Bitcoin is necessary but not sufficient to build a peer-to-peer financial system.
A financial system comprises several distinct but integrated instruments. Fiat is cash. Gold is a commodity. Bonds are debt. Stocks are equity. CDs are interest-bearing instruments. Most of the above can be collateral. In the new crypto financial system, several distinct but integrated instruments will also exist. Bitcoin is cash and gold. What will function as the crypto equivalent of bonds? Equity? CDs? Collateral?
In a financial system separate from the legacy one, we must have all the instruments. Bitcoin is one tool in the financial self-sovereignty toolbox. Bitcoin is a hammer. What is the drill? What is the carpenter’s square? We can’t build a financial freedom house without all the tools. We need other peer-to-peer networks that use proof of work to disintermediate third parties that censor startup fundraising, lending, or publishing. Balaji Srinivasan tweeted the below, quoting a discussion on BitcoinTalk.org between Hal Finney and Satoshi on September 10th, 2010.
Finney: “Satoshi, are you endorsing the idea that additional block chains would each create their own flavor of coins, which would trade with bitcoins on exchanges?”
Satoshi: “Right…domain objects (domaincoins?) could represent the right to own a domain for a year.”
Balaji describes himself as a “freedom maximalist.” I think of myself as a “peer-to-peer maximalist.” Either way, Bitcoin Maximalism is too limiting.
Our current central bank-State financial system strangles our sovereignty and privacy with a hundred straps of regulations, taxations, and third parties. Each (legitimate) cryptography-based financial instrument removes one binding belt. Building a crypto-financial system consists of loosening the grip of the legacy one. Bitcoiners who scorn honest efforts to create a new, comprehensive financial economy based on cryptography, separate from the central bank-State money and third-party payment systems, are defeating the broader mission of Bitcoin to separate money from State. The defining characteristic of legitimate cryptocurrencies and blockchains is peer-to-peer applications. It’s what blockchains can do that few other software can. Here are some excerpts from the Bitcoin white paper.
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network.
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model.
What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.
One is being technically illiterate and strategically naïve to assert that Bitcoin can function as the coin or technology for all the instruments of a financial system. Monotheism in religion may work. But monocryptoism doesn’t work in finance. We shouldn’t make Bitcoin’s blockchain the base layer for all financial instruments because it doesn’t scale, and transaction fees would skyrocket. Sending bitcoin could cost $100. Bitcoin can’t be the only cryptocurrency and blockchain for simple computer science reasons. But even if Bitcoin could scale and transaction fees could be kept low, the non-cash instruments would function inferiorly to other blockchains built purposely to accomplish a specific function.
Observing (not proscribing) that Bitcoin is likely to be the dominant cryptocurrency for a long time because of its many strengths is rational. But at some point, this “maximalism” can become irrational if it warps into knee-jerk, anti-technology that’s not Bitcoin. An odd Luddite-like aversion to interesting, non-scam cryptocurrency-related applications is the currency of conformity, seemingly for social media clicks. If you genuinely appreciate Bitcoin for its technology, you welcome other tech that could also be tools to achieve sovereignty.
Bitcoin’s most used application is as a store of value. Naval Ravikant tweeted the following insight, One way to decentralize store of value is to have millions of validating nodes. Another way to decentralize store of value is to have millions of different assets.
Store of Value Maximalism proscribes decentralizing assets to create so many moving targets that the regulators and social tyrants can’t capture them. SoV Maximalism is anti-State and pro-freedom. An advantage of crypto-izing physical assets is that those assets become harder to seize and prevent from being transferred. We’re still early, but I think the following are already evolving:
Gold and cash –> Bitcoin
Art and collectibles –> NFTs
Equity –> Protocol coins
Real estate –> Virtual worlds
If we want to take venture capital investing away from the power of the IRS, SEC, and other state and federal agencies, if we don’t wish that only “qualified investors” can invest in startups, then we should encourage legitimate protocol-utility token funded startup projects.
I see some whose self-righteous stridency of Bitcoin purity boxes them into a strategic & technological corner. They confuse critical thinking w/ fundamentalism. Social media can pull you into a vortex of counter-tech progress & adoption groupthink. Satoshi built upon 30 years of cryptographic research and applications. Bitcoin is the beginning of the cryptocurrency economy – an exit from the corrupt and dysfunctional central bank-State money and third-party payment systems. Don’t be left behind! And certainly don’t impede new blockchains and crypto instruments that will create a parallel, comprehensive financial economy that can restore sovereignty to those who use it.
Let’s replace Bitcoin maximalism with freedom and peer-to-peer maximalism.
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