James Baxter-Derrington has produced an article that makes the claim that Bitcoin has no worth. We are led through a jostling set of very short paragraphs which make poorly substantiated claims and also lean particularly hard on creating false equivalences between Bitcoin and some nefarious people and short-lived technologies. The result however is just snarky clickbait. Not a single point stands up to scrutiny due to a flawed premise. If the reach of The Telegraph wasn’t significant, this would be an easy article to ignore. But its reach is wide and this risks becoming an entry in the zeitgeist. As such, James Baxter-Derrington’s article needs these baseless claims addressed.
Baxter-Derrington starts and ends his article with the thesis that Bitcoin has no value. Value is defined as “a measure of the benefit provided by a good or service to an economic agent (IPBES, 2024). As long as he’s only talking about himself then his case holds. However, for the 4.7% of the world and growing (Woo, 2024) who have used, owned, sent, received, or worked in Bitcoin it has substantial value. If this was the end of the discussion that would be fine, and all involved could agree to disagree and coexist in harmony. But Baxter-Derrington does not leave it there and instead goes on a pretty weird and often tangential rant to drive home his point and smear Bitcoin.
Baxter-Derrington tries to discriminate Bitcoin from gold by suggesting that gold has other use cases outside being a “diversifier in your portfolio”. At this he demonstrates his substantive lack of understanding of what Bitcoin actually is. Indeed, he refers exclusively throughout his article to bitcoin (note the lower case b) the asset. This is the native currency to Bitcoin that is denominated in satoshis (each a 100,000,000th of onebitcoin) and is being used by Microstrategy, Blackrock, Ark, Fidelity, investors,individuals, nation states, among others as an asset. It’s used for savings, hedging against inflation, or as the unit of account for the Bitcoin network. Baxter-Derrington suggests that gold has use in electronics as well as being a store of value and thus has more value to society. In the same way there’s a multifaceted nature to Bitcoin.
Firstly it’s a 24/7/365 banking system that allows anyone to send money to anyone else (White et al., 2020). It allows the unbanked to send money home when the only other providers are predatory remittance providers (Howard, 2022). It allows anyone to transact peer-to-peer without needing intermediary banking or financial service providers to have a prior agreement to route funds (Cartier et al., 2022).
Secondly, It’s programmable, extensible, secure and open source. All aspects that the legacy banking system lack. Those are also each and every one a valuable feature. They also allow others to create unique economic value that is not possible in other systems because central banks don’t allow you to programme their money – they like to make sure only they can do that. Bitcoin is valuable to those who use this network to exchange and transact because to do it elsewhere is costly, slow, exclusionary, or simply doesn’t work. There’s not room here to expand on these points in detail but the excellent books: Check Your Financial Privilege by Alex Gladstein, and Resistance Money by Andrew M. Bailey, Bradley Rettler, and Craig Warmke are well worth the read to understand why.
Thirdly, and this will be explained in more detail further down, it has an infrastructure system that has myriad valuable benefits in the form of being a large, flexible electric load that can be deployed strategically to fight climate change, reinvigorate grids, and reduce energy prices. Bitcoin isn’t a “pet rock” as Jeffrey Epstein’s banker Jamie Dimon would have you believe, because it’s not just one thing. It’s a rich and thriving ecosystem of physical and digital assets and protocols that combine to create a multiplier effect for value.
Baxter-Derrington demonstrates he misunderstands what value is when he invokes the examples of IBM, Kodak and Xerox as being, or having, something of value but also ‘burning’ that value over time. This is exactly the thing about value. When film cameras were replaced by digital ones, mainframes by PCs, and well, everything that Xerox owned was replaced by better, faster, cheaper competitors, those companies no longer had anything of value to offer the economic agents that constituted their customers of the day. The value of their products was never intrinsic. Their share prices only represented the market's expectations of how the companies were likely to perform and when they didn’t, their value was diminished. When Baxter-Derrington says “Just because you’ll probably make a swift 10-20pc return on Bitcoin over the next couple of months, doesn’t mean it has any value.” He’s exactly wrong. The very definition of the term value tells us that this is why bitcoin has value, and shares in Xerox don’t.
He then goes on to make another incorrect statement in which he tries to suggest that bitcoin doesn’t qualify as an asset. He says: “an asset is defined as “something valuable belonging to a person or organisation that can be used for the payment of debts.”” But let’s think about this. Try paying off your debts with NVidia stock. You can’t buy groceries with a bar of gold or with a house. An asset is actually a resource with economic value that an individual, a company, or a country owns or controls with the expectation that it will provide a future benefit (Kindness & Li, 2024). It doesn’t have to be instantly convertible. Baxter-Derrington either fails to understand or deliberately misapplies concepts to make what is ultimately a very flimsy point.
Baxter-Derrington then has a go at bitcoin’s use as a currency not being perfect, total and established after just 15 years of existence. According to the article it’s too volatile, there’s no infrastructure, nor incentives to create it. But again he’s wrong on all points. Bitcoin does have its own payments infrastructure that rivals Visa and Mastercard – it’s called the Lightning Network and it works exceptionally well (Divakaruni & Zimmerman, 2023). It dwarfs the 65,000 transactions per second (TPS) of credit cards with the capacity for more than 1 million and arguably up to 40 million TPS (Crawley, 2023). As for volatility, this is diminishing over time, and is a function of emerging markets (Wainwright, 2024). The current volatility index of bitcoin is the same as many other investments – including mega cap tech stocks Nvidia, Tesla, and Meta (Jacobs, 2024). Volatility is also the feature that provides such high value returns to its holders. If someone saved their money in bitcoin and used Lightning to pay for the dinner proposed in the article they would generally find they could easily afford dessert and avoid some pesky credit card surcharges when settling up the bill as well.
Next Baxter-Derrington goes after the cost of Bitcoin’s security mechanism by invoking the findings of a paper by Eric Budish (2024). In this paper Budish examines a range of potential attacks on Bitcoin and the theoretical cost to protect against them. This paper is a very academic exercise and I’m willing to bet that Budish would agree that its real world application is limited. There are some interesting thought experiments in the paper and of course if the scaling costs of Bitcoin as it grows are linear, only used today’s technology, and we accept that the world is a sandbox with exactly the dimensions of the stated three equations, then yes it would be expensive to convert every currency in the world to bitcoin all at once due to the cost of scaling the security model. But the academic sandbox is not the real world. And this is one of the issues with reportage in the 21st century when it comes to the reproduction of academic work. It tends to be taken at face value and the most astounding theoretical outcomes reproduced without due consideration for the limitations of this kind of research. The result is unnecessary scepticism and hostility to a technology that has immense potential to change the world for the better. Furthermore, I’m not sure Baxter-Derrington has actually grasped what Budish is discussing in his paper. It’s an examination of the cost of scaling Bitcoin’s trust model, not of its implementation as global currency.
Furthermore the security mechanism of Proof of Work or “mining” isn’t a closed system that delivers only one outcome - secure blocks of the longest Bitcoin chain. It’s a tool that has been applied as energy infrastructure and climate technology in increasingly novel and useful ways around the world. Strategically deploying Bitcoin mining subsidises the deployment of renewables (Bastian-Pinto et al., 2021), monetises stranded energy (Rudd & Porter, 2024), mitigates methane and landfill gas (Rudd et al., 2024), reduces reliance on fossil fuel powered generators (Bruno et al., 2023), balances electricity grids (Mellerud, 2021), subsidises the electrification of grids (Khalil, 2023), reduces power prices for end users (Kohler, 2024), and more. All valuable services and externalities generated by Bitcoin.
Then we’re off again on another attack vector - that Bitcoin’s monthly turnover isn’t very big. A mere $22 billion a month and “about the size of a black hole” which is in itself phrased in an odd way. The problem is this figure is incorrect. Not by a little bit either - he gets the volume wrong by about one thousand times. The actual dollar value of Bitcoin exchanged for the last 30 days at the time of writing is 2.6 Trillion USD (CoinMarketCap, 2024). All of a sudden it’s not quite so paltry. I think it’s important to note here that the total amount that gets sold to, or traded by people isn't even the most important metric for Bitcoin’s value as a network and currency. Bitcoin is a financial network for sending and receiving money. For the most recent full month of figures available at the time of writing (August 2024) there were 3.899 million bitcoin sent across the Bitcoin network (Woocharts, 2024). At today’s price per bitcoin ($91,269 USD) that’s $355.8 billion dollars a month. Trying to diminish Bitcoin by wrongly suggesting it’s a rounding error in global economic activity will never stand up because it’s a public ledger and these figures are easy to find and validate. It’s also worth pointing out that just because something isn’t just as large as the US equites market – which is itself nearly 350 years old (Beattie, 2024) – doesn’t mean it isn’t valuable.
Finally, by way of a sort of summary we go through a list of… stuff… that has I guess changed over time? Insider trading wasn’t always a crime, people didn’t used to pay tax, Pets.com went out of business, and no one has a fax machine anymore. It’s an odd list of entirely false equivalences that that have absolutely no relevance to Bitcoin or frankly to the point of something having value or not. I assume this collection of moderately interesting if pretty hackneyed examples are used in order to try and create some kind of guilt by association of having been mentioned in the same article as Bitcoin. Enron, snake oil, Bernie Madoff. This is a very flimsy tactic and because there’s no actual association with Bitcoin with any of the invocations it just doesn’t make any sense. It’s not snake oil because it works. It’s not a Ponzi scheme because there’s no one at the top, doesn’t have issues with paperwork, doesn’t provide overly consistent returns, there’s no difficulty selling (Alden, 2021). It’s not fraud because it’s auditable by anyone at any time. These false equivalences are just attempts to create an association between Bitcoin and these bad actors in readers minds. It’s insulting to readers because it’s just so far-fetched to say that because fax machines were only used for about 20 years Bitcoin might somehow be flawed. The whole article reads badly because it's pretty much entirely made up of half-baked points forwarded with no evidence.
Finally and most curiously of all Baxter-Derrington walks back everything he says in the article at the end:
“I do not doubt that you can make some money on Bitcoin this year. You can probably make a pretty penny for five, maybe 10 years still. I wouldn’t even be surprised if there was money to be made longer than that.”
Again, if you can make money on it, and for a long time, that sounds pretty valuable.
References:
Budish, E. (2024). Trust at Scale: The EconomicLimits of Cryptocurrencies and Blockchains*†. The Quarterly Journal of Economics, qjae033.https://doi.org/10.1093/qje/qjae033
Cartier, C., Kahan, E., & Zukin, I. (2022). Breaking the Bank.https://c4ads.org/reports/breaking-the-bank/
CoinMarketCap. (2024, November 16). Monthly Volume Rankings (Currency).CoinMarketCap. https://coinmarketcap.com/currencies/volume/monthly/
Crawley, J. (2023, October 18). Lightning Labs Rolls Out “Taproot Assets,”to Make Bitcoin “Multi-Asset” Network.https://www.coindesk.com/tech/2023/10/18/lightning-labs-rolls-out-taproot-assets-to-make-bitcoin-multi-asset-network/
Divakaruni, A., & Zimmerman, P. (2023). TheLightning Network: Turning Bitcoin into money. Finance Research Letters, 52,103480. https://doi.org/10.1016/j.frl.2022.103480
Howard, S. A. (2022). Remittances and GlobalDevelopment. Georgetown Immigration LawJournal, 37, 321.
IPBES. (2024). Economic value | IPBES secretariat. IPBES Secretariat.https://www.ipbes.net/glossary-tag/economic-value
Kindness, D., & Li, T. (2024, June 27). What Is an Asset? Definition, Types, andExamples. Investopedia. https://www.investopedia.com/terms/a/asset.asp
Lunz Trujillo, K., & Motta, M. (2021). HowInternet Access Drives Global Vaccine Skepticism. International Journal of Public Opinion Research, 33(3), 551–570.https://doi.org/10.1093/ijpor/edab012
Wainwright, Z. (2024, May 1). A Closer Look at Bitcoin’s Volatility.Fidelity Digital Assets.https://www.fidelitydigitalassets.com/research-and-insights/closer-look-bitcoins-volatility
White, R., Marinakis, Y., Islam, N., &Walsh, S. (2020). Is Bitcoin a currency, a technology-based product, orsomething else? Technological Forecastingand Social Change, 151, 119877.https://doi.org/10.1016/j.techfore.2019.119877
Woo, W. (2024). BTC Price Models. Woocharts.https://woocharts.com/bitcoin-price-models/
Woocharts. (2024, November 16). Bitcoin Network Volume: Woobull Charts.https://charts.woobull.com/bitcoin-network-volume/
