The following is a written transcript of our five part video series “Short BTC, Long Bitcoin (BSV)”. The video version can be found on our YouTube channel.
Why we are Bearish on BTC
Unfortunately for BTC investors, the BTC version of bitcoin is not only needlessly limited, it's also technically impractical, ideologically alienating, and legally naive. While to the intelligent investor it must seem odd that BTC wants to limit its use to digital gold, there is an ideological reason justifying this anti-scaling decision. Because of an anti-government and anarchist aim common amongst the BTC developers, these developers have retarded the database’s growth in the name of making their network censorship proof, and thus something they imagine can operate outside the reach of government regulation. By keeping the computational size of the bitcoin database small, small blockers hope to enable average home users to maintain the database on inexpensive devices like laptops and smartphones. Professional mining takes place in large data centers. These are impossible to hide from government. In contrast, operating a noncompliant laptop is potentially feasible, which is why BTC has mandated that the blockchain be kept manageable for these devices. From an investor’s point of view, this vision is absurd on many levels. Nonetheless, it is the root of BTC’s deviation away from the original bitcoin vision now pursued exclusively by BSV. To articulate why this is destined to fail, we will why BTC’s ideology has led to technical and legal misjudgments.
Technical Problems
Beyond crippling the utility of the network, limiting the block size creates an existential threat to the longevity of BTC. Bitcoin needs miners to work. Better miners means better Bitcoin, and no miners means no Bitcoin. Miners don’t work for free. Miners are paid by the transaction fees and a subsidy of newly minted coins. These new coins are how all Bitcoin is created. Over time, the subsidy will disappear giving Bitcoin it’s ultimate scarcity, 21 million total bitcoins. The subsidy of new coins cuts in half every four years with the next halvening coming in May 2020. This means that individual Bitcoin forks must create enough transaction revenue to ultimately replace this subsidy. Since BTC has severely limited the maximum number of transactions by capping block size, their ability to generate transaction revenue is also limited. BTC relies on users paying higher and higher transaction fees over time where BSV relies on attracting more users and applications to the network to fill larger and larger blocks with transactions. In our opinion, the BTC vision is unworkable. Their options are limited. They can abandon the scarcity of BTC by continuing the subsidy but that destroys the digital gold value proposition. Alternatively, they could go down the big block route themselves. Unfortunately for BTC, the patent fortress surrounding BSV makes a big block future for BTC pointless since businesses will be incentivized to use BSV to avoid paying licensing fees to nChain.
Legal Problems
Most people are not interested in evading international money transmitter law. The leaders of BTC, however, are. They are betting on being able to convince the rest of the world to agree with them. Most investors seek to invest in technologies that capture the widest possible market. Because of BTC’s fringe ideological disposition, it is unlikely to find much traction. Otherwise legally compliant people and businesses will not want to jeopardize their legal standing by building on or investing in something aiming towards a vision which is incompatible with the laws of most jurisdictions.
Illustrating BTC’s ideological vision are two early use cases of bitcoin. The first broadly adopted commercial application built to use bitcoin was The Silk Road, an online black market for drugs, weapons, assassinations, and other illegal goods and services. A second popular use case was using bitcoin to fund Wikileaks after most jurisdictions blacklisted it. Today, many people who previously used the BTC network for criminal purposes are being prosecuted and sent to jail. Because of the Bitcoin database’s public and immutable nature, it is a great tool for tracking illegal activity. Although the novelty of the technology initially delayed enforcement by authorities, states and private companies have since made identifying, tracking, and prosecuting this activity simple.
To address these shortcomings for criminal enterprise, BTC developers have made many attempts to add anonymity to Bitcoin. As they continue down their crime-friendly roadmap, users and businesses engaging with BTC will become more and more likely to run afoul of the law. Even if BTC can survive these changes, the surrounding infrastructure likely cannot. Many exchanges and services that facilitate the purchase and use of BTC are already in violation of international guidance from powerful intergovernmental bodies like the Financial Action Task Force or the European Union. Proposed changes to BTC will only exacerbate these problems. When these recommendations transform into law in individual jurisdictions, these businesses will need to cease offering services that BTC relies on, or add additional layers which ultimately negate what BTC sees as their anti-government value proposition.
Conclusion
In this video, we have really only scratched the surface of the potential of Bitcoin and the story of how the market arrived at a point where a vastly inferior version of Bitcoin, BTC, had a dominant share of the market. With so much unrealized potential and so many misallocated resources, the time to educate oneself is now, especially in a crypto market where speculation is the major driver of price and sentiments can shift quickly. To learn more, head to WhyBSV.com or follow us on Twitter (@unboundedcap) or Twetch.