“I’ve been working on a new fully peer-to-peer electronic checkout system, with no trusted third parties.” — Satoshi Nakamoto
It’s one of those perfect fall days in Colorado and I’m sitting outside a pub in the late afternoon. I’m meeting a fellow bitcoiner, a man I met in Austin late this summer. As the sun went down behind the mountains, the sky turned orange, creating the perfect backdrop for a lively bitcoin conversation.
As we ticked off the typical list of everything we agreed on – censorship is bad, red meat is good, etc. – I made an offhand comment about wanting more businesses to accept bitcoin as payment. “Well I don’t, why would you want to part with your sats?” was the answer that he rejected. The implication, of course, is that a true Bitcoiner values satoshis more than anything else in the world. Why would you trade them for groceries, T-shirts or beer? “Haven’t you heard of Laslo Hanyecz? That crazy man traded 10,000 bitcoins for a couple of pizzas. I am not repeating that mistake. Tell me when bitcoin hits $200,000, then maybe that would make sense.”
My new friend is not alone with this line of thinking. It’s a sentiment offered by people like Michael Saylor and others in the HODL community. They will say: “The scarcest asset in the world is Bitcoin. It’s digital gold,” “Buying bitcoin is like buying a property in Manhattan 100 years ago” and “Don’t sell your bitcoins!” Yet at the same time, there is an intuitive recognition that if bitcoin can never be exchanged for a good or service, it in fact has no value, no matter what price flashes on the BLOCKCLOCK at the office. I call it the HODLer’s dilemma.
But is it really a dilemma? Are these mantras, however prolific, consistent with Satoshi’s spirit of innovation? Does the proliferation of the Lightning Network and unattended mobile wallets that our parents (or children) can use intuitively require us to evolve our understanding of Bitcoin’s value proposition? Personally, I believe now is the time to stop thinking of bitcoin as simply a store of value and start conceptualizing it. especially as a medium of exchange …it also happens to store value better than any resource on earth. In case you weren’t already paying attention, here are a few reasons why.
“Bitcoin would be convenient for people who don’t have a credit card or don’t want to use the cards they have.” — Satoshi Nakamoto
The time to start logging out of the system is now. The signal has never been stronger. Today we live in a world where the fiat system can:
All of this is happening today, and that’s probably just the tip of the iceberg. In a retail system where cash transactions are becoming increasingly scarce and inconvenient, most of the big banks, credit bureaus and payment processors have agreed to requests from a government that appears to have an existential interest in controlling our behavior.
Of course, bitcoin is not a panacea for censorship, at least as it is most commonly bought and traded today. The Canadian Trucker Protest has shown us that a government committed to suppressing the voice of its citizens will go to great lengths to do so, and in the process taught us that licensed exchanges and chain analysis techniques can be very effective in blacklisting addresses. and even donor identification. These vulnerabilities will need to be overcome to provide a more uncensored trading currency. But by transacting in bitcoin with colleagues and merchants for everyday goods and services as often as possible, we incentivize others to both accept and transact in bitcoin. Only through numbers can we make the bitcoin economy more robust, decentralized and difficult to censor. A community that values privacy will naturally choose to adopt uncustodial wallets, engage in collaborative transactions, and avoid KYC exchanges. Growing and educating this community has never been more important.
Convenience And Autonomy
“With cryptographic evidence-based e-currency, without the need to rely on a third-party intermediary, money can be secure and transactions effortless.” —Satoshi Nakamoto
A common counterargument to the bitcoin transaction is that it is too complicated or too slow compared to swiping a credit card. This is simply not true anymore. Today, any beginner-level Bitcoiner can download Muun Wallet and within minutes send Lightning bills to customers for payment via QR code. Coinkite has an NFC device that allows users to sign transactions with a swipe of their card. There are other examples and many more will follow. The beauty of these solutions is that they are completely non-custodial, i.e. there is no central third party controlling your coins. The software simply allows the transactions to be transmitted to the network. Lightning-fast transactions canceled instantly, with fees an order of magnitude lower than the traditional 2-3% of Visa or Mastercard. (For example, it recently cost me about $0.60 in fees to send the equivalent of $700 USD to Wrich Ranches last week for beef. The same transaction would have cost the merchant about $20 if I had used Visa .)
Furthermore, these transactions promote autonomy for both parties. Lightning-fast transactions, like anything else backed by Bitcoin’s proof-of-work, happen without counterparty risk. Removed from the equation is the risk of a consumer not paying their bill, contesting a charge, not having enough money in their account, or filing for bankruptcy down the road. All of this risk manifests itself as transactional inefficiency and its costs are directly or indirectly absorbed by merchants and consumers. A trusted system like bitcoin is therefore more efficient, reducing risk for merchants and ultimately making goods and services cheaper for responsible consumers.
“I am sure that in 20 years there will be very high transaction volume or no volume at all.” — Satoshi Nakamoto
We would do well to think of all our transactions in terms of bitcoins. When money is indeed a store of value, we take a measured approach to spending and take into account the potential increase in value money could have in the future. This is logical and applies whether you are spending sats or bucks. The website bitcoinorshit.com makes this point bluntly.
There is also the story of Laszlo Hanyecz, who famously bought two pizzas for 10,000 BTC in 2010. Indeed, Laszlo paid a couple of billion dollars for the pizza, if we take into consideration the market value of BTC over a decade later. It surprises me, though, when Bitcoiners jump on Laszlo for being economically naïve and use this example to support their position that bitcoins should never be spent. The simple truth is that everyone who bought pizza in 2010 actually spent thousands of bitcoins. The only way to avoid this would be to eat something cheaper or go hungry. The thing is, every fiat transaction we make is a direct trade-off to potentially grow our stack. Once this is understood, the public controversy about spending bitcoin on products or services is basically dead.
The vast majority of us need to trade monetary energy for goods and services to survive in today’s society. The only controversy that remains is which products or services take precedence over the opportunity to acquire more sat. It is a personal and unique decision for each of us. The answer should be thought of independently and regardless of whether monetary energy is spent on sats, dollars or yen – it’s just monetary energy saved – what is left – this is relevant when it comes to the HODLer’s dilemma.
We are all likely to save more BTC if we start transacting more BTC. For one thing, when we’re dealing with a solid coin that’s a proven store of value, we’re more inclined to be choosy in our purchases. Sure, we really want the new iPhone, but is it worth 5 million sats if you expect a sat to be worth a penny someday? We may decide to wait another year before updating and retaining that data for the future. On the other hand we all need food, shelter and clothing. If I have the choice between buying my beef from Costco with my Visa card or buying direct from a bitcoin-accepting farmer, why shouldn’t I choose the latter?
Today, the number of merchants accepting bitcoin is relatively small, though growing steadily. As bitcoiners begin to realize that their “spend dollars, save sats” theory may be counterproductive, more will begin seeking wares from merchants who accept bitcoin for payment. This spike in demand will drive merchant adoption, potentially shifting the timeline for a bitcoin economy significantly to the left.
More trade equals more value
“As the number of users increases, the value per coin increases. It has the potential for a positive feedback loop; as users grow, the value increases, which could attract more users to take advantage of the growing value. —Satoshi Nakamoto
This is where we sit today. There is a growing number of bitcoin speculators and enthusiasts who have accepted the idea that Bitcoin is a bona fide store of value. This community also believes that the scarcity of the asset will inevitably lend itself to a supply squeeze that will drive the price upwards. Sure, it’s possible for this to happen through the simple act of HODLing, but as Satoshi Nakamoto points out, the value increases when the number of users go up. Does the purchase and holding of an asset qualify as use? If the genius behind bitcoin is enabling peer-to-peer transactions without a third-party intermediary, are we really harnessing this ability by solely accumulating and not spending?
I believe that bitcoin needs to become a true medium of exchange in order to fully realize its potential as a store of value. Since value doesn’t just come from scarcity, demand is critical to the price of bitcoin. If bitcoin is utility becomes the driving force behind its demand, it is at this time that its true potential as a store of value will be realised. Today’s economic and political environment could be just the motivation we all need. But until bitcoin becomes an essential part of our day-to-day economic activity, it is likely to be valued alongside other speculative assets and subject to the vagaries of the very fiat system it was meant to supplant.
This is a guest post by Scott Worden. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.