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Inspired by the new JPM stablecoin, here is a short thread on
- how Bitcoin achieves trust
- trusted middlemen
- and Bitcoin's true value
(Thread)
- how Bitcoin achieves trust
- trusted middlemen
- and Bitcoin's true value
(Thread)
Bitcoin will hardly be able to compete at transfers between people who trust each other or can have a trusted middleman. Why?
Trusted middlemen are extremely valuable.
They only become problematic if there is no cost for misbehavior - for example, because there is no competition that keeps them in check.
They only become problematic if there is no cost for misbehavior - for example, because there is no competition that keeps them in check.
This is what Bitcoin solves: Lack of competition between middlemen. You're still trusting middlemen, but Bitcoin makes the middlemen prove first that they can be trusted.
They do that by spending money before they can make money, which binds their honesty to their profit motive
They do that by spending money before they can make money, which binds their honesty to their profit motive
Every block, Bitcoin hosts a tournament for your trust.
For comparison, a king hosts a series of tournaments to find new members for his king's guard. New recruits are more likely to be skilled and trustworthy if they had to endure personal hardship to get the position.
For comparison, a king hosts a series of tournaments to find new members for his king's guard. New recruits are more likely to be skilled and trustworthy if they had to endure personal hardship to get the position.
The tournament process ensures that the winner has a high degree of integrity.
But with every tournament, people only sign up if there is a sufficient reward waiting for the winner.
But with every tournament, people only sign up if there is a sufficient reward waiting for the winner.
The strength of the trust is directly linked to the reward.
This is why Bitcoin *needs* to be costly to use. (And it is also why some people are afraid Bitcoin becomes untrustworthy when rewards become smaller and smaller).
This is why Bitcoin *needs* to be costly to use. (And it is also why some people are afraid Bitcoin becomes untrustworthy when rewards become smaller and smaller).
Now if the king had candidates that he already trusts (for example his family), there would be no need for a costly tournament.
The tournament is only for situations where trust has to be built from scratch every time.
The tournament is only for situations where trust has to be built from scratch every time.
Tying it back together, if two parties already have a middleman they trust, then in practice they will always be better off using him instead of Bitcoin.
And that's fine because there are enough situations where middlemen cannot be trusted by definition. Why? Lack of competition.
The production of money is the prime example here. It's much harder for the market to punish a monopolist than a producer in a competitive market.
The production of money is the prime example here. It's much harder for the market to punish a monopolist than a producer in a competitive market.
As a result, Bitcoin's true value lies in making trust competitive.
It's a protocol for hosting trust tournaments, and hence building trust from scratch between total strangers.
It's a protocol for hosting trust tournaments, and hence building trust from scratch between total strangers.
Your takeaways:
- Bitcoin rebuilds trust every block
- It needs to be expensive by design
- Trusted middlemen are amazing assets
- Bitcoin is valuable where trust should be competitive, but isn't
- Bitcoin rebuilds trust every block
- It needs to be expensive by design
- Trusted middlemen are amazing assets
- Bitcoin is valuable where trust should be competitive, but isn't
