A controversial European Central Bank paper published earlier this month that stopped just short of calling Bitcoin a Ponzi scheme was slammed in a lengthy rebuttal by a group of crypto academics.
The ECB paper “portrays Bitcoin’s volatility, lack of productive contribution, and wealth concentration as critical flaws,” wrote Murray Rudd from the Bitcoin advocacy organization Satoshi Action Fund.
In the rebuttal released on Oct. 22, the crypto academics critiqued the Oct. 12 ECB working paper by Ulrich Bindseil and Jürgen Schaaf that caused outrage among crypto advocates.
The rebuttal concluded that a combination of “methodological weaknesses and personal or institutional biases” undermined the ECB paper’s academic objectivity, which “fails to provide a credible analysis of the utility or future of Bitcoin.”
The ECB 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,” Rudd said.
ECB arguments “fundamentally flawed”
Rudd said the ECB report’s authors 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 said.
He added that the paper presented several flawed arguments, including claims about Bitcoin’s wealth concentration that ignored the fact that many large wallets are exchanges holding funds for millions of users.
He added that the ECB’s arguments about Bitcoin’s lack of intrinsic value overlooked its utility as a store of value and network effects, and criticism of the asset’s volatility failed to recognize this as a characteristic of early-stage technology adoption.
Rudd said the ECB’s critique of Bitcoin’s wealth distribution also “fails to recognize the broader implications of inflation within traditional financial systems,” 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 highlighted the ECB authors’ roles in developing a central bank digital currency (CBDC), or digital euro, 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 several 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.
Speaking to Cointelegraph, Bindseil said that after reading the abstract of the rebuttal, “It looks to be not being focused on our paper of October 2024, but to be a very broad defense of Bitcoin against all sorts of criticism.”
Schaaf told Cointelegraph: “They say in the abstract we were ‘positioning CBDCs as a superior solution for modern financial systems’ — while our paper doesn’t even mention CBDC.”
This article was updated on Oct. 23 to include responses from the ECB paper authors.
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