I’ve been thinking lately about Bitcoin’s track record, and I’m beginning to think the Bitcoin Maximalists are on to something. Despite all the ups and downs, the Bitcoin engine has been chugging along like a champ, showing its strength and consistency through thick and thin. And with the recent market turmoil (thanks FTX), the whole crypto world has been shaken up. So I want to take few minutes to examine the idea of Bitcoin Maximalism and evaluate its relevance in light of the current state of things. Let’s dive in!
What is Bitcoin Maximalism?
I already wrote an article comparing Bitcoin Maximalism vs. Pluralism. Read that for an overview of both schools of thought. But to provide a brief definition of Bitcoin Maximalism: it’s the idea that Bitcoin is the most important cryptocurrency and the best store of value, and that it will eventually replace all other cryptocurrencies and fiat currencies. The core principles behind Bitcoin Maximalism include decentralization, scarcity, censorship resistance, and sound money.
Below is the full list of core principles behind the Bitcoin Maxi philosophy:
- Bitcoin is the most important cryptocurrency
- Bitcoin is the best store of value and will replace all other forms of money
- Bitcoin is the most decentralized cryptocurrency
- Bitcoin is artificially scarce and thus more valuable
- Bitcoin is censorship-resistant
- Bitcoin is sound money with value determined by market supply & demand rather than by central authorities
Why I think the Bitcoin Maxis are probably right
With each of these key points considered, how does Bitcoin hold up to the maximalist philosophy today? Well, Bitcoin does seem to be the most important cryptocurrency, if only because it was the first cryptocurrency. Not only does it have first-mover advantage, but the ideological vision for a peer-to-peer (P2P) digital payment system has been fully realized with Bitcoin and blockchain technology. To understand this vision, one only needs to read the Bitcoin whitepaper.
People liken Bitcoin to “digital gold” for its role as a store of value. Like gold, its inherent scarcity coupled with the energy it takes to mine it means Bitcoin could hold its value over time. Over the past few years the main narrative around Bitcoin is its use case as an inflation hedge. Moreover, people view Bitcoin as sound money due to its artificial scarcity and immunity to government manipulation. Governments tend to debase or devalue fiat currencies through mismanagement and corruption, resulting in inflation.
The founder of Bitcoin, Satoshi Nakomoto, remains anonymous to this day. As a result, no one can point to an individual CEO or head of Bitcoin who is able to dictate major changes to the network. Despite the lack of leadership, Bitcoin has become a household name without a huge marketing effort like many traditional brands require. On the contrary, Bitcoin relies on a decentralized community of passionate developers, node operators, miners and investors to help it grow. This makes it one of the few truly decentralized cryptocurrencies available in the market.
Nations have been playing whack-a-mole with Bitcoin since its inception. Yet despite countries attempting to ban or regulate it to death, Bitcoin has operated uninterrupted. That’s the true power of decentralization: if enough people believe in the idea, it becomes near impossible to eradicate it. The Bitcoin blockchain exists on thousands of computers distributed worldwide.
Finally, thanks to the immutable, decentralized, and transparent nature of blockchain technology, Bitcoin is essentially censorship-resistant. This means that p2p transactions can take place on the network without intermediaries or government intervention. And since transaction metadata is public to everyone, it’s easy to audit. At the same time, Bitcoin is cryptographically secure, so for the most part, individual identities on the blockchain are hard to confirm.
Arguments against Bitcoin Maximalism
Of course, no philosophy is without disagreement, and Bitcoin Maximalism is a controversial school of thought. People widely use the following arguments against Bitcoin:
- Scalability: Despite its first-mover advantage, Bitcoin has faced scalability challenges, with transaction times and fees becoming increasingly problematic as usage has grown.
- Competition from other cryptocurrencies: There are many other cryptocurrencies that offer features and benefits that Bitcoin does not, such as improved privacy, smart contract functionality, and faster transaction times.
- Lack of widespread adoption: Despite its growth over the past decade, Bitcoin is still not widely used as a currency for day-to-day transactions.
- Environmental impact: The energy-intensive nature of Bitcoin mining has raised concerns about its environmental impact.
- Regulation: Governments around the world have been cracking down on cryptocurrencies, which could limit their growth and impact.
- Vulnerability to manipulation: The decentralized nature of cryptocurrencies can also make them vulnerable to manipulation and manipulation by large holders of the currency.
- Usability: For the average person, using cryptocurrencies can still be challenging, with a steep learning curve and limited options for storage and usage.
As you might imagine, counterarguments to each of these points usually lead to never-ending debate. Most of the points arguing against Bitcoin Maximalism are stated in the proponent points I discussed earlier, and vice versa. In the end, only time will tell whether Bitcoin Maximalists are truly right.
After the dust settled following the FTX and Terra Luna crashes, it became clear that the technical state of Bitcoin was unperturbed by the chaos. Pair that with the inflation the U.S. is experiencing, I began suspecting that maybe the Bitcoin Maxis are right. Maybe Bitcoin’s robustness will see it become the one true cryptocurrency of the future.
While there are certainly some valid criticisms of Bitcoin, its underlying characteristics (decentralization, scarcity, censorship resistance, and sound money etc.) make it a promising alternative to the traditional, fiat-driven economy.
So, what do you think? Are you a Bitcoin Maximalist, Pluralist, or something else? Leave a comment or send me a message stating your stance. I also recommend the book The Bitcoin Standard by Saifedean Ammous, which inspired much of my thinking around this article.