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On Confidently Misunderstanding Bitcoin: A Response To Steve Hanke

The arguments against cryptocurrencies did not accurately reflect current data nor common understanding of terms.

Economist Steve Hanke of Johns Hopkins University is well-known in the Bitcoin community for posting innumerable variations of the same tweet — “Bitcoin is too volatile and has a fundamental value of 0.” (I suspect he still hasn’t read my essay on how to think about Bitcoin’s value.)

But in a recent opinion piece, “How Innovative Is Crypto?”, Hanke tried his hand at some new arguments. The essay is subtitled, “The case for crypto as a driver of innovation is thin.” In it, Hanke purports to show that cryptocurrencies aren’t that innovative. Here, I’ll show how he fails.

There are three main problems with his essay. The first is that he considers only two features of cryptocurrencies: they’re digital and they’re private. The second is that he relies on an exceptionally narrow and unstated definition of the word “private” and pretends that then invalidates Bitcoiners’ focus on what true financial privacy entails. The third is that his statistics are outdated; more recent data paints a very different picture.

I’ll tackle the problems in turn.

First, he purports to show that cryptocurrencies aren’t innovative. He attempts to do this by showing that digital, private money already exists. But even if he’s right that it does (which is the focus of the second problem), he ignores all the other interesting features of cryptocurrencies that proponents point to. With respect to Bitcoin, those features are that it’s cryptographically secured, censorship-resistant, inclusive, borderless, unseizable, supply-capped, decentralized and permissionless. Even if Hanke is right about his claims, he has failed to make the case that Bitcoin isn’t innovative in these other ways.

Second, he invokes the word “private” but fails to define exactly what he means and which guarantees his usage implies.. He begins by saying, “readers with bank accounts may be tickled to learn that they have been using private, digital money for a long time.” He goes on to point out that bank accounts are increasingly digital. This is true. A lot of money these days only exists digitally.

The sense of “private” that Bitcoiners care about is that financial information is “not to be shared with or revealed to others.” People with bank accounts have not been using private money in this sense; their bank account information is regularly shared with or revealed to authorities. Another sense of “private” is that an asset is “provided or owned by an individual or an independent, commercial company rather than by the government”. Private in this sense exists as a contrast to “public”; your house is your private property while the park across the street is public property. In this case, people have been using private money; the money in their bank accounts is often created by private banks and is owned by the individual, not the government.

There’s another sense of private money which is: money that isn’t, in general, controlled by a government (thanks to Aaron Segal for pointing this out). Some Bitcoin proponents care about this sense of private money very much. The U.S. government controls the U.S. dollar in the relevant sense, so U.S. dollars in any bank account — or any pocket! or under any floorboards! — are not private.

Hanke uses the word “private” six times in the next two paragraphs! Every single time it means “provided or owned by an individual or an independent, commercial company rather than by the government” (i.e. the public vs. private property distinction), which is decidedly not the kind of privacy cryptocurrency advocates are talking about. Here are the phrases:

1) “…convertibility of private deposit money.”

2) “The Federal Reserve stands ready to convert every private, digital dollar…”

3) “[the Fed] converts private dollars into reserve money…”

4) “…settle private money transactions.”

5) “Using the clearinghouse apparatus provided by the Federal Reserve and various private consortia.”

6) “Private, digital money is nothing new.”

Clearly none of these have either of the two meanings of “private money” that Bitcoin proponents care about (transaction privacy; free of government control). So, Hanke hasn’t shown that private, digital money existed before Bitcoin in the form of U.S. dollars in bank accounts.

Third, Hanke’s statistics are outdated. He says, “ Academic research has found that roughly half of bitcoin transactions involve illegal activity.” The paper he cites says it uses data “from January 3, 2009, to the end of April 2017”. That was four and half years ago! A third of Bitcoin’s existence! Things have changed. Looking more recently, Chainalysis finds that illicit cryptocurrency transactions are just 0.34% of all cryptocurrency transactions, and CipherTrace similarly they’re less than 0.5%.

So Hanke’s assertion that “cryptocurrency’s value proposition rests overwhelmingly on its ability to provide end-runs around the law” is false. More than 99.5% of transactions are legal.

Hanke has been banging the same drum since February 2014 and seems not to be bothered by any new developments in Bitcoin or the fact that Bitcoin has gone from $600 to $55,000 since he first started bashing it.

Which brings us to a lesson we can all learn. People rarely change their minds. It involves a lot of cognitive effort to do so, so we tend to seek out evidence to confirm what we already believe. Also, changing our minds involves admitting — even if only to ourselves — that we were wrong about something. It’s much easier mentally and emotionally to continue to believe what we’ve always believed.

But that doesn’t lead to the truth. Things change and we are presented with new evidence. Sometimes we’re looking for the evidence and sometimes we’re not. But whenever we encounter new evidence, we shouldn’t dismiss it. We should take it seriously and evaluate whether it should cause us to revise our beliefs. And if we care about believing true things in some particular area, perhaps because we’re teaching a lot of people about it or because it matters to our own lives, then we should go out looking for evidence that we’re wrong and evaluate it with the desire of getting to the truth and not with the desire of being right. Only when we do that should we be confident in what we believe.

This is a guest post by Dr. Bradley Ritter. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

Jack Dorsey Is Now Focused On ‘Making Bitcoin More Than An Investment’

The billionaire’s bitcoin funding initiative Square Crypto has rebranded to Spiral and is aimed at “making bitcoin the planet’s preferred currency.” Payments giant Square will change its corporate name to Block Inc., the company said in a statement Wednesday. Square Crypto, its subsidiary focused on funding Bitcoin development, is now called Spiral. The name alludes::Listen

The billionaire’s bitcoin funding initiative Square Crypto has rebranded to Spiral and is aimed at “making bitcoin the planet’s preferred currency.”

Payments giant Square will change its corporate name to Block Inc., the company said in a statement Wednesday. Square Crypto, its subsidiary focused on funding Bitcoin development, is now called Spiral.

The name alludes to Spiral’s focus, Bitcoin, as it continues to grow “like a spiral from a single point, encompassing more and more space until it touches everything,” Square tweeted.

“Once Square decided to rebrand, we knew it was time for our own long-overdue rebrand,” per Spiral’s website. “After all, Square Crypto was never the best name for our team.”

Having “Square” tied to its name “drew a direct line between the corporate benefactor we are supposed to be independent of and us,” Spiral said. On the other hand, having “crypto” in its name led to confusion, as the company is focused solely on Bitcoin.

An intention to better separate Square’s many product lines and offerings was also the backbone reason for the corporate rebranding to Block. Square will now only represent Block’s Seller business.

“We built the Square brand for our Seller business, which is where it belongs,” Jack Dorsey, co-founder and CEO of Block, said in the statement. “Block is a new name, but our purpose of economic empowerment remains the same. No matter how we grow or change, we will continue to build tools to help increase access to the economy.”

Square Inc. is expected to be legally changed to Block Inc. on December 10, but the company’s NYSE ticker symbol, SQ, will not change. Square, Cash App, TIDAL, and TBD will maintain their respective brands.

Spiral and TBD are two initiatives under the Block’s umbrella that focus entirely on Bitcoin. While Spiral is dedicated to building and funding “open-source projects aimed at making bitcoin the planet’s preferred currency,” TBD is currently focused on developing a decentralized bitcoin exchange.

Square’s rebranding came only a couple of days after CEO Jack Dorsey stepped down from his role as Twitter chief executive officer.

On Confidently Misunderstanding Bitcoin: A Response To Steve Hanke

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