After posting recently that the Bitcoin Cash price was up 10x from its all-time low in dollar terms (it has since set an ATH 14.7x its all-time low), a respondent was puzzled as to why I did not know by now that Bitcoin Cash is a scam.
I replied with the question, “What is the scam?” I read the response and took the time to parse it into its several distinct claims. I addressed each, quoting from my existing publications as appropriate. Such claims are often rhetorically dense, combining multiple overlapping assertions in just a few short lines. This makes it useful to unpack all of the content and distinct issues before starting. Since these are all commonly seen, I thought this might be of wider interest.
Here are the claims as I parsed them:
- Bitcoin Cash is a scam (and why don’t I see that?)
- The reply claimed that it was a scam because (presumably, for example):
- Bitcoin.com sold Bitcoin Cash (presumably, it should only have sold Bitcoin because that is its domain name and doing otherwise might confuse users)
- Bitcoin Cash is an altcoin (which is both bad and makes it clearly not Bitcoin).
- Bitcoin Cash favors its payment system function over its store of value function.
- Bitcoin Cash cannot compete with centralized payment systems.
- The world needs sound money more than another payment system.
Here are my responses.
1&2) The word scam is 1960s slang for fraud. Fraud is defined as: “a) wrongful or criminal deception intended to result in financial or personal gain, b) a person or thing intended to deceive others, typically by unjustifiably claiming or being credited with accomplishments or qualities.”
None of the instances provided show such a thing. Bitcoin Cash modified the rules of the BTC chain as of 1 August 2017 by raising its block size limit and not recognizing the then-recent SegWit change. This resulted in a planned chain split. This was all clearly stated by those doing it. What was actually done was to carry out precisely the declared purpose and content of the project.
3) The Bitcoin Cash blockchain and the various developers of its peer-to-peer software implementations must be distinguished from the various companies, exchanges, and wallet services that support Bitcoin Cash. A lot of people have spent a great many years correcting this same error with regard to BTC itself. The claim that "bcash [sic] is a scam" is structurally identical to the claims of Bitcoin skeptics over the years that "bitcoin is a scam," and shares many of the same errors of conflation and quality of thought-process as the original, familiar claim.
If a wallet did present its Bitcoin Cash related services in a way that actually confused users as to which chain they were buying or using, that would be a problem. The wallet services that I have looked at have each gone out of their way to warn and remind customers that BTC and BCH are separate chains and not to confuse them, because this could result in losses for their customers. If a particular company sold one coin claiming that it was another coin, that would indeed be fraud on the part of that company, subject to criminal prosecution for fraud under existing positive law. Even if any such actual fraud did happen in some specified case, however, such events would be irrelevant to whether the BCH peer-to-peer system itself "is" a scam, which is the claim under consideration.
The various developers of BCH-supporting peer-to-peer software created a clean split from the BTC chain with replay protection and a distinct name, code, and logo. I have seen no divergence that could be described as "fraudulent" between claims about BCH and what it actually is. Overly enthusiastic, perhaps. However, this degree of congruence between description and reality appears higher for proponents than for critics. For an actual fraud, this should be the reverse.
Regarding the “altcoin” charge (4), I set out the following initial viewpoint on August 5, days after the chain split:
The minimum requirement for a process to be called evolutionary is descent with modification. Thus far, Bitcoin has gradually evolved as a single chain with modifications to its software. This split, in contrast, is Bitcoin’s first speciation event. Both BTC and BCH build on and carry forward the Bitcoin chain in a valid unbroken lineage of blocks tracing back to the genesis block.
The best chain in Bitcoin is defined as a chain of valid blocks with the greatest accumulated proof-of-work difficulty. In this model, the validity test comes first, followed by the total difficulty assessment. The software variants behind each chain have recently implemented certain substantial rule changes that are not now recognized as valid on the other chain. The BTC chain, for example, does not recognize the BCH chain’s modified block size limit, and the BCH chain omits SegWit, which recently activated on the BTC chain. Bitcoin block history diverged after block #478558, which is the last “common ancestor” that the two chains share.
The term “altcoins” has been used to denote cryptocurrencies that are not Bitcoin. Both of these chains, however, are valid Bitcoin chains as defined above. From this standpoint, the commonly expressed opinion that BCH is a new altcoin may be viewed as a use of language for rhetorical and emotional, rather than cognitive and elucidative, functions. Sharing almost all specifications and over eight years of transaction history, each is far more Bitcoin than either is altcoin…
Proponents of each chain will naturally want to claim the banner of “true” succession, much as most religious sub-sects story themselves alone as the one truest representative of the ancient founder’s original teachings (rarely acknowledging the odd coincidence that all of the other sub-sects likewise tell just such a story about themselves).
5) Generally, I find this a false dichotomy. “Store of value” is a confused quasi-economic populist idea. And there are actually three separate issues: medium of exchange, payment system, and “store of value.” As for the first and the last, I wrote on October 11:
A medium of exchange use always takes place across time and involves addressing the inherent risk and uncertainty of the future. The variables under discussion are therefore the relative amounts held, the duration of holding, and the increments of future spending of the medium of exchange. In contrast, the idea of an alleged “store of value” use often employed in this debate as if it were a contrast to a medium of exchange use is imprecise and impressionistic. Just as money does not “measure” value, as Mises emphasized, but is rather exchanged for goods at some indefinite future time, “value” cannot be “stored,” as if it were a certain amount of food. This “store of value” idea is more a weak intuitive analogy than a rigorous economic concept. Underneath this illusion, there are only intertemporal exchanges that take place over different time scales and in different amounts.
As for payment systems, 6) if Bitcoin Cash “cannot compete against centralized payment systems,” then it will fail. Yet a failed endeavor is not automatically to be considered a fraudulent one. Most entrepreneurial projects fail. Their proponents were shown to be mistaken in their beliefs about future market trends. I have also argued that such competition must include reference to what I believe is another very significant value, which I described on October 11:
Bitcoin enables people to transact without third-party intermediation. Let us call it “permissionless transacting.” Every other kind of remote transacting requires some third-party facilitation, often by a bank. But the position of facilitator comes with the ability to refuse to facilitate, whether through corporate policy or because authorities order it. It also comes with the ability to track and create a permanent record of spending, including dates, parties, places, and amounts, destroying privacy.
With Bitcoin, states can certainly take steps to outlaw certain types of transactions, but unlike with banking systems, authorities cannot block transactions to begin with. They can only seek to prosecute criminalized acts after they are committed. In societies that purport to respect due process and the rule of law, this happens to be all that such authorities are supposed to be doing anyway.
7) The world needs sound money. Absolutely it does. This is Bitcoin's greatest potential contribution. However, since money is the most commonly used medium of exchange and a unit of account (economic calculation), it could not possibly become "money," sound or otherwise, without effective, available methods of transferring it. Payment systems that provide “permissionless transacting,” as just described, are also potentially quite valuable. Systems that combine both at the same time to varying degrees would be extremely valuable.
BTC and BCH chains and respective teams have diverged across several issues that relate to how best to actually accomplish such valuable objectives, with what steps, taken in which order of priority and on what time scales.
As I argued on August 5, it is probably to the net benefit of pre-fork BTC holders to allow these differing visions to progress along their respective paths and then see where each leads in a practical evolutionary process:
In contrast to action, speculation and modeling are far more subject to partiality, bias, and social and financial pressures in the selection, construction, and interpretation of models. Action can supplement or partly displace hot air. What will happen with SegWit? Watch and learn. What will happen on a live network with a higher protocol block size limit? Watch and learn. This opportunity for the addition of progressive sequences of reality checks on the respective chains might be positive in itself. The “test” this represents is highly imperfect, as discussed below, but is still probably better than unmitigated talk.