Spending Your Bitcoin … Cash
SETTING THE SCENE
The year was 2017, and the issue was scaling Bitcoin. A group of nefarious shadowy super morons thought they could scale Bitcoin by destroying its primary attribute… decentralization. Lol!
How?
By increasing the block size these galaxy brains concluded that if they fit as many transactions as possible into each block in the Bitcoin base layer, that would improve Bitcoin's perceived scaling deficiencies. With the increased throughput of bigger blocks in the network, the galaxy brains had solved the enigma.
You know, network scaling, just like Apple Pay, Visa, and Venmo do it.
Oh wait, those applications are not operating at the base layer. That's not actually how those applications work. Transactions on those networks are not cash final settlements. In fact all payment applications we use today in our day to day lives are layers above the base layer.
In fact all technologies are layered one atop another. Whether it's your internet web browser, your cell phone, the way your home is constructed, or your car, or even your body, heck even the Earth and the Milky Way galaxy it sits within, literally everything is built in layers.
It's actually how the entire universe operates.
The base layer does one thing super well, and super reliably, and from that stable rock solid base further functionality is added, layer, by layer, by layer. There's even a book written on this concept specific to money and its called Layered Money for crying out loud! Check it out. Nic Bhatia has some great insights and tons of historical references to back up his work. Check it out —→ https://www.layeredmoney.com/
Yeah, never mind, not like Apple Pay, or Visa, or Venmo. Apparently the shadowy super morons were "innovating" because, you know, muh technology is outdated, Bitcoin is old and slow. Der de der.
Idiots.
Increasing the block size creates an enormously bloated chain of blocks that would then make the ability of the average Joe to download the blocks virtually impossible with an off the shelf computer. Instead of scaling Bitcoin, the bloat of bigger blocks would inevitably centralize the Bitcoin protocol into only a few large companies with the capacity to run large data centers, like Amazon, or friendly government agencies like the NSA. And once centralized, these large organizations could then censor transactions they didn't approve of, and effectively kill Bitcoin.
Looking at you Ethereum, lol.
Maybe these shadowy morons were not idiots after all. Maybe more like malevolent! Ultimately it matters not the intent of these imbeciles and those that follow them into their own demise. What matters is how well the market favored, or in this case disfavored their "innovative" scaling solution.
Turns out not so well. Since their hard fork of Bitcoin back in 2017, this renegade group of scammers that created their own special shitcoin that they maliciously dubbed "Bitcoin Cash," has since its unceremonious launch, nose dived straight into the dirt. The lols intensify.
Something, something, stupid games… stupid prizes…
Much like the fate of all scam tokens that take a run at the champ, Bitcoin Cash has been evaporating into oblivion since inception. Good fooking riddance trolls.
For the first five years of its existence, Bitcoin Cash is down bad, over 97% from its launch against Bitcoin. And the hash rate comparison is even more embarrassing so I wont waste more of your time with that. I'm already getting noxious talking this much about this stupid scam coin as it is. Just look at this chart of the absolute dumpster fire that Bitcoin Cash truly is. Indeed, crypto trends to its market value, zero.
Horrifically rekt. HFSP, dirtbags!
BITCOIN IS CASH
So why all this talk about Bitcoin Cash? Don't worry, there is a point to this story other than dunking on these losers.
First, its high time we take back the name. Bitcoin is simply better cash, its better money than any that has come before it, whether its digital US dollars, analog paper dollars, or gold coins. And now that the scam coin is effectively dead and buried, its time to wash the mud off that moniker, Bitcoin is cash. It is in fact the intended purpose of Bitcoins creator. So let's make Bitcoin, cash, great again!
And Secondly, its useful to understand why the scam coin Bitcoin Cash did not catch on. The answer shows us what cash actually is. The scam coin didn't catch on, because the real coin, Bitcoin, was already CASH, still is CASH, and will continue to be, forever and evermore… CASH! Satoshi in fact referred to Bitcoin as "Cash" from the very beginning. But don't take my word for it. Here it is in the title of the Fooking White Paper. Lol!
For some context, back in 2017 the scumbag shitcoiners tried to incept the notion that Bitcoin wasn’t actually functioning as intended, as cash, because the cost to transact a bitcoin at that time was getting “too expensive” and that therefore, since cash, as we all understand it, should be cheap or nearly free to transact, the original Bitcoin, according to the scammers, was failing its stated intent, and that the solution of bigger blocks, and more transactions per block, could then return Bitcoin to its original use case and intent as an electronic peer to peer cash system.
To be fair, there is a reasonable argument to be made that cash should be cheap and fast to move. If we think about the analog version of cash, handing someone a dollar bill, it is effectively free, instant, final, uncensorable, and permissionless.
And so with this perspective it makes sense that one could make the argument that Bitcoin was failing in its attempt at creating an innovative electronic cash, because back in 2017, although transactions were final, uncensorable, and permissionless, with bitcoins price rise in 2017, transactions were viewed as anything but free and instant.
With full blocks in 2017, and a bloated mempool, people were fighting for main chain confirmations with higher and higher fees, and longer and longer transaction confirmation times.
However, even with longer transaction processing times, and higher transaction fees, we must be carful not to accept the argument of perceived high costs and slow conformation times without some verification of this argument. After all, Bitcoin is all about not trusting, but rather verifying, right?!
GET YOURSELF EDUMACATED
When we think about Visa cards instant or near instant transaction speeds, and zero or near zero transaction costs, we are missing two critical view points. For reasons that follow, these transactions are certainly not instant, and are very far from having a zero cost.
When we think of transactions, of transferring value, we really need to be talking about the concept of final settlement, where there is no further counterparty risk. A cash final transaction is one in which there is no further risk of loss of funds by third parties, which could arise for a variety of reasons. For example, when considering cash finality transactions imagine you go to your local butcher and pay in physical or analog US dollars for your steaks, the butcher and you have conducted a cash final transaction.
(For simplicities sake, we are treating this physical dollar transaction example with your local butcher as cash final, however, we could and we should debate the governments rug pulling ability of the value of that dollar. But hold that thought, we’ll reach that issue in time. Baby steps young padawan…)
If instead, you pay your butcher with your debit or credit card, there is a whole series of third party approvals and signoffs that occur between the card networks, your bank, and your butchers bank. At any one of these way points, at any one of these “trusted centralized third parties” the payment may be denied, and even if the payment is approved, and you walk out of your butchers shop with your steaks, the banks won’t complete final settlement of the transaction for any number of days, through bank to bank periodic batched settlements that they complete on lower layers of the monetary network.
This delay in final settlement between banks creates counterparty risk and requires the banks to offset that risk with additional trades and counter-trades to minimize the possibility that the card payment is denied for any number of reasons, even though the transaction was already finalized between you and your butcher. The costs of all this behind the scenes lower layer activity shows up in the form of hidden fees that your butcher passes on to you when you purchase your steaks with your debit or credit card.
The Philadelphia Federal Reserve provided this figure in their 2013 paper, Clearing and Settlement of Interbank Card Transactions: A MasterCard Tutorial for Federal Reserve Payments Analysts and as you can see there is a lot happening behind the scenes.
All of this complexity to arrive at cash final settlement is expensive, and slow. According to Visa’s 2021 Form 10-K Annual Report filed with the US Securities and Exchange Commission, they reported $10.4 trillion in payments volume processed for the year which resulted in $24.1 billion in net revenues for the year.
Taking the total revenues divided by the total payments, the average fee rate for the year was 0.232% which is actually surprisingly low considering most retail transactions charge vendors upwards of 2% per card swipe. Yet even at 0.232% on average, this is still tremendously higher than Bitcoins cash settlement network.
Lets compare the 0.232% Visa fee with Bitcoin.
In the below tweet, Pierre Rochard provides us with 2021 total payments processed. Surprisingly, total payments amounted to slightly more than Visa for the year, at approx. $15 trillion for the Bitcoin fiscal year ending May, 2021.
And the total fees for this $15 trillion of payments processed amounted to approx. $1.0 billion in fees, based on Pierre’s annual Bitcoin mining data for 2021 of $47 million annual revenues per day, with 6% of that constituting transaction fees. In percentage terms then, total fees for 2021 passed on to users of the Bitcoin network was approx. 0.007%.
In other words, the Visa fee rate of 0.232% is 35 times higher than Bitcoins fee rate of 0.007%.
Not too shabby, considering there is no Board of Directors, no CEO, no shareholders, no advertising, no marketing, no paid employees, and continued nation state attacks for this intrepid new start-up. But not only are fees an order of magnitude cheaper with Bitcoin, the speed of these transactions are incredibly faster on the Bitcoin cash settlement network.
In the case of bitcoin, the payment is cash settled final within hours. In the case of a Visa payment, the average settlement time is measured not in hours but in days. One Bitcoin transaction might settle within 1 hour, whereas one Visa transaction may not settle for 48 hours or more, as it traverses the gauntlet of various counterparties. So here too we see another order of magnitude improvement comparing speed of Bitcoin with the Visa incumbent.
Those that think Bitcoin is too slow or expensive, don’t have a good understanding of the facts.
Bitcoin is just a better electronic cash system than the legacy system, and not just by a little bit, but by orders of magnitude. And this brief analysis doesn't even take into consideration innovative layers that are getting built out on top of Bitcoin like the Lightning network, creating even faster, cheaper, and greater throughput than the already exceptional Bitcoin network.
The legacy system is a dead man walking they just don’t know it yet. And it is not just in comparison to Visa that Bitcoin shines. There are other costs to consider, very important costs to consider, when comparing alternative electronic cash systems.
TRUTH BE TOLD
If we are to look at the complete picture, we need to understand why people use their US dollar based debit and credit cards, and we also need to consider the inflation rate of the US dollar based system, and compare these two final factors with Bitcoin.
First of all, the dollar is used because it is violently enforced. If you don’t settle your bills with US dollars, men with guns and bombs and the threat of life in prison will force you into compliance, to use the dollar bill. For most people, the cost of their own life is a pretty hefty cost.
And compare this coercive violent approach of the US dollar with that of Bitcoin. There is no military force or police force demanding people use Bitcoin. That cost is simply non existent in the Bitcoin network. There is zero threat of bloodshed in the case of Bitcoin. That in and of itself, by any measure, aught to garner support of any peace loving advocate around the world, and in fact it is one of the many reasons that people around the world are so in love with the Bitcoin protocol. Who wouldn’t prefer a voluntarily enforced network over a violently enforced network. It’s a no brainer, for those of us… with a brain. Lol.
Nevermind the speed and cost savings of Bitcoin compared to Visa, the fact that Bitcoin is something that people go out of their way to voluntarily use, that there is a monetary network that doesn't require violence to enforce its use, this in and of itself aught to be enough of an argument to get governments of all nations in support of the network, if they are serious about freedom and liberty for their people.
There is nobody with a gun forcing you to use Bitcoin. In fact it is quite the opposite, in fact there are men with guns that are trying to force people to not use Bitcoin. And yet the Bitcoin market cap reached $1 trillion faster than any other asset in the history of human civilization. Incredible.
Secondly, and perhaps most importantly, the cost of using the US dollar includes a hidden inflation tax.
As the number of dollar based debts continue to expand every year through governmental, corporate, and even citizen debt expansion, the value of every dollar is constantly going down every year. What this means is that holding the dollar for any period of time has a tremendous inflation cost. In other words, although the use of a physical dollar is free and instant, the requirement to use the dollar is tremendously expensive, and that cost is entirely paid for by the users, by those that earn their pensions and wages in dollars, who don’t have the wherewithal to own scarce assets, which is in effect the vast majority of the US population. And this dynamic applies globally to all fiat currencies and the citizens forced into servitude of their governments inflationary monetary policies.
The growth of the US money supply varies year to year but in general usually averages around 7% annually which means that over the course of a ten year period, the value of your savings in US dollars, and the value of your labor, is cut in half.
Compare this with Bitcoins inflation rate. Currently the Bitcoin annual inflation rate is about 1.8% which is similar to golds annual rate. However, by 2024 Bitcoin has a preprogrammed inflation rate decreasing to approx. 0.8%, and by the end of the 2020 decade, Bitcoins programmed inflation rate will fall to a mind boggling 0.4%. There is simply no other asset on the planet that mankind has ever interacted with that has such a low inflation rate. And again, just to emphasize, this is already known! Compare this to the US dollar supply or any fiat currency supply, the managers of these cash settlement systems have no idea what their inflation rates will be by the end of the week, let alone the end of the decade. More LMFAO!!!
The real nuance to grasp here is the how.
Low inflation is great. It allows us to store our value, our work, our time worked, over a longer term, which then enables our ability to plan, and affords us the opportunity to take on greater challenges with the certainty that our cash will have the same value today as it will tomorrow.
The cost that the US dollar imposes on its users because of its high inflation rate is beyond the scope of this article, but suffice it to say, the United States has for its first time in history begun to see decreased life expectancy data. There is a large and growing mountain range of data that strongly suggests high inflation rates have a direct and substantial impact on the quality of life of the not only United States populations, but among the peoples of the entire planet.
DECENTRALIZATION IS KEY
As previously noted, if you increase the block size of Bitcoin, you very quickly increase the size of the total history of all the blocks, and with the necessity of having all of the history of the blocks in order to run the protocol, by increasing the block size, you would very quickly remove the ability for anyone on a budget to have the ability to run the Bitcoin protocol.
In other words you would lose the “Peer-to-Peer” component of Bitcoin. We would rather quickly end up with a centralized Bitcoin. We would end up with Bitcoin: A Peer-to-Bank-to-Peer Electronic Cash System. Nothing new.
Satoshi was trying to cut out the trusted third parties, the centralized banks. It is the third parties that increase costs. As the old saying goes, cut out the middlemen and reap the rewards.
The Bitcoin Cash shitcoin cretins had literally returned Bitcoin to the problem that was solved.
Again, don’t take my word for it about what Bitcoin was and has accomplished. Here it is in Satoshi’s own words from the White Paper Introduction:
What is needed is an electronic payment system based on cryptographic proof instead of trust[ed centralized third parties], allowing any two willing parties to transact directly with each other without the need for a trusted [centralized] third party… In this paper, we propose a solution to the double-spending problem [heretofore inefficiently solved with trusted centralized third parties] using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions.
I’ve added some [clarifying language and emphasis] that helps you see what Bitcoin does.
Bitcoin removes the banks from electronic transactions, allowing value to move directly, peer to peer in the same way that you might take a paper dollar, cash, and hand it to your butcher, peer to peer without the need for another hand in the mix.
Satoshi’s Bitcoin protocol acts as our cyberspace hands. And what Bitcoin Cash was trying to do, and what the banks have been doing to us for decades, was take custody of our cash, take a cut for themselves, and then hand it out to where we want it to go, forcing a third party to move the cash for us.
No bueno.
As noted in the Introduction excerpted above, Satoshi’s peer to peer cash was attempting to solve, and has solved, the “double-spending problem” without the need for trusted centralized third parties. What is remarkable about Satoshi’s solution, is that he accomplished this in a trustless decentralized way, by making all users on the network equitable peers, by running the monetary cash network at the individual level.
Conversely, with a trusted centralized third party, like a bank, when you swipe your Visa debit card at the butcher store to send an electronic “cash” payment from your bank to the butchers bank, you are relying on your bank, and the butcher is relying on his bank to process the transaction. You both are “trusting” your centralized banks, to allow you to send your money, and to allow the butcher to receive your money.
If instead, you were using your hands, and handing the butcher physical cash, the only trust required is with your own hands operating correctly.
Satoshi was acutely aware of the dangers of centralization in the early days of the Bitcoin protocol. In other words, Satoshi was designing Bitcoin to be decentralized, absent of centralization, and he knew that at initial launch, the protocol could be captured in it's infancy without the necessary number of users to sufficiently decentralize the protocol. In his own words Satoshi explained in December, 2009, to the early community that started up the beta version of Bitcoin:
We should have a gentleman's agreement to postpone the GPU arms race as long as we can for the good of the network. It's much easier to get new users up to speed if they don't have to worry about GPU drivers and compatibility. It's nice how anyone with just a CPU can compete fairly equally right now.
Matthew Kratter has a nice discussion on this often misunderstood nuance of Satoshi's understanding of what he was trying to achieve with Bitcoin.
Satoshi was well aware that if Bitcoin caught on, people would optimize their hashing algorithms with more powerful computing and dedicated application specific microchips that could capture more bitcoin faster and faster. In fact this was the basis for his implementation of the difficulty adjustment, which maintains a stable new bitcoin supply issuance over time, regardless of the increase (or decrease) of computing power hashing on the network.
The difficulty adjustment enforces the timely decrease in the bitcoin inflation rate every four years.
In May 2010, an early Bitcoiner, Laszlo Hanyecz (the Bitcoin Pizza guy), had developed a new GPU mining application with Apple’s OpenCL that could hash significantly faster than current methods utilized at that time, primarily CPU processors.
Satoshi reached out to Laszlo about this:
Hey, can you go slow with this…Look, I don’t care if people hoard the Bitcoin, I don’t care if the wealth is concentrated. But right now, the big attraction is that anybody can download Bitcoin and start mining with their laptop.
BITCON IS MONEY
A decentralized peer-to-peer Bitcoin network enables fast, cheap, permissionless, uncensorable, cash final transactions.
Bitcoin requires no murderous enforcement, and its decreasing inflation rate is drawing in millions of new advocates every year.
The next time you hear about some shadowy midwits proclaiming that Bitcoin has failed in its goal of becoming a peer to peer electronic cash system, just remember, there’s only one Bitcoin cash system.
In closing, sometimes it’s best to hear it straight from the horses mouth:
I've developed a new open source P2P e-cash system called Bitcoin. It's completely decentralized, with no central server or trusted parties, because everything is based on crypto proof instead of trust. Give it a try, or take a look at the screenshots and design paper:
Download Bitcoin v0.1 at http://www.bitcoin.org
The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.
A generation ago, multi-user time-sharing computer systems had a similar problem. Before strong encryption, users had to rely on password protection to secure their files, placing trust in the system administrator to keep their information private. Privacy could always be overridden by the admin based on his judgment call weighing the principle of privacy against other concerns, or at the behest of his superiors. Then strong encryption became available to the masses, and trust was no longer required. Data could be secured in a way that was physically impossible for others to access, no matter for what reason, no matter how good the excuse, no matter what.
It's time we had the same thing for money. With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless.
One of the fundamental building blocks for such a system is digital signatures. A digital coin contains the public key of its owner. To transfer it, the owner signs the coin together with the public key of the next owner. Anyone can check the signatures to verify the chain of ownership. It works well to secure ownership, but leaves one big problem unsolved: double-spending. Any owner could try to re-spend an already spent coin by signing it again to another owner. The usual solution is for a trusted company with a central database to check for double-spending, but that just gets back to the trust model. In its central position, the company can override the users, and the fees needed to support the company make micropayments impractical.
Bitcoin's solution is to use a peer-to-peer network to check for double-spending. In a nutshell, the network works like a distributed timestamp server, stamping the first transaction to spend a coin. It takes advantage of the nature of information being easy to spread but hard to stifle. For details on how it works, see the design paper at http://www.bitcoin.org/bitcoin.pdf
The result is a distributed system with no single point of failure. Users hold the crypto keys to their own money and transact directly with each other, with the help of the P2P network to check for double-spending.
- Satoshi Nakamoto, February 11, 2009
Have fun spending your Bitcoin… Cash! ;-)