Thread by @ydemombynes

1/17. A few key takeaways from this fascinating book, Layered Money by @timevalueofbtc
THREAD

2/17. Examples of monetary “layers” :
- first-layer money : a gold coin held in a vault
- second-layer money : a gold certificate, printed and circulated instead of the gold coin

3/17. Features of layered monies :
- first-layer money : final settlement
- second-layer money : IOU, counterparty risk

“Each layer represents a side of somebody’s balance sheet”

4/17. The first layer of money applies a disciplinary constraint to layers underneath it.
The second-layer money is inherently unstable, “as the power to create it will always be subject to human abuse”

5/17. In 1531, the Antwerp Bourse revolutionized money by creating a market for second-layer monetary instruments (bills of exchange, gold deposits, etc.), allowing for major innovations such as discounting, promissory notes, arbitrage

6/17. Governments and their central banks gradually mandated the use of their own second-layer monies and use their monopoly to their own benefit

7/17. The Bank of Amsterdam (1609) eliminated the ability to withdraw precious metal altogether. By suspending convertibility to first-layer money, it “proved that precious metal wasn’t necessarily required to operate a monetary and financial system”

8/17. With the Bank of England (created in 1694 to help the crown finance a war), “bills were promises not to pay gold but to pay pounds and therefore existed on the third layer of money”.
The BoE “would eventually establish the central banking model for the world”

9/17. In 1913, the Federal Reserve Act “monopolized the second layer of money in the US under the Fed, and firmly placed all private sector money issuance on the third layer”

10/17. US Treasuries gradually replaced gold altogether “as the dollar pyramid’s only first-layer asset”.
In 1933, Order 6102 “outrightly eliminated the people’s access to first-layer money”

11/17. Under the Bretton Woods system, “all currencies besides the dollar were forms of third-layer money within the dollar pyramid” (not because of the balance sheet from which they came to exist, but “because of the price relationship to dollars”)

12/17. Nowadays, the Federal Reserve has become the world’s lender of ONLY resort.
QE is basically second-layer money creation.
The FED has “removed price discovery from the system by disallowing so many third-layer money-types from realizing their ultimate fate”

13/17. The system is becoming more and more fragile. “The world is seemingly trapped inside a dollar denomination and is hankering for a monetary renaissance”

14/17. #Bitcoin is a new “first-layer, counterparty-free money”.

Second-layer BTC emerged "for the same reason second-layer gold did" and "there is now a wide array of second-layer BTC money-types" :
- custodian BTC
- #LightningNetwork
- altcoins
- stablecoins
- BTC futures

15/17. #CBDC will be “a second-layer money, a liability on the central bank’s balance sheet alongside cash notes and reserves”, with different consequences depending on the kind of CBDC (wholesale reserves for banks or retail cash for people)

16/17. China seems to “be transitioning to a financial system without third-layer bank deposits and drive all of its citizens into its second-layer retail CBDC instead”.

The digital Euro project is still vague.

The Fed is “late in the CBDC party”.

17/17. According to @timevalueofbtc, #Bitcoin may become the world reserve currency and only first-layer money.

It will benefit from atomic swap technology ("smart contract that allows for the trade between digital currencies without using a third-party exchange")