Why Fiat is the Essential Component in Satoshi’s Cash System
By Jon Gulson on ALTCOIN MAGAZINE
When the Berlin Wall fell in 1989, it signaled the end of an era of an ideological dichotomy between communism and capitalism — political systems believed mutually exclusive in their desire to propel the world forward.
The culmination of this period led to a declaration that History (big H) had ended, that liberal democracy had won out, and that history (small h) would go on as a continuation of ordinary causal events.
Frances Fukuyama advanced from this a thesis on how opposing forces play themselves out in social development and move to a higher order of integration and harmony in a dialectic.
For Fukuyama, while this grand narrative could explain the long-run development of humanity — from the Dark Ages, through to the Renaissance and most importantly the Enlightenment — we had now reached the final stage of Historical synthesis: the liberal democracy was incapable of advancing into something less inherently contradictory.
Throughout the analysis, Fukuyama insisted on the centrality of thymos (spiritedness) and the need for recognition and respect in human psychology.
In relation to late modernity (contemporary time) being the high point of human evolution, Fukuyama also recognized megalothymia (disproportionately dominating others in ostentatious and spectacular ways) in the quest for respect could become vicious and create fervor for national identity, meaning a slide back into History, was possible:
The Evolution of Inflation Targeting
Approximately concurrent to these developments, the economic practice of inflation targeting evolved from the previous monetary macroeconomic paradigm of exchange rate management — where each sovereign central bank or monetary union target internal balances, allowing them to handle inflation directly, keeping it low and stable, in relation to goods and services being consumed in that jurisdiction.
Policymakers favor this approach because it allows them flexibility in managing operations and is characterized by the announcement of official target ranges for the inflation rate at one or more horizons, with the feature of increased communication with the public about the plans and objectives of the monetary policymakers:
This approach works well for most of the time — and in this vein, just as Fukuyama observed that liberal democracy couldn’t evolve into something less inherently contradictory, the same might also be said about inflation targeting.
Time Out of Mind
The ideal which is presented in Bitcoin: A Peer to Peer Electronic Cash System, is the small casual transaction, which Satoshi Nakamoto observes is not possible because of mediation costs, where commerce on the internet has come to rely exclusively on trusted third parties to process payments.
What is proposed instead is a payment system based on cryptographic proof, where two parties transact directly, without the need of principals — third parties — in a settlement.
The computational hardness of this system, the pre-programmed inelastic supply issuance, and the non-immediate settlement time make bitcoin a less obvious form of cash — and Satoshi never really elaborates on this to such a degree that creates total certainty in his proposal, so it’s regarded as the domain of private speculation among other interpretations ongoing.
It’s also observed merchant take-up of this cash system remains low to virtually non-existent. However, exchanges were the first bitcoin enterprises, meaning Satoshi’s strings of code living in irreversible chains were able to assume a sovereign fiat translation and become parallel money and which despite multi-fold gains over the last decade, remain unthreatening to the general price level.
It should also be noted that some regard bitcoin itself as a fiat because its proof of work has no application otherwise — and Fukuyama again becomes relevant here: if Satoshi’s ideal is the small casual transaction, and if history (small h) is a continuation of ordinary causal events — and if the equilibria between trusted sovereign issuance and a trustless cryptographic protocol stabilize in a multilateral language game or dialectic — then the political agency which wants to slide back into History, may realise the sciences and humanities have concluded and we are indeed the last ones standing.
