In his guest commentary, Pascal Hügli takes on the “Dogefather” and Tesla boss Elon Musk.
Elon Musk recently spoke again about Bitcoin. After his erratic actions of the past few months, the tech visionary no longer had really big credit among the Bitcoiners. At the recently held B-Word conference, star investor Cathie Wood and Twitter CEO Jack Dorsey have once again given him a stage. So even though the Bitcoin community had already written him off, one could hope that the richest man on earth would rehabilitate himself with smart statements about Bitcoin.
What was touted as “The Talk” in the run-up to the event turned out to be an undisputed discussion with little added value. In an egocentric manner, Musk once again talked about himself and his investment – in addition to Bitcoin, he would also own Ether and of course Dogecoin. The Tesla founder confirmed once and for all an assumption that one could already have guessed that it was true: like many of his kind, the tech visionary still misunderstands Bitcoin.
As he did during the Online conversation claiming of himself, he would have thought a lot about money. However, if you listen carefully to the Silicon Valley entrepreneur, you will notice that it is not money that has given him a lot of thought, but payment systems. As a founding member of PayPal, that goes without saying.
Elon Musk’s fundamental misunderstanding
However, there is a crucial one between money and payment systems difference. Money, especially in its fundamental form as base money, is the basis of all economic activity. Payment systems, on the other hand, are scaling solutions that make this money operational. Bitcoin is primarily to be seen as new, alternative (basic) money. The Bitcoin blockchain is designed so “inefficiently” and cannot be scaled arbitrarily, as Musk postulates time and again using the example of Dogecoin, so that the qualities and guarantees of Bitcoins as decentralized, censorship-resistant, tamper-proof and for everyone accessible money receive the best possible stay.
The technological substructure of Bitcoins is ultimately a means to an end and is subordinate to Bitcoin’s function as new alternative (basic) money. Compared to many other cryptos, which are “tech first” for their part, Bitcoin is “money first”. Anyone who puts on these money glasses also understands why Bitcoin is not outdated technology or the Myspace of the crypto world.
One follows the other
When Musk assesses Bitcoin today, he is primarily looking at Bitcoin through the lens of a payment system. That’s not wrong, but he’s just got it the wrong way round. Bitcoin initially wants to be solid money in its essence. The lowercase letter b is often used in English for this basic function of bitcoins.
Bitcoin the network – marked with a capital letter in English – is of course inextricably linked with Bitcoin to money, but the scaling of the Bitcoin network to a global payment network is downstream of money. The progressive monetization of the base layer, also known as the mainchain, seals the establishment of Bitcoin as money. The Bitcoin blockchain serves this (basic) money as the basic settlement infrastructure. The following applies at this level: Money first!
The question that justifiably arises: does innovative technology play no role at all with Bitcoin? Will Bitcoin always simply remain censorship-resistant, non-inflationable and tamper-proof money that does not scale? That gives the answer to that question Lightning network, an additional protocol for sending Bitcoin. Bitcoin units in the form of SATSthat are sent via the Lightning network live up to the network name. The whole thing is as quick as lightning.
This technological upgrade makes Bitcoin technically fit for the payment function. For a few weeks now experienced this Bitcoin network experienced a significant growth spurt. Lightning brings Bitcoin to the masses because it creates concrete use cases that solve real problems. At Insight DeFi, we’re already looking forward to being able to report on it practically in the future.
Payment system without volatility
The criticism of the whole thing is often: How should Bitcoin with its price volatility be able to assert itself as a means of payment? Here, too, the answer is clear: he doesn’t have to. Bitcoin is intended to function as a means of payment without having to be a means of payment. How is that supposed to work? The Lightning Network enables dozens of payment options without necessarily having to rely on Bitcoin as an asset. Payments in all possible national currencies can be processed via the Lightning network without being exposed to the price volatility of Bitcoin.
State fiat currencies of any kind can be exchanged for Bitcoin. The Bitcoin units (SATS) used for this are sent directly to the recipient around the globe via the Lightning network in no time at all. The steadily growing financial liquidity of Bitcoin ensures that the cryptocurrency can be exchanged for the corresponding fiat currency at the recipient’s location. Exchange rate fluctuations are irrelevant because the overall process is almost instantaneous. The innovation, the cost savings and the “convenience” are huge.
Read the original text – but do it correctly!
Bitcoin is money and payment network at the same time. Both have incredible potential and are mutually reinforcing. The latter inevitably follows the former. This so important nuance was already clear to the anonymous founder of Bitcoins, which is why he chose the terms in his white paper with care. Satoshi Nakamoto described Bitcoin as an electronic cash system – a subtlety that has unfortunately been overlooked by many.
Viewed retrospectively, he should have emphasized the term cash, as it has a very specific meaning within monetary theory: Since cash is defined as base money, it typically refers to a base money value of a settlement infrastructure.
Nakamoto also had this intention of introducing the Bitcoin blockchain as a basic settlement infrastructure for a blockchain-native base money. From the beginning, Bitcoin was intended as (basic) money, which, as development progressed, would also be supplemented by a payment network such as PayPal and Visa. The innovation over traditional systems is that while gold is base money, it has no inherent payment network. Payment systems such as PayPal and Visa, on the other hand, have no inherent base money and are therefore dependent on fiat currencies such as the US dollar.
Bitcoin offers a synthesis here that combines the best of both worlds. A (base) money on which a seamless payment network is created that only exists for the purpose of scaling Bitcoin. Not least because of this, Bitcoin is also called super gold by some clever minds consideredmoving within the trajectories of an unstoppable PayPal network.
About the author
Pascal Hügli is Head of Research for the asset manager Schlossberg & Co. He is also involved as a moderator, debater and lecturer at the HWZ. With his new newsletter Insight DeFi he would like to inform the broad masses competently and concisely about the events and opportunities of the new decentralized world of Bitcoin and Co. He is also the author of Ignore at your own risk: The new decentralized world of Bitcoin and Blockchain.