"A Gaslit Asset Class"

A VENERABLE COMPUTER SCIENTIST RINGS THE BELL ON BITCOIN

They say no one rings a bell at the top, but I feel like that just happened with Bitcoin. The story I am about to tell you is not “Bitcoin bashing,” but a sober report from an eminent computer scientist.

But first, some context is in order.

Grants Interest Rate Observer is the preeminent financial journal for professional investors. Since 1985, editor Jim Grant has published an erudite, insightful, and entertaining newsletter every two weeks, except for an August break. As any Wall Street mogul will tell you, a subscription to Grants is both expensive and indispensable.

On September 30, I attended, as I have for many years, the Grant’s Annual Fall Conference, held in the imposing Plaza Hotel on Central Park in Manhattan. Like its publication namesake, this conference is both expensive and indispensable, as the speakers often reveal trends or portending events long before they hit the mainstream financial media. I can safely say that the high cost of the Grant’s conference has repaid me many times over in subsequent investment returns, or in avoiding disasters. For example, in December 2006, a speaker ripped the veil off mortgage-backed securities, definitively exposing their corruption. It was one of those mic drop moments. Within months, the MBS space began to unravel.

It’s no accident that both Grants and the Plaza are located in the heart of Manhattan, which is the heart of New York City, which is the heart of global financial capitalism. So positioned, Grants has access to the critical mass of sophisticated investment money and financial research that has supported its operation for many decades. Grants Conference attendees are private, rich, serious, and astute. Of the many investment gatherings I have attended over the years, Grants attendees are by far the most sophisticated.

This fall’s gathering kicked off with the usual all-star lineup. All the presentations were, as always, insightful and offered sophisticated analysis from various experts. Several speakers discussed the advantages of hedging a portfolio with gold, which is typical at this conference.

The surprise of the day was the final talk, held late in the afternoon. The speaker was David S. H. Rosenthal, Ph.D., a distinguished software engineer with a remarkable career in data security, cryptography, and distributed ledger technology. The title of his speech was “The Gaslit Asset Class,” and it focused on Bitcoin. The theme: Bitcoin is not what you have been conditioned to believe.

Rosenthal’s address was technical and dense – several decades of cryptocurrency expertise crammed into a 25-minute presentation. Despite the dry, academic style, Rosenthal’s jaw-dropping exposé silenced a room brimming with financial experts.

Unfortunately, a replay of Rosenthal’s speech is not available unless you attended the Conference (at a cost of about $2300), so I cannot share it. The good news is that Professor Rosenthal has provided a verbatim transcript of his speech, complete with scholarly references, on his blog post, which you can and should read here. So doing, you will not see Bitcoin in the same light.

“The Gaslit Asset Class” was a pitch-perfect title. Consider what it means to be gaslit. The expression comes from the great 1944 film, Gaslight, which revolves around psychological manipulation, deception, and the erosion of self-confidence. It explores how an abuser can systematically undermine a person’s perception of reality, leading them to question their sanity – a phenomenon now commonly referred to as “gaslighting.”

In the story, Paula’s husband, Gregory, secretly manipulates the gaslights in their home, causing them to flicker and dim. When Paula notices and mentions it, he dismisses her observations, insisting the lights are unchanged. This causes Paula to doubt her perception of reality. Gregory exploits Paula’s trust and innocence, leading her to question her own sanity and fostering her dependence on his version of reality.

The story ends happily for Paula, who eventually uses hard facts to shatter Gregory’s psychological control. But the lingering lesson is that Paula should have trusted the evidence of her own senses.

Which explains why I did not invest in Bitcoin. Doing so would have meant losing confidence in my judgment of its apparent flaws simply because nearly all trusted authorities—financial advisors, government officials, and even the market itself (a powerful persuader)—told me that Bitcoin was a solid investment. Those who see flickering gaslights in the Bitcoin story, only to be told repeatedly that the light is steady and strong, have sometimes doubted our sanity. How could such a powerful and persistent financial phenomenon as Bitcoin be hollow at its core?

Now, David S.H. Rosenthal steps up to tell us we are not crazy after all, declaring flatly: “Much of what you have been told about cryptocurrency technology is gaslighting.”

Please indulge a short detour so I can summarize my long-standing skepticism about Bitcoin’s suitability as an alternative to government fiat money. My misgivings fall into three categories.

First, money (as defined by Ludwig von Mises) is a “widely accepted medium of exchange.” But Bitcoin has never been widely accepted, nor is it practical for use in everyday commerce. To illustrate, investors use Bitcoin to speculate on all manner of other digital assets, but who uses it to pay the rent? In addition, Bitcoin’s dollar price (exchange value) is very volatile, which alone makes it unsuitable as money. Although some say this volatility will eventually dampen, it’s hard to see how, as Bitcoin is highly correlated with tech stock prices, acting primarily as a speculative asset—a digital Beanie Baby.

Second, Bitcoin transactions depend on shared social infrastructure such as the internet and the electric grid. How could you transact in Bitcoin if this public infrastructure were disrupted, even temporarily? By contrast, physical cash or gold would still work.

Third, Bitcoin is touted as “ungovernable,” yet some level of cooperation with government is required for any money to function in an advanced economy, even if only to enforce contracts between transacting parties. Bitcoin is not immune from government intervention: China prohibits its citizens from transacting in bitcoin while willfully exploiting bitcoin mining operations. More on that shortly.

Thus, I have never invested in Bitcoin because its stated purpose never matched its observable characteristics. However, I've always rooted for Bitcoin because it represents an attempt to develop free-market money—and who doesn’t love free markets? So, I thought, I would love to see Bitcoin succeed, and if somehow it overcame my misgivings, I would happily use it as a transactional currency.

Now comes Professor Rosenthal, who echoes my concerns and adds a bevy of his own backed up by years of expertise, experience, and research. What are the claims the Bitcoiners have relied on? Rosenthal’s lead slide spells them out, in order:

• The system was “trustless” (i.e., it did not need third-party verification) because it was decentralized.

• It was a medium of exchange for buying and selling in the real world.

• Transactions were faster and cheaper than in the existing financial system.

• It was secured by Proof-of-Work and cryptography.

• It was privacy-preserving.

“These claims are all either false or misleading,” Rosenthal declared. Even Bitcoin’s mysterious creator, Satoshi Nakamoto, knew of Bitcoin’s shortcomings. Why did Satoshi go dark in 2010, never to return, leaving his unfinished work to his acolytes? We may never know. What we do know is that “In most cases, Nakamoto’s own writings show he knew this. [But] his acolytes were gaslighting.”

Having neither the space nor the expertise to reprise Rosenthal’s entire talk, I‘ll provide a few highlights. All serious investors, including investment advisors urging their clients to buy Bitcoin, should read Rosenthal’s entire transcript. For skim readers, here are a few Rosenthal Stunners.

Decentralized? Far from it. Numerous “centralizing forces” cause gradual centralization over time. For example, Bitmain, the Chinese digital mining consortium, potentially controls 51% of the Bitcoin network, making attacks on the database not only possible but likely. In the Q&A, Rosenthal elaborated: Given the dominance of Bitmain, what is the vulnerability of American investors to Chinese attack? “So I’m not saying this is what’s happening. I’m saying that potentially the extent of Bitmain’s control over the bitcoin-mining industry gives China a weapon, because not now, but given the policies of the current administration, cryptocurrencies will form a significant part of the U.S. financial system.”

Medium of exchange? Bitcoin is not and cannot be used in everyday commerce. How would you use it in a vending machine so that you receive your granola bar within 10 seconds of entering your payment? Bitcoin’s processing time is 10 minutes!

Using Bitcoin requires off-ramps and applications welded on top of the Bitcoin database. In other words, you have to get out of Bitcoin to use it. “The fascinating thing about cryptocurrency technology,” Rosenthal noted, “is the number of ways people have developed, and how much they are willing to pay, to avoid actually using it. What other transformative technology has had people desperate not to use it?”

Faster and cheaper? In fact, says the Professor, Bitcoin’s transactions are inherently slow and may take hours to verify. And they are expensive—the average transaction cost is $100. Moreover, when everyone wants to transact at the same time, the average wait time goes way up.

Secured by proof-of-work? Identifying some of the many flaws of the P-O-W security system, Rosenthall quotes a report from the Bank of International Settlements:

“Proof of work can only achieve payment security if mining income is high, but the transaction market cannot generate an adequate level of income….the economic design of the transaction market fails to generate high enough fees.”

In addition, Bitcoin’s proof-of-work verification system is not impregnable in the coming age of quantum computing. Not only is quantum capable of hacking the system, but there is a huge economic incentive to do so: some 20% of Bitcoin “keys” have been lost. If a quantum cyber-sleuth could recover them, the booty would be worth $460 billion at today’s price of bitcoin. (As we go to press, a Bitcoin is quoted at about $114,662, down from an October 6 all-time high of $126,210.)

Privacy preserving? In theory, yes; in practice, no. Bitcoin privacy depends on digital “keys” known only to the owner. But in practice, users need to use exchanges and apps that tie the user to a public key. According to Rosenthal, there is a flourishing ecosystem of companies that “deanonymize” wallets by tracing the user’s web of transactions.

Concluding, the professor cast one more pearl. There is great financial risk in Bitcoin. The AI bubble is heavily influencing equities, Rosenthal reminded us. In the event of an epic AI bust, the S&P500 would nosedive. Given the “strong and increasing” correlation between equities and cryptocurrencies, they would crash, too. “The automatic liquidation of leveraged long positions in DeFi will start, causing a self-reinforcing downturn…[revealing] bugs in IT systems and ‘smart contracts’ as their assumptions of adequate resources and timely responses are violated.”

As Rosenthal ended, you could hear a pin drop, and I thought I heard the sound of three hundred mental models fracturing in real time. How could it be that these sophisticates had never heard Rosenthal’s warning before?

The answer is that the knowledge system of cryptocurrencies is broken. Alex Epstein, the author of Fossil Future, defines “knowledge system” as “the people and institutions we rely upon to research, synthesize, disseminate, and evaluate expert knowledge.” In the case of Bitcoin, most of the players in this complex information system are the gaslit, not the gaslighters.

And you can’t help but notice that its devotees tout Bitcoin as “trustless” money - while trusting a flawed third-party knowledge system to tell them Bitcoin is trustless. Oh, the irony. Do hodlers need another Bitcoin to verify Bitcoin?

As Rosenthal puts it, “Bitcoin’s massive cost is a result of its lack of trust. Users pay this massive cost, but they don’t get a trustless system. They just get a system that makes the trust a bit harder to see.”

In essence, Rosenthal is arguing that cryptocurrency’s “success” is an illusion—fueled by speculation and hype, but undermined by a technology that’s too fragile for widespread use. While it appears groundbreaking in theory, in reality, it’s a Rube Goldberg machine for which people pay fortunes just to pretend it works. This aligns with Rosenthal’s broader critique, which champions practical, sustainable innovation over buzzwords.

In contrast to Bitcoin, says Rosenthal, other technological advances overcame productivity barriers by perfecting their innovations rather than working around them. Electricity’s initial safety risks were worth taking because of electricity’s productivity gains. Same with automobiles. Early smartphones with tiny screens and limited batteries were limited, but more applications and an easy user interface attracted users who wanted their conveniences.

But Bitcoin is a solution in search of a problem. As far as I can tell, it solves no problems that people actually care about. The problems it purports to address – privacy, security, transaction costs, transaction speed – are pretty well under control in the banking system, thank you. Bitcoin enthusiasm appears to be driven, at least in part, by a weird kind of anti-bank libertarianism, not any real social need.

If you’re interested, Rosenthal’s 2022 critique of “Blockchainism” expands on these ideas, as well as a YouTube video version.

In closing, here’s a contrasting attitude toward Bitcoin from the Chinese perspective. Chinese authorities have for many years encouraged their citizens to own and save physical gold. At the same time, they have prohibited these same citizens from purchasing or selling Bitcoin.

To Americans, bitcoin is “digital gold.” To the Chinese, gold is “physical bitcoin.”

Do the Chinese see something we do not? Who has the right formula?

Thanks for reading. I’ll try to produce a video version of this essay in the near future.

[I’m not telling you to buy or sell crypto—I’ve never owned it myself. I am merely reflecting on a weighty experience I had last week, which turned me from a Bitcoin agnostic to a disbeliever. Seek your own investment advice from a trusted professional.]

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HardmoneyJim. October 13, 2025