You can buy gold coins and bars easily in most parts of the world, but using them for day to day commerce is unfeasible.
No respectable businessman or woman has not served an apprenticeship at an investment bank or, if his employers are feeling exceptionally charitable, at a management consultancy.
And yet the industry’s influence is near-universally decried: “Main Street, not Wall Street,” is a common refrain from politicians of all stripes and all sides of all aisles, who, in some or other roundabout way, it turns out are being funded by hedge fund managers.
As a result, there are very few such banks, their political power as allegedly wholly private enterprises is perhaps unrivaled in the history of capitalism — or anything that can reasonably be called “capitalism” — and their regulatory capture is complete.
By a commercial revolution I understand a complete or drastic change in the methods of doing business or in the organization of business enterprise just as an industrial revolution means a complete change in the methods of production, for example, the introduction of power-driven machinery.
We might be so bold as to suggest it is the technology that will end the Industrial Revolution and bring about a second commercial revolution in its place.
In “Capitalism: History and Concepts,” N.
In going beyond the bounds of ordinary competition in reaching out to get from one another large masses of property in a way that disturbed the smooth operation of business, especially the working of the money market, they uncovered weak links in policy just as the industrial capitalists had disclosed weaknesses in their policies.
We find this observation to be remarkably astute and readily transferable to our predictions of the impact of Bitcoin on financial organization.
“De-financialization” is a better meme, and a point we will return to often in the remaining excerpts of this series: what follows is a prediction not of sweeping changes to everything but of gradated changes to all forms of social organization such that they return to whatever size is most natural.
Part of the wave of superior and essentially novel competition will involve a reduction of human processes to code and obsoleting many threats of violence with cryptography — but not all.
We caution the reader in general not to get overly excited about the prospects of “smart contracts” as somehow constituting omnipotent, floating code.
There will be nowhere to park idle bitcoin that transforms the maturity of the owned asset, contributes to capital formation and can promise, beyond all doubt, a given safe return … except, perhaps, the market-clearing rate for operating Lightning channels.
The “expense” is purely an opportunity cost, but for would-be lenders looking for a low, but guaranteed return, sinking capital in this way benefits the entire ecosystem; opening the channel involves a transaction fee that secures the mainchain, the payments layer is provided with extra liquidity and the “lender” gets a modest return for routing payments.
Cramming all the features of Lightning, Liquid, RGB, DLCs, RSK and so on, into the mainchain is not only probably technically impossible, but in a more conceptual sense — arguably an aesthetic sense — is just an obviously bad idea.
The mature view is that it compounds only the vulnerabilities; each functionality is primarily affected to the extent it has become more vulnerable, and utility dramatically decreases, both at the level of individual functionalities and the protocol as a whole.
We believe this general principle is not one of software engineering so much as engineering entirely in general, yet as elegantly applied to software.
Back in the realm of economics, we would argue that layered money is simply good social and institutional engineering.
The inverse proposition also appears to be true: A complex system designed from scratch never works and cannot be made to work.
Richard Goldthwaite describes in The Economy of Renaissance Florence that “one could draw on his credit by written order for transfer to a third party, and the transfer could be passed on to a fourth party and even on to others by mere book entry.” These “payment channels” were clearly private, and a final link to Lightning is to realize this assumed a kind of going concern.
On the supply side of the market, the weakness of these banks in attracting deposits was exposed by their failure to provide an outlet for the savings that began to accumulate in the hands of artisans and shopkeepers in the second half of the fifteenth century.
There will be a supply and demand of capital, liquid and illiquid, short term and long term, risk-seeking and risk-averse, financial and production, personal and professional, payment and settlement.
But for the curious reader, Perez’s short book — deemed by many a contemporary classic — provides a compelling theoretical overview of the shifting roles of production and financial capital central bank intervention in financial markets to its recent all-time high.
A natural complement to humbly constrained layering is openness: build one thing at a time but make it as simple and well-defined as possible to interact with what you have built externally.
In How the Internet Happened, Brian McCullough recalls how Marc Andreessen had essentially the above dispute with Tim Berners-Lee over the design of early web browsers.