While constantly proselytizing folks about the “true meaning” of the bitcoin whitepaper is a waste of time, there comes a point where an interpretation emerges so wildly misinformed and grossly inaccurate it deserves an address. Enter Held’s recent Twitter storm.
As Director of Business Development for popular crypto exchange Kraken, when Dan Held speaks, people listen. As such, his recent 46-tweet diatribe on why the “payments narrative” for bitcoin is flawed grabbed the attention of many, tickling the ears of hardcore Lighting Network fans and bitcoin core maximalists alike.
His argument is prima facie absurd, not to mention misleading.
Held Says Bitcoin Wasn’t Meant Primarily for Payments
For the purposes of this breakdown, Dan Held‘s broad assertions that bitcoin was not created to be a competitive payments system, or peer-to-peer cash, will be addressed according to his major claims.
Claim 1: Bitcoin Was Built to Be a Store of Value
Held writes: “Bitcoin was purpose-built to first be a Store of Value (SoV).” Yet the very first line of Satoshi’s bitcoin whitepaper reads:
Bitcoin: A Peer-to-Peer Electronic Cash System
“Bitcoin: A Store of Value System”, isn’t there. Held misconstrues Satoshi Nakamoto’s well-known comparisons of bitcoin to gold, and takes them to mean the SoV narrative is most important, payments be damned. But it’s critical to note that any relatively sound, widely utilized means of payment will eventually become a store of value. Satoshi understood this well, as his own words will later demonstrate.
Gold is more sound than government fiat money, it’s just harder to transact with in modern times. Satoshi’s “purely peer-to-peer version of electronic cash”, that “would allow online payments” (again straight from the bitcoin whitepaper) was created to solve this problem, effectively creating spendable, digital gold.
Held’s next several tweets attempt to prove, however, that Nakamoto didn’t view BTC as cash. He quotes Nakamoto from some of his well-known forum posts:
In the above quote Satoshi does compare bitcoin to gold in terms of scarcity, but emphasizes: “And one special, magical property: can be transported over a communications channel.” So the whole magic of bitcoin is exchange. Nakamoto goes on to note in the same post that use as cash for payments could be what gives bitcoin its value in the first place:
Maybe it could get an initial value circularly as you’ve suggested, by people foreseeing its potential usefulness for exchange.
Claim 2: Bitcoin Was Not Designed to Replace Payment Systems Like Visa
In some of the very forum posts Held references, Nakamoto writes:
The root problem with conventional currency is all the trust that’s required to make it work … 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.
Satoshi is clearly presenting bitcoin here as an alternative to conventional currency, and not as some weird store of value built without a use case. He even goes so far as to mention micropayments. One would be hard pressed to find the last time gold was suggested for such a thing.
Tweet 10 of Held’s exposition finds the exec making leaps in logic which would impress even the most limber of mental gymnasts. He quotes Nakamoto pointing to scarcity as a value proposition, and then runs wild. The logic is as follows: Bitcoin has scarcity – Visa does not – thus bitcoin was not meant to be a payment system like Visa.
But why does scarcity rule out something being an effective payments system, especially when bitcoin is digital and divisible? Most of Satoshi’s antipathy toward the banking system which Held himself acknowledges repeatedly is targeted at this very same lack of scarcity and security, engendering corruption.
Held concludes this section:
With the 2008 financial crisis, trust had been lost in a world that ran on trust. Bitcoin was launched in a time of absolute necessity, Satoshi planted the seed at precisely the right moment. The world didn’t need a new VISA, they needed an alternative to banks.
Claim 3: Bitcoin Is a Bearer Asset, Cash Just Means “Money Box”
Now Held just begins inserting his own definitions into the whitepaper. Cash is no longer cash, in the common sense, but we’ve taken an etymological dive into the French roots of the word and been shown it simply means “money box” which is, duh, a store of value. Checkmate, payments enthusiasts.
The problem here is further exacerbated by a strange comparison of bitcoin to a bearer asset. As legal operations specialist Rob Henham pointed out back in 2016:
Holding bitcoins does not give that bitcoin holder any rights against the issuer of bitcoins (the bitcoin protocol) or to any other underlying asset. Although bitcoin is extraordinary in many ways, it is just a plain asset whose value is determined intrinsically, rather than by reference to another underlying asset.
Held then steps back, takes a deep breath, and prepares for his final show of flips, somersaults, balance-beam cartwheels and swirling, colorful ribbons by claiming that bitcoin isn’t peer-to-peer, and should have been made inflationary.
Claim 4: Bitcoin Isn’t Peer-to-Peer, Should Have Been Inflationary If Meant for Payments
In tweets 22-25 Held quotes creator of litecoin Charlie Lee as saying: “Bitcoin isn’t ‘peer-to-peer.’ Payments are sent from sender to miners, who record it on a distributed ledger … Lightning network payments, on the other hand, are p2p payments. They are sometimes direct p2p, sometimes indirect p2p. LN payments have to be sent from p2p to get from the sender to the recipient. Both have to be online, just like other p2p networks like BitTorrent.”
Held fails to note that miners are not payment processors in any sort of traditional sense. They merely record things into the network. @zbingledack retorts:
This is confused. Reality: Bitcoins are sent from user to user. Miners merely record the transaction. The moment a merchant hands you a transaction template and you sign it and send it back to the merchant, the transaction is legally complete. Miners merely record it.
In tweet 31, Held makes the stunning claim that “If Satoshi wanted Bitcoin to first be used as a medium of exchange to purchase goods and services, he would have made it inflationary. People don’t spend deflationary currencies when they can make the same purchase in infl. curr.” In other words, “just use a credit card, bro.”
Claim 5: Store of Value Precedes Medium of Exchange. Satoshi Knew This but Used the Payments Narrative Anyway
Held’s idea of where bitcoin is now on its path to becoming a means of exchange and unit of account. https://twitter.com/danheld/status/1224727829528473600