A controversial European Central Bank paper that stopped just short of calling Bitcoin a Ponzi scheme earlier this month has been slammed by a group of crypto academics in a lengthy rebuttal.
The ECB paper “portrays Bitcoin’s volatility, lack of productive contribution, and wealth concentration as critical flaws,” writes author Dr. Murry Rudd from the Bitcoin advocacy organization Satoshi Action Fund.
The rebuttal, released on Oct. 22, critiques an Oct. 12 ECB working paper by Ulrich Bindseil and Jürgen Schaaf that caused outrage among crypto advocates.
The paper presented a negative assessment of Bitcoin’s long-term viability and its impact on society “while positioning CBDCs as a superior solution for modern financial systems,” stated Rudd.
ECB arguments “fundamentally flawed”
Among the arguments made by the ECB report’s authors, Dr. Rudd argued they misinterpreted Bitcoin’s primary purpose, incorrectly claiming it shifted from payments to investments while misunderstanding its technological foundations, particularly regarding proof-of-work and decentralization.
“By focusing on the early limitations, Bindseil and Schaff fail to acknowledge the significant progress made in improving its scalability and efficiency,” Rudd stated.
Rudd said the Oct. 12 paper also presented several key flawed arguments, including claims about Bitcoin’s wealth concentration that ignore the fact that many large wallets are exchanges holding funds for millions of users.
Meanwhile, the ECB’s arguments about Bitcoin’s lack of intrinsic value overlook its utility as a store of value and network effects, and criticism of the asset’s volatility fails to recognize it as characteristic of early-stage technology adoption, he added.
The ECB’s critique of Bitcoin’s wealth distribution also “fails to recognize the broader implications of inflation within traditional financial systems,” they stated, using the diminishing purchasing power of the USD as an example.
Decline in US dollar purchasing power since 2000. Source: Federal Reserve Bank of St. Louis
Conflict of interest
The rebuttal also highlights the authors’ roles in developing a central bank digital currency (CBDC), or digital euro, for the ECB, which represents a significant conflict of interest.
“Given the ECB’s strategic focus on developing a CBDC, it is reasonable to infer that the authors, at best, have a vested interest in portraying Bitcoin as an inferior, speculative asset.”
The central bank also overlooked key benefits of Bitcoin, including its role in financial inclusion and cross-border payments, utility in countries with unstable currencies, and technological innovations in areas like energy efficiency and power grid stability.
Related: Governments must tax or ban Bitcoin to maintain deficits: Minneapolis Fed
The rebuttal’s co-authors were Axiom Capital general partner Allen Farrington, Freddie New from Bitcoin Policy UK, and Dennis Porter from the Satoshi Action Fund.
They concluded that the combination of “methodological weaknesses and personal or institutional biases” undermines the paper’s academic objectivity, which “fails to provide a credible analysis of the utility or future of Bitcoin.”
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