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What is Bitcoin For? (Reflections on a James Hudon Blog)

Posted 21 December 2017 What is Bitcoin For? (Reflections on a James Hudon Blog)
Written by Jon Gulson

 ‘JP Morgan CEO Jamie Dimon has a better analysis of Bitcoin than most people I know in the space.’ James Hudon ‘What is Bitcoin For?’

James Hudon works under the radar when it comes to bitcoin comment so chances are you’ve not heard of him. On reading however, Hudon escapes the usual platitudes.

The style is initially antagonistic – indeed, cite the above quote on the bitcoin sub reddit and prepare to run – giving way to compelling logic, elevating it from the noise (in my opinion at least).

Raised eyebrows at the Dimon quote which appears in ‘What is Bitcoin For?’ are calmed when the remark is placed into context: without censorship resistance through total decentralisation, bitcoin is nothing better than the payment systems preceding it - and therefore without utility. 

To be useful (through censorship resistance, also referred to as regulatory arbitrage), Hudon contends bitcoin requires a predictable rate of inflation together with political neutrality. In this regard Dr John Nash (subject of the biographic film A Beautiful Mind) is referenced through his work on Ideal Money which contends a physical gold standard is undesirable.

This is because technological innovation can alter predicted supply growth of gold - and is therefore not completely stable (on which to base an ideal money supply).

This is where ‘What is Bitcoin For?’ resonates; especially in regard to the importance of political neutrality: Satoshi Nakamoto’s white paper Bitcoin: A Peer-to-Peer Electronic Cash System is strikingly absent of ideological language. And it was at this point – in the aim of neutrality – I decided to take a step back and ask not what bitcoin is for, but what is bitcoin about? 

Timestamping

Bitcoin is often referred to as a commodity – or more specifically digital gold – because it mimics physical gold in scarcity and mining difficulty. As Hudon refers in his blog, a commodity has to be useful before it can serve as money (gold was once useful as jewelry before it became a medium of exchange).



Consequently in considering a more furtive aspect of bitcoin (timestamping), physical gold is traditionally regarded as a store of value and mark of time because of its relative rarity and physical attributes - it is thought delivered to earth by asteroid impacts occurring four billion years ago. 

During the gold rush of the nineteenth century, gold became the standard for non-inflationary and unprecedented economic growth. In other words, a widely accepted bank of time, energy and work.

To most bitcoin advocates, decentralisation is an essential feature of bitcoin. However, decentralisation is only alluded to by Satoshi Nakamoto in the context of timestamping. We can see this in Satoshi’s essay here and also in the white paper (where ‘decentralisation’ is never actually directly referenced).

In fact a word search of the white paper reveals ‘inflation’ is only mentioned once (in Section 6: Incentives). ‘Bank’ is mentioned twice; with neither ‘censorship’, ‘stable’ nor ‘politics’ mentioned at all. This potentially counters the polemic that bitcoin is for inflation resistant, stable money outside the control and censorship of banks and government; because in comparison, ‘time’ is referenced 24 times (and in the context of ‘timestamp’, 14 times).

Satoshi’s opening abstract pivotally states: ‘The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.’  The white paper’s introduction subsequently – in beautiful irreverence – suggests bitcoin is about the problem faced by shopkeepers issuing refunds. 

This is not only political neutrality as art (which essentially is the ultimate state of political neutrality), but demonstrates the problematic consequences of reversing time (commonly known as ‘fraud’ – referenced three times in the white paper).

So – you may think – what? Bitcoin is about time (and the irreversibility of it); but why does this matter?

Eventually

Like many, I have speculated on who the ‘real’ Satoshi Nakamoto may be. This has led to imagining the experiences which could have influenced Satoshi; especially in how timestamping is referenced in relation to micropayments.

The first bitcoin transaction was made between Satoshi Nakamoto and Hal Finney in 2009. It is therefore reasonable to assume (as peers) they shared similarities. As such, Satoshi – we can speculate – may have reached early adult life around the late 1960’s to 1970’s: a time of economic liberation and newly discovered freedoms. It was also around this time the power of computing began to make its mark: and that Satoshi’s style started culminating through life.

As such, Satoshi would have encountered many different ideas – possibly modern French philosophical thought which asserted capital is consumption based, rather than production based: that reality exists beyond socially constructed spectacles

This would explain Satoshi’s ideas on micropayments: a cash system moving toward genuine activity, rather than passive identification through branding. After all, the most commonly occurring noun in the white paper is ‘transaction’.

The end of the twentieth century witnessed the end of ideological dichotomies which defined it. Translated into the modern world, this means transport companies such as Uber don’t need to own transport stock; just as bitcoin is digital cash without a bank. 

For Satoshi, it is possible he began to see everything as a consumer choice.

Meditative Reality: Is this how the moon will sound?

Navigating forward using the rear view is both dangerous and tempting. On one hand we can see bitcoin with increasing clarity as a natural development of the last century; on the other, it doesn’t necessarily help us understand or see what’s coming.

Returning to Dr Nash’s work on ideal money (which contends a commodity has to serve a predictable purpose before it can be accepted as stable money) leads us to the familiar question of whether bitcoin is commodity or cash? With merchant adoption so low, conventional thinking discounts the latter.

Which disregards the thought that the perfect commodity is time itself and that bitcoin is irreversible proof of such – making bitcoin the perfect currency if  it is able to draw on all events which have been and bring forward all possibilities, in an orderly fashion.

This means the nature of what we understand by work and leisure will transform, as will the nature of retailing and other economic activities. In fact, the idea of economic activity itself may become redundant: a deflationary world of micro-transactions will be experienced differently to the inflationary world (of spectacles) where bank overheads make micro-transactions impossible. 

This also discounts the need for bigger blocks in bitcoin. As James Hudon suggests, merely replicating the transaction volume of Visa makes bitcoin no better than the payment systems which preceded bitcoin. Indeed it makes bitcoin potentially worse due to the absence of consumer rights.

This is what I believe bitcoin to be about: not just time in itself, but the creative consequences of new time and style created.

The eye through which we shall pass.

Written by Jon Gulson
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