Crypto
The Great Wall: Why China’s Central Planners Can’t Handle Bitcoin
This is an opinion editorial by Andrew Axelrod a Bitcoin educator and contributor to Bitcoin Magazine
Much like the tragic figures of Greek mythology, China has a long and storied history of snatching defeat from the jaws of victory. Its ruling class, in particular, has always had an insatiable appetite for self-flagellation. Banning bitcoin is just the final chapter of this sad and destructive story.
Blessed with an abundance of natural resources, a massive population and full access to the South and East China Sea along its 9,000-mile coastline, China was perfectly set up to be the empire of all ages.
And for almost 2,000 years it dominated the region.
Long before the English and Spanish, China built entire fleets of treasure ships capable of traversing the far corners of the earth — capable of even reaching the New World, centuries before Columbus took sail.
Had things been different, America could well have been subject to the emperor instead of the king, and Mandarin would be the world’s predominant language, not English.
But this was not permitted to happen.
Spurred on by jealousy, fear and spite against its own budding and prosperous merchant class, the ruling elite — aka the central planners — ordered all ships be set on fire. An act of pure self-immolation as it turns out.
This stranded the Chinese people, unable to explore the outside world, and left them isolated and vulnerable to the horrors of the Opium Wars that colonial Britain brought to their shores.
The next cabal of central planners to wreak havoc and destruction were the Communists under the master planner himself, Chairman Mao. And again, the target of their wrath was an up-and-coming middle class. This time the productive farmers from China’s countryside were the sacrificial lambs for slaughter.
The Red Guards, Mao’s cadre of fanatical supporters, marched throughout China, zelously purging the so-called “Five Black Categories.” These included: rich farmers, property owners, counter-revolutionaries, rightists and heretics of any kind.
Society having been uprooted, millions of peasants were then collectivized and forced into labor camps to produce crop yield. Of course, starvation soon followed and millions perished. Unsanctioned possession of just a grain of rice was justification enough for the execution of entire families.
This living nightmare was never fully digested.
In fact, with the dawn of the internet, the central planners were at it again. Paranoid from fear that their power could be challenged, a digital firewall was erected. Much like the Great Wall of China from centuries ago, this wall was meant to keep its population captive, docile and sheltered from any potentially corrupting outside influence. Unwanted speech is censored and the crimes of the past cannot be discussed.
How else could a society prostrate itself at the altar of a genocidal maniac, the exterminator of its forefathers? To this day, Mao is worshiped as a god. And so, the fading memory of these atrocities and even the estimated 50-100 million dead1 weren’t sufficient to put an end to the vicious cycle.
No, the central planners were just getting started.
That’s right, China’s butchers had been gearing up for their next amputation.
Perhaps the most devastating, self-mutilating and masochistic decision of all was the one-child policy. Here’s the sickening recipe: command women to stop bearing children (for the common good, of course) and decimate the population by several hundred million more. By 2050, the Chinese population is expected to be cut in half.
Next, to add humiliation to injury, print money to artificially depress the country’s currency, making production cheaper and enslave the population as factory workers in order to boost economic activity and offset the demographic slow-down.
The excess cash is then (as always) misallocated and floods into pointless real estate projects. Oftentimes, homes, apartments and buildings aren’t even purchased to live in. They’re purchased as stores of value — somewhere to seek shelter from the rapidly inflating money supply. This is how China’s “ghost cities” came to be; crumbling and decaying monuments to the unborn and aborted millions.
And so, between collapsing demographics, a bursting real estate bubble and a zero-COVID lockdown policy (another humdinger of the central planners), China finds itself on the precipice of a potentially crippling financial crisis.
The money printers must therefore run even hotter, stealing what little is left of the people’s productivity from underneath them and causing increasingly devastating calamity by inflating bubbles throughout the economy.
Thus, every fatal mistake along the twisted and winding path, a consequence of the nihilistic and ultimately deadly belief in central planning.
And this is where that path leads to: banning bitcoin — a pure outgrowth of the free internet and rejection of centralized power, an essential tool to combat the coercion of fiat.
The central planners are of course denying this. When cornered at this summer’s WEF event, Premier Li Keqiang made some noises about lockdowns potentially being loosened, but was vehemently outspoken against stimulus injections and inflation:
“We won’t resort to super large stimulus or excessive money printing to accomplish a high growth target. That will overdraw on the future.”
This promise is not only empty, it is in fact a brazen and obvious lie for the following four reasons:
1. Money printing is not optional in a fiat system.
Over the past 20 years, China’s M2 money supply has inflated an average of 14% per year. That means the money supply has doubled every 5 years! With a total debt/GDP ratio of over 300%, the compounding of interest demands more and more printing. That’s how a debt based fiat system works.
Money is circulated into the economy through the issuance of debt. Servicing the interest on this debt is only possible through, you guessed it: more money printing, i.e. debt creation.
Rinse, wash, repeat. It’s the snake eating its own tail.
And structurally, there’s no reversing or even tempering this. The system is built on a one-way track where it’s inflate or devastate. Not that the central planners really mind devastation, except that…
2. …Stopping the printer causes revolution.
This goes double for a centralized power structure that relies heavily on coercion through money printing to bend the population to its will. It’s no coincidence that paper money was first developed by China’s central planners.
The recent liquidity crunch has already led to bank runs and even demonstrations, which are exceedingly rare in China. But not to worry, military tanks were quick to respond, ready to quash any sign of insubordination in echoes of Tiananmen Square.
Even worse for the central planners, record numbers of homebuyers are refusing mortgage payments in over a hundred cities. The contagion started with Evergrande last year when it defaulted on a large part of its $300B debt mountain. The property sector which accounts for 30% of economic output is now under threat.
When things go bad at this scale, social unrest is never far behind. The CCP knows this and has instructed banks to bail out struggling property developers, aka more money printing.
3. China’s economy is export dependent.
Money printing is famously a race to the bottom. Whoever devalues the currency faster has a competitive advantage. That’s because domestic goods become relatively cheaper on the international markets. China has used this to great effect, consistently pushing the yuan lower in order to boost its exports.
But why not just shift to a consumer based economy and let the yuan strengthen? As discussed, China’s recently abandoned one-child policy is forecast to cut the population in half within the next thirty years. There won’t be enough of a population left to sustain this type of transition. Also, a consumer based economy means letting people actually choose what they want. Something central planners can’t begin to fathom.
4. They already banned bitcoin.
And finally, if money printing really isn’t on the table, why close off the fire exits? China is one of the only countries that maintains a complete ban on bitcoin, including ownership, and has some of the strongest currency controls to prevent capital flight.
Instead of bitcoin, China’s central planners are of course doubling down on the digital renminbi which gives them almost unlimited control over the population and tightens the noose even further.
Does that sound like money printing isn’t in the cards? (Rhetorical question).
The central planners are thus, as always, busy locking the gates, battening down the hatches and sealing off all possible avenues for escape.
Bitcoin, as the ultimate tool for self determination, cannot be tolerated.
Much like the Great Wall, the digital firewall, or the torching of treasure ships, central planners must isolate their victims and cut them off from any hope of salvation.
Then they can have their way with them, undisturbed.
The (central) plan is incineration through inflation. Because when things go wrong, just print some more!
Endnotes
1. The fact that the number of dead is unknown reflects the complete horror and utter chaos of the times.
This is a guest post by Andrew Axelrod. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
El Salvador’s Minister of the Economy Maria Luisa Hayem Brevé submitted a digital assets issuance bill to the country’s legislative assembly, paving the way for the launch of its bitcoin-backed “volcano” bonds.
First announced one year ago today, the pioneering initiative seeks to attract capital and investors to El Salvador. It was revealed at the time the plans to issue $1 billion in bonds on the Liquid Network, a federated Bitcoin sidechain, with the proceedings of the bonds being split between a $500 million direct allocation to bitcoin and an investment of the same amount in building out energy and bitcoin mining infrastructure in the region.
A sidechain is an independent blockchain that runs parallel to another blockchain, allowing for tokens from that blockchain to be used securely in the sidechain while abiding by a different set of rules, performance requirements, and security mechanisms. Liquid is a sidechain of Bitcoin that allows bitcoin to flow between the Liquid and Bitcoin networks with a two-way peg. A representation of bitcoin used in the Liquid network is referred to as L-BTC. Its verifiably equivalent amount of BTC is managed and secured by the network’s members, called functionaries.
“Digital securities law will enable El Salvador to be the financial center of central and south America,” wrote Paolo Ardoino, CTO of cryptocurrency exchange Bitfinex, on Twitter.
Bitfinex is set to be granted a license in order to be able to process and list the bond issuance in El Salvador.
The bonds will pay a 6.5% yield and enable fast-tracked citizenship for investors. The government will share half the additional gains with investors as a Bitcoin Dividend once the original $500 million has been monetized. These dividends will be dispersed annually using Blockstream’s asset management platform.
The act of submitting the bill, which was hinted at earlier this year, kickstarts the first major milestone before the bonds can see the light of day. The next is getting it approved, which is expected to happen before Christmas, a source close to President Nayib Bukele told Bitcoin Magazine. The bill was submitted on November 17 and presented to the country’s Congress today. It is embedded in full below.
This is an opinion editorial by Joakim Book, a Research Fellow at the American Institute for Economic Research, contributor and copy editor for Bitcoin Magazine and a writer on all things money and financial history.
I don’t.
That’s it. That’s the article.
In all sincerity, that is the full message: Just don’t do it. It’s not worth it.
You’re not an excited teenager anymore, in desperate need of bragging credits or trying out your newfound wisdom. You’re not a preaching priestess with lost souls to save right before some imminent arrival of the day of reckoning. We have time.
Instead: just leave people alone. Seriously. They came to Thanksgiving dinner to relax and rejoice with family, laugh, tell stories and zone out for a day — not to be ambushed with what to them will sound like a deranged rant in some obscure topic they couldn’t care less about. Even if it’s the monetary system, which nobody understands anyway.
Get real.
If you’re not convinced of this Dale Carnegie-esque social approach, and you still naively think that your meager words in between bites can change anybody’s view on anything, here are some more serious reasons for why you don’t talk to friends and family about Bitcoin the protocol — but most certainly not bitcoin, the asset:
- Your family and friends don’t want to hear it. Move on.
- For op-sec reasons, you don’t want to draw unnecessary attention to the fact that you probably have a decent bitcoin stack. Hopefully, family and close friends should be safe enough to confide in, but people talk and that gossip can only hurt you.
- People find bitcoin interesting only when they’re ready to; everyone gets the price they deserve. Like Gigi says in “21 Lessons:”
“Bitcoin will be understood by you as soon as you are ready, and I also believe that the first fractions of a bitcoin will find you as soon as you are ready to receive them. In essence, everyone will get ₿itcoin at exactly the right time.”
It’s highly unlikely that your uncle or mother-in-law just happens to be at that stage, just when you’re about to sit down for dinner.
- Unless you can claim youth, old age or extreme poverty, there are very few people who genuinely haven’t heard of bitcoin. That means your evangelizing wouldn’t be preaching to lost, ignorant souls ready to be saved but the tired, huddled and jaded masses who could care less about the discovery that will change their societies more than the internal combustion engine, internet and Big Government combined. Big deal.
- What is the case, however, is that everyone in your prospective audience has already had a couple of touchpoints and rejected bitcoin for this or that standard FUD. It’s a scam; seems weird; it’s dead; let’s trust the central bankers, who have our best interest at heart.
No amount of FUD busting changes that impression, because nobody holds uninformed and fringe convictions for rational reasons, reasons that can be flipped by your enthusiastic arguments in-between wiping off cranberry sauce and grabbing another turkey slice. - It really is bad form to talk about money — and bitcoin is the best money there is. Be classy.
Now, I’m not saying to never ever talk about Bitcoin. We love to talk Bitcoin — that’s why we go to meetups, join Twitter Spaces, write, code, run nodes, listen to podcasts, attend conferences. People there get something about this monetary rebellion and have opted in to be part of it. Your unsuspecting family members have not; ambushing them with the wonders of multisig, the magically fast Lightning transactions or how they too really need to get on this hype train, like, yesterday, is unlikely to go down well.
However, if in the post-dinner lull on the porch someone comes to you one-on-one, whisky in hand and of an inquisitive mind, that’s a very different story. That’s personal rather than public, and it’s without the time constraints that so usually trouble us. It involves clarifying questions or doubts for somebody who is both expressively curious about the topic and available for the talk. That’s rare — cherish it, and nurture it.
Last year I wrote something about the proper role of political conversations in social settings. Since November was also election month, it’s appropriate to cite here:
“Politics, I’m starting to believe, best belongs in the closet — rebranded and brought out for the specific occasion. Or perhaps the bedroom, with those you most trust, love, and respect. Not in public, not with strangers, not with friends, and most certainly not with other people in your community. Purge it from your being as much as you possibly could, and refuse to let political issues invade the areas of our lives that we cherish; politics and political disagreements don’t belong there, and our lives are too important to let them be ruled by (mostly contrived) political disagreements.”
If anything, those words seem more true today than they even did then. And I posit to you that the same applies for bitcoin.
Everyone has some sort of impression or opinion of bitcoin — and most of them are plain wrong. But there’s nothing people love more than a savior in white armor, riding in to dispel their errors about some thing they are freshly out of fucks for. Just like politics, nobody really cares.
Leave them alone. They will find bitcoin in their own time, just like all of us did.
This is a guest post by Joakim Book. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is an opinion editorial by Federico Tenga, a long time contributor to Bitcoin projects with experience as start-up founder, consultant and educator.
The term “smart contracts” predates the invention of the blockchain and Bitcoin itself. Its first mention is in a 1994 article by Nick Szabo, who defined smart contracts as a “computerized transaction protocol that executes the terms of a contract.” While by this definition Bitcoin, thanks to its scripting language, supported smart contracts from the very first block, the term was popularized only later by Ethereum promoters, who twisted the original definition as “code that is redundantly executed by all nodes in a global consensus network”
While delegating code execution to a global consensus network has advantages (e.g. it is easy to deploy unowed contracts, such as the popularly automated market makers), this design has one major flaw: lack of scalability (and privacy). If every node in a network must redundantly run the same code, the amount of code that can actually be executed without excessively increasing the cost of running a node (and thus preserving decentralization) remains scarce, meaning that only a small number of contracts can be executed.
But what if we could design a system where the terms of the contract are executed and validated only by the parties involved, rather than by all members of the network? Let us imagine the example of a company that wants to issue shares. Instead of publishing the issuance contract publicly on a global ledger and using that ledger to track all future transfers of ownership, it could simply issue the shares privately and pass to the buyers the right to further transfer them. Then, the right to transfer ownership can be passed on to each new owner as if it were an amendment to the original issuance contract. In this way, each owner can independently verify that the shares he or she received are genuine by reading the original contract and validating that all the history of amendments that moved the shares conform to the rules set forth in the original contract.
This is actually nothing new, it is indeed the same mechanism that was used to transfer property before public registers became popular. In the U.K., for example, it was not compulsory to register a property when its ownership was transferred until the ‘90s. This means that still today over 15% of land in England and Wales is unregistered. If you are buying an unregistered property, instead of checking on a registry if the seller is the true owner, you would have to verify an unbroken chain of ownership going back at least 15 years (a period considered long enough to assume that the seller has sufficient title to the property). In doing so, you must ensure that any transfer of ownership has been carried out correctly and that any mortgages used for previous transactions have been paid off in full. This model has the advantage of improved privacy over ownership, and you do not have to rely on the maintainer of the public land register. On the other hand, it makes the verification of the seller’s ownership much more complicated for the buyer.
Source: Title deed of unregistered real estate propriety
How can the transfer of unregistered properties be improved? First of all, by making it a digitized process. If there is code that can be run by a computer to verify that all the history of ownership transfers is in compliance with the original contract rules, buying and selling becomes much faster and cheaper.
Secondly, to avoid the risk of the seller double-spending their asset, a system of proof of publication must be implemented. For example, we could implement a rule that every transfer of ownership must be committed on a predefined spot of a well-known newspaper (e.g. put the hash of the transfer of ownership in the upper-right corner of the first page of the New York Times). Since you cannot place the hash of a transfer in the same place twice, this prevents double-spending attempts. However, using a famous newspaper for this purpose has some disadvantages:
- You have to buy a lot of newspapers for the verification process. Not very practical.
- Each contract needs its own space in the newspaper. Not very scalable.
- The newspaper editor can easily censor or, even worse, simulate double-spending by putting a random hash in your slot, making any potential buyer of your asset think it has been sold before, and discouraging them from buying it. Not very trustless.
For these reasons, a better place to post proof of ownership transfers needs to be found. And what better option than the Bitcoin blockchain, an already established trusted public ledger with strong incentives to keep it censorship-resistant and decentralized?
If we use Bitcoin, we should not specify a fixed place in the block where the commitment to transfer ownership must occur (e.g. in the first transaction) because, just like with the editor of the New York Times, the miner could mess with it. A better approach is to place the commitment in a predefined Bitcoin transaction, more specifically in a transaction that originates from an unspent transaction output (UTXO) to which the ownership of the asset to be issued is linked. The link between an asset and a bitcoin UTXO can occur either in the contract that issues the asset or in a subsequent transfer of ownership, each time making the target UTXO the controller of the transferred asset. In this way, we have clearly defined where the obligation to transfer ownership should be (i.e in the Bitcoin transaction originating from a particular UTXO). Anyone running a Bitcoin node can independently verify the commitments and neither the miners nor any other entity are able to censor or interfere with the asset transfer in any way.
Since on the Bitcoin blockchain we only publish a commitment of an ownership transfer, not the content of the transfer itself, the seller needs a dedicated communication channel to provide the buyer with all the proofs that the ownership transfer is valid. This could be done in a number of ways, potentially even by printing out the proofs and shipping them with a carrier pigeon, which, while a bit impractical, would still do the job. But the best option to avoid the censorship and privacy violations is establish a direct peer-to-peer encrypted communication, which compared to the pigeons also has the advantage of being easy to integrate with a software to verify the proofs received from the counterparty.
This model just described for client-side validated contracts and ownership transfers is exactly what has been implemented with the RGB protocol. With RGB, it is possible to create a contract that defines rights, assigns them to one or more existing bitcoin UTXO and specifies how their ownership can be transferred. The contract can be created starting from a template, called a “schema,” in which the creator of the contract only adjusts the parameters and ownership rights, as is done with traditional legal contracts. Currently, there are two types of schemas in RGB: one for issuing fungible tokens (RGB20) and a second for issuing collectibles (RGB21), but in the future, more schemas can be developed by anyone in a permissionless fashion without requiring changes at the protocol level.
To use a more practical example, an issuer of fungible assets (e.g. company shares, stablecoins, etc.) can use the RGB20 schema template and create a contract defining how many tokens it will issue, the name of the asset and some additional metadata associated with it. It can then define which bitcoin UTXO has the right to transfer ownership of the created tokens and assign other rights to other UTXOs, such as the right to make a secondary issuance or to renominate the asset. Each client receiving tokens created by this contract will be able to verify the content of the Genesis contract and validate that any transfer of ownership in the history of the token received has complied with the rules set out therein.
So what can we do with RGB in practice today? First and foremost, it enables the issuance and the transfer of tokenized assets with better scalability and privacy compared to any existing alternative. On the privacy side, RGB benefits from the fact that all transfer-related data is kept client-side, so a blockchain observer cannot extract any information about the user’s financial activities (it is not even possible to distinguish a bitcoin transaction containing an RGB commitment from a regular one), moreover, the receiver shares with the sender only blinded UTXO (i. e. the hash of the concatenation between the UTXO in which she wish to receive the assets and a random number) instead of the UTXO itself, so it is not possible for the payer to monitor future activities of the receiver. To further increase the privacy of users, RGB also adopts the bulletproof cryptographic mechanism to hide the amounts in the history of asset transfers, so that even future owners of assets have an obfuscated view of the financial behavior of previous holders.
In terms of scalability, RGB offers some advantages as well. First of all, most of the data is kept off-chain, as the blockchain is only used as a commitment layer, reducing the fees that need to be paid and meaning that each client only validates the transfers it is interested in instead of all the activity of a global network. Since an RGB transfer still requires a Bitcoin transaction, the fee saving may seem minimal, but when you start introducing transaction batching they can quickly become massive. Indeed, it is possible to transfer all the tokens (or, more generally, “rights”) associated with a UTXO towards an arbitrary amount of recipients with a single commitment in a single bitcoin transaction. Let’s assume you are a service provider making payouts to several users at once. With RGB, you can commit in a single Bitcoin transaction thousands of transfers to thousands of users requesting different types of assets, making the marginal cost of each single payout absolutely negligible.
Another fee-saving mechanism for issuers of low value assets is that in RGB the issuance of an asset does not require paying fees. This happens because the creation of an issuance contract does not need to be committed on the blockchain. A contract simply defines to which already existing UTXO the newly issued assets will be allocated to. So if you are an artist interested in creating collectible tokens, you can issue as many as you want for free and then only pay the bitcoin transaction fee when a buyer shows up and requests the token to be assigned to their UTXO.
Furthermore, because RGB is built on top of bitcoin transactions, it is also compatible with the Lightning Network. While it is not yet implemented at the time of writing, it will be possible to create asset-specific Lightning channels and route payments through them, similar to how it works with normal Lightning transactions.
Conclusion
RGB is a groundbreaking innovation that opens up to new use cases using a completely new paradigm, but which tools are available to use it? If you want to experiment with the core of the technology itself, you should directly try out the RGB node. If you want to build applications on top of RGB without having to deep dive into the complexity of the protocol, you can use the rgb-lib library, which provides a simple interface for developers. If you just want to try to issue and transfer assets, you can play with Iris Wallet for Android, whose code is also open source on GitHub. If you just want to learn more about RGB you can check out this list of resources.
This is a guest post by Federico Tenga. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
