60 minutes for a Bitcoin confirmation?...Do you realize that Bitcoin confirmations are actually 10 minutes, and that the biggest altcoin exchange currently (Poloniex) accepts deposits after a single BTC confirmation?
Ok. Lets examine the question of whether a 10 minute confirmation time is radically different from a 30 second one in the context of Dash’s pursuit of realtime confirmations allied with privacy on a pubic blockchain.
Summary - Money Needs to be seen to Function as Cash Before Serving as a Basis for CreditIf you can’t be bothered reading on, the point of this post is that the difference between a 30 second confirmation time and a 10 minute one establishes a cryptocurrency as “cash” as distinct from a "settlement layer". The
irony behind the concept of Bitcoin as a settlement layer is that historically any commodity (e.g gold) has to have demonstrated a strong role as a cash medium before being accepted as foundation for credit. For it to ignore that step is monetary suicide and consigns it to a cultural sector of mere museum-piece historical interest.
Further, that instant transactions, visibility and ultra fungibility are not just a question of convenience but one of fundamental identification by the pubic as belonging to a cash medium as opposed to a credit one.
Lets now consider the bitcoin blocksize debate, the Blockstream agenda, public vs hidden blockchains and the question of whether “trying to create electronic cash” has merit or not.
Two Pegged Currencies who’s Distinction now MattersI urge people to reflect on the two monetary paradigms that have existed since the dawn of man -
cash and
credit. What’s the difference ? In today’s world there is almost none which is why we need to revisit the concept and define it properly.
The significant attributes which distinguish these two media is that in the former case (
cash), we are exchanging a "money like good" as GMaxwell likes to call it, after which there is no further contractual obligation between either party since they each walk away from the transaction with a concluded trade.
In the case of
credit, however, all that is exchanged is a numerical bookkeeping entry. The bookkeeping entry only implies an exchange, it doesn’t actually facilitate it and a trusted party is required to endorse the bookkeeping movement, i.e. provide unconditional conversion of a bookkeeping balance into “cash”.
Credit transactions can be made very fast for two reasons:
1) -
Abstraction Since we're only transferring numbers from one 'account' to another, the notion of a transaction is abstracted away from any real interaction between the participating parties (For example, on a cryptocurrency exchange, you can swap one currency for another instantly without interacting with any of the blockchains, no matter if they are fast or slow)
2) -
Centralisation the transaction can be handled by a centralised, trusted third party (with cash, it cannot)
Those two points alone define the glaring chasm between credit money and cash. Even today, those distinct paradigms still exist because credit money only manifests in bank accounts. Note the word "accounts" - that tells you all you need to know, that it's nothing more than a number. Cash on the other hand is generally accepted to mean physically portable notes which do not involve a third party and are directly exchangeable for goods without the need for secondary bookkeeping entries.
What's the Practical Difference Between Credit and Cash ?
As AdamWhite has correctly pointed out, bitcoin can potentially "clear" in about 10 minutes. Compared to most clearing banks, that's pretty fast because most of them take hours or days to clear and that's why the world's financial markets are full of payment processors who jump ahead of them and only use banks as a so called "settlement layer". i.e. when you buy your cornflakes at the supermarket till, your bank account doesn't get impacted for hours because a payment processor is buffering the exchange by moving numbers around in computer memory to get you out of the store fast so that the next person can buy their cornflakes.
On the other hand, if you paid cash for your cornflakes a very different set of conditions arises:
[1] - there is no third party involved as far as you are concerned
[2] - the transaction is "instantaneous" in the sense that it doesn't require any clearing time, but it may take 1-2 minutes of 'practical time' once you find all the coins you need in your pocket, the till operator works out your change, gives you it, physically opens the drawer and denominates your payment into coin compartments etc
Bitcoin is Heading for the Credit Money Space and Dash for the Cash Money Space - Why ?
Bitcoin's original mission was to function as electronic cash. When I say "electronic cash", I don't just mean that in a loose definition of money, I mean in the strict definition that I defined above - i.e.
a) it performs the function on an electronic platform that gold did on a physical platform (didn’t need a third party superstructure to give it value)
b) a transaction you can walk away from
c) a transaction you can walk away from anonymously
However, after 6 years of life, bitcoin is rapidly throwing in the towel in this persuit. There are two reasons for that:
a) - a confirmation time of 10 minutes, though fast in the context of a "settlement layer" is useless as what's commonly perceived as a cash medium. (You can wait 30 seconds for your change but not 10 minutes. A payment processor is required)
b) - it has a major governance problem on its hands which has paralysed its ability to adapt quickly to its rising popularity and adoption
In the light of the above two points, bitcoin has only one option - to move its commercial interface from a monetary cash paradigm to a credit one. i.e. allow the blockchain to remain more or less static technologically while pushing all the technological load upstream onto "trusted third parties" who will provide the points of access for the public (that's your payment processors like Visa etc). What they hope for is that this in turn will engender value in the underlying crypto.
How realistic is this Proposal ?I don't think there's much controversy about what I've described above. If there was, Blockstream would not be working on sidechains, the Lightning network etc. The controversy surrounds the question of bitcoin's viability as a "monetary base" under such conditions while it doesn't even function widely as cash. I have a couple of things to say about that - both favourable for bitcoin and unfavourable:
In the physical world, the ability of a monetary base to function as cash is fairly fundamental. "Instantaneity" is integral to that. A bar of gold can be exchanged in an instant. A coin can be exchanged in an instant (subject to the practical delays I outlined above, like reaching into your pocket). There is no form of cash that mankind has ever invented that is not instantaneous in the sense that it is visible
while the other guy has it, visible
while it changes hands and visible
once you have it.
Here’s what Dash is trying to do”
As for bitcoin, a 10 minute confirmation time is characteristic of
credit money, not cash money (due to the need for payment processors to make it work practically as cash). Reflecting on that fact, gold was cash money and bitcoin was fashioned after gold. For bitcoin to function as a "settlement layer" it should first have to prove itself as a cash medium as gold did for centuries.
It has not done that to date with any significant level of adoption. Meanwhile, the network is running out of transactional bandwidth. The Bitcoin developers are hoping therefore that they can jump straight to the credit paradigm without "passing go”. If dispassionate monetary analytics have anything to say about this, the approach will not succeed. It may succeed on other grounds (e.g. that people are just so used to credit money by now that they accept it) but then it will have to inherit the legacy of the very financial system that it purports to replace. It will never acquire a monetary identity - nor value - independently of the payment processors who support it.
Here’s what bitcoin (post throwing in the towel on becoming "cash") is now trying to do:
(
Translation: Visa bought an implementation of Blockstream's 'Lightning Network", marketed it, when the whole financial system collapsed confidence in bitcoin sunk with it because it was never seen as cash, Visa fronted it).
Why is it Important for a Crypto to Work as Cash ?In the sense of an immediately tradeable medium, free of counterparties, gold is cash. Grain is cash. Oil is cash and coal is cash. By the definitions above, even "guvpaper" is cash. The only reason people accept credit money (numbers in their account) is because they think it’s convertible to cash which they recognise by virtue of having experience of transacting with it directly. If bitcoin skips this phase by targeting credit money as its main market, it will never achieve a valuation thats independent of the banking and payment networks that front it.
The objective that the Dash project has set itself - to function as optimal electronic cash - is therefore absolutely consistent with the centuries old legacy of value bearing media. It is also consistent with ultimately functioning as a far more viable "settlement layer" than bitcoin due to the high priority it places on monetary independence. Bitcoin is just hoping to hell that that Visa will save its skin by acquiring an implementation of the Lightning network.
What is the Worst Case Scenario for Dash ?Even if bitcoin were to succeed in its leap of faith and established itself as a basis for credit without ever having functioned significantly as a cash medium, we can still estimate what Dash’s potential marketcap would be if it only aspired to capturing the cash market and not the credit one. (As an example, if any cryptocurrency were to acquire only half a percent of the cash market in a single small country
such as the UK, it would need a market cap of 30-40 times that of Dash, including ALL masternode collateral).
Crypto-economy PoliticsCan you see how everything is starting to shape up ?
The community is polarising into two camps.
(a) Those who attempt to reconcile electronic money with universal physical money and
(b) Those who see money as a bookkeeping exercise. There are two key ways to tell which people are which:
[1] - the "bookkeeping" people always use personal pronouns when referring to blockchain addresses (which is about as realistic in monetary terms as expecting a gold nugget to emerge out of the ground with somebody’s name on it. If you don't see any distinction there then you're in the 'numbers is money camp')
[2] - the "bookkeeping" people value
privacy over
monetary value. Any sane analysis of history shows that privacy only becomes an issue once monetary value is established. The public blockchain is fundamental to this because simply, the more exposure something has the more valuable it is. Monetarily, the only property that can reconcile these two apparently conflicting priorities is maximum fungibility in full public view - i.e. the cash paradigm. (The credit paradigm being a record keeping one, out of the public view)
In conclusion, I see bitcoin and its supporters increasingly in the 'we are credit money' camp. The clamour for cryptocurrency superstructures such as payment channels and sidechains is becoming deafening. Those in the bitcoin 'inner circle' attempting to resist the clamour, such as Gavin and Mike Hearn are increasingly in a minority. The rest are going to have their way it appears, many of whom are people with scant regard for monetary history or for seeing bitcoin prevail as an independent cash medium.
The fact that they thought they could skip that step will come back to haunt them for years to come IMO and may even arrest bitcoin's ascendancy to universal acceptance as a fundamental store of value.
