{"id":11197,"date":"2022-02-20T19:00:00","date_gmt":"2022-02-20T19:00:00","guid":{"rendered":"http:\/\/ci029a5188c00024ff"},"modified":"2025-10-01T13:15:11","modified_gmt":"2025-10-01T18:15:11","slug":"bitcoin-is-money-for-enemies","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/business\/bitcoin-is-money-for-enemies","title":{"rendered":"Like All Successful Monies, Bitcoin Is Money For Enemies"},"content":{"rendered":"<div id=\"bsf_rt_marker\"><\/div><aside><em>In God We Trust: All Others Pay Cash.<\/em>\u00a0\u00a0\u2014 Jean Shepherd<\/p>\n<\/aside>\n<p>Many well-known Bitcoiners say that bitcoin is money for enemies: <a href=\"https:\/\/twitter.com\/real_vijay\/status\/1404163036202475525\" target=\"_blank\" rel=\"noopener\">Vijay Boyapati<\/a> tweeted about it; Nic Carter has <a href=\"https:\/\/niccarter.info\/bylines\/\" target=\"_blank\" rel=\"noopener\">written on it<\/a>; Peter McCormack and American Hodl chanted that conclusion <a href=\"https:\/\/www.youtube.com\/watch?v=evFh3q79iBU\" target=\"_blank\" rel=\"noopener\">here<\/a>. On these pages in January 2022, <a href=\"https:\/\/bitcoinmagazine.com\/culture\/bitcoin-maximalism-and-bitcoin-adoption\">Mark Goodwin<\/a> wrote: \u201cBitcoin simply must be for enemies, or it will never be for friends.\u201d<\/p>\n<p>It sounds good and it feels nice, drop-mic style, but what does it <em>mean<\/em> for bitcoin to be for enemies? Or any money for that matter? What is the trustless, decentralized nature of bitcoin bringing to the table?<\/p>\n<p>One answer is that bitcoin <a href=\"https:\/\/bitcoinmagazine.com\/culture\/the-zen-of-knowing-your-bitcoin-opinion\">doesn\u2019t care about your opinions<\/a>, including your assessment of potential trading partners. It works, whether operated by friend or foe. That\u2019s true, but holds for every other money, too: With fiat, I can shop for groceries from strangers and heretics just fine. Another is that bitcoin allows people to transact peacefully without knowing about the other\u2019s status as an enemy. That\u2019s true but holds for every other money, too: We don\u2019t vet baristas for their ideological righteousness before we order a cup of morning coffee.<\/p>\n<p>Perhaps it\u2019s about censored transactions, where buyer and seller are happy to transact but a third party (politician, bank, payment processor, law-enforcement) stands in the way and blocks the payment. That\u2019s an improvement that bitcoin and other <a href=\"https:\/\/www.lynalden.com\/gold-and-bitcoin\/\" target=\"_blank\" rel=\"noopener\">bearer assets<\/a> like gold or cash bring to the monetary table, but it doesn\u2019t imply that the traders are enemies.<\/p>\n<p>In the past, <a href=\"https:\/\/www.aier.org\/article\/bitcoin-bros-rediscovering-our-monetary-past\/\" target=\"_blank\" rel=\"noopener\">I have shown<\/a> that the more developed bitcoin\u2019s ecosystem becomes, the more it resembles the incumbent monetary system it hopes to supplant. Not that it must degenerate, become captured, or start working for a select group of ideologically suspect insiders\u2019 ends, but that it hits some unavoidable obstacles of our monetary world. Matt Levine at <a href=\"https:\/\/www.bloomberg.com\/opinion\/articles\/2021-12-22\/wall-street-is-no-fun-anymore\" target=\"_blank\" rel=\"noopener\"><em>Bloomberg<\/em><\/a> agrees: \u201c[&#8230;] crypto rapidly recapitulates the history, and re-learns the lessons, of traditional finance. I don\u2019t particularly mean this as a bad thing. Learning is good!\u201d<\/p>\n<p>Many lessons from deep financial history, observes Levine, are \u201cburied tacit knowledge; the traditional financial system does lots of things, and it does most of them for good reasons, but often most people have forgotten what those reasons are.\u201d<\/p>\n<p>In fact, almost everything that makes money workable in the normal world is present in bitcoin, too. That\u2019s <em>why<\/em> it can operate as a monetary asset, why it can so successfully settle trade, and why it can operate as a global payment rail.<\/p>\n<h2>Monetary Economics Primer: How Bitcoin Does What Money Does<\/h2>\n<p>Goodwin\u2019s quote above is interesting and, I suspect, wrong. Bitcoin isn\u2019t for friends. Indeed, an economy of friends doesn\u2019t need money at all. (They might want a <a href=\"https:\/\/bitcoinmagazine.com\/guides\/unit-of-account\">unit of account<\/a> to keep track of and balance favors, but among friends in good faith, even that can be worked out through barter.) This is the reason that G. A. Cohen\u2019s famous camping trip analogy initially works: In \u201c<a href=\"https:\/\/press.princeton.edu\/books\/hardcover\/9780691143613\/why-not-socialism\" target=\"_blank\" rel=\"noopener\">Why Not Socialism?<\/a>,\u201d Cohen posits a real-world situation where friends provide according to their abilities and receive according to their needs. Since we all do that when we go away together, why couldn\u2019t the world operate on those premises, too?<\/p>\n<p>Plenty of people have taken that idea apart, in the narrow example of the camping trip and more broadly for a wide world where we <em>don\u2019t<\/em> know everyone, <em>don\u2019t<\/em> want what is best for one another, <em>don\u2019t<\/em> feel OK being charitable with our contributions. In fact, families are the world\u2019s only functioning socialist communes \u2014 and they don\u2019t operate on money. Instead, they operate with trust, with unspecified favors mentally accounted for (or charitably given), and unstated responsibilities in accordance with their respective roles. In a word: credit. Friends can operate on trust, and that\u2019s cheaper (less resource-intensive) than money.<\/p>\n<p>Long before Satoshi, monetary economists had worked out this point: In a world with complete commitment and full trust in one another, agents don\u2019t need money and can instead rely entirely on credit. <em>If <\/em>you have complete commitment and full trust in each member of the economy \u2014 small or large \u2014 you can sidestep the resource cost that money entails (its real ones in <a href=\"https:\/\/bitcoinmagazine.com\/culture\/bitcoin-and-gold-energy-debate\">gold or bitcoin<\/a>, or its <a href=\"https:\/\/www.alt-m.org\/2019\/12\/17\/the-resource-costs-of-fiat-money-are-now-higher-than-those-of-a-gold-standard\/\" target=\"_blank\" rel=\"noopener\">indirect ones under monetary fiat<\/a>). The imaginary record-keeping of credit suffices. Stefano Ugolini, a scholar of central banking at the University of Toulouse, <a href=\"https:\/\/link.springer.com\/book\/10.1057\/978-1-137-48525-0\" target=\"_blank\" rel=\"noopener\">writes in typical<\/a> monetary economics lingo: \u201cThe frictions that are needed to make money essential typically make credit infeasible and environments where credit is feasible are ones where money is typically not essential.\u201d<\/p>\n<p>For money to improve upon a rival system that operates entirely on credit and trust (like our friendship-camping story above), the models that monetary economists have developed suggest that agents<\/p>\n<ul>\n<li>can\u2019t have perfect memory about past trading partners (or anonymity);<\/li>\n<li>must have a limited ability to commit to and enforce promises; and<\/li>\n<li>have the opportunity of one-shot transaction (e.g., strangers coming into town).<\/li>\n<\/ul>\n<p>That sounds a lot more like our world than the models that monetary economists play with. We are, in other words, squarely in the setting where money is essential. <a href=\"https:\/\/bitcoinmagazine.com\/guides\/what-is-money\">Money is the settlement of trade<\/a> <em>when we don\u2019t, or can\u2019t, trust one another<\/em>; when trades aren\u2019t of a repeated kind; or when transactional commitment devices to one another aren\u2019t strong.<\/p>\n<p>Now we&#8217;re getting closer to the familiar <a href=\"https:\/\/satoshi.nakamotoinstitute.org\/posts\/p2pfoundation\/1\/\" target=\"_blank\" rel=\"noopener\">Satoshi lines<\/a>, whether or not (s)he was aware of the monetary economics having reached that result decades prior: \u201cThe root problem with conventional currency is all the trust that&#8217;s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.\u201d<\/p>\n<p>One of the most foundational articles of monetary economics is \u201c<a href=\"https:\/\/www.jstor.org\/stable\/3083378\" target=\"_blank\" rel=\"noopener\">Evil Is the Root of All Money<\/a>,\u201d by Nobuhiro Kiyotaki and John Moore, inverting the old biblical line. They set up the long-standing monetary markets of trade and investigate the double-coincidence of wants condition that has been used as a justification for money since <a href=\"https:\/\/oll.libertyfund.org\/title\/jevons-money-and-the-mechanism-of-exchange\" target=\"_blank\" rel=\"noopener\">William Stanley Jevons<\/a> coined the phrase in the 1875. They show that it isn\u2019t the only, or even the most important way, to make money viable in an economy \u2014 especially money in forms that have no other economic use (i.e., what monetary economists mean by \u201cintrinsic value\u201d). Instead, they show that lacking commitment and \u201cfactoring in a lack of trust\u201d is primary, even \u201cthe starting point for a theory of money.\u201d<\/p>\n<p>A few years before, then a Minneapolis federal economist, <a href=\"https:\/\/www.sciencedirect.com\/science\/article\/pii\/S0022053197923577\" target=\"_blank\" rel=\"noopener\">Narayana Kocherlakota<\/a> showed that \u201cmoney is merely a primitive form of memory.\u201d Notice the Bitcoin connection here, for what are blocks with UTXOs but a long spreadsheet of transactions acting as monetary memory?<\/p>\n<p>Without commitment, <em>either<\/em> money or memory will do. Bitcoin, in a sense, is both.<\/p>\n<p>Money <a href=\"https:\/\/authory.com\/JoakimBook\/Do-You-have-Silver-ab0be998dd5554baabd6207aec1a9337f\" target=\"_blank\" rel=\"noopener\">overcomes issues of trust<\/a> because \u201cany function performed by money can be provided by an ability to access the past of one\u2019s trading partners.\u201d Kocherlakota explains: \u201cIn the monetary environment, when an agent gives up resources today, he receives money which can be used to purchase resources next period. Analogously, in an environment with memory, an imaginary balance sheet is kept for each agent. When an individual gives consumption to someone else, his balance rises, and his capacity for receiving future transfers goes up. When he gets consumption from someone else, his balance falls, and his capacity for receiving future transfer declines. In the monetary environment, money is merely a physical way of maintaining this balance sheet.\u201d<\/p>\n<p>This points to how, when money is doing its job well, it <em>expands<\/em> the <a href=\"https:\/\/youtu.be\/D4nmbPtd8IE?t=400\" target=\"_blank\" rel=\"noopener\">feasible opportunities<\/a> for all of us to trade. A proper <a href=\"https:\/\/bitcoinmagazine.com\/guides\/what-is-money\">money improves on the trades<\/a> available to us in the absence of money. A proper money provides us with <a href=\"https:\/\/www.humanprogress.org\/in-defense-of-cornucopianism\/\" target=\"_blank\" rel=\"noopener\">truthful signals about scarcity<\/a> and wants, what\u2019s economically available and what people demand. The purpose of intangible tokens, or even shining metals that don\u2019t seem to do anything, is to be a technological innovation that facilitates trade, as William Goetzmann so convincingly illustrated in his great book, \u201c<a href=\"https:\/\/press.princeton.edu\/books\/hardcover\/9780691143781\/money-changes-everything\" target=\"_blank\" rel=\"noopener\">Money Changes Everything: How Finance Made Civilization Possible<\/a><em>.<\/em>\u201d<\/p>\n<p>Thus, speaking of the resource cost of money was always a red herring. By expanding trade and the division of labor, by overcoming the issue of imperfect trust, memory or commitment, money and a sound monetary regime <em>adds<\/em> value to society. It improves our economic well-being rather than wastefully take away from it.<\/p>\n<p>Another monetary knot that bitcoin elegantly solves is <a href=\"https:\/\/www.jstor.org\/stable\/1992014\" target=\"_blank\" rel=\"noopener\">Armen Alchian<\/a>\u2019s justification for money institutions as least-cost inspectors of the monetary token: \u201cAnyone buying second-hand paper also has to verify its authenticity, which slows down the speed of transaction. [\u2026] Ignorance leads to the use of money and how money requires concurrent exchange with specialist, expert, highly reputable middlemen.\u201d<\/p>\n<p>Bitcoin bypasses the middleman and achieves in the modern digital world the trustlessness of bearer assets of ages past. It is instantly verifiable, its inclusion in a prior (valid) block trivially easy to inspect. It <em>is<\/em> the very improving technology that Kocherlakota identified in the 1990s and Goetzmann chronicled more recently: a collective memory, a record of past dealings.<\/p>\n<h2>Memory A Good Money Makes<\/h2>\n<p>If we think of enemies as those we don\u2019t (fully) trust or can\u2019t (fully) commit to \u2014 so almost everyone we encounter in the modern world \u2014 <em>Bitcoin <\/em>isn\u2019t for enemies. Every money is for enemies. We put trust in friends and family and loved ones, and with them we can, therefore, operate mutually beneficial exchanges without much resort to money.<\/p>\n<p>But it is when trust is missing and credible commitment isn\u2019t available that money comes into its own. Saying that bitcoin is for enemies is trivial: <em>Every<\/em> money is for settings where we can\u2019t fully trust our trading partners.<\/p>\n<p><em>This is a guest post by Joakim Book. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or <\/em>Bitcoin Magazine<em>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Bitcoin exhibits properties of money that have existed far longer than the protocol and that helps facilitate its rapid growth.<\/p>\n","protected":false},"author":2620,"featured_media":6111,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[1607,1831,1393,59],"class_list":["post-11197","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-economics","tag-martys-bent","tag-money","tag-opinion"],"author_data":{"id":2620,"name":"Joakim Book","nicename":"joakim-book","avatar_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2025\/07\/Joakim_Book_Author_Image.jpg"},"featured_image_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/11\/20200220_btcfinal_moneyforenemies.png","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/11197","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/users\/2620"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/comments?post=11197"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/11197\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/6111"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=11197"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=11197"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=11197"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}