Bitcoin and crypto are entirely different things – that’s why Gary Gensler and the SEC might be right about securities
Following the publication of a report by the All Party Parliamentary Group for Crypto and Digital Assets, a parliamentary discussion was held in Westminster Hall on 13 June, focusing on the necessity of regulating these assets.
Although Bitcoin’s market share of the ‘crypto’ market is around 50% (and increasing again in the light of the US regulatory scrutiny facing ‘alt’ or ‘alternative’ coins), the report included relatively little emphasis on the oldest and most significant digital asset of them all. Nevertheless, during the hearing, Dr Lisa Cameron MP did touch upon the fact that Bitcoin’s environmentally friendly attributes are becoming better known and expressed the following sentiment:
“I also heard about improvements throughout the industry in terms of sustainability of Bitcoin mining, etc, which I think is very important because we must realise we are in a climate crisis, and all new innovations and technological developments should contribute to net zero.”
We have yet to ‘cross the chasm’ to a point where discussions between lawmakers zero in on the benefit of Bitcoin mining in demand response, dealing with waste methane, or generally in conjunction with the extension of a sustainable electricity grid, but these are welcome steps in the right direction.
The global Bitcoin mining industry is projected to reach a market value of £5.56 billion by 2032. The fact that such a large and growing industry was barely mentioned in the debate brought to my attention the lack of understanding among many individuals – whether in Parliament or not – regarding the distinctions between different forms of digital currency. It is crucial to address this knowledge gap before we can propose sensible and meaningful regulations.
Bitcoin verses crypto?
In the realm of digital currencies, it is important to draw a clear line between Bitcoin and other blockchain-based projects often referred to as “crypto”. While they may share the common threads of blockchain technology and digital money, the differences between them are profound, akin to comparing apples and oranges.
One crucial aspect distinguishing Bitcoin from Web3 chains is their issuance structure. Many chains rely on Initial Coin Offerings (ICO), whether in their initial creation or distribution, or allowing centralised companies to alter future issuance at their discretion. Some alt-coins can be black holed, yet they still hold all the same risks as centralised companies. In contrast, Bitcoin’s issuance is governed by a decentralised protocol, controlled by no person or corporation, making it resistant to manipulation or control by any single entity. This decentralisation sets Bitcoin apart.
While the crypto industry prides itself on decentralisation, a closer look at the Nakamoto Coefficient reveals that only Bitcoin can claim true decentralisation. This is why other chains fail the Howey test and have been declared securities by the SEC.
Bitcoin is the only commodity blockchain and must be treated and viewed differently to the rest of the alt-coin market. Recent statements out of the US SEC support this view. It becomes crucial to establish the disparities among digital money, central bank digital currencies (CBDCs), and Bitcoin to avoid confusing them in discussions.
On-going conflicts
The conflicts between different protocols stem from the fact that they are often treated as equals, despite having little in common. ICOs, for instance, have been used to raise capital, with many companies offloading their digital tokens onto retail investors or granted to large venture capital funds, who use retail investors as exit liquidity.
From a broader perspective, it is important to consider the perspective of regulators like the Securities and Exchange Commission (SEC). While the SEC’s crackdown may garner mixed reactions, it is crucial to acknowledge that Bitcoin will eventually absorb most elements of what is currently known as ‘crypto’. Bitcoin’s layers, such as the Lightning Network, have the potential to incorporate various functionalities, making the need for separate protocols redundant.
To address the issue of CBDCs and alt-coins being lumped together, it is crucial to recognise that they both fall into the category of digital money. However, CBDCs, as government-controlled programmable money, represent the antithesis to Bitcoin’s principles. Bitcoin’s inherent value lies in its ability to separate money and state, much as the church and state were separated centuries ago.
Conclusion
Bitcoin stands apart from all other blockchains. It is a commodity money that has no company, foundation, or centralised control, making it available to everyone and immune to state or regulatory capture. On the other hand, all other chains are to varying degrees either company-owned and controlled entities, driven by various competing interests and whose protocols are subject to amendment and manipulation.
As we navigate the evolving landscape of digital currencies, it is crucial to understand these distinctions. Governments, companies, and individuals should carefully consider their differences and the risks associated with centralised control.