{"id":9475,"date":"2022-05-11T21:30:00","date_gmt":"2022-05-11T21:30:00","guid":{"rendered":"http:\/\/ci02a0e83f200027e0"},"modified":"2022-05-11T21:30:00","modified_gmt":"2022-05-11T21:30:00","slug":"nobody-understands-the-monetary-system","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/culture\/nobody-understands-the-monetary-system","title":{"rendered":"No One Understands The Monetary System, And That\u2019s Not OK"},"content":{"rendered":"
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\u201cIf you want to make an apple pie from scratch, you must first invent the universe.\u201d<\/em> \u2013 Carl Sagan<\/p>\n<\/blockquote>\n

Among the first objections that arise for anyone who has just learned about Bitcoin is \u201cthis is too complicated to understand.\u201d And it\u2019s true; private keys, block times, difficulty adjustments, UTXOs, uncensorable CoinJoin transactions, hash-something<\/em> \u2014 the learning curve is steep and, for most, the reasons to ascend it seem few and far between.<\/p>\n

The first time I was introduced to Bitcoin in practice<\/em> (not in theory \u2014 techno-babbling libertarians<\/a> had unsuccessfully pitched<\/a> me the idea for years), the intimidatingly tech-savvy guy who did so botched the process. <\/p>\n

First, he had me download some shady-looking app \u2014 which I didn\u2019t have space for on my phone, and so, ironically, I first had to remove a few podcasts on monetary economics. Second, he had the app generate some random words, and in the absence of pen and paper, had me type them into my phone\u2019s (cloud-saved!) note-taking app. Third, he tried to send me 100,000 sats, but the spotty internet on his phone kept interrupting the process.<\/p>\n

Clearly, I wouldn\u2019t become a convinced Bitcoiner that evening; the hardships of the process seemed altogether useless \u2014 the cure worse than the central banking disease it supposedly tried to solve. <\/p>\n

After he had gotten his shit together, and my polite patience having run out a half-dozen times, he finally managed to send the sats \u2014 and triumphantly expressed \u201cSee, see! This transaction happened without anybody knowing! And nobody could stop it!\u201d<\/p>\n

Not impressed, I pulled out a $5 dollar bill, handed it to him and mockingly imitated his triumph: \u201cSee, see! That happened without anybody knowing, and nobody could stop us from doing it!\u201d<\/p>\n

Bearer assets<\/a> are nothing new in the history of money and all he had convinced me of was that bitcoin was some complicated digital way of doing that. But if the tech-raptured can\u2019t effortlessly do it, what hope is there for you and me? And you\u2019re disintermediating a banking system, the purpose of which is to efficiently and securely make payments, and to make lending and borrowing possible<\/a>. Nobody was trying to stop anybody\u2019s payments \u2014 what was this guy on about?<\/p>\n

It would be years before I would see<\/a> those troubles of the current fiat payment networks. <\/p>\n

What\u2019s Amazing About Bitcoin Is Not That It\u2019s Digital<\/h3>\n

On the Bitcoin 2021 stage, Alex Gladstein<\/a> wanted to illustrate the simplicity of using bitcoin by sending sats in real time to Strike\u2019s fundraising campaign for Bitcoin development. It was eerily similar to the Bitcoin zealot I described above:<\/p>\n

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Gladstein<\/em>: \u201cSo I\u2019m on the Strike page, right here, and I\u2019m going to go ahead and donate, you know, two dollars\u2019 worth of bitcoin, to Strike … It is going to go … and it\u2019s gone. That\u2019s a bearer asset that has just moved instantly around the world. And, I didn’t ask permission from anybody.\u201d <\/p>\n<\/blockquote>\n

Gladstein succeeded much better in illustrating a (Lightning) payment than the guy who first tried to send me bitcoin all those years ago. Naturally, the audience \u201cwoah\u201d-ed and applauded, but the informed critic could equally well have responded with \u201cYes, and? Venmo does that too.\u201d <\/p>\n

In an episode for the \u201cBitcoin Magazine Podcast,\u201d Mark Maraia explained his approach to \u201conboarding boomers<\/a>\u201d \u2014 that demographic with money, time and a healthy fear of government overreach, yet not exactly known for their advanced technological know-how. \u201cForget all the theory,\u201d Maraia says, pointing to everyday items like computers or iPhones \u2014 do you honestly know how they work? \u201cI have absolutely no clue,” he says, and adds crucially that \u201cThat\u2019s OK!\u201d<\/p>\n

His quip is nice and comforting: nobody understands technology X, and that\u2019s fine, because we see what technology X does and we can use it. Similarly, if you don\u2019t understand Bitcoin, that\u2019s still OK. <\/p>\n

Except that it\u2019s not. <\/p>\n

Understanding what Bitcoin can do for you \u2014 its use case \u2014 requires you to understand the incumbent monetary system. Unlike a phone, a car or a computer, there is no visible value-add in using bitcoin for a middle-of-the-road Westerner who has never been sanctioned, never done anything illegal, never tried to buy goods or services that a payment processor<\/a> or government<\/a> disapproves of, has their salaries (and savings!) indexed to inflation, don\u2019t understand why recessions happen and (on a government payroll at least) don\u2019t suffer from them, or what central banks do or where money comes from. <\/p>\n

I don\u2019t need to understand any of the underlying tech in a phone to see how I might use it and how it could assist my life. In contrast, Bitcoin\u2019s value-add is tied up with its \u201ccompared-to-what\u201d alternative in the incumbent monetary system that 99% of us never think about, never cause us any payment-related troubles and we consequently pay no attention to.<\/p>\n

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A Visa card in Apple Pay can \u201cinstantly\u201d pay for things halfway across the world too. For international transfers, Wise or Revolut or a plethora of fintechs can move bank money across the world in seconds. <\/p>\n

Tech is not the thing. Digital is not the value-add.<\/p>\n

Of course, most Bitcoiners know that the Visa-Wise-Apple-Pay analogy is faulty<\/a>. And my guy could have made Saifedean Ammous\u2019 argument<\/a> that bitcoin has salability across space, which my $5 bill lacks. But to understand much of what sets bitcoin apart you need to go well into the monetary plumbing weeds. What happens when we make a bank payment<\/a>? What is money<\/a>?<\/p>\n

International transfers or bank-issued Visa cards require identification in a way bitcoin doesn\u2019t; they don\u2019t provide final settlement (payments can be revoked later); bank transfers are often deferred net settlements (though real-time gross settlement payments are rolled out in more and more central bank payment networks). Funds in Venmo or PayPal or other lower layers<\/a> of the dollar banking system are permissioned, in the sense that any of the half-dozen entities required for a payment to be successful could block it \u2014 for innocent technical reasons or more malign control\/authoritarian reasons. <\/p>\n

Thinking that an effortless Venmo payment<\/a> is akin to an on-chain bitcoin transfer because they look and \u201cfeel\u201d the same, is a rather elementary error to make. They\u2019re both digital; they both involve \u201cmoney,\u201d whatever that means; they both allow for transfer of value from one place to another. But in order to understand why they are different, you \u2014 like the Carl Sagan quote above \u2014 must first explain the whole monetary system: where it can go wrong, what it relies on, how new money enters into it, what banks do, which entities have the power to block, delay, inspect or charge fees for transactions, what you\u2019re risking by passively holding a constantly depreciating currency. <\/p>\n

To Gladstein\u2019s credit, he has an understanding of the banking realities of the bottom billion<\/a> that dwarfs any payment troubles that most Westerners have ever encountered. But the average nocoiner doesn\u2019t. Which is why we routinely get news articles<\/a> where some clever-by-half financial journalist lumps together bitcoin with stablecoins, with non-fungible tokens (NFTs) and central bank digital currencies (CBDCs). Or when the chairman of the Federal Reserve Board says that CBDCs<\/a> make the need for bitcoin or stablecoins obsolete: they\u2019re all the same, really \u2014 new, hip, digital ways of storing and moving what seems to be valuable things. <\/p>\n

The Fed is here to help steward the dollar system, so once its own fancy-sounding technical solution is in place, there could be no need for private options<\/a>. And \u201cprogrammable money\u201d sounds amazing \u2014 at least until the programming of the not-so-kind programmer stops you<\/a> from purchasing what you require.<\/p>\n

<\/figure>\n

From Gita Gopinath at the IMF<\/a>, we learn that the Russia-Ukraine debacle \u201cwould also spur the adoption of digital finance, from cryptocurrencies to stablecoins and central bank digital currencies.\u201d<\/p>\n

What about the conflict could possibly spur anything but bitcoin? Finance is already digital. Fiat bank money is already digital. The Fed adjusts the monetary base, digitally, through purchases and sales of assets via its New York Fed branch. The dollar is already discretionary and permissioned, controlled, regulated and surveilled. What does a central bank digital currency (CBDC) bring to the table? <\/p>\n

If anything<\/em>, it would make the politicization of banking-related problems on both sides<\/a> of the Donetsk battlefield worse, with even more control by authoritarians who want to mandate what people may or may not do with \u201ctheir<\/a>\u201d money. You don\u2019t need a blockchain or a token to do 99% of what cryptocurrency projects attempt to do \u2014 and the ones that appear to do something useful, don\u2019t do that better than Bitcoin. <\/p>\n

Beyond the first few hours and days, before international transfers could comfortably arrive to Ukraine\u2019s banks in bulk, there was nothing that \u201ccryptocurrencies\u201d broadly speaking could do for Ukraine; its problem was real, not monetary. Help fleeing refugees smuggle out their savings against a hostile banking system? Sure, bitcoin always excelled<\/a> at that, but how would a CBDC, issued<\/a> and governed by the National Bank of Ukraine fare? Or worse, Ripple, whose CEO proudly stated<\/a>:<\/p>\n

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\u201cTo clear any confusion \u2013 RippleNet (while being able to do much more than just messaging a la SWIFT) abides by international law and OFAC sanctions. Period, full stop.\u201d <\/p>\n<\/blockquote>\n

Instead of being the permissionless, uncensorable, F-U<\/a> money that bitcoin aspires to, its cryptocurrency \u201ccompetitors\u201d proudly uphold censorship and government sanctions<\/a>: <\/p>\n

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\u201cRippleNet, for example, has always been – and remains today – committed to NOT working with sanctioned banks or countries that are restricted counterparties. Ripple and our customers support and enforce OFAC laws and KYC\/AML.\u201d<\/p>\n<\/blockquote>\n

Complying with authoritarian sanctions is the opposite of what freedom money does<\/a>. <\/p>\n

I repeat: Tech is not the thing. Digital is not the value-add<\/em>. <\/p>\n

The value-add of Bitcoin is the liberty and independence that comes with holding your own money outright \u2014 unencumbered by a bank, a payment processor, a financial regulator or a tax man. It\u2019s no longer being subject to the whimsical demands of your authoritarian ruler, democratically-elected<\/a> or not. It\u2019s to no longer suffer the asinine consequences of the monetary excesses that the dollar\u2019s current stewards have so catastrophically botched.<\/p>\n

Bitcoin is freedom money for a century of liberty<\/a>. But to truly grasp why that is, you need to see what\u2019s wrong with the system it attempts to overthrow.<\/p>\n

Understanding how the fiat monetary system works is fundamental to understanding Bitcoin. <\/p>\n

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><\/p>\n","protected":false},"excerpt":{"rendered":"

Understanding the monetary system is foundational to seeing what\u2019s wrong with the current system and to have a true grasp of Bitcoin and its importance.<\/p>\n","protected":false},"author":2620,"featured_media":6956,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[33],"tags":[1945,1591,207,2328,1420,59,1853],"class_list":{"0":"post-9475","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-culture","8":"tag-central-bank-digital-currency","9":"tag-dollars","10":"tag-federal-reserve","11":"tag-fiscal-policy","12":"tag-monetary-policy","13":"tag-opinion","14":"tag-systems"},"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\/fiat-dollar.jpg","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/9475","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=9475"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/9475\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/6956"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=9475"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=9475"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=9475"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}