Cryptocurrency / Blockchain
3 Common Arguments of Cryptocurrency Critics That Lack Correctness
The market for cryptocurrencies is going crazy — again.
I own about 2000 dollars in different coins.
Cryptocurrencies, especially Bitcoin, outshine all other investments that have ever existed. Still, many people are skeptical of the hype — they have good points, but not all of what they say is correct.
Here are a few popular contra arguments that are pretty weak.
#1 “Cryptocurrencies don’t have any intrinsic value.”
This argument has two major problems.
First, the term “intrinsic value” is a bit problematic.
Second, it mainly refers only to Bitcoin and is therefore invalid as a general argument. But one after the other.
The paper that currencies like the euro or the dollar are made of is hardly worth anything — so unlike gold, fiat currencies have no intrinsic value.
At least, that’s one popular argument — mostly from blockchain enthusiasts. But for the intrinsic value of something, we should not only consider the value of the material. The dollar and euro are means of payment that are very widely used — that is a value they offer.
Of course, a Bitcoin is nothing more than a bunch of zeros and ones. It has no material value. Nevertheless, it can be used as a decentralized means of payment, which gives it an intrinsic value.
Let’s get to the second problem with the argument.
Bitcoin, while currently the most relevant cryptocurrency, is different from many others. It’s a proof-of-work payment method with a maximum amount of coins in circulation.
Other cryptocurrencies use different technology and offer features such as smart contracts. Cryptocurrencies/blockchains can therefore not only be used as a means of payment.
Ethereum is a good example here.
Ethereum is not a cryptocurrency — it is a blockchain with various features.
It offers practical features like smart contracts & NFTs.
To set up a smart contract, you need to buy some Ether first (the blockchain’s actual currency). This dependence on the currency gives it an intrinsic value.
#2 “Blockchain consumes way too much energy.”
I don’t have to explain that the Bitcoin network consumes an extreme amount of energy — that’s no secret. Yes, this energy consumption is a problem.
To understand why the argument is still not good, we need to understand Bitcoin.
Bitcoin uses the proof-of-work concept. To verify transaction blocks, there is a “race” of individual participants in the system — the first to solve a cryptographic puzzle gets the reward and confirms the collection of transactions.
All the others receive nothing — they have wasted their computing power.
Of course, this system is not very sustainable. However, there is good news: Many other cryptocurrencies use a completely different approach.
Ethereum is already planning to switch to proof-of-stake — in doing so; there is no longer a race and cryptographic puzzles that require so much computing power and thus energy.
To say that blockchain consumes a lot of energy is generally not correct — there are different technologies.
The energy argument also neglects another essential thing: many technologies that have positively impacted the world require a lot of energy.
When in doubt, weigh the pros and cons. Blockchain could change the world and improve many people's lives, especially in unstable countries, as Charles Hoskinson explains in a TEDx Talk.
#3 “Cryptocurrencies are non-transparent and only for criminals.”
There is no denying the use of Bitcoin as a means of payment on the darknet.
Yes, cryptocurrencies allow for a certain amount of privacy. Anyways, statements like “cryptocurrencies are anonymous” are mostly wrong.
No, most cryptocurrencies are pseudonymous, not anonymous — this is an important distinction.
The person who owns a wallet is not necessarily clear — because the wallet is only known as a cryptographic address. The twist is, all transactions are stored in the blockchain and are therefore accessible to everyone.
This is where the concept of tainted coins comes from, explicitly talking about bitcoins. Because the complete transaction history is known, some exchanges reject coins associated with criminal activity.
The blockchain is not intransparent— it is the epitome of transparency.