We’ve talked about why you should care about Bitcoin, and what Bitcoin really is, but you may still be wondering: is Bitcoin a scam, a ponzi scheme, a waste of energy — or even worse, is Bitcoin evil because it’s used by criminals, or because it’s worldly, or because it promotes wealth inequality?
Even if we can see and acknowledge the inefficiencies and injustices of the current system, we certainly don’t want to trade it in for something worse, so these are all great questions to be asking.
Is Bitcoin a scam or a ponzi?
Let’s start with the claim that Bitcoin is a scam. You may have heard 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 alternative cryptocurrencies, or alt-coins, like 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.
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 under their followers — and sadly this is the exact pattern that 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 by Parker Lewis.
Peter Schiff, an outspoken proponent of gold, 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 that are 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 can 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 this objection at the beginning of the video. For more details on saving, investing, and capital goods, read chapter 6 and chapter 13 in Principles of Economics by Saifedean Ammous.
Is Bitcoin a waste of energy?
So what about the idea that Bitcoin is a waste of energy? The reasoning is that Bitcoin’s proof-of-work protocol wastes energy, which drives up energy prices for normal people and may even cause climate change.
For all the ills of fiat currency, many would claim that at least it doesn’t waste a bunch of energy, like Bitcoin — but this isn’t exactly true.
In the previous video, we pointed out that the dollar is actually backed by the full faith and credit of the United States, which is another way of saying proof of war — a word play on Bitcoin’s proof-of-work protocol. The idea is that the United States has to spend significant resources, particularly on the military, to signal to the rest of the world that it has the power to ensure that other countries continue to use the dollar as a global reserve currency.
In this context, the cost to “run” the dollar system is actually the sum total of all the government spending on the military and other agencies like the IRS, and all the private sector spending on banks, financial services, and the Federal Reserve — which is orders of magnitude more resources than Bitcoin miners consume.
For a complete cost-benefit analysis of fiat versus Bitcoin, read chapters 12 and 17 in The Fiat Standard by Saifedean Ammous.
And for a bit of a different perspective, read chapter 4 in Broken Money, where Lyn Alden presents a unified theory of money which combines the idea that all monies throughout history can be viewed as both commodities and as credit. We won’t get into the details here, but it’s well worth the read. The point is that all monetary systems, fiat or otherwise, cost something to operate, and there really is no such thing as a free lunch when it comes to coordinating human action.
Countries based on command economies, such as the Soviet Union during the Cold War, became painfully aware of this fact as they tried to wield a giant bureaucracy as a coordination mechanism instead of using money and the free market, and they ultimately paid an even higher price for this function, with much less efficiency and efficacy than the West.
So we need to disabuse ourselves of the fairy tale that economies of scale can be coordinated for free, and instead try to reason about the lower bound for what this coordination might cost as a percentage of the productive output of the economy.
It’s possible that Bitcoin may be approaching the lower bound for this cost, but at a minimum it is way less expensive and more efficient than the dollar by comparison.
In the end, like most engineering solutions, there is actually an underlying physics problem that has yet to be solved. If you’re interested in physics, or just looking for a pretty fantastical view of the future of proof-of-work-based monetary systems — particularly as humanity expands to the stars — check out the excellent series of articles called The Law of Hash Horizons by Dhruv Bansal.
But the long-term future of humanity aside, the energy use of proof-of-work, known as Bitcoin mining, is actually a net positive for both consumers and the environment. You see, Bitcoin miners are paid by the Bitcoin network, the first truly global, decentralized, and unregulated free market.
This is great, but it also means that competition is fierce, and miners must seek out the cheapest energy from around the world, or risk failure. Because of this, miners often gravitate to remote areas with low population density and abundant waste energy. In other words, miners are monetizing energy that would not otherwise be purchased by anyone, much less normal consumers.
In other cases, miners are able to position their operations close to renewable energy sources, which can also be intermittent, such as wind farms. In order to get the best prices, they make deals with energy providers to spin down operations during peak loads or during times of low power output, thereby making renewables an economical option where they might otherwise be cost prohibitive.
All of this is, of course, both good for consumers and for the environment — but you typically won’t hear this story from industry insiders that have a vested interest in the fiat system.
For more details on why Bitcoin is not a waste of energy, read chapter 10 in The Bitcoin Standard by Saifedean Ammous, and chapter 8 in Gradually, Then Suddenly.
Isn’t Bitcoin used by criminals?
But what about criminals — isn’t Bitcoin used by drug dealers and terrorists, or isn’t Bitcoin used for money laundering and ransoms?
The short answer is yes: Bitcoin, like all other forms of money, is used by both criminals and law-abiding citizens. The better question is: do criminals use Bitcoin more often, or to a larger extent, than other currencies — or are the majority of Bitcoin transactions due to criminal activities?
It’s easy to assume this is true because Bitcoin’s blockchain allows for anonymous transactions, and this attracts the wrong type of users, such as criminals and terrorists.
In truth, the blockchain doesn’t store any information that can be used to directly identify people involved in a transaction, and in the early days of Bitcoin, this was probably a selling point to many criminals.
As with any new technology, early adopters are often those with the most to gain by using it, and criminals fit this bill as they’re always trying to stay one step ahead of the law — whether that’s by using a new type of weapon, or a new type of money that law enforcement doesn’t understand.
But despite Bitcoin’s popularity on dark-web platforms of yesteryear, like the Silk Road, it’s unlikely that a majority of transactions were actually due to criminal activity — and even if they were, those days are long gone.
Nowadays, the majority of Bitcoin is purchased through exchanges that are in jurisdictions that have KYC, or know-your-customer, laws. This means that, even if you transfer your Bitcoin to self-custody, blockchain analytics companies can associate that Bitcoin to you with a very high probability.
You see, the blockchain itself is actually public, since each Bitcoin node needs to store a complete copy of all the transactions that have ever occurred. In fact, this is why some people promote alt-coins that supposedly provide real anonymity, but we’ll cover alt-coins in a later video.
The reality is that criminals and terrorists use global reserve currencies, such as the dollar, far more often and to a much greater extent than Bitcoin, because these currencies are more ubiquitous and they’re actually easier to launder, especially when using physical cash.
What’s interesting, and even inspiring, is that Bitcoin is actually used by those on the margins of society — but we’re not talking about criminals, we’re talking about the billions of unbanked people that live in developing countries.
It can be hard for Westerners to comprehend, but the majority of people in the world don’t have access to the same type of financial products and services that we enjoy in the developed world, and for these people, Bitcoin stands as a beacon of hope and inclusion.
For many fascinating, and often heart-breaking, stories about such people, read Check Your Financial Privilege by Alex Gladstein.
For more details on why Bitcoin isn’t just for criminals, read chapter 10 in The Bitcoin Standard, and chapter 10 in Gradually, Then Suddenly.
Is Bitcoin worldly and un-Christian?
So moving on to the next point: is Bitcoin worldly, and thereby un-Christian? Doesn’t the Bible say we shouldn’t care about wealth, money, or material possessions? In fact, doesn’t Jesus say we should just give up our wealth?
This line of reasoning seems to be less about Bitcoin specifically, and more about money and possessions in general, so if these are the questions you’re asking, you’re probably already convinced that Bitcoin is in fact money.
Having said that, if these questions are on your heart, remember there are very few true ascetics in the world. Most people still use money in the form of dollars or other fiat currencies, and they still have many possessions, especially if they live in a developed country like the United States.
In other words, maintaining this position can be a bit of a double standard, and the view that money and possessions are un-Christian is actually just unbiblical. The root of this belief comes from ancient Greek philosophy, and later Gnosticism, which more or less states that spiritual things are good and physical things are bad.
This flies in the face of the creation story from Genesis, where we see a divine, spiritual creator making the physical world out of nothing, and calling it good.
Yes, humanity went on to sin, which has corrupted everything in this world, but the story of salvation is one that shows the path to redeeming the world and ridding us from sin once and for all. The sin is evil, not the stuff that it has corrupted.
A different flavor of this objection may come from the story we see in Acts 2, where the early Christians sold all their possessions and had everything in common, distributing to each as they had need.
Indeed, this story has served as the justification for many a hippy commune, but again, this isn’t really specific to Bitcoin, and I would argue that many of the stories we see in Acts are unique to the place and time, and not prescriptive.
God works to build his church in many different ways, and even in the early days of Acts, there were still other churches full of rich Christians that collected donations to send back with Paul to Jerusalem. The fact is, there’s never been a time where all Christians everywhere have all become ascetics all at once.
Should we give freely and generously as Christians? Yes — and we believe that adopting Bitcoin will make that even easier to do, as we won’t be continually struggling against the theft of inflation, but instead we can give our wealth away to those in need voluntarily and cheerfully, as the Bible commands.
When Jesus tells the rich young ruler to sell all his possessions and follow him, this is a very specific command to a specific person with a specific idol in his heart. Jesus isn’t saying that all wealth is bad, or that all Christians should flee from wealth, but rather, if money is your idol, you should tear down that idol in your heart.
In 1 Timothy 6, we see Paul confirm this in verses 17–19, which say:
As for the rich in this present age, charge them not to be haughty, nor to set their hopes on the uncertainty of riches, but on God, who richly provides us with everything to enjoy. They are to do good, to be rich in good works, to be generous and ready to share, thus storing up treasure for themselves as a good foundation for the future, so that they may take hold of that which is truly life.
1 Timothy 6:17–19
Paul assumes there will be rich in this present age, and instead of condemning wealth, he goes on to show how the rich should act in response to the resources that God has entrusted to them. So yes, if money or wealth is your idol, flee from the temptation — but don’t use that as an excuse to ignore Bitcoin while giving the dollar a pass.
For more details on the theology of wealth, money, and possessions, check out Tim’s series on Bitcoin and Theology.
Does Bitcoin promote inequality?
So finally, what about the idea that Bitcoin promotes wealth inequality because the initial distribution is unfair and disproportionately rewards a few early adopters at the expense of everyone else?
The European Central Bank even went so far as to publish a paper claiming that Bitcoin is fuelling the division of society. The idea is that early adopters were able to acquire Bitcoin for little to no effort, and now they’re using it to get rich off of unwitting suckers that are willing to pay anything to get in.
Virtue signaling aside, this narrative sounds good on the surface, but the truth is that early adopters of Bitcoin have been selling their Bitcoin since the beginning. Unchained has a great graphic called HODL waves, and it shows how often Bitcoin has changed hands, and how it becomes more distributed over time.
This graphic is the answer to anyone who says, “if I had just bought Bitcoin when it was worth x.” The reality is that most people that did buy Bitcoin when it was x sold it shortly after it jumped in price, thereby contributing to the further distribution of the coins.
There are a few examples of early adopters that are now considered Bitcoin billionaires, but they’re often given no credit for how much risk they’ve taken over the years, both with their time and with their wealth.
For more details on why Bitcoin’s initial distribution is actually nearly as fair as could be, check out Bitcoin University’s video called Bitcoin’s Fair Launch.
So is Bitcoin evil?
So is Bitcoin evil? Some might grant you that Bitcoin is money, but say this makes it evil because, after all, the Bible says that money is evil, right?
This idea typically comes from a misreading of 1 Timothy 6:10, which says:
For the love of money is a root of all kinds of evils. It is through this craving that some have wandered away from the faith and pierced themselves with many pangs.
1 Timothy 6:10
This passage is often shortened to “money is the root of all evil,” but of course this isn’t what it actually says — but rather that the love of money is a root of all kinds of evil. And while this is very true, Bitcoin is not uniquely lovable compared to other forms of money.
So yes, Bitcoin, like all money, can present a moral hazard for those tempted to fall in love with it, and it is true that many early adopters of Bitcoin can and have become fanatically devoted to it and its potential to completely change society for the better — but this doesn’t make it categorically evil.
Regardless, isn’t Bitcoin still too risky, or even subversive? For example, can’t the government just ban it? Does it undermine the authority of the government? Can it be easily lost or stolen? We’ll answer these questions and more in the next part.