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DanDjarin / Dan Djarin
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2024-09-18 22:18:13

DanDjarin on Nostr: I sent the Peter Schiff vs. jack mallers debate to my dad last week as part of my ...

I sent the Peter Schiff vs. jack mallers (npub1cn4…3vle) debate to my dad last week as part of my ongoing effort to orange pill him. He came away agreeing with Schiff and we had a discussion in the car about it. I didn’t do the best job then so I’m about to follow up with this to address his main points. I thought some of you guys might like to read it to help with your orange pilling.

Just use a crypto that is backed by gold

While using a gold-backed crypto would be better than what we have now, it still leaves several issues that go back to the original problems with gold, which ultimately led us to where we are today. For a cryptocurrency to be backed by gold, the gold would need to be stored in a vault by whoever issues the currency. Since not everyone would trust a single issuer, there would likely be multiple issuers, each storing their own gold.

Also, there’s no reason that these would need to be a cryptocurrency at all because blockchains are extremely inefficient for data storage, as every node in the network needs to store the entire chain. Issuers of gold-backed crypto would likely end up functioning like traditional banks instead of using a blockchain. If they wanted transparency, they could just implement cryptography, addresses, and public transaction records—features that don’t require a blockchain to be effective. At this point, we’re essentially back to a system of banking on a digital gold standard, with digital versions of banknotes.

But this brings us right back to the same vulnerabilities that existed before. What’s to stop governments from following the same path they did in the early 20th century? First, they’d centralize these banks to one federal bank that issues the banknotes, then they’d quietly reduce the gold backing, and then they’d outright abandon it, as they’ve done in the past. To avoid repeating history, we need something that’s decentralized, easily auditable, and censorship-resistant. Gold-backed cryptos fail in this regard because they still rely on centralized custodians. Bitcoin, on the other hand, solves this by eliminating the need for trusted third parties altogether.

What if someone makes a “better Bitcoin?”

For any new version of Bitcoin to replace what we have today, it would need to be a huge improvement to justify the switch. Bitcoin already has an estimated 106 million users, and convincing that entire network to shift to a new system would be a huge challenge. Hypothetically though, let’s say a new crypto emerged that scaled better and was more private than Bitcoin (probably the two biggest weaknesses today). These improvements would inevitably come with trade-offs. For instance, increased privacy would result in reduced verifiability, and better scalability would likely lead to greater centralization since more data would need to be stored on each node to process the additional transactions.

Even if someone found a way to achieve these improvements without compromising on other fronts, they could still be implemented into Bitcoin itself. If the changes were compatible through a soft fork (where the network remains intact and backward-compatible), you could start running that code on your own node without needing to leave the existing network. In the rare case that a hard fork (non-compatible upgrade) would be required, both versions of Bitcoin would continue to exist after the fork. You’d retain the original Bitcoin as well as the new version (for example, if you held 0.5 Bitcoin before the fork, you would now own 0.5 Bitcoin on both the old and new versions after the fork). This way, upgrades could be implemented without completely losing the network effect that Bitcoin has built up over the past 15 years, though a hard fork would naturally be more difficult to pull off.

Bitcoin’s layered approach to scaling further diminishes the likelihood of a new crypto overtaking it. By offloading transactions onto secondary layers like the Lightning Network, Bitcoin can improve efficiency and scalability without sacrificing the decentralization and security of its base layer.

In the end, it’s extremely unlikely that some new crypto would come along that’s better than Bitcoin in ways that can’t be implemented into Bitcoin itself. Even if one did, it would need to be such a drastic improvement that the entire network would see value in making the shift, which becomes less likely as Bitcoin continues to grow and improve.

What if the government bans Bitcoin?

First off, this is extremely unlikely because they’ve just approved ETFs for BlackRock (and several others). Do you really think they’re going to turn around and hurt BlackRock by banning Bitcoin, causing them to lose a ton of money? Second, since Bitcoin is inherently censorship-resistant, enforcing a ban would be extremely difficult. Bitcoin operates in a decentralized, global network where transactions are validated and recorded by nodes all over the world.

Even if a government attempted to ban Bitcoin, it’s just math and communication. Using Bitcoin is nothing more than coming up with a random number, doing some math, and then broadcasting that information. If you were to ban Bitcoin, you’d essentially be banning these basic actions, which could have massive implications beyond just targeting Bitcoin. Gigi explains this well in his article here.

There are also real-world examples of how banning Bitcoin is ineffective. Take China, for instance. Despite repeated attempts to ban it, Bitcoin use continues there through peer-to-peer networks and other decentralized tools. The decentralized nature of Bitcoin makes it nearly impossible for any single government to shut down entirely.

In the end, even if a government were to ban Bitcoin, it would only drive usage underground and reinforce the very reason Bitcoin was created: to be a censorship-resistant, decentralized form of money that governments can’t control.

A money needs to be a commodity first

While it’s true that many forms of money throughout history were initially commodities, it’s not a strict requirement for something to function as money. What really matters is that the money is widely accepted, trusted, and maintains value over time. Take the example of the giant limestone stones used on the Micronesian island of Yap. These stones didn’t have any practical use as a commodity—no one was building with them or crafting tools from them—but they were used as money because they were scarce and recognized as a store of value by the community. The fact that they held value was based on social consensus, not because they had intrinsic commodity utility.

Bitcoin functions similarly in this respect. Its value doesn’t come from being a physical commodity, but from its properties as a decentralized, scarce, and secure digital asset. Unlike commodity money, Bitcoin doesn’t rely on physical characteristics to hold value—it relies on the network and the protocol that enforces its fixed supply and censorship resistance. People trust Bitcoin not because it can be used for something else, but because it offers unique advantages as a medium of exchange and store of value that no commodity-based system can provide.

Bitcoin is a speculative asset, not a money

This really depends on how you define money. Bitcoin fits the key properties of money—durable, portable, fungible, verifiable, divisible, and scarce—better than anything else in history. This makes it as close to perfect money as we’ve ever had. If you’re saying Bitcoin has to currently fulfill all or some of the three roles of money (store of value, medium of exchange, and unit of account) to be considered money, then I’d ask where you draw the line for something to be considered money with regards to it’s usage in these roles?

Millions of people are already using Bitcoin as a store of value, and many are using it as a medium of exchange whenever possible. Sure, fewer people are using it as a unit of account right now, but that doesn’t disqualify it from being money. Historically, the adoption of money is a gradual process. Take the U.S. dollar, for example. While it’s the dominant global currency today, its transition from a simple domestic money to becoming the world’s reserve currency took decades. It didn’t instantly assume the role of a global unit of account; it was a slow and steady process as more countries, businesses, and individuals adopted it over time.

In comparison, Bitcoin is moving at a much faster pace, it’s already being used for transactions globally and is recognized as a store of value by many people in just over a decade. It just doesn’t feel like it’s being used as much as it is because it’s not constrained to one geographical location, but there are already an estimated 100 million users. Bitcoin is already fulfilling the roles of money to a small, but growing, degree. If your definition of money depends on how much it’s used in all three functions, then Bitcoin is in the process of becoming money and we’re simply early in the adoption curve.

“It might make sense just to get some in case it catches on.” -Satoshi Nakamoto, 2009

*The original draft of this response was written entirely by me, then I had SatoshiGPT by Spirit of Satoshi (npub1tay…9l42) help me to refine the writing and to critique my arguments. Finally, I read through the whole thing and edited it as I saw fit to avoid repetition and make the arguments more relevant to my response.
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