Clueless pundits don’t understand Bitcoin

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Bitcoin’s 700,000 transactions per day is evidence of “price manipulation” and “fake activity,” according to two observers from the blockchain world. Let’s take a look at why those claims are nonsense.

‘Analysis’ suggests microtransactions equal price pumping… really

The argument arose when analyst Timothy Peterson, Investment Advisor and founder of Cane Island Alternative Advisors, observed transaction data by Coinmetrics and tweeted that Bitcoin SV’s (BSV) large daily volume of microtransactions was a sign of “automated wash trades” to boost the BSV price.

Since November 2019, BSV’s daily transaction throughput has surpassed that on the BTC Core (BTC) network. It has frequently topped 5-600,000 per day, while BTC’s stays mostly in the 3-400,000 range. BSV has also occasionally passed the 1 million transactions per day mark, something BTC does not have the capacity to handle.

Peterson noted that the median transaction value (in USD) on BSV was less than 1/10th of a cent, and concluded that the “only explanation is automated wash trades to inflate $BSV stats and pump price.” (Peterson’s Twitter account is protected, so we can’t link to it here.)

Automated microtransactions are actually a feature

That Preev (which records market data) and WeatherSV (weather data) are BSV’s two largest suppliers of transactions is no revelation. In fact, CoinGeek reported it in October 2019 and their role is a frequent topic of discussion online.

It’s also well-known that these two applications that generate mainly microtransactions as they record their massive volumes of data. Given the two both serve a clear and stated purpose as data providers in their fields, it’s hard to understand how their activity could be considered price manipulation.

Both services have existed for some time, and their transaction volumes do not correspond to large price movements—something a market analyst should probably consider.

And yes, both of them write data to the blockchain using an automated process. That is also by design… and also kind of obvious. Does Peterson honestly think humans would be tapping out and sending 700,000 individual transactions daily of <0.1 cents each with their fingers on mobile wallets?

Crypto ‘media’ runs with the ball, face-plants

Nevertheless, Peterson’s data was quickly turned into propaganda articles by blockchain media pundits. Bitcoinist’s Ricardo Martinez put out an icy-cold take on the analysis with an article titled “Bitcoin SV Volume Is Heavily Manipulated, Data Finds”.

The first subheading in the article sets the scene: “Bitcoin Satoshi’s Vision, or Bitcoin Scam Version?” We’ll just leave that one there as an indication of where the piece heads.

It continues: “Bitcoin SV, the cryptocurrency led by self-proclaimed Satoshi, Craig Wright, seems to have heavily manipulated transaction data, according to a report by Coinmetrics. Bitcoin SV has been controversial since its inception, not only because it was created as a contentious fork which caused a messy split of the Bitcoin Cash (BCH) blockchain, but also because of the involvement of Craig Wright and Calvin Ayer (sic) with the project.”

Martinez then reaches this odd conclusion:

“This can lead to only two conclusions, either BSV is being used to process almost a million micro-payments every day, which eclipses the volume of the Lightning Network, or the volume is being spoofed by trading bots to fake activity. Seeing that there are only 40,652 active BSV wallet addresses, it’s highly unlikely that these transactions are genuine.”

Peterson’s original tweet series had said, “Only explanation is automated wash trades to inflate $BSV stats and pump price. This is what price manipulation looks like.”

It’s not clear how or why transactions of any kind could be considered “fake activity” or “spoofed volume”. Bitcoin is a publicly-viewable blockchain, and either the transactions happened or they didn’t. Even if the entire network was one user sending transactions back and forth, those transactions were still confirmed by a mining network (with hashing power that’s also auditable).

Additionally, “trading bots” tend not to transact on the blockchain itself, mostly they’re on exchanges’ internal networks. Martinez perhaps means large volumes of microtransactions are being sent by “bots” to exchanges to somehow pump the price—although 700,000+ microtransactions would be an inefficient way to inflate price. Price pumps also tend to happen on-exchange, not on the blockchain, and >1 cent transactions wouldn’t do much to change the price anyway.

Transactions are transactions, and demonstrate utility

The data actually shows the BSV network has capacity, low fees, and the ability to handle—using Bitcoinist’s own words—as many transactions as the BTC Lightning Network, on-chain.

Last week, the Bitcoin SV Scaling Test Network processed a block over 1GB in size. That was on a testnet, so obviously no real-world economic activity occurred. Does this mean the network didn’t actually mine and confirm the block? Of course not. Was it a technical accomplishment no other blockchain had achieved in the past? Yes.

But we digress, since it appears Bitcoinist’s Martinez is using the data to make a point about actual usership. It seems to hinge on the notion that transactions that aren’t between individual humans or companies are not legitimate use cases… for some reason.

Except that they are legitimate. Machine-to-machine transactions (again, in large volumes at small values) have long been touted as a Bitcoin/blockchain feature. You’ll hear it mentioned regularly at conferences when discussing artificial intelligence, Internet of Things (IoT) and the “fourth industrial revolution”. Economic activity is economic activity, no matter who’s paying whom (or what’s paying what).

Perhaps BTC followers should instead investigate the reasons why BTC isn’t being used for such purposes—or by many people at all really, given the seven-odd years it’s been in the public spotlight now.

Other more insightful commentators, like Clearmatics’ Tim Swanson, have highlighted BTC’s lack of diverse real-world usage for many years. A large percentage of BTC’s volumes even today are transactions between users and cryptocurrency exchanges.

Is that a sign of “manipulation”? Hardly. Tragic, given that it’s supposed to be an alternative world currency? Perhaps.

Data shows Bitcoin blockchain being put to good use

One key point about Bitcoin that both the above pundits forgot is, microtransactions were once a key selling point for BTC too. That is, it was until BTC’s 1-4MB capacity clogged and fees became prohibitively high, and the microtransaction angle was quietly forgotten.

Bitcoin SV is a high-capacity blockchain-based network designed to process and record massive volumes of data on-chain. In fact, that is its key selling point. BSV is designed to handle enterprise-scale applications to rival anything that exists today, perhaps even the internet itself.

Microtransactions can also benefit content producers, allowing them to earn money selling large volumes of digital goods (as small as a tweet-length post) at a micro price. Again, even BTC fans used to promote this idea.

Perhaps Bitcoiners have become too accustomed to debates about price, trading, buying coffees and paying fees to think of Bitcoin’s other potential use cases. Bitcoin was always intended to scale massively, with payments as its entry-level application.

After February 2020, Bitcoin’s Genesis upgrade removes all default limits on transaction block sizes and restores key features to help unlock Bitoin’s true potential. Applications will even be able to negotiate with mining operations to process those volumes at special rates. WeatherSV, for one, has already made such a deal—though it seems inattentive BTC commentators missed that news.

Post-Genesis, signs of large-scale microtransaction volume will appear more and more often as good news, and in real business forums. That it was ever seen as otherwise will, in the future, become a case study in the ignorance of an earlier time.