Crypto
Bitcoin Is Global Money For An Interconnected World
Globalization + What Is Money = Bitcoin
What is money? It’s one of the more popular questions of the last few years. Especially in 2020 and 2021, when the grand, new U.S. administration decided to act as if a drunken sailor had taken over the keys to the printing press.
“You get money, you get money, and you get …” CTRL+P … CTRL+P … CTRL+P …
So — what is money?
It’s a question I asked early in my journey that started in the depths of the Great Financial Crisis (GFC). I asked this question for years before and after the infamous month of September 2008, when the global financial system ground to a halt.
Bank Runs And Liquidity Crises
A historic day, September 16, 2008, the day of the breaking of the buck … The day when global money market funds were no longer worth a dollar due to a liquidity crunch manufactured by the world’s most prominent banks, corporations, hedge funds, elites and global financiers — a crunch precipitated by professionals, not retail.
The systemic plumbing was frozen. Since May, the cryptocurrency ecosystem has been facing its own liquidity crisis.
This new digital asset class consists of many new and naive players, many who’ve never seen what happens when financial plumbing freezes. Pain has been felt and narratives have been shattered as the meltdown and deleveraging moved across the intertwined system. The market is taking no prisoners, much the same way it always does in the traditional financial system. Leverage and greed are a double-edged sword. The two have no mercy on anyone in their path. No player goes unscathed. Neither did bitcoin or traditional markets as the spillover from leverage and degen trading made its way across the globe, one financial participant and asset at a time.
So, we sit here, facing our first real and broad liquidity crisis in Bitcoin.
This is a crisis precipitated by greed, exposed by Terra/LUNA’s algorithm which attempted to codify the behaviors and role of the Federal Reserve Board. Through these mechanisms we learned they provided a facility for ex-Wall Street sharks to target as they swam amongst cryptocurrency liquidity pools, exchanges, and newly-formed cryptocurrency hedge funds.
Some things never change … even if money tries to.
Greed is hard to avoid and hides in plain sight under the names of yield, credit, lending and arbitrage.
We watch headlines one after another as they announce the failure or merger of major “decentralized” cryptocurrency institutions. As they crumble we realize many of these “over-collateralized” lenders and loans may have just been another alias for greed — the very thing Bitcoin and its 21 million impenetrable units are supposed to help fix, but in the end did not.
What we found is that the money might be different, but individuals and institutions are the same.
I guess there really are wolves in sheep’s clothes?
What we found is that education matters. An education on money is still sorely needed before Bitcoin and money are ready for globalization!
Monetary Crises Are Not New
The psychology and behavior of these events are typically the same. Whether it’s 1873, 1893, 1907, 1929-1933, 2000, 2007, or 2020. It always feels much like it does now — the hype, the hysteria, then the disbelief as the dominoes fall.
Some have seen it before and some are finding out for the first time what it really means to be leveraged, experiencing the pain of receiving a margin call.
We are finding that contagion can reach Bitcoin even if it stems from the broader “cryptocurrency” ecosystem, as many believe. We’re finding out that boomers and their rocks may be jaded, but may also not be totally wrong. Every narrative is part truth and part marketing. In challenging times, you find out which is which.
Through pain is learning. Through pain there is education. It comes with a degree from the school of hard knocks.
Money made easily, goes easily.
Yield that sounds unreal, is unreal. It’s just a matter of time.
That’s the first grade lesson the community learned. One collateral asset plus a borrowed collateral asset is not equal to 20% risk-free yield. Some, unfortunately, will repeat first grade. Others will move on.
Preparing To Be Globalized Money
The entire digital asset class is facing its first real test as it prepares to become global money. We globalized people in the early 1900s, we globalized corporations and products in the 1980s and 90s, but we’ve still yet to globalize money. Until the globalization of money happens we can’t efficiently move people, products and money throughout the system.
What we learn from this event, from this bear market in bitcoin, will help lead towards the globalization of money, completing the triangle of people, products and money.
The same tests were taken by corporations, manufacturers and the travel industry as they prepared to move people, products and corporations around the world. So, now it’s time for money to stand up and take these tests as well.
Bitcoin needs to prove it’s ready to be a global money; to prove it’s ready for mass adoption.
This test proved you can’t lose sight of the meaning of having a low time-preference. This test proved you can’t have 100:1 leverage, why rehypothecation is bad and why even getting involved in an innocent attraction to yield can get messy, really quick.
Not your keys, not your coins just became, “Hand over your keys, hand over your coins.”
Given the amount of leverage wiped out, we know there were more wearing the not-your-keys t-shirts than there were practicing what they preached. Today, and for the past month or two, individuals are no longer asking, “What is money?” They are asking:
- Where is my money?
- What about that yield you promised?
- What is rehypothecation?
- Why, why why?
The short answer is greed.
As the 21st century nears being already a quarter behind us, it feels like a good time to reflect on where we are, where we’ve been, and where we’re headed. To do so, it requires reflecting on globalization: what that means, what its impact has been, and what it hasn’t achieved.
The Global Economy Is Integrated, But Money Is Not
This is the opportunity.
When referring to globalization, there’s no time like the present to quote our friends (below) at the World Economic Forum (WEF) on the definition of globalization.
Why? Shouldn’t we be running to the hills away from this group?
Didn’t they cause the destruction?
Didn’t they contribute to the mass psychosis of the last few years?
Aren’t they part of the conspiracy the anons are against?
Frankly … who knows? I’ll let you decide. They know. We don’t.
They’ll have to answer to the man upstairs at the pearly gates. Believers won’t have to answer for them.
All we can do is gather information that matters — to us, our families, our neighbors, our communities and the things that happen within the four walls of our own households. What matters is that money is being globalized as we speak. What matters is that the opportunity at hand is to be part of the globalization of money, to bring it inline with the movement of people and corporate products.
On the other side of this liquidity crisis will be a world that operates for the first time in a truly global nature. One where people, corporations, products and money flow seamlessly across the rails of the internet as needed and when needed.
So, according to the WEF, globalization is
“In simple terms, globalization is the process by which people and goods move easily across borders. Principally, it’s an economic concept – the integration of markets, trade and investments with few barriers to slow the flow of products and services between nations. There is also a cultural element, as ideas and traditions are traded and assimilated.
Globalization has brought many benefits to many people. But not to everyone.”
Let’s rewrite this a little. In simple terms, the opportunity is to globalize money so that it can move as easily across borders as people and goods, so that few barriers slow the flow of money between nations, people, products and services. The opportunity is to connect ideas and integrate traditions so that money can be traded and assimilated in manners that match and are globalized in a way that brings benefit to many, but more importantly, to everyone.
This is what the WEF, Bank for International Settlements (BIS), International Monetary Fund (IMF), World Bank and central banks preach but DO NOT practice with their siloed, self-serving non-globalized money. The opportunity is to introduce change.
My thoughts were stirred by Lawrence Lepard’s (@LawrencLepard) comment on a Twitter post by Otavio Costa (@TaviCosta).
The point conveyed is how the global economy is interconnected. An interconnected economic system is a good thing.
However, given the structure of how money flows through the system it doesn’t support the global nature of our people, products and corporations.
After the “COVID-19” meltdown of 2020 and the supply chain disruptions of 2021/22, it’s become apparent as to what the real problem is:
Yes, the global economy is interconnected BUT global money is NOT.
This presents a challenge for the way people want to move about the globe and how they need to pay for things. In the 20th century, we experienced globalization of people, products and corporations. The Bretton Woods (BW) agreement of 1944 initiated this movement, but was not successful in the globalization of money. Bretton Woods was an attempt to move from a fixed-rate gold system to a dollar-pegged fiat system, though it began to falter only a couple of decades after.
Living Out Triffin’s Dilemma
The benefit of Bretton Woods was that it paved the way for globalizing corporate products and business in a manner that matched the flow of people moving around the globe. The downside was that the system didn’t really solve the main problem of providing money that was truly global in nature. Though a new system, it still suffered the same problem of not being global. As such, it succumbed to Triffin’s dilemma.
“… the Bretton Woods system contained an inherent and potentially fatal flaw in its dependence on the dollar. … the volume of trade expanded over time, any fixed exchange rate system would need an increase in usable reserves, in other words, an increase in acceptable international money to finance increased trade and investment.* Future gold production at the established price could not be enough to meet the need, so the source of the international liquidity necessary to lubricate growth within the Bretton Woods system would have to be dollars …
“If the U.S. deficits continued, confidence in the dollar and eventually the system would be undermined, and the result would be instability. But if the U.S. deficits were eliminated, the rest of the world would be deprived of the dollars it needed to build up its reserves and finance economic growth. For countries other than the United States, the question later became stark: hold more dollars in their reserves or turn them in for more gold from the United States. The latter course, probably sooner rather than later, would force the United States to stop selling gold, one of the foundations of the system. The former course of holding an increasing amount of dollars would inexorably undermine confidence as the potential demands on our gold stock came to far exceed the amount available to meet them. Either course contained the seeds of its own disaster.”
Source: Changing Fortunes by Paul Volcker and Toyoo Gyohten
*Personal note: we tried to solve this with eurodollars.
In an attempt to combat this, during the 1960s and 70s, the Group of Five (G5) was created out of meetings by a select few that ultimately built international relationships to determine the pecking order underneath the U.S. hedgemon. They decided who would devalue, who would inflate and who would seek help through loans from the IMF and World Bank. These self-defined committees weren’t originally official in capacity, but are today what we refer to as the Group of Seven (G7), G8 and G10 — the groups that meet but appear to have increasinglyly taken direction from the Bank For International Settlements (BIS), International Monetary Fund (IMF) and World Bank as to how the global financial system should and will operate.*
*Interpretation source: Changing Fortunes by Paul Volcker and Toyoo Gyohten
As signs of trouble arose under Bretton Woods, it was determined that lack of reserves was the issue more than lack of money, as reserves would allow an extension of more money than just money itself. So, in 1969 the Special Drawing Rights (SDR) were set up as an international reserve asset. SDRs, in theory, would broaden the burden of one country being the global reserve, removing the nth currency problem. It was considered a digital asset that was a basket of the major global currencies of that time (USD, euro, yen, British pound, and the yuan as of October 2016). SDRs are held by countries and aren’t usable by individuals or private parties. Technically, SDRs were digital money, but they did not function as such because they lacked monetary and communication technology — two critical inputs that are now available in the 21st century.
“… he [secretary Henry Fowler] had succeeded in obtaining agreement on the creation of Special Drawing Rights, or SDRs, at the annual IMF meeting in Rio de Janeiro in September of 1967. Great hopes were placed on the imaginative new instrument, which promptly was labeled “paper gold” but was neither paper nor gold; as one wit at the IMF said, the SDR was “not minted, not printed.” Rather, the SDR could be found only in the blips on an IMF computer, and many restrictions were placed on activating the computer. … The financial markets viewed it as something of a synthetic creation that was not really as good as gold or the dollar.”
Source: “Changing Fortunes” by Paul Volcker and Toyoo Gyohten
In 2022, we are acutely aware and understand the ramifications of globalization without globalized money.
Now, we have the capability and monetary technologies in place. Now, we have true digital currencies. Digital currencies that are more than blips on an IMF computer. Now, we have the Bitcoin network. Now, we have the ability to globalize money.
But, do we have the global leaders to implement it? Are there leaders of countries who are more interested in producing sound money and less interested in battling for power and control during a time when our world order is seemingly up for grabs? Will the New World Order redefine money on a sound basis?
“At one point, my French colleague [Claude Brossolette] drew a little triangle on a piece of paper to illustrate what he considered the three ways of designing a monetary system. One one side of the triangle he wrote ‘Dominant Country’ or ‘Hedgemonic Power’ – I don’t remember the precise phrase. Underneath it he wrote ‘tyrant’. He said, ‘We don’t want that.’ On another side of the triangle he wrote ‘Dispersed Power,’ and underneath that he wrote ‘chaos.’ ‘We don’t want that.’ And that left only the base of the triangle, where he also wrote ‘Dominant Power.” But underneath that he wrote ‘benign.’
“I think he meant the United States had been relatively benign, and the system had worked.”
Source: “Changing Fortunes” by Paul Volcker and Toyoo Gyohten
Through decades of financial trial and error, banking panics, liquidity crises and geopolitical feuds we’ve come to understand that centralized money is a neverending financial war: a war precipitated by a few men and women and a handful of committees and central banks around the world — all centralized and all with their own self-serving interests.
In the United States, these financial battles began in the mid-1800s with wildcat banking and led to the Panic of 1907. This last event gave rise to the creation of the Federal Reserve in 1913, which was ultimately the outcome of similar but competing plans from Democrats (the Federal Reserve Act) and Republicans (the Aldrich Plan).
“The presidential campaign of 1912 records one of the more interesting political upsets in American history. The incumbent, Willam Howard Taft, was a popular president, and the Republicans, in a period of general prosperity, were firmly in control of the government through a Republican majority in both houses. The Democratic challenger Woodrow Wilson, Governor of New Jersey, had no national recognition, and was a stiff, austere man who excited little public support. Both parties included a monetary reform bill in their platforms: The Republicans were committed to the Aldrich Plan, which had been denounced as a Wall Street plan, and the Democrats the Federal Reserve Act. Neither party bothered to inform the public that the bills were almost identical except for the names. … since the bankers were financing all three candidates, they would win regardless of the outcome.”
Source: “The Secrets Of The Federal Reserve” by Eustace Mullins
After decades of Federal Reserve rule and improvements under the Bretton Woods system, we did have a broader and more diverse economic system, but also one that isn’t lasting. In short order, the new system (BW) began to falter in the 1960s and 70s and these uncorrected errors defined by the IMF and BIS still plague us today, after five decades of kicking the can down the road.
It is now clear that the lack of technology was the cause of the demise that led to the introduction of the petrodollar and the removal of the gold standard in 1971.
Global finance ministers were well aware because the system was breaking in the 1960s and 70s. They were bound by long plane flights and months of committee meetings — bound in a period when time was of utmost importance as it related to currency market turbulence; a time when the gold standard was removed, because no party was willing to relinquish monetary power at the expense of their country’s currency over another. In those days, the solutions were there but they required more technology than financial markets had access to.
“Organizational and institutional development is not, of course, a substitute for action, and the early Kennedy years saw a lot of technical innovation. For one thing, the United States began intervening in the foreign exchange markets, ending the taboo on such operations that had prevailed for many years. Partly as a means of acquiring resources for intervention, a “swap network” was established. That was a technique for prearranging short-term lines of credit among the major central banks and treasuries, enabling them to borrow each other’s currency almost instantaneously in the time of need.”
Source: “Changing Fortunes” by Paul Volcker and Toyoo Gyohten
Today, both on the monetary and communications front we have solutions for these problems.
They are driven by the power of the internet and new telecommunications towers.
In the past, the creation and maintenance of international relationships required days of travel or months of tireless committee meetings all over the world. The findings had to be brought back to each country and rehashed again. Now, much of that leg work can be replaced by instant global communication via mobile phone, text, email, chat and platforms like Zoom that offer video for more formal meeting purposes. Today’s technology immensely increases the ability to solve monetary problems and create policies quickly with real-time information and data access. Today, we can move in the direction of monetary communication and money that benefits all in a better means than in the past.
On the money front, we now have the Bitcoin network to act as a digital collateral asset, much like SDRs were intended.
As serious troubles within the monetary system arose, in the 60s and 70s countries began playing economic games in currency markets. It was a race to devalue in order to compete, a race that only put more pressure on an illiquid, disjointed, and fragile system.
Focus On The Home Front Or The Frontier?
For the U.S., there was a growing economic struggle to maintain and balance the needs at home with the needs of the world. It was becoming too much for one country. It was proving what Triffin had warned of. Once again, countries were beginning to sour on the benefits to the United States on their behalf. At the time, many international players were more open to a floating rate system as it would allow each to take care of themselves at home, though it may cause issues to the growing globalized economy of products and people. Today’s technology is better suited for exactly these types of globalized floating-rate monetary systems, encompassing networks involving Bitcoin, stablecoins and a host of other monetary technologies that can allow for the globalization of money.
Looking back, the SDR (sometimes called XDR) probably was the best solution conceivable at the time, but it was stymied by the fact that we didn’t have the technology to make it work.
“One reason XDRs may not see much use as foreign exchange reserve assets is that they must be exchanged into a currency before use.[5] This is due in part to the fact private parties do not hold XDRs:[5] they are only used and held by IMF member countries, the IMF itself, and a select few organizations licensed to do so by the IMF … This fact has led the IMF to label the XDR as an “imperfect reserve asset”.[22]
“Another reason they may see little use is that the number of XDRs in existence is relatively few … To function well a foreign exchange reserve asset must have sufficient liquidity, but XDRs, because of their small number, may be perceived to be an illiquid asset. The IMF says, “expanding the volume of official XDRs is a prerequisite for them to play a more meaningful role as a substitute reserve asset.[23]”
Mid-to-late 20th century, countries were beginning to awaken to the benefit the United States gained from having the global reserve currency in U.S. dollars.
“On February 4, 1965, de Gaulle [President of France] took the opportunity of one of his staged press conferences to begin an open attack. His basic argument was that the ‘dollar system’ provided the United States with an ‘exorbitant privilege.’ It was able freely to finance itself around the world, because unlike other countries its balance of payments deficits did not lead to loss of reserves but could be settled in dollars without limit. The solution would be to go back to the gold standard, and the language was arresting. The time had come, de Gaulle said, to establish the international system ‘on an unquestionable basis that does not bear the stamp of any one country in particular.’ ”
Source: “Changing Fortunes” by Paul Volcker and Toyoo Gyohten
It was recognized that new agreements were required. In those days, as a means to compete, others began the process of devaluing their currency in an attempt to gain global market share of power. Ultimately, the U.S. was boxed in. The world couldn’t survive if the United States didn’t maintain deficits and the U.S. couldn’t survive if others came requesting gold for their dollar reserves.
“In early 1962, in response to a Treasury initiative, the ten most important financial powers joined together in agreeing to backstop the International Monetary Fund with a credit line of $6 billion … The mechanism was called the General Arrangements to Borrow. [GAB] …
“While there was no clear intention of American draw on the IMF, the new agreements demonstrated that substantial funds could be marshaled to meet a speculative attack on the dollar without forcing the United States to sell large amounts of gold. We also did not want other countries to find themselves suddenly short of liquidity and forced into devaluation, which would undercut our competitive position.”
Source: :Changing Fortunes” by Paul Volcker and Toyoo Gyohten
(Note: I’ve added bold to denote the real desires and competitive advantages that were overlooked by other countries.)
At the time, the internet was non-existent. Today, it connects the globe.
There wasn’t a means to move a digital asset like the SDR around the globe. Today, there is the Bitcoin network, and it offers many more decimals or fractions to help with the prior liquidity limitations of money. Additionally, a modern monetary network like Bitcoin offers the ability to integrate with existing, new and future monetary networks in ways that today’s networks and those of the past could not — all because it’s internet operated and money built for interoperability.
We have the tools and technology to solve the problems that plagued past financial systems. We have digital money and are building out more integrated monetary networks and monetary technologies that provide the seamless requirements so that the globalization of money can happen for the first time.
The Globalization Of Money
As money approaches its day in the spotlight of disruption, its day to become globalized, then we should be able to better achieve the ideals and benefits of floating rate exchange.
The globalization of money should allow each economy to have their own money — a form of money that fits their own needs, but is easily convertible at a cheap rate to a base-layer money a la bitcoin. Then, it can convert into whatever end currency is needed to complete the task at hand. All in a cheap, quick, and instantly settleable nature. These were the ideals of a base currency like SDRs and now we have a proven digital collateral asset like bitcoin that could make it work.
As we’re nearly a quarter of the way through the 21st century, we finally have the technology that allows for globalization of money. So now, we can have a truly global economy:
- Where people have the opportunity to move freely around the globe.
- Where corporations and products have the opportunity to move freely around the globe.
- Where MONEY has the freedom to move freely around the globe.
All in a way that works for all, not for one or a few.
As we move past this recent liquidity crisis caused by the cryptocurrency crash I think we’ll find that through experimentation and adoption the new global digital rails will be better suited to finalize the integration of people, business, and money.
It turns out that what we’ve called globalization, was not that at all.
Just as in the 1970s, if the United States decided not to play ball the economic system would have shut down, penalizing everyone. In 2020 we found that we have a one-way network of goods from primarily a single source, meaning that if China decides to shut down, then the world comes to a grinding halt and prices increase sharply as inflation takes hold. Much the same in 1912, if the Titanic or other ships crashed, the movement of people and goods around the globe was hindered.
Every few decades we’ve had advances in technology that brought forth another leg of support for globalization.
Now, we can finally have all three in place: people, business and money.
After this liquidity crisis, builders will finalize the new internet rails that will allow value to flow seamlessly around the globe, just as information, email, content, news, e-commerce and music currently do. That’s the power of internet money. That’s the power of programmable money.
When people are able to communicate money seamlessly the next wave of internet innovation will continue to drive the globe to new heights.
This is a guest post by Kane McGukin. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
Opinions expressed in this article are not to be considered investment advice. Past performance is not indicative of future performance as all investments carry risk including potential loss of principle.
El Salvador’s Minister of the Economy Maria Luisa Hayem Brevé submitted a digital assets issuance bill to the country’s legislative assembly, paving the way for the launch of its bitcoin-backed “volcano” bonds.
First announced one year ago today, the pioneering initiative seeks to attract capital and investors to El Salvador. It was revealed at the time the plans to issue $1 billion in bonds on the Liquid Network, a federated Bitcoin sidechain, with the proceedings of the bonds being split between a $500 million direct allocation to bitcoin and an investment of the same amount in building out energy and bitcoin mining infrastructure in the region.
A sidechain is an independent blockchain that runs parallel to another blockchain, allowing for tokens from that blockchain to be used securely in the sidechain while abiding by a different set of rules, performance requirements, and security mechanisms. Liquid is a sidechain of Bitcoin that allows bitcoin to flow between the Liquid and Bitcoin networks with a two-way peg. A representation of bitcoin used in the Liquid network is referred to as L-BTC. Its verifiably equivalent amount of BTC is managed and secured by the network’s members, called functionaries.
“Digital securities law will enable El Salvador to be the financial center of central and south America,” wrote Paolo Ardoino, CTO of cryptocurrency exchange Bitfinex, on Twitter.
Bitfinex is set to be granted a license in order to be able to process and list the bond issuance in El Salvador.
The bonds will pay a 6.5% yield and enable fast-tracked citizenship for investors. The government will share half the additional gains with investors as a Bitcoin Dividend once the original $500 million has been monetized. These dividends will be dispersed annually using Blockstream’s asset management platform.
The act of submitting the bill, which was hinted at earlier this year, kickstarts the first major milestone before the bonds can see the light of day. The next is getting it approved, which is expected to happen before Christmas, a source close to President Nayib Bukele told Bitcoin Magazine. The bill was submitted on November 17 and presented to the country’s Congress today. It is embedded in full below.
This is an opinion editorial by Joakim Book, a Research Fellow at the American Institute for Economic Research, contributor and copy editor for Bitcoin Magazine and a writer on all things money and financial history.
I don’t.
That’s it. That’s the article.
In all sincerity, that is the full message: Just don’t do it. It’s not worth it.
You’re not an excited teenager anymore, in desperate need of bragging credits or trying out your newfound wisdom. You’re not a preaching priestess with lost souls to save right before some imminent arrival of the day of reckoning. We have time.
Instead: just leave people alone. Seriously. They came to Thanksgiving dinner to relax and rejoice with family, laugh, tell stories and zone out for a day — not to be ambushed with what to them will sound like a deranged rant in some obscure topic they couldn’t care less about. Even if it’s the monetary system, which nobody understands anyway.
Get real.
If you’re not convinced of this Dale Carnegie-esque social approach, and you still naively think that your meager words in between bites can change anybody’s view on anything, here are some more serious reasons for why you don’t talk to friends and family about Bitcoin the protocol — but most certainly not bitcoin, the asset:
- Your family and friends don’t want to hear it. Move on.
- For op-sec reasons, you don’t want to draw unnecessary attention to the fact that you probably have a decent bitcoin stack. Hopefully, family and close friends should be safe enough to confide in, but people talk and that gossip can only hurt you.
- People find bitcoin interesting only when they’re ready to; everyone gets the price they deserve. Like Gigi says in “21 Lessons:”
“Bitcoin will be understood by you as soon as you are ready, and I also believe that the first fractions of a bitcoin will find you as soon as you are ready to receive them. In essence, everyone will get ₿itcoin at exactly the right time.”
It’s highly unlikely that your uncle or mother-in-law just happens to be at that stage, just when you’re about to sit down for dinner.
- Unless you can claim youth, old age or extreme poverty, there are very few people who genuinely haven’t heard of bitcoin. That means your evangelizing wouldn’t be preaching to lost, ignorant souls ready to be saved but the tired, huddled and jaded masses who could care less about the discovery that will change their societies more than the internal combustion engine, internet and Big Government combined. Big deal.
- What is the case, however, is that everyone in your prospective audience has already had a couple of touchpoints and rejected bitcoin for this or that standard FUD. It’s a scam; seems weird; it’s dead; let’s trust the central bankers, who have our best interest at heart.
No amount of FUD busting changes that impression, because nobody holds uninformed and fringe convictions for rational reasons, reasons that can be flipped by your enthusiastic arguments in-between wiping off cranberry sauce and grabbing another turkey slice. - It really is bad form to talk about money — and bitcoin is the best money there is. Be classy.
Now, I’m not saying to never ever talk about Bitcoin. We love to talk Bitcoin — that’s why we go to meetups, join Twitter Spaces, write, code, run nodes, listen to podcasts, attend conferences. People there get something about this monetary rebellion and have opted in to be part of it. Your unsuspecting family members have not; ambushing them with the wonders of multisig, the magically fast Lightning transactions or how they too really need to get on this hype train, like, yesterday, is unlikely to go down well.
However, if in the post-dinner lull on the porch someone comes to you one-on-one, whisky in hand and of an inquisitive mind, that’s a very different story. That’s personal rather than public, and it’s without the time constraints that so usually trouble us. It involves clarifying questions or doubts for somebody who is both expressively curious about the topic and available for the talk. That’s rare — cherish it, and nurture it.
Last year I wrote something about the proper role of political conversations in social settings. Since November was also election month, it’s appropriate to cite here:
“Politics, I’m starting to believe, best belongs in the closet — rebranded and brought out for the specific occasion. Or perhaps the bedroom, with those you most trust, love, and respect. Not in public, not with strangers, not with friends, and most certainly not with other people in your community. Purge it from your being as much as you possibly could, and refuse to let political issues invade the areas of our lives that we cherish; politics and political disagreements don’t belong there, and our lives are too important to let them be ruled by (mostly contrived) political disagreements.”
If anything, those words seem more true today than they even did then. And I posit to you that the same applies for bitcoin.
Everyone has some sort of impression or opinion of bitcoin — and most of them are plain wrong. But there’s nothing people love more than a savior in white armor, riding in to dispel their errors about some thing they are freshly out of fucks for. Just like politics, nobody really cares.
Leave them alone. They will find bitcoin in their own time, just like all of us did.
This is a guest post by Joakim Book. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is an opinion editorial by Federico Tenga, a long time contributor to Bitcoin projects with experience as start-up founder, consultant and educator.
The term “smart contracts” predates the invention of the blockchain and Bitcoin itself. Its first mention is in a 1994 article by Nick Szabo, who defined smart contracts as a “computerized transaction protocol that executes the terms of a contract.” While by this definition Bitcoin, thanks to its scripting language, supported smart contracts from the very first block, the term was popularized only later by Ethereum promoters, who twisted the original definition as “code that is redundantly executed by all nodes in a global consensus network”
While delegating code execution to a global consensus network has advantages (e.g. it is easy to deploy unowed contracts, such as the popularly automated market makers), this design has one major flaw: lack of scalability (and privacy). If every node in a network must redundantly run the same code, the amount of code that can actually be executed without excessively increasing the cost of running a node (and thus preserving decentralization) remains scarce, meaning that only a small number of contracts can be executed.
But what if we could design a system where the terms of the contract are executed and validated only by the parties involved, rather than by all members of the network? Let us imagine the example of a company that wants to issue shares. Instead of publishing the issuance contract publicly on a global ledger and using that ledger to track all future transfers of ownership, it could simply issue the shares privately and pass to the buyers the right to further transfer them. Then, the right to transfer ownership can be passed on to each new owner as if it were an amendment to the original issuance contract. In this way, each owner can independently verify that the shares he or she received are genuine by reading the original contract and validating that all the history of amendments that moved the shares conform to the rules set forth in the original contract.
This is actually nothing new, it is indeed the same mechanism that was used to transfer property before public registers became popular. In the U.K., for example, it was not compulsory to register a property when its ownership was transferred until the ‘90s. This means that still today over 15% of land in England and Wales is unregistered. If you are buying an unregistered property, instead of checking on a registry if the seller is the true owner, you would have to verify an unbroken chain of ownership going back at least 15 years (a period considered long enough to assume that the seller has sufficient title to the property). In doing so, you must ensure that any transfer of ownership has been carried out correctly and that any mortgages used for previous transactions have been paid off in full. This model has the advantage of improved privacy over ownership, and you do not have to rely on the maintainer of the public land register. On the other hand, it makes the verification of the seller’s ownership much more complicated for the buyer.
Source: Title deed of unregistered real estate propriety
How can the transfer of unregistered properties be improved? First of all, by making it a digitized process. If there is code that can be run by a computer to verify that all the history of ownership transfers is in compliance with the original contract rules, buying and selling becomes much faster and cheaper.
Secondly, to avoid the risk of the seller double-spending their asset, a system of proof of publication must be implemented. For example, we could implement a rule that every transfer of ownership must be committed on a predefined spot of a well-known newspaper (e.g. put the hash of the transfer of ownership in the upper-right corner of the first page of the New York Times). Since you cannot place the hash of a transfer in the same place twice, this prevents double-spending attempts. However, using a famous newspaper for this purpose has some disadvantages:
- You have to buy a lot of newspapers for the verification process. Not very practical.
- Each contract needs its own space in the newspaper. Not very scalable.
- The newspaper editor can easily censor or, even worse, simulate double-spending by putting a random hash in your slot, making any potential buyer of your asset think it has been sold before, and discouraging them from buying it. Not very trustless.
For these reasons, a better place to post proof of ownership transfers needs to be found. And what better option than the Bitcoin blockchain, an already established trusted public ledger with strong incentives to keep it censorship-resistant and decentralized?
If we use Bitcoin, we should not specify a fixed place in the block where the commitment to transfer ownership must occur (e.g. in the first transaction) because, just like with the editor of the New York Times, the miner could mess with it. A better approach is to place the commitment in a predefined Bitcoin transaction, more specifically in a transaction that originates from an unspent transaction output (UTXO) to which the ownership of the asset to be issued is linked. The link between an asset and a bitcoin UTXO can occur either in the contract that issues the asset or in a subsequent transfer of ownership, each time making the target UTXO the controller of the transferred asset. In this way, we have clearly defined where the obligation to transfer ownership should be (i.e in the Bitcoin transaction originating from a particular UTXO). Anyone running a Bitcoin node can independently verify the commitments and neither the miners nor any other entity are able to censor or interfere with the asset transfer in any way.
Since on the Bitcoin blockchain we only publish a commitment of an ownership transfer, not the content of the transfer itself, the seller needs a dedicated communication channel to provide the buyer with all the proofs that the ownership transfer is valid. This could be done in a number of ways, potentially even by printing out the proofs and shipping them with a carrier pigeon, which, while a bit impractical, would still do the job. But the best option to avoid the censorship and privacy violations is establish a direct peer-to-peer encrypted communication, which compared to the pigeons also has the advantage of being easy to integrate with a software to verify the proofs received from the counterparty.
This model just described for client-side validated contracts and ownership transfers is exactly what has been implemented with the RGB protocol. With RGB, it is possible to create a contract that defines rights, assigns them to one or more existing bitcoin UTXO and specifies how their ownership can be transferred. The contract can be created starting from a template, called a “schema,” in which the creator of the contract only adjusts the parameters and ownership rights, as is done with traditional legal contracts. Currently, there are two types of schemas in RGB: one for issuing fungible tokens (RGB20) and a second for issuing collectibles (RGB21), but in the future, more schemas can be developed by anyone in a permissionless fashion without requiring changes at the protocol level.
To use a more practical example, an issuer of fungible assets (e.g. company shares, stablecoins, etc.) can use the RGB20 schema template and create a contract defining how many tokens it will issue, the name of the asset and some additional metadata associated with it. It can then define which bitcoin UTXO has the right to transfer ownership of the created tokens and assign other rights to other UTXOs, such as the right to make a secondary issuance or to renominate the asset. Each client receiving tokens created by this contract will be able to verify the content of the Genesis contract and validate that any transfer of ownership in the history of the token received has complied with the rules set out therein.
So what can we do with RGB in practice today? First and foremost, it enables the issuance and the transfer of tokenized assets with better scalability and privacy compared to any existing alternative. On the privacy side, RGB benefits from the fact that all transfer-related data is kept client-side, so a blockchain observer cannot extract any information about the user’s financial activities (it is not even possible to distinguish a bitcoin transaction containing an RGB commitment from a regular one), moreover, the receiver shares with the sender only blinded UTXO (i. e. the hash of the concatenation between the UTXO in which she wish to receive the assets and a random number) instead of the UTXO itself, so it is not possible for the payer to monitor future activities of the receiver. To further increase the privacy of users, RGB also adopts the bulletproof cryptographic mechanism to hide the amounts in the history of asset transfers, so that even future owners of assets have an obfuscated view of the financial behavior of previous holders.
In terms of scalability, RGB offers some advantages as well. First of all, most of the data is kept off-chain, as the blockchain is only used as a commitment layer, reducing the fees that need to be paid and meaning that each client only validates the transfers it is interested in instead of all the activity of a global network. Since an RGB transfer still requires a Bitcoin transaction, the fee saving may seem minimal, but when you start introducing transaction batching they can quickly become massive. Indeed, it is possible to transfer all the tokens (or, more generally, “rights”) associated with a UTXO towards an arbitrary amount of recipients with a single commitment in a single bitcoin transaction. Let’s assume you are a service provider making payouts to several users at once. With RGB, you can commit in a single Bitcoin transaction thousands of transfers to thousands of users requesting different types of assets, making the marginal cost of each single payout absolutely negligible.
Another fee-saving mechanism for issuers of low value assets is that in RGB the issuance of an asset does not require paying fees. This happens because the creation of an issuance contract does not need to be committed on the blockchain. A contract simply defines to which already existing UTXO the newly issued assets will be allocated to. So if you are an artist interested in creating collectible tokens, you can issue as many as you want for free and then only pay the bitcoin transaction fee when a buyer shows up and requests the token to be assigned to their UTXO.
Furthermore, because RGB is built on top of bitcoin transactions, it is also compatible with the Lightning Network. While it is not yet implemented at the time of writing, it will be possible to create asset-specific Lightning channels and route payments through them, similar to how it works with normal Lightning transactions.
Conclusion
RGB is a groundbreaking innovation that opens up to new use cases using a completely new paradigm, but which tools are available to use it? If you want to experiment with the core of the technology itself, you should directly try out the RGB node. If you want to build applications on top of RGB without having to deep dive into the complexity of the protocol, you can use the rgb-lib library, which provides a simple interface for developers. If you just want to try to issue and transfer assets, you can play with Iris Wallet for Android, whose code is also open source on GitHub. If you just want to learn more about RGB you can check out this list of resources.
This is a guest post by Federico Tenga. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
