Some objective Bitcoin use cases
Don't trust the title, read the article
THE START
Over the past few years, the innovation in the Bitcoin and broader crypto space has been enthralling. Layer 2s, Layer 3s, sharding, etc., etc., etc., are all getting developers and self-proclaimed maximalists really excited.
However, tons of other people are getting really, really, done with this stuff. Like “I hate crypto although I have no clue what it entails” done. I don’t blame them, though I like Bitcoin & am fascinated by much of crypto.
Yet even those who hold a positive view on Bitcoin still see it primarily as a way to make money. Fair. But it’s also much, much more than that. And in this piece from Nani the Money, I’d like to address the most objective Bitcoin proposition.
If you look at the Bitcoin white paper, i.e. OG formal proposal for Bitcoin presented back in ‘08, you’ll notice something a little odd. Nowhere in it does its author, Satoshi Nakamoto, mention anything along the lines of “massive cash-generator”, “the devil invented fiat”, or “let the money launderers rule”.
Instead, the title probably sounds a lot more mundane to the vast majority of us.
“Peer-to-peer electronic cash system”. What the heck? If you’re going to create something that consumes more energy than Argentina (or less than Christmas lights), the least you could do is name it something cooler!
On the contrary, however, consider this: maybe Satoshi Nakamoto was trying to make a point.
For it is in that title where we get the MOST OBJECTIVE TAKE on Bitcoin.
When approaching Bitcoin or any offering in general, it’s worth asking ourselves “what problem does this solve?”. If the answer is “nothing” (for example), then you can ignore the problem and move on. If the problem is “the climate” (for example), then it may be a good idea to pause and take a closer look. Essentially, you’re asking two fundamental questions. ONE: What’s the problem this thingy is solving? And TWO: How significant is this problem?
ONE
The answer to “What problem is this Bitcoin thingy solving” is “the Byzantine Generals’ Problem”. (Note that this isn’t the only problem Bitcoin is solving, but it will be the star in this article.)
For those non-nerds out there who’re here taking a break from TikTok, stick with me. The Byzantine generals’ problem (henceforth referred to as the “BGP”) isn’t just this super fancy math problem professors with huge glasses mull over. It’s actually pretty easy to appreciate. And it goes something like this:
The BGP is “The inability of decentralized parties to arrive at consensus without relying on a trusted central party”.
Let me use an example. Imagine that you’re the youngest child of ten, and the eldest is crazy strong. Like Brian Shaw strong.
But unlike the lovely Mr. Shaw, your elder brother, Dick, is a bully. He drinks all the milk, eats all the cakes, and thinks that using regressions makes him smart. One night, you and your eight other siblings want to teach him a lesson.
There are a couple of problems, though. All of you are in different rooms, have no clocks, and have to attack quietly. Let’s say you fail to coordinate the attack; one sibling attacks a minute late. Dick screams, kicks someone and gets him/her screaming, and your parents wake up.
So, COORDINATION is KEY.
Satirically put, this is the Byzantine generals’ problem. Successful communication and coordination is actually really difficult.
The basis of this problem can be applied in several situations. Bitcoin was the first solution to the BGP concerning money. You used to need a centralized entity—a bank—to keep track of your funds. If you sent Dick $10 digitally, your bank would have to take note of that and make sure that those $10 were subtracted from your account and added to Dick’s. Your bank also had to ensure that nobody could copy the code beneath those digital “$10” and create money for themselves, and so on.
With Bitcoin, you don’t need any central entity. (if you want to know the mechanics of this, check out this video by 3Blue1Brown. Long story short: economic incentives and some super cool tech did the job.)
So to answer question ONE, “what problem does Bitcoin solve?”, well, it solves the BGP.
TWO
“How significant is this problem?”. I suppose that you could reframe it as “Is having a central entity all that bad?”
Well, having a central entity does present a couple of issues. I just want to touch on two.
TWO, A
The first issue is one of trust. This is the part where the article gets quite serious. In late 2020, protests began flaring up in Nigeria. They were over a corrupt police branch, which among other terrible things, had sexually abused women and murdered Nigerian citizens. These atrocities have been happening in Nigeria for years.
In response to the protests, the Nigerian government froze protestors’ bank accounts. So, for example, internationals who wanted to send money to support the protests couldn’t reach protestors.
Then came Bitcoin. Bitcoin is a “peer-to-peer electronic cash system”, remember? Governments can’t put those types of controls on it. Bitcoin and other cryptocurrencies ended up raising over $150,000 for protestors.
And Nigeria is just one example of many. About 3,000,000,000 people live under authoritarianism around the world, and similar atrocities have happened in other countries, too.
But even for us folks living in more developed and stable countries, trusting central entities presents some risk. Here are some simple facts:
everyday conveniences like sending money digitally come at a cost
that cost is you having a bank account
you’re probably keeping more than whatever you’re sending Dick in that bank account
and any money kept in a bank account is by definition a loan from you to the bank
like in any other loan, the lender can default; your bank can default on your money
beyond a certain amount, your money is uninsured by the government
I must again reiterate that the risk is subjective (depending on country, political leaning, etc.). However, a core question remains: why trust someone to handle your money when you don’t have to?
TWO, B
We’ve touched on trusting central entities. Now, let’s move on to the second issue: transaction costs.
The pain, trouble, and costs that come with having central entities serve as the middlemen—for example when you send your money—can be excruciating. Bitcoin mitigates this. (P.S. For those who are more versed with this topic and are pointing me to layer 1’s high transaction costs, I will in turn point you to lightning layer 2.)
Beyond that, however, middle-men also make mistakes. Chargeback fraud is a good example. It’s basically when customers like Dick buy something from a store, use it all they want, and then call their bank some time after and claim that the purchase was never even made. It’s really hard for banks to verify what actually happened. Maybe Spider-man stole the pizza. Who knows?
Chargeback fraud costed sellers over $20,000,000,000 in 2021.
A DISCLAIMER
This piece limited its discussions to the BGP, specifying the issues with trust & central entity inefficiencies. There are other problems that bitcoin can solve, too. But I believe that this is the most fundamental and easy to grasp.
However, there are arguments against Bitcoin’s potential as a “peer-to-peer electronic cash system”. Not every argument is about it being a currency or asset class, of course.
Many of these questions require a technical analysis deeper than the scope of this article. What I will state, however, is this simple fact:
Until today, no transaction has been altered and no attack on the Bitcoin network has been successfully carried out. Take that as you will.
THE END
When I began writing this article, I sought to write something which was both very difficult to argue against and accessible to mainstream audiences. I’m not sure if I’ve achieved that, but I’ve tried and am happy with that.
The narrative surrounding crypto—and Bitcoin especially, in my opinion—has become counter-productively moral. Moving forward, I hope that we can look at some simple facts and approach these topics with open minds.
Who knows? Maybe we humans have more in common than we think.
P.S. If you liked this piece, do consider liking & commenting, & maybe even subscribing (gasp)! You can find me on Twitter @ramwithouthorns.
P.P.S. Many people, much better versed in this topic than I am, inspired this piece. they are—but not limited to— @gladstein and @joshisledbetter.
Till next time,
Ja ne!
Wow, thanks for sharing the use case of Bitcoin in Nigeria!
Truly, bitcoin is more of a solution for unstable governments. It truly helps people in places like Venezuela, etc.