Bitcoin’s design has deliberately prioritised crucial aspects such as decentralisation, finite supply and immutable settlement over feasibility for everyday transactions, the blog argues
In a blog post published last week, Fidelity Digital Assets took upon rebutting six persistent criticisms of Bitcoin including its volatility, environmental wastefulness and its use in illicit activities. The company, which offers enterprise-quality custody and trade execution services for crypto assets, especially explained in detail the shortcomings of the “Bitcoin has failed as a means of payment” argument made by critics.
Fidelity argues that the prevalent criticism of Bitcoin’s failure as a means of payment for everyday transactions is the result of the failure to understand Bitcoin’s core purpose. While conventional payment methods like Visa, Mastercard and PayPal can offer higher throughput and have outperformed Bitcoin, Fidelity contends that Bitcoin’s design has had other priorities including “perfect scarcity” in mind.
“Bitcoin makes deliberate trade-offs, such as limited and expensive capacity, to offer core properties such as decentralisation and immutability. Given its high settlement assurances, Bitcoin optimises its limited capacity for settling transactions that aren’t well-served by traditional rails”, the blog explained.
Fidelity added that while acting as a viable payment tool is part of Bitcoin’s goals, its limitations mean that everyday use is not necessarily the end goal for the asset. Bitcoin’s tax definition as “property” in some jurisdictions coupled with its price volatility indicates users having to calculate gains and losses for every payment or purchase in Bitcoin. This renders it impractical to use the coin for many payments, the blog stated.
Users must be aware that Bitcoin’s design has prioritised crucial aspects such as decentralisation, finite supply and immutable settlement in a deliberate trade-off with the downsides on the daily transactions front, Fidelity explained. These aspects should be valued on their own terms as they enable Bitcoin to stay true to its original purpose, it added.
Fidelity tackles the criticism that Bitcoin’s extreme volatility compromises its use as a store of value by reframing the terms of the criticism by claiming that volatility is the price paid for an “intervention resistant market”.
“No central bank or government can step in to support or prop up markets and artificially subdue volatility. Bitcoin’s volatility is a trade-off for a distortion-free market”, the blog stated.
“True price discovery accompanied by volatility might be preferable to artificial stability if it results in distorted markets that may break down without intervention”, it added. Fidelity goes on to provide a detailed argument around the volatility criticism by relating it to the asset’s perfect inelastic supply.
The blogpost further counters the argument claiming Bitcoin to be wasteful by explaining that Bitcoin mining is powered by renewable energy that would otherwise be wasted. Speaking of illicit activities, Bitcoin transactions connected to illicit activity as a share of total transactions, are very low, Fidelity contends.
Written by Harshini Nag