Nicholas Weaver calls crypto a virus in an interview with Current Affairs and says Bitcoin should burn.
- Senior academic says Bitcoin doesn’t work as a payment, is incredibly damaging for the environment, and only serves criminal activity.
- However, Bitcoin believers argue it has value as more than a form of payment and that criminal activity on the blockchain can be traced.
A recent Current Affairs interview with Nicholas Weaver, senior staff researcher at the International Computer Science Institute and lecturer in the computer science department at UC Berkeley, is a visceral take down of Bitcoin (BTC) and the cryptocurrency industry.
In the interview, Weaver calls the president of El Salvador a “totalitarian nutcase” and says “the cryptocurrency space itself has the object permanence of a horny mayfly.” He finishes by saying: “It’s time to really think about burning it down. Now I just want to take the entire cryptocurrency space and throw it into the sun.”
The interview is a great read and highlights a number of reasons for investor caution. But how many of his arguments really hold water? We broke down a couple of his main points and examined them in more detail.
Weaver argues crypto doesn’t work as a payment
What he said
Weaver says Bitcoin will never work for payments and accuses companies that say they accept Bitcoin payments of lying. He argues, “Bitcoin burns that much of the world’s electricity to be able to process somewhere between three to seven transactions per second across the entire world.”
There are a few reasons Weaver thinks Bitcoin doesn’t serve its purpose as a form of payment.
- First, it’s slow — it only processes a limited number of transactions per second (TPS). To put that in context, Visa says it can handle 65,000 TPS.
- Second, the computing expert says those merchants who do accept Bitcoin payments are actually converting it straight into dollars because it is too volatile to keep on their balance sheets.
- Finally, he says if your crypto gets stolen you can’t get your money back — transactions on the blockchain are irreversible.
Is he right?
Is it slow? Bitcoin is slow. But other cryptocurrencies are not. For example, Solana (SOL) can process over 700,000 TPS. It’s also a relatively new technology, and is still in development. We already have the Lightning network that’s designed to sit on top of the Bitcoin system and speed up transactions.
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Plus, we may see different networks used for different transactions. For example, you might use a payment app on your phone to pay for a coffee, but you probably wouldn’t use it to make a down payment for a house. Crypto fans such as Mark Cuban have argued Bitcoin could eventually act as a type of secure digital vault, while other digital currencies — or traditional money — get used as an everyday form of payment.
Are merchants lying? Volatility is an issue for Bitcoin and other cryptos. One way merchants handle that issue at the moment is to convert crypto into dollars or another currency, but since they are still accepting crypto payments, it’s not a lie. Some businesses keep the crypto they’re paid in too.
Part of the issue is that while adoption has grown significantly, Bitcoin hasn’t reached a tipping point. If businesses could use cryptocurrency to pay salaries, rent, and mortgages, they might not need to convert their Bitcoin into dollars. And as Bitcoin matures, it might lose some of its volatility. Those are big “ifs,” but it’s not always fair to judge an emerging technology through the lens of the way things work today.
Is irreversibility a problem? Crypto’s irreversibility is a double-edged sword. On the one hand, businesses accepting Bitcoin wouldn’t need to worry about credit card chargebacks — reversing the payment because there’s a dispute. Chargebacks can prove expensive and time consuming for merchants. On the other hand, it means there’s less consumer protection. However, that’s a solvable problem — for example, we could use insurance or other measures to protect spenders.
Bitcoin isn’t only a form of payment
What Weaver didn’t say is that there are some powerful ways cryptocurrency and Bitcoin could impact the way we use money. For example, it can drastically reduce the costs and time involved in international transfers. The World Bank estimates that people pay over 6% on average in remittance fees. Additional research shows the remittance market was valued at over $700 billion in 2020. Cryptocurrency could dramatically reduce these costs.
Weaver argues crypto’s only use is for criminal activity
What he said
“And so what is it good for? Well, there are classes of payments that the intermediaries don’t allow. The big ones are drug dealing, child sexual abuse material, and ransoms. As a consequence, the cryptocurrency actually used for payments is really only used seriously for: ransomware payments, where companies have to pay $10 million. Drug deals — drug dealers hate it, but it’s the only game in town. And we’ve had cases of websites selling child exploitation material paid with Bitcoin.”
Is he right?
Cryptocurrency is used by criminals. The lack of regulation in the cryptocurrency industry means it attracts various bad actors. But it’s also not accurate to write off the whole crypto industry as only being useful for dodgy dealings. For starters, crypto exchanges are getting stricter about know-your-customer rules that prevent money laundering and other illicit activities.
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Criminals aren’t the only people using cryptocurrency — in fact, illicit activity represents a lower and lower share of overall crypto activity. The latest Chainalysis Crypto Crime report showed that the growth of legitimate cryptocurrency usage far outpaces criminal usage: Total crypto transaction volume was up over 550% in 2021, reaching $15.8 trillion, where illicit transactions grew by just 79%. “Illicit activity’s share of cryptocurrency transaction volume has never been lower,” according to the report.
Moreover, a lot of blockchain activity is pseudonymous and can be tracked. For example, last year law enforcement seized much of the ransom paid in the Colonial Pipeline attack. This demonstrated that criminal activity can be traced on the blockchain just as other financial activity can.
Weaver argues Bitcoin consumes huge amounts of energy
What he said
“The biggest [excuse crypto enthusiasts make for Bitcoin] is ‘this incentivizes green power.’ Which it does in the same way that a whole bunch of random shootings would incentivize bulletproof vests.”
Is he right?
It’s difficult for crypto die-hards to justify the energy involved in proof-of-work mining. According to an analysis by Digiconomist, each year Bitcoin, Ethereum, and Dogecoin consume as much energy as The Netherlands, Peru, and Martinique respectively. Not only does that mean crypto consumes more energy than three whole countries, there are also stories of reopening defunct coal plants in order to power Bitcoin mining.
Some crypto enthusiasts claim that Bitcoin is increasingly powered by renewables, but there’s only a finite amount of renewable energy out there. If Bitcoin uses renewables, other industries are being forced to use more non-renewable energy. This brings us to the question of how crypto mining could help develop the renewable industry.
One vocal proponent of the argument that Bitcoin incentivizes green power is Ark Invest. A recent report from the innovation-focused investment fund labeled concerns about Bitcoin’s sustainability “ill-informed.” It says mining could increase the overall addressable market for renewable energy, noting that, “According to ARK’s research, intermittent energy sources like wind and solar could meet a larger percentage of grid demand if Bitcoin mining impacts the utility grid.”
Weaver argues crypto is a giant Ponzi scheme
What he said
“It’s a self-created pyramid scheme, you have to keep getting new suckers in. As soon as the number of suckers dries up, it collapses. And because it’s not zero-sum, but deeply negative-sum, there are actually a lot of mechanisms that can cause it to collapse suddenly to zero.”
Is he right?
It’s true that cryptocurrencies could fall to zero. This is a new and developing market and a lot could go wrong. Not only could the whole industry collapse, individual currencies could encounter severe security issues, management problems, or turn out to be scams.
A Ponzi scheme is a fake business that uses rewards from new investors to pay returns to existing ones. It continues for as long as it can attract new investors. The argument that Bitcoin is a huge Ponzi scheme only holds water if you agree that it has no inherent value. While there are plenty of people including financial gurus like Warren Buffett who are ready to argue exactly that, it’s not that simple.
Let’s talk about the value of Bitcoin and blockchain technology. Decentralization can take middlemen — whether they be corporate giants, governments, or central banks — out of transactions. That’s a powerful concept, and it could change the way we bank, the way we interact, the way we use the internet. For example, Web 3 could give us the next generation of the internet. It isn’t only about money, it’s about online identities and who gets to control them.
There are many things that could stop blockchain from achieving its potential. Nevertheless, the argument that it is all a big Ponzi scheme is severely flawed. I’m not saying there are no scams or Ponzi schemes in crypto, there are all too many of them. It’s just that the existence of some bad players doesn’t make the whole industry into a scam.
Should crypto die in a fire?
In 10 years’ time, will we look back on the past two years of crypto enthusiasm as pandemic-driven craziness? Is it a game for criminals and suckers as Weaver suggests? In truth, none of us know for sure. It does damage the environment at a time when we need to be cutting our carbon emissions, but it might be able to stimulate the growth of renewables.
It’s also true that Bitcoin and crypto may not survive in its current form. Weaver highlights a number of dodgy players and wild west activities that are worrying. Plus, we don’t know what impact crypto regulation will have, and what measures governments might take to stop these pseudonymous digital currencies from undermining traditional money systems. But this $1.3 trillion industry is still more than a Ponzi scheme; there are a number of legitimate projects that want to use this emerging tech to build change.
The big question is what role you think blockchain technology and Bitcoin could play in our futures. It isn’t easy for crypto investors to walk a path between the extreme views — people like Weaver claim there’s nothing good about blockchain while Ark Invest says this tech could impact every sector and replace centralized institutions. Ultimately, it’s worth researching and reading as much as you can so you understand both camps. Few things are black and white and there’s truth in both points of view.
Importantly, even if you passionately believe crypto is going to be the money of the future, don’t bet the house on it. If you only invest money you can afford to lose, you’ll profit from any astronomical gains but you won’t be devastated if it all falls to nothing. People like Weaver say the industry might “implode spectacularly” and it might. Still, perhaps I’m a sucker as Weaver suggests, but I think there’s a chance it could explode spectacularly too and that’s why I invest.
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