Bitcoin true believers, I'm here to humbly suggest that the future of Bitcoin lies outside the Bitcoin blockchain. Bitcoin advocates, I'm here to ask you to help promote projects that don’t seem directly related to Bitcoin. Bitcoiners, I believe the most direct path to adoption of Bitcoin is through adoption of DLT and the emerging DeFi application space. Let me explain.
Bitcoin represents two fundamental, exceedingly powerful innovations wrapped up together:
The Bitcoin community rightfully focuses on #2; the tech is just a means to an end. Satoshi’s point in creating Bitcoin was to create an alternative form of money with unique advantages. Key among these advantages is the potential to avoid runaway inflation by removing control of supply from any centralized entity. Money printer go BRRRR and we expect Bitcoin to be a more stable and democratic choice if (or, if you prefer, when) confidence in fiat collapses.
So it only makes sense that we should do everything in our power to put Bitcoin in people's digital hands as soon as possible before the crisis comes, right?
I believe this puts the cart before the horse. Why?
People only accept significant change (like using a whole new form of money) when it solves a problem right-now-today. And as much as we may see fiat currencies as a deadly sword of Damocles that Bitcoin lets us escape, most of the world sees their respective local fiat as good enough, aside from those living economies in active meltdown. In fact even in those dire situations, what we see today is not increased demand for Bitcoin but rather demand for tokenized USD or USD-pegged stablecoins – because that is the choice (right-now-today) that solves the problem of unstable value the best. Even those trying to solve the problem of capital controls tend to favor fiat-backed tokens today.
So what is the more effective approach to bring broad adoption of Bitcoin?
For Bitcoin to succeed, two things need to be true:
First, Bitcoin must be a better form of money, by design and by degree of decentralization, to avoid the problems of fiat. Done!
Second, a respectable portion of the world’s population must be able to choose Bitcoin as their preferred form of money as easily as possible when fiat starts to create significant right-now-today problems for them.
To accomplish the second, there needs to exist an effective global marketplace of forms of money where every business and individual can choose the form of money that suits them best – including Bitcoin. This will create the conditions for a tipping point where just enough Bitcoin stability creates quick adoption, which creates more stability, which creates more adoption … and onward in a positive feedback loop.
To create this global monetary marketplace, we need to focus on making the World Bitcoin-compatible so that selecting it will be frictionless when the time comes. We need the world’s systems rebuilt to accept Bitcoin – while not requiring them to accept Bitcoin too soon today.
The way to get this tremendous infrastructure built out is using a trojan horse called DLT.Let’s start with how money flows through systems today:
A fiat currency isn’t just a singular thing. It starts life as an entry in the ledger of a central bank (or, once upon a time, as an ounce of gold). From there it is abstracted over and over. The heavily regulated bank networks of the world maintain their own ledgers, and settlement between them, further fragmenting those ledgers into merchant bank accounts that support the variety of services businesses may offer. These businesses may then keep track of the holdings and transactions of individuals (or B2B customers, partners, etc.) within their services or applications, all reliant on their closely-linked bank accounts.
As individuals, we believe that the dollars we see in our checking account, credit card balance, Paypal account, home/business loan account, or investment account are all the same, but really they are fragmented abstractions of dollars that can be traced back (in theory at least) to an original issuance from the central bank. They are wrapped dollars able to live in the diversity of systems that deal with them, managed by closed banking systems.
The world runs on these wrapped abstractions of the original central bank issuance. But all of the traditional bank-based systems that these wrapped dollars flow through were designed for one and only one form of money: fiat.
Bitcoin, a native of the blockchain/DLT way of representing money, cannot live here.
an be thought of as an open standard for directly managing money and assets, rather than relying on a closed, proprietary banking system. Any form of money on one blockchain can be “wrapped” onto another, as we already see in the crypto ecosystem today. “Value wants to be free” and DLT gives us the tools to build connected, monetary-agnostic financial infrastructure.
So to get Bitcoin ready for adoption, we first need to get the trojan horse of DLT past the gates.
Fortunately for us, the traditional systems that we want to replace have pretty significant shortcomings. For one, they are rigid, slow and inefficient. They also force businesses to be tied closely to banks and their outdated systems simply because there is no alternative; any representation of money is locked into the fiat-based systems that banks have an absolute monopoly on. Ask any small business owner how they feel about their merchant bank to hear how painful this reliance can be.
The DLT trojan horse provides an alternative for businesses and industries. Virtually every one of the traditional systems and services that the world runs on can be improved with DLT because it is a massively more secure and efficient technology of operating secure ledgers of value and transactions.
All of the world’s systems can transition to DLT for the various gains in efficiency, security, and more – and in the same stroke, break the monopoly that banks have over representing money. The creator of a given DLT-based system today can “wrap” fiat in a bank account while focusing on solving their right-now-today business problem with the technology. But because wrapping of any asset is the fundamental superpower of DLT, they also become free to select any other form of wrapped value that they or a third party wrapper may create – including Bitcoin.
The Bitcoin blockchain is just a primary issuance mechanism guarding its supply and fundamental value. We don’t need to build directly on top of the Bitcoin blockchain to spread the benefits of Bitcoin-as-money through a world of DLT systems.
It’s important to note that these DLT-based systems can take many forms. Coming from the permissionless, decentralized world of Bitcoin, it’s easy to believe that closed DLT deployments, or blockchains that don’t directly integrate to Bitcoin, are antithetical to Bitcoin. But by the nature of the technology, Bitcoin is easily wrapped onto even the most private DLT platform – if there is demand for it. Consider these types of DLT system:
Every one of these systems is a part of the global economy that money flows through and gives money meaning. By transitioning them to DLT-based systems, they automatically become part of a competitive global marketplace of forms of money.
Let's take an example of a system that's frankly pretty boring, but pushes trillions of dollars through the economy: employee payroll.
A company wants to pay employees correctly every few weeks based on current employment status, salary, bonuses, etc. Today, a company must keep its own internal database of how much should be paid out each period, to whom, then integrate with a merchant bank to request the payments. Each period, the books need to be checked to ensure that what the bank paid out lines up with the company’s internal systems – that the different abstractions of dollars line up. To conduct the payment, the bank must connect to other banks, via proprietary and slow settlement systems. A company wishing to move from one bank to another must re-integrate with a new system (or for most smaller companies, they simply use a payroll service that abstracts this all away – for a significant fee).
Trying to integrate Bitcoin into this kind of system is essentially nonsensical. The bank's private ledgers are inescapably fiat-only. And because the company is completely reliant on the bank to handle the money, in all its abstractions, its own internal systems must be designed around the interfaces the bank provides. It has no control over the form of money that it uses because it can’t control how it is transacted.
Now imagine building a payroll system using DLT (whether a private ledger, public platform, or whatever). Because blockchain-tokenized assets don't rely on a bank's rigid systems to ensure correct accounting and transaction, the company’s DLT-based system works with the money directly. Employee status and other data can directly drive transactions of tokens that aren't a request to a bank for payment – they are the payment. "Checking the books" no longer exists.
The DLT based system vastly reduces the system complexity and chances for error, and frees the company from the reliance on a given bank. Or a payroll service company should be able to offer this as a service much more cheaply and reliably than the traditional-system-based alternative. This provides a compelling trojan horse for Bitcoin, even if the company building it is thinking of this purely as a way to manage tokenized fiat.
Once the DLT system is deployed, Bitcoin is a trivial switch when companies and employees see the benefits of Bitcoin-as-money. In the case of a fully private DLT system, the tokens could start representing a claim on dollars in a bank account; if deployed on a public DLT, it might be dollar-backed stablecoins that employees could receive and use right away. Either way, because the business is now in control and is using a technology that can represent any asset equally easily, a wrapped form of Bitcoin can be dropped in alongside the fiat token instantly (whether it represents a claim on a Bitcoin wallet or uses a wrapped Bitcoin token issued on a public ledger).
We’ve created one small monetary marketplace using the blockchain standard that inherently interoperates with others. That’s incredibly powerful, and very good for Bitcoin.
One particular segment of the DLT world that is worth talking about here is DeFi. While the examples above focus on transitioning traditional systems to Bitcoin-compatible DLT systems, DeFi is working from the other direction: What would the world look like if we rebuilt financial services around public DLT platforms from scratch?
DeFi today is in embryonic form. It’s cherry picking the forms of “financial services” that are possible using today’s slow blockchains and that appeal to today’s crypto enthusiast user base. Given these limitations, today’s DeFi applications are focused mostly on leveraged trading of crypto coins, mirroring the features of a narrow slice of the traditional financial world: leveraged trading of securities and commodities.
Even this very narrow set of use cases today is already demonstrating how powerful the DeFi concept is. Given a native blockchain/DLT platform where any asset can be represented in the same way, and where applications can freely interact with assets and each other, we are seeing just how fast, democratized, and innovative financial services can be. Services that used to be rigidly bundled under the umbrella of banks are now available as unbundled DeFi microservices that anyone can access and combine.
If we extrapolate this to the larger world of financial systems, we end up with a version of the “global monetary marketplace” that goes even further than just transitioning traditional systems to DLT:
Here, all forms of money are on equal footing, freely selectable by each application as easily as choosing a flavor of ice cream – and really, why not offer them all?While we’re years away from robust DeFi ecosystems that truly replicate the breadth of services provided by the traditional world, this is the dream scenario for Bitcoin-as-money. DeFi developers are incubating a world where the full freedom to select Bitcoin as a better form of money, wrapped onto whatever DLT platform provides the best ecosystem and tools for developers, is available to everyone.
So my message to Bitcoiners is this: think about the path forward for Bitcoin in context of the crucial need for diverse systems where money is used. Advocate for Bitcoin, yes, and for projects integrating and expanding it directly. But I suggest that we advocate even more strongly for everyone solving problems and building systems where monetary competition will be possible, even if they don’t touch Bitcoin today.
We should celebrate private blockchains solving enterprise problems, special purpose application DLTs, and corporate consortium blockchains. We should celebrate DLT innovators creating new Dapp platforms with greater scalability and ease of development. We should even celebrate Diem. And we should promote the real DeFi projects exploring what the world of financial services could look like in the future.
All of these projects create the fertile ground in which Bitcoin will take root across economies. If we truly believe that Bitcoin-as-money has what it takes to provide a better solution when the time comes, this is the marketplace where Bitcoin can compete and truly win on its own merits.
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