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  • Writer's pictureSimon Collins

If banks are the problem, of course cryptocurrency is (part of) the answer.

This article is in response to Jenny Nicholl’s Opinion Piece published on Stuff on the 13th of August 2022. If you haven't read it you might want to take a quick look before reading the post below.


Had a look? Good, let's go.


Poor Patrick. For a good friend of yours you sure pushed him under the bus pretty damn hard. I’d politely disagree with much of the claims in the article “If banks are the problem cryptocurrency probably isn’t the answer”. The first thing I’d like to say is that Patrick isn’t as silly as he’s made out to be, he just made one mistake which was gambling on “shitcoins”. Had he kept his ETH, he’d be very well set up to be a participant in the world’s future financial, internet and computing infrastructure.


The article then goes on to debunk the use of crypto as an alternative to banks and legacy financial infrastructure such as Visa, and a particularly predatory mobile payments system out of Africa. The problem is the article makes a set of assumptions that are wholly incorrect and disingenuous. It seems a shame to me that articles such as this one come out of the woodwork without due consideration of the actual topic, to rehash one side of the argument. Well I’m here to present the other side so that readers have information to balance their own scale.


Reading on, the article progresses a number of thesis statements that are often incorrect, or suffer from a cherry-picking and low-effort examination. For a start, nobody would tout M-Pesa as a raging success or crypto alternative if they had read any further than the first half of its Wikipedia entry. Equally, nobody would want to hold TradFi (what us cryptobros call the legacy banking system) up to the light when it comes to comparing criminal activity. What follows is a rebuttal of those claims and actual explanation from a cryptocurrency professional of why this technology might just change the world.


Thesis 1: Cryptocurrencies are designed to be, and/or care about being “banks” or payments networks.


In cryptocurrency you have to expand your idea of what a “transaction” is. Because, as Nicholls points out, there have been no meaningful innovations in accounting since double entry bookkeeping, most people’s view of a transaction is a narrow one. Person A sends Person B $X in a particular currency. Finished. Done. Cryptocurrency blows up the idea of what a transaction can be. Sending a signal between two wallets can include data in the form of text, or include instructions to complete some kind of computation. They can be used to trigger any number of subsequent actions in both the crypto-space and in the real world. Smart contracts - which are the basis of these kind of hyper-capable transactions - are what most blockchains are designed to enable. These blockchains don’t need to be a bank or payments network – they’re much, much more. Someone could certainly programme such a network to sit on top and settle payments in any currency you liked. But that’s not what they do natively and certainly not what they are trying to be.


Most cryptocurrencies aren’t even blockchains. They exist on other blockchains as tokens inside the smart contracts and transactions described above which are used in a number of ways. Some are like rewards tokens – Airpoints, or FlyBuys for the Moonbois Nicholls is so scathing about. Others are “governance tokens,” which give users voting rights as to how a community-run project makes decisions. They can represent shares in the ownership of a crypto business. Some are securities, some are used as collateral or issued as a kind of receipt for that collateral. There’s quite the list. On Layer 1s (such as Ethereum, Bitcoin, or Cardano their tokens of ETH, BTC or ADA are the native currency that their blockchains run on. They’re how you pay to transact and therefore are useful and valuable to users. Blockchains, by and large, are computational networks that enable us to build applications that take advantage of the incredible security, processing capability, scalability and distribution of blockchains. Reducing the whole space to a competitor to a five-dollar note is far too reductive.


Now some cryptocurrencies are interested in being payments networks. Ripple is focused on developing a business around efficient inter-bank transfers. NANO when it was a thriving darling of the crypto community was focused on fast, nearly free, scalable point of sale payments. Both are better at their jobs than cash, banks, M-Pesa or any other mobile payments solution you could name. Bitcoin is a little different and has taken an interesting path from cypherpunk messageboard hobby to non-sovereign, deflationary, FIAT money alternative payments infrastructure with a perfectly scarce monetary alternative native digital property. It’s history and uniqueness are part of what makes it so special. But you’re never going to spend BTC to buy a coffee at your local café on Waiheke Island. It would take too long. It’s not designed to be fast, it’s designed to be secure. And it is really secure - the most secure network ever created by humans. That’s valuable to people who understand it. Like Patrick.


Also, not every payments system has to settle its accounts with immediate effect. Sure, paying at the petrol pump or supermarket check-out needs to be done quickly. But any number of transactions, such wage payments, B2B invoices, global remittances, and many other types of payment are less time-constrained and waiting 10 minutes for a perfectly secure and extremely cheap transaction is totally acceptable. In New Zealand, banks won’t register a transfer between accounts for at least an hour anyway, and on weekends? Forget about it (also what’s that about? Why are weekends different to the computers that process these settlements?). It’s worth mentioning that Visa, Mastercard and banks don’t settle instantly either. They just settle a credit layer of their own before reconciling in batches. The tiny credit card/debit card micro transactions we are used to making at Amazon.com or Aliexpress nowadays are a relatively new phenomenon and are only possible because of the innovative way Apple worked with credit card companies to batch up payments so they could sell songs for $.99 on iTunes. Before that there was no way to do micropayments online.


Further Reading: An author’s derisive tirade against computers that depicts in superlative and hyperbolic detail his abject failure to see the forest for the trees.



Thesis 2: That other solutions like M-Pesa solve the same problems as payments focused cryptocurrencies.


It was sort of horrifying to see M-Pesa wheeled out as some type of paragon of inter-personal, cross-border payments freedom. The fact is that M-Pesa and its parent companies Vodafone and Safaricom have engaged in just the same kind of financial exploitation as legacy banking. While it does work across (some) borders, what rates a user might pay to send money between accounts is dependent on the country you’re in and whether there are any local competitors, whether the local financial regulatory system has any teeth to protect consumers, and how much money you have in your account. Predictably, if you have more money, you pay lower fees. Bad luck for those Africans who are poor. M-Pesa has forced opaquely priced subscriptions onto poor and illiterate users and has failed to adequately protect user data. M-Pesa has contributed to growing inequality in poor African nations by driving credits away from the agricultural sector and into the financial sector – right into its parent companies’ pockets.


All of this, exploitation, redirecting of wealth, expansion and contraction has still generated profits that would impress the average banker. $500 million USD in free cash for FY2021/22 for the M-Pesa division of Safaricom. Or more specifically for its mostly foreign shareholders. M-Pesa, Cash App, Paypal, banks, these are all for profit, centralised financial services firms and they have perverse incentives in place which makes sure they exploit users for the maximum possible profit. Cryptocurrency, for all its slow transaction speeds doesn’t care about revenue or overhead, ROI or user acquisition costs. It’s software and that makes it far harder to corrupt than a for profit institution.


M-Pesa also not nearly as widespread as Nicholls suggests. Its user base is 90% in Kenya but it has generally struggled to gain traction across the rest of Africa. It launched and then, shortly after, shut down in in several other countries, including Romania, Albania, and India, with users being given a limited time to withdraw their funds. What’s the use of a payments network if you can’t trust it will be there in a year?


The proof is in the pudding anyway. M-Pesa took 14 years to reach 50 million users in 2022. Meanwhile the Bitcoin network - a year younger - boasts 107 million owners of BTC, and 200 million or more wallets. According to Safaricom’s financial statements in 2021 M-Pesa transferred about 187 billion USD while Bitcoin settled about $13.1 Trillion. Claims of M-Pesa sending amounts that bitcoin maxis “could only dream about” are out by a factor of about 70.


Thesis 3: Using energy is bad


Just who is the ultimate arbiter of energy use anyway? The audacity of positioning ourselves as the decider of what’s ok to spend our joules on is a bit galling. Ms Nicholls article condemns the energy use of bitcoin and other crypto networks. She fears that they might somehow take energy away from electric cars, houses, and *gasp* hospitals. I’ll admit I have missed the hospital specific energy crisis. But these claims are simplistic in the way that they view the electricity system and market and amount to fearmongering. The trope that Bitcoin uses as much energy as Iceland, Ireland, Norway, or Sweden is often totted out to horrify the under-informed. But, as we have established, Bitcoin is an economy that moves hundreds of times the value of Iceland’s economy, 30 times the GDP of Norway, 20 times that of Ireland and about 15 times that of Sweden. The market value of all the Bitcoin in existence eclipses these countries economic outputs. Bitcoin miners use energy to secure the network of a system that would be the 27th largest country in the world by value. Not to mention that the countries wheeled out as comparators to Bitcoin tend to be westernised services-based countries that have outsourced their manufacturing and other energy intensive industries to China, India, Bangladesh, and Indonesia, amongst others. They’re not footing the real bill for their energy use as they’ve externalised it. And that’s why you’ll never hear of Bitcoin using the same energy as China. China uses huge volumes of energy on the world’s behalf – for Greenies (like me) this is what is actually untenable - pure hypocrisy in the way we compartmentalise energy use.


It’s also important to recognise that energy use does not equate to carbon emissions. The type of energy is important to factor in. The latest figures from Cambridge University and the Bitcoin mining council suggest that Bitcoin is more than 62% powered by renewable energy. Meanwhile, the world’s electricity production mix is approximately 63% fossil fuel/high carbon sources. So, Bitcoin is far greener than most countries and this number is steadily improving. My company, Stackr mines Bitcoin and has only ever used Te Waipounamu hydroelectric power to do so and will only ever source energy from carbon neutral sources. Like a lot of tech companies, we are committed to improving the climate situation while we work to improve the lives of people around the world by enhancing their financial freedom.


Globally we are on an upward trajectory of energy use – not down. More electric cars, ships, trucks, and eventually planes. More devices plugged in. More datacentres and more manufacturing. More Bitcoin mining. Beating up on someone for using energy is foolish. We need to generate more energy from renewables and to do so these renewable generators need certainty in their return on investment. Bitcoin helps with this by being one of the most consistent customers for energy you could ever ask for. We buy the same amount, 24/7. Yes, we want to buy it for as cheap as possible, but we also want to support energy networks to grow and improve. It’s our life blood. There are some extremely innovative ways that Bitcoin is doing so. In North Texas, trapped and waste energy such as natural gas flares which would normally be burnt off are now being captured and used to mine Bitcoin. This energy would never have made it to market (and presumably urgently to hospitals for some reason) and would just have added to the carbon in the atmosphere. Instead, it is now turned into a monetary asset. Globally, Bitcoin miners have facilitated the expansion of renewable power generation by being a customer in waiting for new wind and solar energy as it comes online. Bitcoiners are future focused. We want to see the climate crisis solved and will put our money where our mouths is/are to work alongside these new carbon-free technologies that enable both sectors to grow.


How you perceive the value of Bitcoin naturally affects whether your think it worth the energy spent on it. If you don’t use it, of course you think it’s a waste. If you use it regularly as I do to transfer funds, and to build your stack of the world’s most pure financial asset, you are likely ok with it. However, if you live under financial repression, hyperinflation, or capital controls you probably consider the invested energy well worth it. Venezuelan refugees making their way to Colombia often use Bitcoin to bring their wealth with them as the authoritarian government has visited the worst financial management of a nation in recent memory on its citizens. Ukrainian refugees are doing the same. El Salvador has struggled under the yoke of “dollarisation” where after a civil war where the outcome was heavily influenced by the United States, the local currency was first pegged to, and then replaced by the US dollar. The resulting poverty forced one fifth of the population to become migrant workers primarily in the US, working to send money home through global remittance services like Western Union who charge exorbitant fees. Bitcoin, now legal tender, allows fast and cheap remittance back to El Salvador, which allows families to retain a higher proportion of their wages. The price per joule of energy spent on this will be well worth it to these vulnerable people.


Bitcoin’s energy use is fundamental to how it operates. In mining you put your spent energy on the table and attest that you saw the same transaction occur as everyone else. If you try and change a transaction or exclude it you risk forfeiting the value of your energy by being excluded from sharing in the reward paid to miners. It’s a crucial aspect of the game theory that makes Bitcoin work so incredibly well for what it does. The secure and trustless transfer of value.


By every measure that matters, Bitcoin is a preferable alternative to physical gold as a “store of value”. We can now easily replace all the bullion in the world with a digital alternative. So should surely, we should stop the extraction of physical gold from the ground? There’s $9 Trillion worth of gold (205,000 tons) above ground. Clearly that’s ample enough to be deployed for industrial use such as electronics and personal use in jewellery for the foreseeable future and by halting all gold mining we would save the 400+ TW/h of energy used by that sector – roughly 4 times that of Bitcoin. Not to mention that recycling gold uses about 30 times less energy than mining it and produces about 1/16th the carbon emissions. But then, how far will this argument get with goldbugs like Peter Schiff? They have entrenched the use of this energy in the global economy and despite how pointless it might be in a digital age no amount of energy FUD is going to stop the chemical and mechanical decimation of the earth for an obsolete and barely scarce store of value. The answer is to change the method of producing energy while continuing to scale the production of power along these new renewable lines. Bitcoin provides foundational draw that effectively monetises this increase in scale.


Further reading: These kinds of arguments are made every time a new technology starts to scale up. Here’s a classic from the late 90s that takes PC ownership and online book sales to task over their use of energy:



Thesis 4: Cryptocurrency facilitates or is some kind of hotbed for crime.


This is another oldie that doesn’t hold water. It’s true that one of the first use cases for Bitcoin was in the internet’s seedy underbelly. The Silk Road was a huge online market for illicit drugs (or just prescription drugs people would send to the US for prices that weren’t extortionate), weapons, and services. Because using a credit card to complete these transactions was out of the question, new peer-to-peer cash Bitcoin was quickly adopted. Eventually the Silk Road was disassembled by law enforcement and its founder Ross Ulbricht was sent to prison for the rest of his life. Technology, however, is neutral. It’s the user that applies it in the way of their choosing. Since the Silk Road has become defunct, Bitcoin’s growth as a legitimate payments network has proceeded unabated. It is actually a network that suffers far less corruption than traditional financial systems. Personally, I liked what United States Democrat Ritchie Torres said in an interview.


“You should never define any technology by its worst uses. ... There’s more to crypto than ransomware, just like there’s more to money than money laundering.”


A recent study estimated that 0.34 to 0.62% of activity in crypto was illicit. That might sound like quite a lot, until you realise that that global criminal activity is estimated to be valued between 2 and 5% of the world’s GDP annually – between $1.6 to $2.2 Trillion USD. Money laundering makes up the vast majority. And who does the bulk of this money laundering? Banks. So called legitimate banks that oversee the money supply in almost every country in the world. Banks who will decline your business if you’re foreign or have bad credit. Despite a veneer of legitimacy regular retail banks are complicit in the laundering of trillions of dollars every year by abusing their requirements to report suspicious activity. Banks are not just “bloated and greedy” they’re criminal and poisonous. According to the New York financial regulator Linda A Lacewell, thanks to laundering by banks and this dirty money has metastasised within the financial system.


Bitcoin on the other hand is a transparent system. While it looks like it might be attractive to criminals – unstoppable transactions, pseudonymous wallets, no geographic restrictions, in fact it it has been very effectively ring-fenced by anti-money laundering regulation worldwide. It can be near impossible to take cash out or deposit it into the crypto system without identifying yourself and the source of that money. From there anywhere your funds move is traceable. A case in point is the pair of young hackers who gained access to a large exchange Bitfinex’s Bitcoin and siphoned it off. They spent three years trying to launder it in increasingly desperate and risky ways. As soon as they tried to exchange it for FIAT money in any meaningful quantities they were quickly caught and jailed. Crypto might be one of the ways that scammers and hackers will extort money from unfortunate cyber security amateurs. But then so are gift card and bank phishing scams. One thing I’m sure of, cyber security expert Patrick knows how to secure himself from digital extortion. He’s not looking quite so silly now, is he?


At the end of the day, it’s very early in the life cycle of cryptocurrencies. I’m not here to suggest they are perfect, or that they can fulfil every promise that has been made of them. But the abject dismissal of the technology in Nicholls’ opinion piece is frustrating. It was the most wearisome kind of inaccurate – poorly researched and ill-considered. Insincere cherry-picking is unhelpful to the public conversation. Cryptocurrency is actually very good at certain things – funnily enough its good at the things its designed to do, and not at the things it isn’t. It’s not good for criminals, that would be the good old US dollar. It’s not a planet burning energy sink – that’s gold. And Patrick is actually a really smart guy with a stake in the next world-changing network after the internet. You should be nicer to him – he’s probably going to be very rich one day.

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Hey there, An update! Our CEO, Simon Collins, has been making appearances on a couple of podcasts lately. Simon has been discussing Stackr, being a mining start-up in Aotearoa and Bitcoin in general.

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