Tuesday , July 23, 2024

Bitcoin 1, Bitcoin 2 … Bitcoin 3?

In late July, the currency known as Bitcoin split into two competing, incompatible currencies. The rebels who initiated the so-called fork may or may not survive the onslaught of shocked traders, many of whom rely on this currency for ransomware and other illicit payments. Still, even if Bitcoin-2 proves to be short-lived, it made its point: a protocol is cloneable.

No one suggests that the dollar can split into dollar-one, dollar-two, etc. Nor does anyone say the same with respect to the Euro and the Yuan. But a set of rules that generates money out of nothing can be re-applied and generate more money out of more nothing. I predicted this in 2014, and I have heard arguments since about why it would never happen. Indeed, when it did happen, it shocked the foundation of the Bitcoin religion and validated the argument that Bitcoin is not a decentralized currency. Rather, it is alt-centralized money. Control shifts from central banks to anonymous “developers” who write ever more convoluted code, and eventually run into disagreements in their ranks.

The number of people who understand Bitcoin at the level of code-tweaking is ridiculously small, a handful really. Whom do those few mavens work for? Whose interest are they protecting? So many on the other side of justice thrive on Bitcoin that this question of interests and secret masters is very pertinent. By contrast, central bankers are accountable to their country, and are nominated by elected officials in most cases, so the people have the ultimate say.

Now the cryptocurrency world sizzles with scenarios. Imagine five or 10 “Bitcoins” connected through efficient exchange stations, so that people can pay and get paid throughout the world, however each Bitcoin system is run by its dedicated developers. This will give traders the chance to try each Bitcoin and settle on their favorite. The existence of several Bitcoins will allow each version to use different cryptographic algorithms, so that when one crypto tool is inevitably compromised, the damage will be limited to the attacked Bitcoin.

The deeper lesson from the Bitcoin split is that Bitcoin is subject to quite a few blows and shocks that over time are likely to steer this really novel invention onto stable tracks, allowing a place to be found for it in the world of value, payment, and civil order. In my estimation, though, that’s many years away.

Notwithstanding, the underlying idea that money can go and is going digital is on a very fast track. Fiat currencies and other established commodities may be set up to back digital “claim checks” that transact through all channels that allow bits to flow. A sequence of bits that carries both value and identity—digital money—is a practical reality. It works without the Bitcoin protocol, and is oblivious to blockchain, centrally minted, legacy-friendly, resolution-flexible, reliable, and secure.

Indeed, implementations of digital money are numerous. They are hard to spot, though, because a fear of regulation prompts their operators to call them anything but money. But digital money they are: gift cards, bonus points, air miles, monetary claim checks, prepaid tokens, and so on. Countries are now moving in: China is the first major economy to officially commit to non-Bitcoin, non-speculative digital money. Ecuador, Sweden, and Kenya have also jumped into the fray.

Over the past few years, a silent invasion took place. Billions of Internet of Things devices took their place all over our living space. They sense for us, act for us, help us, serve us—and they charge us! IoT devices are so fitting for digital money, and so unfitting for credit cards! No longer will we have account-to-account payment. It will be device-to-device and pay-as-you, with no bills and no invoices. Money and payments will fade into the background.

Digital money, whether Bitcoin or BitMint, will be like an intercontinental ballistic missile—fired by the payor, controlled by the contract that underlies the payment, paid exactly to the intended payee under exact terms and conditions. The business of “creative accounting” or “funds re-allocation” is coming to its well-deserved end.

Payment is how we communicate in a society so full of strangers. Digital money, through its present shocks and evolutions, will radically change not only the way we pay, but also the way we live. I hope America realizes what’s at stake and keeps its position of leadership in the world.

—Gideon Samid • Gideon@BitMint.com

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