Anatomy of a Money-Like Informational Commodity

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* Book: Anatomy of a Money-like Informational Commodity. A study of Bitoin. Tim Swanson.



"The purpose of this manuscript is to continue the dialogue on issues that are increasingly important to the direction of cryptoprotocols, specifically Bitcoin, and decentralized applications in the near future.

This book is divided into three sections. The first third describes the current state of software and hardware development. The middle portion reflects on the economic conditions within the Bitcoin network as well as user adoption. The last third covers alternative platforms and legal considerations that could impact the on-boarding of users onto the Bitcoin network. "



Tim Swanson:

"Today Bitcoin (the network and the token) is primarily used for goods and services that existing systems such as credit cards and fiat money have limited accessibility for. Yet it is important to distinguish between what a bitcoin (the token) is and is not. As explored below in length, bitcoins do not create value, they merely store it. In contrast, entrepreneurs and companies create value. They do this by selling securitized equity (stocks) in exchange for capital, whereupon they reinvest this towards additional utility creation. As it lacks equity, governance or any formal or informal method of feedback, Bitcoin – a static, fragile institution – is not a company which in turn creates public goods problems.

Other areas this report covers include the cost of maintaining the network. The transaction processing equipment (miners) have no cost advantage over existing value transaction infrastructure, rather Bitcoin’s initial competitive advantage was decentralizing trust and obscuring identities – both of which are progressively compromised. Acquiring and maintaining hashing machines, electricity and bandwidth have real costs – and nothing inherent to the Bitcoin transactional process gives it a significant cost advantage over existing electronic payment systems. Rather, as noted below, the relatively higher costs of doing business (the cost structure) of incumbent platforms and other non-decentralized systems is typically related towards compliance costs which Bitcoin-related enterprises are increasingly having to shoulder. BitLicenses, for example, add additional financial requirements to companies in this space and incidentally could in fact insulate Bitcoin from alternative competitive protocols and ledgers whom lack the capital resources to compete, thereby ceding it monopoly-like status.

A number of other issues are also covered including the impact these types of decentralized systems may have on the legal profession and consequently numerous lawyers have been consulted to provide their insights into how this type of disruption may occur.

These challenges in turn may explain the wide chasm between interest in Bitcoin and meager adoption rates. In many ways this dearth of adoption is tautological: decentralized networks will only be used by users who need decentralization. Bitcoin, the network, like any transportation network will be used by people who need to use it because it satiates certain needs and not necessarily used by people that early adopters want or wish used it.

Consequently, Bitcoin solves some needs, but it is not a Swiss Army knife pain killer with innumerable feature-based check-boxes; it has real limitations that are detailed in each chapter below.

Despite the skepticism and critical analysis of this ecosystem, there are numerous bright spots that are highlighted along the way including portions of the community who look beyond zero-sum activities – beyond day trading or gambling – some of whom are genuinely trying to and likely will create wealth generating businesses.

There is a lot to look forward to but it is also important to be realistic about the ramifications of Bitcoin. It is not a jack-of-all-trades nor a panacea for all the worlds’ ills. It may solve some issues in niche areas, but it likely cannot do the vast majority of the tasks that its passionate supporters claim it can. In fact, it is being shoe-horned into areas it is not competitive. And this is not for a lack of trying. It is largely due to the underlying microeconomic attributes, incentives and costs within the network itself, many of which were not apparent until the past year or two."

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