Bitcoin Mathematical Ownership Network
This paper describes money in a new paradigm of Ownership Network using a physical, legal or mathematical protocol.
Money is a social phenomenon that is ultimately about the human desire to measure each member’s wealth and to be able to safely transact.
Bitcoin, as the first example of math protocol money, opens a new way for people to look at ownership and transaction.
Different types of ownership and transactions require a different sort of trust and makes for each protocol level to have unique usefulness and efficiency.
Bitcoiners seem to overemphasize the strengths of bitcoin and overlook the unique strengths of the physical and legal protocol.
Physical protocol money
In ancient times people started collecting physical object as a form of money. Shells, pearls, stones and ultimately precious metals gave mankind the opportunity to keep track of who owns what and how they could safely transact. Typically, the used objects were scarce, hard to produce and difficult to fake.
The protocol is governed by physical properties; it relies on physical properties to safeguard scarcity, production and honesty.
The size and value of the network depends on the amount of people trusting the physical properties.
Gold turned out to be the most useful and valuable matter and for ages it was used as money.
Legal protocol money
Already in the Roman Empire, emperors introduced legal protocol by making law that gold coins with a picture of the emperor should be used as money. This even gave them the opportunity to slowly remove gold from the coins because people turned out to use the coins as money anyway. In the end this resulted in debasement of the money but it’s important to realize that people used the legal protocol in daily life for ownership and transaction.
The protocol is governed by law and property is protected by legal measures. You trust your money and property to be safe by the laws of the land.
A banknote is not just any piece of paper, but a legal document people trust in.
The value of the legal network is determined by the amount of people that place trust in it.
Gold’s function as money showed its downside during the discovery of America. If a European wanted to buy property in New York, it was risky to just load a boat full of gold and sail across the ocean. This is when the first banks started using legal protocol more. People could deposit gold in Europe, sail across with a legal document and buy the property. This introduced a complex system of credit and ultimately a fiat money system as we know it today. Fiat money is best practice legal protocol money.
People screaming that banks make fiat money out of thin air, overlook that whenever someone signs a legal contract for a debt; by definition, money is created. Just think about it. I you are in my debt, I can use this legal document to buy stuff myself. It makes sense that over the years this system of ‘I owe you’ became fiat money.
Although this form of money creation makes perfect sense, there is a problem with the central bank’s monopoly on measuring the economy and regulating the money supply. The 2008 crisis showed that banks can just print money and get way with a bonus when it collapses.
Central banks can only achieve global fiat money by establishing global legal contracts which can be pretty hard. Central banks fool themselves by exploring blockchain because they cannot operate outside the legal protocol. They can never operate without legal contracts and blockchain will only make those contracts more complex. The bottleneck for global fiat is not tech; it’s law.
The bank’s monopoly will be challenged by Bitcoin and banks will have to do a better job in order to keep their currency competitive to Bitcoin. As a result, fiat money will inherit hard money properties from Bitcoin. In other words, the money supply will more closely represent the real economy. This will lead to stable fiat value. Fiat money will become a public service like water and electricity.
Law is more efficient than physics which makes it a more useful money. I a lawles world however, people will fallback on the physical protocol.
One may disagree with the integrity of the legal protocol, however, the usefulness of the legal protocol is very obvious.
Mathematical protocol money
Bitcoin is the first widespread form of math protocol money. Ownership and transaction are secured by cryptography; mathematics.
The value of the network is determined by the amount of people that run the software. Bitcoin as a store of value has to be understood in the first place as the ability to secure ownership in the network. Once a person owns a utxo, no physical or legal force can remove that from the network. The dollar value of that utxo is just as trivial as the amount of seashells is to a gold coin. So if we talk about store of value, we don’t talk dollar value.
Mathematics is stronger than law. Math is a universal truth that no law can ban. Because of the robust, solid nature of the network, it may not always be more efficient then legal protocol. In a lawles world without internet, people will fallback on physical protocol.
The size of the network determines the value. Anyone who wants to store value, wants to store it in the biggest network. Nobody want to store value in a network that is maintained by just 3 people. It is easy to copy software; it is impossible to copy a network. Transactions without a proper network are as trivial as writing a number on a piece of paper and pretend it to be a banknote. This is where Bcash fails and I am surprised to see so many bitcoiners still concerned with it.
Anyone can copy open source software, start their own cryptocurrency and transact worldwide within hours; yet no one can build a network as big as Bitcoin. The network is the true value of Bitcoin.
New paradigm predictions
A new paradigm allows for new predictions. The goal is not to prove a thesis but only to make statements that resonate.
Different usecases call for different protocol levels.
You give your fiance a gold ring with a diamond; don’t get on your knee holding a utxo. You pay cash for beer. You keep a receipt from the supermarket which allows you to return bad products by law. You use a credit card to buy a computer which you can return within a year if it’s defect. You see a notary to buy a house because somehow you know that a cash receipt is not the best way. You trust the notary and his legal network that the house is now really yours.
People use shoelaces because it’s the most efficient way to keep shoes on; not the most secure way. Do the shoelace test! Shoelaces are ancient technology that is still unsurpassed today. Ask yourself if all new tech is really an improvement. Nobody will ever use bitcoin to tie their shoes. Likewise, bitcoin will not always be more efficient than fiat. It makes no sense to spend $2 to secure $1.
Most bitcoiners have an American empire dollar bias and think there is only one meaningful currency.. One day however, the dollar will be just another currency. Other currencies existed for decades under dollar supremacy; likewise the dollar will exist under Bitcoin supremacy.
Most bitcoiners have an anarchistic bias. They overlook that a math ownership network will also profit regulated economies. Math doesn’t care about law. It is neither for nor against it. While privacy is a growing concern, a lot of people in developed countries live in relative wealth and freedom. Law is not just something that governments and centrals banks do. Law is what people do. People have rules for everything to organize society. A certain amount of trust will always exist in society. Only financial doomsday preppers operate without trust and probably don’t see much sunlight. Bitcoin will provide sovereignty to people while trust is still needed to build society.
KYC/AML will not be the end of Bitcoin. It will be the start of Bitcoin improving the legal protocol.
Fiat money will be better money on a local level; Bitcoin will be better money on a global level.
Fiat money will be a very efficient local Layer 2 whereas Lightning will be a global Layer 2. Lightning will be perfect for global online content whereas fiat will be perfect for paying in supermarkets. People are psychologically attached to stable prices. A beer costs $3 and and its convenient if its the same price for days or weeks. Its confusing if a beer is 0.00043 one day and 0.00039 the other day.
Fiat represents total economic value by changing supply; Bitcoin represents the economy by changing price. This results in relatively stable prices in fiat and ever changing prices in Bitcoin. Bitcoin is not ideal as Unit of Account because the total network value will always fluctuate. People just don’t like that.
Stablecoins are a trap. I you want to operate in the legal domain; use legal protocol. If you want to send dollars across the globe but your bank does not support that; you are not with the right bank. Circumventing legal weaknesses by math protocol will only lead to more complex lawsuits. From a tech perspective, sending transactions worldwilde is trivial, just as easy as sending email. If your bank does not allow it, its not a tech limit, it is a legal limit.
Legal protocol adjusts to the real economy by adjusting supply of the money. Math protocol adjusts to the real economy by adjusting price. I expect an ever changing price of Bitcoin. Just as there are now centralized bodies of knowledge manipulating the supply of fiat; there will be centralized bodies of knowledge manipulating the price of Bitcoin. For the common man, speculating on the price of Bitcoin will be similar to speculating on the housing price.