No Kevin, Bitcoin will NOT bite the dust

"...I have also yet to hear a single intelligent challenge to this argument from the bitcoin community. Instead, the typical response has been personal abuse. Name-calling is no substitute for a reasoned response."

~ Kevin Dowd. Source: https://www.coindesk.com/bitcoin-will-still-bite-the-dust

CHALLENGE ACCEPTED

Kevin Dowd, a professor of finance and economics, wrote an article titled "Bitcoin Will Still Bite the Dust" which was published on www.coindesk.com on 13 January 2019. It's based on a 2015 paper of the same name which he co-authored.

I haven't read the 2015 paper and I certainly don't intend to. For me the article alone was cringe-worthy. It contains statements in support of his theory such as:

"I field tested my reasoning on various people who are economically literate. None disagreed. "

I found it to be unnecessarily over-confident and condescending. Coming from a self-absorbed narcissist like me, that's saying a lot!

I like to say that arrogance is fine if you can back it up. I also like to say that if you are wrong - then admit it; don't try to cover up your mistakes.

Kevin is undoubtedly being arrogant; the problem I have with him is that he is failing to back it up sufficiently. I'll qualify that statement later.

For the record: I believe that he is wrong too, though that part isn't really as important.

Fighting back my instincts to engage in name-calling ad hominem attacks against Kevin and just to dismiss his article as the narrow-minded and uninformed piece that I consider it to be, I will instead dismantle and counter the main thrust of his two arguments.

I'll start by posting his two arguments. I won't counter them immediately, I'll save that for Part 2 tomorrow. Take a look at his arguments so long and see what you think. Using your knowledge of cryptocurrencies and blockchain technology, see if you can spot the flaws. Tomorrow you can compare notes with what I have found.

From www.pexels.com

Bitcoin mining is a natural monopoly

At least he says it is. Let's see why he says that.

Kevin believes that the mining industry is characterised by large economies of scale, so large in fact that the industry is a natural monopoly. He says that mining firms will become increasingly large, to the point that they will become an actual monopoly.

From the context of his article I'm not sure that he means "monopoly" as per the economics definition of a monopoly, it sounds to me more like he is talking about an oligopoly. Since this doesn't really affect the thrust of his argument or my counter-argument, I will ignore it.

Once the monopoly situation is realised (according to Kevin),

"The implication is that the bitcoin system is not sustainable. Since what cannot go on will stop, one must conclude that the bitcoin system will inevitably collapse."

He then speaks about how centralisation will dismantle Bitcoin due to the core precepts upon which Bitcoin is based. He is correct when he says this. I do not dispute that centralised Bitcoin would be unsustainable and would fail.

On to his second argument:

An inferior product cannot survive

This sounds like common sense, doesn't it?

Kevin states that Bitcoin is an inferior product and that therefore its price must go to zero in a market with no barriers to entry.

At this stage I need to quote the main part of his argument. I'm using a quote because I don't want to be accused of misinterpreting something or distorting what he said. I believe he has a fundamental misunderstanding of cryptocurrencies and I want you to hear that in his own words:

"Imagine you have a market with no entry barriers. The first firm to enter the market has 100 percent of the market share, as bitcoin once did. Competitors then come along and make inroads into the market.

Some of these offer products that are superior to the product produced by the first firm, not least because their producers have learned from some of the design flaws in the first firm’s product. And eventually superior rivals displace it completely and the market share of the first product goes to zero.

There is some evidence to suggest that this process is at work in the bitcoin market: according to CoinMarketCap, bitcoin’s share of the cryptocurrency market had fallen to 94.29 percent by April 28, 2013 (the first date for which they provide data) to 52.29 percent by today."

He carries on about how Bitcoin will keep losing market share and will eventually jump to zero value after some disruptive event.

Think about that

He's a professor of economics and finance. I'm just a random guy in the internet. What do I know?

Tomorrow I'll SHOW you what I know! I'll show you why I despise academia and its circular reward and accolade system that's based in the fairytale world of theory. I'll show you how a blogger invalidates a poor argument against Bitcoin.

For now I'd like you to mull over what Kevin has said. Read the article, see what you think. Perhaps you agree with him. Perhaps not. Why do YOU think Kevin is wrong? (If you do think that.) Any comments along those lines would be appreciated. Let's see if Kevin should have field tested his theories on you instead of those "economically literate" folk that he chose instead. At the end of the day remember: I always expect my readers to make up their own minds.

Yours in dusty crypto

Bit Brain

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