Questioning Maximalism

The Case Against Bitcoin Maximalism

I am not a Bitcoin maximalist. I want to be clear that this is not an endorsement of all crypto-currencies. Some have ponzi-like characteristics, some look like get-rich-quick schemes for their founders and/or VC investors, and a small few are easily recognizable outright scams.

Let’s define some terms, so we are talking about the same thing.

What is Bitcoin Maximalism?

The zealous belief that Bitcoin is the only crypto-currency that is worth investment of time, talent, and treasure.

What is a Toxic Bitcoin Maximalist?

A Bitcoin maximalist is one that attacks other projects verbally, and commonly uses the term “shitcoin” about anything that isn’t Bitcoin, and often espouses that everything else is a scam.

A Bitcoin maximalist (toxic or not) will generally believe that only the best money will win, and believes that Bitcoin is that money, and therefore Bitcoin is the only project worth caring about.

What the Bitcoin maximalist fails to appreciate is that two things happened at once when Bitcoin started, or more precisely, when Bitcoin gained a measurable liquid value. First, as we know, it created a very transferrable and scarce valuable commodity. But, second, it created the ability to shift between these digital commodities with very little friction. It is this second feature of crypto-currency that negates the “only one will win” argument.

Even in the world of sovereign currencies, there are strengths and weaknesses of independent currencies. The Swiss franc, for example, has some superior properties to the US Dollar despite not being as widely accepted. The Swiss franc had negative interest rates up until a few months ago, in order to discourage savings in the franc to prevent it from appreciating too much.

In the near frictionless environment where one crypto-currency can be exchanged for an equal value of another crypto-currency, the value proposition of all crypto-currencies goes up. With money, there is an idea that the most accepted money is the best, and according to Gresham’s law — “bad money drives out good”. But, what if “good” money depends on the use case, and transferring to other money is trivially easy? In the case of crypto-currencies, other crypto-currencies have features and capabilities not provided by Bitcoin. The ability to take advantage of these features after a near-frictionless value swap gives other projects a reason to exist and to thrive.

Here are just some of the reasons that other crypto-currencies should exist:

• Privacy — Bitcoin has notoriously bad privacy. Even without expensive coin analysis subscriptions, I can find out the wallet balance of anyone paying me in Bitcoin, and I can even go a couple levels back to learn a bit more, and untangle simple obfuscation attempts. Other projects have solved this in a variety of different ways. Privacy is important in financial instruments.
• Lower Fees — Bitcoin has relatively high fees. It has had very high fees at times. This has caused problems with using Bitcoin how it was originally intended. I’ve been directly involved, as a developer, in multiple projects that stopped using Bitcoin because of high fees. (Yes, I’ve heard of Lightning).
• Friendliness — The toxic culture that exists now but didn’t exist at all when I first discovered Bitcoin is a barrier to new users. RTFM is not the appropriate response for someone starting their journey of discovery. Some projects are much friendlier than others. RVN and DOGE are among the friendlier communities that embrace and support newcomers.
• Tokenomics — It is the pinnacle of hubris to assume that Bitcoin has perfect tokenomics. While I like Bitcoin’s tokenomics, it remains to be seen how it fares as the reward decreases. Where is the balance between block reward and fee reward? I’ve watched other coins that have dramatically accelerated their halving to help inform my opinion. At a minimum, the value of these other crypto-currencies have acted as an accelerated laboratory to learn more about what’s in store for Bitcoin.
• Speed — Decentralization is inefficient, but it is on a continuum. Some projects need just a bit of decentralization with a dozen hyper-fast nodes running in geographically disbursed data centers. These projects can’t run on Bitcoin as it is just too slow. While Bitcoin may be the most decentralized project, it is arguably the least efficient, and probably the slowest. It is necessary to have other projects pushing the boundaries of speed while reducing decentralization. At some point, this boundary bumps up against traditional centralized databases and loses the value proposition of a blockchain, but the limits of the two extremes need to be discovered.
• Stablecoins (tokenized financial collateral) — These are tokens that represent currency or value stored in the traditional financial system. Most are denominated in US Dollars. These are important to the ecosystem as it allows traders to lock the value of other volatile assets like Bitcoin into a stablecoin before the ravages of a crypto bear market.
• Stablecoins (algorithmic) — These are tokens that hold a stable value, usually against the US dollar, using an algorithm and securing the value using commodity crypto-currencies like ETH, or BTC. These have an important and unique role to play as the collateral cannot be seized like the bank-account-backed tokenized stablecoins. They have the advantages of stablecoins that are backed by traditional financial instruments, but with the added advantages of the collateral being decentralized.
• Tokenization — Some projects are custom built for tokenization of value. It is naive to think that the counterfeit-proof general ledger technology behind Bitcoin will not be used to tokenize art, tickets, real estate, stocks, bonds, loans, diamonds, wine. It is already happening, and entire ecosystems are being built around it with Ravencoin, Digishares, tZero, Security Token Markets.
• Smart Contracts — These general purpose virtual machine blockchain projects like Ethereum, EOS, Solana, Phantom, and many others, allow distributed programs to transfer, hold, and work with value. From that, has sprung financial legos that can be stacked and configured to create new and novel financial products that don’t require human trust or decision making. Yes, there has been lots of hacks, but that is because it is the early days with a significant amount of experimentation by newly-minted and inexperience smart contract developers that are learning in public. These will get better.
• Mining — Experimental mining like proof-of-stake, delegated-proof-of-stake, and alternative proof-of-work hashing algorithms are important to explore. They may not have the same security guarantees as Bitcoin, but they bring other advantages. This experimentation with less energy resource intensive options is important to explore. Proof-of-work is the best option for newly issued commodity crypto-currencies. Is proof-of-stake a viable security model, or does it allow for external tampering?
• Quantum Computing Resistance — Experiments in quantum resistant algorithms for digital signatures is valuable to the entire crypto-currency ecosystem. Having crypto-currencies today that are quantum resistant may allow Bitcoin holders to preserve their value by frictionlessly hopping onto a quantum resistant blockchain project until Bitcoin can be upgraded.
• NFTs — Non Fungible Tokens — These are unique tokens of quantity ONE. Their value is determined by individuals in a free and open marketplace. In the best case, they also represent more than an image, and include a membership into a group with special privileges. The privileges might include early access, recurring benefits, backstage rights, premier events, VIP treatment, etc.
• Experimentation — There are other ideas in the FinTech space that can be built using this technology. Some have been tried and have already failed. Some have been tried, and have informed the new projects. Some are yet to be built. All of the failures and successes will inform the next round of development.

It is possible to shoehorn many of these alternative solutions into (or onto) Bitcoin. The danger is that Bitcoin becomes unwieldy, clunky, and even more expensive. We aren’t certain, yet, which utility from each blockchain experiment will be useful. We had some permissioned-chain ideas like Corda that didn’t gain traction. We’ve had an experiments where the token qty decreased when not spent to mimic a Keynesian model to incentivize spending, and that didn’t work. We’ve had projects with no ultimate cap on issuance, and we’re still waiting for the results of that experiment. But many ideas have worked. The idea of tokenization of property or equity has been popular. Decentralized lending and borrowing have shown to be useful, albeit risky in the early days of smart contract code bugs.

I have a difficult time understanding how someone can simultaneously tout the genuine benefits of Bitcoin decentralization, while also advocating for a single crypto-currency, which by definition is centralized to a single consensus protocol, which restricts choice and optionality. It seems logically inconsistent.

If the Bitcoin maximalist truly believed their own rhetoric, there would be no reason to be toxic. If there will only be one money winner due to Gresham’s Law, and that the winner will be Bitcoin, then it should happen naturally and shouldn’t require frequent intervention with toxic and often belittling terminology.

This is not a case against Bitcoin. Nor, is it a case against those that choose to hold exclusively Bitcoin for their own reasons — preferably after doing some research into some amazing alternatives. This is the case against an ideology. An ideology rooted in ignorance of the benefits that the entire crypto ecosystem brings to Bitcoin.