Units of Trust vs. Units of Work
We have concepts of money, currency, store of value, credit, IOU, commodity, etc. Each is an abstraction of how we measure value together, and the tools we use to express that value.
In hindsight, fiat mostly functions as a unit of trust. It is centrally issued and its issuance and rules are defined from within. Much like credit, basically anyone can issue fiat or tokens or gift cards, denominated in dollars or Bitcoin or hamburgers or boozlewhatsits.
The users generally do not enforce or define the rules of such trusted monies, but they can typically influence it in some way.
Bitcoin rules are defined by the user, locally, and enforced by consensus. Its units live within a cryptographically-enforced ruleset within an abstracted “game” network that tracks the score and allows reassignment of “points.”
The only way to create Bitcoin is with work, or trading some other abstraction of value for it. It is an excellent store of value because it provides a dynamic type of money tool, but due to its degree of abstraction and popular use as a store of value, it cannot be used practically as a measure of trust.
Trust is not evil, it is convenient.
On the whole, mutual trust is efficient. More cooperation, and more speculation on future goals or events, can beget even more efficiency and productivity. With only fiat money, trust is easily exploited by the issuer.
With Bitcoin, fiat/credit monies must compete and perform on their promises compared to Bitcoin’s proof of work and the consensus value stored within it.
Bitcoin keeps credit honest.
Well, this headline might be an overstatement, but that is the function in place at least. A credit unit or fiat dollar that lives up to its reputation for delivering expectations on redemption, should ultimately retain its buying power within that paradigm.
But if the issuer overissues or underperforms, their reputation, as a currency itself, essentially “cashes in.”
Others have surely written details about why people use Tether, or why there are so many billions of it issued, but the utility is seemingly undeniable. Tether not only exists, but it exists in arms with Bitcoin, altcoins and fiats.
How is this possible?! Well, trust is convenient. Trust can be efficient. So, people have use cases for leveraging both trust and tokens abstracted as digital bearer instruments.
Credit never had this quality until Bitcoin. Credit can be used as money much more easily now, and it is, with Tether at $30B issued currently.
To be clear, I do not think we will ever live in a world with only Bitcoin as the only money abstraction, as it does not allow for the measurement of trust or trusted abstractions (which are convenient, and can be efficient!)
While Ethereum may have popularized tokens with enticing scams, Bitcoin invented the token concept and work on modernizing them is ongoing today with the RGB/LNP projects, and the OmniLayer/OmniBOLT projects.
The future of credit and fiat is tokens issued on Bitcoin and instant high-frequency commerce over the Lightning Network using both units of trust and units of work.
Shitcoins exist! The Social X-Factor?
It’s true. This has been an x-factor that we have mostly written off as greed, deception, delusion, naivety, and ego. But, alas, shitcoins persist.
Before, and after, the invention cryptocurrencies, multiple fiats existed too, but this makes sense when you consider them as units of credit for self-contained credit systems.
But the combination of the internet and Bitcoin as inventions breaks things open wide. Now we can all share a money paradigm across jurisdictions and markets.
Maybe all monies are units of trust, and trust in the design of the money and the influence of the users.
Maybe, since humans are social creatures, monies will compete and design across more social paradigms. Maybe Ethereum represents not only people who “missed out on Bitcoin”, but people who represent an aligned culture or other shared social set. Maybe that will persist and there is an efficiency there.
I’m not arguing for shitcoining, I personally do not see the point of them. I’m just trying to understand their persistence and theorize how things could play out in the future. Competition can happen over any mutual abstraction people can coordinate over. Maybe shitcoins are providing some sort of social, trusted efficiency on some sort of scale.
Ultimately, I think the gravity of Bitcoin is too strong to allow for any other blockchain-native abstracted unit, in the long term; and that maintaining any secondary blockchain, whether it be a shitcoin or a sidechain or slavechain or whatever, is just too much work and difficult to defend from censorship and permission requirements.
But Bitcoin can, and does, allow for issued monies to persist under good conditions, and credit will always play a role in our foreseeable future, in my opinion.
I wrote this post on whim, over coffee in the morning while listening to BitcoinTINA argue on Clubhouse. A lot of thought has been put into these concepts by myself over the years, but not a lot of time has been put into writing this post, so I hope it’s at least interesting!