Observations from real experts
Continuing this week's modularity theme....

Some observations on bitcoin from an econ blogger who has contact with real bankers. The bankers are telling him:

1 bearer style assets are user hostile and wont catch on
2 conflating settlement and payments is bad news
3 final settlement not required for payments
4 hard to financialize something which resists regulation

= = = = =

1 and 4 are sort of conditional. It's possible though unlikely that bitcoin will become more user-friendly. Bitcoin resists regulation because bitcoin is NSA, not because bitcoin is "decentralized". NSA wants to avoid the usual written regulations so it can use bitcoin for tyranny and blackmail.

2 and 3 are intrinsic to the whole process of banking and business. These are not usually discussed in the context of bitcoin, and I hadn't thought about them before.

Bitcoin is incurably and intractably GLOBAL. Every transaction requires automatic settlement, and nominal permission, by everyone on the whole chain.

Real banking, like all real business, is always modular and bilateral, a single wire connecting buyer and seller in a trust relationship. The buyer who writes a check trusts that the bank will sooner or later transfer funds to the seller's account, and the seller trusts the bank to give him the money. Neither party needs to know how and when the bank handles the intermediate steps of the transfer.

In earlier centuries, and even now in unconventional banking like scrip and hawala, the settlement happened rarely and bilaterally. Each bank was fully modular. Each bank maintained a pile of real money through its normal savings and loan activities with its own customers. Each bank would keep a ledger page of its credits and debits to each of the other banks. Once a year, Bank 1 and Bank 2 would transfer their net result in gold to null out the differential. Bank 1 and Bank 3 would transfer their pairwise net result, and so on. In an active system those net differences tend to be small because there are lots of checks going both ways between each pair of banks. Each bank's customers didn't know about the transfers and didn't need to know.

Labels: MMT, Patient things, Real World Math, scrip

  ¶ 7:28 AM