Where we stand with Bitcoin according to ECB

Brief comments on the European Central Bank's blog post about Bitcoin

Earlier today, The European Central Bank (ECB) posted an opinion piece on their blog, “Bitcoin’s Last Stand”. To say that the authors are not believers in Bitcoin would be a clear understatement:

“The value of bitcoin peaked at USD 69,000 in November 2021 before falling to USD 17,000 by mid-June 2022. Since then, the value has fluctuated around USD 20,000. For bitcoin proponents, the seeming stabilization signals a breather on the way to new heights. More likely, however, it is an artificially induced last gasp before the road to irrelevance – and this was already foreseeable before FTX went bust and send the bitcoin price to well below USD16,000.”

The authors argue that Bitcoin should not be legitimatized by regulators for three main reasons:

• Bitcoin is not suitable as a payment system.

• Bitcoin is not suited as a form of investment.

• The Bitcoin system is an unprecedented polluter.

I would like to make a brief comment on each point in turn.

Bitcoin as a payment system

The authors write that “Bitcoin transactions are cumbersome, slow, and expensive.”

Technically, the authors are right about this. But as the reality is now, only a very small minority of Bitcoin holders use BTC to make everyday payments. The average holder has their BTC stored in a wallet as a long-term savings account.

In time this could and probably will change with so-called Layer 2 solutions where bundles of microtransactions can be verified by nodes at once. For more information, I highly recommend reading Lyn Alden’s in-depth breakdown of the Lighting Network.

Bitcoin as an investment

The authors write that “the market valuation of Bitcoin is purely based on speculation”. The reason is that Bitcoin “does not generate cash flow (like real estate) or dividends (like equities), cannot be used productively (like commodities) or provide social benefits (like gold).”

In general, I think it's a mistake to juxtapose Bitcoin with crypto as the authors relentlessly do in their blog post. While Bitcoin competes with fiat money, most, if not all other cryptocurrencies, are more comparable to stocks in publicly traded companies.

The main difference between Bitcoin and practically all other cryptocurrency projects is that there is no legal person behind Bitcoin to file a claim against. The Bitcoin network is highly decentralized, distributed among thousands of notes. This in turn makes bitcoin highly secure against double-spending, similar to how banknotes are protected against counterfeiting with watermarks.

From a theoretical standpoint, Bitcoin fulfills the “six properties of money-test”- which bitcoins are suited as a currency.

Bitcoin as an unprecedented polluter

Bitcoin is less polluting than the banking industry or Christmas lights. The argument really boils down to whether we recognize Bitcoin’s underlying value as money or not. Besides, more and more Bitcoin mining is carried out with cheap, renewable energy - as it should be. If you have strong feelings about this point, I highly recommend that you check out Nic Carter’s “Comments on the White House report on the climate implications of crypto mining”

Overall

It’s abundantly clear that the authors of “Bitcoin’s Last Stand” see Bitcoin only as a threat to their profession. They do not make any meaningful references to Bitcoin’s white paper or give any consideration whatsoever to opposing viewpoints. What we need is not harsh judgments but open dialogue to ensure that technological opportunities are not wasted.