Knut Svanholm

@knut.svanholm

Bitcoin is NOT a pyramid scheme

Every now and then there’s an article written claiming that Bitcoin is a pyramid scheme. But is it really? Sure the system rewards the early bird but is this really unfair? The earlier you hopped on the train the bigger the risk you took. Every now and then a bank CEO or some other relic plays the tulip bubble card. Bitcoin’s price curve looks exactly like what you’d expect from a global fear of missing out. They all fail to recognize that Bitcoin is a completely different beast. If there is a bubble it may pop but, as Bitcoin has proven many times, only to come back again even stronger and more resilient.

Why is this? What makes Bitcoin so special? First of all “first mover advantage” is everything when it comes to cryptocurrencies. Not only due to the network effect but, more importantly, due to the 21 million coin limit. This is the scarce number that no human can ever tamper with and this is by far the most important feature of any currency. Thus far it is also a Bitcoin exclusive feature. With this in mind, let’s crunch some numbers. Right now, 1800 Bitcoins are created each day. In three years and a couple of months that number will be cut in half. The network does this every fourth year. Meanwhile, more than a hundred thousand new users are welcomed to the Bitcoin ecosystem every day. That’s 0,018 new Bitcoin available for each of those new users if they’re split equally which they’re not. Not a lot. In addition to this articles are written, t-shirts are sold and news segments are broadcasted all over the planet. Maybe a 1350% growth rate per year isn’t that far fetched after all? Do you know anyone that gets paid their monthly salary in Bitcoin? Do you even know of someone who does? I know a few. Namely some Bitcoin pioneers and their henchmen. Not a lot. This is as good an indicator as any of the fact that we’ve barely even scratched the surface of this new ocean of riches. Your Bitcoin are not going away as long as you control your keys. The price of your Bitcoin is not going down unless you sell. This is probably not a fad. The dollar probably was.

More recently, the debate has been around the Bitcoin’s high fees. The gaming platform Steam just cancelled their Bitcoin payment option for instance. Some see this as a major flaw of the network and its greatest hurdle towards mainstream adoption. Those who do seem to be the same type of people who think that a better, more technically sophisticated cryptocurrency will someday dethrone Bitcoin from its high seat and take over the mantle as the the king of cryptos. We’ve been hearing about this usurper coin for quite a while now. Where is it? Which one is it? What everyone fails to understand is that Bitcoin does not derive its value from its usability but from its immutability. No entity on earth can tamper with the codebase unless virtually everyone agrees that something needs to be done. This governance model has proven time and time again to be extremely valuable. Bitcoin hardly needs to function as a payment network at all to gain value.

A couple of days ago (at the time of writing this) the Lightning Protocol was successfully tested on the Bitcoin main-net. This is the first so called layer 2 scaling solution to be implemented for Bitcoin. It will change the game dramatically again. Users will once again be able to send transactions for a minimal fee, instantly, if they know what they’re doing. In a not so very distant future even those who don’t know what they’re doing will too. When that day comes even the usability argument will have no meaning. Bitcoin is not a pyramid scheme. It’s a globe scheme.

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