Many talks about “So-Called Stablecoins” or CBDC and refer to them as Fiat money.
How stable are these coins actually and what if you look at a longer period of time.
Most people would of course not want to lose money when they have worked hard and earned money, so you would assume to put them in a “So-Called Stablecoin”.
There is more to the story, because inflation, think monetary inflation.
Fed was born
President Woodrow Wilson signed the Federal Reserve Act in December 1913, culminating three years of discussion and debate over the development of a central bank.
The goal of FED as the most important institution currently in the world is: The Federal Reserve works to promote a strong U.S. economy. Specifically, the Congress has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates
Let´s look at numbers
Let me know how much money you have would have got if you placed 100 USD in the bank in 1914? Yes you are correct, you would probably have 100 USD if the bank did not collapse, but the money would be worth way less. This is because of the purchasing power(CPI) of the money.
NB: I will not go deeper into the controversy about CPI –> COGI vs COLI + BLS vs Ranson Vs Williams.
So, $100 in 1914 would have a purchasing power of $3,051.09 today.
Prices have increased $3,051.09 – $100 = $2,951.09 USD = 2,951.09% or 29.51 times over the last 109 years.
Let´s recalculate according to the original question. If you placed $100 in the bank in 1914, how would your purchasing power be today compared to then?
$100 / 3051.09 * 100 = $3.28 = 3.28% of the original value.
This shows how bad an investment it is to put your hard-earned money into a “So-Called Stablecoin”.
Remember that in a fiat economy where money is created by taking out new loans, the debt obligations will exceed the total amount of money in circulation. The problem can only be solved by pressing up more. The USD and other currencies working in fiat economies will therefore be diluted until they no longer have much value.
What about other central banks and their value preservation?
NB: I have calculated from 1900 (Index) and not 1914 like in the US, but it follows the same pattern.
DKK100 in 1900 would have a purchasing power of DKK7,819 in 2022.
Prices have increased DKK7,819-DKK100 = DKK7,719 USD = 7,719% or 77.19 times over the last 122 years.
Let´s recalculate according to the original question. If you placed DKK100 in the bank in 1900, how would your purchasing power be today compared to then?
DKK100 / 7819 * 100 = DKK1.279 = 1.279% of the original value.
All Fiat currency (So-Called Stablecoins) follow the same example.
Maybe try to compare the stock market (S&P 500 or Dow Jones industrial etc) or gold, silver market to the inflation in fiat money. You will maybe be surprised of some of the things you find and how clever capital move to other areas than fiat currency to preserve value. You will maybe also be surprised of how little the stock market since 1914 actually have moved if you adjust for inflation.
Conclusion
Fiat money has unlimited supply, it is not really backed by anything and it´s centrally controlled.
By having your money in a “So-Called stablecoin”, with time you will get your money eating up by inflation.
The US dollar is still controlling the world (dominant global reserve currency), but as a friend said: “The US Dollar is the cleanest shirt in the Dirty Politican Laundry”.
What governments are looking at, at the moment is how to implement features in their CBDC designs that can trick transactions, create illusions and for them make useful transferring technologies.
This is not optimal for the users of a CBDC if numbers are hidden away, the databases are closed and big amounts of user data are directly captured by states/Central banks.
Currently states/Central banks work closely with banks to send hidden transactions for funding of secret purposes the government wants. Earlier big amounts of cash were also often seen, but this is declining since it´s harder to use in many parts of the world.
If a bank/banks of a country have problems (systemic / G-SIBs) the government of the country (+sometimes other countries/banks with no interest in a collapse) will often bail them out in some way to first of all save themselves and their interests.
Three out of many reasons why Bitcoin is such an important concept is the openness/transparency directly on chain and that the monetary policy is predetermined. Especially the open ledger (Triple-Entry accounting system) and the decentralized nature of participating via mining and validating to ensure solving the issue of potential double-spending is very important in the long run for people worldwide. Nobody can freeze your money.
Of course, it will still be possible to make tricks with BTC and send them around to different wallets, buy/sell over the counter, use a mixer, use an unregulated exchange but the transactions can still be tracked back and seen – also when you use Lightning Network. Different firms are actively red-marking wallets that have stolen BTC via scams like Phishing, Ransomware, Blackmail, Sextortion, Impersonation, Fake returns, Contract exploits and other hacks.
What can be done with CBDCs?
The thing is that governments do different things to obscure their transactions and one of the biggest things is to donate to institutions in the partnerships they support, then the institutions will send the money via different routes and suddenly a country have access to a product (raw materials, weapons, medicine etc.).
Often Central banks who are lenders-of-last-resort will introduce swap lines and favor countries which holds a bigger share of their assets and/or are political aligned. So in the next years you will be able to see how many closed sourced CBDCs will get entangled and directly swapped – Will it be possible to watch these transaction real-time? I personally heavily doubt it.
Governments also buy votes by creating money “out of the thin of the air” and send it to people. This is often seen when governments wants to buy different voter groups or under Covid-19 where many people were handed government checks to keep their moral high during the pandemic/monetary inflation.
Governments also have connections to banks and will probably use some of their stable coins to obscure transaction later, but they actually don´t need this step since the CBDCs are in closed database aka closed sourced systems and only validated by the Central Bank itself.
Remember that governments will decide what terrorist financing is via labeling, so a country can send money to an institution/country today change the label so it becomes a terrorist institution/country tomorrow, and if you send money the day after you now support terrorists or your account is simple frozen.
Maybe take a look into some of these areas: Cash-intensive businesses, Structuring, Bulk-cash smuggling, Shell companies and trusts, Round-tripping, Trade-based laundering, black salaries, assigning life insurance policies or real estate.
Money laundering
Money laundering by states/countries normally follows three steps: Placement, layering and integration.
1: Create money by pressing a key in a Central Bank (central bank reserves/wholesale CBDC) introduce it to the “legitimate financial system”. Remember it´s almost free for a Central Bank to create new money since there is no process of Proof of Work (PoW) like under the Bitcoin or gold standard.
2: Move the money to create confusion – Wire or transfer the money through various accounts. Since the accounts often are using a closed sourced system, the public cannot follow the process (no real-time audit), but needs to trust what the state/government states they have been doing.
3: Integrate the money by making more transactions that seem legal, so the worthless “often newly created” money seems clean and integrated.
Trust Mathematics because Mathematics don’t lie
So, governments will probably not make money open and traceable with their new CBDC solutions even though it is very easy to do. Another bad thing about CBDC is the heavy monetary inflation that lenders of last resorts put on their users with their enormous debt creation (What is MMT?).
Following the money will get easier with public BTC and harder with private CBDC.
I currently don´t see any CBDC explorers, but I see many Bitcoin explorers (real-time audits) where I can follow blocks, transactions, fees, addresses, balances, OP-Return data and different protocol data.
A sound monetary system with Bitcoin will be a good thing for other sectors since trust and accountability are the root of Money and what financial sector/services handle for other sectors in an economy. If you cannot trust the root, you cannot trust the economy in a country/region/company.
Extra
Different countries are currently looking at the implications of Non-scattering, cloaking and broken symmetry via metamaterials – Why? Because Quantum radars can detect more than normal radars. Metamaterials will improve many things like your lens in your mobile phone or drone, but also many other areas will meet metamaterials sooner or later.
How often to governments audit their gold reserves and where do I find these audits? Bitcoin addresses and transactions are easy to audit.
Let´s take a look at some of the big institutions.
Here you can have a deeper look at the process for the BlackRock ETF.
Here is a new article about six BTC spot ETF proposals for review.
Here are some pics of the current ETF in US (May)
Here is a figure from another place:
There has been a long history of trying to make a Bitcoin spot ETF in the US, but it´s still not done.
Here is an old list of some of the old listings with the SEC.
Remember that it is possible to own your BTC by yourself and not through an ETF or fund. It might be easier for tax purposes etc. but you are not in control, your custodial is.
It´s not hard to setup a BTC wallet.
When you start buying and hodling Bitcoin it might be a good idea to get a dual wallet setup.
This means you will have a hot wallet and a cold wallet.
A hot wallet is a wallet where you store the BTC you want to use for buying a coffee or a flight trip, where your cold wallet is for bigger amounts that you want to protect more safely.
Today (July 20, 2023) the Federal Reserve (USA) launched FEDNOW an instant account-to-account payments rail. This is what some call an account-based CBDC. A token-based model is not in play yet by the FED. The Stablecoin Tether offer a token-based solution with their USDT token pegged to the US Dollar.
TCHs (The Clearing House) RTPs (Real time payment) went live in 2017 six years ago and is pretty much the same as FEDNOW, other than they have implemented a token-based CBDC solution inside it´s account-based system – read here.
Now there are two RTP rails in USA from the state.
Bitcoin has been live in USA and all around the world as a RTP rail since January 2009.
There are some differences between CBDCs and the projects currently live around the world.
Here is a figure of some of the designs.
Figure 1
The FEDNOW project is a Hybrid CBDC. The FEDNOW system and the Reserve Banks will provide access to intraday credit (Wholesale CBDC) to participants of the FedNow Service during the Federal Reserve’s normal operating hours, and a liquidity-management tool to help participating financial institutions conduct interbank transfers during hours when the Federal Reserve’s normal liquidity services are not open (e.g., on weekends). Early adopters of the system can be seen here.
Other countries have different other takes on CBDCs as Figure 1 also show + countries use different cryptography, some use Quantum resistant systems others not, some want more privacy via ZKP and some use token-based systems implemented in account-based systems(like TCH) and some token-based systems etc.
Alternatives in US
Right now, are there a few alternatives to FEDNOW and TCH with same instant transaction functionality in the US. This is Bitcoin (BTC), BTC via Lightning Network, Tether (USDT), CashApp, Paypal (Paypal and Cashapp don´t use interbank networks), Venmo and Card providers like Mastercard and VISA.
It will be interesting to see what will happen and if this account-based CBDC system will end up to tax, surveil and control the American people.
Figure 2
Remember: Any financial institutions with access to U.S. instant payment systems or stablecoin service providers operating in the United States would be generally subject to U.S. AML/CFT obligations. Stablecoins are generally not distinct from other digital assets, and financial institutions offering services in stablecoins in the United States are subject to the same AML/CFT regulatory and supervisory framework as financial institutions providing the same services with other financial instruments. Check out the U.S. Department of the Treasury Report on the Future of money and payments from September 2022.
Extra
It´s is still hard to see how much e-CNY there actually are in circulation since China´s PBC, the last seven months have stated the same thing, only giving the December number, but with all their initiatives, shouldn´t the circulating supply not suppose to increase?
BTW: How do you think this will help American citizens to faster onboard to BTC and will this increase adoption? Today (07202023) BTC has dipped around a 1% to 29.700 USD.
The world has a long history of minting coins. To exactly point out when it started is hard, but history tells that it happened in Lydia with dates ranging from 700-550 BC.
The idea of doing monetary transactions with coins was a huge move from silver rings and before that bartering.
These coins depicted the heads of gods and goddesses on the front side (observe), while the back side (reverse) showed animals, natural resources, symbols and references to historical events.
A big change happened under Julius Ceasar in 44 BC, when he started minting coins with his own portrait on the front side of the coin and his accomplishments or aspirations on the back side – figures and text is seen on the coins.
Since then, profile portraits with rulers, heroes and members of royal families been normal throughout the world.
The process of minting these coins were not easy, and engravers carved the small portraits into bronze dies, with one for the front and another for the back. The coins were then struck, one by one in a process similar to the one seen today.
The medium was often gold, silver or copper. Today some people with interest in numismatics put a big effort in collecting these often very expensive coins because of their history.
Bitcoin was born
Including metadata onto BTC (Bitcoin transactions) is not a new idea and was probably inspired by Hal Finney´s “Crypto trading cards” post back in 1993.
As you´ve probably now – Satoshi Nakamoto in 2008 proposed the Bitcoin whitepaper. He focused on the main problem to solve, namely making a decentralized peer-to-peer electronic cash system using the Proof of Work based Nakamoto consensus. In 2009 the protocol was ready, and Satoshi Nakamoto started minting the new sound currency with the help of computers and electricity.
Text messages have been embedded into blocks on the Bitcoin protocol, like the first message from Satoshi Nakamoto in 2009 – “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” via coinbase data.
Text messages and metadata onto BTC
Like Satoshi did back in 2009 many have put text messages (“hidden messages”) onto BTC.
A nice paper from 2017, described the different methods to insert data into the Bitcoin blockchain, remember it´s 6 years old. The standards scripts described includes Pay-to-Public-Key (P2PK), Pay-to-Public-Key-Hash (P2PKH), Multi-Signature, Pay-to-ScriptHash (P2SH), and OP_RETURN.
It´s also possible to insert data via coinbase (like Satoshi Nakamoto did), P2FKH, P2FK, P2FMS.
It´s possible to do in different ways, one is to write it via Bitcoin Core and convert a text message into a hex format. A guide can be seen here. Or use Electrum (A BTC wallet). Actually, a service was provided by Eternitywall, so it was easier for people to do.
Another site called Bitcoinstrings have specialized in finding these text messages.
Another site built by Przemysław Rodwald has also looked into these messages, see the picture below.
A paper on OP_RETURN meta data was released in 2017.
In 2012, colored coins (layer 1 protocol) introduced the idea of digital assets on Bitcoin. The first working Colored Coin protocol was released in 2013. In 2014 OP_RETURN changed and changed the structure of how many used colored coins.
In 2012 the idea of Mastercoin (layer 2 protocol with native token) was born (first ICO – 2013) which allowed the creation, buying and selling of digital assets (USDT) powered by the MSC token (later Omni).
In 2014 Counterparty (layer 2 protocol with native token) allowed the creation, buying and selling of digital assets and NFTs powered by the XCP token. Here the first gaming NFTs with SoG and FDCARD (2015) were issued and later the Rare Pepe (2016).
Blockstream (Layer 2 – Sidechain) have implemented NFTs (Raretoshi and AMP assets on Liquid Network).
Stacks (layer 2 protocol with native token) have implemented NFTs.
It´s worth mentioning that Lightning Network the great Layer 2 protocol running on Bitcoin, is also coming with solutions for making digital assets on Bitcoin. Keep an eye on Taro and RGB, where you also are able to mint NFTs.
Another solution is Drivechain and their sidechains solutions. The BIP 300/301 is super interesting.
It´s worth noting that metadata is not only about NFTs, but all kinds of scripts and not only “Lenna” images. Another “fun” thing is that you actually can play Doom on Bitcoin now. You can use Bisq (decentralized exchange) build upon the tech of colored coins and much more.
Metadata on other chains than BTC
The first ever “NFT” was minted on Namecoin a fork of Bitcoin (aka first altcoin) back in 2011. This was a domain (d/bitcoin.bit) released on 2011-04-21. Later Punnycodes, ASCII Art and many other NFTs were issued on Namecoin.
Some consider the first “NFT Art” to be the piece called Quantum (2014).
Later on, other blockchains like the altcoins: Ethereum, BNB, Cardano etc. have implemented NFTs.
NB: These altcoins have nothing to do with metadata on BTC.
Ordinals and inscriptions on Satoshis
Inscriptions on the “Magic Cable/Radio wave money” have become real because of the introduction of the Segregated Witness in 2017 and Taproot implementation in November 2021, which made it possible to make Ordinals (Layer 1 protocol) in January 2023.
Casey Rodarmor did the first inscription, using Ordinals (Off chain by purpose-built external indexer), via a sat (satoshi, aka smallest unit of Bitcoin) showing a black and white skull back in 2022.
The timestamp can be seen here: 2022-12-14 20:32:00 UTC
A few days later second inscription happened with Inscription 1.
Inscriptions was released to the Bitcoin mainnet (to the public) on January 21, 2023 – 36 days after the first inscription.
Today (2023-05-16) everybody is able to inscribe their own picture/digital content on a Satoshi and already +7,200,000 inscriptions have been released. Note you can only inscribe with the need of an external indexer, read more here.
Only the future can tell which kinds of art of with accomplishments and/or aspirations will be inscribed on sats via Ordinals.
Right now, you can inscribe via Ordinals: Images, GIFs, Text, Videos, Audio, HTML, SVGs and 3D.
A new token standard called BRC-20 has launched (2023-03-08). This experimental fungible token leverage JSON data in the form of Ordinal inscriptions.
The future of NFTs and metadata on the Bitcoin protocol
Like Julius Ceasar started to place his head on coins people can now do it on satoshis, but it comes at a cost. The block size in the Bitcoin protocol is limited to 4 megabyte and the Bitcoin protocol can get clogged if everybody starts minting their pictures etc., directly on the Bitcoin protocol.
So, the Ordinals protocol might become a problem, since the pieces of data takes space and make the most important transactions namely the financial transactions, have to wait to become processed.
On the date 2023-04-22 a block (786,501) was made containing 3,978,938 bytes.
Another problem is that your inscriptions can get purged in the mempool if the fee is set to low. Normally you would get your money back if a financial transaction get purged in the mempool or you would be able to use RBF or CPFP. So ordinals wallets need to implement this feature.
It´s hard to tell what idea is the best to handle this problem, which might become bigger, but I am sure that the people in the Bitcoin space have a wise understanding heart to judge between the good and the bad!
Satoshi Nakamoto proposed a decentralized peer-to-peer electronic cash system and this is still very, very important in a world with increasing piles of debt and political interest in money creation.
A sound monetary system is here with Bitcoin!
Long live humanity and remember to level up for survival!
