Common Misconceptions and Fallacies Regarding the Bitcoin Theory of Bitcoin
The Bitcoin Power Law Theory of Bitcoin has been explained in one of our previous Medium articles, here:
https://giovannisantostasi.medium.com/the-bitcoin-power-law-theory-962dfaf99ee9
Also for a quick intuitive understanding of the Theory, please watch this video (also remember to like and subscribe to support our Bitcoin Educational and Research Team).
It is the hard work of my son Saverio. It is beautiful and very well done.
The Theory of Bitcoin video:
https://www.youtube.com/watch?v=DYfLbCZJWqY
The theory is creating both interest and curiosity and even praise and enthusiasm but also great resistance and criticism.
Of course, this is healthy and it is important to stress and test any theory in particular for something as important for humanity as Bitcoin.
Unfortunately, many Bitcoiners, even when well-prepared professionally in different fields like economics or even engineering believe they can attack the Theory on “first principles” that are based mostly on being unfamiliar with the BPLT theory or with basic misunderstanding or even serious logical fallacies. Recently one of these Bitcoiners expressed his ideas on what he thinks common reactions by Bitcoiners may be against this understanding of Bitcoin.
I believe that some of these concerns are valid and understandable but many are motivated by a desire to believe and wishful thinking that Bitcoin can go through exponential, unbridled growth. In our opinion, this desire is selfish because according to the BPLT understanding of Bitcoin, this would mean something is seriously broken with the protective mechanisms inherent in how Bitcoin works.
Of course in the end, reality is what always wins and if Bitcoin can sustain exponential growth without collapsing or self-destroying (how it happens almost always with exponential growth) that is something that needs to be accepted and understood. However, the BPLT makes the strong claim that this is not going to happen.
What is certain though that the BLPT is a self-consistent (even if not fully complete and open for improvement and refinement) theory of how Bitcoin works and how the main on-chain parameters interact with each other. At a minimum, it is meant to stimulate a serious effort to explain this incredible phenomenon called Bitcoin which shows too many regularities to be explained as a simple speculative asset.
I list here the different points raised by X user One Digit and I present my rebuttals.
How it started
1) Humans are special (no they are not, not in this way at least)
This is a typical “Geocentric” argument (we are special, we are not part of nature, math doesn’t apply to us). This argument is based on unfamiliarity with the vast literature that shows power laws occur in many human-made phenomena in particular involving social networks.
Here is G. West lecture link:
https://www.youtube.com/watch?v=XyCY6mjWOPc
2) It is just drawing line and stupid TA
This argument is based on not understanding that this approach has nothing to do with TA and it is not just drawing lines. The method of using a log-log graph to reveal power-law relationships in nature and in human-made phenomena is an established method and hundreds of scientific papers are based on this method. It is not even about drawing a line, it is about revealing that a phenomenon demonstrates scaling properties.
Regression is used mostly to derive the power that often reveals very important consequences and insights about the mechanisms that create the underlying power law relationship. For example, the fact that in Kleiber Law the exponent of the law is 3/4 reveals insights on the economy of scale in metabolism and the fractal nature of the physiological networks. This is why we draw these lines so we can understand better what is behind the mechanisms that generate the power laws.
3) Market Efficiency Hypothesis (it is economics stupid not physics argument). Yes, it is Physics, prove us wrong.
The BPLT claims that besides local stochastic processes that are similar to those of normal assets and financial instruments, Bitcoin is deterministic and follows processes akin to natural laws.
The Market Efficiency Hypothesis therefore doesn’t apply. It is like I tell you gravity is what makes bodies fall near the earth surface and you reply with Aristotelian arguments based on the 4 elements go to their natural resting places ideas. These ideas are not valid for Bitcoin.
4) All Models are the same, this is too simple to explain anything
This argument doesn’t understand that the simpler the idea the more likely it is to be true. Physics uses all the time, as a finding the truth criteria, beauty, and simplicity.
“Physics is the science of simplicity” says famous physicist G. West.
Power laws are simple, explain the data very well, have causative power, and are completely natural if not actually expected and a matter of course for such a system like Bitcoin that is full of iterative processes.
5) Power Laws can explain planets, metabolism in animals, how cities grows, social networks, and everything else but not Bitcoin argument (because I want so badly my Bitcoin to be exponential)
Another “geocentric” argument. See similar comment above.
6) I’m not familiar with the full Theory so I just make some random claim argument.
Please if you want to comment or criticize the BPLT be familiar with its tenets. The explanation of why we have a growth of t³ is one of the main points of the theory and is again supported both by theoretical arguments and empirical evidence.
7) It is crazy to make theories about Bitcoin because it is not science and you are too arrogant in making such a theory.
It is a bold endeavor to make a theory of anything but in particular Bitcoin. This is how scientific understanding of anything progresses: by making Theories.
This attempt should be considered an admirable effort to understand this fascinating and important social, physical, and economic world experiment.
The theory is not yet fully refined and it is amenable to improvements and expansion. Of course, attempts to test it and falsify it are necessary and welcome.
But dismissing it because it is not “humble” to make theories of Bitcoin is shortsighted and misguided in our opinion.
Why not?
This discussion was useful in showing how the BLPT can address all these criticisms based mostly on handwaving arguments and not being familiar with the claims of the theory.
The BPLT is consistent, logically coherent, and well-supported by valid scientific hypotheses and empirical evidence.
The only way to falsify the theory is by new evidence and/or a more powerful, coherent theory of Bitcoin that can explain more observed facts in a simpler or deeper way of the only existing (as far as I know) theory of Bitcoin, The Power Law Theory of Bitcoin.
Handwaving first principle “arguments” based on misunderstanding or not being familiar with the theory are not going to cut it and after being addressed here (hopefully in a coherent and consistent way) should be considered not useful and a general waste of time.