National currencies aren’t as Centralized,

and Bitcoin isn’t as Decentralized, as you think.

The Surprising Way Dollars Actually Work

National currencies are not what we think they are. We think that all dollars are the same, but they’re not. As a currency designer, I can tell you that a currency follows one clear set of rules. Many different sets of rules, means many different currencies.

The dollars that are in your wallet are not the same as dollars in your bank account. Maybe this is obvious to you, but most people just don’t think about it. Dollars in your bank account can be transacted by writing a check, or electronic transfers. They can earn interest and have an effect on your credit rating. However, dollars in your wallet do none of those things. Instead, the transaction of dollars from your wallet leaves no trace, unless someone in the transaction wants to generate their own record. They follow different rules.

These are examples of two separate currencies that only seem the same because they are valued the same and exchangeable with each other. You can bring cash dollars to the bank and deposit them to your account. Or you can withdraw dollars from your account and walk out with cash. This makes us think they’re one currency when in fact they’re different currencies, with one name, that are designed to be so easy to exchange with each other that the seem like a single currency.

But the full picture is much stranger than that, because different banks have different rules from each other. Each bank is really creating its own currency for their own accounts. They used to even print their own paper bills. But now all the banks agree to exchange that currency on par with cash dollars, so all these diverse currencies appear to be a single unified one.

There’s a common misconception is that the government issues our currency. It doesn’t. Printing bills is completely different from issuing them into circulation as currency, not to mention that over 97% of our money supply is electronic bits in bank accounts, not paper bills. The Federal Reserve actually buys the bills for pennies on the dollar, as if they were paying for printing services, because basically they are. Then banks (including the Fed) issue dollars into circulation.

Inter-bank accounting

What’s the point of all this? Well, the point is that every branch of every bank issues their very own currency, and tracks in their own account ledger. When a person writes a check to another in the same branch bank, the payment is processed locally, transferring funds within that branch’s electronic account ledger. When you write a check to someone who’s account is in the same larger banking corporation, but at another branch, that transaction clears between the ledgers of two branches.

When you write a check between banking corporations like Citibank and Bank of America, all the transactions (in and out) between those two entities are totalled up into a “block” of transactions, and then the net difference is cleared through the Federal Reserve’s Automated Clearing House (ACH) each weeknight. To be able to scale their transaction system, each bank keeps ledgers of their own currency, then only clears net total transfers through a central clearinghouse. Finally, international transactions are cleared by SWIFT between the banks and clearinghouse systems of the different national currencies.

Scaling the Blockchain

Blockchains are slow. It takes time to synchronize transactions between lots of copies of the same ledger, and the more copies, the harder it gets. So for example, in Bitcoin, a new block of transactions is committed to the chain about every 10 minutes. Blocks are limited in size, so they can only hold a certain number of transactions. The current maximum throughput of bitcoin is 5 to 7 transactions per second (the VISA network is about 10,000 times faster).

Because the blockchain requires majority consensus across many copies of a single a global ledger, even if you increase the size and frequency of blocks, the synchronization of that global ledger across many peers, is not fast. The blockchain architecture is fundamentally hampered in scaling. And the longer the blockchain grows, with the more tokens issued, the longer it takes for each peer to validate each transaction, and the more memory it requires to hold it all (even with the optimization of tracking unspent tokens in a smaller data pool so you can keep it in memory).

To solve this problem, many have proposed an approach of creating sidechains that are interoperable with a parent chain, like bitcoin, and pegged to it. Sidechains would power different ledgers, periodically committing their hash to a parent blockchain, and clearing transactions between the sidechains through the parent chain. To scale further, those sidechains could be parent for other sidechains, so we can finally have the blockchain scale!

Wait a minute!?!?! That architecture sounds familiar… different currencies… with different ledgers… that progressively clear toward a main global ledger. Wait! That’s exactly how the banks do it! Except now, to be part of the elite that gets to issue currency, you need hundreds of thousands of dollars in specialized mining hardware instead of millions to purchase your bank charter.

Back Where We Started

Brilliant! In the final analysis, Bitcoin’s efforts to replace our broken national currencies, has resulted in duplicating the structure of the banking system (with the added benefit of burning as much electricity as the whole country of Ireland on useless computation that gets thrown away every 10 minutes just to reach a max rate of handful of transactions/second). We’ve just replaced an elite class of banksters, with an elite class of hacksters, and a few fast copies of the ledger with many slower ones.

So, now you can choose:

Put your money in the hands of unregulated hackers in China with slow, publicly visible, electricity wasting transactions, who might be able to manipulate the blockchain by controlling a majority of mining, and are certainly manipulating the evolution of bitcoin protocols to preserve their position of power.

Or put it with regulated bankers, with fast, quasi-private transactions, manipulating the whole economy for their profit, and to preserve their positions of power.

Obviously, Bitcoin hasn’t solved all our currency woes, but one thing it has done is ignite people’s imagination about what is possible with decentralized currencies, data, and applications.

As we’ve explored all possible configurations of currencies in the MetaCurrency Project, we’ve learned there are many valuable and powerful changes that can be made (other than how its ledger is stored). There are literally hundreds, maybe thousands, of other “knobs and dials” which can be tuned to achieve intentional relationship and wealth dynamics.

We’re building Ceptr to enable communities to launch highly scalable, fully customized, P2P current-sees.

If we really want to alter the dynamics of wealth imbalance, strengthen our communities, and build a thrivable world together, more crypto-geeks may need to become current-see-geeks so we can really build Deep Wealth together.