Predictably, negativity in regards to Bitcoin is gaining traction as the fiat valuation of it loses the same, and Erik Voorhees, the man behind Coinapult and SatoshiDice you may remember from The Rise and Rise of Bitcoin, has (generously) taken the time to respond to a particularly denigrating article in mainstream website the Daily Dot's supplement The Kernel.
The article he is responding to is by Gary North, a person Voorhees feels should know better. If you're wondering why Erik would bother to respond to such an uneducated position, it's because "Bitcoin is ultimately a battle of ideas." And, clearly, the idea that Bitcoin is a ponzi scheme cannot stand unchallenged if this is the case.
Erik Voorhees: The Dollar's Stability is a "Great Feature"
Unlike other things that it can be compared to, Bitcoin public relations suffer due to outside and uncontrollable factors. The price of Bitcoin is manipulated by those who either control a great deal of it from early adoption or who control a great deal of it through having enough fiat to buy such. The whole image of Bitcoin suffers when less-integrated people see volatility in the fiat valuation of Bitcoin. Voorhees addresses this early in his piece:
To be sure, the US dollar is far more stable as a form of money than Bitcoin. That's a great feature. But, Mr. North forgets the other features of Bitcoin. Take the most important: that one can transfer any amount of it anywhere instantly without anyone else being able to stop it, at almost zero cost. Is the economic utility of such a feature so hard to grasp? […] [now, speaking directly to Gary North] You are at the behest and mercy of others when it comes to your money, but it seems you're so accustomed to this serfdom that a liberating technology like Bitcoin comes along and you squint from behind your Stockholm-syndrome shackles and yell, "Ponzi Scheme because volatility!"
Bitcoin's Value is the Blockchain
A commonly held belief is that even if Bitcoin fails as a currency – that no one has truly defined what a "failure" would mean anyway – there is value in the Blockchain, and that aspect of it isn't going anywhere. An open ledger for all to scrutinize is so radically different from the centuries-old methods traditional systems use that if it isn't the future of transactions, it's what they'll be based on. Voorhees effectively points out the way that Gary North ignores the technology underpinning Bitcoin:
By only looking at Bitcoin as a form of "money," Mr. North can point to its volatility (which is clearly high) and claim that because it's volatile, it's not money. And because it's not money, it doesn't fulfill it's initial promise, and thus was a ponzi scheme all along. This is a fallacious line of reasoning, and sadly leads Gary and many other critics to discredit one of the most important and potent inventions of all time.
Satoshi Didn't Make Off With Millions
Voorhees makes another good point in his piece, a seemingly obvious one which is often lost when the word Ponzi starts getting bandied about. This point is that Satoshi Nakamoto, the cryptographer and computer scientist behind the Bitcoin protocol, never apparently made much, if anything, from his Bitcoin horde. The coins from the genesis block have never moved, in fact, and without speculating too much, the reason Nakamoto left was not that he was afraid of being caught for operating a Ponzi scheme but rather that he was moving onto something else or he had become more comfortable using his real name in whatever capacity he was working in the community. Whatever the case, calling Bitcoin a Ponzi scheme implicates Satoshi as a scammer, yet for the first two years of the coin's existence, it held no real fiat value at all.
Mr. North so quickly veers into the sticky realm of misunderstanding. Ignoring Bitcoin's formative beginnings as an academic white paper turned open-source software project (is that really a feasible genesis of a Ponzi scheme?), by the time the coins actually started selling on the open market, their value justification wasn't that "they will be the money of the future." Rather, Bitcoin carried a much more humble claim from its creator: that a decentralized ledger could be built, and that such a tool might have application to the world of money.
While much of the mainstream has come to accept Bitcoin as a reality and concrete part of the future, no matter what the fiat ticker says a particular week, it seems, Gary North has taken a moment to regress and try to convince us, once again, of how foolish we all are. Erik Voorhees should be commended for taking the time to clarify things, and North should find something better to do than raise false red flags regarding technology that he barely understands in the first place.
Images from Shutterstock.