Media coverage of bitcoin is consistently terrible. A recent article in the Washington Post prompted Nic Carter to write a blog post calling media coverage of bitcoin “a total disaster”.
In his rebuttal to the Washington Post article, Castle Island Ventures Partner and Coinmetrics.io co-founder Nic Carter wrote that he was,
“fed up with journalists who are either ignorant or unwilling to learn about cryptocurrency holding forth on its perceived weaknesses.”
Carter didn’t want to attack the entire media and every article written about bitcoin. Instead, Carter decided to focus specifically on the recent Washington Post article, calling it a “nonsensical ramble.”
That article was titled, “Bitcoin is still a total disaster.” Published earlier this month, the article takes issue with the fact that bitcoin prices are unstable. The writer brings up several other points to suggest that bitcoin will never be a real currency.
Carter, in his rebuttal, refutes each one of the claims made in the Washington Post’s article. Here are a few of the problems Carter had with the piece, including why he thinks the media’s coverage of bitcoin continues to be a total disaster.
The Washington Post Claims Currencies Are Meant To Be Stable
“There’s one thing a currency is supposed to do that bitcoin never has,” explains the Washington Post. “That’s maintain a stable value.”
Carter takes issue with this point because it assumes bitcoin is an ordinary currency. Carter classifies bitcoin the protocol “as a complete monetary system,” with bitcoin being “the unit of value as a commodity money.”
Bitcoin is more akin to gold. The price of gold – like the price of any commodity – will fluctuate. That’s what commodities are meant to do.
It’s also strange to assume, according to Carter, that currencies are meant to maintain a stable value. Governments use monetary policy to achieve a variety of macroeconomic objectives. They use monetary policy to target GDP growth, unemployment rates, trade balances, and more, for example. The Fed doesn’t set a target for 0% inflation. Instead, they target 2% inflation. If they wanted a stable currency, they would target 0% inflation. That’s not what they do.
Ultimately, Satoshi’s whitepaper never defines bitcoin as a currency. Satoshi describes bitcoin as “a system for electronic transactions, a peer to peer version of electronic cash…an electronic payment system.”
According to Carter, it’s mostly just outsiders who view bitcoin as a currency. Outsiders – like unknowing members of the media – compare bitcoin to currencies like the USD. It’s not a direct or easy comparison:
“Unburdened by priors, a neutral analyst would probably describe it as something similar to gold. In fact, Satoshi described PoW with reference to gold mining, and later discussed Bitcoin as analogous to a scarce, inert, infinitely portable metal which might develop a monetary premium. He clearly saw it as a gold-like commodity which would recapture those same properties in the digital realm, and I think this the most fitting interpretation of the system.”
The Washington Post Claims Bitcoin Was Built With Volatility In Mind
According to the Washington Post, bitcoin’s volatility is a natural part of the protocol.
“Why has bitcoin’s price been so up-and-down? Well, part of it is that it was designed that way.”
Carter describes this as “an odd rewrite of history” and “a very strange interpretation of bitcoin’s purpose.”
The problem with this assumption is that there’s an “impossible trinity” which states it’s impossible to have free capital flow, sovereign monetary policy, and a fixed exchange rate all at the same time. Bitcoin was designed with sovereign monetary policy and free flow of capital, which means demand is allowed to dictate the price. Bitcoin is not backed or connected to any “real world” goods or assets – just like gold.
Bitcoin isn’t necessarily designed to be unstable. Instead, its volatility is an emergent property – not a design object.
The Washington Post Claims Transaction Validation Is The Source Of Bitcoin’s Computational Overhead
“[…] the problem [with a decentralized network] was that the only way to do that would be for every member of that network to keep a record of every bitcoin transaction there had ever been — that way they knew who had bitcoin to spend — which would require a lot of computing power.”
Carter sees this argument as a common misconception. PoW and mining ensure that the network “deterministically converges to a shared history, without any subjectivity or off-chain coordination.”
Yes, minted units have value. That allows miners to behave appropriately in the short and medium term. Miners will pay up to $x amount to obtain a bitcoin, with $x being the current price of a bitcoin.
Furthermore, there’s a difference between full nodes and miners:
“The validation and record-keeping is behavior conducted by full nodes, not miners. The cost of maintaining the Bitcoin data store is an externality pushed onto full nodes through bandwidth and storage costs. This is NOT the job of miners. This is a basic distinction lost on many.”
The Washington Post Claims Bitcoin Has “Unnatural Volatility”
“But even this inbuilt volatility doesn’t fully explain why bitcoin has been on such a roller-coaster ride. Something else must be going on, and that something is plain-old manipulation.”
The Washington Post argued above that bitcoin’s volatility was built into the platform. However, they claim that bitcoin’s volatility over time must be connected to more than just this hard-coded volatility: it must be manipulation.
Carter doesn’t refute the fact that manipulation occurs on crypto markets. However, he also takes issue with the idea that an entire $100 billion network was manipulated into existence.
The Washington Post also seems to connect altcoin scams with bitcoin. “…what seems to still be happening in 2018 with various pump-and-dump schemes,” writes the Washington Post. Yes, there are scams involving altcoins. No, those scams have limited connection with bitcoin.
The Washington Post Claims Bitcoin Is Only Used As A Currency Due To The Wealth Effect
“…what makes bitcoin work as a way to transfer things [is] the expectation that its price will keep rising”
Sure, there are some people who accept bitcoin today with the anticipation that its value will increase in the future. However, this shouldn’t be seen as the sole reason that “makes bitcoin work”.
“That’s not what makes it work,” writes Carter.
“It works as a way to transfer things because it’s a pretty good distributed clearinghouse for value. If Bitcoin was stagnant at $1000 for the next 10 years, it would remain a good way to transfer things.”
One of the best pieces of evidence suggested by Carter is that bitcoin continued to be used heavily during the 18 month bear market that began in January 2014. Bitcoin’s price was hitting multi-year lows – including lows as low as $200. Yet people continued to use bitcoin. In fact, usage grew considerably during this period.
The Washington Post Claims People Have Little Incentive To Spend A Deflationary Asset
The Washington Post believes that bitcoin’s deflationary cycle has a central problem: why would someone spend $100 worth of bitcoin today if they believe it’s going to be worth $1,000 next year? There’s little incentive to spend a deflationary asset – much like there’s more incentive to spend an inflationary asset.
Despite this claim, bitcoin continues to be transacted at high volumes. Over the last year, the bitcoin network has routinely seen days with over $2 billion of value transferred, including days with as much as $16 billion of transaction volume.
The Washington Post Claims Bitcoin Is Illiquid And Manipulated
“This lack of liquidity makes it pretty easy for a few fraudsters to push the price up quite a bit.”
Once again, the Washington Post seems to be equating bitcoin with altcoin markets. Bitcoin is enormously liquid and has huge pools of liquidity on various exchanges.
The Washington Post mentions Tether, including the concern that Tether isn’t actually backed by USD. That’s a legitimate concern. However, you can subtract all Tether trading from bitcoin markets and still have plenty of liquidity.
The Washington Post Believes It’s A Problem that If You Steal A Bitcoin, You Get To Keep The Bitcoin
One final claim made by the Washington Post is that if you steal a bitcoin, you get to keep the bitcoin. Transactions on the bitcoin network are irreversible.
That’s somewhat true. Bitcoin has stronger property rights than an ordinary currency. However, these stronger property rights also allow you to create a system where it’s impossible for your bitcoins to be stolen.
This irreversibility is both a pro and con of bitcoin. Obviously, however, the USD is used for just as many thefts – so the different properties of the USD haven’t reduced thefts of the USD.
Ultimately, the Washington Post article believes bitcoin is not – and will never be – an effective global transaction system. The article spends a lot of time comparing bitcoin to traditional cryptocurrencies – when in reality, bitcoin’s whitepaper never mentions that bitcoin is a currency.
Because of these and other problems, Coinmetrics co-founder Nic Carter wrote a lengthy rebuttal against the piece.