A controversial European Central Bank paper released earlier this month came close to calling Bitcoin a pyramid scheme, only to be slammed in a lengthy rebuttal by a group of crypto scholars.
The ECB paper “portrays Bitcoin's volatility, lack of productive contribution, and concentration of wealth as serious flaws,” wrote Murray Rudd of the Bitcoin advocacy group Satoshi Action Fund.
In rebuttal released On October 22nd, cryptographers criticized the October 12th ECB working report by Ulrich Bindtheil and Jürgen Schaaf, which sparked anger among cryptographic supporters.
The counter-argument said that a combination of “methodological weaknesses and personal or institutional biases” undermined the academic objectivity of the ECB paper, which “fails to provide a reliable analysis of Bitcoin's utility or future.” I concluded.
While the ECB document presents a negative assessment of Bitcoin's long-term viability and impact on society, it “positions CBDCs as a good solution for the modern financial system,” Rudd said. Ta.
ECB argument 'fundamentally flawed'
Rudd said the authors of the ECB report misunderstood Bitcoin's main purpose, and in particular misunderstood its technical underpinnings around proof of work and decentralization, which led to Bitcoin's transition from payment to investment. He said it was falsely claimed.
“By focusing on early limitations, Bindtheil and Schaff fail to acknowledge that significant progress has been made in improving scalability and efficiency,” Rudd said.
He said the paper makes several flawed arguments, including claims about Bitcoin's concentration of wealth, which ignores the fact that many large wallets are exchanges that hold funds from millions of users. He added that he was offering it.
He said the ECB's argument that Bitcoin has no intrinsic value overlooks its usefulness as a store of value and network effect, and that criticism of the asset's volatility views this as a feature of early technology adoption. He added that he did not recognize it.
Rudd said the ECB's criticism of Bitcoin's wealth distribution also “fails to recognize the broader effects of inflation within the traditional financial system,” citing the declining purchasing power of the US dollar as an example.
Since 2000, the purchasing power of the US dollar has declined. Source: Federal Reserve Bank of St. Louis
conflict of interest
This rebuttal highlighted the role of the ECB creators in the development of a central bank digital currency (CBDC) or digital euro, which represents a significant conflict of interest.
“Given the ECB’s strategic focus on the development of CBDCs, it is reasonable to assume that the authors have, at best, a vested interest in portraying Bitcoin as an inferior speculative asset. is.”
The central bank also highlighted the importance of Bitcoin, including its role in financial inclusion and cross-border payments, its usefulness in countries with unstable currencies, and its technological innovations in areas such as energy efficiency and grid stability. had overlooked some important advantages.
Related: Governments need to tax or ban Bitcoin to maintain deficits: Minneapolis Fed
Co-authors of the rebuttal are Allen Farrington, general partner of Axiom Capital, Freddie New of Bitcoin Policy UK, and Dennis Porter of Satoshi Action Fund.
After reading the summary of the rebuttal, Bindshiel told Cointelegraph, “This is not focused on our October 2024 paper, but rather a very broad defense of Bitcoin against all kinds of criticism. It seems to be the case.”
“They say in the abstract that we 'position CBDCs as a great solution for the modern financial system,' but our paper doesn't even mention CBDCs,” Scharf told Cointelegraph. ”
This article was updated on October 23 to include responses from ECB paper authors.
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