This is the first of four parts on handling objections to Bitcoin, and here we’ll discuss the economics category. As before, feel free to skip ahead to a specific objection if you’re currently handling one.
Before we get into it, you may be wondering what business we have, as Christians, concerning ourselves with worldly topics such as economics and money. If so, I’d encourage you to consider the parable of the dishonest manager. Jesus paints the picture of a man who is very much involved in the affairs of this world — in particular, managing the accounts for his master. After failing his master by wasting his possessions, the manager redeems himself by collecting on a bunch of debts that were probably considered uncollectable, and he’s commended for his business acumen:
The master commended the dishonest manager for his shrewdness. For the sons of this world are more shrewd in dealing with their own generation than the sons of light.
Luke 16:8
Jesus seems to acknowledge the conventional wisdom that Christians can be naive or unwise with money, and then he warns his followers that they may not be entrusted with true, spiritual riches if they can’t be faithful with the common, physical riches of this world. In other words, we can’t use our Christianity as an excuse to ignore the affairs of this world; instead, God expects us to operate with shrewdness and acumen like the sons of this world. This doesn’t mean we all have to be economists, but we are expected to maintain some level of knowledge and understanding of worldly ways.
Bitcoin has no value
Now that we’ve set our expectations, let’s get into the first objection: that Bitcoin has no value. People who make this claim often mean that Bitcoin has no intrinsic value because it isn’t real or physical and can’t be used for anything.
Of course, as Christians, we know that there are plenty of non-physical things that have value:
A good name is to be chosen rather than great riches, and favor is better than silver or gold.
Proverbs 22:1
In other words, a good reputation — something that is not physical — is more valuable than silver or gold, both of which are physical monetary metals. There are also plenty of examples of digital things that have value, such as the manuscript for a novel, or the pictures of your children in the cloud. So it can’t really be that Bitcoin has no value because it’s digital and not physical. But what about the fact that it isn’t useful for anything — that it has no utility?
This claim usually comes from the idea that monetary metals like gold are valuable because of their industrial use cases. But the reality is that the majority of the value of gold currently comes from what economists call its monetary premium, which is a fancy way of saying how much value people assign to something for its use as money — that is, something that can be used as a store of value, medium of exchange, or unit of account.
And just because something isn’t used for all three of these functions at once, that doesn’t mean it can’t be considered money. For example, gold isn’t really used as a medium of exchange or as a unit of account any more, but it’s still widely regarded as a great store of value. When something is used as money, that in itself is also utility, but for the purpose of this discussion it’s useful to carve out that particular use case from the rest, so that we can compare how much utility value something has versus its monetary premium.
There are plenty of examples of market goods that have a monetary premium in our world, such as gold, real estate, and art, and each of these goods has a different ratio of utility value to monetary premium. Bitcoin is unique in that it’s the first good whose entire value comes from its monetary premium — but that isn’t a strike against it, but rather one of its greatest strengths. Throughout history, the market good with the smallest utility value relative to its monetary premium has typically served as the best and hardest form of money, and this is due to multiple reasons that we don’t have time to cover here.
The point is that humans have always gravitated toward the one good with the most monetary premium to use as money, and by that metric, Bitcoin can never be bested, because it already has a 100% monetary premium. If you want to understand why this is the case, or just want more details about this subject in general, read chapter 3 in Broken Money by Lyn Alden and chapter 3 of The Bitcoin Standard by Saifedean Ammous.
And one final note on the idea that things can have intrinsic economic value. Austrian economics provides an alternate take, claiming that all economic value is subjective and determined at the margin. That is, nothing in the physical world has any economic value until a rational individual who is forced to economize assigns value to that thing. We say this value is subjective because individuals all have different wants and needs at any given moment.
For example, all humans value water, but someone in the middle of the Sahara desert will probably value water much higher than someone with running water in their house — that is, until they come across an oasis and have had their fill. This is why we say value is also determined at the margin: if there is an abundance of a thing relative to how much of it we need, we will value each additional unit of that thing less and less. If you’re really into economics and want to go down this rabbit hole, read chapter 2 in Principles of Economics by Saifedean Ammous.
But what about the idea that Bitcoin has no value because it isn’t backed by anything? After all, the dollar was backed by gold, and now it’s backed by the full faith and credit of the United States of America — or, as Bitcoiners sometimes joke, proof of war. For more details on proof of war, read chapter 7 of The Bitcoin Standard and chapter 12 of The Fiat Standard, also by Saifedean Ammous. For more discussion on Bitcoin not being backed by anything, read chapter 3 in Gradually, Then Suddenly by Parker Lewis.
The idea here is that fiat currencies, like the dollar, don’t really have any value in and of themselves, but rather derive value from an underlying thing that does have value. Of course, the full faith and credit of the US isn’t a physical thing — but we’ve already covered how non-physical things can have value. In the case of the gold-backed dollar, the idea was that gold was the real money and the dollar just represented a claim on a particular amount of gold. This argument just leads back to our original discussion about intrinsic value, so you really just need to establish that comparing Bitcoin to gold is more appropriate than comparing it to the dollar.
That is, Bitcoin, like gold, is valued directly; it doesn’t derive its value from something else, and its value isn’t intrinsic, but rather subjective, coming from its usefulness as money to individuals who prefer it.
And while people may accept this line of reasoning, they might say Bitcoin is going to eventually have no value because — look — it’s crashed and it’s trending to zero. As we discussed previously, Bitcoin has a history of four-year cycles where there are euphoric run-ups followed by catastrophic draw-downs. Handling this flavor of the objection is relatively straightforward, because we have time on our side. Unlike the tulip mania, Bitcoin has stood the test of time; every time it has crashed and been declared dead, it has never trended to zero, and instead always come roaring back with new all-time highs.
This is not the classic chart of a speculative bubble that never comes back. A better analogy would be the dot-com bubble in the early 2000s. That bubble was based on an underlying technology that did have value — the internet — but the hype went too far too fast. In hindsight, investing in companies like Amazon, even at the height of the dot-com bubble, would have been a genius move. But just like Amazon now, people might still object and say all the gains have already been made and it’s too late to get in.
In other words, it’s not that Bitcoin has no value, but rather that it has no value in terms of future investment gains. Here is the reality: everyone thinks they’re too late to Bitcoin, regardless of when they’re thinking about getting in. It doesn’t matter if you looked at Bitcoin at $100 or $1,000, because at every one of those times Bitcoin had been trading at a tenth of its value just a short time before. The fact is, as of late 2024, we’re still very early to Bitcoin, and the market cap of Bitcoin relative to the total addressable market is minuscule. Or, if we continue the comparison to internet adoption and the dot-com bubble, it’s like we’re still in 1994. For more on Bitcoin’s potential and where we are in the adoption curve, check out Bitcoin University’s video Too Late To Buy Bitcoin?, Michael Saylor’s talk There Is No Second Best, or read chapter 21 in Broken Money.
So we’ve established that Bitcoin does have value — or at least that it can — and that if it does have value, its value would come from its use as money. This is actually the basis for the next three objections. When we think about money, we usually consider the following use cases:
- Store of value
- Medium of exchange
- Unit of account
It fails as a store of value
The second objection to Bitcoin is that it fails as a store of value. People who make this claim may say that it’s too new, too risky, or too volatile to be used for savings, and that it’s really only good for speculators.
It’s true: Bitcoin is new compared to monetary metals like gold. But in the world of technology it’s relatively ancient, and definitely battle-hardened. As the price continues to rise, so does the potential reward for hacking it — and yet the network continues to churn out new blocks, or groups of transactions, day in and day out, with zero hacks. This is why Bitcoiners say: tick tock, next block. This isn’t to say that Bitcoin can never be hacked, and we’ll cover that concern in the technology objections part.
As for risk and volatility, we discussed previously that volatility is not the same thing as risk, and when you expand your time horizon, the volatility is actually evidence of vitality. For more on this, check out Michael Saylor’s talk Bitcoin, The Red Wave, and The Crypto Renaissance, or read chapter 7 in Gradually, Then Suddenly.
On the last critique — that Bitcoin is really only good for speculators — this may have been true in the early days when it was unproven, but as time goes on and the market cap approaches the total addressable market, it becomes less and less true. The reality is that if you’re looking to speculate, taking random positions in any number of alt-coins would probably be a better bet. We don’t condone or encourage that type of behavior; we’re just pointing out that you cannot simultaneously be late to Bitcoin while Bitcoin is also only good for speculators.
But what about the idea that Bitcoin fails as a store of value because it isn’t scarce? People who make this claim may say that Bitcoin isn’t scarce because it’s divisible into 100,000,000 sub-units (known as satoshis), and could be updated in the future to be even more divisible with a simple code change. This line of reasoning is flawed, because sub-dividing Bitcoin doesn’t actually create any new Bitcoin — it just divides the existing pie into smaller units. Instead of thinking about divisibility in terms of inflation, it would be more accurate to compare it to a stock split, where the price of a stock is cut in half when they double the supply.
The truth is that divisibility is actually a feature, not a bug, as it addresses the common trope from modern monetary theory that inflation is necessary to support a growing economy. So first we’re mistakenly told that Bitcoin fails as a store of value because it’s inflationary, and then, on the contrary, we’re told that Bitcoin is bad for the economy because it isn’t inflationary.
The reasoning is hard to follow, but as best I can tell, the idea is that as the economy grows there will be more demand for money and not enough to go around for all the people wanting to save — and ultimately transact — in it. If we go with this assumption, the obvious solution would be to divide the existing money into smaller units (think silver versus gold), but the traditional financial system has no practical way to do this, so instead they print more currency. Unfortunately, the money-printing just causes inflation, and this is the real reason the government funds economists who promote modern monetary theory: because the system is based on debt that cannot possibly be fully repaid, most of which comes from the government’s deficit spending.
Inflation effectively devalues existing loan balances and pushes the risk of default into the future. In the short run, credit defaults can cause lots of pain and disruption in the economy, as we saw during the great financial crisis of 2008, so money-printing becomes like a giant game of musical chairs — but where the music can never stop, because otherwise the economy will crash. In this context, the Federal Reserve and other central banks around the world are hailed as the defenders of the economy, ensuring we have a healthy level of inflation so the economy can keep growing. At the same time, deflation is characterized as a boogeyman that will cause all sorts of problems — but of course this couldn’t be further from the truth.
Under a Bitcoin standard, deflation would be natural, expected, and even welcomed, as productivity gains and technology would deliver ever more value to buyers, and debt would only be issued out of actual reserves, not printed out of thin air like in our fractional-reserve banking system. For more details on deflation and why it’s actually a good thing in the context of a full-reserve banking system, read the introduction to The Price of Tomorrow by Jeff Booth. For more on the divisibility of money — and how much money is the right amount of money — read chapter 10 in Principles of Economics.
It fails as a medium of exchange
So Bitcoin is actually a great store of value. But what about the third objection: that it fails as a medium of exchange. People who make this claim might say something like, “I can’t buy a coffee with Bitcoin like I can with a credit card,” or, “Even if I could, the transaction would be too slow and too expensive.” These claims are why many people promote alt-coins that supposedly solve these problems, but again, we’ll discuss those technical objections in the technology part.
For now, let’s address the idea that Bitcoin should be compared to something like a credit card. On the surface, this comparison is understandable, because credit cards kind of feel like digital money, and that is what Bitcoin claims to be, after all. Credit card networks like Visa and Mastercard are accepted everywhere and can process tens of thousands of transactions per second. Bitcoin, on the other hand, is accepted by very few merchants, and at best can only process about 7 transactions per second — and even then, transactions can take over 30 minutes to settle. By all accounts, Bitcoin is worse as a medium of exchange compared to credit cards, so how can Bitcoin take over as money?
This is actually a fairly easy objection to address, because comparing Bitcoin to credit cards is apples to oranges. A more appropriate analogy would be Bitcoin compared to the Federal Reserve Wire Network, commonly known as Fedwire. Any time you send a wire transfer at your bank, you’re actually using the Fedwire system, and as you’ve probably been warned, you can’t reverse wire transfers — they’re considered final settlement. In other words, sending Bitcoin is more akin to sending a wire transfer, in that both technologies offer final settlement, and this is not typically a feature of a high-volume payment rail such as credit cards. For more details on the difference between the two, read chapter 9 in Gradually, Then Suddenly.
If you take a deeper look at the traditional financial system, or trad-fi for short, credit cards actually operate at a higher level, or layer, in the system, and they rely on underlying layers like Fedwire to function. The reality is that when you make a credit card transaction, the merchant doesn’t immediately receive the funds, or even have final settlement, for weeks or months after the transaction. The banks batch the transactions and settle the net balances over Fedwire, which, ironically, also has a peak capacity of about 7 transactions per second.
If you’ve ever paid to send a wire transfer, you know that Fedwire can take several days and cost something like $30. That’s actually slow and expensive compared to Bitcoin, which currently offers final settlement in about 30 minutes for just a few bucks. And just like trad-fi, Bitcoin has an active community of businesses and developers committed to creating functionality at higher layers, like the lightning network, which is sometimes referred to as a “layer 2” solution because it sits on top of the Bitcoin network.
Lightning payments are a closer analog to credit card transactions, and because the lightning network is decentralized, it has no theoretical maximum throughput — unlike the centralized servers that Visa and Mastercard operate. Granted, lightning payments are not ubiquitously accepted by merchants yet either — but neither were credit cards in the early days of the technology. It took decades to deploy point-of-sale systems that could accept credit card payments, and it’s unfair to hold Bitcoin payments to a different standard, though wide-scale acceptance will likely be faster due to the digital nature of our modern economy. If you’re interested in more details about the history of money and what people have used as a medium of exchange in the past, read chapter 2 in Broken Money and chapter 2 in The Bitcoin Standard.
It fails as a unit of account
This brings us to the fourth objection: that Bitcoin fails as a unit of account, meaning that most people denominate prices and account balances in terms of dollars or other fiat currencies, not Bitcoin. This is actually the most sophisticated objection, because unit of account is the most esoteric of the three use cases for money.
For money to be used as a unit of account, it first has to be a stable store of value, and then be used as a medium of exchange to facilitate global settlement between banks, and then, finally, transactions between individuals and businesses. So the key idea is that until Bitcoin solves the store-of-value and medium-of-exchange use cases, it can’t possibly be considered a unit of account — and it is unreasonable to expect otherwise.
We believe Bitcoin will eventually be used widely enough to become a unit of account, and perhaps even become the world’s dominant reserve currency — but that doesn’t mean it isn’t useful until then. In fact, the idea that Bitcoin will demonetize other stores of value on the way to becoming the reserve currency is exactly why it has so much potential for early adopters.
Regardless, there are plenty of examples of different monies being used for different purposes at the same time throughout history. For example, gold was used as the global unit of account for centuries, while silver was used as the primary medium of exchange, and this is totally natural in the context of commodities that were not designed to be perfect money. Bitcoin, on the other hand, was purpose-built to function as money at every level, and it will likely be the first form of money humanity has ever discovered to handle all three use cases simultaneously. If you’re interested in what the world might look like on a Bitcoin standard — compared to the mess of fluctuating fiat currencies that currently facilitate, or more likely impede, global trade — read chapter 9 in The Bitcoin Standard.
Bitcoin is a scam
And with that, we come to our last economic objection: that Bitcoin is a scam. People who make this claim might say that Bitcoin is just a ponzi or pyramid scheme that relies on a constant stream of new suckers, and that at some point the music will stop and someone will be left without a chair.
The problem with this line of reasoning is that Bitcoin, like any other commodity, is an asset without an issuer. Satoshi is long gone, and unlike the creators of alt-coins — such as Ethereum’s Vitalik Buterin — he didn’t pre-mine or reserve any of the supply for insiders, and has never moved or sold a single coin. For more details on how Bitcoin started and why it was fair, check out Bitcoin University’s video Bitcoin’s Fair Launch.
So unlike Bitcoin, which is an asset without an issuer, ponzi schemes typically involve buying securities or shares from a company or promoter that eventually pulls the rug from their followers — and sadly this is the exact pattern many alt-coins have followed, which continue to give the entire crypto space a bad name. It’s easy to conflate Bitcoin with scammy alt-coins, but the reality is that Bitcoin doesn’t really fit into this category. For more details, read chapter 9 in Gradually, Then Suddenly.
Peter Schiff made a more nuanced argument for Bitcoin being a scam when he tweeted this:
Well Bitcoin has become a real threat, not to gold but to the U.S. The threat is that the government squanders the public’s money buying it, in the process misdirecting more capital to Bitcoin and blockchain related business at the expense of productive businesses.
Peter Schiff
Schiff argues that Bitcoin is a scam because it wastes money that could otherwise be directed to people producing actual products and services for the economy. On the surface, this same argument could be used against Schiff’s beloved gold, because gold also attracts plenty of money that could otherwise be spent to develop capital goods that produce useful things for the economy — but we reject Schiff’s premise to begin with.
What Schiff is really saying is that saving is bad for the economy, at least relative to investing in capital goods, but this doesn’t make any sense. In order to make an investment, you must first save, and those savings have to be held in something that is, by definition, not a capital good. What Schiff really objects to is that Bitcoin can be used as savings because it has no value — but we already covered that objection at the beginning. For more details on saving, investing, and capital goods, read chapter 6 and chapter 13 in Principles of Economics.
So now that we’ve covered the top five economic objections to Bitcoin, next we’ll turn to the moral and ethical objections.