Bitcoin is electronic cash. To understand what this means, you have to understand what makes cash so effective, and why adding “electronic” to the word makes it more useful. It’s a pretty fundamental point, but fundamentals are the theme for Dr. Craig Wright and Ryan X. Charles in the “Theory of Bitcoin: White Paper” series, which continues this week.
You’ll also get to hear what Dr. Wright thinks of Tether (hint: it’s not good), cryptocurrency prices in general… and what really happened to his Twitter account.
The Bitcoin White Paper is now over 12 years old, and its Introduction paragraph contains many of the principles that explain why it needs to exist. They’re so familiar, in fact, that many don’t bother to revisit them and wonder if Bitcoin still serves these purposes. Which is why we have BTC, and why it was necessary to restore the original protocol in the form of Bitcoin BSV.
Even now, in 2020, the online world labors under old financial concepts—which as Dr. Wright points out, are designed more to capture consumers and hold them in walled gardens than to free the economy.
We’re led to believe things like Google Pay, Apple Pay, Tap & Pay, etc, are payment innovations, but in reality they do little to grease the wheels of electronic commerce.
Back to the beginning
The Bitcoin white paper introduces itself thus:
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments.
Have we really advanced on that at all? Hardly. The system is still firmly rooted in banks and payment processors, credit cards and insecure promises in place of settled transactions. It’s still expensive and cumbersome to process payments in small amounts (like a dollar or less), requiring them to be bundled—either by the merchant or by the consumer funding an account with a pre-set, higher amount.
Dr. Wright details his time at Lasseter’s, the online casino, saying how the ability to “play around” with single-digit cent amounts would have brought in more new users. On the other hand, physical cash doesn’t have a problem like this—it can be spent in any amount down to a cent.
Why was it so hard to create something as simple, effective and trustworthy as cash in digital form? Perhaps the physical/tangible nature of cash is what makes it so good at its job. Past attempts to digitize money, Dr. Wright explains, were things like DigiCash and eCash (and even MojoNation) which attempted to create fiat surrogate tokens using “calls on banks” and a “blinding process”—which in the end were settled by banks anyway. Some tried to create new economic rules of their own, toying with the money supply depending on users’ wealth, or trying to redefine money itself. None worked well.
Then there’s more recent attempts, like Tether… Dr. Wright has some pretty strong words to describe it, and none are favorable.
“Think about what cash is,” Dr. Wright advises. You don’t buy a house with a suitcase full of it. You don’t call the police if someone steals 50 cents.
Wright and Charles also discuss the issues of theft and fraud, and the costs associated with preventing/reversing them. This is similar to the cost and effort required to process small transactions—it’s too much to bother with. Ergo, what the world needed was a system where users could spend small (or micro) amounts, make small payments as secure as possible, and do it all at negligible cost.
Enabling cheap, secure and fast electronic cash transactions to everyone in the world—not just banks and large corporations—unlocks billions of dollars in value and creates new economic opportunities.
EDI, and the ‘monster’ that is advertising
There are a few topic branches in this episode. One is a discussion of EDI (electronic data interchange), the more-than-$20 trillion data standards industry and one of Dr. Wright’s most frequently mentioned topics. Even the SWIFT network banks use represents less than half a percent of all EDI traffic. “Most people don’t know the other 99 and a half,” Dr. Wright says.
The other is advertising, which Dr. Wright has no love for at all:
“This—the only word we have for it is ‘evil’— thing we have now with advertising. Advertising is the root of all evil, as I see it, in the modern world. It’s a monster… it’s completely out of control.”
Advertising is the reason online and entertainment content has become so bland, with creators living forever in the clutches of social activists who can pressure advertisers into abandoning anything they find offensive.
The same goes for social networks, who censor users’ content while allowing fraudulent and misleading activities to run rampant. It’s not Big Brother anymore, it’s “Little Brother” watching everything you say and do. Unlike in “Nineteen Eighty-Four”, you can’t hide from this. (You couldn’t actually hide from Big Brother in Orwell’s famous novel either, but somehow the Little Brothers we have in 2020 are more frightening and real.)
Discussing the Bitcoin White Paper may be going over the basics, but you’ll be surprised how necessary it is to revisit those old concepts. Rather than speak in Bitcoin clichés and platitudes, it’ll help clear your mind. For that reason, this tangental series of “Theory of Bitcoin” remains essential viewing.
To watch previous episodes of the Theory of Bitcoin, subscribe to the Theory of Bitcoin YouTube channel here.
New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.