“Zero Money”: First Principles Thinking About Monetary Value
Change the Money, Change the World (20)
Part 5(D) — Adaptation to Bitcoin: Forks, Layers and Alt Coins
Bitcoin is the gold standard for digital money, often referred to as “digital gold” for that reason. This is because it is the one and only absolutely scarce medium with a fixed limited supply that cannot be changed, it is inviolable in the properties of its algorithmic structure, nodal network and for other factors I have discussed. It is and will remain trustless and 100% decentralized. It represents a medium of “Zero Money”, so it occupies the empty set in the set of digital currencies: [[{-1,….},{+1,..}];[0]]. Also within that set are the subsets of negative and positive outcomes, the former distinguished particularly if they are essentially a digital form of fiat currency or otherwise violate principles of trustlessness or decentralization to an unacceptable degree in terms of creating unsustainable class divisions in the population. The latter, positive outcomes from the manifestation of a monetary medium, are Bitcoin ranked +1 as congruent with the empty set of maximum value manifestation from the principle of scarcity, followed by others.
So what about #2, …? There have been some deviant forms of Bitcoin called “forks” as they continued the original blockchain in creating a new blockchain with some change in property structure, for example allowing a larger number of new Bitcoin to be allocated to a new block, or some feature that helps the original Bitcoin scale or transact easier or cheaper as to fees. These coins call themselves Bitcoin such as Bitcoin Cash, or Bitcoin SV (Satoshi Vision) for that reason, but they are different. The argument might be that Bitcoin absolutely decentralized has been theoretically governed by the entity creating the fork, but such forks are surely an example of some bridging of Bitcoin “purity” with the demands of the legacy economic world. Metaphorically they might be adaptations #3, #4, … and serve growing the Bitcoin bubble towards the withering away of the fiat economy.
The forked versions of Bitcoin engage creating other new kinds of coins, still conceived of by their developers as Bitcoin. Another type of adaptation exists with additional forthcoming development which should be considered #2 to Bitcoin, its called the Lightning Network. It is being looked forward to as even more “pure” in the sense that the adaptation is a kind of layering on the original Bitcoin. Many see it as the future of fast inexpensive transactions with Bitcoin scalable to the future medium of exchange. There are a number of projects using various programming languages and protocols, each formulating user interfaces for the Lightning Network:
“At some point in history, sending a telegram was the quickest and most efficient way of long-distance communication. To do so, you had to go to your local post office, fill in a form and pay for your message based on how many letters it contained. Then, the message would get telegraphed to the nearest telegraph office for transmission to the distant end. A postman would then deliver the telegram to its destination. Basically, there were a lot of people involved in sending a simple short message and you had to pay quite a bit of money for it. That’s pretty much the current state of the Bitcoin network. In this analogy, the Lightning Network is essentially like having a person you want to talk to on speed-dial: you just need to press ‘1’ and your friend’s phone is already ringing. To put it simply, the idea behind the Bitcoin Lightning Network might’ve sounded something like this: we really don’t need to keep a record of every single transaction on the blockchain. Instead, the Lightning Network adds another layer to Bitcoin’s blockchain and enables users to create payment channels between any two parties on that extra layer. These channels can exist for as long as required, and because they’re set up between two people, transactions will be almost instant and the fees will be extremely low or even non-existent.”
What is Lightning Network and How Does It Work — from Cointelegraph: the Future of Money
https://cointelegraph.com/lightning-network-101/what-is-lightning-network-and-how-it-works
The Lightning Network interfaces will offer an important adaptation that will significantly support more mass adoption. Metaphorically we could assign the integer #2 to this digital currency related manifestation. A Lightning Network does, nonetheless, involve establishing a multi-signature wallet for custody of Bitcoin. Only after the channel is closed are the transactions sent to the Bitcoin blockchain. Numerous transactions outside of the main blockchain are then recorded as a single one. The trade off is an adaptation, not as a new coin creation, but one of less security for much faster and cheaper transactions important to withering away the dominance of fiat.
Also there are a number of “Stablecoins” usually staying in the cryptocurrency top ten in market cap, but simply because they are tokens programmed to stay very close to a 1:1 ratio with the USD rather than having any other specific functionality. Of course major exchanges for buying and selling cryptocurrencies also have coins for staking in those enterprises that rank high in the mark caps, but I am trying to focus on cryptocurrencies that individually approach the properties of Bitcoin to varying degrees. Ultimately as fiat diminishes, Stablecoins lose significance as intermediary “quasi-dollars” as it were. Then also, exchanges become “new world” banks, as exchanges like Coinbase and Kraken look to gain banking licenses and or be absorbed by legacy banks. It’s similar to the way exchange services are being available now, or soon, as part of Paypal services, or on software platforms existing such as Square. I will be annotating these stories in Part 6 where I am providing an organized on-going compendium of book and article links.
Cryptocurrencies not Bitcoin are “alternative” or “Alt” coins. Second only to Bitcoin in market cap dominance among cryptocurrencies is Ethereum, which has a cap between 1/5 and 1/6 of Bitcoin and between 2 and 3 times that of its nearest competing coin. A large number of other coins in the top 100 are actually built on the Ethereum network:
“Ethereum is a decentralized open-source blockchain system that features its own cryptocurrency, Ether. ETH works as a platform for numerous other cryptocurrencies, as well as for the execution of decentralized smart contracts … Ethereum’s own purported goal is to become a global platform for decentralized applications, allowing users from all over the world to write and run software that is resistant to censorship, downtime and fraud … Smart contracts are computer programs that automatically execute the actions necessary to fulfill an agreement between several parties on the internet. They were designed to reduce the need for trusted intermediates between contractors, thus reducing transaction costs while also increasing transaction reliability … theoretically able to make any program more robust, censorship-resistant and less prone to fraud by running it on a globally distributed network of public nodes … in addition to smart contracts, Ethereum’s blockchain is able to host other cryptocurrencies, called “tokens,” … 280,000 have been launched. Over 40 of these make the top-100 cryptocurrencies by market capitalization, for example, … LINK”
Descriptions, charts and other data for Ethereum and other cryptocurrencies see:
Ethereum is in fact governed by its founders and stakeholders while being a provider of a blockchain system based on a cryptocurrency, Ether, with much of the properties that lend decentralization and trustlessness similar to Bitcoin. Initially also maintained with a proof of work authentication, Ether has since started a process of moving to a “proof of stake” model that ensures validity and security by stakeholders giving custody of Ether to the network. As such, it sort of functions as a reserve currency for the token coins built on Ethereum for creating various kinds of use-cases for decentralized smart contracts, that are in effect sub-registers of Ethereum. Furthermore, these tokens may interact with each other in all kinds of smart sub-contracting.
One rapidly growing sub-set of Ethereum tokens is for “decentralized finance” providing users many mechanisms of legacy banking including leveraging value for loans, and investing for interest or stake-holding in cooperating enterprises. Many sub-sets are being developed, but “Defi” appears here to stay. Trading among tokens is a high-risk, high-reward very active marketplace and Stablecoins offer a solution intermediary to highly volatile token values, and also for converting tokens into USD and back. Tokens, on the other hand, exist for functions such as providing privacy, mechanisms providing oracle services, or other mechanisms that are incorporated into many other coins for a large number specific coin projects.
With 280,000 Ethereum tokens representing many sub-sets of interacting smart contracts there must be a competition for survival of the most fit to make the top 10,000, or 1000, let alone the top 100 or top 10. After Bitcoin and Ethereum, the exchanges and the Stablecoins, there are a few tokens that have maintained a position in the top ten or twenty. This may be in good measure because they serve functions useful to all tokens and are innovative in duplicating “real world” financial functions such as Defi coins or communicating “real world” data to smart contracts such as oracles. A good example of an Ethereum based token coin established high in the ranks for a significant period now is Chainlink, LINK is an oracle token described as follows on Coinmarketcap:
“Chainlink is a platform that aims to bridge the gap between blockchain technology-based smart contracts (made widespread by Ethereum), and real world applications. Since blockchains cannot access data outside their network, oracles (a defi instrument) are needed to function as data feeds in smart contracts. In Chainlink’s case, the oracles are connected to the Ethereum network. Oracles provide external data (e.g. temperature, weather) that trigger smart contract executions upon the fulfillment of predefined conditions. Participants on the Chainlink network are incentivized (through rewards) to provide smart contracts with access to external data feeds like API information. Should users desire access to off-chain data, they can submit a requesting contract to Chainlink’s network. These contracts will match the requesting contract with the appropriate oracles. The contracts include a reputation contract, an order-matching contract and an aggregating contract. The aggregating contract gathers data of the selected oracles to find the most accurate result.”
Though many of the cryptocurrencies in the upper echelons of coins, with demonstrated adoption by market cap, are arguably positive for movement to mass adoption as politically acceptable projects. They are, nonetheless, compromised to some degree as to trustlessness and decentralization. The most important of these is Ethereum, which in fact does not have a limited range of production of Ether, hence violating perfect scarcity such as with Bitcoin. Ethereum and its tokens do however offer many coins with positive quality as adaptations to the Bitcoin standard in the set of digital currencies. Also, to the extent Bitcoin becomes the reserve world currency, issues of “purity” become muted. When that happens all digital currencies and cryptocurrencies will be denominated in Bitcoin.
Change the Money (1) Preamble — Monetary value true by nature
Change the Money (5) Introduction (1) — Zero Money & First Principles
Change the Money (8) Part 1 (A) The technological solution
Change the Money (10) Part 2 (A) The Naming of the Beast
Change the Money (12) Part 3 Ending Inflation and embracing deflation
Change the Money (13) Part 4(A) — Phases of transition 1
Change the Money (17) Part 5(A) — Adoption, adaptation & activism
Change the Money (19) Part 5(C) Adaptation to Bitcoin with digital fiat
