By Ekin Genç
Fidelity wants the world to warm up to Bitcoin. It spent an entire blog post yesterday defending the largest cryptocurrency by market cap—a technology that many consider would one day make Fidelity, a centralized financial institution, redundant.
Ria Bhutoria, director of research at Fidelity Digital Assets, the department at Fidelity responsible for handling cryptocurrencies, outlined a six-pronged defense for Bitcoin.
First, she responded to the charge that Bitcoin is too volatile and is too slow and expensive to become a means of payment. ”Bitcoin’s volatility is a trade-off it makes for perfect supply inelasticity and an intervention-free market,” she argued.
As for the trouble around payments, Bhutoria argues that this is just one of the “deliberate trade-off[s]” as Bitcoin “offers core properties such as decentralization and immutability”.
Here, Bhutoria repeats the defense from Bitcoin maximalists in 2017, who argued that Bitcoin shouldn’t optimize itself for payments at the expense of centralization. Opponents disagreed, split from Bitcoin, and formed Bitcoin Cash. In other words, Bitcoin’s weakness is…good for Bitcoin.
Next, Bhutoria defended the huge amounts of energy wasted by Bitcoin mining. She pointed to the rise of renewable energy resources and said that Bitcoin miners are using energy that would otherwise be wasted anyway, such as “stranded gas, which leverages energy that may not be consumed for other purposes and reduces carbon and methane emissions in the process”.
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This appears less convincing. The Cambridge Bitcoin Electricity Consumption Index estimates that Bitcoin miners use 84 Terawatts of electricity a year. In a recent survey of all the top mining pools, Cambridge University’s Centre for Alternative Finance found that just 39% of energy for cryptocurrency mining comes from renewable energy sources. The other 61% comes from non-renewable energy, such as fossil fuels like coal.
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But Bhutoria has more arguments. Next up, much like how guns don’t kill people, Bitcoin may facilitate illicit activity, but is not responsible for it. “Bitcoin, like cash or the internet, is neutral and has properties that may be valuable to good actors and bad actors,” said Bhutoria. Illicit activity makes up only a tiny fraction of all Bitcoin trade, she points out: just 1%, according to data from blockchain analytics firm, Elliptic.
Bhutoria further dismisses the misconception that Bitcoin is not backed by anything. Her opponents may argue that Bitcoin is not backed by “cash flows, industrial utility, or decree.”
Bhutoria argues that this couldn’t be further from the truth. “It is backed by code and the consensus that exists among its key stakeholders,” she said. “Bitcoin’s stakeholders make the explicit choice to use and support the network, realizing Bitcoin’s unique attributes – the perfect scarcity of bitcoin, transaction irreversibility, and seizure and censorship resistance.”
And finally, the criticism from sustainability. What about Bitcoin’s competitive edge? Could it be outcompeted? Not so easy, says Bhutoria. Even though there have been many attempts, none has come close to outcompeting Bitcoin.
Forking is one thing (as open-source software, that’s to be expected), but replicating the community (from miners and users to validators and developers) and its network efforts is quite another. And that’s where the true power of Bitcoin lies, she argued. Does Wall Street have a Twitter army?
Fidelity got into the Bitcoin game in October 2018. Fidelity Digital Assets provides crypto custody services and operates a publicly-traded Bitcoin Fund, among other services.
Fidelity holds $8.8 Trillion in customer assets, as of June 30, 2020. The entire market capitalization of the crypto economy is $457 billion, of 5% of that. Bitcoin still has a lot of growing to do for Fidelity to consider it an existential threat. Thankfully, posts like Bhutoria’s help.