Topics

May-2020

Certain topics recur periodically in my work. This page sorts some favorites thematically. Skip to:

Proof of Reserves

Proof of Reserves is the idea that custodial businesses holding cryptocurrency should create public facing attestations as to their assets held on deposit, matched up with a proof of user balances (liabilities).

Bitcoin Energy Consumption

Much has been written on the topic of Bitcoin’s energy consumption and whether it’s ultimately worthwhile. I cover both the normative debate – does Bitcoin have a valid claim on any of society’s resources – and the factive debate – what does Bitcoin’s energy footprint actually look like? I recommend the full suite of articles to understand this complex topic.

Talks and Appearances

Video

Crypto-dollarization

I make no secret of the fact that I believe that a complementary phenomenon to Bitcoin is the insertion of fiat currency on chain. Far from being competitive with Bitcoin, I view this trend as highly synergistic. Cryptodollars have only been able to reach critical mass because of the infrastructure built to support Bitcoin: exchanges in virtually every country on earth, and ever more sophisticated wallet technology, in particular on mobile. And as cryptodollars proliferate, they introduce users to the notion of storing value as information, popularizing non-state cryptographic bearer assets.

In the long run, Bitcoin will impose discipline on every single central bank, but in the near term, the greatest threat to weak sovereign currencies is simply high-powered, frictionless cryptodollars – delivered on crypto-financial infrastructure. While I initially wasn’t impressed by cryptodollars, I have come to see them as occupying a different niche: they are ultimately liabilities of the banking system and will never be liability-free “digital specie” like Bitcoin. Nevertheless, it is cryptodollars which have seized the spotlight this year.

Free Banking

Free Banking, alternatively known as laissez-faire banking, refers to banking arrangements in which central banks and governments exert little control or regulation over the bank sector. Left to their own devices, banks historically issued banknotes redeemable for specie held in reserve. In the most unregulated configurations, free banking systems were remarkably stable and run-free, with shocks infrequent and bank failures uncommon. The best-documented instances date back to 1714 to 1844 in Scotland and in the 19th century Canada, but other episodes can be found in Switzerland, Sweden, Chile – in total, around 60 historical episodes. Many have drawn comparisons between free banking episodes and contemporary stablecoins. I explore those here.

Bitcoin banking

Something I often think about is how Bitcoin can scale and function in a layered manner as the liability-free collateral for a robust financial system. Currently, Bitcoin is partially financialized, held by a patchwork of intermediaries like exchanges and custodians. Some of these have begun to offer banking services, as a proto-crypto banking network has begun to develop.

It’s my belief that, given Bitcoin’s amazing auditability and verifiability properties, and the ease of taking “physical” delivery of the asset, Bitcoin could function as a kind of neo-specie to power a free banking system that would echo the successful periods of unregulated banking in the 19th century in places like Scotland.

A development of a system like this would enable Bitcoin to scale its usage of the base-layer blockchain and functionally scale in the layered manner than visionaries like Hal Finney predicted. However, much work remains to be done: Bitcoin banks operating today must be held accountable, lest they abuse their privilege, as they have done many times in the past:

The political economy of Bitcoin

Bitcoin isn’t just a monetary phenomenon. It’s a profoundly political idea. Some of its critics use this as a smear, attempting to class Bitcoin as a dangerous or radical notion. While Bitcoin is a neutral money, thanks to its free market initial distribution as well as the abolition of monetary discretion within the protocol, its imposition on the world is decidedly non-neutral. Bitcoin is perhaps best described as a revanchist movement, aimed at taking back what certain developed countries once had: a system of free and unconstrained banking based on a gold standard.

Thus it’s very important to understand the values that are embedded in the protocol: self-determination, a strong and inviolate respect for property rights, a rejection of seigniorage and ‘Cantillon insiders’, and an indifference to the contingencies of an individual’s birth or circumstances. All are treated equally by the protocol.

How to measure public blockchains

Actually determining the relative importance of public blockchains is a controversial field. While measures like transaction count and market capitalization have historically been lionized, I have endeavored to help researchers think beyond those metrics and look for more sophisticated measures.

Time to finality
Relative measures of economic significance
New measures of transactional value and economic size