Bitcoin’s Unique Value Proposition

Abstract: In this piece we examine the question of “What is Bitcoin for?”  We conclude that neither low cost payments, censorship resistance nor digital payments, are particularly compelling on their own. However, when combining both censorship resistant money, with the ability to use money electronically, we have a potentially interesting and somewhat unique set of characteristics.



There has been a significant amount of debate and discussion in the Bitcoin ecosystem, about what Bitcoin is for.  Should Bitcoin be a form of “digital gold”, where a robust rule-set and a resilient network are the priority, or should Bitcoin primarily be considered as a payment system, where low transaction fees are the focus?

Of course most people would like Bitcoin to excel in both of these areas and in the long term,  Bitcoin may be able to do so.  However, the blocksize debate opened up a schism in the community, about which area should be the priority, in the short to medium run.

In this piece we look at three key characteristics of money and payment systems:

  1. Low transaction fees,
  2. Censorship resistance, and
  3. The ability to transact electronically.

We then look at various choices one could make when deciding which type of money to use and the set of characteristics that each choice provides.  We look at where Bitcoin should position itself, such that it may be able to provide a unique option.


1. Low transaction fees

Low transaction fees and usability have clearly been a key selling point of Bitcoin to many people.  Bitcoin has had lower transaction fees than many online international banking transfer systems and Western Union for example. A simple user experience is key to adoption, and there is a fear that if user adoption is too slow, Bitcoin may lose out to alternative payments solutions, either traditional centralized type systems or alternative distributed proof of work based tokens such as Ethereum.

However, although Bitcoin is cheaper and perhaps easier to use than some centralized alternatives, in many cases centralized alternatives are faster and cheaper than Bitcoin.  For example in many Western European countries, retail domestic interbank transfers are both free and instant.  In China, Alibaba (BABA US) and Tencent (700 HK) are offering fast, simple and cheap payment solutions.  Tencent is said to be able to handle 200,000 transactions per second, far in excess of what Bitcoin can achieve.  Some may see these offerings as a risk for Bitcoin, while others see this as a battle Bitcoin was always going to lose anyway.  Although currently fast and free payments are not available to everyone in the world, therefore Bitcoin can fill a useful niche.  However, if instant and free payments can eventually be provided by traditional payment solution providers, is it really sustainable to build Bitcoin based on the assumption that they won’t ever provide such an offering?


A shop window displaying various electronic payment options, including Alipay, WeChat Pay and Apple Pay


2. Permissionless & censorship resistant money

Other members of the Bitcoin community prioritize other features, ahead of low fees.  This is often characterized as “censorship resistance”, but may actually refer to a range of related properties.  The main aspects of these features are the following:

  • The ability to use the system without seeking permission,
  • The inability of the government or the authorities to block payments,
  • The inability of the authorities to reverse payments, and,
  • Resistance against the entire system being shut down.

However, just like the low transaction fee use case mentioned above, these characteristics are also non unique.  Physical cash (notes and coins) also have these features, again making Bitcoin seemingly useless.  Physical cash not only has these features, it has them to a far greater extent than Bitcoin.  Cash also has additional features which Bitcoin cannot offer, such as the ability to use cash when communication networks are unavailable or without a device such as a smartphone.

It should be mentioned that Bitcoin may have one interesting feature here that physical cash does not have, the censorship resistance of the rules of the monetary system as a whole.  In Bitcoin, end users may have the ability to enforce all the rules of the system, which cannot be said for physical cash.  This ensures some interesting properties such as the 21 million supply cap or preventing other inflationary type policies, not available as an option for physical cash.  In this respect Bitcoin can be said to be most like “digital gold”, in regards to its monetary characteristics.


The use cases of censorship resistant money

These censorship resistant type features are sometimes associated with illegal activity, the so called black market or grey market.  Although there are of course many legitimate use cases of this feature, for example a lack of trust with respect to your partner in the transaction or the high costs associated with enforcing payments, due to dealing in multiple jurisdictions.

Black market areas could include things like, tax evasion, money laundering, illegal drug dealing, sex related services, the sale of illegal weapons, bribery and organized crime.  Grey market areas could be considered as legal goods and services, sold in an unauthorized way.  Grey market type transactions could be said to include:


  • Remittance to or from a country imposing some form of capital controls,
  • An individual subject to political oppression restricting the use of their funds,
  • Purchasing products or services from a lower price or alternative region without the consent of the regulator, manufacturer or service provider, for example pharmaceuticals, consumer electronics or media subscription services,
  • Donations to a politically sensitive cause,
  • The sale of cars without proper registration,
  • The unauthorized sale of copyrighted material such as textbooks,
  • Computer software or digital content sold without the correct license,
  • Unauthorized transactions in stocks and shares in the OTC market,
  • Participation in online gambling or poker without meeting regulatory requirements,
  • Sporting event tickets sold in violation of the terms printed on the ticket,
  • The sale of airline loyalty points in the secondary market,
  • A young teenager using online e-commerce systems or in store mobile payment technologies, without being old enough to have the necessary banking relationships,
  • A female using online e-commerce systems, in a cultural environment where its socially unacceptable for females to have banking relationships,
  • Payments for basic services such as babysitting, without registration for sales tax or employment,
  • Payments to a babysitter who has inappropriate immigration status, or,
  • Payments from intelligence services to informants.


These examples may make this use case somewhat controversial and many may think there could be limited upside due to a lack of demand for these goods and services.  However, in our view there is significant demand for this type of use case, indeed some people estimate these types of activities account for the majority of global economic activity, depending on how its measured.

Additionally, as we explained above, Bitcoin offers nothing new here, physical cash already has the features which make it ideal for these scenarios and actually has superior qualities to Bitcoin in relation to censorship resistance.  One key cultural difference is that physical cash is already deeply embedded in society, while Bitcoin is relatively new, making it potentially more controversial.

HSBC UK credit card eligibility criteria – requiring users to be over 18 years old

Note: Credit card systems are typically used as the base layer for mobile payment technologies, which are therefore often inaccessible to those under 18 years of age, unlike cash which is permissionless.


3. Electronic payments

In our view, as we enter the digital age, one characteristic of money trumps all of them.  The ability to use money electronically, such that it can be used over the internet or on a mobile device.  The internet and electronic communication systems are becoming increasingly integral parts of our culture and therefore the ability to use money electrically is an incredibly powerful feature, becoming increasingly important.

However, Bitcoin certainly does not provide anything new in this area either.  When using traditional currencies like the US dollar, internet based payment systems, controlled by computer interfaces have been around for years.  Recently, the options available in this area are improving rapidly, with mobile payment systems gaining significant traction.


Evaluating the combinations of these three characteristics

After reading the above, one may conclude that Bitcoin has no unique characteristics whatsoever.  This is true to some extent, however the key value proposition of Bitcoin, is a unique combination of the above characteristics, namely to have both censorship resistance and an electronic transaction system.  This subtlety can make the value proposition of Bitcoin difficult to understand, resulting in significant amounts of scepticism, when one first comes across the subject.

The below table aims to illustrative the three key features discussed in this note.  Two alternative strategies for Bitcoin are outlined below, one prioritizing low transaction fees and the other prioritizing censorship resistance.  The analysis is an oversimplification, assuming a binary choice between one or the other, when the reality is far more nuanced, however it still illustrates a point.

When choosing to prioritize low fees, the boxes ticked in the below table are identical to those ticked for traditional electronic payment systems, which can already provide both low fees and electronic payments.  However, by focusing on censorship resistance, a unique set of boxes is ticked, ensuring Bitcoin provides a unique set of features that cannot be offered by any of the competing systems.  No other monetary or payment system is able to offer both censorship resistance and electronic payments.  Therefore, in our view, however vital low transaction fees are, if we are faced with a decision, the smart choice may be to prioritize the strategy that provides the most unique combination of characteristics.  This could mean choosing censorship resistance, rather than focusing on what appears to be the most immediately useful requirement.


Ability to offer low transaction fees Ability to offer censorship resistant type features Ability to transact electronically
Physical cash
Bank deposit/traditional electronic payment systems
Bitcoin (Priority: Low fees)
Bitcoin (Priority: Censorship resistance)


Of course Bitcoin still needs to balance the need for both low fees and censorship resistance, and hopefully can achieve both, perhaps with new technology. Therefore, in the medium or longer term, perhaps all three boxes in the above table can be ticked.



We conclude that the “point” of Bitcoin is to provide characteristics traditionally only available when using physical cash, but in an electronic form, suitable for the digital age.  An “electronic cash system“.  Therefore its a false dichotomy to believe we are facing a choice between “digital gold” and a cash type system.  Bitcoin can be considered as a hybrid option, between digital gold, physical cash and traditional electronic payment systems.