Description

Jongseun Kim:

"The Ledger Theory acknowledges that both commodity-based and credit-based systems share the function of maintaining ledgers — records of who owes what to whom. In credit-based systems, humans or institutions maintain these ledgers based on trust and social agreements. However, such systems are prone to resets or imbalances. On the other hand, the Commodity Theory minimizes trust by allowing the ledger to be settled through physical transfer of commodities like gold, where possession serves as proof of value, eliminating the need for human mediation.

This unified approach, the Ledger Theory of Money, suggests that both theories converge on the principle that money serves as a means of tracking value, whether through social trust in credit-based systems or the intrinsic value of physical commodities. Understanding how different schools of thought — such as Austrian Economics, Neoclassical Synthesis, Institutional Economics, and Keynesian/Post-Keynesian Economics — approach these ideas is crucial for designing decentralized financial ecosystems that strike a balance between innovation and stability."

(https://medium.com/@deframing/the-meaning-of-monetary-economics-in-the-crypto-world-e7f89e60d3a3)

Typology

The Commodity Theory of Money vs the Credit Theory of Money

Jongseung Kim:

"A key question in understanding the nature of money lies in the debate between the Commodity Theory of Money and the Credit Theory of Money. The Commodity Theory posits that money derives its value from its intrinsic properties, such as scarcity and durability, with commodities like gold and silver forming the foundation of monetary systems. Conversely, the Credit Theory views money as a social construct rooted in trust, representing a ledger of debts that evolves within social and legal frameworks.

These two perspectives have often been seen as conflicting, but they can be unified in what we call the Ledger Theory of Money."

(https://medium.com/@deframing/the-meaning-of-monetary-economics-in-the-crypto-world-e7f89e60d3a3)

The Austrian School: Bitcoin and the Denationalization of Money - Hayek’s Vision of Free-Market Money

Yongseun Kim:

"Friedrich Hayek, a leading figure in the Austrian School of Economics, argued in his influential work The Denationalisation of Money (1976) that governments should not monopolize money. He believed that the creation of currency should be subject to free-market competition, where private issuers could introduce their own forms of money. This decentralization, Hayek argued, would lead to more stable and efficient currencies, immune to the inflationary tendencies of government-controlled fiat money. His vision laid the intellectual foundation for the Free Money Movement, which advocates for the privatization of money and open competition among currencies.

Hayek’s ideas closely align with the rise of Bitcoin. Bitcoin represents a modern realization of his free-market principles, acting as a decentralized currency free from government control. It operates independently of any central authority, providing a hard form of money that is resistant to inflation and manipulation. The emergence of Bitcoin can be seen as an extension of Hayek’s concept, offering a trustless monetary system based on cryptographic scarcity.

Bitcoin’s creation challenges the traditional model of fiat currencies, which rely on governments to manage the money supply and implement policies that often lead to inflation. Fiat systems are vulnerable to political manipulation, as governments can print more money to finance deficits or stimulate the economy, which can erode the value of the currency. In contrast, Bitcoin operates on a fixed supply model, capped at 21 million coins, which ensures that its value is not diluted by inflation.

The Austrian School supports the notion of hard money, and Bitcoin exemplifies this principle by functioning similarly to gold — its value is derived from its scarcity and difficulty to produce. Unlike fiat money, which is subject to central bank policies, Bitcoin’s supply is governed by code, making it predictable and immune to inflationary pressures. Additionally, Bitcoin’s decentralized ledger system enables transactions without intermediaries, reducing the risk of government censorship or control over financial transactions.

Bitcoin’s ability to endure in the face of government resistance stems from the economic incentives it offers its users. As long as Bitcoin provides value — through its ability to act as a store of wealth and a means of exchange — individuals will continue to adopt and use it, regardless of government attempts to regulate or ban it. Historically, government-imposed price controls and similar measures have often failed because economic incentives drive people to find ways around such restrictions. Bitcoin’s decentralized and censorship-resistant nature makes it particularly difficult for governments to control or eliminate, allowing it to thrive in free-market competition with fiat currencies.

The hard money characteristics of Bitcoin, combined with its global accessibility and decentralized structure, present a formidable alternative to fiat systems. As more individuals and institutions seek to protect themselves from inflationary policies, Bitcoin’s role as a store of value and hedge against monetary instability becomes increasingly important."

(https://medium.com/@deframing/the-meaning-of-monetary-economics-in-the-crypto-world-e7f89e60d3a3)

Discussion

The Rise of Double-Entry Bookkeeping and Its Evolution to Triple-Entry Systems

Yongseun Kim:

"The transition from the money of account to more formalized financial systems became most evident during the Renaissance, particularly in Florence, where the practice of double-entry bookkeeping took hold. This system allowed businesses to record every transaction as both a credit and a debit, ensuring that financial records balanced accurately. Double-entry bookkeeping was a breakthrough in economic organization, enabling trust between parties by providing clear records of all transactions. This method underpinned the rise of modern banking and allowed for greater transparency and control in financial dealings.

However, despite the improvements introduced by double-entry bookkeeping, the system still depended on the integrity of the parties involved. Each party maintained its own records, and there was always the potential for fraud, errors, or manipulation of these records. Blockchain technology, with its innovation of triple-entry bookkeeping, addressed these limitations by adding a third layer: a shared public ledger that records transactions immutably.

In triple-entry bookkeeping, transactions are not only recorded by both parties but also cryptographically verified and permanently stored on a decentralized ledger (the blockchain). This ledger serves as the third entry, allowing anyone — both participants and external auditors — to verify the transaction. This system ensures that each transaction is transparent, traceable, and secure, eliminating the reliance on trust and significantly reducing the possibility of fraud or errors.

The most transformative aspect of triple-entry bookkeeping is its capacity for instant auditability. Unlike traditional systems, where audits are performed after the fact, blockchain-based transactions can be verified in real time. This advancement enhances the transparency and accountability of financial systems by ensuring that all transactions meet strict verification criteria before they are finalized.

The shift from double-entry to triple-entry systems represents a significant leap in financial transparency and security. By ensuring that every transaction is publicly verifiable and immutable, blockchain technology addresses the key weaknesses of traditional financial systems, paving the way for more robust and decentralized financial structures.

This innovation is not merely a technical improvement but a fundamental evolution in how financial transactions are recorded, verified, and trusted. It creates a more secure and transparent environment for digital assets and decentralized finance (DeFi), setting the stage for the discussion of central banks and the growing importance of monetary policy."

(https://medium.com/@deframing/the-meaning-of-monetary-economics-in-the-crypto-world-e7f89e60d3a3)