Holiday season is a good time to sit around the dinner table and debate on a wide variety of topics for fun and enlightenment. Recently, Bitcoin and Blockchain has become one of the hottest topics for discussion.

For newcomers to the party, Blockchain arguments can be confusing to follow, given it’s a blend of technology, finance, and philosophy all mixed together with a bunch of hype. This is a guide to help you traverse the ongoing dialogue, and (at least pretend to) talk about Bitcoin and Blockchain in a (seemingly) intelligent manner.

A comprehensive reference would be a deep, branching tree with circular references. For the sake of brevity, this reference guide only cover the surface level arguments for a sample of popular topics.

Category 1: Financial

Intrinsic value

One of the most basic argument against Bitcoin is to question it’s intrinsic value:

“Bitcoin has no intrinsic value. The only reason people buy Bitcoin is speculation. Bitcoin is our generation’s Tulip bubble.”

or:

“Unlike stock which represents rights to dividends, Bitcoin creates no value. Therefore the whole thing is a Ponzi scheme.”

There’s a wide variety of counter-arguments from the Believer camp, one being that storage of value is intrinsically useful:

“Items that can act as a store of value is useful to society. Gold and real-estate serves this purpose today for people all over the world. Bitcoin is a fungible, electronically transferable, and cryptographically secure version of value storage.”

Anther line of argument is to question the basic assumption of value in the existing financial system:

“Your so called intrinsic value is overrated. Companies don’t really live forever, growth rates and P/E ratios are just arbitrary numbers which investors make up to justify their decisions. Discounted cashflow is a model that we chose to believe in. It may be a useful model, but the keyword here is believe”.

or:

“Do you think fiat has intrinsic value? Need I remind you that the US dollar is no longer backed by gold, and that Governments and central banks can go bankrupt? The stable currency is something we collectively choose to believe in for the sake of efficiency. Bitcoin is no different.”

Market Depth

Another popular argument that inevitably pops up is whether the market cap (last trading price per unit * number of units) of cryptocurrency is really representative of it’s worth:

“Sure the price of Bitcoin may be $10,000, and so-and-so may have a billion dollars on paper, but if they tried to sell it all then the market would crash. So it’s just paper money.”

The counter-argument usually involves details of markets and exchange match engines:

“What you just described is called slippage, which means anytime you try to execute large orders, you get a bad deal. But this is true for any financial instrument and is not specific to Bitcoin. If Jeff Bezos dumped all of his stock in a single market order it would devastate the price of AMZM too. This is a pointless argument anyway, as any rational trader would break down large orders.”

And the counter to the counter:

“I understand slippage is a property of markets in general. But what I’m saying is that the depth of the order book is much shallower for cryptocurrencies.”

At which point the Believer camp would conclude with:

“The shallowness of the Bitcoin markets is due to it’s recency, not because of some inherent weakness of the Blockchain. Given enough time to mature, the liquidity of cryptocurrencies might even surpass that of traditional markets, because they are global protocols that anyone in the world can build on top of.”

Category 2: Technical

Blockchains are peer to peer systems that has a lot of redundancy built in, which means things are stored and computed on every computer in the network. Thus the issue of scalability has long been a stable argument against Blockchain. One form focuses on it’s viability as a payment system in particular:

Payment System

“The Bitcoin experiment has already failed. If I pay for my $5 coffee in Bitcoin, I have to wait up to an hour, and pay an insanely high transaction fee.”

The same argument can be made in the macro-perspective:

“Blockchain networks can handle only a measly number transactions per second. Visa can handle tens of thousands times more transaction volume without breaking a sweat.”

There’s a few different responses here, the currency version usually contains the word “layers”:

“You are comparing apples and oranges. Visa is the speedy layer built on top of a slow and costly settlement system. Bitcoin is the settlement system. Additional payment layers can be built on on top of this base layer.”

The generalized version, which involves argument around other Blockchain uses cases such as smart contracts, claim that scalability will inevitably be solved in the future:

Scalability

“People are already working on solutions such as Lightning/dPOS/Plasma/SegWit… This is a hard computer science problem, but one that will inevitably be solved by adding levels of indirection, caching, and cool project names.”

The counter-argument either specifically target the problem with a particular solution(outside the scope of this article), or a more generic version:

“There is no free lunch. Any scaling solution would be making a tradeoff between performance, security, and centralization. A lot of these solutions might either leave the network insecure and worthless, or bring a level of centralization that turn the Blockchain into a glorified version of a shared SQL database.”

Smart Contracts

Scalability aside, the Doubter camp often question the viability of smart contracts:

“In the short history of smart contracts we’ve already witnessed multiple bugs that cost hundreds of millions of dollars in damage, such the DAO fiasco and the Parity wallet bugs. It’s just too hard for programmers to write completely bug-free contracts that handles millions of dollars.”

The counter argument is that the languages and tools will get better, and engineers will learn from their mistakes and build institutional knowledge. The Believers also argue that dApps would end up using a hybrid model, with only a small percentage of the codebase held in sort, concise, and reviewed smart contracts.

Where are all the dApps?

A popular empirical argument against Blockchain technology is :

“Hey if Blockchains are so great, where are all the killer dApp?”

One response is that it’s still early:

“We are basically in 1995 era of the internet. The technology is in it’s infancy, blockchain enabled client browsers are slowly gaining user base, and the top programmers and entrepreneurs have only recently come onboard. Now is the time for building the core architecture and foundation protocols. The killer dApps will come after.”

Another line is to use popular ICO projects and their market-caps as counter-examples:

“There’s tons of dApps already . We have decentralized prediction markets, decentralized cloud computing and storage, decentralized social networks, decentralized e-commerce, and last but not least decentralized kitties. A lot of these projects are worth hundreds of millions dollars.”

There’s a wide variety of responses to this, all of which contains the word “bubble”.

—

That’s it for now. Stay tuned for Part 2, where the debate moves to more philosophical questions such as whether cryptocurrencies are truly scares, whether the environmental impact is justifiable, and whether decentralization of everything is even a good idea.