Debunking “But Bitcoin is like the early Internet!”

Debunking “But Bitcoin is like the early Internet!”

A claim I should probably have addressed in the book, in the list of fantastic Bitcoin claims in chapter 3: “But Bitcoin is like the early Internet!”

This is usually raised as a counterargument when someone points out Bitcoin is trash or blockchains have no practical use cases:

Ordinary person: This stuff is wack and doesn’t work.
Bitcoin advocate or blockchain salesman: Look, nobody thought the Internet was useful in 1993!

Well, actually they did, of course. The people making this claim often hadn’t been born at the time. And in any case, they’re just saying something they think sounds like an argument at that moment. But it’d be a terrible argument even if people hadn’t thought the Internet was useful then.

 

The hottest modem of 1988. You could propagate Usenet posts at nineteen thousand bits per second — over a phone line!

 

Origins

The earliest example I can find of the comparison is from Erik Voorhees in his article “Bitcoin — The Libertarian Introduction” in Money and State on 13 April 2012:

… this most fascinating thing to happen in the realm of anarcho-capitalist technology since the internet itself.

… Just as few people understood the power of the internet in the early ’90s, the same is true with Bitcoin. And just as with the internet, it is attracting builders and entrepreneurs all over the world.

This was just Voorhees making the comparison — not using it as a counterargument. Voorhees thinks there must have been earlier examples, but that’s the earliest either of us (or our Twitter followers) could find. But it was after this that it took off as a counterargument.

The fallacies

There’s one heck of an assumption here — that this one little technology is obviously comparable to, ooh … let’s just happen to pick the greatest revolution in human communication since the printing press!

It’s a way of assuming your conclusion: “if we compare Bitcoin to THIS HUGE THING, then it must be HUGE too!”

“But, the Internet!” was being used as a counterargument by Bitcoin advocates by 2014. Jeffrey Robinson, in BitCon: The Naked Truth About Bitcoin (US, UK), notes the honour by association, and refutes it thus:

Here’s their syllogism: Bitcoins and the Internet were both, once, newborn technologies that only a few people could believe in. The rest of the world was wrong not to believe in the Internet, which went on to reshape the planet. Therefore, the rest of the world is wrong not to believe in bitcoins which will go on to reshape the planet.

Now here’s my syllogism: Bitcoin and Sea Monkeys were both once fads that amused people for a limited amount of time. Like all fads, Sea Monkeys faded away. Therefore, like all fads, bitcoin will fade away.

What’s wrong with mine? The same thing that’s wrong with theirs. It’s idle comparison that conveniently fits an argument, but has no basis in logic. Just because one thing is criticized or praised, then succeeds or fails, there is no reason to believe that a totally unrelated thing will have the same outcome.

Bitcoin’s economics failure

The Internet, and the various protocols that made up the early Internet, solved its use cases. It was adaptable to all manner of exciting and unforeseen new use cases because it started from a foundation of basically working.

Bitcoin has failed every aspiration that Satoshi Nakamoto had for it. As I note in chapter 2 of the book, Satoshi said in his release notes for Bitcoin 0.1:

The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.

The price is ridiculously volatile and has had multiple bubbles. The unregulated exchanges — with no central bank backing — front-run their customers, paint the tape to manipulate the price, and are hacked or just steal their users’ funds. Transaction fees, and the unreliability of transactions, make micropayments completely unfeasible.

Decentralisation held out for a surprisingly long time — but, per chapter 5 of the book, proof of work has economies of scale, so will naturally recentralise. Once ASICs came in, there were just a few huge mining pools. And the GHash pool hit 51% of mining in mid-2014.

And it’s failed comprehensively as a peer-to-peer electronic cash system.

About the only aspiration that still works somewhat is immutability — and that means the world noticing that whoops, the blockchain includes illegal pornography!

The dreams have turned out to be hype, and it’s been crippled by the practical limitations of the software and the frankly delusional ideas on economics that are baked into its structure — because all of this is based in crank ideas that don’t work.

Bitcoin’s technological failure

While new technologies are often spoken of in terms of their potential — and Bitcoin was still on its initial upward slope of excitement in 2012, so Voorhees’ passing comparison wasn’t outrageous — it’s 2018 now. You’d expect something practical that works by now.

Why not compare Bitcoin to other networks? “Bitcoin is the Apple eWorld of money!” The original electronic walled garden, that turned out to be  too expensive and not very interesting.

Or compare it to other technologies — “Bitcoin is the Ford Pinto gas tank of money!” Which it frequently demonstrates.

Or, for business blockchain — “Blockchain is Nikola Tesla’s Wireless Energy Transfer Towers of money!” Complete vaporware that never worked, but it sounds cool — and keeps getting hyped by people who don’t quite understand what they’re talking about.

To be fair, Bitcoin was a clever and interesting hack — but that’s not the same as a good idea. And taking the very first cardboard and string proof-of-concept and pressing it into production is one of those ideas that never works.

Getting something that you could reasonably call a cryptocurrency — and I’m thinking here of something with the decentralisation that was part of Bitcoin’s basic pitch — without the stupid wastefulness of proof-of-work will require new computer science.

Other cryptocurrencies haven’t worked around the problem. Ethereum’s headed toward the same transaction limit brick wall that Bitcoin hit in mid-2015. Its mining pools are even more centralised than Bitcoin’s, and the attempts to move to proof-of-stake are not going well.

It’s been nine years. Nobody has a practical use case for blockchains proper.

I won’t say it’s philosophically impossible … but at this point, the burden of proof is pretty firmly with the advocates.

Sensible technological comparisons

A sensible comparison would be a technology — software that does one weird and interesting trick, using parts that already existed. My favourite comparisons for Bitcoin and blockchains are BitTorrent, Tor, Git and Freenet.

BitTorrent is very popular peer-to-peer file sharing software. You can put a file up, publicise its hash (“magnet link”) and anyone can download it — even if you go offline, as long as there’s still one complete copy available. Around 2008 and 2009, BitTorrent sharing was about a third of all Internet traffic.

Tor is a network for obscuring your web browsing. Its development was primarily funded by the US government — for their own agents to use, and for people in other countries to get around Internet censorship. Bitcoiners know of Tor as the protocol that darknet markets run over — so you can browse to a hidden black market and buy illicit goods with cryptocurrency. Tor works well and is popular for its use cases.

Git is what computer programmers store their code in. (You may have heard of Github, who supply Git hosting.) It stores the entire history of your program’s development.

Think of it as chains of changes, with cryptographic hashes of each change and of the whole tree of changes — such that the whole thing is tamper-evident, and any disk errors or malicious changes are immediately obvious.

A tamper-evident append-only ledger — that certainly sounds useful, doesn’t it? Developers also routinely sling around entire repositories of the full history.

Git gives you pretty much everything offered by the business case for blockchains. The one thing it doesn’t do is add a ridiculously wasteful proof-of-work mechanism for who’s allowed to add transactions to the blockchain repository. Multiple examples of actually useful software branded “blockchain” turn out to be simplified versions of Git.

Git was released in 2005, four years before Bitcoin — none of the good ideas in blockchains are new, and none of the new ideas have turned out to be much good.

Freenet was an early file-sharing protocol aiming at censorship resistance. Its threat model was the possible use of the Internet as a tool of surveillance and social control — per the original 1999 paper, “the Internet could lead to our lives being monitored, and our thinking manipulated and corrupted to a degree that would go beyond the wildest imaginings of Orwell.”

Convenience versus ideology

Freenet is a vastly more sensible idea than Bitcoin — it’s a simple concept, it had a real-life threat model, etc. And it still failed to gain users, because it sucked to use — it was very slow and, as a Java program in the late 1990s, very resource-intensive. The network itself rapidly filled with illegal content and puerile trash.

It turned out that not many people were into Freenet’s pitch — people want file sharing networks to share files, as easily as possible. Freenet is more technically feasible in 2018, but still has negligible traction.

Even a hugely successful idea like BitTorrent turned out to be sort of annoying and inconvenient in practice. Netflix and Spotify won over BitTorrent because they were more convenient than piracy. Convenience wins, every time.

The Internet itself wasn’t terribly convenient either at first. Dialup, expensive Internet accounts, user-hostile software — and it’s 2018 and you still have to fix your mum’s Internet at Christmas.

But what the Internet had was compelling real-life use cases. People took to email the moment it was invented. (People bought drugs over email a couple of years after it was invented.) The moment Mosaic added pictures to the World Wide Web, people got the idea and wanted that immediately.

 

 

But try telling crypto fans this:

Ordinary person: “Your weird Internet money sucks to use. It’s slow and expensive. I lost my coins by mistake and it can’t be fixed. If I get hacked it can’t be fixed either.”
Bitcoin advocate: “But everyone wants [list of ideological aims held only by weird people]! Everyone I know, anyway.”

So let’s apply the idea of convenience to payment systems. We could do a centralised payments infrastructure, that sells itself on convenience!

We could have consumer protection. And chargebacks — consumers like having chargebacks be possible. It greatly increases their confidence in a payment system.

It could be way cheaper per transaction too.

You know, I think this idea could go somewhere.


Update: from Vint Cerf, who’s no doubt just jealous he didn’t invent anything as cool as Bitcoin:

 



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17 thoughts on “Debunking “But Bitcoin is like the early Internet!””

  • I tried to give this a detailed rebuttal when it popped up for the umpteenth time in r/buttcoin. Most people making the comparison between The Internet and bitcoin don’t understand that the Internet began much earlier (1969), grew steadily and had a major rework (conversion from NCP to TCP/IP) before even arriving at the time they consider the start of the internet (1993 and WWW).

    https://www.reddit.com/r/Buttcoin/comments/2w4s7s/id_like_to_congratulate_rbitcoin_their_traffic/conr282/

    • yep. As you said: “Exactly. The internet was infrastructure. Comparing bitcoin, or any internet application, with the internet itself is like comparing how long it took to build a national freeway system with how quickly hybrid cars were adopted.” That’s why I thought a technology would be a more apt comparison.

    • Also, email was invented in the early 1970s and wasn’t actually practical for ad-hoc inter-personal or business communication until the end of the 20th century.

      • Email started out in 1960s, was used then already for ad-hoc inter-personal communication, and by late 1980s was essentially established technology for those who did have access to some network.

  • The most salient aspect of this debate which goes largely ignored is how heavily politicized Bitcoin and cryptocurrencies are. On one level it is clear that there is a left/right schism between proponents and critics of Bitcoin. Given that, is hard to see universal adoption when the political philosophy of the system has already alienated half of the political spectrum. There was never such an equivalent political schism holding back adoption of the internet or email.

    However for the prospects of universal Bitcoin adoption its actually far worse than that. Most extreme political wings of either the left or right do not believe in absolute decentralization or de-regulation and nor do all moderate parties within the political spectrum. In fact there is only one political group whose ideology naturally fits with Bitcoin and that is anarcho-capitalists or AnCaps.

    To believe that Bitcoin will become THE global currency is to believe that a whole world of largely reasonable, liberal people are all going to politically convert to a completely lawless and de-regulated, dog eat dog, extremist anarcho-capitalism. The chances of this happening are zero as political beliefs are largely tribal and deeply embedded and whilst most people subscribe to broad liberalism, they do not subscribe to a ‘libertarian’ and Darwinian survival of the fittest and a political and economic future ruled by the 4% of bitcoin whales/gangsters who would hold 96% of the global money supply. If you thought the loan sharks of regulated capitalism were bad, then that would be nothing to the completely unregulated loan sharks of the Bitcoin world should we find ourselves in the nightmare of having actually adopted it.

    In the face of this insurmountable problematic, the Bitcoin community lapses into the fantasy of a projected post financial apocalypse. However, it is very much a Goldilocks financial Armageddon. In order to work it requires the absolute global failure of the entire financial system which supports the entire edifice of the IT infrastructure, manufacturing, business, trade, employment, education, healthcare, central and local government, marketing, advertising systems etc – but at the same time it assumes that all those inter-related systems and workers who actually pay for and maintain the global IT infrastructure will dutifully turn up for work without any pay or reward in order to keep the internet and telecommunications infrastructure running. This is what would be required to make Bitcoin available as a solution following a financial apocalypse. A high tech solution requires a functional high tech infrastructure and that is not possible without the support of the deeply embedded financial infrastructure in turn.

    In addition to all the insurmountable technological problems that Bitcoin faces as the most inefficient and poorly designed IT application in history, then it will never free itself of its own broadly unacceptable politics.

      • The point that needs stressing is that people in general were not making a political choice or statement when universally adopting the internet or email – whereas supporting Bitcoin is making a very clear ideological and political statement about who you are and what very little morals or ethics you subscribe to in the name of a totally unbridled ‘libertarianism’.

        • that’s the problem with liberals, they don’t understand libertarian ideology and claim it has no ethics and morals which ironically is the contrary. Liberals are the one who in the name of their ideology will rob everyone who’s breathing of the fruits of their labor. That’s ethical in their weird logic and morality.

  • Ha, I think I remember September 1993. 🙂

    Actually, I think a professor in Gijón, Spain, single-handedly blew away soc.culture.spain for several weeks just by bringing all his students to the lab and saying: This is Usenet, it’s fun! Look, this is a Spanish-speaking group!

    But apart from that, I actually still find Bittorrent very convenient. Maybe because I still refuse to run any kind of DRM (which is easier if you’re not a gamer, I’m told).

  • Bitcoin / cryptocurrency / blockchain is not only unlike the early Internet, it is also unlike technology trends on the Internet. For the time since 2004, Google Trends is a great tool to compare how different topics rise and decline in attention and interest. As I outline here: https://erichsieht.wordpress.com/2018/03/29/peak-blockchain/, the Bitcoin / cryptocurrency / blockchain range of topics exhibits a rather unusual pattern. Genuine trends such as cloud computing rise slowly but steadily over the course of several years. The Bitcoin / cryptocurrency / blockchain range of topics, however, exhibits a rather sudden peak pretty similar to the peak of Second Life a decade ago. Perhaps it is no accident that IBM is trying to build a blockchain business now just like they attempted to build a Second Life business then.

  • interested to read Satoshi’s release notes. He describes what he THINKS banks do and what he THINKS money is and concludes that there has to be a better way of doing what he thinks happens.

    Problem is, he and other crypto enthusiasts didn’t understand what money is and what role banks play, so when they set out to design a ‘better’ system, they started from the wrong assumptions.

    Money works because it is a debt/credit relationship between the issuer and the holder. Holders of money (the creditor) view money as a token by which they can receive real goods and services at some point in the future. Fortunately the issuer of money (the debtor) has an obligation to provide real goods and services at some point in the future in order to extinguish his debt and destroy the money he issued.

    Cryptocurrencies are also viewed as a token which entitles the holder to real goods and services. Unfortunately, Satoshi forgot to design in a debtor who is obligated to provide those real goods and services. Bit of an omission, to say the least! Money works when it is an IOU, with both a holder and an issuer. An IOU with no issuer who is going to deliver on his promise is, by definition, simply a worthless token.

    Sure, there is trust involved in a money system. Every holder of money has to trust that the issuers of that money are going to keep their promises. If too many issuers of money start to break their promises, then money will start to lose its value. Starting from a point where there are no issuers making promises that they might break might look like an ingenious solution to this trust issue, but its simply guarantees the tokens are worthless from day one.

  • It is wrong to compare Bitcoin (or any cryptocurrency) to the internet. The debate should be about whether there is any value in the evolving internet technology which is referred to as blockchain. This is a potential evolution to the internet rather than something different.
    Bitcoin/PoW cryptocurrencies are merely poorly designed applications that trying to implement extremist anarcho-capitalism using the new technology extensions of the internet (i.e. blockchain).
    The TCP/IP technology underpinning the internet, while great for the early mass adopted internet (90s to 2010), is no longer adequate for what people are trying to use the internet for today. Its poor underlying security makes it easy for people to eavesdrop and alter communications and to impersonation and the create multiple identities (think of a physical postal system without signatures or sealed envelops – very useful but with limitations).
    There are centralised ways to get around these limitation but their limitations have consequences as witnessed by the massive concentrations of monopolistic power of Google, Facebook, Twitter & Amazon (value of top 5 S&P orgs = total value other 495 (http://www.marketoracle.co.uk/Article61996.html)
    As it evolves, blockchain might offer semi decentralised solution to the challenge posed by concentrations of power for systems whose success depends on network effect. Delegated proof of stake, which is like representative democracy (rather that the pay to vote direct democracy represented by PoW), is one promising direction.
    But all decentralised/crypto systems suffer from what I term the Simplicity/Security Paradox: “If its simple enough for the majority to use it can’t be secure enough to prevent hacking and vice versa”. This is a very hard nut to crack.

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