Until recently, I had paid little attention to cryptocurrencies, such as Bitcoin, because they seemed to be just another form of fiat currency—backed by nothing of real value. They seemed to be a reductio ad absurdum—a spoof—of government-issued fiat currency: If a government can declare money into existence from nothing, then so can an anonymous individual.

Therefore, I was astonished to discover that some pro-freedom friends of mine were bullish on cryptos. Although I was not convinced by their arguments, I was intrigued, and so I plunged into researching this field for several weeks.

What I found was an astounding richness of development: layers upon layers of advanced software tools; theoretical and practical scholarship; intricate financial products; and developed markets and subcultures.

Nevertheless, I am now more doubtful than ever that the leading cryptocurrencies have any rational value. My doubt now encompasses the very concept of blockchain, the technology that underlies the leading cryptocurrencies.

On the other hand, I am a novice in this field. Therefore, it is prudent to express my doubts in the form of questions, presented below, to which I sincerely seek answers.

1. Is a self-referential cryptocurrency, backed only by itself, truly a store of value?

Proponents of Bitcoin consider it a store of value because its holders deem it so. But in a rational society, an asset retains its value only when its value is objective, when it enhances human life. Is Bitcoin’s value objective? Gold, because of its malleability and non-corrosive properties, is especially suited to memorializing human action—as a wedding band memorializes a marriage—without the approval by any authority. On what objective basis, not leading to a self-referential infinite regress, does a Bitcoin have objective value? Is a Bitcoin especially suited to memorializing human action?

Proponents admire that the total supply of Bitcoin is strictly limited, unlike the supply of dollars and other government-issued currencies. But if Bitcoin can bootstrap itself into existence without the coins having to refer to anything outside themselves, so can other cryptocurrencies, and so they have. At present, Bitcoins now constitute roughly 45% of the market value of all crypto coins. Is that reduction from 100% to 45% essentially a 120% inflation causing a 55% dilution of value of Bitcoins? Is there any limit to this kind of dilution? Does Bitcoin’s claim to being an inflation-proof store of value rely on its being a monopoly cryptocurrency?

Proponents of Bitcoin claim that it cannot be seized by authoritarians. But is Bitcoin immune to seizure merely because there is nothing to seize? Recall this line from a translation of the play No Exit by Sartre: “You can’t kill me, I’m already dead.” Is Bitcoin merely a realization of the worst-case scenario from the outset?

Similarly, is Bitcoin highly portable because there is nothing to port? Is a Bitcoin merely a receipt to nowhere? When proponents believe Bitcoin is valuable, are they merely making believe?

2. Are cryptocurrencies susceptible to “democracy risk”?

Permissionless blockchains, such as those used by cryptocurrencies such as Bitcoin and Ethereum, rely on some kind of “consensus” or “democracy” of the nodes in the network.

Blockchains using “proof-of-work” (such as Bitcoin) rely on an assumption that a majority—or perhaps a significant majority—of computing power is in the hands of “honest actors.” Blockchains using “proof-of-stake” (such as Cardano) rely on an assumption that a majority—or perhaps a significant majority—of coins is in the hands of honest actors. Are these assumptions prudent?

Much has been written and spoken about organized and powerful adversaries, such as the Chinese government, that might accumulate a majority of computing assets or coins to corrupt a cryptocurrency. But the experience of Wikipedia illustrates a different flavor of potential democracy risk. Wikipedia is now controlled by ideological Leftists. The controllers probably do not view themselves as corrupters or destroyers or any kind of adversaries of Wikipedia, but rather as guardians who have improved Wikipedia and who maintain those improvements. Could similar ideologues also gain control of cryptocurrencies? For example, suppose a majority stake of Ethereum (which is moving to proof-of-stake) is held by political “progressives.” Could this majority decide, for ideological reasons and even to their own financial detriment, to authorize transactions that in effect levy a progressive property tax on all holders of Ether (the Ethereum coin)?

Advocates of cryptocurrencies see their cryptos as a “decentralized,” “democratic” alternative to “centralized” money. But hasn’t our current system of centralized fiat money in the U.S. and other Western nations been arrived at democratically? Is democracy or consensus truly a protection against monetary tyranny?

A proof-of-stake system is more like “one dollar one vote” than “one man one vote,” but would “one dollar one vote” have saved the dollar from capture and corruption by the U.S. government?

3. Is “centralized” vs. “decentralized” the fundamental alternative in banking, finance, and money?

Consider an old-fashioned bank that is a trusted third party in transactions and that issues its own receipts—its own currency—backed by gold in its own vault. Is such a bank a centralized system? In contemporary parlance, such a bank might be called a centralized, permissioned system. But is such a bank centralized in the same way that the present U.S. system of money is centralized? Might such an old-fashioned bank also be considered an “individualized” system? From the perspective within the bank’s network, the network is centralized, but from the perspective of the bank’s network in relationship to the entire society, might the network be considered individual? Each customer of this bank is free to use this bank and this bank’s currency, or to use a different bank and different currency. In contrast, the present centralized system requires that everyone in the U.S. recognize the dollar, which is controlled by a central government, not any independent individual bank.

“Decentralized” means “having had its center replaced by another kind of mechanism.” There may be virtue in decentralization, in that there is no center to fail or for an adversary to capture; the network can continue if any one node is lost. But is consensus, the mechanism that cryptocurrencies use to replace centralization, the mechanism that is best for protecting individual liberty? Isn’t consensus in fact just another opposite of individualism?

Here is another perspective on this question. Although a consensus of citizens might be more trustworthy than a corrupt government, is a consensus of citizens more trustworthy than a particular person or banking institution that has earned a reputation of trustworthiness?

Considering further the question of centralization vs. decentralization, are Bitcoin and other cryptocurrencies truly decentralized? Every node in the Bitcoin network has a copy of the same ledger. Is such a system decentralized, or is it uniform? Although each node makes short-term decisions independently, eventually each node is compelled to conform to the decisions of the consensus. Is Bitcoin a decentralized system or a system of lockstep conformity? Is such a system decentralized, or is it a dictatorship of the consensus?

Isn’t rule by consensus merely another form of collectivization? A consensus can be discovered only by polling the whole network. Instead of being rule by a center of a circle, isn’t consensus a kind of rule by the circumference? Is that kind of system any better for the individual?

When characterizing possible organizations for banking, finance, and money, one form of characterization is “centralized” vs. “decentralized.” What about another form of characterization: “individual” vs. “collective”? Which form of characterization is more important?

In contrast to rule by consensus, an individual, independent bank makes decisions without having to consult any wider authority except the law of the land. In a reasonable society, the law of the land would merely forbid the violation of individual rights. Are the rules governing Bitcoin, Ethereum, and other leading cryptocurrencies as good at protecting individual rights as are the U.S. Declaration of Independence and Constitution?

In summary, isn’t a system of individual, independent banks issuing proprietary currencies backed by tangible assets a system of individualism? And aren’t a government-controlled fiat currency and a consensus-controlled cryptocurrency two forms of collectivism? It’s true that an individual is not forced to accept Bitcoin as money, but why would a rational individual choose to do so any more than he would choose to join a commune?

4. Is blockchain truly a secure structure for a transaction ledger?

Consider the adage, “A chain is only as strong as its weakest link.” In a blockchain, old blocks are made more secure by each new block appended to the chain. But if the recent blocks are corrupted, doesn’t that corruption thereby corrupt the whole chain? What good is having a ledger of my account that was accurate for 20 years if someone can rob all my money by zeroing out my account ledger today?

5. Is proof-of-work truly secure compared to other methods of security?

The method of digital signatures of transactions, using private and public keys, is very secure in the following respect. It takes very little computational work to sign a transaction, but a tremendous amount of computational work to forge the signature. That is, digital signatures offer a tremendous amount of computational leverage to honest actors. Dishonest actors would have to do a tremendous amount more work to corrupt a system than honest actors had to do to secure the system.

Similarly, it is easier for me to sign a printed document than for a dishonest actor to forge my signature. It is easier for me to lock and unlock my safe than it is for a burglar to break into my safe.

In contrast, proof-of-work offers no leverage in this respect. It takes no more computational work to produce a phony block with a new proof-of-work than to produce an honest block with the original proof-of-work. This lack of leverage is the reason why blockchains such as Bitcoin consume so much energy. Honest actors must do tremendous amounts of work in order to require dishonest actors to do tremendous amounts of work to break the system.

Is this lack of leverage for honest actors a flaw in the concept of blockchain? Is it a fatal flaw?

Answers to my questions are welcome, either in public or private.