Assessing the Health of Bitcoin - Lyn Alden

Alden is a notable proponent of Bitcoin, and what makes her work unique is that she is also an engineer and an independent financial analyst. In short, she combines strong technical depth with a rich background in macroeconomic concepts and theories. In this article she assesses Bitcoin based on five major factors:

1. Market Capitalization and Liquidity
2. Number of Conversion Points
3. Technical Security and Decentralization
4. Quality of User Experience
5. Legal Acceptance and Global Recognition

The whole article is a good read, and doesn't require any previous knowledge of Bitcoin. It is a reasonable primer for anyone.

She addresses the topic of Bitcoin volatility and frames it in a way that clarifies how to interpret it.

Bitcoin's notorious volatility is unlikely to diminish much until it's more liquid and more widely-held than it is now; there's no fix for bitcoin's volatility other than more time, more adoption, more liquidity, more understanding, and better user experience with the wallets, exchanges, and other applications. The asset itself is only changing slowly; it's the world's perception of it and the leverage built on top of it or ripped away from it that goes through manic and depressive cycles.

She also looks at the underlying technical functions of the network.

Bitcoin isn't magic. It's a distributed network protocol. For it to continue to be valuable, it has to function through opposition and attacks, and has to be the best and most liquid way to do it. The concept of Bitcoin is insufficient to really matter for anything; it's the reality of Bitcoin that is important

Two things I learned here were:

1. The Bitcoin network has had 100% uptime since 2013. That is remarkable.
2. Bitcoin has a 32-bit Unix timestamp issue, but it is an unsigned implementation so sometime before the year 2106 Bitcoin will need to figure that out. I’m not worried. 😁

In the last section she talks about the legal risk and government threat to Bitcoin. This is a lengthy excerpt, but I liked how she framed this topic up.

Instead, the biggest legal challenges for the Bitcoin network ahead are likely in the area of privacy, and by major governments like the United States. Governments really don't want people to have any sort of financial privacy, especially at scale. Financial privacy was the default for most of history, but in recent decades it's increasingly not.

The premise from their perspective is that in order to prevent the 1% of bad people from doing terrorist financing or human trafficking or other bad things, 100% of people have to give up their rights to financial privacy and allow the government to surveil all transactions between all parties. In addition, governments have shifted much of their revenue toward income taxes, which rely on ubiquitous surveillance of all payment flows to enforce. But of course, such a thing can lead to massive overreach, and with grave consequences.

In addition, we live in an age of surveillance capitalism. We are offered myriad free services by corporations if we sign away our digital soul, meaning all of our data. What we look at, and what we spend on, is very valuable commercial information. And governments enhance this and help make it the norm because they plug into the back-end and collect that data too. Sometimes it could be for national security reasons, and other times it could be to try to control the whole population (e.g. China's social credit scores).

Ultimately she gives it a grade of A-. Alden's recent book Broken Money is on my shelf for an upcoming read.