second, Bitcoin and those crypto exit scams are not related in any way.

💶 "Moreover, Bitcoin has become, also somewhat through the benevolence of public authorities, an asset class that everyone can now easily invest into and that “looks like a security, swims like a security, and quacks like a security, but is not regulated as a security” (Diehl, 2012) and even more importantly, that lacks a plausible underlying contribution to society justifying its valuation."

In addition to repeatedly quoting Stephen Diehl, who is known for making false and misleading statements, the authors also omit the fact that Bitcoin is the only cryptoasset not considered a security by the US Securities and Exchange Commission and the US Commodity Futures Trading Commission. Recently, Belgium reached the same conclusion (although they also added ETH to the list).

💶 "Probably the alleged inflation protection provided by a fixed Bitcoin supply is illusory: the number of possible crypto assets that can rival Bitcoin is, after all, unlimited."

This is a common mistake/intentional lie made by Bitcoin skeptics. Bitcoin supply and other cryptoassets relate the same way as any other investment asset with other assets. You don’t buy an apple if you want an orange or a bit of corn.

The end of the list, but not the debate

Can we conclude that we are witnessing “Bitcoin’s last stand” based on the arguments above? No.

Additionally, I was unable to find any hard evidence to support any of the six statements made in the original article. The claim that "One Bitcoin transaction consumes hardware comparable to the hardware of two smartphones" appears to be based on a 2021 paper by de Vries and Christian Stoll. The authors state that "the current [in 2021] amount of electronic waste generation represents 272 grams of e-waste per transaction processed on the [Bitcoin] blockchain. This is the same amount of weight as half an iPad or two iPhones 12 mini." De Vries claims that this "e-waste" has since increased to 445 grams per transaction. He also claims that Bitcoin mining hardware becomes obsolete every 1.5 years. However, according to Bitcoin miners, this is not true, as ASIC miners are projected to last for about 3-5 years or even longer.

Also, the Cambridge Centre for Alternative Finance explains this misconception about BTC mining costs per transaction:

“Bitcoin’s energy footprint is linked to block production, not transaction processing. This means that the number of transactions within a block has no impact on its energy expenditure: for a given difficulty level, a full block containing thousands of transactions has the same electricity footprint as an empty block with no transactions.”

Possibly, the main and only really accurate claim the authors made is that “many aspects of Bitcoin are fundamentally new and difficult to comprehend.”

So, if the ECB really serves the interests of people, it’s about time to engage in a really intellectually honest discussion, rather than protect the status quo by recycling misinformation, speculations, and lies.

Dear ECB, consider this article as an invitation to Bitcoin’s rabbit hole. And please let me know if you need any help, so I will introduce you to much smarter people than me.

Thank you!

This article is constantly updated as new details emerge.

DESSENTER is a Bitcoin & decentralization-focused newsletter in Lithuanian. For occasional stories in English, please follow me on Twitter. Thanks!