I just watched your video Bhante. There are many factual inaccuracies and logical fallacies in it; too many to address all of them. Below are my comments regarding the points you made in the first 25 minutes of the video. My hope is that others will find this a useful perspective and be encouraged to learn more about it for themselves.
Beginning: Bitcoin and cryptocurrency is inherently evil.
Nothing is inherently evil. People get stabbed with knives all the time, but knives are not inherently evil. It is the purpose towards which a thing is put that makes it evil.
5:00 min: The power, energy and complexity to do anything useful with Bitcoin is prohibitive. Crypto has never been used to build anything useful.
This is simply not true. The power consumed via solving complex problems has a singular purpose, namely to secure the Bitcoin network without counter party risk.
Suppose you put your money in a bank. You trust this bank not to misappropriate your funds, but you have no guarantee that they won’t. In 2008, several banks collapsed and had to be bailed out by the Government using tax payer funds. Without this bailout ordinary people would have lost all of their savings. Even with the bailout, the Government didn’t create terms that were favourable to the tax payer (i.e. their constituents). They literally took money out of peoples’ pockets to plug a hole created by banks gambling away funds that were invested into them. We know now that the people who run banks are susceptible to greed, but are forced to leave our money there anyway because it’s the only option we have.
The Bitcoin network, in contrast, doesn’t require us to trust any institution. Any Bitcoin you hold is stored on a network who’s security is guaranteed by a distributed set of computers. The power these computers use is the price paid to secure the network in this way. If you think that the Bitcoin network uses too much power, you should compare it to the amount of power used by appliances that are left on ‘standby’. The economics of Bitcoin are such that miners will gravitate to the cheapest sources of power. This means that it is able to secure the Bitcoin network using the power that is least in demand. Compare this to the power usage of idle devices. Power that is in high demand (e.g. in peak locations) is consumed for no purpose whatsoever.
7:09 min: Mining gets harder as you go on and require massive server farms to solve these problems.
This is incorrect. Bitcoin mining difficulty doesn’t increase as a function of time. It increases as a function of the number of miners, which is related to price.
Every 10 minutes, the Bitcoin network releases a certain number of Bitcoin that the miners can take. Miners compete for these Bitcoin by trying to solve an algorithmic puzzle. Whoever solves the puzzle first gets the Bitcoin that is released. The miners are then able to sell the Bitcoin they have gained in the open market to make money. The profit they make is the money from the Bitcoin sale minus any costs incurred to run their computers.
The utility of miners is that they engage in a consensus mechanism to secure the network against bad actors. In layman’s terms, they stop other people from stealing your Bitcoin.
The more expensive Bitcoin gets, the more lucrative mining becomes; therefore more miners add their computers to the network to try and gain a share in the profitability. This is a good thing because miners secure the network from bad actors. The more valuable Bitcoin becomes, the more bad actors might try to attack the network to steal Bitcoin. But the more miners that are drawn to the network, the less likely bad actors will be able to succeed.
The reason that power usage has, on average, increased within the Bitcoin network over time is because its price has also, on average, increased.
9:09 Bitcoin has spectacularly failed as a currency because the energetic costs of doing a transaction are ridiculously high.
This is misleading. The reason that the Bitcoin network cannot support a large number of transactions is due to its consensus mechanism used to secure the network. The transaction cost is therefore not arbitrarily high. You are just paying for the privilege of securing your funds against bad actors, specifically in two ways:
- You don’t have to keep your funds in a bank that might gamble them away.
- You have minimal worry about someone stealing your Bitcoin from the network (Currently it would cost someone several billion dollars to even trying steal a single Bitcoin, and even then they may not succeed. The cost to steal will only go up as the price of Bitcoin goes up).
There are several mechanisms that are being looked at to resolve high transaction cost. One is lightning network, which looks to extend the capability of Bitcoin. Another is to use Bitcoin as a store of value and using a different crypto for transaction. Things have improved steadily in this area. I would recommend looking into the work that Cardano is doing in the formal verification of protocols and methods.
A note on store of value. As Bitcoin gains traction, it will likely experience more booms and busts. Therefore, it is not currently a good short term store of value. However, if you look at its long term history, it has preserved value well. It is, of course, young compared to alternatives such as gold. But the criticism of new-ness is one that can be leveled at anything novel.
9:44 min: Bitcoin has pivoted to being a store of value, but it is nothing more than a speculative asset. Just pixie dust. You put money into something hoping to get more money out of it.
As mentioned in my previous comment, the value of something is not just rooted in what can be produced with it.
12:38 The problem with crypto is that it aims to create scarcity out of abundance. Nature is abundant. Food, water, air space, light are all abundant. We are born into a world uncannily adjusted for our health and welbeing compared to the rest of the universe. Yet not everything is abundant. The economy exists to deal with the lack of abundance. Digital items can be shared at low cost. Information that was once scarce is now abundant. Crypto generalises this so that everyting is scarce. You no longer try to get income for the work that you have done. You just get income by having some digital thing. This causes selfishness. This is greed. The more that people get money from nothing, the more it will corrupt their soul. Those who earn money and work for it will appreciate it.
Just because something can be distributed for free doesn’t mean that it can be created for free. The cost to distribute physical goods has dropped by orders of magnitude over the decades. Yet we don’t make the argument that you should be able to go to a store and grab what you want. The same applies to information. Good quality information is not free or sometimes even cheap to create. Of course, we should make goods and information as accessible as possible. But creators must have a means of supporting themselves.
We can see what the information age initially did to music and movies. Movies and music were stolen in quantities that started to affect these industries. Now, the industries are by no means poor but that is not the point. The point is that people were able to take what they wanted without compensating the creators for them. It effectively made it easy to break the musavada precept with little consequence.
Fast forward to a few years later and we now have streaming services that many people are happy to pay for instead of stealing movies and music illegally. These streaming services effectively makes music and movies more scarce again. But does that make them evil?
Getting back to crypto. The crypto ethos is not to make everything scarce. It is to make digital tokens that are scarce. These tokens can be used for a variety of things and allow transactions to happen without an intermediary. For example, we currently have to put money into a lawyer’s account when purchasing a house. There have been several instances when a lawyer has vanished with the money leaving the purchaser in distress. The use of crypto and smart contracts allows us to side step the problem by ensuring the lawyer can’t steal funds in escrow.
16:46 min: This causes selfishness. This is greed, a lack of responsibility. The more that people get money from nothing, the more it will corrupt their soul. Those who earn money and work for it will appreciate it. When you build an economy on the idea that you do nothing and get money you corrupt the human soul. Creating scarcity out of abundance.
People try to gain money from nothing in every financial market (e.g. stocks, bonds, ETFs etc). This is not peculiar to crypto. Wherever there is price volatility, there are opportunities to arbitrage or make profits on price movements. Note that even this action is not a useless one. Arbitragers and traders add liquidity to a financial system and help it function.
The unique value proposition of crypto is not that you can create wealth out of nothing. With Bitcoin, in particular, it is so that you can preserve the wealth that you have.
Here is a graph of gold vs USD over the last 100 years:
100 years ago, gold cost $100 USD per unit. Now, gold costs 1600 USD per unit. This 16 fold increase does not indicate that gold has become 16 times more valuable over time. Rather, it indicates that the US dollar has become 16 times less valuable over time.
How does this happen? Governments print money to maintain a positive inflation rate, that they claim is good for the economy. This reduces the purchasing power of anyone who holds that currency.
A quick example.
Suppose an economy has 100 oranges. It also has a supply of 100 dollars. This means that each orange will cost a dollar. Now suppose the government prints 100 more dollars so that the economy has 200 dollars. This means that each orange will now cost 2 dollars. If you had 20 dollars in your bank account before the government printed money, you would have been able to buy 20 oranges at 1 dollar per orange. But now, after printing, you can only buy 10 oranges at 2 dollars per orange. This is one of the primary sources of inflation where goods get more and more expensive over time.
As governments print money over time, the value of the ordinary person’s savings reduce. No matter how hard they work, a factory worker might only be able to barely eek out a living. Further, the savings will be even less useful to their children as the value is eroded through money printing.
There is also an environmental cost to governments printing money. When governments print money, say at 5% per year, any company in business has to make a profit of 5% a year just to break even. This causes a drive for excess profit that then causes corporations to exploit the environment and workers even more than they might already have incentive to do.
Technology increases the productivity of the world. However, to date much of the benefits of that productivity has been stolen via the printing of money. The distribution of this printed money is unequal, causing the rich to get richer and the poor to get poorer.
With Bitcoin, there is no danger of the supply of Bitcoin increasing and diluting your savings because the supply of Bitcoin is algorithmically determined. The promise of Bitcoin is that f you work hard and save, the long term purchasing power of your savings is pretty much guaranteed (Note that as it is still a young technology, it is not wise for a person to put all their savings into it. Just enough to ensure that they are well diversified. The rule of thumb I would use is to only put in what can comfortably be left alone for the next decade). Further, if multiple generations save the coin it will appreciate in value as productivity increases due to technology. That means that a poor person who manages to pass even a fraction of Bitcoin to their children will leave their children more wealthy than they would otherwise be.
Contrast this to the current situation of the world. The real GDP of the US has increased 18x in the last 100 years but the value of the dollar has fallen 16x. By rights, 100 USD saved by your great grandparents should be worth 1800 dollars now. Instead, it is still only worth roughly the same 100 dollars. On the other hand, the cost of things like housing or commercial spaces has drastically increased, effectively lowering your purchasing power to less than what it was to 100 years ago. Now a question must be asked - where did the extra 1700+ dollars of purchasing power go? Some of it undoubtedly would have gone to the institutionally rich, who are given preferential treatment by politicians.
Incidentally, this dynamic of wealth erosion is partially responsible for the ridiculously low savings rates of some people. Many people instinctively feel that there is little point in saving for the future. Those who are more astute try and buy scarce assets such as land to ensure that their purchasing power is not eroded away by money printing. This then causes added issues as rich people buy up housing that poor people need.
As can be seen, it is the prevailing system that allows irresponsibility and creates the conditions for greed.
18:03 min: It is solving entirely the wrong problem. The problem is not ‘how do we make an abundant resource scarce’. Why would you do that? Why would you bottle air and sell it? Why would you bottle water and sell it? But this is what the web3 advocates are saying. Everything should be scarce, everything should be locked up.
It is not about making every abundant resource scarce. It is about simulating scarcity in the digital world to:
- Allow money to be transacted without counter party risk (i.e. without having a bank, lawyer etc. stealing it)
- Free up real assets for more equitable use. (imagine if people didn’t need to hoard land and property to protect their wealth over generations… if they bought a digital asset instead that was just as scarce, the land and property could be put to better use)
A digital asset cannot be used to lock up just anything. For example, tokenising a car digitally can’t stop it being stolen, and that is a positive use that one might want to use crypto for, if possible. But there are limits to the technology.
A digital asset cannot be used to lock up all information either. If you didn’t create it or didn’t purchase the rights to it you don’t have the power to lock it up. Further, even if you did create it, it doesn’t guarantee that someone won’t copy your information and post it for everyone to download. Anyone who wants to steal information badly enough will likely find some way to do it.
19:04 min: A resource that was formerly scarce is not. The economic equation has changed, therefore we should step outside of economics. If information is almost free to create and distribute, we should not consider it an economic good any more. We should consider it like the air or the water. It will give us a sense of care and responsibility. We should look after our infosphere in the same way that we look after our ecosphere. We currently don’t look after our ecosphere, but just making the point that there is another way of looking at this.
As mentioned before, high quality information is not usually free to create. It requires at least some input of labor and perhaps even a lot of capital. Therefore, it is a good that fits into the current economic model. Now, some people may give information away but that should be their choice. Good Dhamma teachers, for example, don’t sell the Buddha’s teachings; which is as it should be.
20:11 min: Imagine that you’re living in your home and buy a dozen eggs for the week, put them in the fridge and find out a couple of eggs have gone. Your flatmate has taken two of them and you have no more money for more. You friend says that he didn’t know and offers a solution. Let’s buy some egg-sized safes with pass keys on them so that each time a person buys the egg they put it in the safe. So now we live in a world where we can’t even use an egg without a passcode and if you lose the passcode you don’t get to eat your egg. Obviously this is madness and this is the world that blockchain advocates want for us. An alternative approach would be to have compassion and care about each other. Get together as a group and decide to share. If we give and share there will be plenty for everyone. We don’t have to create scarcity out of abundance. It is inherently immoral if it is applied as a general principle.
You might be able to trust your friend and come up with an agreement to share. However, the less someone knows or sees you, the less incentive they have to consider your well-being. A good example comes from wartime. Soldiers on the ground suffered much more trauma from having to kill their adversaries than pilots who bombed people from the skies. The pilots killed more people but suffered less because they couldn’t see the faces of the people they killed.
Ideally yes, everyone should share and everyone should get along. But that is not how human nature tends to work. Banks may speculate with your money, unscrupulous third parties may run away with it.
You are not locking up an egg so that your friend can’t use it. You are protecting your wealth so that people who neither know nor care about you aren’t in a position to steal from you. Even monasteries have locks and keys for important things. This website has site administrators who hold passwords related to the site; the admins don’t just trust anyone to modify the site as they please. This kind of protection is just common sense.
Maybe at some point in the future when everyone has more goodwill, we won’t have the need to protect property in the way we do now. I hope such a day will come, but for now we must work with our present reality.
23:05 min: Cryptocurrency is fuelled by libertarian extremism, where governments are regarded as getting in the way with their regulation. Their view is to create something that is outside the purview of government without rules and regulations. Rules are good.
Some people do see crypto as a means of dodging regulation. However that is not the primary purpose of crypto. The primary purpose of many crypto, in relation to government, is to ensure that the government can’t print away your savings into oblivion.
Regulation is necessary for crypto and without it the industry will not grow. Few to none of the major players in crypto want an unregulated environment.
24:26 min: There should be oversight of financial activities. If you leave financial activities unchecked you end up with booms and busts, inequalities, criminal activities, broken dreams and broken lives.
Agreed; and this is happening more and more. But it should be noted that many people’s broken dreams are currently due to the chain of events caused by the actions of third parties (e.g. governments unscrupulously printing money, banks speculating with people’s savings, other third parties running off with funds, corporations under pressure for profits exploiting the environment or workers etc.)
25:35 min: One of the irrationalities of the crypto world is that the things which crypto is supposed to solve has not been solved. It was supposed to be a currency, that doesn’t work. It was supposed to be unregulatable, that doesn’t work. It was supposed to be security, that doesn’t work. Yet none of that changes people’s commitment to it. Crypto is a cult.
It was supposed to be a currency, that doesn’t work.
Bitcoin has some way to go to bring down transaction cost. However other cryptos have made some good progress in this space. To say it doesn’t work now is premature. This is a growing industry and as such, susceptible to booms and busts. There will come a time when the market balances itself enough to allow decentralised transactions.
It was supposed to be unregulateable, that doesn’t work.
No, it was meant to allow people to save without money printing affecting the value of those savings. It has succeeded in this endavour.
It was supposed to be security, that doesn’t work.
Yes it does, Bitcoin has never been hacked.
Crypto is a cult.
Sure, some people might display cultish behaviour. This is no different than in other places. E.g.
- Christians burning Harry Potter books
- Buddhists claiming that there is no self in absolute terms, even though scientifically speaking such a statement is nonsensical; things are not real, but emergent, making them unable to exist or not exist absolutely
- Scientists failing to investigate various phenomena due to personal prejudice (e.g. in the 1800, scientists refused to wash their hands because they didn’t think that germs were real. There was data to show that hand washing decreased mortality by 50% but they refused to look at it)
The list can go on. Cultish behaviour is part of the human condition and is not peculiar to crypto. The two must be looked at separately.