Does Bitcoin Really Challenge the Western Financial System? Kurt Wuckert Jr. interviews the Gold Silver Pros
Kurt Wuckert Jr. is the Chief Bitcoin Historian at CoinGeek. Recently, he joined Rob Kientz on Gold Silver Pros to talk about Bitcoin, digital currency markets, regulations, stablecoins and more.
Bitcoin in the Islamic world
Kientz begins by noting that Wuckert recently traveled to the Middle East for the BSV Global Blockchain Convention. He asks how Bitcoin is received and perceived in this part of the world.
Wuckert informs us that the Islamic world is very open to Bitcoin. They view the rest of the world’s financial system as somewhat irresponsible and they view the debt-based system as immoral. The fixed supply of Bitcoin resonates with Islamic thought and makes sense to them.
Wuckert reminds us that in the Islamic world usury (interest) is viewed with disdain, but he says that attitude changes a bit in certain situations. They take on low interest debt for business purposes, and that makes sense if it generates cash flow, but things like credit cards are still considered immoral and not widely used.
According to Wuckert’s conversations, Islamic countries also want to use the Bitcoin Ledger to increase transparency, facilitate auditing, and reduce friction within their economies. They see the bitcoin potential, and some are willing to use it in an attempt to leapfrog the West and circumvent archaic systems designed in the 70s that are still in use in many parts of the world today. He points out that the decision to switch to Bitcoin is easier when royal families can essentially decide without all the bickering involved in multi-party democracies.
Besides the fixed supply and the transparent and open nature of the ledger, Wuckert notes that ideas such as securing property rights and creating digital IDs are attractive in the Middle East. These are some of the reasons why BSV is attracting widespread attention and interest there.
Regulation and financialization of Bitcoin
Kientz then takes us into a different discussion about government regulation of digital currencies. He asks Wuckert if he thinks regulations are a threat to Bitcoin in any way.
Wuckert responds that he doesn’t blame governments for wanting to regulate Bitcoin and other digital currencies. However, he blames Western culture and the desire to extract value through speculation rather than creating value. In 2017, he wrote a short article explaining how BTC futures were the death of Bitcoin. In it, he pointed out that the financialization of Bitcoin, by making it a store of value or a digital asset, ruins the economics of the system and kills Bitcoin as it was originally designed.
“If they can fund it. They can regulate it and manipulate it,” Kientz said.
Unfortunately, since the beginning of this financialization, Wuckert stresses that it is no longer a question of challenging the big companies and payment networks like PayPal and Visa. However, Middle Eastern countries still see Bitcoin’s disruptive potential, and they see it as an opportunity to make their economies more competitive by making everything more efficient. In short, they see Bitcoin as a tool to be used to make things better, which it was always meant to be.
Will Bitcoin kill systems that have been around since the 1970s?
Kientz then asks if Bitcoin poses a real threat to the existing financial system.
Wuckert replies that he doesn’t know if it will kill him outright, but he thinks it might confuse and change him. He notes that if he had been there in the 1970s, he would have bet the dollar would die soon after the Bretton Woods system ended, but he would have been wrong because we are still using it 50 years later.
However, he points out that Bitcoin has encouraged broader economic education in many people. Today, more people are aware of how the existing system works and are asking about hard money and matters of that nature than ever before. This could have consequences for the existing system.
Bitcoin transactions and costs: what is the limit?
Kientz notes that Bitcoin’s adoption in the real economy is still quite limited. He says that, in his view, BTC is a commercial banker’s wet dream; transaction billing is their business model. He asks Wuckert to educate the public about the different bitcoin implementations and how we got here.
Wuckert points out that the term Bitcoin is used interchangeably to describe the network, the unit of account, and the protocol itself. In his opinion, Satoshi has used it too many times and for too many things. He tells the audience that he is talking about the protocol when he uses it.
Why hasn’t there been much adoption of bitcoin in the real economy? This is partly because BTC developers made many bad decisions, including limiting network capacity to 6MB of data per hour; this translates to 7 transactions per second max. Moreover, BTC proponents view it as some sort of collateral or cash asset and have no real interest in using it as a peer-to-peer electronic money.
However, Wuckert reminds us that the Bitcoin protocol is the most efficient broadcast payment technology in the world despite what BTC developers have done. It is capable of large-scale micropayments on Bitcoin SV and to a lesser extent on Bitcoin Cash. Unlike the other two, BSV is used by many applications, and these generate a high demand for writing transactions to the ledger. The apps are currently powered primarily by gaming apps, but there are plenty of other use cases in the works. The fact is that real payments take place on the BSV network, while on BTC and BCH blockchains are relatively dead.
Briefly touching on the topics of CBDCs to illustrate the importance of a single global ledger, Wuckert explains that they are nothing more than tokens, and it doesn’t make sense for each token to run on its own blockchain. A scalable, fast, and inexpensive blockchain like Bitcoin SV is needed to make everything work in an interconnected way, just like we use an internet protocol today.
Stablecoins, the implosion of LUNA and Tether under pressure
Kientz then turns his attention to a topic that has been in the news a lot lately: stablecoins. He asks Wuckert what they are and why they’re having trouble right now.
Wuckert explains that there are two main types of stablecoins: collateralized and algorithmic. Tether is an example of the first type (or so it claims) and would be redeemable for 1 USD or the equivalent. With these types of stablecoins, treasurers buy and sell assets to ensure that the 1:1 dollar peg is maintained. However, at least in the case of Tether, the issuer has never been proven to be truly backed, has never been audited, and has been caught lying on multiple occasions. At the moment, Wuckert notes that we are seeing billions of dollars in Tether buybacks, and he wonders how long the issuer can hold out before it collapses.
Algorithmic stablecoins, on the other hand, use smart contracts called Automated Market Makers that attempt to keep the dollar pegged by printing and burning coins based on supply and demand. Terra’s UST was one example, but it recently failed spectacularly. UST was allegedly backed by BTC, but someone discovered an exploit, attacked the peg, and the whole system imploded, wiping out billions in value overnight.
While Wuckert doesn’t set a timeframe for a larger collapse (like Tether), he says he’s “not at all” confident and points out that a run could start at any time and could be catalyzed by no whatever.
The History of Bitcoin, Wuckert’s Specialty
In conclusion, Wuckert explains that one of his favorite activities is teaching people the history of Bitcoin. It’s been around for a long time and has seen a lot of things happen that new market entrants aren’t aware of. For example, he has seen VCs from Mastercard and elsewhere come in and totally change the narrative surrounding Bitcoin.
Having seen all of this, Wuckert is firmly in the Bitcoin SV camp. He doesn’t believe in the store of value narrative, and he believes that large blocks with many transactions that provide real value to people and businesses are what Bitcoin is.
Watch: BSV Global Blockchain Convention, Islamic Finance & Blockchain panel
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