THE BITCOIN STANDARD: Governance, The Governor, and Regulation
Bitcoin is not easy. Its hard in more ways than one. And it never ceases to amaze me how those who I thought knew better still don’t get it.
My strength is understanding the economics and political philosophy of bitcoin and being able to communicate this in ways for a laymen to understand.
My good friend Giacomo Zucco taught this Ugly Old Goat how to think out of the box by identifying as a tall black woman. It really helped me to envision new concepts and perhaps it will help you too.
So if you can identify as a tall black woman, let’s take this journey together my tall black sisters.
BITCOIN GOVERNANCE:
REFINING IS TO GOLD AS GOVERNANCE IS TO BITCOIN (ONLY BACKWARDS)
Similar to Bitcoin, the element gold is one of the few elements on the periodic table with no definable individual being credited with the discovery. While Bitcoin has a mysterious individual (or group of individuals) who discovered the element Bitcoin under the pseudonym Satoshi Nakamoto, this person or persons has long since mysteriously disappeared from the scene.
Since the use of gold goes back to a time near the dawn of man, the historical records of gold’s original discovery have long ago been lost to modern man.
The loss of detailed information about who discovered gold in the historical record is not to say that we have no early records of the use of gold. Gold is mentioned in nearly every corner of the worlds history. From the ancient civilizations of Greece, Egypt, Nubia and Rome, gold has been a centerpiece of trade and commerce. Valued for its unusual yellow sheen and malleability, gold has found its way into the craftsman’s hands, being formed into jewelry, decorations and eventually coins. Even the biblical record sites many cases where gold and other precious metals were used as decorations or for commerce.
Further, gold has a long recorded history governing its refinement, measurement and purity. From Archimedes, “Eureka, I have found it!” until modern times.
It was not until the late 19th Century that gold could be refined to a purity of 99.99 purity for commercial and monetary use.
The technology boom for developing pure gold began with E.B. Miller’s process of refining impure gold with chlorine gas (patented in Britain in 1867) and continued with Emil Wohlwill’s electro-refining process (introduced in Hamburg, Germany, in 1878). Gold with purity of 99.99 percent is created using a combination of the processes.
Like gold, bitcoin was originally found in a very raw and crude form. Upon its discovery on January 3, 2009 few who saw it thought it had much potential . . . . but those who examined it closely and recognized its raw beauty started to mine it . . . for fun. . . and for alchemy experiments . . . for you see . . . bitcoin was worthless with no value whatsoever for more than a year after its discovery. Bitcoin had no imputed value for over one year.
While gold is first mined and later refined . . . Bitcoin is first refined and then mined.
So while gold miners mine gold of various impurities that must be refined, bitcoin is first refined with universal purity and only then mined. Any bitcoin mined without this universal purity is rejected and is not part of its limited unprintable supply.
REFINING IS TO GOLD AS GOVERNANCE IS TO BITCOIN (ONLY BACKWARDS)
Bitcoin has been governed by continual refinement. This governance is conducted entirely off chain. . . and is not bitcoin . . . but it is a constantly reviewed, open, and difficult process to refine bitcoin into its pure essence of maintaining the longest chain, secured by proof of work, with a limited supply or unprintability, and unconfiscatability.
For more on Bitcoin Governance check out the following links:
BITCOIN AS THE GOVERNOR
While open peer reviewed limited governance refines bitcoin, governance is not bitcoin. Bitcoin is the longest chain, secured by proof of work, with a limited supply or unprintability and unconfiscatable.
Just as gold acted as the governor on the gold standard, bitcoin acts as the governor on The Bitcoin Standard.
As a known and trusted store of value the most advanced non-inflationary monetary system ever known to mankind emerged under the gold standard with the development of commercial banking and non-inflationary self liquidating commercial paper in the late 19th Century.
Specie (as well as coinage) was not only redeemable in gold, but all other goods being offered in the marketplace.
Gold evolved into the financial standard . . . to settle accounts . . . and provided a store of value upon which all transactions, including cash transactions, were settled. Gold was rarely used as cash, but the gold standard was universally used to settle accounts, including cash.
In June 1974 gold standard advocate E.C. Harwood authored The Lost Art Of Commercial Banking describing how sound commercial banking developed in the private sector under a gold standard.
“For about a hundred years it was sustained at an advanced level of development before retrogression began . . . Even the most ardent advocates of sound money, of the gold standard, of a useful accounting unit seemed not to realize that until the lost art of commercial banking is revived and generally applied there can be no hope for the money-credit system of Western civilization…”
Harwood concluded, “For nearly a century prior to World War I, the leading English banks applied the basic principle of sound commercial banking most of the time with outstanding success. The basic principal become more widely understood and applied among industrial nations. Even the United States, which had been one of the ‘slow learners,’ did embody this basic principle in the legislation that initiated the Federal Reserve System in 1913. The Federal Reserve banks originally were permitted to rediscount for the member banks only commercial paper directly tied to the volume and value of things flowing to markets. Such widespread application of the basic principle of sound commercial banking marked the farthest advance by the human race in the evolutionary development of a money-credit system that could serve a modern industrial society.”
Harwood’s white paper went on to describe what objective was achieved by sound commercial banking and listed in detail various aspects of its useful procedures.
“At this point we are focusing attention on some of the facts and are not attempting to describe how those facts came to exist. These are aspects of the entire problem and need not concern us here, however, interesting they may be to students of economic history. The fact is that gold was the unit of account for modern industrial civilization”
Harwood goes on to describe the art of creating non-inflationary money by private bankers. Essentially new purchasing media was limited in the unit of account (gold) to an estimate of value of new goods being offered in the marketplace. Money creation was limited to represent new goods (cars, computers, wheat, or bread for example) coming into the market place. The money creation was used by the car or computer producer or farmer or baker to pay suppliers, employees, etc. In turn, those receiving this newly created money could redeem this money into gold, cars, computers, bread, or any other goods being offered into the marketplace. As the newly created purchasing media eventually works its way back to the private issuing bank, it was retired. The function of providing a relatively stable non-inflationary supply of money was accomplished and conversely prevented a deflationary money issue. The newly created purchasing media represented not just gold, but other newly created goods be offered in the marketplace. So while the unit of account was gold, the purchasing media represented an estimate of the total amount of gold and other new goods offered into the marketplace. It was essentially the development of a production backed currency accounted for and governed by accounting units of gold.
Harwood described the distinction in banking between creating non-inflationary money representing new goods coming into the marketplace (sound banking) and the creation of inflationary money representing no new goods in the marketplace (unsound banking). Harwood went on to distinguish non-inflationary savings and investment from non-inflationary commercial paper.
“As commercial banking has developed, especially in the United States, two quite different functions have been performed by the same institutions. In addition, to commercial banking as already described, most banks also accept savings to be invested.”
“Savings are purchasing media that the original holder decides not to spend himself but instead requests the bank to invest for and pay him interest on his savings account, sometimes called a time deposit. The bank invests such purchasing media by lending it to a borrower who perhaps is buying new equipment for his factory or to a borrower who may desire to buy a new car or for some other purchase. . . . The borrower from the bank in the savings-investment transaction is not at that time sending to or otherwise offering things of equal value in the markets to be sold. He does not desire purchasing media so that he may distribute it to employees and suppliers who participated in preparing things for the markets. His desire is to claim things from the markets, either equipment for his factory or a new car for personal use, and any multitude of other things available, such as new bricks for construction of a factory, etc. Consequently, the bank should not create new purchasing media for such a borrower but should lend him purchasing media already in existence that some present owner or owners save and deposit in the bank.”
Essentially Harwood recognized that without market freedom in banking a gold standard alone cannot rescue Western civilization from what he termed The Money Mirage of fiat paper currencies. Nor can a savings and investment scheme accomplish this task. Rather specie is needed that represents the totality of goods being offered into the marketplace. The restoration of the lost art of sound commercial banking will provide this solution and provide a relatively soft landing for a world awash in inflationary fiat paper money. Gold simply acted a governor, referee and standard for the banks issuing specie representing these goods.
A series of bad loans made through creating too much specie by over-valuing the new goods being offered in the marketplace results in a draw down of gold reserves of the issuing bank. . . curtailing its banking ability until adjustments are made.
Sound commercial banking solved the problem of regulating the money supply through the marketplace.
In 1976 in Denationalisation of Money Nobel Laureate F.A. Hayek argued for free market in currency and banking. In a nutshell Hayek argued that the idea that money and banking should be in the hands of governments is a superstition similar the Divine Right of Kings over 200 years ago. Hayek went on to suggest one solution might be an indexed basket of commodities which would provide an immediate and more stable money than a traditional gold standard and could more easily transcend national boundaries, difficulties apparent with the gold standard.
But regardless what emerges Hayek’s proposition is that innovation in an unfettered market of money and banking would provide a relative smooth transition from the gross distortions caused and hidden by the global fiat political money. Hayek recognized the need for independent value of currency to keep it secure from the manipulations of any issuing authority. But Hayek did not agree that gold was necessarily the best solution or that gold should be imposed via fiat. Hayek recognized the limitations of gold and distanced himself from what this author termed Gold Socialism (those who would impose a fiat gold standard). Hayek proposed that such innovation should not be limited to a gold standard alone.
Further, Hayek recognized that with free market money and banking only one standard would likely emerge and even named such emergence THE STANDARD. The competition will occur on the agreed STANDARD, and not on a plethora of competing standards. While other standards might continue to exist their total impact would be minimal in comparison to the accepted STANDARD.
When Harwood and Hayek were on the scene there was no internet and no bitcoin and there was no possibility of a decentralized peer-to-peer network for money creation and verification. There was no longest chain secured by proof of work, with a limited supply or unprintable, and unconfiscatable.
The idea of free market money and banking apart from a gold standard, a silver standard, a basket of commodities standard, or some other standard of without the classic sense of intrinsic value was simply a foreign idea in 1976. What was recognized is that a standard was necessary with value apart from the issuer and apart from any central authority. Gold creation is limited and due to its unique characteristics acts as its own verifier. Gold has a long history of being money as well as having other uses. These other uses is the classical definition of intrinsic value.
With the introduction of free market sound commercial banking, additional value will be imputed on bitcoin. Only with the development of sound commercial banking (along with savings/investment mechanisms) can voluntary imputation of value by participants through contract fully compete with the fiat imputation of value by governments. The full potential of bitcoin can be realized as additional value is imputed by a multitude of new goods being offered in the marketplace through voluntary contract in non-inflationary specie creation and savings and loans type investments that are obligated to be repaid on THE BITCOIN STANDARD.
REGULATION IS ACCOMPLISHED BY FREE AND OPEN MARKETS
Because Bitcoin is the longest chain secured by proof of work, with a limited supply or unprintable, and unconfiscatable it is not subject to regulation by a sovereign authority so long as the hodler alone has the private keys.
The same cannot be said for fiat on and off ramps into and out bitcoin, nor can the same be said for bitcoin held in a fiduciary capacity in local jurisdictions.
Recognizing this dichotomy bitcoin exchanges (which currently act a primitive bitcoin banks) are organizing under the flag of “self regulation” to placate the clamor for authoritative regulation in various jurisdictions.
And such developments are fine as far as they go.
But bitcoin is unique in that it also operates intrinsically without being subject to any jurisdiction. . . by intrinsic I am referring to bitcoin’s value that has arisen because of its unique characteristics of being the longest chain, secured by proof of work, with a limited supply or unprintable, and unconfiscatable . . . so long as the hodler owns the private keys.
For the first time in recorded history wealth can be transferred instantly and seamlessly between jurisdictions or more accurately without any jurisdiction. So while a physical person may not be able to escape the abuse of tyrannical jurisdictions, a person’s wealth can escape . . . BITCOIN IS UNCONFISCATABLE.
This means that for the first time in human history a truly free and open market can develop apart from any authoritative jurisdiction and provides safeguards against tyranny much like the individual right to bear arms. While this will likely cause friction in the next generation, itis not the challenge currently before this generation.
Self regulation is accomplished through constant vigilance, education, and exchange of ideas. And this is our only hope now and for future generations that, through God’s grace, will navigate sound money through whatever lies ahead.
The current challenge in THE CYRPTO WORLD centers around whether free market money means competing standards or competition primarily on one standard.
Yet the fact is that THE BITCOIN STANDARD WORLD is distinct from THE CRYPTO WORLD because bitcoin is a unique element defined as the longest chain secured by proof of work, with a limited supply (unprintable) and unconfiscateable.
Unconfiscateable due to its unique quality of organic birth ex nihilo . . . out of nothing with an unknown discoverer. . . qualities THE CRYPTO WORLD mimics by adding bells and whistles but is unable to duplicate.
The advertising slogan “better than bitcoin” makes great click bait, but is a canard.
For this reason, the outcome of the current debate is predictable. . . but will not be easy due to tremendous misallocations that have resulted in pursuing competing standards rather than competition on The Hayek Standard . . . which is THE BITCOIN STANDARD.
IN SUMMARY:
1. REFINING IS TO GOLD AS GOVERNANCE IS TO BITCOIN (ONLY BACKWARDS)
2. JUST AS GOLD WAS THE GOVERNOR ON THE GOLD STANDARD, BITCOIN IS THE GOVERNOR ON THE BITCOIN STANDARD
3. REGULATION OF THE BITCOIN STANDARD ON AND OFF RAMPS AND FIDUCIARY RESPONSIBILITY IS THE JURISDICTION OF THE LOCAL SOVEREIGN. REGULATION OF THE BITCOIN STANDARD UNDER NO JURISDICTION, INCLUDING FIDUCIARY RESPONSIBILITY, IS ACCOMPLISHED BY HODLERS IN A FREE AND OPEN MARKET THAT ACTS IN A SIMILAR CAPACITY AS THE RIGHT TO BEAR ARMS GUARDING AGAINST MONETARY TYRANNY
CONCLUSION
In 2019 it is important for sound money advocates to take control of the dialogue by defining terms in order to win hearts and minds through persuasion. Here are three of my personal definition changes that may provide a good start.
I am no longer part of THE CRYPTO WORLD . . . I am a part of THE BITCOIN STANDARD WORLD.
I am no longer a bitcoin maximalist . . . I am a BITCOIN STANDARD BEARER.
I will no longer allow THE CRYPTO WORLD to define BITCOIN or THE BITCOIN STANDARD as bitcoin core.
Hope this helped, my beautiful black sisters.
UOG
