Crypto
The Gordian Knot of Fiat, And How Bitcoin Cuts Through It
This is an opinion editorial by Andrew Axelrod, a Bitcoin educator and writer whose LinkedIn posts have orange pilled thousands.
“We truly are a species with amnesia. We have forgotten a very important part of our story.” — Graham Hancock
“You have forgotten who you are and so have forgotten me. Look inside yourself Simba. You are more than what you have become. You must take your place in the Circle of life.” — Mufasa
Most of human experience is relegated to the dustbin of history and forgotten. And maybe rightfully so. After all, life is largely mundane, punctuated by inanities.
But those scarce few stories that survive, survive for good reason. They speak to us on a deeper level. They tap into a fundamental and enduring truth about the human condition. These aren’t stories from a far gone past, these are stories about the here and now. The names and faces may change, but the stories stay the same. We can’t help but play them out over and over again, generation by generation. They are as relevant to us now as ever.
By contrast, bitcoin may seem like the bleeding edge of technology and without historical parallel. But the truth is, bitcoin fits into a far richer and meaningful story about our very nature. Let us now delve into one such story and explore how bitcoin will come to play a key part in its latest rendition.
Alexander the Great, who forged a vast empire with the tip of his spear and whose exploits have become the stuff of legend, is without the shadow of a doubt one of those scarce few figures that have stood the test of time.
One of his legends stands out in particular. The ancient Greek myth tells of how Alexander the Great’s ambitious campaign in Western Asia brought him to the Phrygian capital city of Gordium, in modern-day Turkey.
As the story goes, Phrygia was a kingdom without a king. Its inhabitants believed that the rightful heir to the throne was yet to be ordained. The true king would reveal himself by solving an intractable problem — the Gordian knot.
This knot was a nightmarish tangle of wrist-thick cornel bark that was twisted around an ox cart’s yoke and impossible to unfasten.
The ox cart had belonged to the ancient king Gordias, who, himself a humble peasant, had been placed on the throne through providence a thousand years earlier.
A prophecy foretold that whoever could untie the knot would not only rule over Phrygia as the dead king’s successor, but would go on to conquer all of Asia.
This of course appealed to Alexander the Great who readily accepted the challenge.
But when he failed to untangle the knot, just as everyone before him had, he did something that shocked the Phrygians.
“Alexander Slashed The Gordian Knot Apart With His Sword” by Jesús Blasco (1919-95)
Now comes the interesting part of the story.
Alexander the Great had clearly violated the oracle’s prophecy by cutting through the knot instead of disentangling it and had in the process desecrated a holy relic on the steps of their temple. So how did the Phrygians react?
They crowned him as king on the spot.
How can this be?
Although the Gordian knot mythology is widely known, it is also deeply misunderstood.
Many historians and philosophers draw some of the following conclusions from it:
- That sometimes the best answer to a complex problem is the simplest one.
- That some problems are solvable only through bold action and with great ambition.
- That Alexander the Great had lawyered his way around the prophecy’s words. After all, exceptionally clever people see solutions where others do not. “Thinking outside the box,” we would call this.
All of these interpretations however miss the mark and fail to recognize a basic truth the story elegantly reveals. The essence of the legend is simply this:
Alexander the Great was perhaps the greatest conquering war lord of all time. He’s certainly right up there with the likes of Attila the Hun, Sun Tzu, Saladin, Julius Caesar and Hannibal Barca. He was undefeated in battle and had brought most of the civilized world to its knees. What’s more, he had at his back an army of fiercely loyal Macedonian soldiers who stood waiting at the gates of Gordium, ready to rape and pillage the city at a moment’s notice.
Who among the Phrygians would dare challenge Alexander the Great’s methods?
If he wanted to play fast and loose with the rules, who was to say otherwise.
And so, the Gordian knot is at its core the story of how might makes right.
It’s no coincidence Alexander the Great used his Sword to “solve” the problem.1
But the Gordian knot has an even deeper lesson to teach us. To understand its meaning, we must first appreciate the story’s message for what it truly is.
In the story, the knot was roped around an ox cart — a technology for transport and trade, and a symbol of civilization and order. As the prophecy foretold, the rightful king would unshackle the ox cart and become ruler over the known world. This would be done through the use of brute strength — by the sword.
As if to drive this point home, many historic paintings and artistic renderings have since depicted a chariot instead of an ox cart. The chariot of course being a striking symbol of war and triumph.
“Alexander the Great Cutting the Gordian Knot” (1767) by Jean-François Godefroy
The message is clear: When a situation becomes so gnarly and entangled as to become untenable, a proverbial Gordian knot, it demands a forceful actor to throw out the old ruleset and in so doing create a new order.
But what if there is no wise and powerful leader to grasp a sword in hand and do what is necessary?
After all, the Alexander the Greats of this world are few and far in between the long arcs of history. They are the exceptions, not the rule. Knowing this, Alexander the Great himself never chose an heir to his empire — what would be the point? When asked on his deathbed to whom his immeasurable wealth and expansive kingdom would fall, he simply responded: “To the strongest.”
What followed was fifty years of warfare … This is a number with significance that we will revisit. The point is though, that the Gordian knot is not always loosened with a clean cut, but is sometimes butchered and frayed.
To this end, the Romans, for example, had devised their own way of cutting a Gordian knot whenever it reared its ugly head. Working class citizens would abandon entire cities in defiance, called “Succession of the Plebeians,” leaving the rulers to squabble amongst themselves, and force a system change.
“The Secession of the People to the Mons Sacer” (1849) by B Barlocinni
This is nothing new. Such transitions occur with stunning regularity — about every fifty years, in fact. History tells us that social orders typically take about three generations to deteriorate into a Gordian knot and require an Alexander the Great to slice through them. As the saying goes: The first generation sows it, the second grows it, and the third blows it.
It’s a story as old as time.
This process of civilizational decay and rebirth is such an ingrained and human phenomenon that it’s even found its way into scripture.
The book of Leviticus prescribes a so-called Year of Jubilee as a remedy for these purges. The Year of Jubilee comes around once every fifty years and is a special time during which all debt is forgiven and all slates wiped clean — a great reset:
“You shall thus consecrate the fiftieth year and proclaim a release through the land to all its inhabitants. It shall be a jubilee for you (Leviticus 25:1–4, 8–10, NASB).”
Yes, the names and faces might change, but the story doesn’t. And we again find ourselves at such an inflection point.
The current financial world order has existed for just over fifty years, and now it’s coming apart at the seams (how’s that for coincidence). This most recent cycle kicked off with the abolishment of the gold standard on August 15, 1971. After abandoning the gold standard, the world has been running purely on paper money, credit and borrowed time. We have been living through a global fiat experiment ever since.
But this chapter is now quickly drawing to a close. After all, our current financial system is the Gordian knot of them all and we are undoubtedly on the cusp of a reset.
The 2008 financial crisis proffered just a tiny glimpse of what’s to come. When the house of cards began collapsing in April of that year, a horrifying realization began to finally dawn on our ruling class …
The tangle of debt, mortgage backed securities and other credit based derivatives, had mutated into a monstrosity that was constricting and suffocating everything. Even worse, the financial crisis revealed how trillions of dollars of debt based derivatives were causing contagion effects that no one really understood — the system’s chain of ownership was no longer comprehensible.
A case-study by EJ Schoen explains how:
“…no one knew who owed money to whom or how much was owed, causing banks to cease trusting and lending to other banks.”
And when trust in the system finally reached its terminal moment on September 29, 2008, the Dow fell seven percent, marking the largest single-day point drop in history. This was the plebeians’ attempt at severing the knot. Instead of the Roman citizenry fleeing their capital, these were investors trying to abandon ship by selling out of all positions.
But of course, the plebeians ultimately failed to stave off the inevitable collapse of Rome and were forced to helplessly watch as corrupt central planners debased the currency and bankrupted and ransacked a once-great empire. Over the course of a few painful decades, the capital city was practically emptied out, collapsing from a height of more than a million inhabitants to a paltry population of just a few thousand. The plebeians could not prevent the civilized world from plunging into centuries of darkness.
And just as the plebeians had failed, so too had we. Absent an Alexander the Great, the knot was not cut. In fact, quite the opposite. The knot was further tightened as bureaucrats poured billions of printed money into the void. The supposed remedy to the Global Financial Crisis was to layer additional debt on top of the system. Central banks have ever since continued to backstop the market by inflating the money supply and further debasing currency.
And now, the knot has become so twisted that even something as simple as equities, a supposedly straightforward expression of financial ownership, has become an unmanageable tangle of debt:
The DTCC, the world’s main trade matching service, attracts 99 percent of U.S. deal flow and is supposed to keep track of who owns what.
Only, they can’t.
As we now know, dozens of lawsuits have since revealed that the shares in circulation exceed the actual and authorized float for thousands of companies.
That’s how GME had a short interest of 149% (which is impossible) and how shareholders owned 33% more of Dole Foods than there were Dole Food shares.
The knot has become tangled beyond belief.
Back to the story of Alexander the Great:
The plot never changes — only the names and faces do. And so, the Gordian knot becomes undone, one way or another. Whether it be at the hands of a powerful leader who can restore order to the world, or under the strain of its own suffocating weight, plunging everything into chaos.
But here’s what has changed: For the first time, we need not wait for an Alexander the Great. Instead, we can wield the sword ourselves. Because of bitcoin’s unique property of self-custody, we can choose to cut the Gordian knot at any time by simply taking possession of our own money.
Gone are the endless and nebulous chains of credit-based ownership. The simple act of taking self-custody banishes all middle men, sets fire to the endlessly multiplying paper money and clarifies true ownership. The plebeians now finally have a tool to cut the knot. And while bitcoiners may call themselves “plebs,” it’s high time we also understood that bitcoin is the sword.
Endnotes
- An alternate and far lesser known version of the myth tells how Alexander the Great loosened the knot by pulling the linchpin out of the yoke. However, this version hasn’t stood the test of time and, instead, the expression “cutting the Gordian knot” has permeated our vocabulary.”
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.
