Blockchain vs Fiat: A Confrontation of Ages

Blockchain vs Fiat: A Confrontation of Ages

12/8/16 9:08 AM 2016-12-08 09:08:02
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of BlockgeeksA fresh look at the difference bet

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Blockgeeks

A fresh look at the difference between monetary systems and convergence possibilities


Blockchain vs Fiat: A Confrontation of Ages

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Here’s some new interesting contradictions and misunderstandings we have learned there. That really added to our perception of the fiat-blockchain difference, and we would like to share that with you.

Ordinary Miracles

Dealing with something familiar, one is hardly expected to change her basic understanding of the matter. Fiat money as they are today can not be perceived correctly at the conventional level of thinking; there’s no “intuitive” mind gate there. Fiat is not simple. It cannot be described without care in the use of the terms. Once we clearly define the concepts and start using them in a formally correct way, it turns out that fiat is an unnatural and pathological thing. However, it is important to realize that the only way of thinking about money that currently exists in the banking reality is terms of fiat.

Entrepreneurs who move towards fiat-associated services from a blockchain/bitcoin background base their thought pattern on experience with Bitcoin and Ethereum. They perform a very clear and correct technological thinking about payments. But at the same time, highly inappropriate thinking.

Blockchainers address a bank with something like this: “Here are your tokens, they are like cash “traveling” from point A to point B and further to point C in a reliable, convenient and extremely inexpensive way. Glue some value to these tokens by backing the promise with some reserves or your reputable name. Then, Profit!”



Blockchain vs Fiat: A Confrontation of Ages

Why do they always miss?

Here is why: the diagram above shows the single quantum (the minimum existing element) of money. Perhaps we should note that we consider a quantum in payments context, so we don’t talk of some abstract static investment penny. The rest should be self-explanatory: there are at least five participants, located on at least three levels. If you think in bitcoiner terms, each “coin” dies on the settlement level with a clone being sent to the payee.

So, what’s the main point? There is no transfer from A to B at all ever! The only exception is paper cash. But the key words here are “THE only exception.” It is impossible to make “new cash” or “crypto cash.” Inside a banking brain, “just like cash” has no meaning. Payments could be different. There could be hundreds of variations of the above scheme, and they are, with infinite complications but with no simplifications ever. It is impossible to “cash” if it’s not actually cash.

Here’s another important thing. Not only there is no such thing as a direct transmission from payer A to payee B, but also, there is no money in existence to consider unless the full set of participants is in place and watching. No observers, no money. That’s really a time to recall Schrodinger and his cat! This phenomenon is not even seriously considered in the blockchain community. Also, we should mention some weak echoes of that in the rhetoric of the “trust-less-ness” (the absence of a need for authority who is trusted by all parties to the deal). We now see that the phenomenon occurs on a much deeper fundamental level.

Last but not least: at each stage, a live system of communication and the format of the messages (clearing) are present. They also constitute the money being an integral part of its quantum. One can’t just replace or tune any component. When we talk [fiat] money, it is not the law that follows but the technology, always being behind the law. The inalienability of the communication system entails the aspect of size. In fiat, different sizes of payments mean different networks. Those networks have substantial fundamental differences not only in accessibility of institutions participating but also in many purely technological senses. In the United States, for example, there are many levels of intermediary bodies and networks, such as Fedwire Funds Service, Clearing House Interbank Payments System, the Automated Clearing House, and others. Systems of the different levels are not directly compatible.

It turns out that big money, smaller money, and small money—are all different things of different nature. Making it even less natural, even within the same category, different countries host both incompatible and structurally different system of fundamentally different accessibility class. The table below shows the distribution of participants of various payment networks with an average number of the operations they perform. The difference amounts to hundred folds. From a blockchainer’s point of view, it’s an absurdity and inconvenience. Should a technologist prepare a framework for mice in one country, bringing it elsewhere to only find stegosaurus and no mice?


Blockchain vs Fiat: A Confrontation of Ages

Source: Michael Tompkins, Bank of Canada, data from Committee on Payments and Market Infrastructures (CPMI), Statistics on Payment, Clearing and Settlement Systems in CPMI Countries, BIS, September 2015.

How miserable would an entrepreneur selling “assets-over-blockchain” to a bank appear as he starts his “pitch” with “p2p transfer of independently existing tokens”. A five words phrase containing three non-existent phenomena. Adding a psychological error to the terminology, one expresses the puzzlement of bankers lacking enthusiasm. Apparently, this is due to an incomplete understanding of the new technology, he thinks. No, it isn’t. The fact is that the above described inner fiat meanings are embedded and imprinted into bankers’ native thinking. A banker hears the story, comprehends an extremely broken—up to the illegibility of the message—language but still, no clear explanation comes to his mind.

How else should we explain to ourselves that the maximum success of fiat-over-blockchain projects over these years are the marginal examples of

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