The grassroots cypherpunk movement that gave birth to Bitcoin intended for $BTC to be a censorship resistant and immutable, fungible currency for the everyday person.
Bitcoin’s best value proposition is its scarcity and perceived demand. However, these are the same characteristics that have turned it into another tool of Wall Street as a commodity. In 2020, we heard about the multitude of Wall Street institutions jumping on the bandwagon. Within a six month period, commonly recognized names such Square, Paypal, Mass Mutual and most recently Tesla/Elon Musk announced their BTC purchases. These public pronouncements only serve one purpose, to induce fomo (fear of missing out) and more buying so as to keep driving up the price. Michael Saylor of Microstrategy is probably one of the loudest evangelists in this space. Notably, Michael favors government regulation and is also one of the first to denounce the privacy and censorship resistance aspects of BTC (1).
"It is not surprising in my view that some prominent promoters of Bitcoin, like Michael Saylor, CEO of MicroStrategy, are trying to change the narrative from “Currency” to “Asset”, in some way trying to avoid direct conflict with the Fed. Wishful thinking in my view." ~ Diego Parrilla, Engineer, Economist, and Best-selling author "The Energy World is Flat" and "The Anti-Bubbles". Portfolio Manager Global Macro, Volatility, and Tail Risk. (2)
A core feature of BTC is its immutability and vital to this is the transparent public ledger. In fact, transparency is key to bitcoin’s trustlessness. All transactions and addresses are stored on a publicly viewable database that is replicated and verified by every miner globally. However, this lack of privacy makes it a terrible medium of exchange. No one is interested in the gallon of milk you buy at the grocery store every week, but health insurance companies may deny your health insurance application or charge a high premium if they can see from your blockchain transactions that you spend half your paycheck on cigarettes every month. Since both parties of a transaction know each other’s wallet addresses, would you want a stranger who you met on craigslist to buy a crockpot from, know that your wallet has a $10,000 balance on it, or that it is connected to your savings wallet that has $100,000 in it?
Privacy is an immensely critical feature of everyday money. Cash today is the acme of anonymity. Credit cards provide a modicum of pseudonymity from the public imparted by the the credit card company. Some BTC developers are trying to build a second layer on top of Bitcoin that provides optional privacy as a patch. However, we already know that optional privacy is no privacy at all. For instance, ZCash is often erroneously touted as a privacy coin. Privacy on ZEC is optional. Less than 1% of ZCash transactions are private. As a result, crypto tracking companies such as Chainanalysis are able to document over 99% of ZCash transactions based on the resulting metadata (3).
"We’re not really here to pitch bitcoin to the moon or as digital gold, all of those conversations are interesting philosophically. Of course if bitcoin rallies, let’s assume a rising tide lifts all boats. That’s great, but we view this simply as another asset class to trade, and I think that is a little bit disarming for folks, but also differentiating as to how we’re going about things.” ~ Matt Edwards, CEO and CIO of Dalpha Captial, on Between 2 chains podcast, episode 12 (4).
Wall Street does not like the privacy aspect because it generates revenue based on asset flow. It matters more to Wall Street that $100 billion worth of transactions are conducted in BTC valued at $10k, than $1 million worth of transactions valued at $100k. Institutions earn their keep not by hodling, but by making money as the middleman.
“Bitcoin started out as an ideological construct…but now it has run into wall street. And the ideological construct of Wall Street is ‘let’s make money’. Period. ‘We don’t care how we do it and we don’t care who gets in the way, let’s make money’” ~ Grant Williams, host of The Grant Williams podcast, co-founder of Real Vision, senior advisor to Matterhorn Asset Management AG in Switzerland, and a portfolio and strategy advisor to Vulpes Investment Management in Singapore (5).
Wall Street also needs regulatory approval. We have already seen that governments will never condone private currencies that they cannot control. The latest U.S. Securities and Exchange Commission regulations sparked outrage from privacy concerned groups (6). Similar call for regulations were issued from Christine Lagarde of the European Central Bank (7) and Janet Yellen, Secretary of the U.S. Treasury (8). Regulations will likely outlaw any private usage of BTC. This will inevitably create an environment of colored coins, effectively splitting BTC into a class system of "white-listed" vs. "colored" bitcoins. Want to use BTC in government regulated environments? Well, only white-listed ones will be allowed. Want to store your BTC privately? Well, you will only be able to use it outside of countries that ban unregistered addresses. Alex Gladstein, a champion of human rights and Bitcoin maximalist, laid out his thesis on the NLW podcast (9). Unfortunately, it is inevitable that Bitcoin becomes a speculative tool of Wall Street, in a two class system of registered and unregistered Bitcoin addresses. Bitcoin will also always retain its transparency that is required for its immutability.
"We’re not building a new financial system through bitcoin, bitcoin is being financialized." ~ Demetri Kofinas, Host and Editor-in-Chief of Hidden Forces podcast, on an interview with Ash Bennington on The Ground Floor Consensus podcast (10)
It is unlikely that bitcoin will be a global reserve asset anytime soon. There are two primary reasons today. First, we are in a nationalistic world, can you see any country giving up the power of their sovereign currencies? Second, 2% of wallets hold 95% of Bitcoin (even if you remove the centralized exchange wallets, there’s still over 90% of Bitcoin held by those wallets). Think about that, would you want to hold your life savings in an asset that can be manipulated by the bitcoin two-percenters?
Returning to the original intent of a currency for the people of the world, privacy coins are the best option. Digital currencies with mandatory privacy such as Monero (11) and Pirate Chain (12) are the only two plausible options that can function as currencies for global citizens.
There is no doubt that Bitcoin’s value will continue to rise exponentially. Although BTC likely will not become a government sanctioned reserve asset, it has a high probability of being the primary underlying asset of an exponentially growing parallel economy.
Key to a currency of daily use is privacy, along with fungibility and ease of use. Privacy is what Pirate Chain is best at amongst all the digital currency options in crypto (13). Pirate Chain is the closest digital iteration of cash and is the best form of digital currency available to date (14).
With regards to Pirate Chain as a “transaction asset”. The United States Dollar accounts for 80% of the world’s transactions whereas it only contributes to 25% of global gross domestic product. From an investment perspective, people were rewarded for hoarding USD as a savings over the last few decades. We now know that the monetary policy behind USD is fatally flawed.
Pirate Chain is an excellent medium of exchange and because of both its programmed scarcity and privacy, it also has a tremendous value proposition as an “asset” that should be in everyone's portfolio.
References
- Crypto Regulation Will Accelerate Stampede of Money Into Bitcoin, Says Michael Saylor. https://dailyhodl.com/2021/01/21/crypto-regulation-will-accelerate-stampede-of-money-into-bitcoin-says-michael-saylor/
- Bitcoin: Bubble or Anti-Bubble? Diego Parrilla. https://www.linkedin.com/pulse/bitcoin-bubble-anti-bubble-diego-parrilla/?mc_cid=629d8884be
- Introducing Investigation and Compliance Support for Dash and Zcash. https://blog.chainalysis.com/reports/introducing-chainalysis-investigation-compliance-support-dash-zcash
- Digital Assets through an Institutional Lens (w/ Matt Edwards). Between 2 Chains podcast, episode 12. https://www.realvision.com/podcast/between2chains/episode/991023a8-7a96-11eb-9691-db3eb133e41d
- The Grant Williams Podcast. Both Sides Of The Coin: A Civilized Bitcoin Debate. https://www.grant-williams.com/gw_podcast/both-sides-of-the-coin-featuring-mike-green-and-nic-carter/
- U.S. Department of Justice issues legal framework for Bitcoin and crypto. https://www.crypto-news-flash.com/u-s-department-of-justice-issues-legal-framework-for-bitcoin-and-cryptocurrencies/
- ECB Chief Christine Lagarde Calls for Global Bitcoin Regulation. https://news.bitcoin.com/ecb-christine-lagarde-global-bitcoin-regulation-btc/
- Janet Yellen suggests 'curtailing' cryptocurrencies such as Bitcoin, saying they are mainly used for illegal financing. https://www.businessinsider.in/stock-market/news/janet-yellen-suggests-curtailing-cryptocurrencies-such-as-bitcoin-saying-they-are-mainly-used-for-illegal-financing/articleshow/80366701.cms
- NLW Podcast. Will Wall Street Ruin Bitcoin. December 16th, 2020.
- The Crypto Narrative (w/ Demetri Kofinas). Ground Floor Consensus Podcast Episode 11. https://www.realvision.com/podcast/realvisioncrypto/episode/05d5c78c-75eb-11eb-8d31-b3743365fc9f
- https://www.getmonero.org
- The most anonymous cryptocurrency. Pirate Chain https://pirate.black/
- What Should You Expect From A Truly Private Digital Cash? https://hackernoon.com/what-should-you-expect-from-a-truly-private-digital-cash-u0g732gm
- An Open Letter to Coin Center: Introduction to a Fully Private Zero-Knowledge Proof Digital Currency. An Open Letter to Coin Center: Introduction to a Fully Private Zero-Knowledge Proof Digital Currency