BEE3109 Bitcoin Money and Trust Assignment Brief 2023

80% of your grade on this module is determined by a 3,000 word assignment.

This assignment can be thought of as a mini-dissertation. It will follow the structure outlined
below.
Deadline: Midday 11th December 2023. You will submit your assignment before the
deadline. We highly recommend you start working straight away by keeping notes.
Throughout this assignment you will be given credit for demonstrating learning from the all
course material on the module (including lectures, tutorials, guest talks etc). You will submit
the following three parts together in one document. Your overall mark will be weighted
according to the word count proportions.
Essay 1: Where does Bitcoin fit in the Broad History of Money? (approx. 1,250 words)
Your essay must do the following (you may use subheadings based on these, but this is not
compulsory):

• Explain competing views on the nature of money

• Describe how money emerged with examples
• Compare Bitcoin to past forms of money
• Compare Bitcoin to other emerging forms of digital money today
You will be given credit for demonstrating knowledge of the history of money and Bitcoin,
how they are connected, and how they differ.

Essay 2: Choose ONE of the following essays (approx. 1,250 words) Choice A
“I'm sure that in 20 years there will either be very large transaction volume or no volume.”

Discuss this prediction from Satoshi made in 2010 in the light of the cryptocurrencies, developments
like MPesa, and other government payment innovations like CBDCs that we see competing with
Bitcoin today. Explain with reasoning some possible scenarios in 2030.

Choice B
Discuss ‘decentralisation’ in cryptocurrencies, and answer the questions: what is decentralisation in
this context? Can it realistically be said to be achieved? How do modern cryptographic processes like
hash functions, digital signatures and zero knowledge protocols help the claim for decentralisation?

Choice C
Consider the innovation of disruptive payment systems such as M-Pesa and analyse whether they
hinder or promote the adoption of cryptocurrencies such as Bitcoin in emerging economies. Do the
disruptive payment system innovations or cryptocurrencies such as Bitcoin promote the next steps in
financial inclusion in emerging economies? Note that next steps in financial inclusion are different
from access to basic financial inclusion.
Appendix: Group Work Learning Log (approx. 500 words)
Here you should provide concise notes on your contribution to the group presentation,
including how it helped you develop. You will be given credit for giving a self-critical
appraisal of your progress, and the outcome of the presentation. Note: those that do not
adequately engage in the group work will get zero for this part.

Bibliography
Following the ‘Referencing, Citing, and avoiding Plagiarism’ guide on ele, you should list your
references here. All types of sources are potentially relevant, but credit will be given for
including at least some academic references. The total word count does not include this
section.

Plagiarism and Misconduct

Plagiarism and academic misconduct is something we take very seriously. Please make sure
you abide by the rules by consulting the Academic conduct and Practice here: link. Please be
aware that plagiarised work will not be acceptable, in line with the University’s rules. In
simple terms, you must quote work if you directly copy anything, and cite it when you draw
ideas from anything.

Submission of work using ChatGPT or any other AI related technology does not demonstrate
academic honesty and integrity, and will be treated as academic misconduct. Please make
sure you abide by the rules by consulting the Academic conduct and Practice as stated
above.
Essay 1: Where does Bitcoin fit in the Broad History of Money? (approx. 1,250 words)
Your essay must do the following (you may use subheadings based on these, but this is not
compulsory):

• Explain competing views on the nature of money

• Describe how money emerged with examples
• Compare Bitcoin to past forms of money
• Compare Bitcoin to other emerging forms of digital money today
You will be given credit for demonstrating knowledge of the history of money and Bitcoin,
how they are connected, and how they differ.
What I should include:

The Ancient World: Yap, Greece and China

Seigniorage of metal coins in Rome and middle ages
Medieval Money and Nicolas Oresme’s view
Felix Martin’s Central Themes of Money

Archaic Aegean invention of the concept of universal economic value:

What is money? Mesopotamia had great cities and complex economices, hardly like
uncultivated yahoos to the west.

Phoenicians of the Levant- prodigious sailors and traders. G50 vx witnessed an

unpredecented intellectual revolution- the emancipation of thought yb the new ability to
quantify, record, reflect and cricise what was written,

Seignorage:

The idea that the government can increase their wealth by exploiting the difference in the
face value and commodity value of a certain determined medium of exchange.

- Emergence of Money in Mesopotamia, spilled over in dark ages Greece, movement

of the coins into Libya (around 600-700 BC) or modern day Turkey
- Money = Commodity
- Money = Social, Symbolic

It exists by convention and is supported by a central authority that issues the currency of
which it has responsibility. “It is within our power to make it useless” – Aristotle

Ancient Greek vs Ancient Chinese view of money

First coins appeared around 900 B.C, first paper money 600 A.D globally.
Duke Huan of Tian Qi: Money was a tool of the sovereign.

Up to governments to adjust the quantity of money (money supply) to mint to regulate the
price of goods and services.

200 B.C Han Dynasty:

“If the currency system is unified under the emperor’s control, the people will not serve two
masters.”

Contrast with the Greek view in the sense that we had these mints thatspread all over the
islands and mainland Greece, decentralised structure, banking with different currencies, all
competing with each other simultaneously.

Chinese had a more centralist view, it is important that you had one sovereign that was
managing the money for the betterment of the people in general.

Ancient Rome:

 Precious Metal Coins for small transactions

 Symbolic power allowed divergence between intrinsic value and nominal value
 Metal content acted as a lower limit to seigniorage
 Elite engaged in sophisticated borrowing and lending with paper records
 Rome experienced unstable inflations, deflations, and credit crises

The symbolic power of the Romans, precious metal coins were being used for small
transactions. The Roman empire was symbolic, and it allowed for the divergence of an
intrinsic value and nominal value of a coin in a way in which that had never happened
before. The Roman authorities at some point were lowering the silver content (intrinsic
value) of their coins and this practice contributed to the downfall of the Roman Empire.
In terms of the silver content, it was one day’s worth of work.

Seignorage meant that if you melted the silver coin down, only half a day of work was paid
for in terms of silver content. A day of work will cost 2 denarius. It depends that on the
decentralised people that were trading their labour effort, whether they were willing to
accept the inflation in wages, and the interection creates a free market phenomenon which
indicated that the market (trading) has a life of its own.

Silver content was declining:

Medieval Money:

After the decline of Rome, we went into the dark ages and there are a lot of different money
legacy systems existing

One of them was Tally Sticks that was a decentralised technology that bought mone back to
the people. Issued by central authorities, people could issue their own sticks as well. It has
notches carved onto it to represent an obligation, a form of debt. And could split it to hal, so
one person was a debtor and the other was a creditor. It was a receipt that could be used to
show that the debt existed and was being paid off.
Centralised vs Decentralised money in Olden times – Relate it back to bitcoin and how it
draws a parallel with ancient trade

Seignorage in the mediaeval times and Bitcoin in the current time as a decentralised system
of trade.

Try to relate how the seignorage of silver coins related to the free market valuation of
people of the currency of bitcoin (block to block system relation to mediaeval silver coins)

Tally Sticks as proof of work ( Try to relate it like the professor is suggesting)

(Discussion in Mediaeval Europe that it wasn’t right for leaders to exploit and use
seigniorage for the benefit of their wealth during old times)

- Relate to how it is similar to the nature of bitcoin and how people are mis-using the
decentralised system to profit and exploit it out of their own monies

(This is his argument)

\
Cryptography emerged in ancient rome, symmetric key cryptography,

The islands of Palau provided the limestone for its production, and
they are located about 250 miles (400 km) from Yap. They are the
heaviest objects ever transported across the Pacific Ocean before
European contact.

These massive stone discs were known as rai.

While other nations used cowries, tobacco, and other items as

currency, YAP created a coin that resembled a sic and weighed
approximately 9000 pounds so that they could trade.

Because this currency was too heavy to transport, it was placed in a

public location where the entire town could see it. Occasionally, they
migrated it over the vast Pacific Ocean

If Mr. Tunde possesses a Rai coin and wishes to use it to purchase

something from Mrs. Bee, the community must convene a meeting
at which at least half of the members must be present to approve the
transaction. No one loses track of who the current owner is, etc.

And even if someone does decide to cheat, they will have to

eliminate half the community with violence or bribery.

Similar to Bitcoin, the transactions are not controlled by any one

individual but rather by the community as a whole.
Similarities between Bitcoin and Rai stones
Let’s examine the text utilized in the preceding paragraph. We shall
list several words and activities and connect them to those used in
the case of the Rai stone.

Node – Mr. Tunde

Peer-to-peer network of nodes - Community
Bitcoin - Stone money
Broadcast transaction – Announce transaction
Nodes reach consensus - Community members to reach consensus
Update local ledger copy - Make a mental note
Track Bitcoin ownership - Track Rai stone ownership

Conclusion

The rai stones fundamentally illustrate how transitory and

mysterious the concept of money is. Currency is anything that serves
as a medium of exchange for goods and services. In the twenty-first
century, nations use fiat money, which has no intrinsic value (you
cannot eat or wear a banknote) and is not tied to the price of any
precious commodity, such as gold. Everything is merely abstract.

The only reason our money has value is that we collectively decide it
does, similar to Yap’s enormous stone.
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Another week, another wave of bitcoin surprises. Never mind that the price of the digital

currency has gyrated dramatically; or that Elon Musk, the flamboyant founder of Tesla, is

reported to be on course to make more profits for the company from bitcoin investment than

from the manufacture of electric vehicles last year. This week it was equally striking that

Citibank told its clients that the digital currency has reached a “tipping point” and could one

day “become the currency of choice for international trade”. Cue predictable levels of

celebration from bitcoin-enthusiasts — and of bemusement or horror from almost everyone

else. Yet detractors and fans of the cryptocurrency both seem to agree on one thing: bitcoin is

taking finance into the realm of bold 21st-century tech experiments. Is it though? On a week

such as this, it pays to take a wider historical lens — and peek at nuggets from the past, such

as some research carried out in Micronesia by Scott Fitzpatrick, an archaeologist at the

University of Oregon, and Oregon business school professor Stephen McKeon. The pair have

been studying an ancient stone money system that once existed on the Micronesian island of

Yap, where local communities would treat large limestone discs as a medium of exchange.

Such stone discs, called rai, “were considered extremely valuable”, the pair noted in a 2019

paper in the Journal of Economic Anthropology. But the stones were so huge that “given

their size, weight, and relative fragility, they were not typically moved after being placed in a

specific location [and] if a rai were gifted or exchanged, the new owner(s) of a disk may not

have lived in close proximity to it.” That might make them sound pretty useless as a form of

money. But the local community maintained an oral ledger so effective in keeping track of

who owned which hunks of immovable limestone that Fitzpatrick and McKeon concluded
that rai were, as a record of value, “an exemplary ancient analogue to blockchain” (the

technology that powers bitcoin). Recommended FT AlphavilleJemima Kelly Hey Citi, your

bitcoin report is embarrassingly bad Parallels between the two are limited. Limestone hunks

cannot be subdivided as easily as bitcoin. And, since blockchain ledgers are based on

(seemingly) immutable computer code, they appear more durable than communal memory.

The circle of participants in bitcoin and blockchain deals is obviously exponentially larger

than it was with rai — and pseudonymous to boot. But there are other thought-provoking

similarities between the two. First, rai — like bitcoin — commanded value because of

perceived scarcity; just as it now requires vast amounts of effort to “mine” bitcoin (the

technical term for the creation of new coins), so procuring rai was hard. The limestone discs

were quarried from Palau, 400km away from Yap, then carried across the seas. This was the

most impressive piece of maritime transport logistics seen in the region until the European

explorers arrived in the 18th century and mind-bogglingly difficult for the time (although

significantly less environmentally damaging than the filthy process of bitcoin mining, which

requires using huge amounts of electricity). The second point of similarity is that rai only

functioned like money because there was communal trust. Unlike in the conventional modern

monetary system, the “trust” underpinning rai did not operate in a vertical, hierarchical

manner — ie, due to faith in a leader or an institution; instead, it was “distributed”

horizontally. Everyone in the crowd needed to trust that everyone else would respect the oral

ledger.

Bots and the bitcoin debate Bitcoin also rests on the distributed trust of a crowd. For while

computer code might seem impersonal, free from capricious human intervention, the system

only works if people trust in the sanctity of that computer code. If that ever breaks down —

say because of a cyber hack or a shift in norms — bitcoin would command even less value

than rai does today. There is no sign that trust in blockchain is breaking down. Indeed, the

recent note from Citi claims the opposite. The key point is this: anyone betting on the

currency is not just expressing faith in algorithms, but in a specific pattern of trust too (ie,
that computer code means something). That does not render bitcoin invalid or the blockchain

useless; after all, the mainstream currencies on which our lives depend rely on sometimes

tenuous social norms as well. One way to frame the contest between bitcoin and fiat currency

is thus as a battle of norms — and of distributed versus hierarchical trust. As the story of the

rai shows, when it comes to human economies, nothing is entirely new. In fact, one rumour

periodically buzzing round the crypto-world is that this is where the mysterious progenitors

of bitcoin got their inspiration (which is why some bitcoin blogs have titles that include the

word “Yap”). Perhaps Musk’s next trip should be to Micronesia, where those now-useless

stone circles still litter the landscape as a sign of what happens when norms and patterns of

trust change
This might make Rai sound pretty useless as a form of money. Quite the
contrary. The local community maintained an oral ledger surprisingly
effective in keeping track of whom owned which hunks of immovable
limestone.

This orally ‘distributed ledger’ perturbed the Western world – amazed at how
most villagers knew who owned what and where and when said ownership
was transferred. There are interesting similarities between distributed ledger
technology (aka the blockchain) supporting cryptocurrencies and the Rai.

The Rai did not require any central authority to keep track of transactions
and ownership or even to distribute the stones. Instead all villagers agreed
(albeit orally) on who owned what. This made it hard for any single villager
to lie about his Rai wealth.

This narrative prompted archaeologist Fitzpatrick and Business Professor

McKeon to put together a study that investigates whether Rai were, as a
record of value, “an exemplary ancient analogue to blockchain”.
Fitzpatrick stood next to a Rai stone for size
The Rai, like Bitcoin, commanded value because of their perceived scarcity.
These limestone discs had to be excavated, fashioned and transported across
miles of ocean before landing on Yap. Bitcoin too maintains perceived
scarcity as a result of its hardcoded 21 million supply cap. Bitcoin is a
decentralized digital currency that doesn’t require a central authority, like a
bank, to process and/or verify transactions. To keep track of transactions,
each and every Bitcoin exchange is encoded into a public transaction ledger
known as the blockchain (not too dissimilar to the oral ledger the Yapese
maintained).

Bitcoin’s ‘blockchain ledger’ bears one significant difference to the Yapese

‘oral ledger’. It is immutable. Immutable transactions on the blockchain
means it is impossible for any entity (for example, a government or
corporation) to manipulate, replace, or falsify any of the data stored on the
network. Since all historical transactions can be audited at any point in time,
immutability ensures an extremely high degree of data integrity.

For the Yapese – transactions are verified collectively by everyone within the
community and all transaction histories are available for everyone to see (or
rather discuss). Since shared knowledge and communal faith in the currency
is at the heart of Rai stone it is not too far-fetched to consider the people of
Yap to be the OG Satoshi Nakamoto’s.
The demise of this ancient stone money, however, came as a result of
‘hyper(Rai)inflation’. The Western world with profiteering motives sought to
curry favour with the Yapese by modernising the quarrying and finishing of
Rai. This resulted in an oversupply of the once rare stone. As a result the
Westerners managed to debase the island’s currency – destroying the Rai’s
once prized value. A hard lesson many of the world’s economies have relived
in recent times as a result of reckless monetary policy.
Essay:

Money is not a standardised form. Over the years money has taken many different

adaptations to the evolution we know as “Bitcoin”. Bartering, the “first system of trade” is

the simple exchange of goods and services represent the foundation of the system of money

known today. Despite the old age of barter, it shares similarities to Bitcoin. There was no

centralized oversight that the Bartering system had alike to Bitcoin. Bartering emerged not

from a sophisticated creation of system ruling by any ruling body but organically. The idea of

the “decentralisation” of money is reflected in the later history of Money. In “whatever” B.C,

in Ancient Islandic society of Yap developed a system of trade labelled “Rai” coins and

established similar ideas to Bitcoin as it’s “ancient antecedents”.

The “perceived scarcity” in the production of both currencies plays a factor to its inherent

value. Bitcoin protocol caps “maximum issuance at 21 million” and the Yap society had

access to finite amounts of limestone discs - quarried from Palau which is 400km away from

Yap (Guardian, 2022). The scarcity principle indicates that the lower the quantity supplied of

a good which is limestone in this case, results to increase in its equilibrium price due to the

increasing scarcity of the good. For both currencies, there is a cap in the production of this

good, which gives its inherent value. If more Yap citizens use “Rai” coins, this indicates that

there will be less “limestone” available for its production that gives its perceived value in

scarcity. Similarly, to bitcoin, if there is more bitcoin in circulation, the price of bitcoin will

increase, as there is more demand relative to the available supply after its minting. The

efforts taken to “mint” both currencies play a huge part in its valuation, although there are

key differences in the gathering of this currency.

The levels of “effort” taken to mine these two currencies determines its intrinsic value. The

“Rai” currency is mined out of limestone that is sourced hundreds of kilometres away in the

Palauan archipelago. The value of the “Rai” is dependent on its shape, size quality, method of
transport, individuals associated with its craftmanship and ownership, generally the effort ad

human capital expended in perfecting the pedigree of the “Rai” currency. This differs to the

level of effort it requires to mine “Bitcoin” that requires larger amounts of human capital and

computational power to “mint” a new block in the Blockchain. Miners take on higher capital

expenditure on faster and newer specialized machines to increase the “hash rate” that is

required to solve the complex “proof-of-work” puzzles required to “mint” a new block of

Bitcoin in the Blockchain. The higher the computational effort, the higher the “hash rate”

which increases the odds and ability to unlock more bitcoin rewards (BTC) from the

protocol. Increased “efforts” in higher investments in human capital and computational

power, leads to a higher quantity in Bitcoin “mined” that increases the value of Bitcoin

gathered. Similarly, the more “efforts” required to produce a “Rai” currency, in terms of a

more complex transportation system and craftmanship, builds the foundation of a higher

price that is given by the community. But who determines and maintains the price of Bitcoin

and Rai currency alike. Decentralisation is the key idea that relies on a community-based

system to safeguard the valuation of these currencies.

Both currencies relies on a community-based ledger, in determining and maintaining

transactions and the value of the “currency”. Bitcoin function on a “blockchain” system, a
decentralized, distributed and public ledger used to record transactions over a global network

of computers that is accessible to all. The Yapese relied on a collective system of verification

over the oral and verbal discussion by the community to confirm the value of each individual

“Rai” stone that was based on communal faith and trust. The “blockchain ledger” built on

years of human progress and development holds a key and important difference to the rai

currency, in the fact that it is immutable. The Blockchain ledger is permanent, indelible and

transactions aren’t unalterable – the security and originality over the data is maintained over a

large system of network and computers. The key difference is there is no “human bias” in the

interpretation of the data, the Yapese people might be able to manipulate the prices of the

“Rai” stones, as there can be a manipulation of accounts or the simple cost of human errors.
Retrospectively, Bitcoin relies on a network of global computers that has no ability to

manipulate the data nor any reason to do so without human intervention. This creates the

‘blockchain’ ledger as an undisputed advance forward in the safety of transactions through

the technology. Another advancement to the current Bitcoin technology is the

implementation of Central Bank Digital Currencies or CBDCs, as governments and federal

banks are finding ways to regulate and control the issuance of new cryptocurrencies.

CBDCs are perceived to be the government’s method of regulating financial control in the

economy and is a response to disruptive innovations to new digital currencies such as

Cryptocurrency. The use of timestamps and cryptographic mechanisms render recorded

information virtually immutable. Bitcoin proves to be a more culpable alternative to current fiat

currencies, as it enables citizens to undermine interventionalist and capital control polices,

leading to less government control of the financial economy over transactions. CBDCs are

the countereffect of that, portraying itself as having the same distributed ledger system as

“Bitcoin”, with the main jarring difference being that the distributed ledger technology is

centralised. Governments can practice higher levels of financial autonomy of personal

finances than before in a more authoritarian method with CBDCs. Governments have direct

control, viewability and access over personal finances, and can freeze, limit CBDC holdings,
with a possibility to automatically block or flag suspicious transactions financed by CBDCs.

This level of financial control over spending decisions is a threat to the financial autonomy of

citizens. CBDCs starkly contrasts with cryptocurrencies, that facilitates the free trade wih a

“peer to peer” system – that fundamentally allows transactions between anyone in the digital

economy. There is no centralized body overseeing the transactions that are being made in the

Blockchain, there is no foreign entity that can cancel or influence transactions that are being

made using the cryptocurrency. Bitcoin safely determines the financial autonomy and ability

of its traders to spend and exchange freely with anyone in the world, as long as they’re able

to and is not restrictive like how CBDCs potentially might be. The gift of financial freedom
to avoid financial control is valuable in this modern age of privacy and is a promise that

CBDCs won’t be able to bring.

The Bitcoin price dynamics is characterized by short- and long-term hyper volatility, recurrent

bubbles, and jumps. rendering it impossible to use Bitcoin as a unit of account and an

undesirable instrument to denominate and settle debts. the extreme volatility of Bitcoin is

inconsistent with a currency acting as a store of value, at least in the short-term According to [33]

(p. 98) “at most, cryptocurrencies can be viewed as a new kind of tradable speculative asset,

which can work as imperfect substitutes for traditional currencies”. Or, in the words of Hazlett

and Luther [34] (p. 148), “there is a small corner of the internet where transactions are routinely

conducted with Bitcoin serving as the medium of exchange. Over that domain, Bitcoin is money”.

The main impediment to use Bitcoin as a medium of payment comes from its hyper volatility.

Bitcoin’s pseudonymity (i.e., the identification of users by an address such

as 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2 that bears no link to a natural identity) has

been a source of concern for authorities, as it facilitates illegal activities, such as financing

terrorism [39], the drug trade [40], or money laundering [41]. In fact, this might be a massive

problem, as pointed out by, for instance, Foley and colleagues [42], who estimate that around

one-quarter of Bitcoin users and one-half of Bitcoin transactions are associated with illegal

activities, involving about 72 billion USD per year.

Second-generation cryptocurrencies, generally called stablecoins, address this issue by pegging

their price to fiat money, exchange-traded assets, or even other cryptocurrencies.

Libra Association, this new stablecoin promised to become a major player in the worldwide

payment system, with a relative loss of importance of traditional national banking systems [44]

and might undermine the effectiveness of central bank monetary policy

political (Libra may have a large influence on the global financial system), and even (e) ethic and

regulatory (for instance, the possibility of Libra having control over a large part of the world

population, which raises concerns on privacy and data property issues).

More efficient and safer payments and settlement systems. Traditionally, in Europe and

most of the Western world, banks have handled retail payment systems. However, recently,

innovative FinTechs have challenged this dominance and changed consumer preferences and

regulatory intervention [11]. The increasing non-bank competition in the financial domain, with a

rising volume of payments undertaken by third-party entities not directly regulated by the central

banks, may threaten control and introduce transaction safety risks, since financial oversight now

occurs at a different level, if at all. Since consumer preferences for quicker and cheaper payment

systems partly drive this change, the introduction of electronic currency by the central banks

could provide the adequate infrastructure to support them within the current financial framework.

However, while “the introduction of a general purpose or a wholesale only CBDC could bring a

number of potential benefits to payment, clearing and settlement systems, (…) it could also pose

several risks and challenges” [43] (p. 7) since it can undermine the position of current payment

actors and provide perverse incentives. A potential upside is the increased resilience of the

overall payment landscape that a complementary and distinct central bank-managed

infrastructure supporting core payment services could offer [54].

Harder for black economy, money laundering, and tax evasion. According to the United

Nations [78], “The estimated amount of money laundered globally in one year is 2–5% of global

GDP, or $800 billion–$2 trillion in current US dollars”. Many illegal activities tend to rely on the

anonymity of physical cash. According to the BIS [43] (p. 9), “given that a CBDC can allow for

digital records and traces, it could improve the application of rules aimed at anti-money

laundering and countering the financing of terrorism (AML/CFT), and possibly help reduce

informal economic activities”. Even if token-based CBDCs are implemented together with the

account-based variant to enable a degree of privacy to the public, the amounts transferable to
the wallets may be restricted, effectively inhibiting the use for large-scale criminal activities.

However, the BIS also cautions that the impact on fighting illegal activities may not be significant,

since a traceable CBDC “would not necessarily be the main conduit for illicit transactions and

informal economic activities” [43] (p. 9), and with the most likely CDBC architecture proposals,

the “game of cats and mice” between regulatory agencies and money launderers is likely to

continue with little change [79].

More inclusion of the unbanked or underbanked. Financial inclusion is one of the important

motivations for the introduction of CBCDs mentioned by central banks [80]. According to the

Bank of England [54] (p. 19), “the provision of basic accounts and an electronic payment system

by the central bank could make a significant difference to financial inclusion”. The institution

considers this relevant in “developing countries where the banking and payments system are

underdeveloped”. However, the problem may be significant even in advanced economies,

especially for the individuals most in need in times of crisis. In May 2020, 14 million American

adults did not have a bank account and were waiting weeks or months to receive their

coronavirus disease 2019 (COVD-19) stimulus checks. Additionally, they tend to lose between

1% and 10% of the check’s value to the cashers [81]. The use of CBDC digital wallets would

enable higher efficiency and justice in the allocation of relief funds. However, the BIS also

cautions that “for some segments of the population, barriers to the use of any digital currency

may be large” [43] (p. 9). An example discussing CBDC acceptance in a region of Spain,

exploring various sociodemographic variables, is presented in [82].

Positive overall macroeconomic impact. The wide adoption of a CBDC will reduce the costs

of running the payment system (namely by reducing the frictions and costs associated with the

storage, transport, and management of cash), increase its resilience to operational risks

(cyberattacks, operational failures, and hardware faults), reduce tax evasion, corruption, and

illicit activities, increase financial stability, reduce the costs of private monopolistic control,

especially in the situation of a structural decrease in cash usage, and increase financial
inclusion, especially in underbanked economies [83,84]. Additionally, it will reduce the regulatory

costs of the banking sector by removing the need for a fractional reserve system [85], imposing a

better discipline on commercial banks [86], reducing the vulnerability of banks, and reducing the

political and economic incentives for governments to bail out the “too big to fail” institutions [87].

All in all, the benefits of the introduction of a CBDC in the payment system may spill over to the

overall economy with a significant impact on the GDP, depending on the adoption rate of the

CBDC by the general public.

If anything, CBDCs would likely replace all private digital payment systems,
regardless of whether they are connected to traditional bank accounts or
cryptocurrencies.

By allowing any individual to make transactions through the central bank,

CBDCs would upend this arrangement, alleviating the need for cash,
traditional bank accounts, and even digital payment services. Better yet,
CBDCs would not have to rely on public “permission-less”, “trustless”
distributed ledgers like those underpinning cryptocurrencies. After all, central
banks already have a centralised permissioned private non-distributed ledger
that allows for payments and transactions to be facilitated safely and
seamlessly. No central banker in his or her right mind would ever swap out
that sound system for one based on blockchain.

Insofar as central bank digital currencies would crowd out worthless

cryptocurrencies, they should be welcomed
cryptocurrencies such as bitcoin are not actually anonymous, given that individuals
and organisations using crypto-wallets still leave a digital footprint. And authorities
that legitimately want to track criminals and terrorists will soon crack down on
attempts to create cryptocurrencies with complete privacy.

Insofar as CBDCs would crowd out worthless cryptocurrencies, they should be

welcomed. Moreover, by transferring payments from private to central banks, a
CBDC-based system would be a boon for financial inclusion. Millions of unbanked
people would have access to a near-free, efficient payment system through their cell
phones.

There are significant differences between Bitcoin like decentralized blockchain based
cryptocurrencies and fiat money, such as stability and regulatory means. Thus, these
decentralized cryptocurrencies cannot be an option for digital fiat money. And
central banks all over the world are researching their digital fiat money, CBDC
(Central Bank Digital Currency). International Monetary Fund (IMF) defines CBDC
as a new form of fiat money issued digitally by the central bank and served as legal
tender [3]. According to BIS (Bank for International Settlements) [4], central banks
have a positive attitude to CBDC research and development, and more than 80% of
central banks are actively researching and developing CBDC prototypes. The main
motivations of CBDC are to promote safety, robustness and efficiency of payments,
reduce issuing cost and increase transaction convenience.

3.1.2. Permissioned blockchain based CBDC

With the maturity of permissioned consortium blockchain, central banks have been
attempting application of consortium blockchain in CBDC. Most widely used
consortium blockchain in CBDC are Ethereum, Corda, Hyperledger Fabric and
Quorum. The main application scenarios of these projects include inner-bank
payments, inter-bank payments, cross-border payments and settlements.
Project Jasper/CAD-coin. In 2016, the Bank of Canada launched Project
Jasper [12] as a blockchain based wholesale CBDC. Project Jasper developed a proof
of concept of payment system on high amount inter-bank payments. In the first
phase, Ethereum is used to make payments between participants. In the second
phase, Corda blockchain is tested. The two phases demonstrate that central bank can
benefit from blockchain based wholesale payment system, which can increase
efficiency and reduce costs. To explore more applications of blockchain, in 2017, the
Central Bank of Canada extended Project Jasper and developed a blockchain based
CBDC prototype, CAD-coin. Apart from Bank of Canada, many commercial banks
joined and cooperated to build the experimental inter-bank payment system with
CAD-coin.
Project Ubin. In 2016, The Monetary Authority of Singapore launched a blockchain
based CBDC, Project Ubin [13], to explore the use of blockchain for clearing and
settlement of payments and securities. Five phase experiments prove that blockchain
can be applied in CBDC. In the phase 1, Ethereum is used to conduct inter-bank
payments. In the phase 2, Corda, Hyperledger Fabric and Quorum are used to
explore decentralized inter-bank payments. In the phase 3, smart contracts are used
to explore Delivery versus Payment. Phase 4 conducts experiments on cross-border
settlement payments with blockchain. As a continuation of phase 4, phase 5 uses
blockchain and CBDC to conduct cross-border payments and explore the
development of multi-currency payments model.
Project Stella. In 2017, The European Central Bank (ECB) and Bank
of Japan initiated Project Stella [14], which focuses on cross-border payments with
blockchain. The phase 1 tests the processing of large-value payments with
blockchain, and phase 2 investigates securities delivery versus payment with
blockchain; and phase 3 evaluates the applicability of blockchain in improving cross-
border payments.
Project Khokha. In 2018, South African Reserve Bank launched Project
Khokha [15] as a proof-of-concept inter-bank payment and settlement system based
on Quorum blockchain. Project Khokha does not involve currency issuance and only
focuses on inter-bank payments, which shows that blockchain can help
accelerate transaction processing and lower transaction costs.
E-Krona. In 2018, Swedish central bank proposed E-krona [16], a Corda blockchain
based CBDC. E-krona is a two-tier and private blockchain based model. In the first
tier, central bank masters the private blockchain network tier and can approve and
add new participants to the network. Besides, the central bank is also responsible for
issuing and withdrawing e-kronor. Participants in the e-krona network distribute e-
kronor to end-users through the second tier, then end users can use e-krona for
different purposes. E-kronor is domestic focused and application scenarios are
mainly on retail payments, such as payments among individuals.
Project Inthanon. In 2018, Bank of Thailand (BOT) launched project Inthanon [17],
which aims to develop a proof-of-concept for domestic wholesale CBDC with
blockchain. Project Inthanon runs on a private-permissioned Hyperledger Besu
network and focuses on wholesale CBDC. Project Inthanon enables commercial
banks to conduct domestic funds transfers through a wholesale CBDC, such as inter-
bank settlements. Project Inthanon proved that blockchain based CBDC can help to
improve payment efficiency, expand operational scope, reduce operational and
compliance risks.
Project LionRock. In 2017, Hong Kong Monetary Authority (HKMA) proposed a
blockchain based program, Project LionRock [18], to explore benefits and risks of
blockchain based CBDC. Project LionRock evaluates technical feasibility of CBDC
issuance with blockchain and develops a proof-of-concept CBDC with Corda
blockchain. Both retail and wholesale scenarios are taken into consideration in
LionRock.
Project LionRock-Inthanon. To further explore other potential CBDC scenarios like
cross-border payments, the HKMA and BOT proposed Project Inthanon-
LionRock [18] to test blockchain based cross-border payments at wholesale level in
2019. In project Inthanon-LionRock, a blockchain tunnel network is used to connect
LionRock and Inthanon, two blockchain based CBDC. Compared with traditional
cross-border payments, LionRock-Inthanon enables real-time cross-border
payments, which greatly improve efficiency and reduce costs of cross-border
payments. Besides, LionRock-Inthanon is the first to bridge two blockchain based
CBDC.
Australia. In Jan 2020, Reserve Bank of Australia [19] announced a project to
explore a wholesale CBDC based on Ethereum. The CBDC project aims to explore the
implications of CBDC for efficiency, risk management, and innovation in wholesale
financial market transactions.
DC/EP. DC/EP (Digital Currency Electronic Payment) [20] is China’s CBDC system.
In DC/EP, blockchain is used for right confirmation registration and security
enhancement. Central banks and commercial banks unite to build a decentralized
ledger, which can provide others with query services for CBDC ownership.
Bitcoin is the most successful cryptocurrency and is also considered by central banks
in early blockchain based CBDC researches, such as DNBcoin/Dukaton and RSCoin.

DNBcoin/Dukaton. In 2015, Dutch central bank developed a blockchain based CBDC

prototype, DNBcoin/Dukaton [10]. The first version of DNBcoin was adapted from
Bitcoin blockchain and focused on sustainability in the payments system. Then
Dutch central bank tested different consensus and validation mechanisms in
subsequent four blockchain prototypes. Finally, Dutch Central Bank concluded that
blockchain technology cannot be an option for financial infrastructures for its
limitations on capacity, efficiency and certainty of payment. Unfortunately, there are
no public technology details on Dukaton project.
RSCoin. In 2016, the Bank of England and University College in London proposed
RSCoin [11] as a blockchain based CBDC prototype system. RSCoin is based on
Bitcoin and UTXO (Unspent Transaction Output) model is used. There are two kind
of ledgers in RSCoin as high level global ledger and low level ledger. Central bank is
responsible for issuing currency and maintaining the high level global ledger. The
low level ledger is maintained by payment interface providers and will be submitted
to central bank. Payment interface acts as a proxy between payment interface
providers and end users. Central bank is also responsible for dealing with potential
conflicts in transactions and maintaining the global consistency of global ledger.

3.2. Blockchain based CBDC schemes from research communities

Besides central banks, research communities are also interested in blockchain based
CBDC. Some blockchain based CBDC schemes have been proposed by research
communities in recent years, and multiple-blockchains model is also adopted in
these schemes.

Sun et al. [21] propose MBDC as a multi-blockchain based CBDC architecture. In

MBDC, there are one superchain and multiple local area blockchains and branch
blockchains, all these blockchains are permissioned. Central bank is responsible for
maintaining the superchain and can analyze data on the superchain, avoiding
double-spending and protecting user’s privacy. With permissioned blockchain,
superchain can assure that all digital currencies are created and issued by central
bank. In local area blockchain and branch blockchain, both the scalability and
performance are greatly improved. MDBC is also implemented in HyperLedger and
Ethereum, and experiments show that MDBC is with good performance, scalability
and speed of transaction execution. MDBC matches well with requirements of
commercial banks.
Tsai et al. [22] present Panda as a multi-blockchain based CBDC model. Like current
banking systems, account model instead of UTXO model is used in Panda.
Experiments show that Panda is with high throughput, low latency, low energy
consumption, security, privacy, monitoring, reliability and timeliness. Besides,
Panda model is scalable as many financial institutions and individuals can be added.
Han et al. [23] propose a blockchain based CBDC framework with three layers, as
supervisory layer, network layer and user layer. Then, take cross-border payments as
an example to explain the entire life cycle of CBDC, as currencies issuance, currency
circulation, currency withdrawal, inter-bank payments, and cross-border payments.
AFCoin [24] is an Ethereum blockchain based CBDC model with account model. In
AFCoin, smart contracts are used to process transactions and maintain the account
status of commercial banks. Commercial banks can submit transaction information
and status information to central bank for regulatory and compliance purpose.
Compared with payment services with third parties, AFCoin can provide both better
privacy and regulation.
4.1. Permissioned blockchain vs. permissionless blockchain
Decentralization is a key feature of blockchain, which is contrary to traditional
centralized management in central banks. So some people think that blockchain is
not suitable for CBDC. Current cryptocurrencies like Bitcoin are lack of regulatory
means and are prone to money laundering, extortion and other criminal activities. So
public (permissionless) blockchain cannot meet requirements of financial systems in
regulation, scalability, and efficiency and is not suitable for blockchain based CBDC.
Compared with permissionless blockchain, permissioned blockchain is more suitable
for CBDC. More than 46 central banks all over the world are considering CBDC
schemes with permissioned blockchain [4].

M Pesa:

The price and mining of Bitcoin relies on its “hash rate” and the computational power that it

require to solve the complex mathematical equations to “mint” a new block of Bitcoin.

Bitcoin relies on its “proof of work” system in the mining of its currency, the higher the

computational power that the Bitcoin network emplots, the higher the value of the Bitcoin the

solving of complex mathematical solutions that requires high levels of human capital and

computational power. The cryptographic hashing function that is required to express and

solve the complex mathematical equations

Bitcoin is a fiat money similar to Rai coin but has an intrinsic value in terms of its design and

“efforts” it took to produce it. The general public determines the value of both goods, through

its own method of valuation. The price of Bitcoin runs on its valuation of

Decentralisation is the determining value in maintaining its price and security

As more Yap citizens use “Rai” coins in their daily transaction, the amount limestone

available decreases similarly to Bitcoin, which means there is less of the currency in

circulation market eqits scarcity becomes more valuable that is reflective it’s price. Similarly

to Bitcoin, where it is a fiat currency based on the speculation of the market to determine it’s

price based on its existing digital scarcity. Another similarity in the nature of both Bitcoin

and Rai’s valuation by its market.

The nature of the derivative of bitcoin and Rai money comes from the idea of mining.

Bitcoin miners are incentivized to computationally solve mathematical puzzles with new

blocks to mine freshly minted bitcoin. The similarity draws from the human resources that it

requires to mine a piece of bitcoin, whereas the mining of limestone in the production of Rai

money heavily relies on physical rather than intellectual or computational power.

- Both share idea of “decentralized ledger”

o Public Oral Ledger vs The Blockchain

o The community meets up and verbally determines the price and confirms the

transaction has taken place

o Peer to peer network of nodes – community

o Nodes reach consensus – community members to reach consensus

o For the Yapese – transactions are verified collectively by

everyone within the community and all transaction histories are

available for everyone to see

o Whereas a transaction is recorded in the Blockchain that is verified for anyone

to see
 o

- Link to other forms of decentralized currencies in olden times after

- Talk about the idea of fiat money

o Link it back to bitcoin

“LINK NATURE OF MONEY TO THE ARGUMENT OF SCARCITY OF YAP COINS

AND BITCOIN”

Bitcoin and “Rai” coins require human capital and economic effort to mine. Bitcoin require

Bitcoin as Rai coins are both mined. Yap residents travelled to nearby islands to mine

limestone into circular rai, Bitcoin miners similarly solves mathematical puzzles to mine

Yap residents travelled to nearby island to mine limestone carved into circular rai, Bitcoin

miner similarly solves a complex mathematical puzzle to release the units of Bitcoin, this

transaction of mining is put onto the, the miners describe the manufacture of each coin to the

community to ascertain it’s value. A

CBDCs are perceived to be the government’s method of regulating financial control in the

economy and is a response to disruptive innovations of new digital currencies such as

Cryptocurrency. Bitcoin is a “decentralized” technology that doesn’t rely on a central entity

to safely ledger transactions in a transparent way, in which that governments has failed to do

in terms of clear and accessible data. Bitcoin also enables citizens to undermine government

authority by avoiding interventionalist and capital control polices imposed by it such as it’s

fiat currency. These reasons and more, make for a compelling case for Cryptocurrency to be

the innovation of spending, leading to less government control of the financial economy and

transactions. CBDCs are the countereffect of that, portraying itself as having the same system

and values as “Bitcoin”, with the main and jarring difference being that the distributed ledger

technology is centralised. Governments can practice the same levels of financial autonomy of

personal finances in a more authoritarian way with CBDCs. Governments have direct access,

viewability and control over personal finances, in terms of freezing, limiting CBDC holding,

with a potential to automatically block or flag transactions financed by CBDCs. This level of

control over the financial autonomy of decisions made by citizens is a stark contrast with

cryptocurrencies, that facilitates the free trade between “peer to peer” system across any

individuals in the world, in a more transparent way. As there are no centralized body

overseeing the transactions that are being made by bitcoin, there is no foreign entity that can

cancel or influence transactions that are made using the cryptocurrency. The main takeaway

here is that Bitcoin holds a huge advantage in safely determining the financial autonomy and
ability of its traders to spend and exchange freely with anyone in the world, as long as they’re

willing. This is a huge difference compared to the financial control that CBDCs compared to

technologies such as Bitcoin, financial control.

Guardian reference:

https://www.ft.com/content/aa156703-49d8-4cc4-a740-b35d525a5417

Essay 2: Choose ONE of the following essays (approx. 1,250 words) Choice A
“I'm sure that in 20 years there will either be very large transaction volume or no volume.”

Discuss this prediction from Satoshi made in 2010 in the light of the cryptocurrencies, developments
like MPesa, and other government payment innovations like CBDCs that we see competing with
Bitcoin today. Explain with reasoning some possible scenarios in 2030.

Essay:

Bitcoin is pseudonymously known as a speculative asset, or a gain in income. Not much is

known to the masses about it’s actual conceptual use. To hypothesize possible scenarios in
2030, it is important to focus on its actual intended purpose via the white paper. Bitcoin was
intended to be a new form of digital money that facilitated transactions from peer to peer
without going through a third party of financial institution.

10 years ago, Satoshi predicted that Bitcoin will either be traded as mass transaction volume
or non at all. In the context of the year 2030, one of the ways to hypothesize possibilities is
to observe the actual use of Bitcoin as intended by its white paper.
Bitcoin is intended to be a new form of digital money that would bypass third party
institutions and facilitated peer-to-peer transactions all over the world. The Bitcoin
blockchain has innate scalability limitations due to the consensus mechanism and block size
constraints. Bitcoin can only process 7 transactions per second (TPS) whereas innovations
like MPesa processes 2,000 TPS with Ethereum being the closest competitor, handling 20-30
TPS. This would make Bitcoin as an inefficient medium of digital payments due to the
processing time that it usually takes to make a transaction, on average – Bitcoin takes 10
minutes or more to process compared the merchant processing time takes between 1-2
seconds. Over 219 million people own Bitcoin over the world, this scalability issue means
that Bitcoin’s current infrastructure is infeasible to support global peer-to-peer t

The longevity of the Bitcoin infrastructure relies on the application and systems around it.
Light networks is a second later for Bitcoin that uses micropayment channels to scale
transactions in the blockchain more efficiently and cheaply (Investopedia, 2023). Current
light networks are Coinbase

Some

Satoshi had predicted that by 2030, there are 2 options for the road of Bitcoin, for it to exist
or not to exist.

Structure of essay:

Part 1 – Talk about the meaning of the question (50 words)

Part 2 - Briefly about the misconception of BTC (50 words)

Part 3 – BTC Halving (250 words)

- Although the immediate impact on the price of bitcoin was small, the market did eventually respond

over the course of the year following the second halving. Some argue that the increase was a delayed

result of the halving. The theory is that when the supply of bitcoin declines, the demand for bitcoin will

stay the same, pushing the price up. Looking at bitcoin’s price 365 days after the second halving, we

can see it rose by 284% to $2,506.

- Looking at the most recent halving, we can also see bitcoin’s price continued to perform bullishly a full

year after the event took place. This time, it rose by more than 559%.
- “This cannot really work without very expensive transaction costs because
Bitcoin cannot process huge quantities of transactions on-chain,” Dubrovsky
said.
- And, as discussed above, it is mining rewards that draw more computing
power to Bitcoin, hardening it against attacks that try to circumvent the
network’s rules. It’s unclear whether a future attenuated block reward will
have the same allure for miners, even when supplemented with fees.
- “It should be clear that the incentive to attack Bitcoin today is larger than it
was five years ago. We now have [former U.S. President Donald] Trump,
[China President Xi Jinping] and other world leaders talking critically about
it. The more Bitcoin grows, the more they might see it as a threat and might
eventually feel forced to react. That would be the worst case, anyway,”
Hasu said.
- “It’s impossible to predict what will happen, but if we want a system that
could last 100 years, we should be ready for the worst case,” Hasu said.
“The worst case is demand for block space does not increase in the dramatic
fashion that would be needed. As a result, block rewards would eventually
trend toward zero.”

- Once every four years, the reward that miners of Bitcoin (BTC) receive
for validating a block of transactions is reduced by half — a
procedure known as “halving.” A halving event cuts the rate at which
coins are created, often boosting their price, and is intended to
maintain Bitcoin's incentive mechanism for miners and control the
coin's rate of inflation.
- Because Bitcoin adds a new block of transactions to the permanent
ledger every 10 minutes, about 144 blocks are created each day.
When Bitcoin was released in 2009, miners were rewarded 50 BTC for
each validated block of transactions, which means about 7,200 BTC
were minted each day. At that pace, we would be rapidly
approaching Bitcoin’s limit of 21 million BTC. However, Bitcoin
included a stipulation in its protocol that the reward for miners would
be reduced by half every 210,000 blocks, which works out to about
once every four years.
 - Bitcoin has gone through three halving events, most recently in 2020.
The reward for Bitcoin miners is now 6.25 BTC per block. At the
current rate, about 900 BTC are released as a mining reward each
day. The next halving will occur in 2024, and the mining reward will
be reduced to 3.125 BTC per block, or 450 BTC per day.
- 1. Delay Bitcoin reaching its cap. Reducing the mining reward every
four years extends the life of the incentive mechanism. Estimates
have shown that the last Bitcoin won’t be minted until 2140.
- 2. Prevent Bitcoin price inflation. After each halving event, the
amount of new Bitcoin released to the public annually is reduced by
half as well. Assuming demand for Bitcoin stays the same, the
reduction in the supply of new BTC after each halving period should
boost the value of Bitcoin.
To understand how the code defines 21 million, there’s one more term you need to
know. Halvings were established in the bitcoin code as a way to gradually,
predictably, and consistently issue bitcoin over time. The issuance of new coins
begins at a fixed rate and slowly reduces until the distribution of coins reaches its
cap.

You don’t have to be able to read each line of code above to understand the basic
gist: the code defines when the halvings occur and how the block subsidy is
calculated. The 21 million limit is then implicitly defined as a result of the issuance
schedule, not explicitly stated as a variable in the code:
- The fixed number of blocks between halvings is 210,000 blocks
- The initial block subsidy was 50 bitcoin
- The initial subsidy amount is successively divided by two after each halving: 50
bitcoin, 25 bitcoin, 12.5 bitcoin, etc.
- Stipulated elsewhere in the code, block subsidies are paid every 10 minutes on
average, with payouts halving roughly every four years, until reaching their
termination at a single satoshi (the smallest possible unit of bitcoin)
- At this endpoint, 21 million bitcoin will have been issued (technically just under
that amount at 20,999,999.9769 bitcoin)
- Users could trade coins from one chain for coins on the other. All other
things being equal, the scarce version of bitcoin would be preferable for
bitcoin users. Because scarcity underpins long-term value, anyone saving
 in bitcoin would rationally be incentivized to continue collecting as much
limited-supply bitcoin as possible, even trading the unlimited-supply
“bitcoin” for it.
- This chain of events is unlikely to play out simply due to the threat of it
happening. Bitcoin users don’t have to engage in these kinds of trades—
just the threat that they would is sufficient to discourage someone from
trying to make a change to the supply schedule.

Scarcity enforced by self-interest

Due to its finite scarcity, bitcoin’s attractiveness as money increases over time,
which draws more adoption. More adoption means more nodes and wallets, which
leads to more decentralized enforcement of the existing ruleset. The combination
of these factors sets in motion a virtuous loop driven by participants’ self-interest
to preserve and defend the critical aspects that attracted them to bitcoin in the first
place, particularly its 21 million coin cap.
- Parker Lewis explains in his essay, Bitcoin Obsoletes All Other Money, that
the growing number of participants in bitcoin’s network serve to bolster its
security and more credibly enforce its 21 million coin supply:
- Recognize that there is nothing about a blockchain that guarantees a fixed supply,
and bitcoin’s supply schedule is not credible because software dictates it be so.
Instead, 21 million is only credible because it is governed on a decentralized basis
and by an ever increasing number of network participants. 21 million becomes a
more credibly fixed number as more individuals participate in consensus, and it
ultimately becomes a more reliable constant as each individual controls a smaller
and smaller share of the network over time. As adoption increases, security and
utility work in lock-step.
- With a fixed supply, increased demand naturally results in bitcoin becoming
more distributed. There is only so much to go around, and the pie ends up
getting split up into smaller and smaller shares owned by more and more
people. As more individuals value bitcoin, the network not only becomes a
greater utility; it also becomes more secure. It becomes a greater utility
because more people are communicating in the same language of value
through a more reliable constant. And as more individuals participate in the
 network consensus mechanism, the entire system becomes more resistant
to corruption and ultimately more secure. Recognize that there is nothing
about a blockchain that guarantees a fixed supply, and bitcoin’s supply
schedule is not credible because software dictates it be so. Instead, 21
million is only credible because it is governed on a decentralized basis and
by an ever increasing number of network participants. 21 million becomes a
more credibly fixed number as more individuals participate in consensus,
and it ultimately becomes a more reliable constant as each individual
controls a smaller and smaller share of the network over time. As adoption
increases, security and utility work in lock-step. Consider the distribution
and relative density of bitcoin adoption throughout the world (heat map
below of network nodes). As reach and density within each market spread,
bitcoin’s constant becomes harder and harder.
-

- As individuals increasingly opt-in, 21 million becomes more and more

credible, and in the mind of those who adopt it, finite scarcity becomes what
differentiates bitcoin from all other forms of money – both legacy currencies
and competing cryptocurrencies alike. All other currencies either centralize
over time (e.g. the dollar, euro, yen, gold) or were too centralized from the
start (e.g. all other cryptocurrencies) to credibly compete with a fixed supply
 of 21 million. Centralization inherently creates the need to rely on trust, and
trust ultimately puts the supply of any currency at risk, which in turn impairs
demand and marginalizes its utility in the function of exchange. Whereas all
other currencies depend on trust, the constant bitcoin provides is trustless.
21 million is only credible because bitcoin is decentralized, and bitcoin
becomes increasingly decentralized over time. The best any other form of
money could possibly do is match bitcoin, but practically, it is not possible
because individuals converge on a single medium, and bitcoin beat every
other currency to the punch. Every other currency is ultimately competing
against the ideal constant; one that will not change and that does not rely
on trust.
-

- All forms of money compete with each other for every exchange. If the
primary (or sole) utility of an asset is the exchange for other goods and
services, and if it does not have a claim on the income stream of a
productive asset (such as a stock or bond), it must compete as a form of
money. As a consequence, any such asset is directly competing with bitcoin
for the exact same use case, and no other currency will ever provide a more
reliable constant because bitcoin already exists and it is finite. Because
individuals converge on a single medium, scarcity in bitcoin will perpetually
be reinforced on both the supply and demand side, whereas the opposite
force will be in effect for all other currencies due to the reflexive nature of
 monetary competition. The distinction between two monetary goods is
never marginal, and neither is the consequence of individual decisions to
exchange in one medium rather than another. Money is an intersubjective
problem, and a choice to opt into one monetary medium is an explicit opt
out of the other, which in turn causes one network to gain value (and utility)
at the direct expense of another. As bitcoin becomes more scarce and more
reliable as a constant, other currencies become less scarce and more
variable. Monetary competition is zero sum, and relative scarcity, a dynamic
function of both supply and demand, creates the fundamental differentiation
between two monetary mediums that only increases and becomes more
apparent over time.
- But remember that scarcity for scarcity sake is not the goal of any money.
Instead, the money that provides the greatest constant will facilitate
exchange most effectively. The monetary good with the greatest relative
scarcity will best preserve value between present and future exchanges
over time. Relative price and relative value of all other goods is the
information actually desired from the coordination function of money, and in
every exchange, each individual is incentivized to maximize present value
into the future. Finite scarcity in bitcoin provides the greatest assurance that
value exchanged in the present will be preserved into the future, and as
more and more individuals collectively identify that bitcoin is the monetary
good with the greatest relative scarcity, stability in its price will become an
emergent property (see Bitcoin is Not Too Volatile).
-

Part 4 – Integrated Networks of BTC (250 words)

Part 5 – Case Study Examples: (Lecture Content) (250 words)

Part 6 – Comparisons of other Disruptive Payments ( CBDCs, etc) (250 words)

Part 7 – Conclusion – To what extent do you believe Bitcoin is the future of money
(successful in its trade) (150 words)
Citations & Sources:

https://www.nerdwallet.com/article/investing/bitcoin-halving

Part 6:

“Yes, [we will not find a solution to political problems in cryptography,] but we can win a

major battle in the arms race and gain a new territory of freedom for several years.

Governments are good at cutting off the heads of a centrally controlled networks like

Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.”

I agree with the thrust of your point, but it's not logically the case that more lightning
transactions require more channels. In fact, that's almost the opposite of lightning's MO to
begin with, which is that 1 channel can handle hundreds of thousands or more txns/s. Your
phrasing implies that as LN txns increase, so too must channels. But this is incorrect. A
single channel can scale massively. At worst, we hit some high limit for a channel and
another must open up, but there won't be a need to have 200m of those for scaling purposes,
as you implied. If we get more, it will be for vendor diversity, but even then 200m is...a lot.
My point was that there will be less (much less) than 200m transactions for lightning per
year. A $1m/BTC price means 1 sat = $0.01, so a transaction is in the range of current bank
wire fees. That puts transactions in the range of banks and payment networks. Lightning
channels opening for $25 or $50 equivalent implies they are mostly going to be
vendor/payment/business channels, not person to person. Hence why there won't be
200m. There will be a "starbucks" channel, etc. Person to person for small amounts, like a
Venmo, will be further out from the chain, an L3 (possibly on top of a "venmo" LN channel).
Anyway that's my $0.02. I'm not calling it a negative. I can't tell what I think about it either
way, haha.