The idea and subtext of Satoshi Nakamoto's challenge to give businesses a means of bankless online payments spread along with interest in Bitcoin, captivating many people. So the mission of Bitcoin exists not only on the paper of the manifesto, but lives in ideas and excites the minds of different people. Many of which in recent years, perhaps the question "What went wrong?"
In 2020, you can no longer guess - all the answers are long before your eyes, it's time to sum up and sort out mistakes. The mission of Bitcoin is well suited for this as a starting point and benchmark, in the context of which it is clearly seen that what was expected did not come true, what happened unexpectedly.
Bitcoin's mission can be summed up in two quotes and one inference: problem, solution, and expected outcome based on the first two.
- : «Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments.»
- : . «A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.»
- : , Bitcoin p2p- , - «trusted third parties».
Reality: zero result. To the evil of Satoshi, the situation in e-commerce, it seems, simply has not changed and did not notice the appearance of Bitcoin. Over the 12 years since its invention, Bitcoin has managed to be a technological phenomenon, a speculative phenomenon and find its niche as a means of payment, however, the problem formulated in 2008 exactly corresponds to the state of affairs in 2020: “Commerce on the Internet rely almost exclusively on financial institutions to process electronic payments. "
Yes, Bitcoin has grown into a large market with a capitalization of ~ $ 360 billion, and is completing its first decade in the global economy with a new all-time high in value in December 2020, breaking the record in December 2017. However, global e-commerce has grown even more, reaching $ 9.09 trillion in 2019and expected more than $ 10 trillion in 2020. The entire capitalization of Bitcoin is at the level of a small share of global e-commerce turnover. At the same time, the world of cryptocurrencies exists outside of online commerce, developing in isolation, and the scale of their possible intersections fits into the almost exclusively clause.
As in ordinary money, in the nature of Bitcoin there are two conflicting functions: a means of payment (universal equivalent) and a means of accumulation (an investment instrument). In this context, expectations and reality are completely reversed: Bitcoin's task was to solve the problem of payments and succeed as a means of payment, but it succeeded as an investment vehicle. Each new boom in Bitcoin (we are always talking about another rise in the rate) is a reminder of its speculative success. And as a means of payment, on the contrary: in ten years, it has not come one step closer to means of payment in Internet commerce, and has not succeeded anywhere outside the gray and black markets.
Satoshi's mistake
Having identified the problem (financial institutions serving as trusted third parties to process electronic payments), Satoshi proceeded to criticize it.
While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model.
According to Satoshi Nakamoto, all the shortcomings of such a model can be combined into the general category “human factor”.
Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for nonreversible services. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party.
As part of the problem, the "human factor" becomes a condition of the technical task: the creation of a digital payment system with a built-in mechanism for neutralizing the human factor. An unusual condition predetermined, to put it mildly, an unusual decision. This is how the blockchain appeared - a decentralized distributed network of direct peer-to-peer transactions with all its know-how protecting it from falling under the control of one side.
Among cryptocurrency enthusiasts, there is a widespread idea of ​​the primacy of technology - that is, blockchain, and cryptocurrencies, they say, is mundane, blockchain can do more - how do you like smart contracts, for example? And as a means of payment, cryptocurrencies are, first of all, a payment system (blockchain), and only secondly, money. In practice, success has come to Bitcoin of the kind that often happens with solutions that are well thought out on the one hand (in this case, technical): it turned out to be in demand for use in a different way than it was intended. This is much better than the usual fate of unilaterally thought out decisions - they are not used at all.
Starting from the very first, all the leaps of interest in Bitcoin, when interest in it multiplied, were caused by news feeds of an exclusively “monetary” nature. And the interest has always been, first of all, of a speculative nature: that Bitcoin is becoming more expensive, it can be bought or mined now in order to sell it at a much higher price later. Despite the many blockchain enthusiasts, in the battle of chicken and egg, cryptocurrencies (money) have unconditionally defeated blockchain (payment system). And in the battle of the monetary function, despite the multitude of Bitcoin payment enthusiasts, accumulators and speculators have unconditionally won.
In the end, Bitcoin was also adopted by the states. The regulatory experience over five years shows that states are arriving at a universal consensus: regulating the use of cryptocurrency in monetary form, sometimes separately - as a financial product. The state, for the most part, was not interested in the blockchain either as a tool for application or as an object of regulation.
"We solved the wrong problem"
"Satoshi's mistake" lies precisely in the one-sided thoughtfulness of Bitcoin - more precisely, the lack of thoughtfulness from other sides. Satoshi's approach, judging by how Bitcoin worked 12 years later, was technically flawless. It was a mistake to apply it to non-technical problems. Like the problem with which he starts his presentation of Bitcoin: "Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments." In which he saw an obvious engineering omission: the lack of the technical ability to make online payments without intermediaries.
You can understand Satoshi's logic: if earlier for any interactions at a distance, an intermediary was needed - even a bank, even a postman, even an adjutant - in the 21st century, when people from all over the world can negotiate transactions directly online, then why should payment be made by a third party?
On the other hand, for the young Internet industry before 2008, it was quite reasonable to assume that the absence of a solution to an obvious problem may mean that it has simply not been created yet, and not only casts doubt on the problematic nature. And since they did not have time, we must create. And, seeing the engineering problem through the eyes of an engineer, Satoshi brilliantly solved it by offering exactly the technical solution that was needed: digital money for direct payments protected from third party interference - blockchain and cryptocurrency.
A zero score on our mission to free e-commerce from online payment intermediation 12 years later is not the same as a bad score. The task is not "partially unsolved", it has not gotten worse, it has not gotten better - with regard to online payments, the state of affairs in Internet commerce has not changed. At least, no changes related to Bitcoin have been observed in them. Blockchain and cryptocurrencies did not have any impact on the problem they were invented to solve. Such a pure slip of the solution past the problem means one of two things: either the problem was not solved, or the wrong problem was solved. Since there are no complaints about the solution of the problem that Satoshi described in the presentation of Bitcoin, “the wrong problem was solved”.
Satoshi's reasoning presented in sequence 1. Problem (making online payments through a traditional financial system) → 2. Disadvantages of this state of affairs (human factor) → 3. Solution (blockchain) ”. Satoshi's mistake is in him. At what step?
At zero: error in premise. Reasoning (as presented in the manifesto) begins with the presumption of the problem as if it were self-evident. The absence of a solution to an obvious problem is a reason to question its problematic nature before looking for a solution.The more obvious and serious the unsolved problem or uncorrected mistake, the more it is worth thinking about how likely it is that it is not the person himself who is missing something, but everyone else has missed. Perhaps this is not a bug, is it a feature? Or a problem, but not a technical one? Perhaps the lack of a technical solution is not an oversight, but a sign of a non-technical problem?
And then, at the second step, a search for answers would be added to the description of the shortcomings of this state of affairs, the problematic nature of which is taken for granted, why and who needs it in this form?
It was here that Satoshi's mistake was hidden. The typical mistake of an engineering approach to a problem is not only technical, or perhaps not at all technical. Especially when the problem relates to the field of human relations. If an unsolvable or unsolved problem concerns the area of ​​human relations, the problem is most likely in the relationship, not in the area. Financial relations in the economy are just those in which unsolvable problems are always in the relationship.
Building a direct online payment facility is not the same as creating an e-commerce alternative to fiat money. The first is obviously done: cryptocurrency. But for a technical possibility to become an alternative, one must know between what and what the choice is made. It is not enough to identify the moments in which the banking system as a settlement mechanism looks redundant - it was necessary to pay attention to the fact that it is also necessary. And then, for the unfulfilled mission of Bitcoin, there will be not one, but two errors: error 1) Missed problem: intermediation of banks in online payments is not only imposed - in addition to, in fact, conducting transactions, they will play another necessary role for business. Mistake 2) Ineffective solution. The overlooked issue is also the reason why cryptocurrencies could not complete Satoshi's mission.
Why does a business need bank intermediation in payments?
Modern business is, first of all, a legal phenomenon, not an economic one. A business (and non-profit organizations too) has a country of registration and relations with the state, which provides business with the benefits guaranteed by some laws (for example, protection of contractual obligations, security of doing business, the right to profit), which makes sure that businesses do not violate others laws (for example, environmental or labor) so that business activities are not a cover for law violations and money laundering - and to which the business pays taxes.
From the last two conditions (anti-money laundering and taxes) follow the next two mandatory conditions for the functioning of a business, in addition to its registration - the state fiat currency as the main means of payment and the presence of a bank account. Every "white" business in the legal market (except, perhaps, some borderline situations like offshore jurisdictions) needs the fiat currency of its state to pay taxes and other payments, to pay salaries, pay off loans, etc.
This is where the main problem of businesses with cryptocurrency for payments arises: the problem of conversion.
Technically, the difference in the difficulty of accepting foreign fiat currencies and cryptocurrencies is not that great. Both will still need to be converted. For a conventional Estonian business, rubles are the same alternative means of payment in relation to the “home” euro as bitcoin. The difference between cryptocurrencies and foreign currencies is not that they are "crypto", but how they look in the eyes of the state - for example, in terms of anti-money laundering laws - and the risks of legal problems that can arise from this. Thus, a business that accepts payments in different currencies is likely to willingly start accepting together with pounds sterling and crypto pounds sterling, if their legal status does not differ. In all other cases, the real problem of taking somethingin addition to fiat freely convertible currencies, this is a different level of problem during their conversion.
For example, a business can receive and convert payments in foreign currency officially, including possible requirements for the verification of international transactions, or it can convert foreign currency in illegal exchangers with all the accompanying legal risks. Whereas for cryptocurrencies in most countries of the world there is no such choice - only the “illegal exchanger” option is available, which in the eyes of the law will look like any crypto exchange.
Therefore, payments in cryptocurrency are usually accepted or who does not plan to convert it, or who is ready to take risks. In the first case, most likely, the entire sale is carried out in the "gray zone", because the sale for cryptocurrency should not be documented, which means that the seller is "leftover". Or "grayish". Accordingly, the cryptocurrency in this case does not enter the white economy, but expands the coverage of the gray.
Accordingly, businesses that are ready to take on the risks of legalizing received payments in cryptocurrency are a natural limit for the penetration of cryptocurrencies into the economy.
For ordinary business, even a small risk of this kind deprives the acceptance of cryptocurrency of any sense, and as long as this risk persists, cryptocurrency will not become more widespread. Accordingly, reducing legal risk is a prerequisite for expanding the use of cryptocurrencies in the economy. This is exactly what is starting to happen in different countries as cryptocurrency regulation is introduced, along with which some legal space opens up for cryptocurrencies.
The leader of this movement is now Estonia, where, thanks to the tightening of anti-money laundering legislation, since July 2020, it has become possible to provide legal exchange services for fiat and cryptocurrency. It is under such licenses that Moneypipe operates... We have already told in previous publications what this means. Licensing of cryptocurrency exchange and storage services in Estonia appeared back in 2017.Since then, the requirements for obtaining these licenses have repeatedly increased, until the tightening ceiling was reached in July 2020, at which the licensing requirements for exchange and storage of cryptocurrencies were equated to the licensing of financial institutions. Stricter - nowhere.
In other words, from the point of view of the law, the conversion of cryptocurrency into fiat in a licensed crypto exchanger in the eyes of the Estonian government and the EU countries looks like an operation, the operators of which are subject to the same requirements as ordinary banks. This means that the "purity" of euros received by a business after converting payments in Ether, for example, in the eyes of Estonian law, is the same as euros received after converting payments in dollars. Because the Estonian law applies the same requirements to the licensing of organizations engaged in cryptocurrency transactions as to banks. The stricter the law, the cleaner the legal corridor. This corridor leads from a gray economy to a white one, allowing businesses to convert cryptocurrency payments in common with fiat.
You can accept foreign fiat currency and convert it into fiat of your state through a bank - the bank, as a licensed financial institution in this case, is fully responsible for checking the compliance of the payment with anti-money laundering legislation. Any money, cash or non-cash, fiat or cryptocurrency, by default, is gray: potentially any money can be of illegal origin, any payment can be part of a money laundering scheme, and any business can fall under suspicion. If the bank missed it, then he recognized the legality of the payment - and bears the risk if he was mistaken. The payment received by the bank and missed by the bank will not cause additional questions to the business. While accepting and independently converting cryptocurrency (on a regular crypto exchange, for example), the business bears all the risks associated with the possible origin of the payment: if the cryptocurrency,which the business is converting, a criminal origin is found, then the business at least falls under suspicion of laundering it.
For fiat currency, the laws have a procedure for verifying the origin of the payment, which is the responsibility of the financial institution. This also allows businesses to accept other and fiat currencies convertible by banks as an alternative means of payment. This makes traditional financial institutions a necessary participant in the commercial settlement system.
In the absence of a similar procedure for cryptocurrency, for business it is like a suitcase of cash: no matter how tempting the offer is, the more decent the country is, the more difficult it will be to spend such a suitcase.
Banks perform two essential functions in commercial payments:
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Here it is, Satoshi's mistake: the idea that for freedom from banks it is enough to cut them out of commercial transactions, making it technically possible to make payments without them, was stillborn.
Cutting out banks is cutting out their two essential functions: online fiat payments and legal control. Cryptocurrency can serve as an extension to fiat in cases where fiat is not suitable. But replacing fiat payments with cryptocurrencies simply for the sake of transactions bypassing banks makes sense only in cases where the transaction really wants to be hidden from banks and the state. However, in this case, cryptocurrency serves as an extension, not a replacement for fiat online payments. Or it doesn't make sense: you can use Sberbank Online, then install a Bitcoin wallet, but at the same time deleting "Sberbank" is unnecessary and meaningless - online payments with fiat will still be possible only through the mediation of financial institutions, abandoning them is tantamount to refusing to use fiat online.
When offering people a replacement, one should understand not only one's offer, but also what people are being asked to refuse.
And from this follows the second mistake of Satoshi: not knowing what people refuse - you don't know what to offer them to replace. The idea of ​​replacing online banking payments with fiat with cryptocurrency for business is a set of losses and no replacements or compensation. To the loss of the level of transparency, legality and legal security of payments through banks, the rejection of online fiat payments and guarantees of their legality, it is proposed to replace them in their business transactions with fundamentally opaque cryptocurrency payments, each of which may be one step away from criminal activity or part of criminal process (money laundering, for example).
That is, from a misunderstanding of what people are being asked to renounce (it seemed that the rejection of banks, solid pluses!) Followed the second mistake: a lack of understanding of what can be offered in response.
Topics for future conversations
Cryptocurrencies themselves, even as a side effect of Satoshi's mistakes, are a great invention. Just trying to invent a replacement for banks and fiat, Satoshi invented an interesting extension for them, opening up new opportunities, but in no way competing with the old ones. In reality, this is exactly what happened: cryptocurrencies became popular as an addition to fiat.
The conversation about crypt as an alternative to fiat, in fact, needs to be started anew. Because comparison is possible only on the basis of general criteria - for example, according to the general function that both fiat and cryptocurrency perform. In this case, a better / worse comparison is possible. And in a situation where you can pay with fiat online through banks, but not with crypto, and through blockchain you can pay with cryptocurrency online, but cannot with fiat - there is nothing to compare and nothing to choose from, these are different functions. And no comparison will work if the idea of ​​an alternative to online fiat payments overlooks several fundamental conditions for their application. Without considering them, it is impossible to offer them an alternative.
At the same time, understanding why people and organizations use or do not use certain tools opens up new opportunities. Let's say one of the categorical advantages of financial institutions for business is the transparency of payments through the bank for the state. Accordingly, if the task is not to hide from the state (for this, the cryptocurrency is still suitable), but only to abandon the intermediation of banks, then, theoretically, this is realizable on the blockchain, if a certain level of identifiability and verifiability is put into it. That is, such a deanon blockchain, in which commercial transactions will be as transparent to the state as banking transactions. In this case, the blockchain itself will be as close as possible to the bank - but without the bank. That is, the transactions in it will be two-way, not three-way. This is how the alternative to the bank looks like:everything is like in a bank, only decentralized and distributed.
For the development of cryptocurrencies, or even out of interest, this is not the only conversation that needs to be started anew. Other approaches are possible to the question of “cryptocurrency as an alternative”. But there are other questions, for example, another topic of this post: cryptocurrency as a means of payment. Bitcoin's experience in this matter is valuable with a unique set of "how not to" - almost all of its properties push it into the sphere of a store of value.
How to make a cryptocurrency that will be sharpened as a means of payment is a new and very interesting conversation. Perhaps one of the most promising in the field of cryptocurrencies, because the speculative properties, nature and features of cryptocurrencies are well known and do not cause much interest outside the crowd of "cryptoinvestors". Cryptocurrency as a means of payment is a completely different story, especially if it manages to resolve the natural “means of payment / accumulation” conflict of conventional money. If a cryptocurrency appears in which the balance is shifted towards payment, then this will be the first really strong argument about the superiority of cryptocurrency over fiat at the level of states and economies.
In the second decade of Bitcoin, there will be many more interesting topics for new conversations. The main thing is not to repeat the mistake of the past decade - and to approach them more seriously.