Calvin Ayre runs the cryptocurrency news site CoinGeek and is a long-time backer of Craig Wright and Bitcoin SV. CoinGeek presented a conference in London on February 20-21 that promoted advances from Bitcoin SV’s recently released Genesis protocol upgrade that established unlimited block sizes. Under the direction of Craig Wright, Chief Scientist of nChain, Bitcoin SV sees itself as a future global financial system based on the Bitcoin SV cryptocurrency and blockchain. George Gilder was the invited keynote speaker for the conference.
The highlight and capping event of the conference was a 45-minute fireside chat between Craig Wright and George Gilder. Jimmy Nguyen moderated the discussion. Before the panel with Wright, Gilder gave a 30-minute presentation on his view of the state of the global financial system and cryptocurrency and the blockchain’s role in it.
The panel between Wright and Gilder was a convergence of two great minds and futurists. This was their first public meeting, and their discussion was highly anticipated. You can view Gilder’s presentation at the 8:13:35 mark and the Wright Gilder panel at the 8:46:20 mark here.
The discussion got interesting when Jimmy Nguyen directed this question to Gilder.
JN: “Is there something about bitcoin that you always wondered about, or confused about, or wanted to clarify now that you have Craig sitting here?
GG: Well, why is it capped?
JN: (nervous laughter) You mean the 21 million supply.
CW: There are actually 2.1 quadrillion tokens. Now, it is actually a commodity token system. But if it was done to be not capped, then that becomes problematic over time. Where people go wrong is each of these tokens can then represent other things. So I can tokenize other assets using tokens. So in effect I can create many other forms of tradable currencies with that form of scarcity as the base. If I was to reset the amount of money, and I was able to track or trace all of this, there has to be at least some way of measuring what I’m going to change. And then I become a central bank. So the only way I could figure out to do this is to have a set amount of currency, a set amount of tokens. That is distributed in a set way. If I have a system that keeps changing the amount, then I have a system that effectively allows people to manipulate.
Wright is saying that bitcoin, as a token that can represent other tokens, can act as a unit of account and other tokens or currencies can be measured against it. A unit of account requires stability of value. A fixed supply bitcoin cannot act as a unit of account because its value is not stable. It is deflationary with expanded use. Its value changes with demand.
Gilder then follows up with a question that probes Wright’s fixed supply flaw.
GG: What happens if the entrepreneurs generate a demand for 162 times more money to fund their creations and inventions?
CW: What you’re missing is the number of tokens can be increased in velocity and use. So, using payment channels, then I can start effectively a near infinite number or transactions between individuals.
Wright gives an explanation about Nakamoto payment channels that is too dense to justify a transcript. In some part, it has to do with “the Nakamoto channel not secure because you can send out part of the transactions…that can go both ways…I can have an increase in an amount I’m paying but rather than a refund that becomes insecure, I can get tokens back…or even chain the token transactions until we secure the channel…with billions of transactions and exchanges…in channels and things.” Something like that.
Wright’s answer was so obtuse in content and context to the history and efficacy of monetary policy that during his answer, Gilder pulled a George Bush Sr and looked at his watch—as if observing the movement of time could provide him some relief from Wright’s impenetrable word labyrinth.
The answer to Gilder’s question is that the money supply has to increase relative to a monetary standard of reference during any economic expansion. If it doesn’t, it will result in deflation. A deflation, where a currency appreciates in value, causes debtors to owe more in real terms than they borrowed. This leads to loan defaults and economic contraction. The 1997-2001 U.S. dollar deflation caused the Asian financial crisis and the tech boom crash.
Gilder continues to question Wright’s fixed supply flaw.
GG: What happens to that…why doesn’t all the money hodl at the bottom layer. Why doesn’t it migrate to the bottom layer where you have this rigorous restriction on the number of total units.
CW: I have a number of units which are quite large, but each of those units can be differentiated in different ways. They’re a token. You can actually value an individual satoshi in different ways…So if you want to have a different money supply you can build something on top of bitcoin with all of the capabilities of bitcoins. Using bitcoin as the sort of commodity exchange layer and then decrease all these other things.
Wright returns to his bitcoin will act as a unit of account explanation. It won’t, and that is the problem that defines bitcoin.
The discussion then turns to Wright’s disagreement with Gilder’s advocacy for the benefit of ICOs before returning to a final significant monetary question.
JN: Anything you want to say in response George, I feel like you have something in particular to say?
GG: I’m still a little confused because of the hodl. If you create money as a commodity that people can prosper by holding, you nullify it as money. It can’t function as money.
Money is measured by its utility, not by its market cap. All this coin market cap stuff is really a delusion. And it confuses people. I think that it’s good that Satoshi version doesn’t have the market cap of ah….coin market cap of BTC or whatever. It’s ah…that’s a good sign.
You don’t want money to be a commodity or an asset, speculative asset. You want it to be a measuring stick. And that…I just hope that this industry understands this fundamental principle. Because if you create money that people want to hodl, you ah…contradict the whole purpose of the endeavor. You nullify your currency as money.
CW: I agree. What people fail to understand is it comes down to usage. Velocity needs to increase and usage needs to increase, and all these sort of arguments going you can’t do this with bitcoin, that would be wrong. You’re spamming the network. That’s why we have fees.
Gilder gets to the essence of the problem with Bitcoin. Bitcoin doesn’t act as a currency but rather a speculative asset. Wright agrees with Gilder’s hodl and market cap argument. What Wright doesn’t understand is that his fixed supply flaw defines bitcoin’s market cap by demand rather than utility. It also incentivizes hodling and prevents Bitcoin from achieving transactional adoption.
The discussion between Wright and Gilder is relevant to the future of cryptocurrency and the blockchain. Resolving Bitcoin’s flaw is essential to advancing cryptocurrency and the blockchain into an adoptive financial system. Hopefully, Wright and Gilder will have many more meetings.
Disclosure: I sent The State of Crypto, Gold, The Monetary Unit of Measure, The Protocol Layer, Cryptocurrency Market Valuation II, and Free Banking and Cryptocurrency to Gilder prior to the CoinGeek conference.