Mike Hearn, one of the core developers of Bitcoin, recently wrote a Medium post in which he publicly announced that he will no longer be taking part in Bitcoin development and that “the bitcoin experiment has failed.”
A New York Times article soon followed, and then countless other journalists joined in, echoing Hearn’s remarks without attempting to explain the highly technical reasoning behind his assertions. But has Bitcoin really failed, or is it journalism that has failed? Below, we challenge 3 assertions Mike Hearn makes about bitcoin.
1. Bitcoin “cannot move your existing money”
Hearn first states that Bitcoin “cannot move your existing money,” citing backlogs as the issue. While this is an exaggeration at best, it is true that there is currently a hard limit on the rate in which transactions can happen (about 5 per second) and that the transaction rate has been approaching that limit over time. Backlogs can happen when the number of transactions that wish to go through are greater than this limit. In other words, this argument is basically stating that Bitcoin is “dead” because too many people wish to use it. This is a bit like saying a bar is “dead” because there are too many people inside drinking.
Currently, once the Bitcoin transaction limit is reached, fees are raised. This simply means that for now, clients will need to make tradeoffs between what fees they pay and how quickly transactions go through.
2. Transaction confirmation times “unpredictable”
While Hearn calls transaction confirmation times “unpredictable,” this is really only applicable when you opt to pay no fee at all. The median transaction confirmation time for Bitcoin transactions (with fees) is roughly 10 minutes. Compare this to international bank transfers. They can be instantaneous, but are more likely to take 5-7 business days, or even longer. Banks are generally dealing with very high volume transactions. It takes a long time to process a large number of transactions.
3. Fees are “too high”
But what about the fees? While Hearn states that they are “too high” and “rising fast”, in reality the typical transaction fee for low-priority transactions is only 0.0001 BTC, regardless of the number of Bitcoins sent. In other words, the fee can be measured in pennies for any dollar amount.
Hearn also states that it is now “common” to be asked to pay more to miners than a credit card would charge, and to prove this, he cites an anecdotal example: a single reddit user who decided to avoid making a Bitcoin payment on Amazon because the fee would have been “almost $0.70.” While this is uncommonly high for a Bitcoin fee (without getting too technical, this particular transaction was above average in size), it is not higher than what a credit card would charge. The average credit card transaction fee on a $100 charge amounts to between $2.50 and $3. Now compare this to the wire transfer fees charged by the 10 largest U.S. banks, which can be anywhere from $15-$50, depending on where you are sending the money. Now remind yourself that it is unusual for a Bitcoin fee to be over 5 cents.
But perhaps the biggest issue with Hearns piece is the inherent bias.
Conflict of interest
Many news outlets have also left out that Hearn has recently started working for R3CEV, which leads a consortium of 42 financial companies in research and development of blockchain usage in the existing financial system. In other words, what they wish to develop is a private blockchain, sans Bitcoin, just for banks. It is a failure of journalism to not acknowledge this conflict of interest.
The very thing that makes Bitcoin’s public blockchain so unique and secure is its intrinsic incentives. Miners are rewarded (with Bitcoin) to secure the blockchain. If they do anything to compromise its security, well, they devalue their own reward. In a private system without Bitcoin or some token, the incentive is not as clear. Sure, IT employees can be paid to maintain the system, but this is hardly anything new or revolutionary. In fact, this is exactly how databases are already secured, and have been for decades.
The fact that many banks and financial companies wish to build private blockchains is reminiscent of how many large companies in the 1990’s wished to build their own “internets” that they could control on their own terms. The idea of an “open internet” was hardly a welcome one at the time. So once these companies built their own intranets, did the open internet fail? Of course it didn’t. It was the companies that refused to embrace the open internet that failed.
The Nordic countries quick to adopt
Blockchain has been seized as the next step in financial technology by the banking industry, and many are looking towards fintech startups for inspiration, and the Nordics are no exception. For instance, Swedish company Safello has partnered up with Barclay’s to explore how blockchain can be used in traditional finance.
But in the Nordics, interest in blockchain has reached outside the financial industry. Denmark, which has been quick to embrace Bitcoin (the country has 3 Bitcoin ATMs, and declared Bitcoin tax-free in March 2014) is now adopting blockchain into the government. The Liberal Alliance party now utilizes blockchain to conduct internal votes during annual meetings.
In Finland, software company Koodilehto has partnered with the crypto-currency group FIMKrypto to allow for the broadcast of the Bitcoin blockchain via national television broadcasting networks in real-time.
And in Iceland, a blockchain-enabled municipal currency is being tested, to create a reward system for political participation.
“There’s a huge potential in blockchain technology that will significantly impact our financial transactions in the future, including crowdfunding.” In the future, he says, we will “record our transactions in what you call open, shared, fully-transparent, zero-costs, trust-based systems.”
Additional reporting by Lisa Mallner.