For Bitcoin To Be True Digital Cash – Bitcoin Magazine
This is an opinion editorial by Scott Worden, an engineer, an attorney and the founder of BTC Trusts.
“I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” — Satoshi Nakamoto
It’s one of those perfect fall days in Colorado, and I’m sitting outside of a pub in the late afternoon. I’m meeting with a fellow bitcoiner, a man I met in Austin at the end of this summer. As the sun fell behind the mountains, the sky turned orange, setting the perfect backdrop for lively bitcoin conversation.
As we ticked down the typical list of everything we agreed on — censorship is bad, red meat is good, etc., — I made an offhand comment about wishing more businesses would accept bitcoin as payment. “Well I don’t, why would you want to part with your sats?” was the reply he tossed back. The implication, of course, is that a true Bitcoiner values satoshis more than anything else in the world. Why would you trade them for groceries, t-shirts or beer? “Haven’t you heard of Laslo Hanyecz? That fool traded 10,000 bitcoin for a couple of pizzas. I’m not repeating that mistake. Talk to me when bitcoin hits $200k, then maybe it would make sense.”
My new friend isn’t alone with this line of thinking. It’s a sentiment that’s proffered by folks like Michael Saylor and others in the HODL community. They’ll espouse, “The scarcest asset in the world is Bitcoin. It’s digital gold,” “Buying bitcoin is like purchasing property in Manhattan 100 years ago”, and “Don’t sell your bitcoin!” Yet at the same time, there is an intuitive recognition that if bitcoin can’t ever be traded for a good or service, it in effect has no value, no matter what price is flashing on the BLOCKCLOCK in the office. I call this the HODLer’s dilemma.
But is this really a dilemma? Are these mantras, as prolific as they are, consistent with the spirit of Satoshi’s innovation? Does the proliferation of the Lightning Network and non-custodial mobile wallets that our parents (or children) can intuitively operate require us to evolve our understanding of Bitcoin’s value proposition? Personally, I believe the time is now to stop thinking of bitcoin as simply a store of value and begin to conceptualize it primarily as a medium of exchange … that also happens to store value better than any asset on earth. In case you weren’t already paying attention, here’s a few reasons why.
“Bitcoin would be convenient for people who don’t have a credit card or don’t want to use the cards they have.” — Satoshi Nakamoto
The time to start exiting the system is right now. The signal has never been stronger. Today we live in a world where the fiat system can:
All of this is happening today, and it is likely just the tip of the iceberg. In a retail system where cash transactions are becoming increasingly scarce and inconvenient, the majority of big banks, credit agencies and payment systems have acquiesced to the demands of a government that appears to have an existential stake in controlling our behavior.
Of course, bitcoin isn’t a panacea to censorship — at least how it’s most commonly purchased and exchanged today. The Canadian Trucker Protest showed us that a government committed to suppressing the voice of their citizens will go to almost any length to do so, and in the process taught us that licensed exchanges and chain analysis techniques can be highly effective in blacklisting addresses and even identifying donors. These vulnerabilities will need to be overcome in order to provide a more censorship-free currency-of-exchange. But by transacting in bitcoin with peers and merchants for everyday goods and services as often as possible, we incentivize others to both accept and transact in bitcoin. Through numbers alone we can render the bitcoin economy more robust, decentralized and difficult to censor. A community that values privacy will naturally choose to adopt non-custodial wallets, engage in collaborative transactions and avoid KYC exchanges. Growing and educating this community has never been more important.
Convenience And Autonomy
“With e-currency based on cryptographic proof, without the need to trust a third-party middleman, money can be secure and transactions effortless.” — Satoshi Nakamoto
A common counter-argument to transacting in bitcoin is that it’s either too complicated or too slow compared with swiping a credit card. This is simply no longer true. Today, any beginner-level Bitcoiner can download Muun Wallet and within minutes send Lightning invoices to clients for payment via QR Code. Coinkite has an NFC device that allows users to sign for transactions with a tap of their card. There are more examples, and many more to come. The beauty of these solutions is that they are fully non-custodial, i.e., there is no central third party that controls your coins. The software is merely enabling transactions to be broadcast to the network. Lightning transactions clear instantaneously, with fees an order of magnitude lower than Visa or Mastercard’s traditional 2–3%. (For example, it recently cost me about $.60 in fees to send the equivalent of $700 USD to Wrich Ranches last week for beef. That same transaction would have cost the merchant around $20 had I used Visa.)
In addition, these transactions promote autonomy on both sides. Lightning transactions, like everything else backed by Bitcoin’s proof-of-work, occur without counterparty risk. Removed from the equation is the risk that a consumer won’t pay his bill, dispute a charge, not have enough money in his account or file for bankruptcy down the road. All of this risk manifests as transactional inefficiency, and its costs are directly or indirectly absorbed by merchants and consumers. A trustless system like bitcoin is thus more efficient, reducing risk for merchants, and ultimately rendering goods and services less expensive for responsible consumers.
“I’m sure that in 20 years there will either be very large transaction volume or no volume.” — Satoshi Nakamoto
We would do well to think of all of our transactions in terms of bitcoin. When money is truly a store of value, we take a measured approach to spending and account for the potential increase in value that money may have in the future. This is logical, and applies whether you’re spending sats or dollars. The website bitcoinorshit.com drives this point home quite bluntly.
There’s also the story of Laszlo Hanyecz, who in 2010, famously purchased two pizzas for 10,000 BTC. In effect, Laszlo paid a couple of billion U.S. dollars for pizza, if we take into consideration BTC’s market value over a decade later. It surprises me though, when Bitcoiners jump on Laszlo for being economically naive, and use this example to support their position that bitcoin should never be spent. The simple truth is that everyone who bought pizza in 2010 effectively spent thousands of bitcoin on it. The only way to avoid this would be to eat something less expensive or go hungry. The fact is, every fiat transaction we make is a direct trade off for potentially increasing our stack. Once we understand this, the public controversy over spending bitcoin on products or services is fundamentally dead.
The overwhelming majority of us need to trade monetary energy for goods and services to survive in today’s society. The only controversy that remains is which products or services take precedence over the opportunity to acquire more sats. It’s a decision that is personal and unique for each of us. The answer should be thought of independently and irrespective of whether that monetary energy is spent in sats, dollars or yen — it’s only the monetary energy saved — that which is left over — that is relevant when it comes to the HODLer’s dilemma.
We are all likely to save more BTC if we begin transacting more in BTC. For one thing, when we deal in a sound money that is a proven store-of-value, we’re more apt to be discerning in our purchases. Sure, we really want the new iPhone, but is it worth 5 million sats if you expect a sat to be worth a penny someday? We might decide to wait another year before we upgrade and retain those sats for the future. On the other hand we all need food, shelter and clothing. If I have a choice between buying my meat from Costco with my Visa card, or buying direct from a rancher who accepts bitcoin, why wouldn’t I choose the latter?
Today, the number of merchants that accept bitcoin is relatively small, though growing steadily. As bitcoiners begin to understand that their “spend dollars, save sats,” theory may be counterproductive, greater numbers will begin to seek goods from merchants that accept bitcoin for payment. This spike in demand will drive merchant adoption, potentially shifting the timeline for a bitcoin economy significantly to the left.
More Exchange Equals More Value
“As the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value.” — Satoshi Nakamoto
This is where we sit today. There’s a growing number of speculators and bitcoin enthusiasts who have bought into the idea that Bitcoin is a bona fide store of value. This community further believes that the asset’s scarcity will inevitably lend to a supply squeeze that will cause the price to rocket upwards. Sure, it’s possible that this could happen through the mere act of HODLing, but as Satoshi Nakamoto points out, the value goes up when the numbers of users go up. Does buying and holding an asset qualify as use? If the brilliance behind bitcoin is enabling peer-to-peer transactions without a third-party middleman, are we really leveraging that capability by exclusively stacking and not spending?
I believe that bitcoin needs to become a true medium of exchange in order for it to fully realize its potential as a store of value. Since value is not derived from scarcity alone — demand is fundamental to bitcoin’s price. If bitcoin’s utility becomes the driving force for its demand, it is at this moment that its true potential as a store of value will be realized. Today’s economic and political backdrop might just be the motivation we all need. But until bitcoin becomes an essential part of our daily economic activity, it is apt to be valued alongside other speculative assets, and subject to the whims of the same fiat system it was meant to supplant.
This is a guest post by Scott Worden. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.