Fiat concentrates power. Banks — central and commercial alike — set the price of fiat in the form of interest and inflation rates. Governments can dilute citizens’ money with profligate monetary and fiscal policies. In other words, people who didn’t earn the money can siphon its value from those who did. The fiat system is set up so that it is impractical or impossible for anyone to hold more than a fraction of their money at any given time. The centralized financial institutions keep it in “safe custody” for us.
Fiat is about heteronomy: rules and rule from outside.
Bitcoin — not cryptocurrency, bitcoin — is different. Bitcoin distributes power. No one controls bitcoin. No one can control bitcoin. The design is public and transparent, and anyone can suggest improvements. Really. Right here. Bitcoin is virtually impossible to counterfeit, and it’s easy to encrypt a wallet so well that it could not be brute-force hacked in the owner’s lifetime. Bitcoin makes monetary masters obsolete — whether oligopolistic private banks or the opaque mechanisms of government institutions.
Bitcoin is about autonomy: rules and rule from inside.
Fiat reinforces the incumbent centers of power, who then dictate terms to the people. That means you. And me. Bitcoin makes everyone an autonomous source of power, and we all shape the present and future together with our peers. The more bitcoin approximates fiat, the more it has been corrupted. Centralization and heteronomous custody are the signs of decay. Bitcoin is peer-to-peer or it is nothing. The peers are you and I. We are bitcoin. Let’s keep it that way.
Bitcoin also has more concrete, prosaic advantages. For one, it’s cheap to use and getting cheaper. Sure, posting transactions on the main chain can be pricey, but the Lightning Network is changing everything. One older prediction saw fees on the Lightning Network following an asymptotic path to zero. A more recent, data-heavy analysis concluded that the Lightning Network “is somewhat rigged towards users and low fees.” Remember: that’s not even talking about the value of bitcoin itself, but just the transaction fees. For comparison, fiat ATM fees have increased 36% in the last decade. And in order to waive monthly fees — a charge for doing nothing — most banks demand a balance of around $1,500. That’s a shakedown. Protection money. Extortion.
Having lived our lives in a fiat-based world, it’s also easy to overlook fiat’s sizable barriers to entry. Yes, everyone holds fiat, and pretty much everyone has to, but we don’t hold it equally. The banks set the terms. While they might not allocate income on a mass scale, they do allocate massive amounts of capital. But not just anybody can enter that market. Generally speaking, unless a bank is too big to fail, it’s too small to play.
With bitcoin — and especially with the Lightning Network — anybody can play. The barrier to entry is simply owning a mobile device, which can hold a user’s funds securely and backup the data automatically without relinquishing custody. We all ensure the integrity of the chain and the network together, and we can all allocate capital individually with our decentralized, autonomous decisions. Nobody is too small to play. It’s peer-to-peer, and everybody is welcome.
Beware the echo chamber
Until bitcoin goes mainstream (and that clock is ticking), we’re still a pretty tight community. Buzzwords like “P2P,” “barriers to entry,” and “spend use case” can easily become mantras that lend themselves to uncritical, automatic acceptance. But just because they’re invoked as slogans doesn’t mean that everyone takes them seriously.
For example, PayPal and Square claim to lower fiat’s barriers to entry by facilitating fiat payments. They sell software and/or hardware solutions to people who need to make small-scale fiat transactions. The problem is that they lower the technical barriers by raising the economic ones. Easier payments come at a price — a price these providers set themselves.
Such imposters are even active in the bitcoin community. But here, they’re harder to detect because they wear the mantle of bitcoin’s peer-to-peer architecture while gutting it of its true substance.
Flexa, for example, has just released a wallet app, “Spedn,” that they claim lets users pay with bitcoin at a selection of “curated” “forward-looking brands,” like Starbucks, Whole Foods, and Office Depot. It sounds like a fast-track to mass adoption. So what’s the catch?
First of all, Spedn users’ funds are “fully custodied and insured on Gemini’s NYDFS-regulated infrastructure.” Gemini is an exchange that hocks its own crypto too: “the Gemini dollar.” So the wallet is just an interface. The funds, users’ own money, is stored elsewhere, and the users have to pay them for the privilege of not being able to keep their own money. There’s a name for a business that stores and insures people’s money on the assumption that they can’t do it themselves: a bank.
It gets worse. Flexa’s solution adds new barriers to entry. By restricting — sorry, I mean “curating” — where users can spend their money, Flexa robs them of choice. It transfers power from every single person, where it naturally resides, to big market incumbents. This is old corporatist, mercantilist economics. It’s not just a flawed bitcoin payment solution, it’s exactly what bitcoin is meant to replace.
There has been some talk of Flexa releasing an SDK to connect other, even non-custodial, wallets to Flexa’s network of retailers. This sounds progressive, right? Well… not really. Ask yourself: who needs this? When you hand cash to a merchant, there is no middleman. When you use a debit card, the bank is the first intermediary. When you use Paypal or Visa or Square to transfer fiat from your bank to the retailer’s, the chain of middlemen grows — as does the amount they can skim. If, on the other hand, the retailer has a simple point-of-purchase Lightning app, and you have a well-designed, non-custodial wallet, it’s like paying cash … just without the heteronomy.
Retailers’ willingness to accept bitcoin depends on consumers’ eagerness to spend it. Adding costly intermediaries is not going to help.
The Flexa-Gemini alliance is just one glaring example, but the same basic problems afflict all custodial wallets. They are all effectively banks. And as a bank in custody of users’ funds that transfers those funds between the user and a third party, these providers also have to obtain a FinCEN Money Transmitter license. That’s a barrier to their entry, and barriers to entry are expensive. They have no choice but to pass that expense on to their users. Economical, non-custodial, peer-to-peer solutions exist, so why would anyone use bitcoin just to reinvent the fiat-bank wheel?
But to be fair, some are more forthright about their disadvantages than others. For those willing to plunge three clicks deep off of BlueWallet’s homepage, there is a post that does mention the compromises involved with centralization and custody. Wallet of Satoshi says no such thing.
Bitcoin is autonomy. Accept no substitutes.
If you’re okay with the centralized, custodial status quo of fiat money, please stick with fiat. At least banks are regulated, their collusion with governments protects them from themselves (a bit), and they have centuries of practice. And for all their faults, there is at least a don’t-piss-in-the-pool logic to local government institutions. They have more in common with local bank customers than a firm located who-knows-where taking customers’ money and storing it on who-knows-whose server. And again, sticking with fiat will better preserve bitcoin’s integrity.
Bitcoin promotes autonomy — people’s ability to decide for themselves. If that sounds like something you value too, avoid centralized repositories and custodial wallets like a vampire avoids hummus. They put you at risk, and they corrupt bitcoin for the rest of us. User-friendly, cheap, non-custodial, and autonomy-promoting solutions exist.