This page describes what in my opinion Bitcoin is.
What is Bitcoin?
There is no shortage of answers to the question 'what is Bitcoin?' but if you ask me, with a background in hacking that led me to become a cybersecurity grunt, Bitcoin is a Pyramid (aka Ponzi) scam obfuscated by an army of noobs spouting nothing but pure technobabble. It's a scam, and I personally don't tolerate the mincing of words to avoid the obvious. I must be bold and clear that from it's inception it has always been a Pyramid scam: there is a lot of dreamy and uninformed noise from it's proponents to overcome. It has grown into the cyber Tulip crisis of our times.
However, a scam like Bitcoin is not something I try and make personal or would encourage people to be fast to pass judgement on others for, as every generation seems to get a monster Pyramid scam to call it's own: Amway stories could fill another whole website, and some of those stores are just as crazy and real, involving last-minute flights and abandoned mansions in New Zealand when law enforcement caught up.
A Pyramid scam is an unsustainable investment scheme that provides a return on capital only via the investments of new members, whether or not it provides a product or service. Pyramid scams stand in stark contrast to traditional 'value' investment based on corporate fundamentals, like the GAAP, OBEGAL and EBITDA, yield to dividend ratios et cetera, because yield is the only concern, but the yield math for a Ponzi or Pyramid scam is completely broken because the deterministic functions for price are asymptotic due to the exponential nature of their model growth: the price converges on zero.
It's easy to visualise a Pyramid scam while the synonymous Ponzi scheme invokes mental images of grinning mugs, which can belie how insidious and cynical some support for them is. The old 'chain letter' in which every recipient forwards to N or more others illustrates the system. This can be done but only until a point: the finite limit of the world population, however because of the power or exponentiation law in mathematics if each person sent to six others, by the 12th layer the scheme would finish because the 13th would require more than the world population (7 vs 13 billion). In effect people would receive the same letter many times over.
In plain language it doesn't add up. The model price goes up and up and up, until it doesn't. Then no-one has anything left except for the people who quit first, and euphemisms for theft like 'exit liquidity' get thrown around. The malicious uncertainty promulgated by type of language is that "investment" is just complicated; so obviously it can't be a scam? And yes other forces can manipulate market prices, whether crypto or currency, but aren't in technical scope of this article. That stuff is certainly interesting though and I recommend some great authors in the Community page. In fairness no commodity is immune but Bitcoin is special in how it lends itself to fraud, if not a system of fraud itself.
Bitcoin "investment" fits the plain Pyramid scheme definition and clearly the planet has finite resources, so a system which requires infinite growth for a positive balance is not a stable or sustainable system. It doesn't take deep technical knowledge to understand infinite growth is unrealistic. Greed is a concept as old as time, written about in everything from the Bible, the Tanakh and Koran, to the Chengdu to the Aesop Fables. Pyramid scams grow like cancer until malignant upon their host, with the case of Albania being an example, descending into civil war largely as a result, although the collapse of the USSR with it's own history of currency manipulation is no doubt important context. Examples like the Dutch Tulip crisis are also relevant lessons from history.
Bitcoin's many technical claims include being a "P2P digital currency" and "distributed ledger" which at face value sound like benign or even noble goals, however, these properties are simply the essential required functionality of any Pyramid scam, identical in nature to Amway points but marketed as a product of computer science, instead of being labelled as an affiliate marketing programme. The similarities in language used to push motivational 'self-help' seminars, Amway or Herbalife and Bitcoin or crypto should not surprise.
Back when Bitcoin was new in 2009, from my under-grad computer science perspective, nothing was remarkable or new about it. Things like conditionally immutable linked lists (aka block chaining) were part of distributed hash tables (DHT) as used in BitTorrent, and Merkle trees were a pre-existing technology going back to the 1950s. At the time I was learning about Merkle trees and Boolean logic, binary mathematics, set theory and statistics, and algorithms and cryptography. It definitely piqued my interest, I will admit, but it read like the code for some networked gambling machine. Interesting from a technical perspective yet still a scam if being marketed as the 'future of money'.
However, early dissenters like myself were quickly outspoken by the neophytes and an underlying anarchist thrust that seemed nothing to do with political debates around currency. Questioning the assumptions in the white paper was heretical from the outset, and a cult following quickly formed around it. There is something remarkable about Bitcoin, in that it unified both the far-right and leftists with a disdain for the supposed hegemony of the US dollar: Bitcoin is many things, also maybe Horseshoe Theory in action.
Enduring Myths
I think the biggest and most enduring myth about Bitcoin is that mining is a security feature, but in the scope of a 'double spending problem', mining confers no security advantage over public key exchange as was already possible and practical with standardised Public Key Infrastructure (PKI and OpenSSL etc). To me it is highly suspicious that a 'proof of work' should even be considered when irregular network trust models are a more logical fit for a decentralized, P2P ledger application, again pointing at mining being no such security layer and the simpler explanation is that "mining" is incentive to operate the scam, with a lottery.
Mining is a phenomenal waste of energy, an error in design owing to a politically-flawed trust model regarding double-spending. The design entertains a "Byzantine general problem" although it is not applicable, and trust roots should have been used instead. As a result, and whether by intent, omission or error, mining is implemented as a bit-mask lottery obfuscated by the Avalanche effect of one-way hash functions.
The Avalanche effect is a basic design goal for cryptographic hash functions. The Avalanche effect is when changing one or more bits of input (as Bitcoin does using difficulty and a 'nonce') all the output bits are scrambled and mining abuses this at scale to play a game of Keno with very, very big numbers. The satirical comparison of Bitcoin with trading already-solved Sudoku puzzles is incredibly accurate, but Sudoku is a fun and harmless math game while a comparison with Keno communicates it is also gambling.
Politics
Trust modelling is a political exercise in security, and for whatever reasons Bitcoin seems to attract spectacularly bad politics. I reserve my own judgement as I have more questions than answers, while tending to categorise it as an anarcho-capitalist social experiment, if not a fifth column type movement. The question of who Bitcoin's politics benefit is maybe the same question as to who is motivated to attack any sniff of 'western' economic hegemony, and make some money along the way, while having no scruples, or even being absolutely hostile about causing inflation, staining the environment, with a simultaneous ambivalence to unregulated gambling and all other types of crime?
The book The Politics of Bitcoin, Software as Right-Wing Extremism by David Golumbia (RIP) is worth reading, even if the premise of Bitcoin being a right-wing conspiracy evokes irk, and some of the author's sources I personally would not cite due to their own ideological proximity to (leftist) libertarian extremism of the anti-US/Europe/NATO variety. Many logical criticisms are elucidated in the book, and credit is due regardless as few authors are bold enough to directly confront the core political arguments behind Bitcoin.
Gambling Machines
From a technical perspective Bitcoin is a decentralized gambling machine of SHA-2 processors, operating in a lottery (random) mode instead of the one way hash function use that you might find securing a VPN for example and mining ironically causes SHA to eat itself by creating a collision corpus (exactly as a lottery might do with won tickets).
Given that definition, Bitcoin is something which would quite rightly belong in Las Vegas with the other slot machines where it can be regulated and enjoyed for what it is: a gambling product and service; not misrepresented as the future of money or an investment. FWIW I do not oppose regulation of Bitcoin as a gambling product or service, it seems perfectly at home in Vegas.
Conclusion
When it comes to gambling and scams there is a temptation to divide the world into 'suckers' and 'wise guys' but as it is with other scams and addictions, education is the best remedy to the problems Bitcoin creates. A bit of gambling in moderation is relatively harmless, but civil libertarians who promote deregulation of these activities with an ideological fervour perhaps forget the saying 'regulations are written in blood'. I think it's easy to understand that kind of thing with aviation analogies but in social science it is less obvious maybe.
Real harm can be excused from ambivalence to crime or a strictly commercial-apolitical attitude, and even a simple cult mentality robs people of their freedom to dissent. If nothing else the staggering environmental footprint should undo any supposed social good or financial emancipation the system brings, I'm not saying it hasn't made people rich rather the cost of that is something Bitcoin hides. We all drink from the same well regarding Earth scale systems and I can not afford to ignore the climate impacts of Bitcoin, only few probably can and only for so long.